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.
"... "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.
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.
"... 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.
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.
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.
"... 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.
"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
"... 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.
"... 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
"... 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.
"... 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. ..."
"... This indicates that most Middle East producers still have high margins at the current oil price. [-- produced may be by states no] ..."
"... 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. ..."
"... 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. ..."
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. [-- produced may be by states no]
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 expensive 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?
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.
"... 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. ..."
"... 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. ..."
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.
Iran opened three oilfields with a total production of more than 220,000 barrels per day (bpd)
on Sunday, as the country ramps up its production after the lifting of sanctions.
President Hassan Rouhani officially launched the first phases of the Yadavaran and North Azadegan
fields as well as the North Yaran field, which are shared with neighboring Iraq, the Iranian oil
ministry's news agency SHANA reported.
Yadavaran will have a production of up to 115,000 bpd in its first phase and North Azadegan's
output is 75,000 bpd, SHANA said.
North Yaran will initially produce 30,000 bpd, the news agency reported last week.
"... In February, this year, our basin's posted price went to $19 and change a couple different days, producers in the Bakken received in the teens many more days, and there was a negative posted price for North Dakota sour. ..."
"... Seems like Russian, OPEC and US producers have gone mad, trying to grow production in this price environment. Questionable senior management IMO, across all of them. ..."
"... Russian producers have been investing in new projects for the past several years and it simply does not make sense to postpone project start-ups with 90-100% readiness. This also applies to other large or relatively large conventional projects with long investment cycles (US GoM, Kashagan, Brazil, some projects in Norway, etc.). ..."
"... Iraq is more or less in the same situation, as its new projects have been developed for years. ..."
"... Iran is increasing production after embargo on its oil supplies was lifted, and it is keen to regain market share. ..."
"... Libya and Nigeria have increased production in October as they restarted capacity that was previously shut-in due to internal instability. ..."
"... My comments were somewhat in sarcasm. I do not know enough about the timelines or costs of projects outside of onshore US to make an intelligent comment. I hope that by the end of 2017, projects outside of the US will begin to slow. I have little hope the Permian will slow until the New York bankers leave Midland, TX. ..."
In February, this year, our basin's posted price went to $19 and change a couple different
days, producers in the Bakken received in the teens many more days, and there was a negative posted
price for North Dakota sour.
I thought that was nonsense too. So did Russia, as I recall, who began to talk to OPEC about
some production cuts around that time.
I don't agree w the Hills Group.
However, prices have been very low in 2016. Our average price thru 10 months has been $37,
and here we are today at $38.50. I think that likewise is nonsense.
Seems like Russian, OPEC and US producers have gone mad, trying to grow production in this
price environment. Questionable senior management IMO, across all of them.
I did not mean some specific cases of regional oil prices (like the Bakken crude), but international
benchmarks, Brent and WTI.
As regards Russian, OPEC and US producers, these are different cases.
Russian producers have been investing in new projects for the past several years and it simply
does not make sense to postpone project start-ups with 90-100% readiness. This also applies to
other large or relatively large conventional projects with long investment cycles (US GoM, Kashagan,
Brazil, some projects in Norway, etc.).
Iraq is more or less in the same situation, as its new projects have been developed for years.
Iran is increasing production after embargo on its oil supplies was lifted, and it is keen
to regain market share.
Libya and Nigeria have increased production in October as they restarted capacity that was
previously shut-in due to internal instability.
The U.S. LTO is a completely different case, as these are projects with a very short investment
cycle. And indeed it doesn't make sense for heavily indebted shale companies to increase capex
in the current market situation.
My comments were somewhat in sarcasm. I do not know enough about the timelines or costs of projects outside of onshore US to make
an intelligent comment. I hope that by the end of 2017, projects outside of the US will begin to slow. I have little
hope the Permian will slow until the New York bankers leave Midland, TX.
"... But it gets more apparent with each report they are concerned with a sudden drop in supply in the medium term (I think supply will decline gradually through 2017 but then accelerate in 2Q2018 and fall off a cliff in 2019 given current project planning. ..."
"... It is now becoming too late to do much that will impact supplies then and with the likelihood of low prices through next year and few attractive recent discoveries (and getting worse each quarter in that respect) there are unlikely to be many more FIDs next year than this – I think only 12 so far and more gas than oil – therefore that supply drought will probably extend through 2020. ..."
"... Decline rates could increase on existing fields at the same time as in-fill drilling marginal gains start to decline and the impact of reduced maintenance and brownfield spending during these low price years start to impact. ..."
"... People may point to US LTO fields to be able to quickly fill any gap, but I'd point out it took about 5 years for Bakken to ramp up to 1 mmbpd ..."
It looks like this month (Nov.) will probably be a new global oil supply record barring major
disruptions anywhere. But it gets more apparent with each report they are concerned with a sudden
drop in supply in the medium term (I think supply will decline gradually through 2017 but then
accelerate in 2Q2018 and fall off a cliff in 2019 given current project planning.
It is now becoming
too late to do much that will impact supplies then and with the likelihood of low prices through
next year and few attractive recent discoveries (and getting worse each quarter in that respect)
there are unlikely to be many more FIDs next year than this – I think only 12 so far and more
gas than oil – therefore that supply drought will probably extend through 2020.
Decline rates
could increase on existing fields at the same time as in-fill drilling marginal gains start to
decline and the impact of reduced maintenance and brownfield spending during these low price years
start to impact.
People may point to US LTO fields to be able to quickly fill any gap, but I'd point out it
took about 5 years for Bakken to ramp up to 1 mmbpd, and that was when the sweet spots were available
and with an industry not already loaded down with debt. That rate is not much better than a new
conventional basin with similar reserves would have achieved (as long as it wasn't in Kazahkstan
of course).
"It is not the role of the IEA to urge any oil industry player to take one course of
action rather than another, and we are not doing so now. Over time, market forces will do their
job and the oil price will respond to the signals provided by demand and supply. What the IEA
has argued for consistently is the need for investments necessary to meet rising oil demand.
Such investments ensure that the market remains close to balance and that prices are as stable
and as fair for both producers and consumers as can ever be possible in such a dynamic industry."
Related to ExxonMobil – they are the only major company so far this year to have had a couple
of good successes with exploration, that is a reverse previous history when they were known having
much more success "drilling on Wall Street" to boost their reserves – part of the reason for the
Mobil acquisition who always did pretty with with wildcatting.
It would be interesting to know how their reserves (and other companies as well) are broken
down between developed and undeveloped for oil and gas, before Liza in Guyana and the Owowo (Nigeria)
discovery this year they were pretty short of oil projects of any kind, irrespective of price,
except in support of some OPEC countries on buyback contracts, and I don't know how that oil is
counted against their reserves if at all.
Other majors might be in worse shape than them once
the current bubble of projects works through.
"... The approved projects coming on line are about 500 kbpd in 2019, 700 in 2020 and 200 in 2021. There will also be about 1 mmbpd still ramping up, but I think the supply will be slightly in deficit and any stock overhang will have largely gone by the end of 2018 (assuming demand stays as predicted). In terms of decline existing fields it is minimum 3.3% (based on Core labs) up to 5.5% by Rystad – but I think the cuts in maintenance and brownfield work, exhaustion of marginal in-fill drilling benefits and extended use of horizontal drilling over the last 15 years will mean this is likely to accelerate. ..."
"... I, like many, quote start-up date for end of project development but often it takes 12 to 18 months to ramp up to plateau, so all that lack of new supply in 2019 to 2021 can impact through to 2023. ..."
Price depends on supply and demand – I don't know what is going to happen in demand: it seems
to be predictable until suddenly it isn't. Recessions can have reasonably large impacts to demand
and these have proportionally larger impacts on price.
The approved projects coming on line are about 500 kbpd in 2019, 700 in 2020 and 200 in 2021.
There will also be about 1 mmbpd still ramping up, but I think the supply will be slightly in
deficit and any stock overhang will have largely gone by the end of 2018 (assuming demand stays
as predicted). In terms of decline existing fields it is minimum 3.3% (based on Core labs) up
to 5.5% by Rystad – but I think the cuts in maintenance and brownfield work, exhaustion of marginal
in-fill drilling benefits and extended use of horizontal drilling over the last 15 years will
mean this is likely to accelerate.
Note there will of course be other projects added, but another low price year in 2017 with
additional cuts (e.g. see CoP, Statoil, PetroBras, Pemex news over the last weeks) and there just
won't be enough time to get much online before 2021, especially as the service industries and
development groups in the E&Ps are still getting thinned out (see Weatherford, Heerema, Hess news
recently).
I, like many, quote start-up date for end of project development but often it takes
12 to 18 months to ramp up to plateau, so all that lack of new supply in 2019 to 2021 can impact
through to 2023.
"... It would appear that perhaps a lot of infill drilling is taking place in Saudi Arabia, Kuwait and UAE in order to achieve these recent oil production values. It'll be interesting to see how this infill drilling might one day impact the decline side of the curve. ..."
"... According to Bedford Hill and the oil engineers at the Hills Group, Saudi oil production will experience at SENECA CLIFF like decline. I agree. ..."
"... I'm no expert but from what I understand infill drilling causes what might have been a roughly Hubbert shaped production curve to flatten out at the top for a while and then in the future experience a steeper decline curve; basically representing future production on the Hubbert curve being brought forward to maintain a plateau at the peak. This does seem to move the curve profile from Hubbert to Seneca, so to speak. ..."
"... This image from Matt certainly represents a plateau at approx 72 million barrels a day taking place in all jurisdictions outside of Canada and USA. ..."
"... I'm very interested in the timing and the steepness of this impending decline. Figure 10 mentioned above shows the rig count in Kuwait, Saudi and UAE really taking of 'bigly' in 2010-2011 'ish. ..."
It would appear that perhaps a lot of infill drilling is taking place in Saudi Arabia,
Kuwait and UAE in order to achieve these recent oil production values. It'll be interesting to
see how this infill drilling might one day impact the decline side of the curve.
I'm no expert but from what I understand infill drilling causes what might have been a roughly
Hubbert shaped production curve to flatten out at the top for a while and then in the future experience
a steeper decline curve; basically representing future production on the Hubbert curve being brought
forward to maintain a plateau at the peak. This does seem to move the curve profile from Hubbert
to Seneca, so to speak.
This image from Matt certainly represents a plateau at approx 72 million barrels a day
taking place in all jurisdictions outside of Canada and USA.
I'm very interested in the timing and the steepness of this impending decline. Figure 10
mentioned above shows the rig count in Kuwait, Saudi and UAE really taking of 'bigly' in 2010-2011
'ish.
The group's 2016 World Oil Outlook released today estimates that crude demand will rise by a
further 16.4m barrels per day (b/d) to over 109m b/d by 2040, driven by economic booms in China,
India, and the emerging economies.
"... It would appear that perhaps a lot of infill drilling is taking place in Saudi Arabia, Kuwait and UAE in order to achieve these recent oil production values. It'll be interesting to see how this infill drilling might one day impact the decline side of the curve. ..."
It would appear that perhaps a lot of infill drilling is taking place
in Saudi Arabia, Kuwait and UAE in order to achieve these recent oil production
values. It'll be interesting to see how this infill drilling might one day
impact the decline side of the curve.
I'm no expert but from what I understand infill drilling causes what
might have been a roughly Hubbert shaped production curve to flatten
out at the top for a while and then in the future experience a steeper
decline curve; basically representing future production on the Hubbert
curve being brought forward to maintain a plateau at the peak. This
does seem to move the curve profile from Hubbert to Seneca, so to speak.
This image from Matt certainly represents a plateau at approx 72 million
barrels a day taking place in all jurisdictions outside of Canada and
USA.
I'm very interested in the timing and the steepness of this impending
decline. Figure 10 mentioned above shows the rig count in Kuwait, Saudi
and UAE really taking of 'bigly' in 2010-2011 'ish.
I am working (on and off) on something on world crude oil supplies that may end up as a post
on Fractionalflow.
I agree with Rystad Energy (ref Caelan's post further up. Disclosure, I have never had anything
to do with Rystad) that global oil extraction will decline towards the end of this decade.
I look at this through the lenses of discoveries (and their sizes) not FID, expected changes
to the oil companies' balance sheets at end 2016 (financial leverage will by default come up,
assets/equity come down due to lower oil price and lower reserves [of which some will be rebooked
at a higher price]), CAPEX constraints, their Reserves Replacement Ratios (RRR), likely near term
(oil) price and cost developments to name the most important ones.
The chart below [note scaling on the right axis] is now my conceptual understanding of global
crude oil supplies towards the end of 2018. We are soon entering November 2016 which makes me
now expect the period with decline to last longer.
I expect capacity of about 5 Mb/d of global crude oil capacities to vanish by end 2018. That
will have some implications. It took years with a high oil price ($100/b) to grow supplies with
5 Mb/d.
During the next upturn in the price things will be different, most of the "easy" oil was developed
during the last high price cycle.
I do not expect the decline to accurately follow my suggested span. Depletion induced declines
never sleeps and some portion of world crude oil supplies is now from sources (like LTO, "small"
offshore discoveries) that depletes fast and other legacy sources are also in general decline.
The decline is already baked into the cake. It does not matter if oil prices moved above $80/bo
as of next week. This would stimulate more drilling for tight oil, but for other developments,
it would take anywhere between 2-4 years from these are FIDed (Final Investment Decision) until
they flow.
The oil companies drew down their portfolios of discoveries being profitable at $80/bo during
the high oil price period that ended during the summer of 2014, and still there are some developments
in the pipeline that will start up during the next few years, but this portfolio is shrinking
fast. The tight oil companies have drilled most of their sweet spots and are now cash flow constrained
wrt drilling.
"... By 2020, barrel prices will rise to an inflation-adjusted $68, which is $12 less than the agency's previous prediction. The government's 2040 projection fell by $17 from its January figure of $90. ..."
The Canadian National Energy Board
lowered its expectations for the oil price recovery on Wednesday due to the falling costs of
energy production and challenging environmental regulations.
By 2020, barrel prices will rise to an inflation-adjusted $68, which is $12 less than the agency's
previous prediction. The government's 2040 projection fell by $17 from its January figure of $90.
"A lot of it is the ability of oil production to be sustained at lower prices," Shelley
Milutinovic, chief economist of the energy board told The Star. "There's an expectation that somewhere
between 40 and 60 dollars a barrel, you can get a lot of oil production around the world."
Renewables are slated to increase their share of the Canadian energy market to 12 percent by 2040,
instead of the eight percent forecasted in the January edition of the report.
"Things are changing very, very quickly, particularly with respect to climate policy,"
Milutinovic said. "It's a very fast-moving target."
"... China and Mexico are in rapid decline at the moment but are supposed to have respectively, contingent 10 and 8 Gb and undiscovered 17 and 56 (!) – that has to be assuming a big shale resource for Mexico I'd guess. ..."
"... China has more rigs relative to its production than anywhere and this year is probably going to drill the most wells of any country. And yet they haven't found a new oil field for many years (quite a bit of gas though) and have only bought on a couple of small offshore fields recently. ..."
"... Norway and UK combined have developed a lot of their older contingent fields over the last few years, at very high cost and in some cases are now losing money on the investment. ..."
"... The biggest two confirmed finds are gas offshore Angola and Senegal (400+ and 800+ mmboe respectively), both probably need to be developed through LNG so might be years away given the current glut and normal schedules for such projects). ..."
"... In the North Sea reserves have been downgraded, not only because of price but also as some of the smaller finds no longer have options for tie backs because the possible hubs are coming to the end of their lives an new finds are in the 20 to 50 mmbbls range and heavy (also a number of dry wells there). I'd say it will likely be significantly worse than last year (which was the worst for 70 years) for both oil and gas discoveries. ..."
"... By coincidence, this morning: "BP dumps plans to drill for oil in the Great Australian Bight" ..."
"... I would imagine the reserve numbers by Rystad Energy are likely to be more FICTION than REALITY. I spent a few hours talking to Bedford Hill of the Hills Group on their "Thermodynamic Oil Collapse" model, and the more I find out about it, the more I am convinced the reserve numbers shown in the table above are completely out of touch with reality. ..."
"... According to the Hills Group Thermodynamic Oil Limit model, they took the total amount of energy in a barrel of oil and subtracted the waste heat. They then programmed into the software all the inputs from the oil industry. Bedford stated that according to the second law of Thermodynamics the amount of energy consumed in the production of oil continues to increase. Their model predicted the oil price collapse and forecasts that within a decade (+/- 4%) there will be no more net energy from a barrel of oil by the oil industry. ..."
"... There is this notion that SUPPLY & DEMAND or CREDIT & DEBT have distorted this thermodynamic oil limit. While these factors have changed the oil production graph, the Hills Group model suggests this has not changed the date. What has changed is that we have pulled future oil production forward which will make the Seneca Cliff much steeper. ..."
"... EROI is falling for new sources of oil but I don't know that it would count as "rapid" yet and it doesn't change much for already developed fields as they age – in fact if energy for the development stage is taken out then the EROI increases during operations. ..."
The numbers are even harder to understand looking at some of the other individual countries.
China and Mexico are in rapid decline at the moment but are supposed to have respectively,
contingent 10 and 8 Gb and undiscovered 17 and 56 (!) – that has to be assuming a big shale
resource for Mexico I'd guess.
China has more rigs relative to its production than anywhere
and this year is probably going to drill the most wells of any country. And yet they haven't
found a new oil field for many years (quite a bit of gas though) and have only bought on a
couple of small offshore fields recently. Mexico has decided they need help from outside IOCs
to find and develop all that resource.
Norway and UK combined have developed a lot of their older contingent fields over the last
few years, at very high cost and in some cases are now losing money on the investment.
Exploration
success is now very low, reserve are being downgraded and yet they are supposed to have 7 +
4 Gb contingent and 13 + 6 Gb undiscovered. The 13 Gb for Norway includes frontier territory
in the Barents Sea, but I think it's turning out that there is more gas there (TBC).
It will be interesting to see the final discovery number for this year from IHS, Richmond Energy
Partners, Rystad and Wood Mackenzie. I doubt if they will include the recent Alaska discovery
given that the test well wasn't flowed – the announcement looks to be more of a ploy to get
some tax break and/or outside money into the private company. The other supposed monster find
by Apache in Permian shale is 3 Gb equivalent oil in place, I'd expect it to be at the lower
end for shale recovery, say 3 to 5%, so that could be only around 75 to 125 mmbbbls oil.
In GoM Fort Sumter was 125 mmbbls (equivalent) but it cn only be developed through Appomatox
so might be many years away before there is processing capacity for it. Anadarko announced
Caisco, but with no numbers which is usually a bad sign. On the other hand Hopkins looks to
have been downgraded maybe 50%, so it is only a tie back option. Kaskida has gone quiet (HTHP
and high sand), Shenandoah/Coronado (very HTHP probably needing 20 ksi wellheads) looks like
it might be relatively smaller as a development than expected (or a series of smaller projects)
, Freeport MacMoran projects (such as Horn Mountain Deep) are all on hold while it tries to
sell up. Next year there is only Thunder Horse extension (27,000 bpd) and the year after Stampede
(75,000) and Big Foot (80,000) ramping up in late 2018 through 2019.
A couple of highly anticipated and expensive frontier wildcats have been dry (Total offshore
Uruguay and Shell offshore Nova Scotia – still drilling a second well there though). The Bight
Basin in Australia is delayed because of environmental concerns.
The biggest two confirmed finds are gas offshore Angola and Senegal (400+ and 800+ mmboe
respectively), both probably need to be developed through LNG so might be years away given
the current glut and normal schedules for such projects).
In the North Sea reserves have been downgraded, not only because of price but also as some
of the smaller finds no longer have options for tie backs because the possible hubs are coming
to the end of their lives an new finds are in the 20 to 50 mmbbls range and heavy (also a number
of dry wells there). I'd say it will likely be significantly worse than last year (which was
the worst for 70 years) for both oil and gas discoveries.
At some point soon there's surely going to be realisation, maybe starting with the investors,
that oil and gas industry BAU as it's been for the past 40 odd years is over and isn't going
to come back the same no matter what the oil price does. I don't know what comes in it's place
though.
Hi Matt, thanks for the interesting posts. I sent a comment to Art Berman to both his websites
(artberman.com and forbes.com) about the post dealing with the unaccounted oil storage and
I report it below (the comment is not yet visible there):
"Hi Art,
I agree with most of your article, but I would like to point out your attention to a possible
explanation which can account for part of the unaccounted oil storage.
In the last 4 years, I have developed a methodology to re-construct the "real" Texas oil
and gas production data using the data published by the Texas RRC: as it is well known, these
data are only preliminary and it may take up to 2 years to have the final estimates. My method
has proved to be reliable over time, providing estimates of Texas oil production very close
to the final data and much earlier than the latter are published. Moreover, these estimates
proved to be closer to the real data than the official EIA data for Texas: for example, on
the 31/08/2016, with more than a 1-year delay, the EIA revised its Texas data for 2014 and
2015 and aligned it to my corrected Texas RRC data.
Having said that, if we compare my corrected Texas RRC data with the EIA data, it is visible
that the EIA has started to increasingly underestimate Texas crudeoil production data since
July 2015, and the cumulative sum of this discrepancy is approximately 46 million barrels.
Of course, this does not explain all unaccounted oil storage, and I agree with you that
the real inventories are probably much lower than what is reported. However, one (minor) reason
is the underestimated EIA production data for Texas. Thanks"
I would imagine the reserve numbers by Rystad Energy are likely to be more FICTION than REALITY.
I spent a few hours talking to Bedford Hill of the Hills Group on their "Thermodynamic Oil
Collapse" model, and the more I find out about it, the more I am convinced the reserve numbers
shown in the table above are completely out of touch with reality.
The reason the Hills Group decided to design the software model to forecast the Thermodynamic
oil Limit was due to one of the members losing money when a shale oil company overstated reserves
by a wide margin. Thus, these engineers were tired of the crapola put out by either the EIA
or the companies themselves.
It took several years and about 10,000 hours to create this ETP Oil price model as well
as the Thermodynamic Oil Limit model. After they hit "ENTER", it took several hours before
the results came out. From what Bedford told me, the results were so shocking, that they decided
to sit on them for a few years before publishing.
From what I understand, a small team of oil engineers helped design the program. I asked
Bedford how many of the engineers DID NOT AGREE with the results. He replied by saying, "Not
one disagreed."
Furthermore, The Hills Group sent their report to dozens of professors in leading colleges
(mostly professors teaching Thermodynamics), and none of them disagreed with the results, even
though some had questions on the data or inputs used.
There is this notion that SUPPLY & DEMAND will continue to be the leading driver in controlling
the price of oil in the future. However, the rapidly falling EROI is destroying the remaining
net energy, thus leaving very little supply. Thus, Thermodynamics has been and will be the
leading economic driver of human economies, not supply and demand.
According to the Hills Group Thermodynamic Oil Limit model, they took the total amount of
energy in a barrel of oil and subtracted the waste heat. They then programmed into the software
all the inputs from the oil industry. Bedford stated that according to the second law of Thermodynamics the amount of energy consumed
in the production of oil continues to increase. Their model predicted the oil price collapse and forecasts that within a decade (+/- 4%)
there will be no more net energy from a barrel of oil by the oil industry.
There is this notion that SUPPLY & DEMAND or CREDIT & DEBT have distorted this thermodynamic
oil limit. While these factors have changed the oil production graph, the Hills Group model
suggests this has not changed the date. What has changed is that we have pulled future oil
production forward which will make the Seneca Cliff much steeper.
With Chevron, ConocoPhillips and ExxonMobil losing $18 billion in the first six months of
2016 after CAPEX and Dividends were paid reveals just how bad the situation has become in the
Major Oil Companies.
Furthermore, the U.S. Energy Sector interest on the debt consumed 86% of their operating
income in the first quarter of 2016. The situation is much worse than the market has realized.
Anyhow, I will be interviewing Bedford Hill and Louis Arnoux in a few weeks on their ETP
Oil Price Model and Thermodynamic Oil Collapse.
"According to the Hills Group Thermodynamic Oil Limit model, they took the total amount
of energy in a barrel of oil and subtracted the waste heat. They then programmed into the software
all the inputs from the oil industry."
And the explanation in English is? Burning oil will ultimately lead to some thermodynamic
losses.
Hint oil is about 30-33% the worlds total energy consumption.
"Their model predicted the oil price collapse and forecasts that within a decade (+/-
4%) there will be no more net energy from a barrel of oil by the oil industry."
Was the oil price collapse due to thermodynamic reasons?
If that is so [no net energy from a barrel of oil within a decade (2026)], then there should
already be several real world examples to support this with.
What portion of present global oil production (C+C) is consumed by the oil industry? Surely
the Hills Group must have the estimates for that as they have projected the development for
the next decade.
"With Chevron, ConocoPhillips and ExxonMobil losing $18 billion in the first six months
of 2016 after CAPEX and Dividends were paid reveals just how bad the situation has become in
the Major Oil Companies. "
Are you confusing losses/profits with cash flows? Using figures for only Q1 16 does not justify a trend and certainly not justify a conclusion
or projection.
Yes, I was referring to the companies Free Cash Flow minus Dividends. While one quarter
does not justify a trend, the Hills Group forecasts the price of oil to fall to $12 by 2020.
This is due to what a net barrel would be worth to the Global Industrialized World.
Rune, they have calculated the waste energy of a barrel of oil to be one-third. So, what
remains is net energy. However, the energy cost to produce this energy has continued to increase
since the world started producing oil.
The waste energy of a barrel of oil is missed by most economists or analysts when forecasting
price.
Rune, you are more than welcome to check out the Hills Group work at the site here:
http://thehillsgroup.org/
I am getting 40.7% for oil (in 2012?) and electricity is a secondary energy source, so I am
wondering if the 40.7% includes some oil for that.
Even so, how does that reflect the utility of oil, compared with the rest on that list? How
well can the projection of political/military power and control be run on them?
In any case, money/price, as a symbol, is a detachment from reality, along with too many
human detachments from reality to list, so whatever the price of oil is, once thermodynamic
reality and reality in general really start to kick in, the price of it, among a litany of
other human detachments, won't matter anymore. I guess that's when things will be considered
increasingly in the process of collapse or decline.
Steve, I am unsure about gold or silver by the way, since they are still mere symbols for
reality (that rely on some sort of 'trust' of some system that may be dubious). Maybe they
are more 'pegged' to it, but still symbols nonetheless, and so woefully-limited in their peg,
their 'visceral tangibility'.
Also, as gold and silver are hoardable, would those who have and hoard more of it, such
as governpimps and the elite, etc., be able to control it more, such as at the expense of those
who have less of it?
Electricity is NOT an energy source – it is an energy carrier like hydrogen.
BP SR 2016 has oil at about 33% of global energy consumption in 2015 which does not include
biofuels and biomass.
Electricity is considered a SECONDARY ENERGY SOURCE derived from whatever (nuclear power, wind,
etc.). Of course, strictly speaking, electricity is just an accumulation OR motion of electrons.
Therefore, a battery or a capacitor (accumulation of electrons) is a potential energy carrier.
I should have specified primary energy sources.
Lumping together primary and secondary sources confuses the issue.
Where in nature is there free electricity (apart from lightening)?
Follow the flow and all energy is solar.
:-)
To some degree costs acts as a proxy for EROI. The general trend is for costlier oil.
Low priced oil => Higher (composite) EROI (Unprofitable oil is shut down)
High priced oil => Lower (composite) EROI
This article by Ron is about stocks and flows.
Thermodynamics is about flows.
– If net energy from oil move towards zero during the next decade, this implies that
the oil companies would morph into giant heat engines and become bankrupt long before this
(net energy becomes zero) happens. Are there now any signs of this happening?
– If EROI declines at the rate referred and estimated by the Hills Group, net oil
(energy) would enter a steep decline and prices would move significantly and steadily up to
reflect this.
It could be useful to present estimates at what EROI (based on flow) a well or field becomes
shut in and later P&A ed.
'Cost', to me at least, is real and is different from 'price', which is symbolic, and 'Energy
Returned on Energy Invested' is different than 'Energy Return On Investment', but I suppose
it is treated the same to some.
Right now, from what has been read and understood at least, the 'money/finance/banking/BAU-cum-government-as-usual'
clusterfuck of 'establishments' are looking very strange/bizarre/weird/crazy/etc. to the clusterfuck
of many 'analysts/experts/pundits/etc.'. This seems indicative of an overlying symbolic/sociopolitical/socioeconomic
(denialistic/extend-and-pretend) 'formative' response to an underlying thermodynamic issue/problem
and maybe other problems as well, some as feedbacks/perturbations in/from the system.
Along with the ostensibly-increasing and increasingly perverted financial smoke-and-mirrors,
I wonder, in part, what the statistics are on company bankruptcies, takeovers and cannibalizations
these days, as well as investments in so-called alternative energies.
Where's this stuff going?
Steve apparently says 'gold and silver', yes?, but I don't buy it (pun intended too) from
a fundamental-problem-solving standpoint and neither should he.
Gold and silver seem just part of the same or similar scams, but just operate a little differently.
Steve, if you're reading this, I noticed, under one of your articles on Zero Hedge, you
arguing with some of the 'commentgentsia'…
Well, of coure, they know 'nothing', I know 'nothing', you know 'nothing' and Rune knows
'nothing'. Of course we know things, but we are all 'insignificant' cogs in this machined clusterfuck
with limited autonomy and spending too much of our industrially-derived/putrified food energy
and internet energy arguing about known unknowns and unknown knowns and what we and 'the others'
know, don't know, think they know and want everyone to know, even if it's not true– whatever
that means.
Alas, 'Leviathan', as Oldfarmermac has put it, will do what it has to to survive, come hell
or high water or the puny little humans that it squishes along the way– maybe in its death
throes. Why, there appear to be purveyors of Leviathan, or aspects thereof, right here on this
very blog.
I just wish that I was not on the same ship, as I really dislike being dragged along for the
ride.
This comment was brought to you this week by the word, clusterfuck .
"Where's this stuff going?"
That is something I observe a growing number of people wants to inform them about.
As we come to learn something we discover it is just a small piece of the BIG puzzle. We all
have blind spots and are delusional.
Sometime ago I watched some (BBC) documentaries about Keynes, Hayek and Marx and a very
interesting interview with Bank of England's former director Sir Mervyn King (this appears
to be a man of integrity and good moral compass).
There is one common message from all these;
"It is not possible to accurately predict human behavior."
Therein lies a very important bit of information.
I hear you, Rune.
(That BBC piece might be on You Tube.)
Alas, it is of course impossible to predict anything with 100% certainty. If we could, then
there would no consciousness, maybe no universe. And what fun would that be? 'u^
" … within a decade (+/- 4%) there will be no more net energy from a barrel of oil by the oil
industry."
EROI is falling for new sources of oil but I don't know that it would count as "rapid" yet
and it doesn't change much for already developed fields as they age – in fact if energy for
the development stage is taken out then the EROI increases during operations.
If no more wells were drilled starting today then world oil production would fall at around
5%. So in a decade there would be 60% of current supply. The EROI on that wouldn't have changed
much from today – there'd be proportionally a bit more water and gas to handle, but equally
it could all go to the most efficient refineries. Therefore for the overall net energy to be
zero would imply all new stuff bought on line is hugely negative. No such project would be
even considered at conceptual stage and it would stand out a mile. The closest anything gets
to that is Tar Sands where there is arbitrage from energy in natural gas converted to energy
in synthetic oil, but while energy in gas is cheap this still makes sense (or made sense rather
– as soon as the economics became bad, partly as a result of the net energy issues, the projects
were stopped). So if new projects are so bad don't do them – the world might be in a mess at
that point but the remaining oil would be a much sort after entity.
Also the shale reserve that initiated the study wasn't overstated because it's net energy
was incorrectly estimated, it was because someone in the E&P company lied, or rather let's
say 'dissimulated'.
The reason much of the damage of the rapidly falling EROI is not made its way into global
oil industry and the world financial-economic system is due to the massive amount of debt.
The Hills Group model calculates that the second law of Thermodynamics says that the amount
of energy to produce oil has continued to increase since we started producing the liquid over
150 years ago.
They have developed this model showing the average increase in energy cost in terms of a
barrel of oil. They remove the waste heat which is approximately one-third of the barrel. They
model shows that within a decade, the Thermodynamic limit for oil will be reached, thus no
net energy will be available.
Again, the massive amount of debt has distorted the global oil production curve, not the
ultimate date of the thermodynamic collapse. So, we experience a much higher on violent SENECA
CLIFF due to the massive amount of debt that has brought forward production.
Some are waking up to the Magnitude of the Challenge:
"At the same time, the engineer in me cannot be blinded by the physics of logistics underlying
the quintessential challenge posed by oil: how to replace the 560 exajoules of energy that is
required every year to keep the world turning.
That's 5.6 followed by 20 zeroes, whose magnitude was explored in my previous post hocus pocus.
80% of the world's energy requirements are supplied by hydrocarbon combustion."
IMFDirect - "futures markets point to slight gains in oil
prices. But a glance at shifts in futures-price curves in the
past few months suggests that the prospects for higher prices
have been worsening (see Chart 3)."
Ten years ago, oil
prices were $60 a barrel. These charts are pointing at $60 a
barrel. Which would translate into $2.50 per gallon for
gasoline. Of course that assumes the current level of
gasoline taxes.
A carbon tax is sounding more and more like a good idea.
Greg Mankiw insist this should be "revenue neutral". Some of
his would spend some of the extra revenue on public
investments in green technology and infrastructure
investment.
Reply
Friday, October 28, 2016 at 01:44 AM
likbez -> pgl...
, -1
IMF is always predicting lower oil prices :-). That the
nature of the beast.
I am not a specialist, but I do see the picture
differently.
Outside the Middle East, there is not much oil left in the
world that can be extracted profitably for $60 a barrel. IMHO
spikes to $100 are now quite possible. Sustained oil price
over $100 per barrel means recession and reversal of
neoliberal globalization with its crazy and often useless
transport flows from one continent to another (salmon caught
in Europe processed in China, apples flown to NJ, etc).
The current period of low prices masks rapid depletion of
major oil reserves in non OPEC countries and decimation of
shale oil industry in the USA.
Capital investment is now slashed to the bone. And that
might have an outsize effect on oil production in non-OPEC
countries in 2018 - 2020 (such predictions always skip the
next year in a hope that people will forget about them, if
they do not materialize :-)
That means that while the crisis of supply is not
immediate it is looming on the horizon. And might well be
within less then a decade to reach.
Obama administration policy in this area was classic
"after me, the deluge". Low oil prices partially reversed the
replacement process for private transportation and made SUVs
the most popular class of personal cars in the USA. In other
words they reversed the trend to more economical cars in the
USA. So the USA might enter the crisis in worse shape then it
would be, if the energy saving policies were the focus of the
current administration. Obama focused on wars of neoliberal
expansion.
The USA pretty shrewdly used Saudis and Iran as two Trojan
horses able to keep prices low since late 2014. Saudi Arabia
is now issuing bonds left and right as they can't balance the
budget at prices below $100 or so. Iran in general behaves
pretty crazy in this respect as if it has unlimited reserves
and does not need to save them for future generations. They
are fighting for return of their pre-sanctions market share
in $40-$50 environment, as if this is the life and death
question for them. But if they managed to survive sanctions
for so long, why the rush ?
In any case my point is simple: if something can't run
forever it will eventually stop. That include both Saudis and
Iran. They have large reserves, but they are not unlimited
and the most profitable fields with high quality oil already
substantially depleted. Low quality high sulfur oil still is
more plentiful.
The problem is that high oil prices mean trouble for
Western economies. That's why Western MSM reacted so paranoid
on OPEC+Russia decision to freeze production starting Nov. 1.
Also it is not clear how the US oil stocks were/are kept
on such a high level (depressing oil prices): manipulation of
stats by EIA, hidden sale from the strategic reserve,
unaccounted by state oil production (black market oil ;-)
Art Bergman has an interesting article on the subject
David Petraeus is clearly incompetent in this subject matter
Notable quotes:
"... This idiot is short oil.. Trying to save his investment... Go lay down warmonger... ..."
"... Petraeus escalates the war with Russia by announcing the Saudi's will not stop flooding the market. EVERY American should note that it is OUR government who attacks US Domestic energy, not Saudi's as has been claimed. It's not an attack on shale oil, it's an attack on Russia where American energy is a victim. ..."
"... Well, my 35 plus years in the industry, including 15 years in crude and natural gas trading, tell me that OPEC will say they will cut then cheat like crazy. Don't look for much in the way of real cuts. ..."
"... Huh? Petraeus is one of the worlds most astute analysts? I thought he was a General? ..."
"... Russia isn't a member of OPEC Rick - and another tip, you might mention that the OPEC countries are mostly welfare states, and can't keep prices this low forever. ..."
"... Obama out-maneuvered OPEC every step of the way. Pump prices don't lie. Thank you, Obama! ..."
"... He must be short on oil stocks. The common man is stuck in the middle having to pay more at the pumps no matter what all these greedy leeches say. ..."
This idiot is short oil.. Trying to save his investment... Go lay down warmonger...
Zero
Get ready for high prices at the pump AGAIN! Same thing every four years... prices shoot up after
a presidential election and stay there for two to three years. Like magic, or better yet clockwork,
the prices drop just before the primaries begin. It is OPEC'S way of manipulating US elections.
And when the public begins to grumble at $4 to $5/per gal of gas, the oil companies send out the
talking-heads to convince you the world is running out of oil and the prices are warranted.
Think about $5/gal gas... 10-12 gals to fill your car... $50 to $60 per fill-up, two, three,
four times a month. That cuts into peoples overall living expense and devastates house hold budgets.
Also the vendors at the stores increase prices and inflation soars! People are pushed into foreclosure
and even bankruptcies. And those promises from car companies for cars that run on electricity
and alternative fuels wax and wane with the price of gas... never amounting to any real accomplishment.
We are being lead around by the oil countries like pigs with someone's finger in your nose.
whosunw 6 minutes ago
everyone breaks the rules and pump more than their production allocation anyway. In a month, it
will be evident that this time is no different. If I were the Chinese, I'll slow down the filling
of their Strategic Oil Reserve for the next couple of months. Coupled with shallers coming back
some, oil should again move back to below $45.
whynotwrite 1 hour ago
Cutting production by 2% leads to a 4% increase in cost. They can pump less oil and make more
money. I'll bet if they cut production by 5% the price will go up 10%.
Ron 30 minutes ago
Petraeus escalates the war with Russia by announcing the Saudi's will not stop flooding the market.
EVERY American should note that it is OUR government who attacks US Domestic energy, not Saudi's
as has been claimed. It's not an attack on shale oil, it's an attack on Russia where American
energy is a victim.
BWINKLEJMOOSE 32 minutes ago
Well, my 35 plus years in the industry, including 15 years in crude and natural gas trading, tell
me that OPEC will say they will cut then cheat like crazy. Don't look for much in the way of real
cuts.
Joe 40 minutes ago
One of the world's most astute analysts of the Middle East doubts OPEC nations will cut oil production
as they pledged to do on Sept. 28.
Huh? Petraeus is one of the worlds most astute analysts? I thought he was a General?
Jabberwocky 47 minutes ago
--The Clintons and the Bushes are much closer than they let on. Why? Because they are all highly
paid operatives for the Sunni Muslim Leaders in the Middle East Oil Countries.
--Don't believe it? Our government knew all along that Sunnis are all radical Islamists. Our
national leaders are never without factual information, especially when it is that obvious. It's
public record, Hillary received 100 million dollars from those Sunni Leaders. She called for more
"Arab Spring" while constantly labeling the Sunni Killer Mobs as "democracy loving protestors".
And how many millions in his secret Swiss bank account, would it take for Bush, our standing president
at that time, holding hands and to kiss the Saudi leader? How can that happen with a US President?
There are pictures. Search---GW kisses Saudi image
--Now....think about how much this bunch of US presidents have done for rich Sunni Muslim Middle
East Leaders over these many years. All those secular dictators across the Middle East were enemies
of these rich Sunni Muslim Leaders. Now ALL those secular dictators have been challenged and many
were killed by millions of Sunni Muslim thugs during "Arab Spring". Trying to establish Sharia
Law like that which is law in their rich benefactor, the Holy Saudi Arabian Kingdom. Also in Qatar,
Kuwait, Oman, Bahrain, and The United Arab Emirates (Dubai). All are in the same oil-rich vicinity
and neighbors to one another. EACH AND EVERY ONE of these Sunni Nations, I have listed, have donated
many millions to the Clinton Foundation.
Funding Pro 1 hour ago
Russia isn't a member of OPEC Rick - and another tip, you might mention that the OPEC countries
are mostly welfare states, and can't keep prices this low forever. Oh, and that from a supply
perspective, the U.S. is now energy-independent.
BobbyD 2 hours ago
Wasn't Obama getting Iran into the game brilliant in getting the price of oil down! I pay $2.50
a gallon for gasoline.
Alex 2 hours ago
Obama out-maneuvered OPEC every step of the way. Pump prices don't lie. Thank you, Obama!
J 4 hours ago
He must be short on oil stocks. The common man is stuck in the middle having to pay more at
the pumps no matter what all these greedy leeches say.
John Jenkins conveniently forgot export of Islamic extremists from Saudi
Arabia during Soviet occupation of Afghanistan and the USA and GB role in creation
of political Islam. I can't see any neo-Westphalian pragmatism of the Saudi state
in its actions in Syria and support of Turkey slide into islamization. But his point
that Iran does not represent a secular state either is well taken. It's just Shias
fundamentalism instead of Sunni fundamentalism.
Notable quotes:
"... There is no clear link between economic deprivation and radicalization. But the former doesn't help if it leads to idle hands and claims of social injustice. ..."
"... Sheikh Nimr advocated the destruction of the rulers of Saudi Arabia and Bahrain and the secession of the Eastern Province. His version of a righteous Islamic state is not a thousand miles from that of Abu Bakr al-Baghdadi (and a long way from the non-takfiri, non-caliphal, neo-Westphalian pragmatism of the Saudi state). He called for wilayat al-faqih, the heterodox Guardianship of the Jurisprudent espoused by Khomeini. ..."
"... The vengeful early years of the Islamic Republic, when clerics who previously would not have hurt a fly enthusiastically participated in the judicial murder of thousands in the name of righteousness, show some of the consequences. So does the arrest and humiliating mistreatment in 1982 of the venerable Ayatollah Shariatmadari, who stood up to Khomeini and dared to object to the implementation of any Islamic hudud punishments in the absence of the Hidden Imam. So does the continued rate of executions in Iran (nearly 700 by July last year, according to Amnesty International) and the Islamic Republic's own treatment of dissidents – and, indeed, of the ordinary protesters of 1999, 2009 and 2011. ..."
"... To Iran it was: Saudi citizens owe loyalty in tribal fashion to their king, not to foreign religious leaders or to some ideal of transnational Islamism, and we shall not tolerate interference. To the rest of the world it was: we shall not bend in the face of the storms raging round the region, if necessary alone. ..."
Now the Saudis face a period of sustained low energy prices at a time when
the costs of a newly interventionist and expeditionary foreign policy are rising
dramatically and when the need to restructure the economy to create perhaps
an extra four million new jobs by 2020 has become urgent. At the same time they
know that a small but significant section of the Sunni population of the kingdom
is vulnerable to the dark seductions of Islamic State, because they regard it
as more legitimately Islamic, or as the only organized Sunni group pushing back
against Iran, the Shia, or both. There is no clear link between economic
deprivation and radicalization. But the former doesn't help if it leads to idle
hands and claims of social injustice.
To cap it all, the Iranian nuclear deal angered the Saudis not because it
was a nuclear deal but because it was simply a nuclear deal, failing in their
view to address malign and subversive non-nuclear Iranian activities in Bahrain,
Iraq, Syria, Lebanon and Yemen, and rewarding Iran prematurely. They have felt
very abandoned by the US and other Western states. And they believe the apparent
pragmatism of the Rowhani government is a façade, offering privileged access
in return for the suspension of any critical faculty. That makes the issue of
the Vienna peace talks on Syria secondary. There will certainly be an impact.
Yet it is not as if the Saudis had disguised their deep scepticism. They had
been pressured to sit with the Iranians, but they had also insisted on continuing
to support opposition forces in the field and have not wavered in their insistence
that Assad needs to go.
You might think this is all special pleading. But before you say that the
matter is a straightforward one of a benighted justice system administering
medieval punishments to dissidents, reflect on this. Sheikh Nimr advocated
the destruction of the rulers of Saudi Arabia and Bahrain and the secession
of the Eastern Province. His version of a righteous Islamic state is not a thousand
miles from that of Abu Bakr al-Baghdadi (and a long way from the non-takfiri,
non-caliphal, neo-Westphalian pragmatism of the Saudi state). He called for
wilayat al-faqih, the heterodox Guardianship of the Jurisprudent espoused by
Khomeini.
The vengeful early years of the Islamic Republic, when clerics who previously
would not have hurt a fly enthusiastically participated in the judicial murder
of thousands in the name of righteousness, show some of the consequences. So
does the arrest and humiliating mistreatment in 1982 of the venerable Ayatollah
Shariatmadari, who stood up to Khomeini and dared to object to the implementation
of any Islamic hudud punishments in the absence of the Hidden Imam. So does
the continued rate of executions in Iran (nearly 700 by July last year, according
to Amnesty International) and the Islamic Republic's own treatment of dissidents
– and, indeed, of the ordinary protesters of 1999, 2009 and 2011.
The signals the Saudi state sought to send by executing 43 Saudi Sunnis convicted
of terrorism at the same time as Sheikh Nimr and his three fellow Shias reflected
all of this.
To their own citizens the message was: we shall enforce the judgment
of the courts on all those who seek to undermine the stability of the kingdom
and the legitimacy of its government, irrespective of sect, and on your
behalf we shall resist Iranian expansionism and Islamic State predation
with equal vigour.
To Iran it was: Saudi citizens owe loyalty in tribal fashion to
their king, not to foreign religious leaders or to some ideal of transnational
Islamism, and we shall not tolerate interference. To the rest of the world
it was: we shall not bend in the face of the storms raging round the region,
if necessary alone.
John Jenkins is a former British ambassador to Saudi Arabia, Libya, Iraq,
Syria and Burma. He is now executive director (Middle East) of the International
Institute for Strategic Studies, and is based in Bahrain
It is pretty interesting and educational to read such articles one year after
they are published.
Notable quotes:
"... Russia is already in dire straits. The economy has contracted by 4.9pc over the past year and the downturn is certain to drag on as oil prices crumble after a tentative rally. Half of Russia's tax income comes from oil and gas. ..."
"... Core inflation is running at 16.7pc and real incomes have fallen by 8.4pc over the past year, a far deeper cut to living standards than occurred following the Lehman crisis. ..."
"... This man "forecasted" Russia's demise last year. He has to show that that forecast is still liable to happen ..."
"... What Colby said is palpably true. That is why we don't hear real news and instead we are bombarded with news about their "celebs" ..."
"... He should know. And certainly, Western media coverage of the Ukraine crisis demonstrated to many millions of people in the West that major Western media is almost all controlled by the US neocons. Anyone with half a brain can see that - but clearly not you. ..."
"... Russia is not interested in invading anyone. The US has tried to force Russia to invade Ukraine in an iraq style trap but it didn't work. So they had to invent an invasion, the first in living memory without a single satellite, video or photo image of any air campaign, heavy armour, uniformed soldiers, testimony from friends & family of servicemen they could pay to get a statement, not even a mobile photo of a Russian sitting on a tank. ..."
"... As the merkins tell us a devalued dollar is your problem.. the devalued rouble is the EUs problem! ..."
"... So the political sanctions are bankrupting Russia because they dared to challenge EU expansion. Result millions of poor Russians will start to flow West and the UK will have another flood of Eastern Europeans. But at least we showed them our politicians are tough. ..."
"... Spelling it out for Russia (or Britain) that would mean giving up Byzantine based ambitions and prospering through alliances with the Muslim Nation or Countries, including Turkey. In the short term such a move would quell internal dissent of the 11m immigrants in Russia, reduce unsustainable security expenditure with its central Asian neighbours, open and expand market for Russian goods in the Middle East, Far East and North Africa, and eventually form and provide a military-commercial -political alliance (like NATO) for the Muslim nations with Russia (with partner strength based upon what is mostly commercial placed on the table (see the gist in the Vienna Agreement between P5+1 and Iran). ..."
"... The formation of such an alliance would trump Russia's (or Britain's) opponents ambitions and bring prosperity. ..."
"... Propaganda. Laughable coming from the UK hack when the UK has un-payable debt and Russia has little external debt plus we have no Gold and Russia has probably 20,000 tonnes. NATO surrounds Russia yet they are the aggressors. ..."
"... In the end, Ambrose is too ideological to be credible on the issue. Sure, Russia has couple lean years ahead, but it will come out of this ordeal stronger, not weaker. There are already reports of mini boomlets gathering steam under the surface. ..."
Russia is already in dire straits. The economy has contracted by 4.9pc
over the past year and the downturn is certain to drag on as oil prices crumble
after a tentative rally. Half of Russia's tax income comes from oil and gas.
Core inflation is running at 16.7pc and real incomes have fallen by 8.4pc
over the past year, a far deeper cut to living standards than occurred following
the Lehman crisis. This time there is no recovery in sight as Western sanctions
remain in place and US shale production limits any rebound in global oil prices.
"We've seen the full impact of the crisis in the second quarter. It is
now hitting light industry and manufacturing," said Dmitri Petrov from Nomura.
"Russia is going to be in a very difficult fiscal situation by 2017," said
Lubomir Mitov from Unicredit. "By the end of next year there won't be any money
left in the oil reserve fund and there is a humongous deficit in the pension
fund. They are running a budget deficit of 3.7pc of GDP but without developed
capital markets Russia can't really afford to run a deficit at all."
A report by the Higher School of Economics in Moscow warned that a quarter
of Russia's 83 regions are effectively in default as they struggle to cope with
salary increases and welfare costs dumped on them by President Vladimir Putin
before his election in 2012. "The regions in the far east are basically bankrupt,"
said Mr Mitov.
Russian companies have to refinance $86bn in foreign currency debt in the
second half of this year. They cannot easily roll this over since the country
is still cut off from global capital markets, so they must rely on swap funding
from the central bank.
Dave Hanson
For once, Flimflambrose paints a fairly accurate picture. His formula
is to take a few facts and stretch them to their illogical conclusion to
create a story that sells subscriptions to the Telegraph. Sort of like the
National Enquirer. He does that well. He only mentions the other side of
the story in a sentence or two, usually at the end of his column. The scary
headline at the top comes true perhaps one in a thousand times, just enough
to keep readers from totally dismissing him as a fruitcake. Not yellow journalism.
Clever journalism.
steph borne •
jezzam steph borne •a day ago
''Under Putin Russia has progressed from a respectable rank 60 on the
transparency international corruption index to an appalling rank 140. It
is now one of the most corrupt countries in the world, entirely due to Putin.''
http://www.theguardian.com/wor...
.
jezzam is using the Corruption Perceptions Index as fact?
but it is ''Perceptions''???
''The CPI measures perception of corruption due to the difficulty of measuring
absolute levels of corruption.[8]'' Wiki
Just more nonsense from Jezzam
soton
my wife is russian, she speak's to her mother on the phone every day,
from what she tell's me nothing has changed economically for the "average
joe" no doubt some of the abramovich types have seen the value of their
properties plunge
Rosbif2
So if Russia is financially sinking below the waves, how come AEP in
other articles claimed that Russia could buy themselves into Greece and
menace Europe?
It seems like Greece & Russia are two drowning men who would grab onto each
other & drown even faster
AEP seems to lack "joined up thinking" in his articles
giltedged
This man "forecasted" Russia's demise last year. He has to show that
that forecast is still liable to happen
What Colby said is palpably true. That is why we don't hear real
news and instead we are bombarded with news about their "celebs"
Real news to show that a new world economy is being built totally outside
the control of US Neocons and Globalists, that the world is now multi-polar,
that for example this journalist's capital city, London, now has officially
a majority of the population not merely non-British in origin, but non-European,
that his own country survives because of London property sales
Richard N
And isn't AEP rubbing his hands with glee at this supposedly desperate
situation of Russia!
Colby, the ex-boss of the CIA, said in retirement that there is no journalist
of consequence or influence in the Western media that the CIA 'does not
own'.
I often find myself remembering that, when I read Ambrose pumping out
the US neocon / CIA propaganda standard lines about 'Russian aggression'
in Ukraine, and so on - choosing to ignore the fact that Russia's action
in Crimea was in direct response and reaction to the US Neocons' coup in
Ukraine, which overthrew an elected government in a sovereign state, to
replace it with the current US puppet regime in Kiev.
Of course, this collapse of oil and gas prices are no accident at all
- but are part of America's full-scale economic war against Russia, aiming
to get Putin overthrown, and replaced by someone controlled by the US Globalists,
leaving then
China as the only major power centre in the world outside the Globalists'
control.
Richard N > jezzam • a day ago
If you bothered to read what I wrote carefully, you would see that, with
reference to journalists, I was simply repeating what ex-head of the CIA
Mr. Colby said.
He should know. And certainly, Western media coverage of the Ukraine
crisis demonstrated to many millions of people in the West that major Western
media is almost all controlled by the US neocons. Anyone with half a brain
can see that - but clearly not you.
steph borne
''Russian bear will roar once more, says World Bank''
01 Jun 2015
''Russia economy forecast to grow by 0.7pc next year, reversing negative
growth
forecast''
Carried on to the absurd extreme at which all the dollars are held outside
of America, the US simply prints more money thus devaluing it's currency
and favoring exports (which are then cheaper to produce and cheaper buy)
people giving their currency to the US in return for goods and services
and restoring economic balance.
I can understand that Russia doesn't have much experience with the 'boom
and bust' cycles of market economies. They've had less than 20 years experience
at it.
Did you know that in the 19th century China's trade surplus with Europe
was so vast that Europe almost went bankrupt and ran out of precious metals
buying Chinese goods, surely by your thinking it was truly a golden age
of eastern supremacy, western failure. Ask any Chinese person what the 19th
century means to them, you might be surprised.
steph borne > Halou
Shame you can't provide a link or two to back up your thoughts on trade
surpluses.. altho I know amongst bankrupt countries they tell you that money/assets
leaving the country is a good thing....
Strange that the Germans don't agree --
''Germany recorded a trade surplus of 19600 EUR Million in May of 2015.
Balance ...reaching an all time high of 23468.80 EUR Million in July of
2014...'' http://www.tradingeconomics.co...
Obviously another country heading for financial self-destruction
steph borne
02 Oct 2014 http://www.telegraph.co.uk/new... 02 Oct 2014
Russias-economy-is-being-hit-hard-by-sanctions.html
01 Sept 2014 http://www.telegraph.co.uk/new... 01 Sept 2014 Cameron-we-will-permanently-damage-Russias-economy.html
cameron says.??? Aha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha
ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha
ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha
ha ha ha ha ha ha
ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha
ha ha
ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha
ha ha
ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha ha
ha ha
29 Dec 2014 http://www.telegraph.co.uk/fin... 29 Dec 2014 /Recession-looms-for-Russia-as-economy-shrinks-for-first-time-since-2009.html
24 Nov 2014 http://www.telegraph.co.uk/fin... 24 Nov 2014 Russia-faces-recession-as-oil-crash-and-sanctions-cost-economy-90bn.html
22 Dec 2014 http://www.telegraph.co.uk/fin... 22 Dec 2014 Russia-starts-bailing-out-banks-as-economy-faces-full-blown-economic-crisis.html
http://www.telegraph.co.uk/fin... 29 Apr 2015
Ukraines-conflict-with-Russia-leaves-economy-in-ruins.htm
.
Still going!!!
Graham Milne
Russia has physical assets (oil, minerals and so on); we don't. It is
the UK which is toast, not Russia.
billsimpson > Graham Milne
Russia is way too big & resource rich to ever be total toast. And the
people are educated, even if they do drink a lot. But they could get a bit
hungry in another economic collapse. All the nukes they have is the real
problem. Those need to be kept secure, should another revolution occur,
or the country break apart after an economic collapse.
The US & Canada would never sit back and watch the UK melt down. Witness
the Five Eyes communal global spying system.
Electrify all the rail system that you can, so people can still get around
on less oil. Some oil is essential for growing and transporting food.
Sal20111
Russia can't just blame it on sanctions, or price wars in oil and gas.
They have not reinvested the proceeds of their prodigous fossil fuel sales
smartly and neither have they diversified quickly enough - the gas sales
to China was an afterthought after Ukraine.
Putin cracked down on some of the oligarchs but not all - national wealth
has clearly been sucked out by a few. Nepotism and favouritism seem to be
rife. They should have learnt the lesson from their communist history not
to concentrate power in state contriolled organisations. Not sure whether
there is much of a small to medium business culture.
With the amount of natural resources it has, and a well educated public,
particularly in math and technical skills, Russia should be doing much better.
rob22
Russia is not interested in invading anyone. The US has tried to
force Russia to invade Ukraine in an iraq style trap but it didn't work.
So they had to invent an invasion, the first in living memory without a
single satellite, video or photo image of any air campaign, heavy armour,
uniformed soldiers, testimony from friends & family of servicemen they could
pay to get a statement, not even a mobile photo of a Russian sitting on
a tank.
Russia is too busy building up an independent agriculture and import
substitution, not to mention creating economic and trade links with its
Eurasian neighbours like China & India via the silk road, BRICS, Eurasian
Ecconomic Union and the Shanghai Cooperation Organisation.
A total nightmare for the US which once hoped to divide & dominate the
region (see new American century doc)
Putin enjoys about 85% approval ratings (independent foreign stats) because
it knows to surrender to the US means a return to the 90`s where the nations
oil revenue went to wall st and everything else
If things get bad they`ll just devalue the ruble, get paid in dollars
and spend in rubles.
This is why most Russians are willing to dig in and play the long game.
Londonmaxwell
Over the top with Ambrose, as usual. Words like "depression", "crisis",
"plummet", and "shrivels"; and these only in the first two paragraphs! Moscow
looks absolutely normal to me: traffic jams, packed malls and restaurants,
crowded airports and train stations. Unemployment is low, inflation is tolerable.
Ambrose misses some key points.
First, if Gazprom's revenues fell from $146bn to $106bn, then this
implies (drumroll) a revenue increase from RUB 5.1 trillion to RUB 5.8
trillion. Since Gazprom/Lukoil/Rosneft et al have USD revenues but RUB
expenses, they are all doing quite nicely, as is the Russian treasury.
Second, while Russian companies do have foreign debt to pay back,
I suspect much of this "debt" is owed to (drumroll) Russian-controlled
companies in BVI, Cyprus, Luxie, Swissie, and the other usual suspects.
Third, if the oil price declines more in 2015, the Kremlin will simply
let the ruble slide, and the biggest losers will again be (drumroll)
European exporters.
Russia's present situation is not glorious, but it is not as precarious
as Ambrose portrays it to be. Be wary of writing off Russia. The great game
is just beginning.
energman58 > Londonmaxwell
Except that the slack has to be taken up by inflation and declining living
standards - Russia isn't unique; in Zimbabwe dollar terms almost every company
there did splendidly but the place is still bust. The problem is that most
of the debt is USD denominated and without the investment blocked by sanctions
they are looking at a declining production, low oil prices and an increasing
debt service burden. Presumably they could revert to the traditional model
of starving the peasants that has served them so well in the past but I
am not sure if the people with the real stroke will be quite so happy to
see their assets wither away...
Londonmaxwell > energman58
Comparing Russia with Mugabeland is a stretch, but I see your point.
If the sanctions stay and the oil price goes south permanently, then Moscow
has problems. But I question both assumptions. Merkel/Hollande/Renzi already
face huge pressure from their business leaders to resume normal relations
with Russia; i.e., drop the sanctions. As for oil prices, the USA's shale
sector is already in trouble. Russia's debt burden (both public and private)
is manageable and can scarcely worsen since it is cut off from the credit
markets. While the oil price slump certainly hurts Russia's economy, I don't
see the wheels falling off anytime soon.
AEP writes well and is always thought-provoking, but his view that Russia
is facing Armageddon because of oil prices and sanctions is way off the
mark.
steph borne
Here come the Ukrainian Nazis.. You lot must be very happy
http://www.bbc.co.uk/iplayer/e... 18 minutes in..
Maidan number 3 on the way as I predicted a year ago.
midnightrambler
Amazing how the narrative for military action is being fostered by articles
such as this one.
So many people eager for something they have no intention of getting
involved in themselves
snotcricket
It is rather odd the posts on this thread accusing any & all who question
the obvious US gov line in such articles.
Could it be that some have better memories ie the Ukrainian crisis was
in fact created by the support of the US & EU for but a few thousand sat
in Independence Sq just two years after the country had voted in the target
with a majority the likes of Cameron, Obama could only dream of.
Only an idiot could not have seen the Russki response to a situation
that could in but a very short timescale see NATO troops & kit but a literal
footstep from Russki soil....while the ports used by the Russki fleets would
be lost overnight usurped no doubt by a 'NATO' fleet of US proportions.....plainly
the US knew the likely outcome to the deposing of the elected leader & replaced
by the EU puppets....the Russki's had little option.....Putin or no Putin
this would have been the outcome.
With regard to the US led attack on the Russki economy with sanctions....well
those sanctions hurt the UK too...but of course not the US (they have lobbyist
for such matters) our farmers were hurting afore the sanctions....that became
a damn sight worse after the imposition.
The US attempts to turn off the oil/gas taps of Putin has done damage
to the Russkis, similarly its done damage to W. Europe thus ourselves as
oil prices are now held at a level by the sanctions reducing world supplies
(the US have lobbyists for such matters) thus the god of the US, the market
is skewed & forecourt prices too sighed Osborne as the overall taxation
gathers 67% of what goes through the retailers till.
This has been rumbling for over 3 years since the BRICS held their meeting
to create a currency that would challenge the $ in terms of the general
w.w economy but specifically oil. They did mistime the threat & should have
kept their powder dry as the US economy like our own lives on borrowed time
& money.....but they made the mistake the US was in such decline they couldn't
respond....of course the US have the biggest of all responses to any threat....its
armed forces & their technology that advances far more rapidly than any
economy.
Incidentally I write this sat at my laptop in the North of England in
between running my own business & contacting clients etc..........I suspect
my politics would make Putin wince.....however the chronology, actions/outcomes
& the general logic of the situation has now't to do with supporting one
or t'other.......& do remember the US grudgingly acknowledge without the
Russkis the er, er agreement with Iran & non-proliferation would still be
a can yet to be kicked down the road.
Personally I'd be more worried that Putin has made fools of the US/EU
leaders so many times thus wonder just what is the intent in assisting the
brokering of any deal? With the West & Iran.
steph borne
If Russia was worried about the oil price they would not have been so
helpful in getting the usa & Iran together on a deal which will put more
downward pressure on the oil price!
http://www.telegraph.co.uk/new... Barack Obama praises Putin for help
clinching Iran deal
oleteo
Reading this article I saw only one message to be sent to the Russians:"Russians,surrender!"
The rumours about the desease and the ongoing decease of the Russian economy
are greatly exaggerated.
steph borne
June 17, 2015 at 1:44 pm Boeing said it struck a $7.4 billion deal to
sell 20 of its 747-8 freighters to Russia's Volga-Dnepr Group, providing
a much-needed boost to the jumbo-jet program amid flagging demand for four-engine
aircraft. http://www.seattletimes.com/bu...
MOSCOW, Russia (May 26, 2015) – Bell Helicopter,
a Textron Inc. (NYSE: TXT) company, announced today an agreement with
JSC Ural Works of Civil Aviation (UWCA) for the development of final
assembly capabilities by UWCA for the Bell 407GXP in order to support
UWCA in obtaining Russian registry to facilitate their operations. http://www.bellhelicopter.com/...
.
Oh business as normal at Bell looks like sanctions only to be paid heed
by the useful idiots in the EU
snotcricket > steph borne
Yes the sanctions do seem to TTIP more in the US favour than their Western,
er, er partners
Sonduh
Just like Brown Osborne is reducing borrowing but encouraging consumer
debt which is close to 120% GDP. By the end of next year household debt
will be 172% of earnings.Once household debt reaches saturation point and
they start defaulting on their debt as they did in 2008 -- Game over. I
hear the Black Sea is nice this time of year.
steph borne
A report by Sberbank warned that Gazprom's revenues are likely to drop
by almost a third to $106bn this year from $146bn in 2014, seriously eroding
Russia's economic base.''
Last year $146 billion bought 4672 billion pybs this year $106 billion
will buy 6148 Billion pybs
Gazprom alone generates a tenth of Russian GDP and a fifth of all budget
revenues. the Pyb devaluation vs. $ has led to a 31% increase in revenues..
Something Salmond should take notice of should the SNP want to go for
independence again. Inflation at 16% may well be but its the price of imported
stuff pushing up the prices.. mainly EU goods for sale .. that won't be
bought!
As the merkins tell us a devalued dollar is your problem.. the devalued
rouble is the EUs problem!
Nikki Santoro
What is happening is the Anglo-Muricuns are actively provoking the Chinese
and Russkies into a war. However once it is all said and done, they are
going to need a cover story. People are going to ask why the Russkies attacked.
And then the Anglo-Muricuns are going to say that Putin put all his eggs
in one basket. Yeah that is what happened but really if Putin does attack,
it will be because of the endless Anglo-Muricun provocations. Just as they
provoked Hilter to no end and Imperial Japan as well.
steph borne
Russian companies have to refinance $86bn....''
So what are you going to do if they default.. go in and repossess..You
and who's army? They are struggling trying to get Greece to comply..
Russia's trade surplus is still in the Billions of Dollars while the
usa's & UKs is mired in deficit.. Russia recorded a trade surplus of 17.142
USD Billion in May of 2015 http://www.tradingeconomics.co....
Debt public/ external debt ratios
U. K..................92%........317%
usa...................74%......... 98%
And
Russia...............8%..........40%
''And while UK growth could reach 3pc this year, our expansion is far
too reliant on rising personal and government debt. ''
''The UK, with an external deficit now equal to 6pc of GDP, the second-largest
in half a century,''
http://www.telegraph.co.uk/fin...
As ever the west points to Russia and says Look over there (for God's sake
don't look here!)
Sonduh > steph borne
And don't forget all their gold reserves. And all their natural resources.
Skalla
Prosperous countries are usually benevolent (the US being the exception
to the rule). Hungry countries get to be greedy and aggressive. The US with
its economic and financial manipulations will turn a sleepy bear into a
very awake and ravenous one, and after hibernation, the first thing bears
do is FEED --
vandieman
A cynic could say that the US is driving the oil prices down to push
Russia into a war.
Anth2305 > vandieman
Wait until Iranian oil comes fully on stream, which I heard some pundit
on TV say could drive the cost down to < $30 a barrel, forcing the Saudis
into having to eat massively into their foreign reserves.
gardiner
When the old USSR 'collapsed', what we call the 'Oligarchs' ( a collection
of the most highly influential State officials who pocketed practically
all the old State assets) corruption was at the very highest level, and
society was at its weakest.
The economy became dependant on resource exports.
Because the country's capital was so concentrated, there was practically
no 'middle class' of entrepreneurs who could invest capital in job creating,
internationally competitive industry.
Although a lot further down this road than the UK - the warning is stark!
beatonthedonis > gardiner
Abramovich wasn't a state official, he was a rubber-duck salesman. Berezovsky
wasn't a state official, he was an academic. Khodorkovsky wasn't a state
official, he was a PC importer. Gusinsky wasn't a state official, he was
an unlicensed cab driver. Smolensky wasn't a state official, he was a blackmarketeer.
Fridman wasn't a state official, he was a ticket tout.
daddyseanicus
So the political sanctions are bankrupting Russia because they dared
to challenge EU expansion. Result millions of poor Russians will start to
flow West and the UK will have another flood of Eastern Europeans.
But at least we showed them our politicians are tough.
Busufi > Jonathan
In the East there is a saying: Why use poison when sugar delivers the
same result. Or say as Deng said, It doesn't matter whether the Cat is black
or white, so long it catches the mice.
Spelling it out for Russia (or Britain) that would mean giving up
Byzantine based ambitions and prospering through alliances with the Muslim
Nation or Countries, including Turkey. In the short term such a move would
quell internal dissent of the 11m immigrants in Russia, reduce unsustainable
security expenditure with its central Asian neighbours, open and expand
market for Russian goods in the Middle East, Far East and North Africa,
and eventually form and provide a military-commercial -political alliance
(like NATO) for the Muslim nations with Russia (with partner strength based
upon what is mostly commercial placed on the table (see the gist in the
Vienna Agreement between P5+1 and Iran).
The formation of such an alliance would trump Russia's (or Britain's)
opponents ambitions and bring prosperity.
Sonduh
" They are running a budget deficit of 3.7pc of GDP but without developed
capital markets Russia can't really afford to run a deficit at all."
We are able to have a budget deficit of 4.8% and 90% national debt, 115%
non financial corporate debt , 200% financial corporate debt and 120% household
debt due to voodoo economics ie. countries can print money to buy your debt.
PS we also have unfunded liabilities like pensions which amounts to many
hundred pc of GDP.
The results showed the extraordinary sums that Britain has committed to
pay its future retirees. In total, the UK is committed to paying £7.1 trillion
in pensions to people who are currently either already retired or still
in the workforce.
This is equivalent to nearly five times the UK's total economic output.
Such a figure may be hard to put into proportion, as a trillion – a thousand
billion – is obviously a huge number.
And we think Russia is in a bad state.
georgesilver
Propaganda. Laughable coming from the UK hack when the UK has un-payable
debt and Russia has little external debt plus we have no Gold and Russia
has probably 20,000 tonnes. NATO surrounds Russia yet they are the aggressors.
Laughable but idiots still believe the propaganda.
tarentius > georgesilver
The entire world combined has 32,000 tonnes of gold reserves. Russia
has 1,200 tonnes.
Russia has government debt of 18% to GDP, a contracting GDP. It is forced
to pay interest of 15% on any newly issued bonds, and that's rising. And
it has a refinancing crisis on existing debt on the horizon.
Russia's regions are heavily in debt and about 25% of them are already
bankrupt. The number is rising.
And we haven't even gotten into the problem with Russian business loans.
Turn out the lights, the party's over for Russia.
Bendu Be Praised > mrsgkhan •
The issue is the medias portrayal of Putin .. If the UK media was straight
up with the people and just said .. "our friends in the US hate the Russians
.. The Russians are growing too big and scary therefore we are going to
join in destroying the Russian economy before they become uncatchable "
the people would back them ..
Lets be honest .. The Russians don't do anything that we don't .. Apart
from stand up to the US that is
Jim0341
Yesterday, AEP spread the gloom about China, today it is Russia. As ever,
he uses quotes from leading figures in banks and finance houses, which are
generally bemoaning low returns on investments, rather than the wellbeing,
or otherwise, of the national economy..
Whose turn is it tomorrow, AEP? My bet is Taiwan.
Bendu Be Praised > FreddieTCapitalist
I think you will find that the UK are just pretending the sanctions and
wars are not hurting us ..
Just look at the budget .. 40% cuts to public services .. America tried
to destroy the Russian economy by flooding the market with cheap oil but
it will come back to bite them ..
The UK should just back off .. lift sanctions against Russia and let
the US squabble with them by themselves ..
I sick of paying taxes for the US governments "War on the terror and
the rest of the world"
alec bell
This article makes no sense. First of all, there is no way that Gazprom
is responsible for 1/10th of Russia's GDP. That is mathematically impossible.
1/20th is more like it. Second, if push comes to shove, Russians are perfectly
capable of developing their own vitally-important technologies. Drilling
holes in the ground cannot be more complicated than conquering space.
Whatever problems Russia has, engineering impotence is not one of them.
And third, if Russians' reliance on resourses' exports has led to "the
atrophy of their industry" as AEP rightly points out, then it must logically
follow that disappearance of that revenue will inevitably result in their
industrial and agricultural renaissance.
In the end, Ambrose is too ideological to be credible on the issue.
Sure, Russia has couple lean years ahead, but it will come out of this ordeal
stronger, not weaker. There are already reports of mini boomlets gathering
steam under the surface.
alec bell > vlad
vlad, JFYI: According to research conducted by the World Economic Forum
(which excludes China and India due to lack of data), Russia leads the way,
producing an annual total of 454,000 graduates in engineering, manufacturing
and construction. The United States is in second position with 237,826 while
Iran rounds off the top three with 233,695. Developing economies including
Indonesia and Vietnam have also made it into the top 10, producing 140,000
and 100,000 engineering graduates each year respectively.
Nikki Santoro
Don't mess with the Anglo-Muricuns. They will jack you up bad. Unless
you are thousands of miles away and posting anonymously. But even still
they can lens you out and cleanse you out should you take it too far. However
their dominance is not some much because of their brilliance. They don't
have any despite their propaganda. But rather the depths they are willing
to stoop to in order to secure victory. Like blowing up an airliner and
then pinning it on you for instance. Or poisoning their own farmland.
steve_from_virginia
Futures' traders got burned earlier this year betting that oil prices
would rise right back to where they were a year previously. Now they have
'gotten smart'. They know now the problem isn't Saudi Arabia but billions
of bankrupt consumers the world around.
Customers are bankrupt b/c of QE and other easing which shifts purchasing
power claims from customers to drillers -- and to the banks. As the customers
go broke so do the banks: instead of gas lines there are ATM lines.
At the same time, ongoing 'success' at resource stripping is cannibalizing
the purchasing power faster than ever before. Soon enough, the claims will
be worthless! When the resource capital is inaccessible, so is the purchasing
power -- which is the ability to obtain that resource capital.
Business has caught itself in the net of its own propaganda; that there
is such a thing as material progress out of waste ... that a better future
will arrive the day after tomorrow.
Turns out tomorrow arrives and things get worse. Who could have thunk
it?
Brabantian
If AEP is as right about Russia as he was about the Yank shale gas 'boom'
- now collapsing into a pile of toxic bad debt -
Then our Russian friends have nothing to worry about
midnightrambler > Guest
The largest military spend - the US - bigger than the next 20 countries
combined
The most bases - the US with 800, including many in Germany
Nobody wants war - but the US needs it as their largest industry is defence
- apart from manipulative banking.
We are heading for a point of rupture between those who are peaceful and
those whose main aim is control and conflict.
Take your pick
A few leaders choose war - most people (who will fight those wars) choose
peace.
And of course all wars are bankers' wars - it is only they who profit
Timothy D. Naegele
Both Putin and Russia are in a spiral, from which they will not recover.
See https://naegeleblog.wordpress.... ("Putin Meets Economic Collapse
With Purges, Broken Promises")
Tony Cocks > Timothy D. Naegele
"Both Putin and Russia are in a spiral, from which they will not recover."
This from someone whose former President and gang of criminal henchmen
lied to the world on a monumental scale about WMD in Iraq , and waged an
illegal war on that country killing hundreds of thousands in the process
. Following that it was Libyas turn , then Syrias . Now its Russia the US
neo con warmongers are hounding, the difference being that Russia holds
the worlds biggest nuclear arsenal.
The US forces had their kicked out of Vietnam and were thoroughly beaten
despite throwing everything they had at the conflict save the nuclear option.
Imagine what will happen if it eventually comes to armed conflict with Russia.
midnightrambler > Timothy D. Naegele
A yank lawyer advocating killing.
From the land of citizen killers
What a surprise
Stay away
stephenmarchant
Instead of demonising Putin and banging on about the problems of the
Russian economy the MSM should be worried about indebted Western economies
including the UK and US. Russian Govt finances are not burdened with nearly
£2trn of debt that has funded unsustainable nominal growth. Here in the
UK the real GDP growth per capita is declining at over 3% per anum so as
a nation the UK is continuing its decline:-
Govt deficit at 5% per anum
Govt debt at about 80% GDP
Private debt and corporate debt each of a similar order
Record current account deficit of about 5% per anum
A deteriorating NIIP (Net International Investment Position)
Uncontrolled immigration
Our whole debt based fiat system is on the brink but few can see it whilst
they party with asset and property bubbles. A few of us foresaw the first
crash of 2007/8 but we now face a systemic collapse of our fiat system because
of the resulting 'extend and pretend' policy of Govts and central bankers.
In the final analysis the true prosperity of a nation will depend upon
its natural resources, infrastructure, skills of its workforce and social
cohesion.
Graham Milne > JabbaTheCat
The scale of Russian kleptocracy pales into vanishing insignificance
beside the criminality of western banks (and the government who 'regulate'
them). Europe and the USA are regimes run by criminals; worse than that,
they are run by traitors. At least Putin isn't a traitor to his country.
Busufi
The best way for Russia to beat the downturn in it's oil and gas is to
invest in down-stream strategic production of petroleum products that would
give Russia a competitive advantage on a global scale.
Selling raw natural resources is the Third World way of exports. Not
smart.
Oil exports from Iraq's southern
ports have averaged 3.205 million barrels per day (bpd) so far in August, exceeding the
average level seen in July, two officials from state-run South Oil Company said on
Friday.
Exports in July averaged 3.202 million
bpd. With five days of exports remaining this month, the average for August could change,
the officials said.
The southern region produces most of the OPEC member's crude oil, with an output of
4.6 million bpd last month.
Independent of the central government in Baghdad, Iraq's northern Kurdish regional
government exports about 500,000 bpd through a pipeline to the Turkish port of Ceyhan on
the Mediterranean. Baghdad oversees crude production from the south and from parts of the Kirkuk region
in the north that is shared with the Kurds.
(Reporting by Aref Mohammed in Basra; writing by Maher Chmaytelli; editing by Jason
Neely)
The Kingdom of Saudi Arabia (KSA) is expected to increase their defense spending from $48 billion
last year to $52 billion by 2019, IHS Janes Defense analysts reported
"... its current Islamist King, Salman, has been more mired in political and economic turmoil than at any time in the desert kingdom's history. Domestically, the country is suffering from royal discord and economic hardships, due to the drastic decline in oil prices, which constitute more than 90% of the state's revenues. Regionally, Saudi Arabia is stuck in a consuming and costly war in Yemen, the continued occupation of Bahrain and dangerous events which the Saudis cannot control or stop, such as the recent superpowers' rapprochement with Iran, the destabilizing conflicts in Iraq and Syria and the loss of like-minded dictatorial allies in other Arab and Muslim countries. ..."
"... The West recognized that the fast and widely- spreading extremism and terrorism are inspired by the globally detested Saudi/ Wahhabi Sunni doctrine; therefore, continuing to rely on and to protect the Saudi rulers unconditionally are no longer in the best interest of Western societies. ..."
"... In reality, the West is playing Iran off against Saudi Arabia to protect Western interests. ..."
E Tavares: Dr. Alyami, thank you for your being with us today.
Last October we spoke about the socio-political situation in the Kingdom of Saudi Arabia ("KSA"),
a hugely important country, and implications for the wider region. It seems very little has changed
as far as policies and governance are concerned, other than perhaps the current rulers becoming more
entrenched in power. Do you agree?
AA: Thank you for this opportunity and more so for your patriotism and understanding of the unprecedented
Islamist ideological threats facing us and the international community, including the majority of
Muslims. This is a fact that cannot be denied, ignored or belittled as the action of a few perverted
groups.
Since our interview, Saudi Arabia under its current
Islamist King, Salman, has been more mired in political and economic turmoil than at any time
in the desert kingdom's history. Domestically, the country is suffering from royal discord and economic
hardships, due to the drastic decline in oil prices, which constitute more than
90% of the state's revenues. Regionally, Saudi Arabia is stuck in a consuming and costly war
in Yemen, the continued occupation of Bahrain and dangerous events which the Saudis cannot control
or stop, such as the recent superpowers' rapprochement with Iran, the destabilizing conflicts in
Iraq and Syria and the loss of like-minded dictatorial allies in other Arab and Muslim countries.
ET: Indeed, Iran is consolidating its influence across the region, much to the detriment of the
KSA. Their alliance with Russia seems to be paying off in Syria, with the Islamic State ("ISIS")
in retreat, arguably in Iraq as well. The Houthis, their allies in Yemen, are giving the Saudis a
run for their money. The Iranian regime recently got a lot of money back as a result of the nuclear
deal with the US, and quick on the heels of that
it has
been testing ballistic missiles and related defense systems.
AA: As mentioned above, the superpowers' reconciliation with the Persian theocracy in Tehran has
given Iran more leverage regionally and globally, which the Iranians are using to strengthen their
influence in the region, slowly stripping the Saudi oligarchs of their domination over US and western
policies and economic interests in the Middle East. Notably, Western interest in reaching a nuclear
deal with Iran is not limited to concerns about nuclear weapons.
The West recognized that the fast and widely- spreading extremism and terrorism are inspired by
the globally detested Saudi/ Wahhabi Sunni doctrine; therefore, continuing to rely on and to protect
the Saudi rulers unconditionally are no longer in the best interest of Western societies. Furthermore,
the US and its Western allies may have concluded that it's only a matter of time before the Saudi
autocratic ruling family faces the same fate as its counterparts in other Arab countries. This does
not mean that the West is bolstering the Persian theocrats in Tehran to become the guardians of the
Gulf's economic and strategic resources. In reality, the West is playing Iran off against Saudi Arabia
to protect Western interests.
ET: However, that alliance of Iran and Russia is gaining prominence and effectively undermining
US interests in the region. The latest "casualty" appears to be the once close relationship between
the US and Turkey, with President Erdogan publicly courting Russia – quite an achievement after the
two countries almost came to blows last year because of the downing of a Russian jet. In your opinion,
is the US making the right moves in the region and how is this being perceived within the KSA?
AA: The recent rift between the US and Turkey is not the result of changes in US policy toward
Turkey as much as it is due to the unpredictability and sudden turns by President Erdogan, who has
been veering Turkey toward Islamist authoritarianism since his party acquired power in 2002. It's
worth mentioning here that the US/Turkey relationship began to erode more rapidly after King Abdullah
of Saudi Arabia visited Turkey in 2006 and committed to investing
$400 billion in the Turkish economy, a commitment that was finalized in 2010. President Erdogan's
recent visit to Russia to cultivate the goodwill of like-minded President Putin has very little to
do with US policy moves and more to do with Erdogan's unpredictability and blackmailing habits, especially
since the failed military coup against him and his unsuccessful demands that the US extradite the
Turkish cleric who Erdogan blames for the coup.
In my opinion, continuing to support absolute dictators whose policies are posing imminent threats
to our democracy and national security is neither feasible nor prudent, especially when the future
of the Middle East is being determined by its diverse peoples. Our government's "hands off" policy
in the region is based on two factors: one, very little can be done by outside military interventions
and two, the American people will not tolerate sending hundreds of thousands of young men and women
into an unwinnable war in a region most Americans loathe. The Saudi regime views the lack of deep
US involvement in the Middle East as a betrayal of an historical relationship, especially the protection
of the ruling family from external and internal threats.
ET: We often talk about the UK having a "special relationship" with the US. But some commentators
argue that the world's only special relationship today is the one between the KSA and the US. For
one, Obama would never dare to propose a domestic course of action (with an "or else" attached to
it) in Saudi soil like he did in the UK regarding the BREXIT vote. In light of what you detailed
above, what is the status of that relationship today and how critical is the forthcoming US election
in that regard? It appears that the two main candidates have very different views on how that relationship
should look like.
AA: I am not so sure that US/Saudi relations are that special. For one, it's based on a tit for
tat arrangement, US access to oil in return for defending an absolute and reactionary system whose
values are totally antithetical to everything America was founded on and stands for. The US/UK relationship
is based on strategic, cultural, religious, ethnic, transparency and above all, democratic values,
rule of law and freedom of all forms of expression. Due to this fact, US presidents can express their
views publicly without fear of inciting British citizens to overthrow their government by force.
I know for a fact that our presidents demand actions by the Saudis in private in order not to give
the impression that the US is abandoning its commitment to protect the Saudi regime, especially from
its oppressed population.
US/Saudi relations have been deteriorating since the September 2001 terrorist attacks on the US
by mostly Saudi nationals on the watch of President George Bush, who responded forcefully both politically
and militarily. However, Bush's rhetoric and actions wound down during his second term. President
Obama's first term started with an apologetic and appeasing (humiliating, even) approach to the Saudis
and the Muslim World in general. Conversely, Obama's second term can be characterized as the period
in US/Saudi relations when the US has the upper hand economically, politically and strategically.
Empowered by a recovering economy, falling oil prices (thanks to fracking) and shifting alliances,
while the Saudis are weakened by domestic, regional and global events, Obama used America's strengthened
position to put the Saudis in their place.
Given the current state of affairs in the Middle East, continued Saudi support for extremism and
terrorism and increasing Islamic terror attacks on Europe and the US, US/Saudi relations will continue
to deteriorate or remain in flux, regardless who wins the US Presidency in November 2016.
ET: As ISIS retreats in Syria and Iraq it is spreading into Afghanistan and many African countries,
as well as increasingly resorting to terrorism across much of the West. There have been persistent
rumors of Saudi and Turkish support to ISIS,
a fact that has been confirmed
by US Vice President Biden . Moreover, Christian and Yazidi women who were fortunate enough to
escape their enslavement at the hands of ISIS
reported being brutalized by Saudis . So the ties are there and at various levels. However, ISIS
is now behind terrorist attacks in both those countries. Is this another example of "
blowback
"?
AA: It's no secret that ISIS is inspired by and based on the Saudi/Wahhabi doctrine and practices
employed by the Saudi/Wahhabi allies, especially in the 18th to the 20th centuries. ISIS's objective
is identical to that held by most Muslims, including former Saudi King Abdullah:
spread Islam and the Shariah worldwide. Although the Saudis and the Turks have supported and
used ISIS, especially in Syria and Iraq, ISIS is turning against the governments of Saudi Arabia
and Turkey for two reasons: one, ISIS felt betrayed by the Saudis and Turks, whom ISIS considers
proxies for the West, which is waging a war against the Caliphate State; and two, ISIS's immediate
goal is to establish a Caliphate that includes all Muslims, headquartered in Islam's holiest site
of Mecca, Saudi Arabia.
Those familiar with the perfidious practices and mindset of Arab and Muslim despots understand
that by supporting ISIS, the Saudis and Turks expect the terrorist group to turn against them. This
is a tactic these regimes use to empower themselves, suppress their populations and convince the
West that they are likewise victims of terrorism when, in fact, they continue to support and use
extremists and terrorists against each other and to extract concessions from the international community.
ET: What's happening around the KSA provides some context for what is happening internally. As
far as human rights are concerned, it appears that things are getting worse, as recently evidenced
by a courageous – and shocking –
documentary by ITV in the UK
. What do you make of this?
AA: After King Salman inherited the Saudi Crown in January 2015, my organization, the Center for
Democracy and Human Rights in Saudi Arabia, wrote an analysis predicting human rights would suffer
under the new King reign. Of all his predecessors (6 Saudi kings), Salman is notorious for his
support of extremists in and outside the country and for his belief that the extremist Wahhabi
interpretation of Islam and its arbitrary Shariah law is the
true Islam . He considers the country his family's private property and opposes any political
reforms including his predecessor's cosmetic gestures. Given these documented facts, it's not surprising
that King Salman
purged the government of all less rigid members of his family and replace them with his like-minded
sons and nephews. Given the Saudi's economic hardships and the costly war engagement in Yemen, deteriorating
situation in Syria, Iraq, continued occupation of Bahrain, frequent terrorist attacks in different
parts of the country, human rights abuses in Saudi Arabia are likely to worsen.
ET: Another surprising fact is the abject poverty that many Saudis are living under. How is this
possible given all the petrodollars floating around the country?
AA: All state revenues are controlled and treated as property of the royal family. Only the king
and a few high-ranking royals have direct access to the state's income. Since there is no accountability,
transparency or public scrutiny, this small clique of royals decides on the distribution of funds.
The top spending priorities are internal security, namely the safety of the ruling family, stipends
for the thousands of members of the extended royal family, the armed forces and maintaining the institutions
of the religious establishment (universities, mosques, religious police and thousands of clerics.)
Given this arrangement, little of the national revenues is spent on citizens.
It's estimated that between 30-40% of Saudis live at or below the UN designated poverty level.
This is due to high unemployment, where it is estimated that between 70-80% of Saudi women and about
20-30% of Saudi men are unemployed. Given these numbers, it's culturally customary that those who
work support those who don't.
ET: There are over
9 million immigrants living in the KSA , representing more than a third of the population. Those
are not small figures. Yet many complain of abuse and violation of human rights. Why is this so?
AA: It's ironic that millions of Saudi men and women are unemployed, yet the public and private
sectors import millions of expatriates to do jobs that the Saudi people need and could do if women
were allowed to work and if the Saudis were paid decent salaries to feed their families. By importing
poverty stricken laborers who are willing to live in appalling conditions, accept subsistence wages
and have no benefits or rights under the Saudi judicial system, the Saudi employers make huge profits.
The
maltreatment of migrant workers by their Saudi employers has been compared to modern slavery
by Amnesty International, Human Rights Watch and many governments' agencies, including our Department
of State, have decried abuses of migrant workers in Saudi Arabia.
ET: Last time we spoke you mentioned that Saudi women are the most marginalized people on the
planet. The KSA has contributed between
$10-25m to the Clinton Foundation , possibly more. While we may never find out how much of that
can actually influence US politics, as suggested by
emails recently disclosed , if Hillary Clinton is elected US President can she do anything to
truly help Saudi women as a result? There could be a conflict there, it seems (not that the men who
preceded her have done much about it anyway).
AA: Despite her pronouncement that "women's rights are human rights," it's unlikely that
Saudi women will fare any better under Hillary Clinton if she were elected President of the United
States. Given the Saudis' generous gifts of
$41 million to the Clinton Foundation and millions to various universities, including the
University of Arkansas when Bill Clinton was President, Hillary Clinton is unlikely to deviate
from the Saudi appeasing policies she pursued as a Secretary of State.
Although promoting Saudi women's rights is unlikely to occur under a President Hillary Clinton,
empowering Saudi women not only promotes human rights, but would represent a major victory over extremism
and terrorism. Even under their current oppressive and inhumane conditions, Saudi women are intensely
engaged in fighting the zealot Saudi religious establishment. Empowering and liberating Saudi women
from the constricting chains of religio-male guardian systems would resonate throughout the Muslim
world, given Saudi Arabia's status as the birthplace of Islam and home to its holy shrines toward
which 1.5 billion Muslims pray 5 times a day.
Paul Kersey
SmedleyButlersGhost
Aug 27, 2016 7:22 PM Just wait until all those Saudi Salafis get control of tens of millions
of dollars worth of weapons the US war profiteering contractors sold the Saudi Royals.
"Salafis are fundamentalists who believe in a return to the original ways of Islam. The word 'Salafi'
comes from the Arabic phrase, 'as-salaf as-saliheen', which refers to the first three generations
of Muslims (starting with the Companions of the Prophet), otherwise known as the Pious Predecessors."
The Salafis are not our good friends.
Mustafa Kemal
Aug 27, 2016 8:00 PM There was no discussion of the fall of SA, especially its main bank, and
the petrodollar in relation to the improving relations between Russian, China and Iran, along with
their gold purchasing and de-petrodollarization.
Its a bit of a double bind I think. dogismycopilot
Aug 27, 2016 9:14 PM When ISIS took over Mosul, the place was full of White Toyotas with Saudi
License plates. Saudi is the mother ship. It must be destroyed.
"... My personal prejudice is that with the removal of sanctions that much of Iran's production increase eventually will be gobbled up by domestic use – their population seems to be too large for it to be otherwise. ..."
Nick , "KSA, for instance, is already using more per capita than almost
anyone."
Is that really true? Does that include all the amounts that run through
its refineries and chemical plants for export? I casually observe that Iran,
with many more people, uses much less. Iran has no substantial refineries,
etc. But, they appear to have much more military/industrial capability.
Maybe someone here knows of a reference that discusses the uses of oil
by KSA viz-a-viz the uses by Iran. My personal prejudice is that with
the removal of sanctions that much of Iran's production increase eventually
will be gobbled up by domestic use – their population seems to be too large
for it to be otherwise.
Does that include all the amounts that run through its refineries and
chemical plants for export?
It just includes domestic consumption. Iran prices gasoline somewhere
near it's market price, while KSA greatly underprices it for domestic consumers.
Iran uses a lot of CNG for personal transportation, I believe.
KSA uses oil for electrical generation, which is ridiculous – it's far
more expensive. But, that's the political power of legacy industries…
"... BHP went from $8 billion profit to $6 billion loss based on latest results ..."
"... This is a typical Wall Street racket. In this case oil producers are victims. ..."
"... It's a classic quandary: that oil priced at over $75 a barrel in today's dollars tends to crush economies, and oil priced under $75 a barrel in today's dollars tends to crush oil companies. There is no real sweet spot between those two places. We're ratcheting between them and each one of them entails a lot of destruction. ..."
"... That's a terrible quandary that we're in and it's being expressed in banking and finance…and the people in charge of those things don't really know what else to do except continue the deformation of institutions and instruments. ..."
"... "U.S. shale oil production is expected to fall for a tenth consecutive month in September, according to a U.S. government forecast released on Monday, as low oil prices continue to weigh on production. ..."
"Capital and exploration expenditure declined by 42% to US$6.4 billion
and is expected to decrease further to US$5.0 billion in the 2017 financial
year (BHP Billiton share)(5)."
I don't know if there is enough detail to say how much came from oil
and gas operations. The Samarco dam accident seems to be budgeted at $1.2
billion so far.
Petrobras made a small profit but less than expected:
"In 2Q16, Petrobras's earnings attributable to its shareholders stood
at $106 million compared to $171 million in 2Q15. This was on account of
a fall in crude oil and natural gas prices, which impacted upstream earnings.
Plus, crude oil and natural gas production volumes fell by 6.3% over 2Q15
to 2.1 billion barrels of oil equivalent per day in 2Q16."
Production has picked up recently though and there is more to come with
several FPSOs in the pipeline, as long as they can avoid major unplanned
outages.
=== quote ===
Societies have a really hard time understanding what they're doing, articulating
the problems that they face and coming up with a coherent consensus about
what's happening, and coming up with a coherent consensus about what to
do about it. Combine that with another quandary, the relationships between
energy and the dead racket for concealing real capital formation. I like
to reduce it to one particular formula that is pretty easy for people to
understand.
It's a classic quandary: that oil priced at over $75 a barrel in
today's dollars tends to crush economies, and oil priced under $75 a barrel
in today's dollars tends to crush oil companies. There is no real sweet
spot between those two places. We're ratcheting between them and each one
of them entails a lot of destruction.
That's a terrible quandary that we're in and it's being expressed
in banking and finance…and the people in charge of those things don't really
know what else to do except continue the deformation of institutions and
instruments.
"U.S. shale oil production is expected to fall for a tenth consecutive
month in September, according to a U.S. government forecast released on
Monday, as low oil prices continue to weigh on production.
"Total output is expected to drop 85,000 bpd to 4.47 million bpd, according
to the U.S. Energy Information Administration's drilling productivity report.
That is the lowest output number since April 2014.
"The EIA's previous forecast calling for an output decline in August
of 99,000 bpd was revised up to nearly 112,000 bpd, data shows.
"Bakken production from North Dakota is expected to fall 26,000 bpd,
while production from the Eagle Ford formation is expected to drop 53,000
bpd. Production from the Permian Basin in West Texas is expected to rise
3,000 bpd, according to the data."
Ron's graphs summarised this better but I don't have the previous history
to show it. Has anybody here explained why Eagle Ford drops are so much
more than Bakken?
Author, commentator and longtime friend-of-the-site James Howard Kunstler
returns to our podcast this week to discuss the importance of accurate diagnosis
-- in this case, of the scourge he sees as accelerating America's downslide
into economic and social decline: Racketeering.
More associated with the organized crime bosses of a century ago, it's not
a word used often these days. But that doesn't diminish in any way its relevance
to and impact on our lives today:
The disorders in politics that we're seeing now are really expressions
of the larger disorders in our economic life and our financial life.
That just happens to be the avenue that the expression is coming
out of. Another point I'd like to make is that the reason that people are
against Hillary or dumping on Hillary or don't like her, is because she's
a poster child for racketeering. I encourage people who are talking about
our circumstances and people who are interested in the news and election,
to use the word racketeering to describe what's going on in this country.
You really need the right vocabulary to understand exactly what's going
on.
Racketeering is just pervasive in all of our activities.
Not just in politics but in things even like medicine and education.
Obviously the college loan scheme is an example of racketeering. Anybody
who has to go to an emergency room with a child whose broken their finger
or something, is going to end up with a bill for $20,000. You know why?
Because of medical racketeering. And so, these are really efforts to money-grub
by any means necessary, often in ways that are unethical and probably illegal.
Let's use that word racketeering to describe our national situation.
And let's remember by the way, the activities of the central
banks is just another form of racketeering. Using debt issuance
and attempting to control interest rates in order to conceal our inability
to generate the kind of real wealth that we need to continue as a techno-industrial
society.
Societies have a really hard time understanding what they're
doing, articulating the problems that they face and coming up with a coherent
consensus about what's happening, and coming up with a coherent
consensus about what to do about it. Combine that with another quandary,
the relationships between energy and the dead racket for concealing real
capital formation. I like to reduce it to one particular formula that is
pretty easy for people to understand. It's a classic quandary: that
oil priced at over $75 a barrel in today's dollars tends to crush economies,
and oil priced under $75 a barrel in today's dollars tends to crush oil
companies. There is no real sweet spot between those two places.
We're ratcheting between them and each one of them entails a lot
of destruction . That's a terrible quandary that we're in and it's
being expressed in banking and finance...and the people in charge of those
things don't really know what else to do except continue the deformation
of institutions and instruments.
Click the play button below to listen to Chris' interview with James Howard
Kunstler (58m:21s).
"... The Norwegian Petroleum Directorate reported that Norway's oil production in July reached its highest level in 5 years because many fields were "producing above prognosis ..."
"... Oil output of 1.728 million b/d was 10% above July 2015 and about 18% above this past June, which had 1.449 million b/d. [June production was low due to maintenance ..."
"The Norwegian Petroleum Directorate reported that Norway's oil production in July reached its
highest level in 5 years because many fields were "producing above prognosis."
Oil output of 1.728 million b/d was 10% above July 2015 and about 18% above this past June, which
had 1.449 million b/d. [June production was low due to maintenance – AlexS].
The July liquids total averaged 2.136 million b/d after combining the oil number with 375,000
b/d of natural gas liquids and 33,000 b/d of condensate."
Iran July crude output 3.63 mill b/d, flat from June, according to PlattsOil
OPEC survey. 1st time this year no month-on-month increase
Last month: Iran oil output 3.66 mln bpd in June, up 50,000 bpd on May and
up 750,000 bpd since sanctions were lifted.
Iran says, oil exports over 2.5 million bpd, near pre sanctions level
Iran: VP Jahangiri on Sunday: IPCs soon to be signed. $220 billion worth
of projects are ready for investment in the oil sector.
Iran are just finalising the petroleum contract details and will start engaging
foreign companies for JVs, although the coming Presidential elections might
mean they have to start all over again. I can't see there is that much difference
now to what was happening before the sanctions, but the important point
will be how much per barrel the outside companies can negotiate.
The oil is mostly in mature, carbonate reservoirs; often originally developed
without pressure support but now with gas and some water injection. I think
they are only getting around 20 to 25% recovery. They are looking for more
of the same to support increased production but also EOR (e.g. maybe miscible
gas?) to increase recovery. Gas injection is not cheap – the gas has to
be bought (might be 10 to 15% of the oil price if natural gas is used –
even if you get it back during end of life blow down it doesn't help current
NPV much), and the compressors, treatment plants and pipelines needed are
capitally and operationally intensive, and take some time to design and
install. So Iran will be asking the foreign majors to take on even more
debt and risk to increase production some years in the future, based on
probably flat rate per barrel payments. It will be interesting to see how
the negotiations turn out (e.g. what price per barrel the companies are
looking for, their appetite to take all the debt burden and how much they
get to know about the reservoirs), especially as the similar Iraq efforts
may be looking a bit disappointing to some at the moment.
With South Pars still ramping up they should be around 18 to 20% condensate
in their overall production mix, so maybe they took condensate out of the
export's while their were sanctions. Alternatively they have a strong petrochemical
industry and use LPG for domestic car fuel as well so maybe the export mix
is different.
Iran's refinery expansion program includes construction of five new refineries
and expansion of existing plants.
At least three of the new processing plants should accommodate the country's
rising condensate supplies:
• Already under construction in Bandar Abbas, the Persian Gulf Star Refinery,
due for startup in 2017, will have capacity to process 360,000 b/d of condensate
from South Pars field
• Also under construction is 480,000-b/d gas condensate refinery in Siraf,
which should process stabilized gas condensate feedstock from different
phases of South Pars.
• 120,000-b/d Pars condensate refinery in Shiraz, scheduled for startup
in 2025.
"... As worldwide net exports capacity barely changed over the last ten years, the fall of net imports from 2008 to 2015 created a gap of surplus export capacity of 4 mill b/d in 2015. Even higher Chinese and Indian net oil imports could not compensate for the fall in worldwide net imports. Should US producers really increase production (and reduce US net imports further) over the coming years, this gap will not vanish and oil prices will be low. If US oil producers go as far as oil independence over the next ten years, it will take ten years until the oil price can go up again as this will bring out another 6 mill b/d of net imports which gives a total gap of 10 mill b/d. This gap can only be filled by China and India (together roughly 1 mill/d per year) over the next ten years. ..."
"... It would make much more sense for US producers to cut production another 2 mill b/d, which will bring up the oil price with the help of higher Chinese and Indian net imports over the next two years ( net imports would then surpass net exports of 40 mill b/d again), and then reduce net imports at a slower rate than Chinese and Indian growth. This could be done at much higher oil prices and much less pain for shareholders and investors. ..."
"... With hindsight this is what US oil producers should have done over the last five years. It was just unnecessary greed, which has led to the current disaster. It is unrealistic to expect low cost oil producers to cut net export capacity. As long this capacity is there, it will be used. It is however another question how much oil net exporter can increase their capacity. This is in my view another unlikely scenario. ..."
"... That shows nothing, of course. The price of oil in Argentina is now over $67/barrel. ..."
"... Oil price won't be low for long – deep see oil will see no investments if prices keep low for longer, 3rd world states with low production costs but high deficit will go into political unrest – and won't invest in infill drilling, gas injection to keep up performance, but in weapons and bribing important people. ..."
"... No one except the US shale producers can keep producing red ink permanently – so if there will be cheap oil, it will be much less than now. It's like filling a car in the socialistic countries in the 80s – you will pay only cheap money, but will have to wait to get some gas. ..."
As oil moved down during the last few days, the question arises about where oil prices are
heading for the next few years. Wall Street and friends have advertised for the x-th time that
oil prices will be at 70 by year end , by the summer, by fall …
…some people are not so sure about higher oil prices in the future.
My personal view is that it is in the hands of Wall Street and US oil producers, where oil
prices are heading. Below chart shows that US oil producers triggered themselves the fall in oil
prices by rapidly reducing US net imports since 2008. From 1991 wordlwide increasing net imports
– up a staggering 15 mill b/d – drove the oil price to record highs when net imports went over
available net exports of 40 mill b/d.
As worldwide net exports capacity barely changed over the last ten years, the fall of net
imports from 2008 to 2015 created a gap of surplus export capacity of 4 mill b/d in 2015. Even
higher Chinese and Indian net oil imports could not compensate for the fall in worldwide net imports.
Should US producers really increase production (and reduce US net imports further) over the coming
years, this gap will not vanish and oil prices will be low. If US oil producers go as far as oil
independence over the next ten years, it will take ten years until the oil price can go up again
as this will bring out another 6 mill b/d of net imports which gives a total gap of 10 mill b/d.
This gap can only be filled by China and India (together roughly 1 mill/d per year) over the next
ten years.
It would make much more sense for US producers to cut production another 2 mill b/d, which
will bring up the oil price with the help of higher Chinese and Indian net imports over the next
two years ( net imports would then surpass net exports of 40 mill b/d again), and then reduce
net imports at a slower rate than Chinese and Indian growth. This could be done at much higher
oil prices and much less pain for shareholders and investors.
With hindsight this is what US oil producers should have done over the last five years.
It was just unnecessary greed, which has led to the current disaster. It is unrealistic to expect
low cost oil producers to cut net export capacity. As long this capacity is there, it will be
used. It is however another question how much oil net exporter can increase their capacity. This
is in my view another unlikely scenario.
Oil price won't be low for long – deep see oil will see no investments if prices keep low
for longer, 3rd world states with low production costs but high deficit will go into political
unrest – and won't invest in infill drilling, gas injection to keep up performance, but in weapons
and bribing important people.
North sea oil will die, it's already in decline and if a few producers stop the common infrastructure
will be too expensive for the rest to maintain.
No one except the US shale producers can keep producing red ink permanently – so if there
will be cheap oil, it will be much less than now. It's like filling a car in the socialistic countries
in the 80s – you will pay only cheap money, but will have to wait to get some gas.
"... As worldwide net exports capacity barely changed over the last ten years, the fall of net imports from 2008 to 2015 created a gap of surplus export capacity of 4 mill b/d in 2015. Even higher Chinese and Indian net oil imports could not compensate for the fall in worldwide net imports. Should US producers really increase production (and reduce US net imports further) over the coming years, this gap will not vanish and oil prices will be low. If US oil producers go as far as oil independence over the next ten years, it will take ten years until the oil price can go up again as this will bring out another 6 mill b/d of net imports which gives a total gap of 10 mill b/d. This gap can only be filled by China and India (together roughly 1 mill/d per year) over the next ten years. ..."
"... It would make much more sense for US producers to cut production another 2 mill b/d, which will bring up the oil price with the help of higher Chinese and Indian net imports over the next two years ( net imports would then surpass net exports of 40 mill b/d again), and then reduce net imports at a slower rate than Chinese and Indian growth. This could be done at much higher oil prices and much less pain for shareholders and investors. ..."
"... With hindsight this is what US oil producers should have done over the last five years. It was just unnecessary greed, which has led to the current disaster. It is unrealistic to expect low cost oil producers to cut net export capacity. As long this capacity is there, it will be used. It is however another question how much oil net exporter can increase their capacity. This is in my view another unlikely scenario. ..."
"... That shows nothing, of course. The price of oil in Argentina is now over $67/barrel. ..."
As oil moved down during the last few days, the question arises about where oil prices are
heading for the next few years. Wall Street and friends have advertised for the x-th time that
oil prices will be at 70 by year end , by the summer, by fall …
…some people are not so sure about higher oil prices in the future.
My personal view is that it is in the hands of Wall Street and US oil producers, where oil
prices are heading. Below chart shows that US oil producers triggered themselves the fall in oil
prices by rapidly reducing US net imports since 2008. From 1991 wordlwide increasing net imports
– up a staggering 15 mill b/d – drove the oil price to record highs when net imports went over
available net exports of 40 mill b/d.
As worldwide net exports capacity barely changed over the last ten years, the fall of net imports
from 2008 to 2015 created a gap of surplus export capacity of 4 mill b/d in 2015. Even higher
Chinese and Indian net oil imports could not compensate for the fall in worldwide net imports.
Should US producers really increase production (and reduce US net imports further) over the coming
years, this gap will not vanish and oil prices will be low. If US oil producers go as far as oil
independence over the next ten years, it will take ten years until the oil price can go up again
as this will bring out another 6 mill b/d of net imports which gives a total gap of 10 mill b/d.
This gap can only be filled by China and India (together roughly 1 mill/d per year) over the next
ten years.
It would make much more sense for US producers to cut production another 2 mill b/d, which
will bring up the oil price with the help of higher Chinese and Indian net imports over the next
two years ( net imports would then surpass net exports of 40 mill b/d again), and then reduce
net imports at a slower rate than Chinese and Indian growth. This could be done at much higher
oil prices and much less pain for shareholders and investors.
With hindsight this is what US oil producers should have done over the last five years. It
was just unnecessary greed, which has led to the current disaster. It is unrealistic to expect
low cost oil producers to cut net export capacity. As long this capacity is there, it will be
used. It is however another question how much oil net exporter can increase their capacity. This
is in my view another unlikely scenario.
That shows nothing, of course. The price of oil in Argentina is now over $67/barrel.
http://oilprice.com/Energy/Crude-Oil/Would-Regulated-Oil-Prices-Argentine-Style-Help-US-Shale.html
Eulenspiegel ,
08/10/2016 at 10:51 am
Oil price won't be low for long – deep see oil will see no investments if prices keep low for
longer, 3rd world states with low production costs but high deficit will go into political
unrest – and won't invest in infill drilling, gas injection to keep up performance, but in
weapons and bribing important people.
North sea oil will die, it's already in decline and if a few producers stop the common infrastructure
will be too expensive for the rest to maintain.
No one except the US shale producers can keep producing red ink permanently – so if there
will be cheap oil, it will be much less than now.
It's like filling a car in the socialistic countries in the 80s – you will pay only cheap
money, but will have to wait to get some gas.
Bloomberg – Crude Slump Sees Oil Majors' Debt Burden Double to $138 Billion – August 5, 2016
As crude trades well below $50 a barrel, Exxon Mobil Corp., Royal Dutch Shell Plc and other
oil giants have seen their debt double to a combined $138 billion, spurring concerns they'll need
to keep slashing capital spending and that dividend cuts may eventually be necessary.
The first-half results indicate that oil companies "are likely to generate large negative free
cash flows for the full year," said Dmitry Marinchenko, an associate director at Fitch Ratings
in London.
"... Output was 79,784 kb/d in April 2016, I believe the decline rate will decrease by Oct and output will be around 78.5 +/- 0.5 Mb/d in Nov 2016, decline will continue into 2017 and the rate of decline may reach zero some time in 2017. ..."
World C+C using EIA data, but substituting the Russian Ministry of Energy Data for Russia
shown in the chart below. The monthly peak was 81, 047 kb/d in Nov 2015. The centered 12 month running
average is also shown with a peak at 80,642 kb/d in Sept 2015. The annual decline rate since the
Nov 2015 peak has been 4.2% per year or about 3.4 Mb/d over a 12 month period if the rate does not
change before Nov 2016. That would imply 77.6 Mb/d by Nov 2016.
Output was 79,784 kb/d in April 2016, I believe the decline rate will decrease by Oct and output
will be around 78.5 +/- 0.5 Mb/d in Nov 2016, decline will continue into 2017 and the rate of decline
may reach zero some time in 2017.
I like Art and now he thinks and writes but I also think that he as some Dennis Gartman blood
in him, he holds many ideas at the same time and he can argue any of them very well. These articles
seem to contradict each other a bit, but they are at least thoughtful..
"Two years into the global oil-price collapse, it seems unlikely that prices will return to sustained
levels above $70 per barrel any time soon or perhaps, ever. That is because the global economy
is exhausted" ~A.Berman ca. July. 2016
"But from 2008 to 2015, oil production actually fell in 27 of 54 countries despite record high
price. Thus, while peak oil critics have been proven right in North America they have been proven
wrong in half of the World's producing countries" ~ E. Mearns ca. July, 2016
It looks like my posts at this fine blog for the past 2 – 2.5 years are finally being read
and understood …..
Maybe one day even Dennis will get the message…….
……one can only hope…..
"…while indeed initiated by geology, this time "PEAK" shall be by the way – and in the form
of low prices…" ~ Petro's main theme for the past 2 years on POB
Be well,
Petro
P.S.: a little hubris and arrogance is healthy now and then….
I totally agree with you. I see the oil price rising well over 100 bucks per barrel before the
end of the decade.
As for the persistent fantasies that Russian oil output will decline. The exact opposite will
happen in the long-term. Russian oil reserves easily dwarf anybody else's.
The concluding paragraph on the oil reserves of the Bazhenov formation in SW Siberia reaches
an unequivocal conclusion:
"Giant recoverable oil reserves contained in the fractures suggest that the Jurassic reservoir
is a primary oil accumulation which has no analog all over the world. Therefore, we believe that
Russia has the largest hydrocarbon reserves in the world."
It is fine and dandy that you show some arrogance when the data is starting to support your
hypothesis, however I must point out that a lot of people have been coming to the same conclusions
at about the same time. There are a lot of clever people in the world.
Ron Patterson has been onto oil decline for a very long time from studying oil production data.
He was about the first to realized that LTO was not a solution to the Peak Oil conundrum. He probably
realized about the 2015 Peak long before he put it on writing. He can tell us. I seem to recall
reading his prediction within the first half of 2015.
Euan Mearns seems to be reaching the same conclusion from the same background, his geological
expertise, but only now have I read him put it on writing.
Art Berman has come to the same conclusion from a very different background, the energy investment
field. This is also the first time I read him say it so clearly, but he probably reached his conclusion
some time ago and only now he dares to write something so strong in his influential blog.
Myself I reached the conclusion that Peak Oil was imminent in September 2014, from economic
insight after I clearly saw that the oil price crash was really bad news for the consumer long
term, while most people thought (think) that is great news for the consumer. I studied oil production
data and saw my fears confirmed. That is when I started my oil (and climate) blog, and my first
prediction on writing of a 2015 Peak Oil is from November 2014, and again February 2015.
My understanding of macroeconomy is not as good as yours, but is good enough to understand
that we are facing the end of the road and the can kicking will not continue much longer. Central
Banks are buying some time through desperate measures that will make the fall harder while the
elites hasten their preparations. We are contemplating the Peak of our civilization (in my opinion
Peak Civilization took place in the early 70's) and its unraveling is going to be a very long
stressful one.
You might be right and I might be wrong. What it is clear is that we see more or less the same
situation but a completely different outcome.
Two things separate completely my analysis from yours:
The first is that I see a monetary crisis as unavoidable in the not too distant future. Most
of the planet's wealth is in the form of electronic money (derivatives and financial instruments).
The folly of Central Banks is hugely increasing those that are in the hands of the financial elite
so there is less and less real wealth (land, resources, and productive industries) to support
that virtual wealth. At some point the bubble is going to be so big and the leverage so high that
there is going to be a run of that virtual wealth to become real at any cost and that is going
to destroy every currency you can buy something of value with. Over here in Europe I am already
seeing some worrying signs of what is coming, as payments in cash are being limited to ridiculously
low amounts and governments are trying to force everybody to have their money in the banks. With
a monetary crisis the price of oil in dollars has no point of reference and predictions have little
value. The US has no experience for generations on monetary crisis, so that is going to be a real
shock.
The second thing is that during economic crisis wealth gets distributed more unequally. The
middle classes and low classes lose their savings and everything of value they have while some
elite class fare quite well even if they lose part of their nominal wealth. This has several dire
consequences. It can lead to bloody revolutions like the French or Russian revolutions. And in
any way it leads to most people not being able to consume much. There won't be enough customers
for oil, making your price predictions useless.
My own personal thought is that the current pricing system for oil based on margin pricing
will have to be abolished once the shit hits the fan. It will simply not work. They'll think of
something to avoid total collapse of oil production.
"... Actually the opposite is true, they carefully manage water injection so as not to bypass any oil and, for example, in the past would rest Al Abqaiq field without production to allow the water contact to level out (that field might now be close to exhaustion). They have the best reservoir models in the world and will drill wells just to allow monitoring of the reservoir if needed. ..."
I have no idea what you are talking about. I don't remember any such discussion and I have followed
KSA production since about 2001. KSA has used water injection for way over half a century. That
is the only way they can keep the pressure up. It does not damage their fields other than normal
depletion.
From the wiki page on Saudi oil reserves- "Simmons also argued that the Saudis may have irretrievably
damaged their large oil fields by over-pumping salt water into the fields in an effort to maintain
the fields' pressure and boost short-term oil extraction". It was a theory that I saw regurgitated
when KSA was threatening to pump xx millions last year. Thought I saw it here; apologies if not.
Actually the opposite is true, they carefully manage water injection so as not to bypass any oil
and, for example, in the past would rest Al Abqaiq field without production to allow the water
contact to level out (that field might now be close to exhaustion). They have the best reservoir
models in the world and will drill wells just to allow monitoring of the reservoir if needed.
We usually inject salt water. I assume water being injected in Saudi Fields is mostly sea water.
As long as the waters are compatible and the water is oxygen and bacteria free then there's no
problem on the "chemistry" side.
Not knowing the detailed well layout and rock description it's hard for me to speculate with
authority. The key in these fields is to pump water to sustain reservoir pressure slightly above
the bubble point. Thus it's possible that an operator could inject too much, in the sense that
pressure would be kept a bit too high. This in turn reduces recovery factor a small amount.
By the way, I've seen countries where regulations don't allow fine tuning pressure, and we
are forced to operate at a pressure higher than optimum. The guys who wrote those regulations
simply didn't understand the way Mother Nature works.
It's not just Russia. It's KSA, too. Ron's numbers lay it out.
It's Been Two Full Years of price decline. There is no more . . . oh it's just some transitory
effects and we should just wait. Hell, if you wait for anything you'll eventually see it, and
declare that moment verification.
It's not about some "when". It's the area under the curve. All this time it's not happening,
because it's all gone away since 2009. And it's never coming back.
It makes sense to me that in the areas where production costs more, production is declining, while
where production costs less (Middle East and Russia) production is holding steady to rising.
Why should price matter when it's defined in what has been exposed as whimsically defined pieces
of printed paper?
Only a tiny fraction of all money is in paper printed form. The vast majority of all money
is just an electronic entry in a bank somewhere. The form money is in, either in paper notes or
as an electronic entry in a bank account, does not change the value of that money. Lots of things
can change the value of money, but the fact that it is either printed or in entry form changes
nothing.
Russia is seriously hurting because of the low price of oil and Venezuela is dying because
of the low price of oil. How can anyone on earth possibly believe that price does not matter?
The low price of oil has a different effect on different producers. In many places the cost
of production is still below the price of production. So these folks are producing every barrel
possible just to try to stay afloat. But in places where new production cost more than the current
price, production is dropping drastically.
You cannot measure every barrel produced with the same ruler. Production costs differ and this
difference has a corresponding difference in production.
Russian oil companies are largely shielded from negative effects of low oil prices by:
1) the depreciation of the ruble, which makes oil prices higher in ruble terms and costs lower
in dollar terms;
2) the Russian oil tax system, which imposes much higher taxes when oil prices are high and much
lower when prices are low.
But Russia is not typical.
In most other countries producers are much more exposed to the price effects
Production cost differential was true in mid 2014 as well as now.
The price is less than half what it was and two full years have passed. Production is up in
the two countries that represent what, a full 25% of the global output.
You guys are contorting yourselves to make an overwhelming reality fit your preconception.
These central banks don't have any idea what trillions upon trillions have done. Hell, Fed governors
have explicitly said they don't.
The "Financial System" is nothing but a bunch of Ponzi Systems.
How else does a small default trigger the collapse (Japan 1997, USA 2008) of the entire interbank
market?
Shadow Banks
"Money" Markets
Goldman Sachs appointed central banks
Does that come across as legitimate? And that Shadow Banks are somehow disconnected from the
regulated banks? Nonsense.
Short term debt in these "Money" markets is Private Money. Fake Money. Ponzi Money. The Ponzi
Operators control the central banks, not the respective governments. Read the new legislation
after 2008 where government was cut out of the loop.
Isn't it funny when their is a run in the Shadow system by the default of a small firm that
it PERMANENTLY impairs the ENTIRE real economy.
The definition of Money is More Transactions (Bigger Ponzi) than anybody else. There is nothing
real about it because relationship banking disappeared long ago.
Originate a loan, package it, get rid of it, and collect a fee. More loans (transactions),
more fees to collect, more power. More subprime = Greater power.
"... There seems to be a general assumption that the larger conventional producers can choose to significantly ramp up production when they like, but I doubt that is true. Saudi have just bought on line the Shaybah extension which was a pretty big job to extend production facilities for 'just' 250,000 bpd. ..."
"... Usually in mature fields the wells become limiting. For example as water cut increases not only does the water displace the oil but also, as it is significantly heavier than the oil/gas mix in the wellbore, the overall flow rate declines rapidly. ..."
There seems to be a general assumption that the larger conventional producers can choose to
significantly ramp up production when they like, but I doubt that is true. Saudi have just bought
on line the Shaybah extension which was a pretty big job to extend production facilities for 'just'
250,000 bpd.
Production from a given field may be limited by different parts of the facilities at different
times. Typically the limit will be the lowest nameplate capacity between each of: the reservoir
/ wells; oil processing; produced water handling; associated gas compression; total liquids flow;
water (or gas) injection capacity. Overall power availability may also be limiting at some combination
of oil/water/gas flow below each one of their individual limits.
Usually in mature fields the wells become limiting. For example as water cut increases
not only does the water displace the oil but also, as it is significantly heavier than the oil/gas
mix in the wellbore, the overall flow rate declines rapidly. However this need not always
be the case. In Saudi I think they design and manage their facilities to keep the production at
the oil flow design capacity, which is nominally set to give 2% depletion of the original estimated
ultimate reserves per year. To maintain this they maintain excess capacity in the other key facilities.
In particular they need to control the water cut by using intelligent wells, expandable liners,
and recompletions, or when needed drill new wells higher in the formation. If they lose control
of the water cut, which must happen one day (ideally for them it would be the day they flow the
last barrel of oil and shut in but that is not going to happen) then the likely limit will be
water injection capacity. Water has to be pumped in to maintain pressure to exactly balance the
volume pumped out. For the produced water in the oil that is about one for one, for a stock tank
barrel of oil it is higher because the oil shrinks as it cools, but mainly because of the gas
that is lost. This is ratio is called the formation volume factor and typically is 1.1 to 1.8.
Say for a field the water cut is 50% and the FVF is 1.5, this means 2.5 bbls of injection water
are needed to give one bbl of oil. I don't know the Saudi figures but something like that for
them means 25 mmbwpd injection (that represents a huge amount of large pipes and pumps, and power
– the water isn't like domestic supply, it has to be at high pressure). It's not normally economic
to build in much spare capacity for the piping systems (but who knows with Saudi). Once water
can't be controlled in horizontal wells the cut increases quickly, if it can't be handled within
the facilities and enough pressure maintenance from injected water supplied then the oil production
has to fall (i.e. wells choked back) accordingly.
If at a capacity limit (or limits) increasing production may need new wells, but more than
that completely new topsides facilities, anything more than a few tweaks would need at least 2
to 3 years engineering, procurement and construction effort.
Very good overview. I worked with a field set up to handle extra water, but they forgot the water
heat capacity requires more heaters. So as water cut climbed we had to use lots of chemicals to
get clean oil, until we could install more heaters and heat exchangers. These bottlenecks can
be really subtle, so I took to asking for full surface system simulation runs at 90 % field water
cut to see where the troubles were bound to pop up.
I think Survivalist and Petro have nailed a very good analysis of the situation. When prices crashed
most National Oil Companies and many independent producers tried (and are trying) to produce more
to maintain income. The real tragedy comes when prices remain low and production falls like in
Venezuela. Lack of investments guarantees that this will happen eventually to most producers,
and then once production falls enough we will get very destructive price spikes.
Petro, we see eye to eye on much these issues, but I do think that the world economy will be able
to pay much more for oil than 60$ without crashing. Probably more than $100.
The stuff is too useful, and money will be diverted from other uses to keep buying it.
We'll see, one way or another….
You cannot simply look at the oil price between 2010 and 2014 and deduce that those prices
are sustainable for the World economy. You need to understand the situation under which those
prices were made possible at the time. The period 2009-2014 was a time when Chinese debt was growing
at unsustainable levels to fuel an oil demand that compensated the demand contraction from an
overindebted Europe that could not accept those high oil prices and went into recession and debt
crisis. The period 2009-2014 was also a time when central banks engaged in exceptional ZIRP and
quantitative easing policies with most countries significantly increasing their public debt.
But there is only one China and all significant economies have now a high level of indebtment
so a very rapid growth of debt has become a lot less likely. At the same time ZIRP and quantitative
easing policies are a one way avenue of increasing risk, decreasing effect, and extremely difficult
return.
The oil price crash has probably delayed the next economic crisis. However the world economy
is in no position to assume the oil prices required to guarantee the level of investment required
to increase oil production above 2015 levels.
Oil depletion, debt, and low economic growth, will all work to make 2015 the year of Peak Oil.
If we enter a period of high oil price volatility due to mismatches between production and demand
that will be very destructive both to the economy and to oil production.
Possibly $100/b is a problem, but there is a lot of room between $50/b and $100/b. When oil
supply decreases, oil price will increase. How much oil prices can increase without damaging the
World economy is far from clear.
One can arbitrarily claim $75/b is the magic number that will make the economy crash,
nobody knows. There might be a sweet spot between $75/b and $95/b where oil supply can
either be maintained or possibly increase slightly and not cause World output to decline. World
debt to GDP has been relatively stable since 2010 based on BIS data.
Javier- you (and Petro etc) may be right, and the civil difficulties of Venez and poverty of Moldova
may be coming to places far and wide.
I'm thinking that most commerce will still churn on, even if oil is 100$. Maybe just wishful thinking.
I agree. There is very little evidence that oil over $75/b kills the economy, what it has done
recently is result in too much oil production relative to demand.
What has changed is that there is no one willing to cut back on output. From 1930-1970, Texas
was the World's swing producer and from 1985-2014 Saudi Arabia fulfilled that role. Now we will
see volatility in oil prices unless some new cartel is formed, maybe OPPC (Organization of Petroleum
Producing Countries).
US, Norway, UK, Russia, Brazil, and Canada could join the OPEC nations and have a production agreement
to control oil prices.
This would never happen, but maybe each nation should regulate output as the RRC once did for
Texas, it would help with oil price volatility.
Reply
"... Survey of international spending reveals a 19% decline compared with an initial estimate of 14% in January. The Middle East remains an area of stability while the largest negative revisions come from large IOCs, Latin America, and the Asia Pacific region, excluding China. Latin America is still the weakest region, where spending is expected to decline 30%. ..."
"... IOCs and independents are projected to have spending declines of 24% this year, while other independents are expected to spend 45% less. This compares with prior decline estimates of 10% and 17%, respectively." ..."
E&P spending is much lower this year than was expected even after the big cuts initially announced.
US independents and Canada in particular are hurting. Middle East is the only place holding up.
"In its midyear E&P spending update, Cowen & Co. now estimates global expenditures to fall
24% compared with a 16% decline in its January survey. The downward revisions were primarily driven
by larger spending cuts from North America-focused E&Ps and major international oil companies.
In this update, Cowen & Co. expects US spending to decline 45%, reflecting oil prices of $40/bbl
and natural gas prices of $2.50/MMbtu. This was down from a 22% estimate at the time of January's
survey, which was based on $48.5/bbl oil and $2.50/MMbtu gas. Canada spending is expected to fall
33% compared with an earlier estimate of an 18% falloff.
Survey of international spending reveals a 19% decline compared with an initial estimate of 14%
in January. The Middle East remains an area of stability while the largest negative revisions
come from large IOCs, Latin America, and the Asia Pacific region, excluding China. Latin America
is still the weakest region, where spending is expected to decline 30%.
IOCs and independents are projected to have spending declines of 24% this year, while other independents
are expected to spend 45% less. This compares with prior decline estimates of 10% and 17%, respectively."
"... It took a while, but Exxon has decreed force majeure on Qua Iboe. That's the export terminal they have repeatedly said was not attacked first of this week. 300,000 bpd that will not be exported, for a while ..."
Maybe my imagination has become to active, but I believe the story of the NDA attacking Mobile's
Qua Iboe terminal should be getting more interest. Monday night the NDA announced they had blown
up the 300,000 bpd export line. Exxon was quick to deny that an attack had taken place. Someone
is lying and it is not clear who.
http://footprint2africa.com/nigeria-militants-exxonmobil-tug-words/
Although it seems almost inconcievable that Exxon would lie about this, there are a couple
of things that make you consider the possibility. One is that in May there were reports of a militant
strike on the facility, which was denied by Exxon. Shortly after that Exxon reported that a malfunctioning
rig had caused damage to the facility, and it was shut down for a short while.
Another is that after the latest attack claimed, Shell reportedly shut in the trans-Niger pipeline,
and there have been reports of oil companies evacuating 700 staff.
It took a while, but Exxon has decreed force majeure on Qua Iboe. That's the export terminal
they have repeatedly said was not attacked first of this week. 300,000 bpd that will not be exported,
for a while
"... Steve Kopits at Princeton energy advisors has shown that between 1998-2005 $1.5 Trillion was spent on oil CapEX to increase oil output by 8.4 Mbpd and that from 2005-2013, $4.0 Trillion was spent on CapEx to increase output by just 2.4 Mbpd. ..."
The price of oil seems pretty darn important. Art Berman had an interview with Chris Martenson
on peak prosperity that projects with some 20 Billion barrels of oil have been deferred due to
the current low price. That's a pretty large amount of oil that's not coming online when required
as a result of price.
Not to mention that oil is becoming much harder to find, Steve Kopits at Princeton energy advisors
has shown that between 1998-2005 $1.5 Trillion was spent on oil CapEX to increase oil output by
8.4 Mbpd and that from 2005-2013, $4.0 Trillion was spent on CapEx to increase output by just
2.4 Mbpd.
Society is energy constrained and it's showing up in the economy with crazy effects like NIRP,
where $13 Trillion worth of global bonds now yield negative returns from Zero just a few years
ago, think about that, paying someone to borrow your money!! Also an economy where young people
aren't getting decent jobs to pay for incredibly overpriced house prices as evidenced by affordability
ratios, where populism and extremism is on the rise globally as well as large swathes of society
are left out of prosperity. Energy is the ability to do work, without increasing energy supplies
society has to fundamentally change.
"... There are still a lot of projects due this year and next and even into 2018, but not quite enough to make up for the declines. ..."
"... Probably 2.5 to 3.5 mmbpd fall over the three years barring big, unexpected outages. In 2019, 2020 and 2021 there will be dramatic and accelerating falls unless a lot of expensive, and currently delayed, oil developments are fast tracked soon, or a lot of very cheap oil is found somewhere, or in fill drilling ramps up quickly on the big reservoirs. ..."
"... It's time lag. Simply said, when prices where at 100$+, everyone had lot's of money to invest and drilled like mad to get even more oil, explored, developed new fields. These operations have normally completion times of a few years, so they come alltogether online now. A typically pork circle. Price does matter – now new projects are delayed or canceled, ready to go into the next round. ..."
"... How can anyone possibly deny the effect the price of oil has on the production of oil? The very high price of oil brought on the shale revolution. Oil prices above $80 a barrel caused shale oil production to boom. However shale oil production is just uneconomical at prices below $60 a barrel, or somewhere in that neighborhood. ..."
"... Almost every barrel being produced cost a different amount to produce. There is a thing called "the margin". That is what it cost to produce the most expensive barrel of oil being produced. As the price of oil drops, barrels being produced "at the margin" starts to drop off. More expensive oil stops being produced, less expensive oil continues to be produced. Of course there is a delay between the price dropping below the margin and that marginal barrel dropping from production. ..."
Has depletion finally gained the upper hand? My back of the envelope calculation:
Conventional: 78 million barrels at 4% = 3.1 million barrels.
All other: 19 million barrels at 10% = 1.9 million barrels.
Total: 5 million barrels per year
2015 was a year where a lot of projects came online that were developed in previous years. There
is less of that this year. So 2 million for this year seem reasonable. Next year will be interesting.
If demand keeps growing, there should be a substantial shortfall, draining storage. The only way
to close the fast growing gap is a miraculous recovery of Libya and others that are currently
hampered by political unrest.
There are still a lot of projects due this year and next and even into 2018, but not quite enough
to make up for the declines.
Probably 2.5 to 3.5 mmbpd fall over the three years barring big,
unexpected outages. In 2019, 2020 and 2021 there will be dramatic and accelerating falls unless
a lot of expensive, and currently delayed, oil developments are fast tracked soon, or a lot of
very cheap oil is found somewhere, or in fill drilling ramps up quickly on the big reservoirs.
We'll get to see the truth behind LTO sustainability and flexibility; that and depending on how
demand goes, plus the real storage numbers will determine prices and therefore future supply developments.
Overall though I agree, I think we will suddenly find ourselves short at some point in the next
5 years, and without many options.
Watcher – I think that Ron "almost" has you pegged. Basically he notes that no one can be that
Fu–ing stupid. But, he may be wrong. What in the hell are you talking about when you say "you
can kill competing consumption with weapons?" Why would anyone in the supply chain want to kill
"CONSUMPTION?"
It's time lag. Simply said, when prices where at 100$+, everyone had lot's of money to invest
and drilled like mad to get even more oil, explored, developed new fields.
These operations have normally completion times of a few years, so they come alltogether online
now. A typically pork circle. Price does matter – now new projects are delayed or canceled, ready to go into the next round.
How can anyone possibly deny the effect the price of oil has on the production of oil? The very
high price of oil brought on the shale revolution. Oil prices above $80 a barrel caused shale
oil production to boom. However shale oil production is just uneconomical at prices below $60
a barrel, or somewhere in that neighborhood.
Dammit, it is as plain as the nose on your face. Price determines production. Does Watcher
really deny that simple fact? No, Dennis, you are simply mistaken. Watcher is not so dumb as to
deny that simple fact…. Is he???
Watcher has BEEN denying it, as steadily as if somebody were paying him by the word, for as far
back as I can remember.
Some people, quite a few actually, believe God looks after their lives for them on an every
day basis, and no amount of evidence, good or bad, is enough to shake this conviction.
Watcher apparently believes in some UNIDENTIFIED POWER that keeps oil coming regardless of
the price, or perhaps more accurately, keeps it coming even while controlling the price and forcing
it down by half or three quarters.
Of course there might be another explanation. Maybe he just enjoys rubbing everybody nose in
the apparent failure of the market system in the case of oil.
The explanation is simple enough, in principle. The oil industry is the biggest and slowest
moving of all industries, when it comes to NECESSARILY operating on a five to ten year time scale
in terms of making production decisions.
Being an orchardist, I am personally quite comfortable with such planning time scales, because
my kind of work is planned on a very similar time scale. If I miscalculate , meaning guess, really,
what the price of apples will be ten years down the road, and plant too many new trees, I am not
just going to take a chainsaw or bulldozer to my orchard because the price collapses. I wait it
out, and hopefully OTHER orchardists go broke first. Old trees will be dying, there is depletion
in apples, lol.
The production decision making process is triply compounded in difficulty by what we usually
forget , because in a forum such as this one, the discussion is centered around BUSINESSMEN out
to make a living, folks such as Mike, Shallow Sand, Texas Tea, etc. They make rational decisions,
as best they can.
What we forget is that the oil industry is an industry dominated by governments, and governments
are notoriously clumsy in managing their business affairs when circumstances demand action.
Politicians, be they Saudi kings or socialist Venezuelans, or right wing dictators or more
middle of the road types, are NOT going to do anything to upset their citizens, or piss them off,
if it can be avoided. Laying off a few tens of thousands of people is just not DONE until there
is NO OTHER choice.
Nobody would notice if we laid off half the people who work in the post office here in the
USA. Every body I know , excepting my cousin who is a carrier, and the post master, thinks we
could get along JUST FINE delivering the mail three days a week instead of six.
Politicians at the top of the heap are mostly interested in one thing, that thing being to
stay in power, and to do that, they play an incredibly complicated, fluid game maintaining the
network of supporters who ENABLE them to STAY in power.
Expecting them to act like BUSINESSMEN running a business is naive. As a rule, they will never
do anything proactive in order to solve a problem that might just go away by itself. When they
DO do something , it is to be expected that the doing will be undertaken much later than it ought
to be, and that it will be inadequate to deal with the problem until the problem becomes an existential
emergency.
ONCE all the chips are on the table, and it's literally do or die, or be sent home, out of
office and out of power, governments can do some pretty spectacular things, such as mobilize to
fight a flat out war.
Things aren't that bad yet, in the countries dependent on oil revenues,excepting Venezuela.
Maduro is actively constructing a police state in hopes of staying in power.
The industry has excess capacity. It took years to build that capacity, and the economy couldn't
absorb the amount of oil coming to market at a hundred bucks, so the price collapsed. The economy
IS absorbing the oil coming to market, about the same amount , at about forty bucks.
It will take a WHILE for the excess capacity to dry up.Maybe another year or two, maybe less,
maybe longer. If the economy turns sour, it will take longer.If the electric car revolution really
comes to pass, on the GRAND SCALE, and very quickly, demand destruction will mean there is so
much excess capacity that the price will stay low for a long time.
There is nothing involved in understanding the oil price question that requires more than a
basic understanding of supply and demand, plus an additional understanding of the relevant time
scales and the nature of GOVERNMENTS as opposed to BUSINESSMEN making decisions.
If businessmen were running the post office, we would have half as many postal employees, lol.
Maybe even less.
Farmers have generally done the same thing, collectively, when the price of whichever crop they
produced crashed.
As an individual guy growing corn, or wheat, or rice, or apples, I cannot produce enough, or
cut back far enough, to influence the market price. What I CAN do, is go flat out to produce every
possible last bushel, going for the all important marginal dollar that might enable me to survive
short term. This is what the SMALLER oil producers are doing, by and large.
While producing flat out individually, and collectively, we make the price crash even lower,
and stay in the pits longer, but then this is what drowning men who cannot swim do in the water-
try to survive by pushing themselves up by pushing another man under.
The game changes when one (or more) supplier is big enough and rich enough to have pricing
power and staying power running at a loss. In that case, the big boy can "sweat" the little fellow
, in the words of John D Rockefeller, running him out of business, deliberately.
Now this didn't take long at all while Rockefeller was running a small local company out back
in the early days of big oil, but it can take a hell of a long time when the little guy is a sovereign
government, or a giant corporation. I should say that SA and Russia are engaged in BOTH ways,
producing flat out to maximize revenues, plus hoping to run some competitors out of the market,
at least temporarily.
Folks who aren't TOO simple minded to think a little also realize there is such a thing as
war and politics, and that war can be fought in markets as well as with guns. The USA basically
broke the old USSR by making it impossible for that now dead empire to compete with us on building
guns, never mind butter, plus encouraging the Saudis to flood the market and deprive the Soviets
of oil revenue. Hard core D types will never admit that this is true however, because it is grounds
for being kicked out of the party to admit that a Republican has ever succeeded at doing anything
at all except creating more and bigger problems.
There is an element of WAR being played out in the oil markets now, and for the last year or
two, and it will continue to be important for a while.
Anybody who thinks anybody in DC, excepting oil state congress critters and oil lobbyists,
gives a flying fuck about the oil industries problems has a near zero understanding of economic
politics. Cheap gasoline is an elixer that is damned good for the OVERALL economy, and as good
as a zanax for soothing the nerves of consumers. To expect the Obama administration to do anything
to raise the price of oil, when raising it would cost D 's elections, is tantamount to insanity.
Who can remember this quote? "It's the economy, stupid"?
Hells bells, the R party rakes the D 's over the coals for LOWERING the price of oil by insisting
on higher fuel economy standards, lol.
And one last little bit of ranting, and I will lay off for an hour or two , at least, so help
me Jesus. This is history we are talking about, not a goddamned thirty minute tv show.
Looking at what Ron has said that the threshold for LTO production is $60, what I find important
is that just a few years ago that threshold was in the $80 to $100 range.
Even at today's prices, $45 to $50 range, we have seen the oil directed rig count, increase
over the past few weeks.
This indicates that some of the better plays have a lower threshold.
As we go out in time I would not be surprised that the $60 threshold will move down again.
R DesRoches,
absence of some new technology, I expect we are at the lows of what LTO break-even cost will be
for the best LTO plays. As oil prices pick up and balance sheets get better the drilling companies,
Fracking co will begin to have some better pricing power and I expect they will use it. So for
a time expect break even to stay low but begin to rise "somewhat" as prices move up. I still think
$75 WTI is what the best companies in the best plays really need to MAKE MONEY not just break-even
in a normal business environment. (lets says 1200 rigs running lower 48 ) I know I would be drilling
in the areas I am active at that price, $50 not so much and only with a gun to my head :-)
RDR – I am never sure of what anybody said about breakeven, unless it is accompanied by a complete
financial statement.
If an oil company has undrilled land in an LTO area, that (1) needs production to "hold" the
lease, and/or (2) has bank debt related to its lease acquisition, then: Their breakeven point
and perspective is totally different (lower) than if you or I tried to determine our breakeven
point if we went someplace, bought acreage and drilled a well.
OTOH, I notice 2 yrs later KSA is producing 600K bpd more oil at less than half the price.
And what is Russia producing now at less than half the price?
Watcher, you cannot measure every barrel produced with the same yard stick.
It cost KSA about $20 a barrel to produce oil, more in some places less in others. Therefore
they want to produce every barrel possible in order to meet their budget.
It cost Russia pretty much the same to produce oil from their old fields. But it cost them
much more to find new oil and produce it. The price of oil is hitting Russia very hard but will
hit them much harder unless the price rises soon.
The low price of oil is killing Venezuela. Their production is dropping. It will drop much
further unless the price starts to rise soon.
Almost every barrel being produced cost a different amount to produce. There is a thing
called "the margin". That is what it cost to produce the most expensive barrel of oil being produced.
As the price of oil drops, barrels being produced "at the margin" starts to drop off. More
expensive oil stops being produced, less expensive oil continues to be produced. Of course
there is a delay between the price dropping below the margin and that marginal barrel dropping
from production.
Watcher, it is just fucking insane to claim that price has no effect on production. You have
to know better than that. Why on earth do you think the number of oil rigs working in North Dakota
dropped fro 215 rigs four years ago today, to 30 today? It was because the price of oil dropped
and for no other reason. And that decline in the number of rigs is currently having a dramatic
effect on oil production in North Dakota.
Dennis, I was just being sarcastic. I know that Watcher really does believe that the price of
oil makes no difference. Imagine that! He also believes that money is just a piece of paper.
If you go to any of the big LTO independent oil companies web sites and look at their investor
presentations you will find two trends.
First the day to drill wells have come down in the last couple of years, in many cases by over
30%.
Second with bigger fracs and changes in the mix, IPs and EURs have gone up, in many cases above
25%.
What this means is that the break even price of oil has been coming down.
We are starting to see rigs coming back to the patch at oil prices below $50. IMO as the oil
prices moves up towards the $60 level the rate of increase in rig counts will also increase.
Well costs went down and then back up as more esoteric well designs have become common. Note
that supd costs may have gone down and LOE might also have gone down, but you are leaving out
completion costs which is about 2/3 of the capital cost of the well, the decrease in spud cost
has been more than offset by increases in completion costs (this includes the fracking). On balance
total well cost has probably not decreased much and for the newer designs with more stages (up
to 40 or so in the Bakken) and higher amounts of proppant, total well cost has probably increased.
The "lower well cost" presented in the investor presentations is for an older "standard well
design". The newer well designs that have increased the output per well cost an extra 1 or 2 million
per well (in the ND Bakken/Three Forks).
What does frac water cost per barrel, or at least a range? How many barrels of water are needed
to drill and complete a hz well? How much does trucking the water cost.
I know all this can vary, so just some ranges will do.
I took a look at oil rigs operating in the Permian, Bakken and Eagle Ford.
For those 3 plays we have:
Total oil rigs- 213
Horizontal-191
Vertical- 22
Bakken – 28T, 27H
EF- 27T, 26H
Permian-158T, 138H, 74% of oil rigs in the big 3 LTO plays.
Of the 28 oil rigs added since May 27, 2016, 22 were added to the Permian and all were horizontal
rigs. The Bakken added 5 horizontal rigs and 1 vertical and the EF 1 vertical rig.
Based on this, Eagle Ford is probably the high cost play, then Bakken, with the Permian perceived
as best at the moment of the LTO plays.
-Not only price does matter, but It is PRECISELY due to the low prices that everybody is producing
in a " …the last big party…" mode, … last oomph, if you will!
All in!
All they can!
….and has little to do with the "delayed effect"…. if there is such a thing.
Some 20 carmakers have committed to making automatic emergency braking systems a standard feature
on virtually all new cars sold in the U.S. by 2022, according to a new plan from the
National Highway Traffic Safety Administration and the Insurance Institute for Highway Safety.
Automatic brakes are designed to stop a vehicle before it collides with a car or another object.
Experts say that making them standard could prevent as much as 20 percent of accidents.
NPR's Sonari Glinton reports for our Newscast unit:
"Many cars on the road now have automated brakes. And when you're new to them, it's pretty scary
when the car stops on its own. But experts say automatic brakes could make the fender bender a
thing of the past.
...
"It's part of a push to fight the growing problem of driver distraction and a step closer to
driverless cars. Now carmakers have to figure out by 2022 how they'll integrate the systems."
NHTSA released a list of the car companies that have committed to the system:
"Audi, BMW, FCA US LLC, Ford, General Motors, Honda, Hyundai, Jaguar Land Rover, Kia, Maserati,
Mazda, Mercedes-Benz, Mitsubishi Motors, Nissan, Porsche, Subaru, Tesla Motors Inc., Toyota, Volkswagen
and Volvo."
"In 2012, one-third of all police-reported crashes involved a rear-end collision with another
vehicle as the first harmful event in the crash," according to the government's information page
on Automatic Emergency Braking systems.
It adds that AEB systems can either avoid or reduce the severity of some of those rear-end crashes.
In a statement about the plan, NHTSA says the "unprecedented commitment" from the automakers will
bring the safety technology to "more consumers more quickly than would be possible through the regulatory
process."
Looking at Art Berman's chart below. World oil production since 2005, less US and Canada, has
been pretty much flat. This is despite the fact that prices have risen dramatically in that period
of time. So lets look at the other huge gainers since 2005.
Russia: See the EIA's take above. Even if they are wrong, Russia's huge gains are gone forever.
Angola, Brazil, China and Colombia: China and Colombia have definitely peaked. Angola peaked
in 2010 and has declined slightly and been flat since then. Only Brazil has any hope of increasing
production, and tat not by very much.
Iraq: I believe Iraq has peaked. Some may disagree but there is no doubt that their best days
are behind them. They have far more downside potential than upside potential.
There is little doubt that all those countries will decline in the next few years regardless
of what the price of oil is. After all, if oil above $100 a barrel in the past did not sent them
producing massive amounts of oil, there is no reason to believe it will do so in the future.
That leaves the USA and Canada. To those massive high prices in the past few years, only
the USA and Canada responded. So… will higher prices bring on enough US and Canadian production,
to make up for the decline in the rest of the world… plus increase production enough to push production
above the 2015 peak?
Sobering, as Euan writes. Alarming I'd say.
In a possible future's retrospect, it may turn out to have come as a surprise how fast things
unraveled sociogeopolitically so close after the peak.
Fossil fuel, within a certain EROEI range is, of course, power. It powers pseudoeconomies,
governpimps, and their militaries. And now China and Russia, for two examples, are not nearly
as 'backwoods' as they may have been, historically. They have become, 'Westernized'…
After a year of trying to increase their production they have been unable to do so. Now things
are likely to get worse. Iraq depends almost entirely on outside contractors. Also there has been
a steady stream of skeptical news coming out of Iraq.
Iraq is Opec's second-largest producer after Saudi Arabia and has ambitious plans to increase
production capacity to between 5.5m b/d and 6m b/d by 2020.
This target, which has been revised downward in recent months, has been viewed with scepticism
as a budget crisis is limiting the federal government's ability to pay companies that are producing
oil in Iraq. These include from BP, Royal Dutch Shell and Russia's Lukoil.
Although they are developing some of the lowest cost easy-to-access deposits of oil in the
world, the fields need more investment to maintain production at current levels and increase future
capacity. At the same time, the government in Baghdad is requesting companies reduce spending.
"We're taking more risk to keep production the same, while not getting paid. We can't
continue to produce for 2-3 years like this, it's not possible," said one executive at an oil
company operating in Iraq. "Maybe they can achieve 6m b/d by 2030."
These numbers are through June. As you can see they still have not matched January's numbers.
And their contractors are not getting paid. Now what would you think would be the likely effect
on Iraqi oil production?
My guess is that Iraq oil production will struggle to maintain current levels over the next
couple of years and then drop rapidly as their ongoing religious civil war makes the situation
too dangerous for continued foreign investment.
Another guess is that the global economy will be in recession by 2020, reducing demand, lowering
world oil prices, and pushing many national economies into bankruptcy. The impact for countries
highly dependent on oil revenue to maintain social services and stability will be devastating
and we'll see the breakdown of societies and the rise of dictatorship.
All wags of course. But it seems to me, generally, that geopolitics and social/economic problems
will begin to overtake any geologic and technological limitations in world oil production. Venezuela
is a current example, and now Iraq, starting with their "budget crisis" and workers "not getting
paid", as your article describes. In other words, above ground factors are determining production
and not the lack of oil in place.
Thanks for your reply, always appreciate your clear-headed thinking.
Probably Art is basing his incremental graph in Matt's ones.
Also very noteworthy is Matt's graph on "Conventional Oil Plateau" from his May 2015 update on
that link.
"... China, the world's fourth-largest oil producer, pumped 5.6% less crude year-on-year in April ..."
"... The Asian nation reduced oil output in May by 7.3% from a year ago ..."
"... In June alone, China pumped 8.9 percent less crude than a year earlier ..."
"... 8,9% in June and the decline just continue to increase!! Lets see what happens in the future, but right now it certainly looks like its collapsing. ..."
"... Some Chinese production is very expensive and they will get their oil from the least costly source. I know this because I've worked there with their senior resource people and had the discussion. Of course, China is facing serious oil depletion as well. ..."
"... In fact, China's production increased 62 kb/d in June vs. May to 4.03 mb/d. But y-o-y decline accelerated to 8.5% in June 2016 (not 8.9% as says Reuters article quoted by oilprice.com). June 2015 was the peak month for China's oil production (4.41 mb/d). ..."
"... China has seen in the past significant drops in monthly oil production, most likely related with maintenance. But this time is different. I agree with Ron that China has peaked. ..."
"... Ok good to know. But 8,5% is still huge. Looking at the graph I see that the number will continue to increase untill end of year unless production levels out or start to increase. ..."
Some Chinese production is very expensive and they will get their oil from the least costly source.
I know this because I've worked there with their senior resource people and had the discussion.
Of course, China is facing serious oil depletion as well.
In fact, China's production increased 62 kb/d in June vs. May to 4.03 mb/d.
But y-o-y decline accelerated to 8.5% in June 2016 (not 8.9% as says Reuters article quoted by
oilprice.com).
June 2015 was the peak month for China's oil production (4.41 mb/d).
I am using original data from the National Bureau of Statistics and conversion factor of 7.3
barrels/ton
China oil production (kb/d) and year-on-year change
China has seen in the past significant drops in monthly oil production, most likely related with
maintenance.
But this time is different. I agree with Ron that China has peaked.
What's makes this time different for China? I'm curious to hear what you base your thoughts on
(as you seem to have a good understanding of what's going on).
Ok good to know. But 8,5% is still huge. Looking at the graph I see that the number will continue
to increase untill end of year unless production levels out or start to increase.
If we had a whole century ahead of
us to transition, it would be
comparatively easy.
Unfortunately, we no longer have
that leisure since the second key
challenge is the remaining
timeframe for whole system
replacement. What most people
miss is that the rapid end of the
Oil Age began in 2012 and will be
over within some 10 years. To the
best of my knowledge, the most
advanced material in this matter
is the thermodynamic analysis of
the oil industry taken as a whole
system (OI) produced by The Hill's
Group (THG) over the last two
years or so (
http://www.thehillsgroup.org
).
THG are seasoned US oil industry
engineers led by B.W. Hill. I
find its analysis elegant and rock
hard. For example, one of its
outputs concerns oil prices. Over
a 56 year time period, its
correlation factor with historical
data is 0.995. In consequence,
they began to warn in 2013 about
the oil price crash that began
late 2014 (see:
http://www.thehillsgroup.org/depletion2_022.htm
).
In what follows I rely on THG's
report and my own work.
Three figures summarise the
situation we are in rather well,
in my view.
Figure
SEQ Figure \* ARABIC 1
– End Game
For purely thermodynamic reasons
net energy delivered to the
globalised industrial world (GIW)
per barrel by the oil industry (OI)
is rapidly trending to zero. By
net energy we mean here what the
OI delivers to the GIW,
essentially in the form of
transport fuels, after the energy
used by the OI for exploration,
production, transport, refining
and end products delivery have
been deducted.
However, things break down well
before reaching
"ground zero"
;
i.e. within 10 years the OI as we
know it will have disintegrated.
Actually, a number of analysts
from entities like Deloitte or
Chatham House, reading financial
tealeaves, are progressively
reaching the same kind of
conclusions.
[1]
The Oil Age is finishing now, not
in a slow, smooth, long slide down
from
"Peak Oil"
, but in a
rapid fizzling out of net energy.
This is now combining with things
like climate change and the global
debt issues to generate what I
call a
"Perfect Storm"
big
enough to bring the GIW to its
knees.
In an Alice world
At present, under the prevailing
paradigm, there is no known way to
exit from the
Perfect Storm
within the emerging time
constraint (available time
has shrunk by one order of
magnitude, from 100 to 10 years).
This is where I think that
Doomstead Diner's
readers are
guessing right. Many readers are
no doubt familiar with the
so-called
"Red Queen"
effect illustrated in REF
_Ref329530846 \h Figure 2
08D0C9EA79F9BACE118C8200AA004BA90B02000000080000000E0000005F005200650066003300320039003500330030003800340036000000
– to have to run fast to stay put, and even faster to be able to move forward.
The OI is fully caught in it.
I find in this article
too many crass claims
and too few simple
facts, and even those
questionable.
Take graph 1. It
suggests, that in
2015, i.e. a year ago,
the EROI of oil were
1.17. In fact it was
always more than 5, in
most cases even more
then 10, afaik, even
for the "new sources",
i.e. tar sands &c.
Concerning the
energetic cost of the
transition: In a first
approximation, energy
investment in
renewables and saving
has paid for itself
within a year. This
means, that if we
transform 10 % of our
energy infrastructure
to renewables and
saving per year, we
have to use 10 % of
our available power
for it. This is
certainly a lot. But
it is certainly
doable, if we want.
The latter, of course,
is the nub of the
matter.
I have the feeling i
have to wade through a
rhetoric jungle to
search for valuable
information. May be a
matter of taste, i
admit.
It is
important
to not
confuse
EROi or
EROEI at
the well
head and
for the
whole
system up
to the
end-users.
The Hill's
Group
people
have shown
that the
EROIE as
defined by
them
passed
below the
critical
viability
level of
10:1
around
2010 and
that along
current
dynamics
by circa
2030 it
will be
about
6.89:1, by
which time
no net
energy per
barrel
will reach
end-users
(assuming
there is
still an
oil
industry
at this
point,
which a
number of
us
consider
most
unlikely,
at least
not the
oil
industry
as we
presently
know it).
Net energy
here means
what is
available
to
end-users
typically
to go from
A to B,
the energy
lost as
waste heat
(2nd
principle)
and the
energy
used by
the oil
industry
having
been fully
deducted -
as such it
cannot be
directly
linked in
reverse to
evaluate
an EROI.
Re the
necessary
energy
investments
to
build-up a
renewable
capacity,
Parts 2
and 3 will
elaborate
on the
matter.
Let's just
say for
now that
we are
talking
here of
whole
system
replacement,
globally,
and not
just
considering
the energy
embodied
in the
implementation
of this or
that bit
of
renewable
technology
- the
pictures
look very
different
at the
micro and
macro
levels.
"... In June alone, China pumped 8.9 percent less crude than a year earlier, with state-owned giants such as PetroChina and CNOOC shuttering unprofitable fields ..."
"... Crude oil imports in January-June jumped 14 percent, China's national Bureau of Statistics said ..."
China's crude oil output over the first half of the year stood at 101.59 million metric tons,
down 4.6 percent and the lowest six-month figure since 2012, Bloomberg
reports. The decline reflects China's stated shift from an industry-focused economic model
to a more service-oriented one. It is also related to a drive by the government to cut the country's
environmental footprint, struggling with a reputation of China as one of the most polluted places
on earth. Low oil prices were also a factor in the production trend.
In June alone, China pumped 8.9 percent less crude than a year earlier, with state-owned giants
such as PetroChina and CNOOC shuttering unprofitable fields and turning to low-cost imports instead.
Crude oil imports in January-June jumped 14 percent, China's national Bureau of Statistics said,
with June recording the weakest growth.
Citigroup is "especially bullish" on commodities in 2017, the bank says.
"The oil market is treading water for now, but the oil price overshot to the downside earlier
this year and this is clearly setting the stage for a bullish end to the decade," Citi analysts,
led by Ed Morse, wrote in a research note published on July 11.
There is a quite a bit of volatility in commodity markets, especially for oil, but global demand
continues to grow at a steady pace. Prices have crashed on oversupply, but with oil production
going offline, particularly in the U.S., the markets could over-correct, creating the conditions
for higher prices next year.
The developed proved and probable is 655 Gb, which would equate to about 4.5% natural decay
rate.
There is supposed to be about 900 Gb undiscovered, which at last years rates would take about
300 years to find (and my guess is that if there is that much hydrocarbon it has a significant
amount of gas).
And there are 500 Gb discovered and undeveloped, I don't follow that much but there is a country
break down to check out, but the IOCs stopped development with prices at $110 per barrel so it's
probably going to cost more than $8 trillion to put that much on line.
"... So he's covered. I'm about to publish something here maybe today and the sub title of this section is called "It's not a lie if we tell you it's a lie." That's the name of the game. As long as the investor presentation or the news release says somewhere that we're using language here that we would never ever use in an SEC filing because they'd put us in jail. And so you guys need to know that. In other words, "we're lying," then it's technically not a lie. It's not fraud because we told you it was a lie. ..."
"... Well we started this conversation with your important observation that we're only talking about a million or million and a half barrels a day of oversupply. So we could go from over supply to deficit pretty quickly ..."
"... So just the capital cuts in US companies have effectively deferred $20 billion-or maybe the world, I'm sorry-$20 billion barrels of development of known proven reserves. ..."
"... Well there's a big lag. There's a huge time lag between when the price responds and people actually get around to drilling and they actually start bringing the oil onto the market and it becomes available as supply, because they've been asleep at the wheel for how many months or years. You don't just turn a valve and all of a sudden everything is okay again. ..."
"... There's this tremendous gap between "okay we know there's a reserve," but what's it take to turn it into supply? Well it takes time and it takes money and it doesn't happen overnight. ..."
"... EIA says average price in 2016 will be $53 a barrel. They're not always right and in fact they're often wrong but they're not stupid either. They're doing the best they can. They have got some good people there. ..."
"... Well just turn the clock back to 2012-2013 when oil prices were sky high, were $100 a barrel or more, and what we saw was consistent negative cash flow from virtually all of the major players. So what that says is they weren't making money when oil prices were high, so is it a big shock that they're hemorrhaging when oil prices are lower? So oil prices go back up-the bottom line Chris is the only way that they were able to stay looking fairly good back then to somebody, not me, was that people were giving them money. They had infinite access to capital at almost no cost, and so they were spending it. But their income statements and balance sheets look like crap and the investment community I guess was willing to look past that or didn't want to look at it or whatever. ..."
Chris Martenson: ... And still when I look at the operators in those plays they're claiming that they're going to get
twice that, sometimes even more than twice that out of each well. When I've calculated the economics
in that play myself-I got a little spreadsheet, I did my level best. And then I found that you had
calculated what's going on in that play as well. So let's cut right to that. In the Bakken, how many
wells that get drilled out here right now would be economic in today's prices?
Arthur Berman:
Almost none at today's prices. The latest from the North Dakota Department of Mineral Resources
says that wellhead prices are in the 20's so… I published a report not very long ago that said that
1% of the Bakken was breaking even at $30 oil prices. So now we're below that and I don't remember
exactly what percentage of wells but it was something like maybe 5 or 6%. But so right now let's
face it Chris, let's just get it right out there in the open: Everybody is losing their ass at current
oil prices. I don't care what they say. I'm in this business, okay? I just drilled two discoveries
in the last month or two at the bottom of the cycle and we can make a weak profit off of what we
found-first of all they're conventional reservoirs so they didn't cost us $6-$10 million to drill.
And we don't have to drill them horizontally. We don't have to frack them. And we have got no overhead
and we have got no debt; so that puts us in kind of a really different situation for most public
companies.
The truth is that everybody-the best positions in the best plays in the United States, the core
of the core, if you will-nobody can break even at less than about $45 a barrel and that's just reality.
That's not sticking them with their land costs that they sunk and wrote off long ago; that's just
basic operating expenses and severance taxes and stuff that I publish in all of my reports and nobody
ever argues with me about that. They may disagree with a lot of my conclusions or etc. but they never
say "Oh no, your economic assumptions were way off base." No they're not off base.
So take that to the bank and let's just get that whole silly conversation off the table. Everybody
is losing their ass at $20 or $30 oil, everybody. And that includes Saudi Arabia, Kuwait and everybody
in the world is. But certainly US producers, very best of the best, they got to have $45 or $50,
and that's a small subset of their wells in a play. And realistically $60-$65 is bare bones for the
average well positioned company, all of their better wells or current wells in play. That's just
the way it works. And if you hear something else, ask a lot of questions, like: "Tell me what costs
you're excluding," because that's the only way to get there is just be excluding costs.
Chris Martenson:
... When I look at it that way, just sort of high level, I'm looking at 10 billion barrels, what are the reserves? Total reserves? Across all the plays that these operators are in? It can't be a whole heck of a lot more than that, can it?
Arthur Berman:
Proven reserves in the United States as of EIA's latest report a couple weeks ago are 40 billion barrels of oil. Now there is a Proven Undeveloped which is another category that is also proven, which you can add another 40 or 50% but the number you're talking about there is a huge proportion of the total United States' proven reserves, any way you cut it. And so yeah, be scared. That's the message.
.
... ... ...
Arthur Berman:
There is no difference between what EIA is saying and the companies are
saying, okay? So there's two realities here. There is the reality of truth, like go to jail
truth-that's what the companies actually report in their quarterly and annual filings to the
Securities and Exchange Commission. That's where EIA gets its data. That's where EIA's proven
reserves come from; so there's that reality and that truth, and I think it's reasonably close to
the truth. And then there's what companies tell investors, who believe almost anything and don't
understand-again like Yergin's lifting cost. They don't understand, nor should they be required to
understand that he's not actually talking about total cost. He's talking about a subset of costs.
So your question: The proven reserves of the Bakken, according to the latest EIA, which comes from
companies, is 6 billion barrels. The Eagle Ford is a little more than 5, and the Permian is about
700 million. You add up all the rest of them, the Niobrara and the whatever, the Mississippi Lime
and you name it, and the total is about 13.5 billion barrels. That's the truth. And there's
probably an almost – there's a slightly smaller but large proven undeveloped reserve category as
well.
Chris Martenson:
Art I was just reading an investor presentation where one company
claimed to have access to almost that same number just in the Spraberry play.
Arthur Berman:
Well yeah, Pioneer Natural Resources, that truthfully is not a bad company,
if you just look at their financials. But their CEO, Scott Sheffield, has been making just
absolutely preposterous claims for several years now about this Spraberry resource that they have
out in the Permian Basin. The Spraberry was discovered in 1946 for God's sake. In the industry, we
talk about and have talked about the Spraberry as being the largest non-commercial field in the
world. And we've talked about that for 50 years because nobody can figure out how to make money
off of that deal. So Sheffield says that they've got 10 billion barrels in the Spraberry. But
listen to his words; what is he really saying? He's got himself protected. He says that they've
got 10 billion net recoverable, resource potential. That's not a reserve.
Okay so what is a resource? Well a resource-and I'm going to the Society of Petroleum Engineers
here. The definition is a known and yet-to-be-discovered accumulation. It's vapor. We kind of know
it's there but we haven't found it yet. And so that's a resource, and now he's talking about a
resource potential. So it's not even a resource; it's a potential resource. So what he's saying is
that it's some vague number that we kind of think may be out there. And of course a resource has
nothing whatever to do with price. It's absolutely not – it doesn't have anything – it's any
price. It just says it's technically recoverable. So it means nothing, zero, zip. It means
nothing.
So he's covered. I'm about to publish something here maybe today and the sub title of this
section is called "It's not a lie if we tell you it's a lie." That's the name of the game. As long
as the investor presentation or the news release says somewhere that we're using language here
that we would never ever use in an SEC filing because they'd put us in jail. And so you guys need
to know that. In other words, "we're lying," then it's technically not a lie. It's not fraud
because we told you it was a lie.
... ... ...
Chris Martenson:
Well yes with over
200 trillion dollars of debt
outstanding of course you
have to service that debt and
high oil prices just don't
help that. The model I've
been working with for a long
time is there's a price of
oil at which the world
economy chokes and there's a
floor at which the energy
company's don't want to
pursue oil anymore and that
ceiling and that floor have
been coming closer and closer
together. So here we are,
we're clearly at a price
below which oil and natural
gas-in America here, I'm
staring at natural gas at
$1.83 is the quote I've got
on my screen right now,
yikes. That's way below the
all-in costs for most
companies that I've been
looking at.
But let's dial
this back a bit. Globally
we've see this astonishing
pull back in CAPEX spending
by the oil majors, by the
mids, the minors, national
oil companies, all of
them-over a trillion dollars,
by a bunch of estimates. Talk
to us about what's the impact
on future oil supplies with
this just absolute
destruction of CAPEX spending
globally?
Arthur Berman:
Somewhere between
profound and extreme
[laughter]. We've got to be
constantly discovering
several million barrels of
oil per day to make up for
our consumption. It's easy to
get confused and to say well
geez, we've got such an
oversupply right now, we
don't have to worry about
that.
Well we started
this conversation with your
important observation that
we're only talking about a
million or million and a half
barrels a day of oversupply.
So we could go from over
supply to deficit pretty
quickly
because we're
not investing in finding that
additional couple of million
barrels a day that we need to
be discovering. So we're
deferring major, major
investments and we're not
just deferring exploration,
we're deferring development
of proven reserves.
So
just the capital cuts in US
companies have effectively
deferred $20 billion-or maybe
the world, I'm sorry-$20
billion barrels of
development of known proven
reserves.
And so if we get to a
point- and we will, we almost
certainly will-where suddenly
everybody wakes up and says
"Oh my God we don't have
enough oil." We're now half a
million barrels a day low,
and what happens? The price
shoots up, okay? That's the
way commodity markets work.
And everybody says "Whoopee,
let's get back to drilling
big time."
Well there's a
big lag. There's a huge time
lag between when the price
responds and people actually
get around to drilling and
they actually start bringing
the oil onto the market and
it becomes available as
supply, because they've been
asleep at the wheel for how
many months or years. You
don't just turn a valve and
all of a sudden everything is
okay again.
We saw this during the
Libyan Civil War. Saudi
Arabia said "Don't worry
guys, we've got all this
spare capacity. We'll just
turn it on and produce it and
the world won't see a
shortage." It never happened
because they had to actually
drill wells. Their spare
capacity means they have got
to drill wells to produce it
and that takes time. They
have got to drill it, they
have to test it, they have to
build pipelines, and by the
time they actually got any of
that work done, the Libyan
conflict was over. We've now
seen low production because
the Civil War continues, but
that's another story.
There's this
tremendous gap between "okay
we know there's a reserve,"
but what's it take to turn it
into supply? Well it takes
time and it takes money and
it doesn't happen overnight.
Chris Martenson:
Well no and as you
mentioned it hasn't just been
the exploration but the more
pedestrian stuff like infill
drilling-that's pretty much
come to a complete halt in
the North Sea as far as I can
tell. And it looks like
Mexico is not doing a lot
with their investment down in
their plays at this point in
time, and Brazil doesn't even
begin to know how to get
started with their whole
Petrobras scandal and
drilling through those
really, really expensive deep
water finds they've got. Just
don't make any sense at this
price. So when I look across
really where the oil supply
growth is coming from, Art,
I'm pretty much-like it's
really down to the Middle
East and this hope that the
United States could rapidly
ramp up its shale "miracle"
if prices spike back up.
But I'm with you. I think
that as much as people are
focused on the oversupply
right now-and in two or three
years I'll be really
surprised, unless the world
economy crashes and demand
goes down, with that caveat
attached-I think the world
will be equally surprised by
the shortages that are
coming, because you can't
just… Here's what I see: I
look at this chart and I talk
about this in talks and I say
"Hey look from 2005 to 2012
the world spent about three
trillion dollars on upstream
oil and gas exploration and
production and basically got
the same amount of crude and
condensate out of ground for
its trouble," right? We
doubled our investment on a
yearly basis from $300 to
$600 billion and basically
held production flat. I can
only imagine what happens to
production once you take a
trillion in spend off of the
top of that.
Obviously it looks like to
me we're going to be facing a
multi-million barrel a day
shortfall, as long as things
don't fall apart on the world
economy stage.
Arthur Berman:
And I think even if
things do fall apart on the
world economy stage. I
haven't done this, because
the records aren't there, but
you go back to a period like
the Great Depression in the
world and it's not as if
people stopped buying and
selling goods or transporting
themselves or materials. It
was a big – it was a
depression, and there were a
lot of people out of work,
but the world moves along and
consumption of oil and
natural gas isn't going to go
to zero. I think the forecast
that we've just recently seen
from the International Energy
Agency just last week,
they're saying "okay so
demand is probably going to
be down from 1.8 million
barrels a day of growth to
1.2 million barrels a day of
growth," and that's awful.
But wait a minute, 1.2
million barrels a day of
growth is – you're still
growing at a fairly high
rate. So you have got to be
replenishing your supply or
else you reach this zero
point where you're in deep
trouble.
So I'm with you Chris.
Even in my darkest view of
where the economy could go, I
find myself on a very
different page than most of
the forecasters who think
that we're in for a decade or
decades of low oil prices. I
think we're going to be
struggling under the yolk of
much higher oil prices,
probably beginning next year.
I'm not a price forecaster
but it's hard for me to see-I
am a supply/demand kind of
guy and I would be very
surprised if by this time
next year we're not seeing
oil prices moving toward
something like $60 a barrel.
And you look at the forecast-
EIA
says average price in 2016
will be $53 a barrel. They're
not always right and in fact
they're often wrong but
they're not stupid either.
They're doing the best they
can. They have got some good
people there.
So I think
this notion that we're
somehow stuck in $30 or $40
oil forever and ever, it just
doesn't square with the
reality.
Chris Martenson:
Well it would mean
that we're anticipating that
oil is going to stay below
its marginal cost of
production for a very long
time. It's very difficult for
any commodity to stay there
for long but oil in
particular because of its
stock versus flows. Yes
there's 3 billion barrels
above ground right now but
hey, that's only so many days
of consumption if you decided
to stop producing. So yes,
I'm with you. I think that
obviously oil has to go up in
price at some point and
that's even exclusive of any
geopolitical accidents that
might happen in the Middle
East; just simple
supply/demand and all of
that.
If oil does go back up,
last question, you study the
companies that are involved
in this very carefully and I
think a lot of investors,
especially the banks who have
put the lines of credit out
there, are really double
fingers crossed hoping that
the price of oil moves back
up and all these problems
that these companies are
facing economically will sort
of be in the rear view
mirror. Would you share that
view or do you think that
even if oil rebounds there's
a number of companies here
that have gotten themselves
in over their heads with
respect to debt versus
assets?
Arthur Berman:
Well just turn the
clock back to 2012-2013 when
oil prices were sky high,
were $100 a barrel or more,
and what we saw was
consistent negative cash flow
from virtually all of the
major players. So what that
says is they weren't making
money when oil prices were
high, so is it a big shock
that they're hemorrhaging
when oil prices are lower? So
oil prices go back up-the
bottom line Chris is the only
way that they were able to
stay looking fairly good back
then to somebody, not me, was
that people were giving them
money. They had infinite
access to capital at almost
no cost, and so they were
spending it. But their income
statements and balance sheets
look like crap and the
investment community I guess
was willing to look past that
or didn't want to look at it
or whatever.
So rearview mirror? No,
these are companies that are
highly leveraged and unless
and until that changes-maybe
that's one of the positive
outcomes of this. Maybe we
see a turnover of players.
There are better companies
whose balance sheets look
better and they're the ones
who can afford to say "Okay,
we're going to slow down
production right now because
we don't have the same debt
service that the guy next
door does." So my hope is
that like all crises this is
going to flush out a lot of
the bad players, or at least
some of them. But will higher
oil prices solve the problem
and save the day for the
people that hold the debt?
No. It won't hurt, but if
they couldn't make a profit
at higher prices, going back
to higher prices doesn't fix
the problem.
Chris Martenson:
So for many of these
investors and players, in
many cases, the best that
they can hope for if oil
prices rise is a higher
recovery of cents on the
dollar, but they're probably
not going to get back to
whole on this?
Arthur Berman:
No. Unless somebody
is willing to forgive debt.
If we get that bad, then
there's the solution of last
recourse, right?
"... "The world is seeing ever-stronger competition for resources, and some players try to disregard all the rules, Russian President Vladimir Putin has said , adding that potential for conflict is growing worldwide. " ..."
"... If there was any doubt what Putin was thinking, I don't think there should be any more. ..."
"... "…If production falls under consumption (as opposed to demand) then the result is not a shrug and the price goes up. The result is someone doesn't get the oil they ordered…" ..."
If Ron's 2015 prediction is correct ( I think it is, and I never get this kind of stuff wrong
… lol)
These are the types of articles we should be seeing.
"The world is seeing ever-stronger competition for resources, and some players try to disregard
all the rules, Russian President Vladimir Putin has said , adding that potential for conflict
is growing worldwide. "
If there was any doubt what Putin was thinking, I don't think there should be any more.
The new release of BPs data on oil statistics is getting too little focus.
Consumption globally was UP last year. 1.9%. 1.9ish million bpd.
Lotsa talk about global reductions in production . . . sometimes. Other times we hear about
new records from someone.
But pay heed here. THERE IS NO DELAY IN THIS. If production falls under consumption (as opposed
to demand) then the result is not a shrug and the price goes up. The result is someone doesn't
get the oil they ordered.
Cushing has about 100 million barrels of capacity. If there were 1 million bpd shortfall on
US imports, you got basically 3 months before . . . someone . . . some truck driver at a gas station
. . . doesn't get the diesel he ordered. The SPR would be another few months, but tapping it for
such an emergency would pretty much announce to the world . . . there ain't enough.
"…If production falls under consumption (as opposed to demand) then the result is not a shrug
and the price goes up. The result is someone doesn't get the oil they ordered…" ~Watcher
"... In a business as usual demand case (linear trends), Asia needs an additional 11 mb/d of oil imports (crude and products) by 2031. That oil would have to come from following sources ..."
In a business as usual demand case (linear trends), Asia needs an additional 11 mb/d of
oil imports (crude and products) by 2031. That oil would have to come from following sources
8.4 mb/d or 76% would have to come from taking away market share of other importing countries.
That's what the Asian Century will be all about.
"... The STEO has Colombia production holding at around 1 mmbpd for the next two years, but in fact they are declining at about 12% y-o-y ..."
"... Their internal consumption is rising fast as well and at this decline rate they could need to import within three or four years (Figures in chart from Reuters and Energy Ministry, one value for March 2015 looked a bit off so I interpolated). ..."
"... Note also for Norway May figures are down 87,000 bpd and a bigger drop expected for June, mainly for maintenance but overall they are now expected to be in decline again following a small secondary peak until Johan Sverdrup starts up in 2020. ..."
The STEO has Colombia production holding at around 1 mmbpd for the next two years, but in
fact they are declining at about 12% y-o-y (903 kbpd for May). Some might be due to sabotage,
but they have a low R/P ratio (2.2 Gb of reserves so only about 6 years) and rig counts have dropped
by 90% over the year.
I think they were using some EOR methods to boost production as well. Therefore a rapid decline
might not be unexpected. They might have some offshore oil, but only two exploration wells so
far, and both dry, and some shale potential (either way any production is at least 5 years away).
Their internal consumption is rising fast as well and at this decline rate they could need
to import within three or four years (Figures in chart from Reuters and Energy Ministry, one value
for March 2015 looked a bit off so I interpolated).
Note also for Norway May figures are down 87,000 bpd and a bigger drop expected for June,
mainly for maintenance but overall they are now expected to be in decline again following a small
secondary peak until Johan Sverdrup starts up in 2020.
The EIA's
Petroleum Supply Monthly is out with US and individual states production data through April,
2016.
The Petroleum Supply Monthly now agrees almost exactly with the Monthly Energy Review.
The Petroleum Supply Monthly has US production dropping 222,000 barrels per day in April. The
Monthly Energy Review has US production dropping 212,000 bpd in April and 148,000 bpd in May.
Texas production fell 47,000 barrels per day in April. Texas production is down 414,000 barrels
per day since peaking in March 2015.
Ron, are you able to post a graph comparing this peak to the 1970s and 1980s peaks?
I looked at the one on EIA website from 1920 to date, really shows how the shale boom rose
much more steeply, and looks poised to likewise fall much more steeply than in early 1970s or
mid 1980s.
This EIA site, Monthly
Crude Oil and Natural Gas Production , gives us the percentage change for the last month and
the last 12 months for the US and all states and other producing areas. The US was down 2.4%
in April and 7.9% since April of 2015. Texas was down 1.4% in April and down 10% since April
2015. North Dakota was down 6% in April and down 10.6% since April 2015. It looks like April was
just a catch up month for North Dakota.
"... China produced 7.4 percent less domestic crude oil in May compared to a year ago, settling at 16.76 million tonnes. This was due to plans by state-owned oil companies to slash output that is weighed down by languishing oil prices, official data showed. ..."
"... All the Chinese decline is not due to the price drop. China had peaked and would be in decline even if the price had stayed high. The price drop just made it a bit worse. ..."
China produced 7.4 percent less domestic crude oil in May compared to a year ago, settling
at 16.76 million tonnes. This was due to plans by state-owned oil companies to slash output that
is weighed down by languishing oil prices, official data showed.
Time for a special post on rate of decay from peak oil? I am not liking what I am seeing because
it matches quite well my [bad] outlook. Perhaps there is hope that prices will increase to a level
that will reduce the rate of fall. It is going to be very difficult to recover production.
All the Chinese decline is not due to the price drop. China had peaked and would be in decline
even if the price had stayed high. The price drop just made it a bit worse.
"... Higher declines were observed for several of the major non-OPEC countries such as Russia, United States, Canada and Norway in 2014 and 2015. For 2016, the decline is expected to continue increasing and in terms of barrels, this represents a 700 kbbl/d increase in the yearly decline from the mature oil fields. ..."
"... The 2016 report will be more interesting but it might not be issued and/or available for free for some time. For oil they give 168 Gb reserves and 12 Gb production – without any discovery, extension or purchase that would give 7.5% natural decline. ..."
Rystad Energy's latest analysis shows that, for the first time since the 1980s, we will have
two consecutive years of decreased global E&P investments. A lot of the investment cuts have been
related to new projects and shale drilling, but we have also observed lower activity on mature
producing fields. This decreased activity is starting to show on the production side, with the
decline rates starting to increase. Higher declines were observed for several of the major
non-OPEC countries such as Russia, United States, Canada and Norway in 2014 and 2015. For 2016,
the decline is expected to continue increasing and in terms of barrels, this represents a 700
kbbl/d increase in the yearly decline from the mature oil fields.
The 2016 report will be more interesting but it might not be issued and/or available for
free for some time. For oil they give 168 Gb reserves and 12 Gb production – without any discovery,
extension or purchase that would give 7.5% natural decline. I think that might be what's
coming in 2018 at current discovery and development levels (only covering 35% of production though,
NOCs should still be holding up better overall).
"... Imports are definitely rising. The three month NET imports of crude oil and petroleum products bottomed out last November at 4,661,000 barrels per day and last week stood at 5,890,000 bpd for an increase of 1,229,000 bpd. ..."
"... The fact that imports are rising even faster than production is declining is a sure sign that production is actually falling and not just an anomaly of the EIA's measuring algorithm. This decline is real people. ..."
Imports are definitely rising. The three month NET imports of crude oil and petroleum products
bottomed out last November at 4,661,000 barrels per day and last week stood at 5,890,000 bpd for
an increase of 1,229,000 bpd.
The fact that imports are rising even faster than production is declining is a sure sign that
production is actually falling and not just an anomaly of the EIA's measuring algorithm. This
decline is real people.
"... Looking at the drop in iranian export of 20% you would have to assume that the story is similar….which makes their approach/policy even more idiotic ..."
"... Ron, the Monthly energy review also gave an estimate for May natural gas plant liquids of 3,256,000 bpd. A decline of 258,000 bpd (7.3%) from April's estimate of 3,514,000 bpd. So, thats a decline of 406,000 bpd crude and ngpl. ..."
"... It is starting to look worrisome. US has lost almost 1 mbpd from peak and almost 0.5 mbpd in the last 5 months. It is looking as if US loses might constitute the bulk of the world oil production loses in 2016. ..."
The EIA's Monthly
Energy Review is out with US production numbers for May 2016. US production down 148,000 barrels
per day. US Lower 48 down 161,000 bpd, Alaska up 13,000 bpd.
Ron, the Monthly energy review also gave an estimate for May natural gas plant liquids of
3,256,000 bpd. A decline of 258,000 bpd (7.3%) from April's estimate of 3,514,000 bpd. So, thats
a decline of 406,000 bpd crude and ngpl.
Even if it is an estimate, thats a huge decline.
It is starting to look worrisome. US has lost almost 1 mbpd from peak and almost 0.5 mbpd
in the last 5 months. It is looking as if US loses might constitute the bulk of the world oil
production loses in 2016.
"... The June trailing 12-month (TTM) U.S. high yield bond default rate is closing inon 5%, reaching 4.7% after another $3 billion of defaults thus far this month, The $46.4 billion of recorded defaults this year is just $2 billion less than the total for the entire 2015. ..."
"... Through mid-June, energy and metals/mining accounted for 84% of defaults ($38.9 billion). The May energy TTM rate stood at 14.6% following $12.7 billion of sector defaults last month while the E&P rate is at 28.6%. The average high yield bid levels are at 92.9, up from 91.1 last month and from 83.7 in February when crude oil prices were at their low point ..."
It should have been posted on the earlier post ,but now since this is up ,I am going to post it
here . This is for Denise (appreciate your work) who is far too optimistic . This is also for
shallow sands who does all those fantastic analysis on the shale guys . SS I hope you outlast
the punks , but frankly I am in Petro's camp "The music is playing but the party is over " . So
here goes, a copy paste job from Fitch :
Addendum: Fitch Blurb
We just noticed this small blurb from Fitch in our mail, summarizing the latest developments
in junk land:
U.S. HY Energy Defaults Tally $13 Billion in May; June TTM Default Rate Approaching 5%
The June trailing 12-month (TTM) U.S. high yield bond default rate is closing inon 5%,
reaching 4.7% after another $3 billion of defaults thus far this month, The $46.4 billion of recorded
defaults this year is just $2 billion less than the total for the entire 2015.
Through mid-June, energy and metals/mining accounted for 84% of defaults ($38.9 billion).
The May energy TTM rate stood at 14.6% following $12.7 billion of sector defaults last month while
the E&P rate is at 28.6%. The average high yield bid levels are at 92.9, up from 91.1 last month
and from 83.7 in February when crude oil prices were at their low point
"... This new drop in oil price has to do with extreme financial instability and not with supply and demand. Everybody is pumping with full force regardless of price for various reasons. Price does not matter at this point. When Total went to buy Iranian oil it brought with them Airbus people to pay for the oil. ..."
"... you have to keep dancing even if you don't like the music. Look at the drop in US production in the last 1 year and that is still with 400-600 rigs running in the last year with all extra printed money (aka "new investors") being available to them. It's very bleak. ..."
"... At some point there can be shortages. That would be a game changer. Before that this is just kicking the can down the road. ..."
"... In a short term shortages will be avoided by removing credit to certain countries and certain segments of population in synchronized effort by major Central Banks so it will appear that there are no shortages. ..."
"... There is no shortage of oil in Greece but there is a shortage of credit. But if Greece wants independent policy they get threatened with a shutting down of their banking system. ..."
"... The Brexit marks the end of the ideological domination of this neoliberal economy. How long the disintegration process will last it is very hard to predict but it could be very short like in the case of Soviet system. ..."
Is there already a reaction in the oil countries, this should demotivate companies to pick
up drilling again, or creditors to hand out new billions to be buried in the rocks?
This new drop in oil price has to do with extreme financial instability and not with supply
and demand. Everybody is pumping with full force regardless of price for various reasons. Price
does not matter at this point. When Total went to buy Iranian oil it brought with them Airbus
people to pay for the oil.
NA producers are taking paper for oil because there is no other option and with negative interest
rates approaching it is a losing option even if the oil goes somehow to unimaginable price at
this point of $70-80. But if you stop drilling the game is over. So you have to keep dancing
even if you don't like the music. Look at the drop in US production in the last 1 year and that
is still with 400-600 rigs running in the last year with all extra printed money (aka "new investors")
being available to them. It's very bleak.
At some point there can be shortages. That would be a game changer. Before that this is
just kicking the can down the road.
Ves, 06/27/2016 at 10:14 pm
likbez,
In a short term shortages will be avoided by removing credit to certain countries and certain
segments of population in synchronized effort by major Central Banks so it will appear that there
are no shortages. That is why you see all the effort in creating big currency blocks that
could control emission of the currency. One of the reasons is to control oil consumption by the
center through credit emission. Then you depend on the center for credit emission.
There is no shortage of oil in Greece but there is a shortage of credit. But if Greece
wants independent policy they get threatened with a shutting down of their banking system.
So they are allocated certain amount of credit and that is their available oil foot print.
But it is the same in so called "rich" G7 countries where large segments of population live below
poverty line and that is because they don't have access to credit. That's why it was so easy to
pull Brexit stunt because elite already had very fertile ground to work with. Majority felt less
well off then 20 years ago. That is the main reason; all other reasons like EU bureaucracy, refugees
are just nonsense. Bureaucracy, refugees of course exist but these are just borrowed reasons that
they have been told to adopt on TV to frame the debate.
likbez, 06/28/2016 at 7:37 pm
Ves,
Allocation of credit works while there are growing economies. In this case this is a regular neoliberal
redistribution of wealth by other name. So countries with "exorbitant privilege" can just print
money while everyone else are the second class citizens who were robbed at daylight. Debt slaves
by other name.
But after conversion of most countries into debt slaves, in order for the system to work you need
positive GDP growth. Otherwise there is nothing to rob. Even if the GDP "growth" is fake and is
just an accounting trick based of underestimating of inflation or including in the total vices
like prostitution and gambling, the system can work. Get negative GDP for a substantial period
of time (secular negative growth) and all bets are off. Capitalism was not designed for such an
environment, and neoliberalism, which is just a modern flavor of corporatism, can't work either.
In shrinking economies allocation of the credit is like pushing on the string. You just can't
pay credit lines back in shrinking economies. That means financial collapse. Now what ?
Barter?
Ves, 06/28/2016 at 10:31 pm
" That means financial collapse.Now what ? Barter?"
Well, it looks to me we are watching collapse "LIVE". Look, the magnitude of Brexit is hardly
even understood or no-one seems comprehend the consequences. This is on the scale of fall of Berlin
wall in 1989 and shortly after the dissolution of the USSR in 1991.
The Brexit marks the end of the ideological domination of this neoliberal economy. How
long the disintegration process will last it is very hard to predict but it could be very short
like in the case of Soviet system.
Brexit is more response and break with Wall Street then EU in order to save what can be saved
and that is mainly finance of the City of London for probable Yuan trade in near future. So this
pretty much tells you where this is all going in terms of global trade.
In terms of debt that is straightforward "Debt that cannot be paid will not be paid".
In terms of trade it will be much smaller world for trade then in the past and with new sets
of rules.
I don't think it will be barter but it will start with clean slate and with a new currency
in the indebted countries.
"... Shallow, when analyzing the economics of a well, or field, or entire "play," of course it matters
how oil and or natural gas production is reported. You are 100 % correct for being perturbed by this
SCOOP/STACK stuff. Reporting a well whose revenue stream is 75-80% gas, as oil or liquids, by gas to
oil "equivalents" is absurd. ..."
"... That stuff up there is no different that any other unconventional resource play. It declines
like an anchor being dropped from VLCC in the open ocean and is hugely unprofitable. ..."
"... The key strategy for long term survival has been and will be, during boom times set money aside:
during frenzy's, go to the beach: during bust allocate reserved capital for future growth. ..."
"... What on earth does the BTU content of gas have to do with reporting gas as though it were oil?
This makes no sense to me whatsoever. ..."
"... Personally, if I believed we would be in a $2.50mm/btu and $60/BBoil environment for the foreseeable
future, I would not be drilling anywhere. ..."
"... I believe that to keep production steady we need at least $4mm/btu and $70Bo, may be even higher.
..."
Shallow, when analyzing the economics of a well, or field, or entire "play," of course it
matters how oil and or natural gas production is reported. You are 100 % correct for being perturbed
by this SCOOP/STACK stuff. Reporting a well whose revenue stream is 75-80% gas, as oil or liquids,
by gas to oil "equivalents" is absurd. It is a distortion of the facts and meant to be misleading.
Until three years ago even the most prominent of distorters would report BOE as a percentage of
liquids, now most of them have quit doing that. Wonder why? For one reason, to get 1.2 MBOE EUR's -- For another reason, 58 degree condensate prices take a big negative hit to actual oil prices.
I don't know what the price of natgas is in OK. If it's like Texas, it sucks. Its discounted
value at the moment is less than zilch. If at $ 1.50 net per MCF (and I am being very liberal)
the gas to oil conversion should be 25-30:1, NOT 6:1. Therefore the notion that this OK stuff
has some secret oil leg that has yet to be developed, awaiting higher oil prices, is a little
wonky.
With regard to RI and ORRI, I can sometimes be guilty of irrational exuberance myself. Then
the operator in me takes over and reality sets in. That stuff up there is no different that
any other unconventional resource play. It declines like an anchor being dropped from VLCC in
the open ocean and is hugely unprofitable.
Mike,
goodness, I have been drilling wells with my own money for over 30 years. We made money in each
of the last 3 quarters on our mix of properties across several states and our mix of product and
our mix of interest, ORRI, WI,RI . I know first hand about some of the production in scoop. You
may not be open to the facts and that is fine, leaves more room for those with opens mind to exploit.
NO skin off my nose. By the way the Btu content of scoop gas is 135o. This is not investment advice
but you have a couple of contributors to this blog that have been right with regard to the market
fundamentals and exploiting the unrealistically low prices we have seen of late.
They have made money, just satin one last quick point, based on interest in a couple of dozen
wells in scoop, I can say at $4nat gas and $80oil, the roi will be as good or better, risk weighted,
than most anything I have participated in, over the entirety of my career. I am not all wells
in scoop, but in the core areas.
All our production in onshore US, its the mix of assets. My only point SS is I do know how to
run a business and economically evaluate an oil prospect. That is what keeps me between the lines
so to speak, I can't constantly be wrong like climate change scientist and still make a living
:-). The key strategy for long term survival has been and will be, during boom times set money
aside: during frenzy's, go to the beach: during bust allocate reserved capital for future growth.
What on earth does the BTU content of gas have to do with reporting gas as though it were
oil? This makes no sense to me whatsoever. I am very open to facts, I deal with them every
day. Production data does not lie. It takes time to sort the BS out but ultimately it can be done,
as Shallow has proven. Tell your SCOOP/STACK boys to quit the BOE BS and start being transparent.
Here is what is going on in the SCOOP, because the same thing is happening in the PB: The word
is out on the Bakken, Eagle Ford and Niobrara. UR is not going to fall in line with the EUR bunk
and the economics are bleak. Money is getting scarce. So now everyone is running to new territory
where there is little data to support the same old shale oil propaganda machine. Accordingly,
some shale oil companies are getting good mileage out of being the first in the new subdivision
and even raising some more money, believe it or not. Lenders, for the most part, have ADD. Lets
talk in three years when there is more data. That stuff will suck just as bad as any other shale
play, betcha.
you ask about the price of gas in okla. I gave you the information to help determine what the
price was/is
we do not have WI in the Bakken, hayneseville, Barnett or Eagle ford. We do have WI in scoop,
we do have RI in a number of those plays. All shale is not created equal, as an oil man you should
know that.
As for betting, i do that every time I drill a well and I'll let the drill bit keep score :-)
texas tea: Can you educate me a bit about the Scoop Play. I haven't worked the area much since
my Gulf Oil days working Hunton in the area. In your opinion, how many months would bring payout
(at $2.50mm/BTU, and $60/BB oil, 75% NRI lease, to a WI owner in the top 20% of wells.
It is really to big of question because of the number of variables. What I can say is that
in the gas/condensate window, with the parameters you mentioned, most wells will provide a real
rate of return based on the wells we have interests in. Personally, if I believed we would
be in a $2.50mm/btu and $60/BBoil environment for the foreseeable future, I would not be drilling
anywhere.
I believe that to keep production steady we need at least $4mm/btu and $70Bo, may be even
higher. I can add for SS that i have the updated production on the Good martin unit oil window
Woodford Scoop (46 API) the production across the 8 wells in the unit over the last 4 months,
and if the number are correct they are not impressive. As say said, i do not draw conclusion until
i have all facts.
Mike: Glad to see you still fighting the good fight of putting some real world oilfield sense
in the discussions.
Question: 1.
We in US have we are told we have a huge stockpile hangover. If the oil in pipelines is counted
as storage, how many long huge cross country pipelines have been built during the boom through
your area? We have one through us that goes from west Texas through central to Houston. If those
pipe volumes are counted as storage, they will probably never be drawn down after the initial
volume is added.
2. Do you believe that the promoters of LTO will have money shoved to them fast enough to bring
about another price collapse as the market seems to believe.?
Hope you are finding some good purchases to take some pain out of this downturn.
Hi, Doodle; I hope this finds you well. I can make money at 45 dollars but I still get a burr
under my saddle over the shale oil industry's bullshit. Which seems to be getting worse.
Question 1 is a good point, sir. I side with our old friend Jeffrey Brown on this issue of
supply overhang and the quality of the oil in storage and not in very good favor with end users.
When Mexico stops being a net exporter, and Venezuela implodes, LTO is going to take some big
price whacks simply because there won't be anything left to blend it with. I look for it to take
a long time for Cushing to drain. I produce a lot of low gravity sweet stuff and its getting a
premium price now for the first time in four years.
Question 2: LTO reserve inventory is not being replaced and the discounted value of those PDP
reserves is dropping like a rock. Some companies are now in a bind with the SEC over EUR's and
the IRS is bearing down on PUD reserves. The bottom line is the debt to asset ratios of all but
2 to 3 public shale oil companies is abysmal and new OCC regulations imply most of those guys
can't legally borrow more money; they have 2-3 mortgages on their homes already, and their MasterCards
are maxed out. The shale oil industry is dead in the water if it cannot borrow more money and
that gets harder every day, IMO. I think the shale boom is over, thankfully, and we should not
worry too much about another 70% price collapse, no.
Thanks man: We're shaking off the dust and starting to "think" of getting busy again.There's still
good oil out there under the right rock and we are determined to find it! We had a good little
discovery that has pulled us through this Depression, though it was a shame to give the oil away
to hold on.
Shallow,
I think at this point it does not matter if they are oil or gas fields or how the fields are classified.
With Fed announcing that would not have legal problem pursuing negative rates it is completely
clear that main goal is to keep broke debtors alive and prevent the gigantic debt bubble from
imploding. With negative rates being essentially tax on the savings Fed is basically saying to
investors to keep sinking money in anything that resemblance of hard assets in some distant hope
that prices will recover before they run out of oil or gas. Good luck with that in the case of
high depleting shale. So with negative rates boxes of brass fixtures could be more attractive
than cash tomorrow. Markets are broken.
"... It is also interesting to see how year over year % declines are leading the actual production data and indicate that the drop will march on much further. Even if drilling resumes, natgas production will not rise before year end due to the drilling time lag. ..."
Texas RRC data for April 2016 are out. As others will probably elaborate more on the data, I cannot
resist to show the interesting situation of Texan natgas production (see below chart), which is
in a stage of freefall and in complete contradiction to above scenarios for US natgas production.
It is also interesting to see how year over year % declines are leading the actual production
data and indicate that the drop will march on much further. Even if drilling resumes, natgas production
will not rise before year end due to the drilling time lag.
In the meantime, natgas prices continue to soar, smashing through USD 2.70. A heat wave in
the SouthWest helps as power burn will reach very likely 5.5 bcf/d over the next few days. Natgas
consumption soars despite – and in my view because of – high solar capacity in California. The
high solar capacity does not reduce natgas demand yet drives it to record highs.
Rebounding after a two-year collapse, it's only this month that oil prices have pushed up past
$50 a barrel, but Raymond James & Associates says this is just the beginning for higher prices.
In a note to clients, analysts led by J. Marshall Adkins say West Texas Intermediate will average
$80 per barrel by the end of next year - that's higher than all but one of the 31 analysts surveyed
by Bloomberg.
"Over the past few months, we've gained even more confidence that tightening global oil supply/demand
dynamics will support a much higher level of oil prices in 2017. We continue to
believe that 2017 WTI oil prices will average about $30/barrel higher than current futures strip
prices would indicate."
The team went on to lay out three reasons for their bullish call, all of which are tied to global
supply - the primary factor that precipitated crude's massive decline.
Here's how the rebalancing of the global oil market will be expedited from the supply side, according
to the analysts:
First, the analysts see production outside the US being curbed by more than they had previously
anticipated, which constitutes 400,000 fewer barrels of oil per day being produced in 2017 relative
to their January estimate. In particular, they cite organic declines in China, Columbia, Angola,
and Mexico as prompting this downward revision. "When oil drilling activity collapses, oil supply goes down too!," writes Raymond James. "Amazing,
huh?"
Adkins and his fellow analysts also note that the
unusually large slew of unplanned supply outages
will, in some cases, persist throughout 2017,
taking a further 300,000 barrels per day out of global supply.
Finally, U.S. shale producers
won't be able to get their DUCs in a row
to respond to higher prices by ramping up output, the
team reasons, citing bottlenecks that include a limited available pool of labor and equipment.
Combine this supply curtailment with firmer than expected global demand tied to gasoline consumption,
and Adkins has a recipe for $80 crude in relatively short order.
"These newer oil supply/demand estimates are meaningfully more bullish than at the beginning
of the year. Our previous price forecast was considerably more bullish than current
Street consensus, and our new forecast is even more so."
The only analyst with a higher price forecast for 2017, among those surveyed by Bloomberg, is
Incrementum AG Partner Ronald Stoeferle. He sees West Texas Intermediate at $82 per barrel next year.
The consensus estimate is for this grade of crude to average $54 per barrel in 2017.
Over the long haul, however, Raymond James' team sees WTI prices moderating to about $70 per barrel.
"... as to GS public statements relating to oil and gold, the money has been by taking the other side of the trade, I have little doubt that what their trading desk does. ..."
Goldman Sachs has dismissed what's been described by some analysts as a recovery in the global
oil markets.
The uber bear said it expects a "modest" deficit in the coming months due to current prices, before
the market returns to surplus early next year.
Rising demand, falling US oil output as well as supply disruptions have helped the black stuff
recover from below $28 per barrel in January to just under $50 today.
Read more: North Sea to warn MPs subsea sector risks losing world-leading position
But Damien Courvalin, an analyst at Goldman Sachs, said that this was, at best, the first signs
of a turnaround.
"Canadian production is finally restarting, production from other Organisation of Petroleum Exporting
Countries' members continues to beat our expectations."
Courvalin continued: "The recent recovery in prices risks that non-Opec production declines
less than we expect, especially in the US."
What is it they say? A sucker is born every day? This should be illegal!
as to GS public statements relating to oil and gold, the money has been by taking the other side
of the trade, I have little doubt that what their trading desk does.
"... the U.S. Energy Sector is paying at least 50% of its operating profit now to just pay the interest on the debt. Q1 2016, it was 86% of their operation income just to pay the interest on the debt. ..."
"... Unless Uncle Sam comes in and BAILS OUT the U.S. Energy Sector, it's in serious trouble. ..."
I find it interesting that the U.S. Energy Sector now has twice as much debt as it did ten
years ago at $370 billion… as production declines.
Furthermore, the U.S. Energy Sector is paying at least 50% of its operating profit now to just
pay the interest on the debt. Q1 2016, it was 86% of their operation income just to pay the interest
on the debt.
Unless Uncle Sam comes in and BAILS OUT the U.S. Energy Sector, it's in serious trouble.
"... I also doubt that oil prices will remain under $80/b long term (more than 5 years). I expect by 2021, oil at $80/b(2016$) will be considered cheap. ..."
"... Look at the second to last slide "Resilience of the three American gas plays (UFDsim)" decline around 15% during the first four years for shale gas. We live in interesting times. ..."
The difference is simply the number of wells added per month. There is no a priori reason that
the number of new wells will be limited to 105 new wells per month, perhaps there will be no financing
available, but I doubt this would be a problem for Statoil or Exxon Mobil, they can do this out
of cash flow if needed.
I also doubt that oil prices will remain under $80/b long term (more than 5 years). I expect
by 2021, oil at $80/b(2016$) will be considered cheap.
A different view from a Total engineer, looks to be using proprietary modeling software. Seems
to capture the possibility of a fatter tail than the logistic curve does, but has already missed
the flat peak area:
Look at the second to last slide "Resilience of the three American gas plays (UFDsim)" decline
around 15% during the first four years for shale gas. We live in interesting times.
"... Shale guys are not borrowing at negative rates. They were borrowing at 4-12% and have accumulated debt that most of them will never be able to repay. ..."
"... Now they are issuing new equity and diluting existing shareholders. That's another way to get free money in order to be able to drill new wells. ..."
"... AlexS. Only the Permian guys seem to be able to issue shares, mostly at least. ..."
"... One of them, Pioneer, is planning to offer 5.25 million new shares at about $827 million. Part of the proceeds will be used to buy Devon's upstream assets in the Permian. Pioneer Goes 'Bold' as Devon Retreats in Top U.S. Oil Field ..."
"Only the Permian guys seem to be able to issue shares"
One of them, Pioneer, is planning to offer 5.25 million new shares at about $827 million. Part
of the proceeds will be used to buy Devon's upstream assets in the Permian. Pioneer Goes 'Bold' as Devon Retreats in Top U.S. Oil Field
"... Crude traders following Fibonacci rules. That's all. They took out the stops around 51, made their profits then went short. Pretty soon they'll go the other way again. Third quarter they'll go long and stay there. Guys already taking options on 100 a barrel. WTI will probably retest a 42 handle before it starts a steady climb. In the sixties in three months or so. Better dollars next year. ..."
"... 3/4 or more of the well bores will be abandoned and thrown on the backs of state governments if WTI and nat gas prices persist or go lower. ..."
"... At some point, there will be a rapid reversal, commodities become scarce, prices rocket up? One thing for sure, 1980s university finance professors never envisioned the kind of stuff going on. Crazy times. Hard to change long held views. ..."
Not too happy to see prices are headed back down in the face of what appears to be strong demand
and falling production. Strong dollar, negative rates. Ouch.
Petro. Are all commodities doomed, or just energy? How about grain?
I am going out on a limb here and say food and energy and precious metals will see money flow
and the government will print money to make sure we have food and energy. Folks can do with out
a lot but the streets will fill without food and energy. With respect to who will be right about
US seeing past highs in C+C production, I have my doubts under normal business conditions, but
i can envision that it could happen, but it would be under a "emergency" type all hands on deck
scenario. Unlikely but possible, our industry has surprised doubters in the past in our ability
to get the job done for the American people. lets make america great again
Crude traders following Fibonacci rules. That's all. They took out the stops around 51, made their
profits then went short. Pretty soon they'll go the other way again. Third quarter they'll go
long and stay there. Guys already taking options on 100 a barrel. WTI will probably retest a 42
handle before it starts a steady climb. In the sixties in three months or so. Better dollars next
year.
We just have to keep starving for a few more months. Oil in storage isn't helping much either.
By the end of the year, we should have a couple of reasons to smile for a change.
One other thought. I take it you see major deflation on the horizon? So, if both crude price AND operating costs deflate, what is the difference, unless one has
debt?
If one only has plugging liabilities, in a highly deflationary scenario, those liabilities
also deflate (cost of labor and cement) in relation to cash on hand. Further, those with plugging
liabilities and cash with no debt will, in my view, at least, have high leverage with state agencies
as to negotiating a long term P & A agreement.
The US has over 1 million wellbores, if there is a "royal flush" of E & P's, due to massive
deflation + high long term debts, I'd say anyone who agrees to P & A a few wells per year will
be looked on favorably. 3/4 or more of the well bores will be abandoned and thrown on the backs
of state governments if WTI and nat gas prices persist or go lower.
At some point, there will be a rapid reversal, commodities become scarce, prices rocket up?
One thing for sure, 1980s university finance professors never envisioned the kind of stuff
going on. Crazy times. Hard to change long held views.
Shallow Sand – Here is the clueless take on things.
In general: Low interest rates are deflationary; High interest rates are inflationary. But,
they are used to fight the opposite problem. Inflation rising: raise interest rates. Deflation
on the horizon: print money and lower interest rates to cause inflation. However, at the extremes,
eventually the desired result is obtained.
In the 1970's they kept raising interest rates to fight inflation. Result, more inflation –
until we got to 14% annual inflation and 18% interest on a home mortgage. Then a recessionary
collapse, and inflation was killed. Now we are in the reverse position – including negative rates
in Europe, and everyone printing money. Result, deflation becoming more of a worry. At some future
breaking point, likely a SURGE in inflation.
Why is this? Because if you have debt, when interest rates rise, you have NO choice. You must
raise prices to pay it . There are no productivity gains; better way of doing things; more efficiency,
etc. to solve the problem. If you have debt and interest rates rise, generally you HAVE to raise
prices to pay the interest.
Now the reverse. Suppose long-term interest rates go to zero. You want to build a restaurant.
You borrow the total cost of $2 million for 20 years. No interest, just a balloon payment at the
end of 20 years. Okay, you can build your restaurant for zero cost of capital. For 20 years, you
just have to cover the variable costs – food, labor, utilities and insurance. So, for 20 years,
you can undercut the price of anybody that does have a cost of capital. Your restaurant is a booming
success for 20 years, until you declare bankruptcy, since you have taken all of the profits as
your salary and have no money to pay back the debt. Meanwhile you have lowered the cost of eating
out in your market area for 20 years.
A mini model illustrating how the simple oil model works in chart below.
Basically well profile times number of wells added and add it all up.
Note that the well profile changes over time it is not fixed. Before 2008 there was a lower
well profile, it increased and remained relatively stable from 2008 to 2013, the well profile
increased in 2014 and 2015.
All of the well profiles and number of wells added each month from 2005 to 2016 (April), we don't
know what the future well profile will be. All of this information is in the spreadsheet I linked
earlier.
The minimodel is in the link below and illustrated in the diagram below.
Chart that goes with spreadsheet above is below, shows a dual peak scenario, it is all about
the number of wells completed, the peak only occurred because the number of completions fell from
200 per month to 45 per month in the ND Bakken/Three Forks.
An open truly clueless question. For many years, much of the gas in the Bakken was flared. During
that time, was measurement of gas as accurate and complete as when flaring no longer allowed and
it is now being sold?
The reason that I ask, is to assess if historical gas/oil ratios are meaningful.
If you read the ND govt reports, you will see oil and gas figures per well each month. Yes
gas produced has been counted all the way though. Gas captured and sold, is a separate number.
"... "I think the world is going to need Permian Basin oil production, and it's not going to grow until you get to $60 long term," he said. "When oil moves toward $60 per barrel, I believe a good $10 of it for a lot of companies will go toward paying off debt, or they'll start selling assets at decreased divesture prices. That extra $10 will be a huge difference for companies that have great balance sheets today. That's why I'm a firm believer we're in a $60 long term oil price environment." ..."
"I think the world is going to need Permian Basin oil production, and it's not going to grow until
you get to $60 long term," he said. "When oil moves toward $60 per barrel, I believe a good $10
of it for a lot of companies will go toward paying off debt, or they'll start selling assets at
decreased divesture prices. That extra $10 will be a huge difference for companies that have great
balance sheets today. That's why I'm a firm believer we're in a $60 long term oil price environment."
Seems to have changed his tune somewhat. But $60 does not get in done in most LTO plays. PDX's
production may be able to grow in the $60(60-69) but elsewhere not so much. But of course I will
take 69 over $48 anyday
"... Saudi Arabia is curtailing renewable-power targets as the world's biggest oil exporter plans to use more natural gas, backing away from goals set when crude prices were about triple their current level, according to Energy Minister Khalid Al-Falih. ..."
"... "Our energy mix has shifted more toward gas, so the need for high targets from renewable sources isn't there any more," Al-Falih said. "The previous target of 50 percent from renewable sources was an initial target and it was built on high oil prices" near $150 a barrel, he said. ..."
"... Saudi Arabian Oil Co., the state-run producer, set up several ventures with international partners to explore for gas, but results were disappointing and most of the companies withdrew from their ventures. Production of dry gas, or fuel for use in power plants or factories, will rise to 17.8 billion cubic feet per day from 12 billion, according to the plan. ..."
"... "Gas currently makes up around 50 percent of the energy mix in Saudi Arabia, and we have an ambition to see this grow to 70 percent in the future, either from local sources or from abroad," Al-Falih said. ..."
"... The Persian Gulf nation has previously scaled back its ambitions for renewables. In January 2015, it delayed by nearly a decade the deadline for meeting its solar-capacity goal, saying it needed more time to assess technologies. The kingdom's earlier solar program forecast more than $100 billion of investment in projects aimed at generating 41 gigawatts of power by 2040. ..."
Kingdom cuts renewables target to 10% of energy mix from 50%
Gas and renewables to free up more Saudi crude for export
Saudi Arabia is curtailing renewable-power targets as the world's biggest oil exporter
plans to use more natural gas, backing away from goals set when crude prices were about triple
their current level, according to Energy Minister Khalid Al-Falih.
The kingdom aims to have power generation from renewable resources like the sun make up 10
percent of the energy mix, a reduction from an earlier target of 50 percent.
"Our energy mix has shifted more toward gas, so the need for high targets from renewable
sources isn't there any more," Al-Falih said. "The previous target of 50 percent from renewable
sources was an initial target and it was built on high oil prices" near $150 a barrel, he said.
Saudi Arabia, which holds the world's second-largest crude reserves, will double natural gas
production, according to Al-Falih, and the government will expand the distribution network to
the western part of the nation. Generating more power from gas and renewables should make more
crude available for export, which would otherwise be burned for electricity for domestic use.
Saudi Arabia has for years sought to develop gas resources to provide fuel for power plants
and industries and to free up more oil to sell overseas. Saudi Arabian Oil Co., the state-run
producer, set up several ventures with international partners to explore for gas, but results
were disappointing and most of the companies withdrew from their ventures. Production of dry gas,
or fuel for use in power plants or factories, will rise to 17.8 billion cubic feet per day from
12 billion, according to the plan.
"Gas currently makes up around 50 percent of the energy mix in Saudi Arabia, and we have
an ambition to see this grow to 70 percent in the future, either from local sources or from abroad,"
Al-Falih said.
Achieving the targets will be a challenge, said Robin Mills, chief executive officer at consultant
Qamar Energy in Dubai. Gas projects usually require a lead time of at least three to four years
before production begins, said Mills, a fellow at the Brookings Institution in Doha.
Saudi Arabia is seeking to increase renewable-energy production to 9.5 gigawatts, according
to a plan announced in April. Saudi Aramco has a 10-megawatt solar installation on the roof of
a parking lot at its headquarters in Dhahran.
The Persian Gulf nation has previously scaled back its ambitions for renewables. In January
2015, it delayed by nearly a decade the deadline for meeting its solar-capacity goal, saying it
needed more time to assess technologies. The kingdom's earlier solar program forecast more than
$100 billion of investment in projects aimed at generating 41 gigawatts of power by 2040.
"... Some commentators have asserted that the 2008 financial crises was due to high fuel costs, and not necessarily due to the cascading collapse of Wall Street financial legerdemain (although this undoubtedly helped fan the flames). ..."
"... Social Security is a big part of the "unfunded liabilities". That's a transfer. It's not available to the working person who gets it deducted from their paycheck, but it's available to the retiree who gets it. And, the retiree is more likely to spend it. ..."
Thank you for your excellent reply, and as Cracker says the extensive work you've done provide
a constructive counter to the less optimistic among us, of which I am one.
I am with Cracker in that I think your charts are chronically optimistically lopsided, but
held my opinion on this for a long time until now.
The resources amounting to URR 8-9.2GB of oil as you surmise may indeed be there, however I
remain highly skeptical of this reported volume for a variety of reasons.
At the end of the day, whether the URR of 8-9.2GB is there or not, I am of the opinion that
only a fraction of it will ever be recovered and the true amount never realized. The reason is
that the condition of the world economy won't support anything higher than $50 based on what I've
seen this year. To wit;
1. Student and consumer debt is at an all-time high, compounded with the problem that most
highly paid jobs are disappearing for the middle class . The June 2016 jobs report was pretty
lackluster, with a +38,000 nonfarm payroll jobs increase reported. It is to be noted that the
civilian long term unemployed has changed little at about 7.4 million.
2. Most driving is of itself for non-productive activities, and includes travel to jobs
that are generally non-productive. If fuel gets more expensive, I expect that much of this
non-essential travel will drop off. Some commentators have asserted that the 2008 financial
crises was due to high fuel costs, and not necessarily due to the cascading collapse of Wall Street
financial legerdemain (although this undoubtedly helped fan the flames).
3. The FED has pumped over $4 trillion of cash into the US economy, but the net benefit
is estimated to be less than $1 trillion to GDP. It is unknown how the FED is going to unload
this pure dreck on its books, and I suspect that it will not comport with higher oil prices in
the cogs and wheels of the economy;
4. US debt is at a fantastic level of $19.3 trillion, with another $67 trillion of unfunded
liabilities on the books. It's hard to see how this debt will be reduced to manageable levels
with higher oil prices.
5. An Internet 2.0, or some other economically transformative technology, doesn't appear
to be on the horizon. Currently, all we know how to do is burn fuel, heat a working fluid,
and use it to drive a piston or turbine. The alternatives, such as solar and wind, will only come
on as oil heads into it's retirement party.
6. Related to point #1; if the current trend to transfer jobs over to automation continues,
it's hard to see how there will be people driving to their (former) employment, and for that matter
afford things that are (of course) produced by petroleum;
7. For what it's worth, I think that the 2008 crises hasn't gone away despite massive money
printing efforts. They're trying to keep demand artificially supported with easy money and
the incurring of unrepayable debt, which is terrifyingly criminal as it is simply passed unto
the very young and the unborn. How can we expect them to pay our debts and then go out and buy
fuel, when their jobs have been outsourced and/or automated? The whole thing has gone far over
the top and is way beyond the point of no return. As mentioned previously, I see no significant
industrial (i.e inventive) development or for that matter, improvements in demographics that will
turn this around.
So at the end of all this, I think that baring hyperinflation the prospects for oil over $50-$55
for the next couple of years is looking fairly dim. Hence, that claimed 8-9.2 GB UR is not going
to be realized in real production.
There are many that are very pessimistic about the economy. Unfunded liabilities are not the
same as debt, so I don't count those.
The retirement age can be raised and eventually the US will follow the rest of the advanced
economies and reform the health care system to control costs.
(First we need to exhaust all other possibilities, before doing the right thing.)
Note that my scenario has oil prices rising very gradually. Also oil prices were over $100/b
for 3 years with the World economy continuing to grow.
All that money printing has had very little positive or negative effect, mostly the velocity
of money has slowed because most of that money is just sitting in bank accounts. Inflation is
not high, if it were the Fed would simply reduce the money supply.
A debt of $19 trillion for an economy with an income of $18.2 trillion is not really a problem.
A debt free consumer with a good credit rating and a 20% down payment in savings can typically
borrow up to 3 times their income for a mortgage. The US government debt is at 104% based on fred
data.
According to BIS for the US total non-financial sector debt is about 250% of GDP.
For all counties that report to the Bank for International Settlements (BIS) the total non-financial
sector debt to GDP was 235% in the fourth quarter of 2015 (most recent data point) at market weighted
exchange rates. (220% using PPP weighted exchange rates.) See
"Unfunded liabilities are not the same as debt, so I don't count those."
I'd like to point out that both of these things act as a dead weight on a chain that must be
carried by those who are working and generating income, as we go forward in time.
And income, or savings derived from it, must then be used to service the debt and pay for the
liabilities/entitlements.
This is money that then cannot go towards buying fuel, or funding innovation and transition- things
like EV, solar, etc.
A dead weight is a dead weight.
And going into a crisis you have a better chance of surviving it if you are lean and mean, not
if you have this ugly balance sheet. It doesn't help that most of the worlds countries are in
poor shape in this regard as well.
I have to agree with Mike Sutherlands view that these factors could very well decrease the URR
significantly.
On the other hand, the other 7 Billion people of the world will keep increasing their demand
and, along with depletion, this will leave less cheap oil for the USA to import. This will tend
to raise the price here.
These are conflicting forces, and I think we will end up with a scenario with both lower URR
of these domestic sources, and yet also higher prices. Good for solar/wind I suppose- if we can
afford it.
Very tough on the average family and local businesses.
Social Security is a big part of the "unfunded liabilities". That's a transfer. It's not available
to the working person who gets it deducted from their paycheck, but it's available to the retiree
who gets it. And, the retiree is more likely to spend it.
So, SS doesn't slow down the economy, it helps it.
Transferring money from a working family to a retired one doesn't help the economy, it helps the
elderly person, and hurts the working family (in the here and now).
Its overall pretty neutral, but it surely takes resources that could go towards energy infrastructure
and development and shifts it towards the pharma industry, for example.
I'm not trying to make a value judgement here, just pointing out that in the scope of our prior
discussion, this is fairly neutral and doesn't change the conclusions.
Currently, all we know how to do is burn fuel, heat a working fluid, and use it to drive a
piston or turbine. The alternatives, such as solar and wind, will only come on as oil heads into
it's retirement party.
Well, no, we know a lot more than that. We have superior alternatives for most of the uses
for oil, and adequate ones for the rest.
The single biggest use is personal transportation, and EVs will work fine for that. We don't
need turbines for that, electric motors will do just fine.
And…we don't need wind or solar to get rid off oil. Not at the moment. All we need is electricity,
and we have plenty of that, right now.
My humble apologies, Dennis, just too funny, and appropriate. I do appreciate your charts,
but I wish you would occasionally plug is some other values to provide a contrast to your ever-optimistic
assumptions. My reaction to your chart was the same as Ron's.
Make your chart reflect lower and fluctuating oil prices, instead of coynecopian, steady-state
high prices and it might make more sense. Add a factor for debt restraining new wells at higher
oil prices (see SS's comment about $75 without debt below). Your assumptions just seem too optimistic
to be realistic. Maybe I just underestimate BAU's ability to fund stupidity and you don't:-)
It will be interesting to see what really happens.
Thanks to all for your comments. Always educational.
Depletion never sleeps, so I wonder how much cocaine analysts at IHS snorted before cutting cut
their price forecast,
The collapse in crude prices is turning into a trillion-dollar retrenchment for the global oil
industry.
That's the latest tally from energy researchers at Wood MacKenzie, which tracks capital
investment by oil and gas producers around the world.
... ... ...
Lower prices and spending cuts have naturally trimmed worldwide production. Wood Mackenzie
forecasts that global crude oil output thorough the rest of the decade will be some seven billion
barrels lower than was expected before the oil price drop, or about 3 percent lower this year and
4 percent lower next year.
... ... ...
In a separate report, analysts at IHS recently cut their price forecast, noting that U.S.
production has held up better than expected despite the drilling cuts. They also cited continued
high OPEC production and weakening growth in global demand.
IHS expects U.S. oil and gas producers to continue to cut investment by another 35 percent this
year, with those cuts bottoming later this year. But any recovery will be "long and drawn out,"
they said, with spending by the end of the decade still 28 percent below the 2014 peak.
"... While oil prices will definitely reach $60 at some point and shale is still doomed at the current price range, there are some contrarian tendencies visible now. If the world economy slows down considerably the rise of oil prices will slow down even more. Let's hope for the best and prepare for the worst. ..."
I remember Lynn Helms predicting a sharp drop in production for March.
In fact, in March Bakken output declined only 8 kb/d, but was down 69 kb/d in April.
April number for ND Bakken is down 6.6% vs. March, 10.9% vs. April 2015 and 15.2% (176 kb/d)
from the peak reached in December 2014.
Average output for January-April 2016 is 1044 kb/d, down 6.9% year-on-year.
As CLR's Harold Hamm and several other E&P CEOs are saying, $50 is a trigger for increased
completion of the DUCs.
Rig count has also bottomed, but significant increase in drilling activity is unlikely until WTI
reaches $60.
Nonetheless, it seems that we will see further declines in LTO output in the next several months
due to delayed impact of low oil prices.
While oil prices will definitely reach $60 at some point and shale is still doomed at the current
price range, there are some contrarian tendencies visible now. If the world economy slows down
considerably the rise of oil prices will slow down even more. Let's hope for the best and prepare
for the worst.
Until the capital markets open up and allow U.S. oil companies to spend outside of their cash flow,
production will not increase and crude prices will continue to rise, Tapstone Energy CEO Tom Ward
said Thursday.
"There's no increase in the capital spending, the debt side of the business is closed, and so
until we have something fairly dramatic happen like maybe a doubling of the rig count, I don't think
we can grow production in the U.S.," he said in an interview with CNBC's "Power
Lunch."
Therefore, "I wouldn't be surprised at all if we saw above $60 or even $70 [a barrel] by the end
of the year," added Ward, the co-founder of
Chesapeake Energy.
Tapstone Energy currently has three rigs online, down from four, and Ward said there are no plans
to add more rigs. It's the same across the industry, he said, because of
the lack of access to capital markets.
"I think prices will have to move up even higher than we're talking about for there to be a big
change in the rig count," said Ward. "We can't change the decline of the oil production in the United
States without more capital, and right now that's just not available."
That said, as soon as funds open up, Ward plans to start spending.
"We will spend whatever you give us. As long as there is money to be had through the capital markets,
then we'll use that to grow production, because that's what we're paid for."
"... The production drop is 100% DEPLETION of existing wells. This is a critical distinction because if wells were shut, they could be turned back on. If wells deplete, generally, new ones must be drilled to replacement them, ..."
"... The reality is that the only way this production comes back (or stops decreasing) is the application of massive amounts of new capital, the redeployment of tens of thousands of service workers laid off during the crash, and billions of dollars of equipment. This is even more true internationally. As large mature projects deplete, of which there are thousands in decline, new large projects must be developed to replace them. ..."
"... The typical approach would be to shut in low rate high water cut producers, and any other wells that have been experiencing high costs. When prices rise and wells have been shut in for months they will have built up some pressure. And some of them will come in at 100 % water due to self injection. It can be a real crap shoot. ..."
Just a note to correct a popular misconception; production DID NOT drop in Bakken due to SHUT
IN wells. The production drop is 100% DEPLETION of existing wells. This is a critical distinction
because if wells were shut, they could be turned back on. If wells deplete, generally, new ones
must be drilled to replacement them, implying radically different time, service intensity and
capital requirements. The popular press is ate up with the concept that when prices rise, all
this production will magically reappear, once again swamping the market with excess supplies.
The reality is that the only way this production comes back (or stops decreasing) is the application
of massive amounts of new capital, the redeployment of tens of thousands of service workers laid
off during the crash, and billions of dollars of equipment. This is even more true internationally.
As large mature projects deplete, of which there are thousands in decline, new large projects
must be developed to replace them.
"The production drop is 100% DEPLETION of existing wells. This is a critical distinction because
if wells were shut, they could be turned back on."
Brad,
Yes. So essentially oil price does not matter at this point at the end of the game for these marginal
and high depletion plays. Price could go even higher but drop in production will just continue.
I think it's a mix. I've been in these circumstances before. The typical approach would be to
shut in low rate high water cut producers, and any other wells that have been experiencing high
costs. When prices rise and wells have been shut in for months they will have built up some pressure.
And some of them will come in at 100 % water due to self injection. It can be a real crap shoot.
"... No mention of decline in China's aging oil fields, or that EOR and infill drilling are what is not affordable at current oil prices, resulting in higher decline rates ..."
"... And the angle that Saudi Arabia flooded the market by keeping their production relatively flat (not cutting production) is a bit ridiculous, to me. US LTO and Canadian tar sands increased production to cause an abundance of oil and condensate. ..."
"... I think China's decline is due to geology and, secondarily, to price realities. It is not caused by stable production in Saudi Arabia. ..."
"... Bloomberg is trying to manipulate markets, as usual. ..."
Interesting article from Bloomberg. I note their take is that it is all
about prices. Geology and resources are not factors in their thinking.
No mention of decline in China's aging oil fields, or that EOR and
infill drilling are what is not affordable at current oil prices, resulting
in higher decline rates , or that some of China's biggest, aging fields
are probably at the end of their producing lives. The intimation is that
production can jump right back up with higher prices – uh, not that simple.
And the angle that Saudi Arabia flooded the market by keeping their
production relatively flat (not cutting production) is a bit ridiculous,
to me. US LTO and Canadian tar sands increased production to cause an abundance
of oil and condensate.
I think China's decline is due to geology and, secondarily, to price
realities. It is not caused by stable production in Saudi Arabia. Bloomberg
is trying to manipulate markets, as usual.
"... Yes it is the normal cycle pattern, but going into Q3, we have been seeing draws over the last few weeks, and world S/D has been close to being balanced. ..."
"... It is normal for Q2 to have storage builds, and this year the builds were on the low side. ..."
"... The market is not expecting to see higher demand than supply, and the next step in prices may be soon than expected. ..."
I know that this presentation is about production, but on the other side
of production, that is demand, according to the IEA demand tables, going
from Q2 to Q3 increases demand by about 1.5 million barrels a day.
There is also a additional small increase going from Q3 to Q4.
With supply decreasing and demand increasing looks like oil prices may
be headed higher over the next six months.
The Alberta fires along with Nigeras problems came at the right time
yo tighten things up a bit.
Yes it is the normal cycle pattern, but going into Q3, we have been
seeing draws over the last few weeks, and world S/D has been close to being
balanced.
It is normal for Q2 to have storage builds, and this year the builds
were on the low side.
The market is not expecting to see higher demand than supply, and
the next step in prices may be soon than expected.
"... Global demand is indeed strong. All key forecasting agencies are still projecting annual demand growth of 1.2mb/d, but it may surprise on the upside (~1.4mb/d). But supply/demand rebalancing is mainly due to declining non-OPEC output and supply outages. ..."
Global demand is indeed strong. All key forecasting agencies are still projecting annual demand
growth of 1.2mb/d, but it may surprise on the upside (~1.4mb/d).
But supply/demand rebalancing is mainly due to declining non-OPEC output and supply outages.
Quarterly global oil demand (mb/d)
source: IEA Oil Market Report, May 2016
"... Penn Virginia Corp., a company in which billionaire George Soros had a stake, booked paper wells in natural gas prospects where it hadn't drilled in years, according to letters from the SEC. ..."
"... Penn Virginia erased most of its undeveloped reserves this year. The company filed for bankruptcy May 12 with $1.2 billion in debt. Records show Soros sold his six million shares in the first quarter. ..."
Penn Virginia Corp., a company in which billionaire George Soros had a stake, booked paper
wells in natural gas prospects where it hadn't drilled in years, according to letters from the SEC.
"Your actual drilling has consistently failed to follow schedules," the SEC wrote in an April
2015 letter. Penn Virginia responded that it had intended to get to the wells within five years but
its plans changed when prices fell.
That's not what company executives told investors, according to conference call transcripts. H.
Baird Whitehead, Penn Virginia's chief executive officer, said in a November 2012 call that "under
almost no scenario" would the company resume gas drilling. Yet, when Penn Virginia filed its report
with the SEC three months later, the prospects accounted for more than 40 percent of its reserves.
During an April 2013 call, Whitehead said, "We don't plan on drilling natural gas wells." Still,
the undeveloped natural gas wells comprised 19 percent of the company's reserves at the end of that
year. Patrick Scanlan, a spokesman for Penn Virginia, declined to comment.
The company intended to follow the SEC's five-year rule, according to a person familiar with Whitehead's
thinking.
Penn Virginia erased most of its undeveloped reserves this year. The company filed for bankruptcy
May 12 with $1.2 billion in debt. Records show Soros sold his six million shares in the first quarter.
"... Ultra Petroleum Corp. was a shale success story. A former penny stock that made the big leagues, it was worth almost $15 billion at its 2012 peak. ..."
"... Then came the bust. Almost half of Ultra's reserves were erased from its books this year. The company filed for bankruptcy on April 29 owing $3.9 billion. ..."
Ultra Petroleum Corp. was a shale success story. A former penny stock that made the big leagues,
it was worth almost $15 billion at its 2012 peak.
Then came the bust. Almost half of Ultra's reserves were erased from its books this year. The
company filed for bankruptcy on April 29 owing $3.9 billion.
Ultra's rise and fall isn't unique. Proven reserves -- gas and oil resources that are among the
best measures of a company's ability to reward its shareholders and repay its debts -- are disappearing
across the shale patch. This year, 59 U.S. oil and gas companies deleted the equivalent of 9.2 billion
barrels, more than 20 percent of their inventories, according to data compiled by Bloomberg. It's
by far the largest amount since 2009, when the Securities and Exchange Commission tweaked a rule
to make it easier for producers to claim wells that wouldn't be drilled for years.
"... In July 2014 Saudi Arabia used 900,000 bpd of oil JUST for electricity, which was 63% higher than the previous year. In a weird twist a 2006 Royal Decree forced electricity generation from natural gas to oil. In 2007 nat gas accounted for 52% of electricity production, in 2012 it was down to 39% – all the rest is crude oil, fuel oil, and diesel. This change was the opposite of what I expected, and is a baffling policy decision… but it is Saudi Arabia, so maybe I shouldn't be surprised. ..."
"... Saudi uses a lot more oil to generate electricity than they used to because they simply do not have enough natural gas to run their power plants and desal plants on gas alone. When I was there in the early 80s natural gas was used almost exclusively to produce electricity and water. ..."
"... Rising Saudi electricity consumption and direct oil burn at power plants is mainly due to air conditioning during the Summer season ..."
I was curious how Ramadan impacts oil production and demand in the Middle East, so I did some
loose research. As everyone here probably knows the Islamic calendar is based on the 29.5 day
Lunar Cycle, so Ramadan is a few weeks "earlier" every year.
According to several articles I read electricity demand jumps by 50-60% during Ramadan especially
when it occurs during the summer. A combination of higher A/C demand as people rest inside during
the day-time fast and the lighting demand from nightly fast-breaking festivities drives this surge.
However Saudi Arabia is the only country that uses meaningful amounts of oil to produce electricity,
so we can just focus on Saudi Arabia.
In July 2014 Saudi Arabia used 900,000 bpd of oil JUST for electricity, which was 63% higher
than the previous year. In a weird twist a 2006 Royal Decree forced electricity generation from
natural gas to oil. In 2007 nat gas accounted for 52% of electricity production, in 2012 it was
down to 39% – all the rest is crude oil, fuel oil, and diesel. This change was the opposite of
what I expected, and is a baffling policy decision… but it is Saudi Arabia, so maybe I shouldn't
be surprised.
Saudi oil demand always spikes during the summer months, and Ramadan will combine with that
to cause a huge spike in domestic oil demand for June.
I tried digging into how Ramadan may impact drilling projects, but could not find much on Saudi
Arabia except an article that mentions the 2012 Saudi Aramco hack was made worse because most
Saudi Aramco employees were on holiday for Ramadan. Various other Muslim nations reduce work hours
for both Muslims and non-Muslims, and Algeria completely stops drilling during Ramadan. Long story
short, I could not find anything too conclusive.
It would be difficult to tell if Ramadan has an impact on oil production in Muslim countries
since it would be a delayed effect that doesn't sit squarely in a single month, and is drowned
out by other political, seasonal, and economic changes. I'm still very curious if there is a relationship
though.
Ramadan moves forward an average of 11.6 days per year. Nothing much changes during Ramadan except
Muslim workers don't work as hard or as long. But non-Muslim workers carry on as if nothing has
happened. Well except that they, during daylight hours, cannot eat, drink or smoke in the presence
of a Muslim.
Ramadan has little or no effect on the vacation of non-Muslim workers.
Saudi uses a lot more oil to generate electricity than they used to because they simply do
not have enough natural gas to run their power plants and desal plants on gas alone. When I was
there in the early 80s natural gas was used almost exclusively to produce electricity and water.
Their largest desal plants are evaporative plants though they do have a lot of reverse osmosis
desal plants that serve smaller areas.
It appears that world oil exports has increased very little, if any, since 2005.
Notable quotes:
"... I can only guess that oil production in importing nations, which are generally capitalist countries, is more sensitive to oil price changes than exporters (whose systems of govt allows for maintaining production regardless of price). ..."
"... The largest increase in production, by far, came from the US which is an importing nation. And huge declines came from Norway, the UK and Mexico, all exporting nations. That is largely why we see production increasing while exports stayed flat. ..."
"... Exporting nations, the UK and Indonesia, became net importers during that period. There may have been others, I haven't looked that closely. ..."
"... I find Mexico to be an interesting case. I read somewhere that 30% of federal tax revenue is received from taxation of Pemex. Mexico exports are down 21% in 2015 compared to 2014. I'm not sure what is going to happen to Mexico when it becomes a net oil importer. ..."
This mostly means that importers have simply increased production right?
Gains in U.S. and Canadian production reduced imports, and allowed countries like China and
India to import more even though net export availability remained flat.
I can only guess that oil production in importing nations, which are generally capitalist
countries, is more sensitive to oil price changes than exporters (whose systems of govt allows
for maintaining production regardless of price).
The next 12 months may see increasing prices even if net exports do not decline simply due
to increased export demand from countries like the U.S. that flip from a multi-year decline in
import demand.
Yes, exactly. The largest increase in production, by far, came from the US which is an importing
nation. And huge declines came from Norway, the UK and Mexico, all exporting nations. That is
largely why we see production increasing while exports stayed flat.
Exporting nations, the UK and Indonesia, became net importers during that period. There
may have been others, I haven't looked that closely.
Hi Ron, according to the Energy Export Data Browser UK is an importer.
I find Mexico to be an interesting case. I read somewhere that 30% of federal tax revenue
is received from taxation of Pemex. Mexico exports are down 21% in 2015 compared to 2014. I'm
not sure what is going to happen to Mexico when it becomes a net oil importer. Whenever it
is it won't be good. Perhaps Mexico will join their neighbors to the south (El Salvador, Guatemala
and Honduras) in being failed states.
"... Worldwide investment in the development of oil and gas resources from 2015 to 2020 will be 22 percent, or $740 billion, lower than anticipated before prices plunged in 2014, with the deepest cuts in the U.S., Wood Mackenzie said in a statement Wednesday. A further $300 billion will be eliminated from exploration spending. Global production this year will be 3 percent lower than previously forecast, the consultant said. ..."
The oil and gas industry will cut $1 trillion from planned spending on exploration and development
because of the slump in prices, leading to slower growth in production, according to consultant Wood
Mackenzie Ltd.
Worldwide investment in the development of oil and gas resources from 2015 to 2020 will be 22 percent,
or $740 billion, lower than anticipated before prices plunged in 2014, with the deepest cuts in the
U.S., Wood Mackenzie said in a statement Wednesday. A further $300 billion will be eliminated from
exploration spending. Global production this year will be 3 percent lower than previously forecast,
the consultant said.
"... According to data from National Bureau of Statistics released today, oil output in May was down 7.3% from a year ago to 16.87 million metric tons (3.97 m/d, using 7.3 ton/barrel conversion factor). Daily output declined 1.6% from April and 10% from June 2015 peak of 4.41 mb/d. ..."
According to data from National Bureau of Statistics released today, oil output in May was down
7.3% from a year ago to 16.87 million metric tons (3.97 m/d, using 7.3 ton/barrel conversion factor).
Daily output declined 1.6% from April and 10% from June 2015 peak of 4.41 mb/d.
I think the decline is a result of both ageing onshore oil fields and reduced infill drilling
due to lower upstream investments.
China oil production (kb/d) and year-on-year change (%)
source: National Bureau of Statistics
"... Long predicted as a natural development after the 2014 start of the collapse in the oil price the inevitable has been delayed by drillers squeezing every drop out of their wells, but that game is all but over. ..."
"... Declines in U.S. oil output set to accelerate ..."
"... A lack of drilling is about to catch up to US oil output. To maintain current production levels in the US requires 439 rigs, compared to the 280 in operation, according to ANZ Research. "If that trend persists, we could see production fall below 8.5mb/d by July," comments Daniel Hynes, commodity researach analyst. ..."
"... Financial stress could exacerbate this. Oil producers with sub investment grade debt maturing this year produced approximately 1.3mb/d of oil. We have also seen more downgrades of credit ratings in 2016 than over the past three years. ..."
"... This should see oil prices remain well supported over the next six months. ..."
U.S. oil production has entered the end game with output forecast to plummet as drilling
dries up and banks foreclose on oil companies teetering on the brink of insolvency.
Long predicted as a natural development after the 2014 start of the collapse in the oil price
the inevitable has been delayed by drillers squeezing every drop out of their wells, but that game
is all but over.
From a peak of more than 9.5 million barrels a day early last year current output has slipped
to 9.1mb/d but if a fresh forecast is correct the number could be 8.5mb/d by July and possibly
below 8mb/d in the September quarter…
Saudi Smiles
The Saudi view has consistently been that the oil market will fix itself with low prices forcing
high cost producers out of business, leading to a sustainable price recovery.
What the ANZ has done with its report released earlier today is reinforce the Saudi position
with the headline telling the story: "Declines in U.S. oil output set to accelerate".
A lack of drilling is about to catch up to US oil output. To maintain current production levels
in the US requires 439 rigs, compared to the 280 in operation, according to ANZ Research. "If
that trend persists, we could see production fall below 8.5mb/d by July," comments Daniel Hynes,
commodity researach analyst.
Financial stress could exacerbate this. Oil producers with sub investment grade debt maturing
this year produced approximately 1.3mb/d of oil. We have also seen more downgrades of credit ratings
in 2016 than over the past three years.
This should see oil prices remain well supported over the next six months.
It has always seemed perfectly obvious to me that the price would HAVE to go back up, and it has
, quite a bit already.
The thing that surprised me is that it has taken as long as it has for the high cost producers
to start falling by the wayside. In other industries, the blood would have been in the water MUCH
quicker.
Does anybody have a figure for the "typical or average " cost of storing crude per barrel per
year? How has the price of storage varied for the last couple of years?
I tend to agree, but it will not surprise me to get a soft patch in prices late summer, if it
is shallow, no pun intended, we will have the episode be hide us and I would look at it as a time
to add to pub co stocks. By then the production trends as highlighted in the work presented here
will be very much in place. Who knows Dennis might have to adjust his trend lines on the C+C chart
by that time and will need to use peak flow as the starting point.
Shallow you do not need to tell me, of the hundreds of thousands of people who work in oil
an gas extraction the number of them "barons" would fit on one of the those new electric buses.
If we substitute Dean's better estimate for Texas into the EIA's US estimate (removing the
EIA's Texas estimate from the US total) and use the data from the peak in April 2015 to the most
recent monthly data point of March 2016 and fit a trend line using the method of least squares
we get production decreasing at an annual rate of about 200 kb/d over the most recent 12 months.
Middle East oil producers turn to debt markets. Oman
sold $2.5 billion in bonds on Wednesday, as it seeks to improve its financial position. The Gulf
state oil producer, who is not a member of OPEC, went to the debt markets for the first time in more
than twenty years, a sign of how badly it has been damaged from low oil prices. The move comes after
some of Oman's neighbors issued new bonds earlier this year – Qatar sold $9 billion in debt and Abu
Dhabi sold $5 billion. Saudi Arabia is also expected to turn to the bond markets, perhaps selling
as much as $15 billion worth of bonds. But the IMF
warns that the Gulf States are going to need to do a lot more to cut spending in order for them
to hold onto their currency pegs.
Speculators gamble on $100 oil.Bloomberg
reports that some oil traders are buying contracts that will only pay out if oil surpasses $100
per barrel at some point in the next few years. The contracts do not suggest that such an outcome
is necessarily likely, but only that some traders view it as a potential profitable position. The
fact that traders are buying up these kinds of contracts suggests that the markets are starting to
believe that today's severe cutbacks in exploration and development will create the conditions for
a supply shortage somewhere down the line.
According to consulting firm McKinsey, the
current oil futures market is pointing to a coming balance between demand
and supply-a balance which has the potential to render most oil and gas
investments uneconomical.
The futures market is often a reliable
guide to forcasting the future direction of oil prices, and analysts rely
on both contangos or backwardation when determining their forecasts.
During a supply glut, a contango is typically observed. This is a
condition where the spot price for future contracts is far higher than
the current price for nearby contracts. This means that people are
willing to pay more for a commodity sometime down the road than the
actual price for the commodity.
Backwardation is noticed when the current demand is higher than the
supply, thereby making the nearby contracts costlier compared to future
contracts.
(Click to enlarge)
Until around 2005, backwardation was the normal condition, as seen in
the charts. But since 2005, contango has become the normal condition,
reports
Reuters
. Experts differ on their views regarding this shift.
Large contango is indicative of market bottoms. During the 2008-09
crude oil crash, the oil market witnessed a super-contango, when the
price difference between the first month and the seventh month contract
had reached up to $10 per barrel.
Similarly, during the current crisis, the contango reached $8 per
barrel twice, once in February of 2015 and again in February of 2016, as
shown in the chart below, after which, the markets bottomed out.
During the 1985-2004 period, the average backwardation was $1.07 per
barrel, and during the 2005-2014 period, the average contango was $1.50
per barrel as shown in the chart below. The current contango hovers
around $2 per barrel, which is close to the average during the 2005-2014
period.
(Click to enlarge)
The current oil crisis is unlike the oil
crisis of 2008-2009, as there is no demand destruction this time. Demand
for oil is on the rise and is likely to increase by 1.5 million barrels
per day, both in 2016 and 2017, according to the latest
Short-Term Energy Outlook
by the U.S.
Energy Information Administration.
In the short-term, the supply outages to the tune of 3 million b/d
have supported oil prices by easing the supply glut and restoring the
balance between supply and demand. If supply is restored, the oil markets
will again return to a surplus, putting pressure on prices.
Due to low oil prices, billions of dollars in investments have either
been scrapped or postponed. As and when the markets shift from surplus to
deficit, new supply will find it difficult to catch up with increased
demand. Markets need higher prices for investments to start trickling
into the industry.
However, consulting firm McKinsey believes that oil demand will peak
around 100 million barrels per day by 2030 from the current levels of 94
million barrels per day.
"This change is driven by three factors: first, overall GDP growth is
structurally lower as the population ages; second, the global economy is
shifting away from energy-intense industry towards services; and third,
energy efficiency continues to improve significantly," McKinsey's Occo
Roelofsen said. "Peak oil demand could be reached around 2030", reports
The Telegraph.
If oil demand behaves according to Mckinsey's expectations, most new
investments into oil will be uneconomical due to weak demand in the
future.
Though the long-term is slightly uncertain, balance is maintained in
the short-term. Unless we see supply outages restored, prices are likely
to remain in a small range following an impressive run.
The Saudi's new energy minister, Khalid Al-Falih, told reporters in Vienna that the Kingdom currently
can produce 12.5 million barrels of crude per day, but plans to keep some of this in reserve despite
the privatization of a small part of the company by 2018. He also told the reporters that the Saudis
will no longer be the world's "swing producer" and will no longer control prices by raising and lowering
production through OPEC quotas.
The Saudis are preparing to borrow some $15 billion by July to cover state budget deficits that
reached 15 percent last year. The government's new "National Transformation Plan" that will be unveiled
shortly envisions cutting subsidies and other measures that will produce $100 billion in non-oil
revenues. The Saudis are even talking about more women joining the work force – an anathema to religious
conservatives.
Saudi Aramco is planning to increase its cross-country pipeline that can now move some 5 million
b/d from the eastern oil fields to the west coast where it is planning to expand its refineries and
petrochemical plants.
The Saudi's deputy crown prince and de facto ruler of Saudi Arabia will be visiting Washington
in mid-June to discuss a number of growing frictions between the two countries.
The best thing here is:
Capex is slashed worldwide, hidden capex from 3rd world states I think even more since they are
simply broke with the current oil prices.
And the production continues to increase – why this Capex frenzy the last years, if you can
increase production simply on no money spending, rust and decline being no problem anymore.
"... The major factor pushing prices higher last week was the unplanned production outages in Alberta, Nigeria, and Venezuela. Although the fires are now well past the Alberta tar sands, it will be several weeks before the 1 million b/d of production that had to be shut down during the firestorms can return fully to production. In the meantime, the Alberta outage and the one in Nigeria have likely removed much or all of the production surplus that has overhung the markets and for now, there may be a rough balance of supply and demand. ..."
"... In recent years, these companies have seen a string of massive cost overruns such as in the Caspian and Bering Seas, and disasters such is Deepwater Horizon in the Gulf of Mexico. Last year the oil industry discovered only 12 billion barrels of new reserves, about a third of annual global consumption. ..."
"... Nearly all of the major oil companies reduced capital spending to less than half of what it as been in recent years. With decreasing oil production, supply is likely to start falling short of demand later this year, if it has not already, due to the various outages. ..."
Oil prices hovered just below the $50 level last week with Brent closing just above $50 on
Thursday before settling at $49.46 on Friday. As has been the case lately, there were numerous
factors pressuring oil prices one way or another. The week opened with much enthusiasm that OPEC
would agree to a production freeze, but this went away when the OPEC meeting failed to take any
action. The major factor pushing prices higher last week was the unplanned production outages
in Alberta, Nigeria, and Venezuela. Although the fires are now well past the Alberta tar sands,
it will be several weeks before the 1 million b/d of production that had to be shut down during
the firestorms can return fully to production. In the meantime, the Alberta outage and the one in
Nigeria have likely removed much or all of the production surplus that has overhung the markets
and for now, there may be a rough balance of supply and demand.
While production in Alberta is returning to normal, the political/economic situations in Nigeria
and Venezuela continue to get worse with the likelihood that both countries will soon see a
significant drop in oil production – possibly enough to offset surplus production elsewhere.
There is no end in sight to the problems in either of these countries, and their situations
seemed destined to get worse before they get better.
The US crude inventory saw a small drawdown last week, which is not surprising considering the
outages in Alberta over the past month. The EIA continues to estimate that US production is still
dropping. However, the US oil rig count climbed by nine units last week as drillers responded to
oil prices approaching $50 a barrel coupled with a buyers' market for oil production services and
oilfield workers. The meager increase in US employment last week has some worried about the
outlook for US economic growth in the near future. At a minimum, the widely expected interest
rate increase by the Federal Reserve is likely to go on hold for a while.
The problems of the oil industry continue, however, with US bank earnings down 2 percent in the
first quarter largely due to delinquent loans to the oil industry where bankruptcies continue to
be announced. Observers are starting to talk about the inevitable decline of the large
international oil companies. These companies are finding it increasingly difficult to find new
reserves to exploit and those that are available are mostly in deepwater projects where the costs
of extraction are well above the current selling price of oil. In recent years, these
companies have seen a string of massive cost overruns such as in the Caspian and Bering Seas, and
disasters such is Deepwater Horizon in the Gulf of Mexico. Last year the oil industry discovered
only 12 billion barrels of new reserves, about a third of annual global consumption.
Nearly all of the major oil companies reduced capital spending to less than half of what it
as been in recent years. With decreasing oil production, supply is likely to start falling short
of demand later this year, if it has not already, due to the various outages. Global crude
reserves are still at record levels, so daily shortages of even a million b/d or two are unlikely
to send prices into three figures right away.
By 2020, give or take a bit, prices are likely to start climbing into new territory as
shortages become larger, and rationing-by-price again comes into effect.
IEA is probably OK for use as historical data source, but any use of their forecasts is a sign
of gross negligence, based on their track record. Their 'waterfall" style forecasts are just
propaganda.
My feeling is that 80 dollars bbl are needs to increase shale oil production. Before that it will might be
continue to decline. Saudis are a spent bullet. So chances of them coming into play again with more oil to
suppress oil price further are close to zero.
If so, the key question we need to answer is when oil will hit this magic price point.
U.S. crude oil production averaged 9.4 million barrels per day (b/d) in 2015. Production is
forecast to average 8.6 million b/d in 2016 and 8.2 million b/d in 2017, both unchanged from last
month's STEO.
EIA estimates that crude oil production for May 2016 averaged 8.7 million b/d,
which is more than 0.2 million b/d below the April 2016 level, and approximately 1 million b/d
below the 9.7 million b/d level reached in April 2015.
U.S. oil and natural gas producer Devon Energy Corp said it would sell assets in Texas for
nearly $1 billion and that it was making progress on the sale of other assets as part of its plan
to improve its finances through divestitures.
Devon said on Monday it would sell producing assets in east Texas for $525 million and in Anadarko
Basin's Granite Wash area for $310 million.
The company will also sell its royalty interests in the northern Midland Basin in the Texas
region for $139 million.
With these sales, Devon's proceeds from divestitures of natural gas-focused assets would total
$1.3 billion, Chief Executive Dave Hager said.
"Proceeds for the entire divestiture program are well on their way to achieving our previously
announced range of $2 billion to $3 billion in 2016," Hager said.
The company said it expected to make an announcement within the next several weeks on the sale
of its 50 percent interest in Canada's Access Pipeline, which carries heavy oil across northeastern
Alberta.
Devon also said it was making progress toward selling more Midland basin assets that produced
an average of 25,000 barrels of oil equivalent per day in the first quarter.
Warren Resources Inc., Denver, filed for bankruptcy protection in a Houston federal court on
June 2 after negotiating a debt-for-equity swap with a group of senior lenders led by Blackstone
Group's GSO Capital Partners.
Senior lenders agreed to swap $248 million they are owed for an 82.5% stake in the reorganized
company, court papers showed.
Warren Resources primarily focuses on oil in the Wilmington field in the Los Angeles basin
of California, natural gas in the Marcellus shale in Pennsylvania, and the Washakie basin of Wyoming.
=========================================
On May 29, 2016, US subsidiaries of Linc Energy Ltd. filed voluntary petitions for relief under
Chapter 11 of the United States Bankruptcy Code.
Linc Energy is a global business with oil and gas operations primarily onshore in the USA (Alaska,
Texas, Louisiana & Wyoming); exploration for shale oil and gas in the Arckaringa Basin in South
Australia; developing a proprietary technology for the extraction of heavy oil; and a number of
opportunities to apply its proprietary Underground Coal Gasification (UCG) technology in target
markets including Asia and Africa.
Dennis – you asked at some previous post about discovered, undeveloped reserves. Overall I'd
go with Jean Laherrere, he knows more about these things than most and definitely understands
the politics behind some government forecasts, looks at things globally and probably still has
access to some of the more confidential figures. My less informed view is as follows.
So far about 1350 billion barrels C&C have been produced. Current production is about 28 billion
per year excluding extra heavy oil. Recently Rystad indicated mature filed decline rates at 5%
per year, if that held through the complete depletion (unlikely but all I have to go on) that
would mean another 540 billion, at 3% average decline it would be 900 billion. For 2200 billion
total that could mean (say) another 100 billion to find, 50 billion which is developed but offline
(in Libya, neutral zone, Abqaiq maybe, Syria etc.) and 150 billion discovered but undeveloped.
If there is that amount (or more for higher URR or higher overall decline rates, maybe up to 900
billion by your figures) it must be in OPEC Middle East countries or Russia. A lot of the older
undeveloped, mostly heavy oil, reserves elsewhere have been developed recently (e.g. in the North
Sea) in response to high oil prices. Similarly deep sea in GoM and offshore Africa and Brazil
(see the paper above – there isn't much left in the GoM and discoveries have dropped to near zero
per year). The larger reserves that I know about are complicated and expensive to develop (e.g.
Brazil pre salt, Kazakhstan high sulphur) or have some political issues (offshore Nigeria). I
don't think these would total more than 50 billion though.
If the Middle East OPEC countries have significant known undeveloped reserves they don't act
like it – i.e. why develop tight gas fields, or explore deep sea pre-salt, or double or more the
number of exploration and in fill wells, or get IOCs to come in and redeveloped existing fields.
Somewhere I read that Saudi assume 75% recovery and develop their fields to deplete 2% of the
field per year during plateau phase. That sounds about right for a URR of 250 billion (i.e. assuming
they report total recoverable resources, not what is left) but would mean pretty much everything
they have is on production with nothing much known but undeveloped. 75% may be high but I think
probably achievable for huge onshore fields (not so much for heavy oil offshore like Safinayah;
Abqaiq, which may be exhausted by now; or the neutral zone, which sounds like it needs steam flood
to recover much more). To me Saudi's recent posturing is about setting up excuses for post peak
declines, without having to admit they don't have as much oil as they've stated. Also Kuwait's
initiative as described in terms of new exploration and debottlenecking existing facilities, not
developing known fields.
IHS, Rystad and Wood Mackenzie probably know more, but their past performance at predicting
anything makes you wonder (Rystad seems better than the others though).
For extra heavy oil I think the recovery factors are probably overstated and based on the early,
and easiest to exploit developments. However this probably doesn't make much difference as the
limiting factor is the surface production facilities, and will be for the next few decades. CAPP
predict Canadian oil sands rising to about 3 to 4 mmbpd by 2030, but even this presupposes another
two pipelines approved and built and a sustained, high oil price (i.e. above $100, and probably
more if natural gas prices start to rise at the same time).
In Venezuela exploiting the extra heavy oil would be difficult even for a stable society. It
needs a large amount of oil wells in areas without that great infrastructure (I think around 5
to 10,000 per mmbpd), additional pipelines (I guess piggybacked so the Naphtha diluent can be
recycled), and a bunch of new upgraders – one for every new 200 to 300,000 bpd. The existing upgraders
aren't in great shape, a lot of the skilled workforce from these actually left for USA when the
industry was nationalised. There is a significant shrinkage (I think 15 to 30%) in the upgraders
as they take out carbon to make the oil lighter (compared to hydrocrackers used in places in Canada
which add hydrogen from natural gas). They produce highly toxic waste streams of coke, sulphur
and heavy metals, which need to be safely stored for ever after (I wonder how that's going there
at the moment). The three phases of the Carabobo development, which was supposed to get to 1.2
mmbpd by 2018 don't seem to be going anywhere – oil is still being trucked I think, the new upgraders
are on permanent hold, the well services companies are pulling out, and the government can't afford
to buy the diluent naphtha. That is a recipe for prolonged decline, not growth to 8 mmbpd, which
was once proposed.
Ecuador has ultra heavy oil, discovered and undeveloped, of about 6 billion – but no-one has
figured out how to develop it commercially. The upgrader required has really been proved technically.
They were working with Ivanhoe on something that looked to me a bit like a CTL system, but Ivanhoe
went bust so I don't think this is going anywhere. Overall anything more than about 5 or 6 mmbpd
from extra heavy sources would be stretch over the next 20 to 30 years.
The recent UK production benefited mostly from Golden Eagle ramp up through 2015. Buzzard is by
far the largest single producer at about 180,000 bpd. It is due for an extended turn around this
year. It also more than doubled it's water cut over the last six months, so could be coming off
plateau quickly (ramp up was through 2007). It will be a contest between it's decline against
new production from Clair Ridge and Glen Lyon and 3 or 4 smaller projects over the next 2 years
(about 300,000 bpd combined plateaus).
The government prediction is for a gentle decline of about 15% overall to 2021, but if a lot
of the smaller producers get shut down in the near term it might be a bit steeper.
• Decade-long improvement in fuel efficiency in U.S. seen ending
• Light trucks, vans, SUVs account for 60% of U.S. vehicle sales
Last year, SUVs outsold any other type of passenger vehicle in Europe
for the first time, according to auto industry consultants JATO Dynamics.
The trend has continued in 2016, with demand for SUVs … accounting for a
quarter of sales in the biggest European countries.
Europe is a mirror of what's happening across the world. From China to the
U.S., drivers are buying bigger vehicles, while sales of fuel-efficient
hybrids struggle.
[In the U.S.] the average car sold in April achieved a fuel economy of
25.2 miles per gallon, down from a peak of 25.8 set in August 2014, just
before oil prices crashed, according to data from the Transportation Research
Institute at the University of Michigan. At current trends, this year will
mark the first drop in average U.S. fuel economy since at least 2007, the
data show.
"Fuel-economy improvement is really flatlining," said Sam Ori, executive
director of theEnergy Policy Institute at the University of Chicago. "The
gains completely stopped right at the same time that oil prices started
to decline."
Today in the U.S., light trucks, vans and SUVs account for 60 percent of
total vehicle sales - a level only reached briefly in 2005, when Brent crude,
the global oil benchmark, averaged $55 a barrel. It's now around $50. The
International Energy Agency said in May that less-efficient vehicles, including
four-wheel drives, "remain very much in vogue, a consequence of persistently
lower retail pump prices."
In 2008, when oil prices averaged $100 a barrel, the share of gas guzzlers
in U.S. total vehicles sales dropped at one point to just 43 percent.
With larger vehicles hitting the roads and Americans driving longer distances
as the economy recovers, U.S. gasoline consumption is set to rise to a record
in 2016, according to the Energy Information Administration. U.S. gasoline
demand will average 9.3 million barrels a day this year, surpassing the
peak set in 2007, the EIA said in its most recent monthly report.
The EIA forecast U.S. drivers will enjoy the cheapest gasoline this driving
season in 12 years.
In China, the world's second-biggest oil consumer, drivers are also opting
for larger vehicles as never before. While cheaper gasoline and diesel helps,
analysts said it's higher incomes - and a desire to impress relatives and
friends - that's driving the purchases. According to official data, vehicles
such as light trucks and SUVs accounted for almost 35 percent of total Chinese
passenger sales in April, up from 10 percent in 2010 and less than 5 percent
a decade ago.
You are right AlexS, Americans need to be more frugal and forward thinking.
My town wants to allow a gas station to be put in near the highway, there
is a gas station a short drive away. Not only will the gas station be mere
feet from a Category 1 trout stream, it will be almost at the level of the
stream. The three large tanks will be actually buried in the aquifer for
the town and have to be held down from floating. Everything runs off wells
here, so contamination will effect much of the town and wreck the aquifer.
To top it all off, the land is now a ride-sharing lot, something that
reduces fuel use and pollution as well as reduces the wear and tear on cars
(slowing down the need for vehicle replacement and all the energy/pollution
that involves).
There are gas stations just a few miles in either direction along the
highway.
"... When the price's around $60, I asked Rex, "What do you think?" He said, "Well, it's going to be between $20 to $120, and we're set up for all of those environments. I think it'll go a little lower than higher, but what do I know? I've just been doing this my whole life." And I thought, he's kidding, but he really wasn't. ..."
The oil price is making a fool of everyone. That's according to Steve Schwarzman, cofounder of
private-equity giant Blackstone. The billionaire investor was speaking at the Bernstein Thirty-Second
Annual Strategic Decisions Conference 2016 on Thursday, and talked about the volatile oil price.
He said:
Let's just take energy first because it's in the news a lot. And talk about a crazy business
where there's almost not one person who knows what they're doing, right? At $120, it was going
to $140 a barrel. When you were at $80, it was going to stabilize at $60. And when you're in $60,
you didn't quite know, but maybe it would be $50 to $70. And then when it went to $24, everybody
is a bozo, right? And then it was going to stay there, sort of $25 to $35 or maybe $40 for the
next year or two, and now it's $50.
We've seen crazy swings in oil prices this year, largely driven by slowing demand, increased supply,
and speculation over a potential coordinated cut in the production of oil. US oil prices ended slightly
lower on Thursday after briefly rising above $50 a barrel in intraday trading.
Schwarzman said that his favorite person to talk to when trying to make sense of the oil market was
Exxon CEO Rex Tillerson. He said:
When the price's around $60, I asked Rex, "What do you think?" He said, "Well, it's going to
be between $20 to $120, and we're set up for all of those environments. I think it'll go a little
lower than higher, but what do I know? I've just been doing this my whole life." And I thought, he's
kidding, but he really wasn't.
"... Most probably you are wrong. LTO producers lost access to unlimited financing from Wall Street. They can't finance expansion from their cash flow (which is still negative), so they are cooked. Wells you are talking about were drilled, but not fracked. Drilling is only one third of the total cost of the well. So those two-thirds that are needed to complete the well is a problem. And will the particular well generate positive cash flow if oil price remains in $50-$60 range is another problem. Money spend on drilling are debt. Most shale wells will not compensate with their total production the amount of debt and interest. ..."
"... They need around $80 per barrel to revive their operations. ..."
Its interesting – I've been baffled by the apparent confidence of the markets in rising prices,
and so far it seems they've been right. But I think we'll only know for sure later in the year.
I suspect $50 will be the signal for a lot of struggling tight oil operators to open up their
fracked but sealed wells, so there might be an unpleasant surprise for the bulls in the US market,
if not elsewhere.
I suspect $50 will be the signal for a lot of struggling tight oil operators to open
up their fracked but sealed wells
Most probably you are wrong. LTO producers lost access to unlimited financing from Wall
Street. They can't finance expansion from their cash flow (which is still negative), so they are
cooked. Wells you are talking about were drilled, but not fracked. Drilling is only one third
of the total cost of the well. So those two-thirds that are needed to complete the well is a problem.
And will the particular well generate positive cash flow if oil price remains in $50-$60 range
is another problem. Money spend on drilling are debt. Most shale wells will not compensate with
their total production the amount of debt and interest.
They need around $80 per barrel to revive their operations.
"... No producer can afford to increase production at $50/B. Operating costs are much different than drilling costs. Most production is on a decline now. There are no capital expenditures to increase production, only to maintain production. The hydraulic fracturing play will be first to resume drilling when prices gradually increase. ..."
"... Iranian production has not increased - they are simply shipping stock tank oil. To increase actual field production at $50 per barrel is not economical. ..."
"... The economics of hydraulic fracturing will control crude pricing into the future. ..."
1) SA grossly misjudged the price reaction in raising production from 10 million to 10.3 million
per day.
2) No producer can afford to increase production at $50/B. Operating costs are much different
than drilling costs. Most production is on a decline now. There are no capital expenditures to
increase production, only to maintain production. The hydraulic fracturing play will be first
to resume drilling when prices gradually increase.
3) Iranian production has not increased - they are simply shipping stock tank oil. To increase
actual field production at $50 per barrel is not economical.
4) The economics of hydraulic fracturing will control crude pricing into the future.
novus_ordo 17 minutes ago
US is concerned, Oil transactions are not being done by an OPEC {Petro-dollars} Member. Russia
will NEVER join OPEC. The US should behave better with China, if the Chinese are pressed, the
possibility of the Chinese calling in the US debt to it, would be devastasting. US cannot pay,
and the Chinese know it. Result for USA would be similar to what happened when Wall St. called
in the Argentine debt in the 70's. Skyrocketing Inflation the main feature.
novus_ordo
Russia and China to release world from dollar peg Russia has outmaneuvered the Saudis in fight
for the Chinese oil market despite Western states' unity in sanctions opposition with Russia and
conspiracy theory on the US oil deal with Saudi Arabia. In April China increased oil import from
Russia 52%, while import from Saudi Arabia dropped 22%.
joe 5 hours ago
No outrage of human rights violations in Saudi Arabia because Congress, Billary Bamboozler and
Puppet President are bought and paid for. Remember when US boycotted South Africa?
Raygun 10 hours ago
Saudi is infested with Wahhabis on jihad and the government of Iran funds Hezbollah an Islamic
terror organization similar to Isis. When the oil runs out maybe this crazy totalitarian ideology
will die out because it's no longer funded.
"... "promoting Wahhabism, the radical form of Sunni Islam that inspired the 9/11 hijackers and that now inflames the Islamic State." ..."
"... "Saudi Arabia has frustrated American policy makers for years," ..."
"... In particular, the august US "newspaper of record", which can be taken as a barometer of official Washington thinking, accused Saudi Arabia and the other Persian Gulf monarchies of turning the Balkan country of Kosovo into a failed state. This was because the Saudis have sponsored "extremist clerics" who are "fostering violent jihad", thereby making it a "fertile ground for recruitment to radical ideology". ..."
"... "free riders" ..."
"... As for claims that the Saudis and other Persian Gulf states are sponsoring Islamic extremism, this conveniently obscures US covert policy since the 1970s and 80s in Afghanistan, when American planners like Zbigniew Brzezinski conceived of al Qaeda terrorist proxies to fight against the Soviet Union. ..."
"... The question is: how much can the strategic alliance between the US and its Saudi partner bear – before a straw breaks the camel's back? ..."
For months now, US-Saudi relations have become increasingly strained. The latest American aggravation
is blaming its Arab ally for turning Kosovo into an "extremist breeding ground". In an
article by the New York Times' editorial board last week, entitled 'The World Reaps What
the Saudis Sow' , the leading US publication castigated the Saudi rulers for "promoting
Wahhabism, the radical form of Sunni Islam that inspired the 9/11 hijackers and that now inflames
the Islamic State."
It was an astounding broadside of condemnation, articulated with palpable contempt towards the
Saudi rulers. "Saudi Arabia has frustrated American policy makers for years," the editorial
bitterly lamented.
In particular, the august US "newspaper of record", which can be taken as a barometer of official
Washington thinking, accused Saudi Arabia and the other Persian Gulf monarchies of turning the Balkan
country of Kosovo into a failed state. This was because the Saudis have sponsored "extremist clerics"
who are "fostering violent jihad", thereby making it a "fertile ground for recruitment to radical
ideology".
That Kosovo has become a hotbed of Islamic radicalism and a source of young militants going to
Syria and Iraq to join the ranks of the Islamic State and other terrorist groups is not in dispute.
Nor is it in dispute that the Saudis and other Gulf Arab states have pumped millions of dollars
into the Balkan territory to promote their version of Islamic fundamentalism – Wahhabism – which
is correlated with extremist groups.
... ... ...
US President Barack Obama riled the already-irked Saudi rulers when he referred to them as
"free riders" in a high-profile
interview published in April, suggesting that the oil-rich kingdom was overly reliant on American
military power. In the same interview, Obama also blamed Saudi Arabia for destabilizing Iraq, Syria
and Yemen.
The Saudis reacted furiously to Obama's claims. The White House then tried to back-pedal on the
president's criticisms, but it was noticeable that when Obama flew to Saudi Arabia for a summit with
Persian Gulf leaders later that month, he
received a chilly reception.
Since then, relations have only become even more frigid. The passage of a bill through Congress
which would permit American citizens to sue the Saudi state over alleged terrorism damages from the
9/11 events has provoked the Saudi rulers to warn that they will retaliate by selling off US Treasury
holdings.
Then there are strident calls by US politicians and media pundits for the declassification of
28 pages in a 2002 congressional report into 9/11, which reputedly indicate Saudi state involvement
in financially supporting the alleged hijackers of the civilian airliners that crashed into public
buildings in September 2001.
President Obama has said that he will veto the controversial legislation and publication of classified
information. Nevertheless, the Saudi rulers are incensed by the moves, which they see as treacherous
backstabbing by their American ally. An alliance that stretches back seven decades, stemming from
FDR and the first Saudi king Ibn Saud.
As American writer Paul Craig Roberts has
pointed out,
the latest twists in the 9/11 controversy appear to be efforts by the US "deep state" to
make the Saudis a convenient fall guy.
The same goes for Obama accusing Saudi Arabia for destabilizing Iraq, Syria and Yemen. Yes, sure,
the Saudis are involved in fomenting violence and sectarianism in these countries and elsewhere.
But, again, the bigger culprit is Washington for authoring the overarching agenda of regime change
in the Middle East.
As for claims that the Saudis and other Persian Gulf states are sponsoring Islamic extremism,
this conveniently obscures US covert policy since the 1970s and 80s in Afghanistan, when American
planners like Zbigniew Brzezinski conceived of al Qaeda terrorist proxies to fight against the Soviet
Union.
Blaming the Saudis over the failed state of Kosovo is but the latest in a long list of scapegoating
by Washington. No wonder the Saudis are livid at this American maneuver to dish the dirt. Washington
is setting the Saudi rulers up to take the rap for a myriad of evils that arguably it has much more
responsibility for.
The question is: how much can the strategic alliance between the US and its Saudi partner
bear – before a straw breaks the camel's back?
"... But… the decline has only just begun. The price collapse caused the plateau in world oil production that begun about March 2015. However, the decline did not actually begin until January 2016. The dramatic rise in production from Iran has kept the decline from becoming obvious to everyone. However when the May production numbers come in, I think it will then become obvious to everyone. ..."
In conclusion, In spite of the recent increase in Russian production, as well as the slight increase
from the North Sea, and in spite of the dramatic production increase from Iran due to the lifting
of sanctions, world crude oil production is in decline. And while it is true that most of this decline
is due to the price crash, it remains to be seen just how much production will recover when the price
returns to… to… wherever it returns to before it stops.
But… the decline has only just begun. The price collapse caused the plateau in world oil production
that begun about March 2015. However, the decline did not actually begin until January 2016. The
dramatic rise in production from Iran has kept the decline from becoming obvious to everyone. However
when the May production numbers come in, I think it will then become obvious to everyone.
"... Timchenko's exit was designed to quell any concerns about his role in the company, as he was due to be named in a list of people with alleged links to the Kremlin sanctioned by the US after Russia's invasion of Crimea. ..."
Oil trading giant Gunvor handed its chief executive a $1bn dividend to fund a deal that
helped the company distance itself from US sanctions against Russia.
Torbjörn Törnqvist agreed to buy a 43% stake in the company, the fourth largest oil trader
in the world, from co-founder Gennady Timchenko in 2014 for an undisclosed fee.
Timchenko's exit was designed to quell any concerns about his role in the company, as he
was due to be named in a list of people with alleged links to the Kremlin sanctioned by the
US after Russia's invasion of Crimea.
But the sheer size of Gunvor, which pulled in revenues of $64bn (£44bn) last year despite
rock-bottom oil prices, meant Törnqvist could not fund the deal in one go.
The payment of a $1bn dividend, only part of which was used to fund the deal, allowed Törnqvist
to settle his remaining debt to Timchenko.
"... "Four tankers carrying over 2 million barrels of U.S. crude are stuck at sea and cannot discharge at a Caribbean terminal because Venezuela's PDVSA has not yet paid supplier BP Plc (BP.L), according to two sources and Thomson Reuters vessel tracking data. ..."
"... The deal was to import some 8 million barrels of West Texas Intermediate (WTI) crude so Venezuela could dilute its extra heavy crudes and feed its Caribbean refineries. ..."
Venezuela PDVSA is not paying for their imports from the US.
"Four tankers carrying over 2 million barrels of U.S. crude are stuck at sea and cannot discharge
at a Caribbean terminal because Venezuela's PDVSA has not yet paid supplier BP Plc (BP.L), according
to two sources and Thomson Reuters vessel tracking data.
The cargoes are part of a tender Petroleos de Venezuela [PDVSA.UL], known as PDVSA, awarded
in March to BP and China Oil. The deal was to import some 8 million barrels of West Texas Intermediate
(WTI) crude so Venezuela could dilute its extra heavy crudes and feed its Caribbean refineries.
While three cargoes for this tender were delivered in April, seven other vessels, including
BP's four hired ones, are waiting to discharge, leaving up to 3.85 million barrels of WTI in limbo.
"
"... 18 months of pain for the Saudis, knocking out production, exploration and development everywhere. ..."
"... They lack the ability to produce at a higher rate for a long time, therefore this wasn't about increasing market share. They didn't stop the Iranians and Russians in Syria, which may have been a reason for the price war. They lost a ton of cash flow, will lose more in the future. They caused unemployment in the USA. ..."
"... "As far as I can see KSA has a volatile, unreliable, nutty dictatorship with very little idea of how to pull itself out of the overpopulation and religious nuttism it has been encouraging" ..."
"... that is probably the best explanation for their policy I have heard because no other has made any sense. I read a article yesterday that for the first time they are entering the world bond market to raise at least $15 billion, I guess one might say they too are borrowing money to drill wells. ..."
Are you sure? They lack the ability to produce at a higher rate for a long time, therefore this
wasn't about increasing market share. They didn't stop the Iranians and Russians in Syria, which
may have been a reason for the price war. They lost a ton of cash flow, will lose more in the
future. They caused unemployment in the USA.
As far as I can see KSA has a volatile, unreliable, nutty dictatorship with very little idea
of how to pull itself out of the overpopulation and religious nuttism it has been encouraging.
Their aims are being defeated, and they will be increasingly dangerous as a result.
"As far as I can see KSA has a volatile, unreliable, nutty dictatorship with very little idea
of how to pull itself out of the overpopulation and religious nuttism it has been encouraging"
that is probably the best explanation for their policy I have heard because no other has made
any sense. I read a article yesterday that for the first time they are entering the world bond
market to raise at least $15 billion, I guess one might say they too are borrowing money to drill
wells.
"... It is hard to pinpoint these decline rates exactly since each field is unique unto itself. What the industry generally believes is that offshore production declines at twice the rateof conventional onshore. ..."
"... That would put the offshore decline rate somewhere between 15-20% per year. These higher decline rates mean that the sudden halt to offshore development will result in BIG offshore production declines. ..."
"... Off a 22 million barrel per day production base-15-20%= 3.3-4.4 million barrels a day-gone. That is substantially more than the spare capacity of OPEC right now. That means that in just one year, the world oil supply could be put into deep undersupply (pardon the pun) as offshore exploration and development stagnate. ..."
"Offshore production has lower decline rates than shale does, but considerably higher decline
rates than onshore vertical developments.
It is hard to pinpoint these decline rates exactly since each field is unique unto itself.
What the industry generally believes is that offshore production declines at twice the rateof
conventional onshore.
That would put the offshore decline rate somewhere between 15-20% per year. These higher
decline rates mean that the sudden halt to offshore development will result in BIG offshore production
declines.
Off a 22 million barrel per day production base-15-20%= 3.3-4.4 million barrels a day-gone.
That is substantially more than the spare capacity of OPEC right now. That means that in just
one year, the world oil supply could be put into deep undersupply (pardon the pun) as offshore
exploration and development stagnate.
The new complex will allow to increase the output of diesel fuel of Euro-5 class.
The PM D. Medvedev will visit Volgograd on May 31st.
He will participate in the ceremony of start-up and commissioning works at the plant "Lukoil-Volgogradnetepererabotka".
The new complex of deep processing of vacuum gasoil with the capacity of 3,500 thousand tons a
year is to become the largest one in Russia. The complex comprises: a unit of vacuum gasoil hyrocracking;
a hydrogen production unit meant for hydrogen containing gas supply to the hydrocracking process;
a combined sulfur unit used for utilization of hydrogen disulfide containing amine solution of the
hydroracking process. With the putting of the complex into operation the output of diesel fuel
of class-5 will grow by 1.8 mln tons a year, oil processing efficiency will reach 95%.
If the whims of oil speculators are
anything to go by, then another oil price downturn looks increasingly
unlikely.
Oil prices have gained more than 80 percent over the
past three months, bouncing off of $27 lows in February to hit $50 last
week. Those sharp gains raised the possibility of another crash in prices
because the fundamentals still appeared to be bearish in the near term.
By early May, oil speculators had built up strong net-long positions
on oil futures, extraordinary bullish positions that left the market
exposed to a reversal. Speculators had seemingly bid up oil prices faster
than was justified in the physical market.
But the physical market got some help. The massive supply outages in
Canada (over 1 million barrels per day) and Nigeria (over 800,000 barrels
per day) provided some support to prices, erasing some of the global
surplus.
Now speculators who had started to short oil in May have retreated,
pushing short bets down to an 11-month low. "If you've been short since
February this has been a very painful ride," Kyle Cooper, director of
research with IAF Advisors and Cypress Energy Capital Management,
told Bloomberg
in an interview. "There are always a few die-hards but
otherwise you'd want to get out. This is indicative of the improving
fundamentals."
"... Offshore production has lower decline rates than shale does, but considerably higher decline rates than onshore vertical developments. ..."
"... That would put the offshore decline rate somewhere between 15-20 percent per year. These higher decline rates mean that the sudden halt to offshore development will result in BIG offshore production declines. ..."
"... That is substantially more than the spare capacity of OPEC right now. ..."
Offshore production accounts for 30 percent of total global oil
production. The percentage of global production has remained the same
since the early 2000s but the absolute amount of production has grown.
(Click to enlarge)
Today nearly 22 million barrels of oil per day is produced offshore;
the figure in the chart above includes all liquids.
Offshore production has lower decline rates than shale does, but
considerably higher decline rates than onshore vertical developments.
It is hard to pinpoint these decline rates exactly since each field is
unique. What the industry generally believes is that offshore production
declines at twice the rate of conventional onshore.
That would put the offshore decline rate somewhere between 15-20
percent per year. These higher decline rates mean that the sudden halt to
offshore development will result in BIG offshore production declines.
Off a 22 million barrel per day production base, 15-20 percent would
equal 3.3 to 4.4 million barrels a day-gone. That is substantially
more than the spare capacity of OPEC right now. That means that in
just one year, the world oil supply could be put into deep undersupply
(pardon the pun) as offshore exploration and development stagnate.
Mohammad Al Sabban, the former Saudi representative to OPEC until 2014, insists Saudi Arabia
really has the ability to ramp up output to 12.5 million barrels a day.
Yet Al Sabban told Raymond James that only half of those barrels would be available immediately
within days or weeks. The rest could take up to six months.
Raymond James thinks investors should take those claims with a grain of salt.
"We don't buy the Saudi excess capacity argument," the firm wrote.
Raymond James points to three reasons why they think Saudi is lying. I like #3 the best.
3.) Saudi rig counts are surging: There is a camp in the oil industry that believes
Saudi Arabia's oilfields have gotten so old that they aren't as productive as they once were.
For instance, the Ghawar field - the world's largest with an estimated 75 billion barrels of oil
- is over 60 years old.
Skeptics point to the fact that rig counts in Saudi Arabia have tripled over the past decade
- even though output hasn't gone up nearly as much. At the same time, Saudi stockpiles of oil
have declined by around 30 million barrels since October 2015.
"If they only need to turn valves on to flood the market, why are Saudi oil inventories
falling?" Raymond James asks.
Much better now than 2014. Not good enough to drill new wells. Cash flow positive.
Notable quotes:
"... Brent above $50 today; WTI very close to it. I still think a mild price correction is possible in the next month or two before upward trend continues in 2H 2016. ..."
"... Shallow sand, do you think shut in stripper wells will re-start at these levels? Agree with you that there will be some uptick in LTO activity later this year. Overall U.S. C+C output will likely bottom by the end of 2016, rather than mid-2017, as expected by the EIA. ..."
"... Lack of vertical rigs will mean US onshore conventional will continue to decline. ..."
"... Won't the reactivation of shut in strippers at least reduce the rate of conventional decline? I would think there might be some people out there that might drill some wells as prices improve. At $58/b, after a few months (say 4 months) of balance sheet repair would you be in a position to drill new wells or would you wait for $65/b? ..."
Much better now than 2014. Not good enough to drill new wells. Cash flow positive.
Since 2014 have been able to cut expenses in all areas except:
1. Electricity (not counting shut in wells, of course, which we are now reactivating).
2. Annual well fees.
3. Ad valorem taxes.
4. Severance taxes.
5. Liability insurance.
Everything else costs less than 2015, which cost less than 2014.
Hard to believe, but likely May will have the highest monthly average price since July, 2015.
We are 18 months into the bust, which I feel became official Thanksgiving Day, 2014. The downturn
started in June, 2014, so almost to the two year point since the price first turned.
Would like to see $55-65 WTI. Would be akin to 2005-2006, which were very good years for us,
and which would not drag down the US economy IMO, as gas would be $2.50-2.60 range.
Think would see slight uptick in LTO activity, but nothing big.
Brent above $50 today; WTI very close to it.
I still think a mild price correction is possible in the next month or two before upward trend
continues in 2H 2016.
Shallow sand, do you think shut in stripper wells will re-start at these levels? Agree with you that there will be some uptick in LTO activity later this year.
Overall U.S. C+C output will likely bottom by the end of 2016, rather than mid-2017, as expected
by the EIA.
Yes, will restart shut in strippers, not all, but many. Summer weather will affect that also.
Many wells shut down in winter out of necessity, likely were slow to be reactivated, but will
come back online now.
Will be interesting to watch not only hz rig count, but vertical also. I sense there is a lot
of balance sheet healing needed, plus a lot of caution given collapse post June, 2015.
Lack of vertical rigs will mean US onshore conventional will continue to decline.
Won't the reactivation of shut in strippers at least reduce the rate of conventional decline?
I would think there might be some people out there that might drill some wells as prices improve.
At $58/b, after a few months (say 4 months) of balance sheet repair would you be in a position
to drill new wells or would you wait for $65/b?
I guess that was my point, some wells might be drilled by more aggressive (or desperate) companies
and if that is the case the decline may stop. I doubt there will be enough to get US output to
increase until we reach $75/b or more, but $60/b may result in flat output if we ever get there
(Sept or Oct 2016 would be my guess).
On Friday, May 13, IHS Energy released an alarming new study. It found that the volumes
of oil and gas discovered outside of the U.S. last year were the lowest since 1952.
Oil alone set a record low, with only 2.8 billion barrels of oil equivalent found during
2015.
The vast majority of large, conventional undiscovered oil and gas fields are offshore. Unfortunately,
these fields are uneconomical to develop with oil prices below $80 per barrel.
That's why a few years ago, when prices first dipped under $60, many oil companies refocused
their efforts. They bet big on U.S. shale.
Now, many are regretting that decision. Most shale basins – other than the Permian – are
losers at current WTI prices. (Though there are some winners, as I showed you
here .)
Reply
"... Financialization is the lubricant that makes it possible to think of everything as an asset that could immediately be liquidated at near full value, including hypothetical growth options. When everything is fully financialized and real world frictions are removed, it will always make more sense to buy and sell the assets and their affiliated options that to actually invest and improve anything. ..."
Sinking rig counts worldwide doesn't correspond to these fantastic planned production increases
– if it was that easy to crank up production, why has everyone hasn't done it before?
And opening the chokes, damaging the oilfied only works short term before new infills / CO2
or other expensive stuff is neccessary.
Sinking rig counts worldwide doesn't correspond to these fantastic planned production increases
– if it was that easy to crank up production, why has everyone hasn't done it before?
A relevant quote:
Financialization is the lubricant that makes it possible to think of everything as an asset
that could immediately be liquidated at near full value, including hypothetical growth options.
When everything is fully financialized and real world frictions are removed, it will always
make more sense to buy and sell the assets and their affiliated options that to actually invest
and improve anything.
This is one of the most straightforward ways to visualize how increased financialization
can harm the economy. Although simply calling bankers parasites is arguably even more straightforward.
"... US oil production is now in its freefall phase and this makes me very optimistic about future oil prices. ..."
"... But the health of the USA economy in late 2016 and 2017 is a big open question and it might provide the celling for the oil prices. One of the key factors that prevented sliding of the US economy into the continuation of Great Recession in 2014 was the dramatic drop of oil prices, which started in the second half of 2014. So in 2014-2016 the resilience of the US economy was partially due to this "low oil price" factor. ..."
"... Impoverishment of the low 80% of population makes the recovery impossible; neoliberalism makes the redistribution of gains in favor of lower 80% impossible (most of the gains go to the top 0.1% - the financial oligarchy; top 20% probably hold their own; everybody else are gradually sliding into poverty). So this is a deadlock situation. ..."
"... So when oil price recovers to $80-$100 price band the stimulating role of low oil prices on the economy will be gone. From this point it might be a bumpy ride… ..."
Production fell just 24 000 b/d and week. However, the previous number has been revised downwardly
by around 50 000 b/d and the recent number is down over 70 000 b/d, which is enormous and contributes
very much to the recent oil price rise. US production is down by over 6.4% and net product exports
fell considerably. This is exactly the right thing to do to bring oil prices up again.
US oil production is now in its freefall phase and this makes me very optimistic about
future oil prices.
US oil production is now in its freefall phase and this makes me very optimistic about future
oil prices.
Not so fast.
I am pretty positive that the worst days for the conventional oil are over, and "carpet drilling"
days for LTO are also history.
But the health of the USA economy in late 2016 and 2017 is a big open question and it might
provide the celling for the oil prices. One of the key factors that prevented sliding of the US
economy into the continuation of Great Recession in 2014 was the dramatic drop of oil prices,
which started in the second half of 2014. So in 2014-2016 the resilience of the US economy was
partially due to this "low oil price" factor.
But the effect was pretty small; due to this the FED was not able to "normalize" interest rates
(they made only one hike) and now can face the new phase of the recession with all the ammunition
already fired.
Impoverishment of the low 80% of population makes the recovery impossible; neoliberalism
makes the redistribution of gains in favor of lower 80% impossible (most of the gains go to the
top 0.1% - the financial oligarchy; top 20% probably hold their own; everybody else are gradually
sliding into poverty). So this is a deadlock situation.
Ves wrote something about his views on this subject in this thread and as far as I recall he
thinks that without artificially low interest rates the game is over.
So when oil price recovers to $80-$100 price band the stimulating role of low oil prices
on the economy will be gone. From this point it might be a bumpy ride…
The EIA's Monthly Energy Review
is out today with production data for April. US C+C production fell 123,000 barrels per day
in April to 8,915,000 barrels per day. US lower 48 fell 100,000 bpd while Alaska fell 23,000 bpd.
This data matches the weekly data very close. 8,915 K barrels per day is the average
for April, not the production on the last day or the last week. The EIA has production for the
third week in April at 8,767 K barrels per day. So it looks like US production will fall about
the same amount in May as it fell in April, about 125,000 barrels per day.
US C+C production has fell 779,000 barrels per day since peaking one year ago in April.
"... Anybody got a handle on overall accurate storage stats? I believe that we are heading into a period that oil in storage and market sentiment will be more important than production at some point. At least I'm hoping we are getting there. That'd be a great idea for a new post Dennis. Oil in storage. But there are no stats on private storage in the lower 48 right? Hell, me and my two best business buddies have 25 thousand barrels in our tank farms right now. And we are small fry compared to the gangster bank backed shale guys. ..."
WTI and Brent spread has closed quite a bit lately. Anybody heard what the crooks at the tbtf
mega banks are giving as an excuse?
Citi just announced that crude was headed to 50 a barrel in Q3, that's a pretty amazing call seeing
as how it's pushing 49.50 right now. Those "analysts" probably will get a huge bonus for making
that call right?
Anybody got a handle on overall accurate storage stats? I believe that we are heading into
a period that oil in storage and market sentiment will be more important than production at some
point. At least I'm hoping we are getting there. That'd be a great idea for a new post Dennis.
Oil in storage. But there are no stats on private storage in the lower 48 right? Hell, me and
my two best business buddies have 25 thousand barrels in our tank farms right now. And we are
small fry compared to the gangster bank backed shale guys.
"... The shalies will say anything to keep the money coming in. I would only trust the data you can see at the well level. In the Bakken, CLR has touted 800,000 EUR's. In their recent 10-K, they actually booked about 170,000 in reserves per completed well in the Bakken in 2015. Their problem nowis there are actual well histories. They can't book high PDP given what their past wells have produced. ..."
I think the presentations and reports by CLR and other shalies have to be looked at very skeptically
as their breakevens are much, much higher than the numbers they tout. I have looked at loads of presentations
by LTO players the last 5 years. Even with high oil prices, almost all their claims were disproven
by the poor to mediocre financial results posted.
The shalies will say anything to keep the money
coming in. I would only trust the data you can see at the well level. In the Bakken, CLR has touted
800,000 EUR's. In their recent 10-K, they actually booked about 170,000 in reserves per completed
well in the Bakken in 2015. Their problem nowis there are actual well histories. They can't book
high PDP given what their past wells have produced.
"... If on the other hand you have paid your share of drilling and completion costs with CLR, and lease operating expenses, and you are pleased with the outcome of your investment. Congratulations. You are one of very few. ..."
Mr. Tea, up hole you have said, I believe, this: "I have participated in LTO wells with CLR and
others in Oklahoma (we own minerals)…" It is understandable that your glass might be half full
regarding the shale oil business if all your income associated therewith is free and clear of
all costs. If on the other hand you have paid your share of drilling and completion costs with CLR, and lease operating expenses, and you are pleased with the outcome of your investment. Congratulations.
You are one of very few.
Don't be dumbfounded, sir; I am an operator myself and do not believe that debt, and oil, works
together. It has not worked in the US LTO industry to date, and it will not in the future. Believe
it or not there are a lot of us experienced oil and gas professionals out here that feel the same
way.
"... Those one after another announcements compose into something resembling a Requiem (aka Mass for the dead; Latin: Missa pro defunctis) for LTO boom and "low oil price forever" gambit (with due apologies for the deviation from your neoclassical supply-demand article of faith ;-). ..."
Halcon Resources plans to file a Chapter 11 bankruptcy plan if enough lenders agree to the terms,
the company said Wednesday in a press release.
Since the start of 2015, 138 oilfield service companies and oil and gas producers have gone
bankrupt owing more than $61 billion, law firm Haynes & Boone said in an April 29 report.
Halcon Resources plans to file a Chapter 11 bankruptcy
Since the start of 2015, 138 oilfield service companies and oil and gas producers have gone
bankrupt owing more than $61 billion, law firm Haynes & Boone said in an April 29 report.
Those one after another announcements compose into something resembling a Requiem (aka Mass
for the dead; Latin: Missa pro defunctis) for LTO boom and "low oil price forever" gambit (with
due apologies for the deviation from your neoclassical supply-demand article of faith ;-).
"Now this is not the end. It is not even the beginning of the end. But it is, perhaps, the
end of the beginning." Sir Winston Churchill
LINN Energy LLC and LinnCo LLC have been delisted from The NASDAQ Stock Market. Trading of
LINN and LinnCo securities were suspended prior to the open of the market today, Tuesday, May
24, 2016.
On May 11, 2016, LINN Energy, LinnCo, certain of the company's direct and indirect subsidiaries,
and Berry Petroleum Co. LLC, filed voluntary petitions for reorganization under Chapter 11.
"... I think $80/b will be enough for the current average well to be profitable. I agree that eventually average new well EUR will decrease and higher prices will be needed for profitable wells. The figure below shows debt was being paid down in 2013, based on Rune Likvern's analysis. ..."
"... It is just hilarious that you got call from WSJ just right now to have a chat after all has been printed regarding fake shale "technology improvements", "efficiency", and "energy revolution" in general. If you get ever invite by CNBC/Bloomberg for live TV appearance please let us now so we can all watch :-) ..."
"... But I know that they don't want you near their parking lot because their audience is not ready to handle the truth. They will bring Mr. Ward who is not really independent analyst but he was part of shale for so many years so of course he knows the numbers. But he will only say things in small dosages, one tea-spoon at the time so audience can absorb the news in small bits. ..."
Mr. Tea; I am familiar with the history of LTO development, thank you; I have interest in shale
wells, sat them, know what they cost, seen and heard all the technology bells and whistles up
close and personal and have watched my checks dribble to nothing. I have spent a half century
of economic analysis on wells I have drilled with my own money; I can add and subtract. Most of
the time when I am analyzing shale oil economics I am subtracting.
I have also heard all the hubbub about the shale oil miracle that I can stand; much obliged.
The "long history of the US oil and gas business model" has absolutely nothing to do with shale
oil extraction. The two have little to do with each other.
We have NEVER seen debt play such an enormous role in oil extraction as today, not in the 80's,
never in history.
Shell and BP got out of the shale biz early, Chevron never got in. CNOCC does not send CHK
Christmas cards anymore, I promise you and if you could get a straight answer from Exxon, Statoil
and BHP they'd probably say they screwed up, big time. We'll see who buys what. I'd say if this
shale stuff was so valuable there would be fierce competition to buy the stuff at low oil prices,
now, when folks are so eager to get out of trouble; Mr. Alex is correct, thus far no major integrated
oil company has even whiffed at shale oil acquisitions.
Hoping for higher oil prices is not a plan for long term sustainability, Mr. Tea. Good luck,
sir.
I would consider XOM and Statoil as major oil companies. Both are involved in LTO.
Rune Likvern showed the Bakken LTO players were cash flow neutral before the price crash, but
perhaps there are no more good wells left to drill.
I think $80/b will be enough for the current average well to be profitable. I agree that eventually
average new well EUR will decrease and higher prices will be needed for profitable wells. The
figure below shows debt was being paid down in 2013, based on Rune Likvern's analysis.
Since that time well costs have decreased and lower prices may be adequate ($80/b rather than
$100/b).
Thanks Mike.
When 2 years ago at the time of oil price collapse I first looked at this "black box" called LTO
the only people that made sense regarding LTO economics were you, shallow, Mr Berman, and Mr.
Likvern. 4 people in the whole English speaking world!! There was one more person in Russian language
that I have read his thoughts where he touched on LTO economics but more in context of general
oil depletion. So 1000's of blogs, 1000's of tv channels, 1000's of newspapers and only 4 people
that made sense regarding this LTO subject in English!!! So after 2 years when shale economics
are crystal clear there are still 4 people in English speaking world talking common sense!! Unbelievable.
It is just hilarious that you got call from WSJ just right now to have a chat after all has
been printed regarding fake shale "technology improvements", "efficiency", and "energy revolution"
in general. If you get ever invite by CNBC/Bloomberg for live TV appearance please let us now
so we can all watch
:-)
But I know that they don't want you near their parking lot because their audience is not ready
to handle the truth. They will bring Mr. Ward who is not really independent analyst but he was
part of shale for so many years so of course he knows the numbers. But he will only say things
in small dosages, one tea-spoon at the time so audience can absorb the news in small bits.
Have a nice day.
Price doesn't matter? This is a conservative perspective. A more bold one is that price can
be decreed to define function within the facade of normalcy.
Surely every power center
of the world knows oil is entirely decisive. It would be insane to allow it to fluctuate without
efforts at explicit control.
"... Some days ago I had the opportunity to watch a picture titled "The Big Short", an opus on the 2008 financial crisis. It portraits remarkably well how the marriage of ignorance with the lack of scruples can concoct the most toxic of outcomes. The so called "shale oil boom" is not much of a different story, only perhaps at a different scale. ..."
"... This contraction cycle will resound for years to come. Existing fields decline at a rate somewhere between 4% to 5% per year, meaning that the industry needs to bring online additional 3 Mb/d to 4 Mb/d every year just to keep extraction levelled. The investment deferrals under way and the time lag required to bring new fields online guarantee this replacement will be missed several years going forwards. ..."
"... Rystad Energy, a Norwegian petroleum and gas business intelligence consultancy, projects new extraction projects to miss the yearly decline of existing fields for at least the next five years . This consultancy expects an overall extraction decline of 300 kb/d this year, 1.2 Mb/d in 2017 and 2018 and deeper declines in 2019 and 2020. ..."
"... There are also reasons to believe the IEA is underestimating consumption , but this estimate produces a conservative (nearly best case) scenario: growth of 1.25 %/a. ..."
"... the extra stocks built by the OECD can alone keep consumers happy until the end of 2017; to go beyond that China has to follow the same strategy. However, if the trends identified here prevail, by the beginning of 2018 consumption will be exceeding extraction by almost 3 Mb/d, exhausting the remaining stocks of 0.5 Gb in a matter of months. ..."
"... The successive supply destruction - demand destruction cycles are the key dynamics of peak oil at an yearly scale. These cycles push left and transform each curve in succession, eventually producing a stall of traded volumes and finally a decline. The petroleum market has endured a supply destruction cycle for almost two years now, that while clearly closing, is yet far from the 100+ $/b price required to provide a reversing signal to the industry. With various petroleum exporting nations on the brink - in great measure due to the financial machinations concocted in the US - this supply destruction cycle might have been just too long. ..."
"... Present supply destruction cycle is coming to an end. ..."
Titling the
last press review of 2015
I asked if that had been the year petroleum peaked. The question mark
was not just a precaution, the uncertainty was really there. Five months later the reported world
petroleum extraction rate is pretty much still were it was then. This is not a surprise, but the
impact of two years of depressed prices is over due.
Nevertheless, during these five months of lethargy the information I gathered brings me considerably
closer to remove the question mark from the sentence and acknowledge that a long term decline is
settling in. Understanding the present petroleum market as a feature of the supply destruction -
demand destruction cycle makes this case clear.
Looking Backwards
Worldwide petroleum extraction hit some sort of ceiling back in 2004, once it crossed above 70
Mb/d. The volume coming to the market kept increasing, but at a shy pace. From 2004 to 2012 the extraction
rate grew only 3%, from 72 Md/b to 74 Mb/d.
At the same time, the Brent index endured a remarkable rise from 2004 to 2008. Some called this
the "end of cheap oil", alluding to the increasing need for lower return-on-investment resources:
ultra-deep water, heavy petroleums, Arctic, etc. Nevertheless, the price collapsed to a third from
2008 to 2009. Back then I explained how
the concept of an ever rising petroleum price was at odds with "peak oil"
. For the world extraction
to enter a declining trend, periods of supply destruction must take place to keep those higher entropy
resources at bay.
Today the market lives the second supply destruction cycle since the 2004 shift. In reality these
cycles are lasting far longer than I anticipated, showing a considerable time lag in the adjustment
of the supply curve. There is however something especial to this supply destruction cycle, that could
possibly be sealing the end of growth to what petroleum is concerned.
The Miracle
Some days ago I had the opportunity to watch a picture titled "The Big Short", an opus on the
2008 financial crisis. It portraits remarkably well how the marriage of ignorance with the lack of
scruples can concoct the most toxic of outcomes. The so called "shale oil boom" is not much of a
different story, only perhaps at a different scale.
From 2011 to 2013 the extraction of petroleum from source rocks and other low permeability
reservoirs in the US grew almost 2 Mb/d. These were remarkable days for the industry, with plenty
of jobs created and a major revival to the American hands-on approach to business. However, such
a rapid growth on a relatively small resource left many wondering if something else was at play.
By the beginning of 2014 it was becoming evident that the "shale oil boom" had been largely fuelled
by the finance industry, that was feeding relentless amounts of what is sometimes called "dumb money"
to be burned on America's source rocks. The scheme was simple: petroleum companies inflated their
reserve assessments 10 times or more and imprudent investors kept buying bonds irrespective of losses.
They thought they were investing on conventional 30 years petroleum bearing wells, when in fact were
getting 3 years lifetime wells.
By late 2014 "shale oil" extraction in the US had increased 3.5 Mb/d since 2011, but at that point
the price of petroleum in international markets was already coming off a cliff. 200 G$ rested on
the American junk bond market, left to be trounced by a deep supply destruction cycle.
A bond default and bankruptcy wave formed throughout 2015, and is still surging today. One third
of the companies involved in the "shale boom"
should go belly up
this year alone
. However, these financial owes have not yet translated into a visible decline
in extraction rates. This means that even bankrupt, petroleum companies are still bringing new source
rock wells online, only deepening further the present supply destruction cycle.
When the WTI index (the regional equivalent to Brent) sank under 40 $/b late last year, Arthur
Berman produced
a most elucidating set of maps
spatially portraying well profitability. At those prices only
a small fraction of the wells extracting petroleum in the Permian formation were profitable.
And this is the remarkable achievement engendered by the marriage of America's petroleum and finance
industries. Petroleum extraction became effectively insulated from prices; bankrupt or not, the wells
on the Permian, Bakken and Eagle Ford formations will keep pumping - because the dumb money keeps
burning. For the rest of the world, this is like inserting a sliver of 4 Mb/d at 0 $ at the far left
of the supply curve, pushing all other resources rightwards. For an international industry already
in contraction, this is like adding gasoline to the fire.
Supply Destruction
The present supply destruction cycle dates back to the beginning of 2014 - it actually unfolded
before the price collapse. While prices still held above 100 $/b, international petroleum companies
started facing issues regarding shareholder revenues. The supply curve is simply becoming too steep,
when resources such as "Arctic oil" or "pre-salt" enter the portfolios of petroleum companies. The
scale down of exploration activities started that year, as so the slashing of staff. In 2014 circa
100 000 jobs were laid off by the industry
.
The price rout brought about by the shale miracle only accelerated this contraction. In 2015 the
number of jobs laid off
is estimated to have hit 250 000
. 2016 could end up close to that.
In panic mode, petroleum companies have been postponing or outright cancelling projects. Recent
estimates point to
a total of 400 G$ in deferred investments
. A new wave of mergers in the industry is now expected.
This contraction cycle will resound for years to come. Existing fields decline at a rate somewhere
between 4% to 5% per year, meaning that the industry needs to bring online additional 3 Mb/d to 4
Mb/d every year just to keep extraction levelled. The investment deferrals under way and the time
lag required to bring new fields online guarantee this replacement will be missed several years going
forwards.
Rystad Energy, a Norwegian petroleum and gas business intelligence consultancy, projects new
extraction projects to miss the yearly decline of existing fields
for at least the next five years
. This consultancy expects an overall extraction decline of 300
kb/d this year, 1.2 Mb/d in 2017 and 2018 and deeper declines in 2019 and 2020.
Looking Forwards
In a previous post
I analysed the gap between petroleum extraction and consumption reported by
the IEA. Using data fragments published by the press I then produced an estimate for China's stock
flows that greatly explains what have been heretofore unaccounted barrels. In essence, the OECD and
China could have amassed together a total of extra 900 Mb in stocks since the beginning of 2014.
Using this estimate for worldwide stocks I was then able to compute world petroleum consumption
for the past two years.
There are also reasons to believe
the IEA is underestimating consumption
, but this estimate produces a conservative (nearly best
case) scenario: growth of 1.25 %/a.
Matching the outlook produced by Rystad with this consumption trend one can start the always risky
exercise of predicting the future. In this case I projected forwards the consumption pattern of 2015
- with a double slump in later Winter and Spring, and the Summer up-tick - increasing at the steady
pace identified before. As for extraction, I simple spread Rystad's outlook into a monthly dataset.
The end result can be observed in the graph below.
The extraordinary stocks built by the OECD and China since 2014 are projected to hit 1 Gb right about
now, but also to soon stop growing. None of this counts with the fires in Alberta, or the social-economic
owes endured presently by Nigeria or Venezuela. Still, in this conservative scenario consumption
is just about to exceed extraction.
In the scenario above I also made the exercise of estimating how long can these extraordinary
stocks last if they are immediately released on the market to stave off an immediate price reaction.
That being the case,
the extra stocks built by the OECD can alone keep consumers happy until
the end of 2017; to go beyond that China has to follow the same strategy. However, if the trends
identified here prevail, by the beginning of 2018 consumption will be exceeding extraction by almost
3 Mb/d, exhausting the remaining stocks of 0.5 Gb in a matter of months.
How likely is this scenario? Is the OECD willing to bring its stocks promptly on the market to
keep prices where they are now? Or will it wait for prices to rise to provide breathing air to the
petroleum industry? And for how long can countries like Iraq, Nigeria or Venezuela withstand prices
under 100 $/b?
As the events of recent months show, it might be far more likely for some disruptive happening
to shake things up, than for these pretty trends to endure. In any case, this supply destruction
cycle is coming to an end sooner rather than later. The market will eventually have to fix the widening
gap projected in the graph above.
Consequences
These two years of supply destructive prices have pushed various important petroleum nations and
regions to the brink. If there is some unexpected event shaking up the petroleum market, it will
likely be in one of these places.
Iraq
- a country in war and divided in four different zones of military influence.
The impact of low petroleum prices on the Bagdad budget is postponing a victory over Daesh and
brewing political chaos. The increase in extraction of recent years halted and could reverse if
the politico-military situation does not improve. Daesh' burnt land policy is not helping either.
Nigeria
- shortages of hard currency have greatly impaired daily economic life and
an IMF intervention seems likely. In parallel, rebel groups have entailed a series of sabotage
operations on petroleum assets. Petroleum extraction should decline visibly in the next few years
and some fields even abandoned if petroleum prices stay below 60 $/b.
Venezuela
- overwhelmed by a snowball effect where under-priced petroleum causes such
economic disruption that impacts extraction itself. Exporting less petroleum for less money and
on the verge of serious social convulsion.
Canada
- petroleum regions in depression menace to drag down the whole economy with
visible impacts on housing and all industries related to extraction. Number and size of new projects
greatly reduced in recent months may augur an almost unthinkable long term extraction decline
in the country with the largest claimed petroleum reserves in the world. The long term effect
of the wild fires raging presently in Alberta is still unknown. If petroleum facilities are destroyed,
it might not be easy to recover with prices under 50 $/b.
Angola
- ran out of hard currency reserves to pay foreign contractors, sending the
latter on the run. Presently negotiating an aid programme with the IMF. Meanwhile, the ruling
regime has imprisoned numbers of opponents. Petroleum extraction bound to decline in the next
few years.
Azerbaidjan
- for long in "secret" talks with the IMF over an aid programme. Ambitious
prospects for export hikes are likely unattainable.
Mexico
- lost 1 Mb/d to depletion during the past ten years and is unlikely to hold
or halt the decline. Relevant downwards reserve revisions have been conducted in recent times.
Brasil
- engulfed in political chaos tied to misuse and mismanagement of its national
petroleum company, Petrobras, one of the most indebted companies in the world. The pre-salt resource
seems adjourned
sine die
.
North Sea
- extraction is expected to stop in 100 different fields throughout 2016.
Conclusion
Depending on how the OECD (and perhaps China) decide to manage their extra petroleum stocks, the
shift to a new demand destruction cycle closing the gap portrayed in the graph above will be complete
by early 2018 the latest. If something goes seriously wrong with one of the key petroleum exporting
nations, this shift could happen overnight.
What will such new cycle bring? Recent experience provides some clues: it took eight years for
world extraction to rise from 72 Mb/d to 74 Mb/d; the so called "shale boom" required four years
at prices above 110 $/b. These long time lags mean that Rystad's declining outlook is by this time
almost certain.
The coming demand destruction cycle is therefore likely to be a long one too. And at some point
it can invert the extraction trend upwards. In such a scenario, can extraction return to the 80 Mb/d
rate of 2015? That is the big question, which I will abstain from answering definitively. Looking
at it from the other side of the equation, for such a scenario to ever materialize, demand must withstand
again a good number of years at high prices without undershooting.
The successive supply destruction - demand destruction cycles are the key dynamics of peak
oil at an yearly scale. These cycles push left and transform each curve in succession, eventually
producing a stall of traded volumes and finally a decline. The petroleum market has endured a supply
destruction cycle for almost two years now, that while clearly closing, is yet far from the 100+
$/b price required to provide a reversing signal to the industry. With various petroleum exporting
nations on the brink - in great measure due to the financial machinations concocted in the US - this
supply destruction cycle might have been just too long.
The Take Away
"Shale oil" is effectively insulated from prices by the US finance industry.
Present supply destruction cycle is coming to an end.
After two years of low prices, extraction is set for a multi-year decline.
New demand destruction cycle to start in the next 18 months, depending on how stocks are managed.
A return to an extraction rate of 80 Mb/d seems unlikely for the foreseeable future.
There have always been three routes out of the unsustainably low prices: natural
decline/growth of supply/demand, collaboration constraints on supply, and military conflict.
Since January, while the talk of a growth freeze had no effect whatsoever on actual supply, the
natural decline/growth did reduce the overhang by a couple of hundred thousand barrels of oil per
day. Meanwhile, two little-discussed and less-understood military interventions took a combined
900,000 bopd out of supply in a virtual instant.
The history of attacks by rebels on oil infrastructure in the Niger Delta and the coincident
prosecution of a former rebel superficially suggested that this attack was another in protest. On
the other hand, responsibility for the attack was first claimed two months after the fact and by
a group not previously known to exist, namely the Niger Delta Avengers. Moreover, the
sophistication of the attack diverges from the historical airboat-and-AK style of rebels in the
region.
A similarly mysterious outage affected 600,000 bopd out of northern Iraq. Located in a region of
multi-lateral conflict and poor transparency, this interruption could be easily dismissed.
Nevertheless, the fact remains that the exact cause of this major supply interruption was not
publicly claimed or understood by any of the parties.
"... I will tell you how "sane" companies react to down turns like we are going through. They batten down the hatches, cut costs to bare minimum. When prices recover, they do not immediately go great guns. They first get caught up on the maintenance that was delayed due to the downturn. Then, once that is done, they slowly begin to spend money on new wells. ..."
"... Early on, most companies were hoping for a quick recovery. 2015 persistent low prices, followed by the hammer of $20 oil in Q1 has really taken a toll, IMO. This is why we are now seeing many BK. Q1 knocked them out. ..."
"... What I think should worry many people is that those of us considered "marginal" are weathering this storm better than many of the large companies. We are operating stuff that the majors/large independent companies got rid of decades ago, that was deemed to be too costly for them to continue to operate. ..."
"... Now, those majors/large independents are finding there is almost nothing left of "cheap" to develop oil. Deep water, no. Shale, no. Tar sands, no. ..."
"... The shale companies are spending over $5 million per well to obtain 150-400K BO over a period of 20+ years. Folks, they have sold off assets all over the world to go after this stuff. That should be a big concern. ..."
"... In December 2008 oil price was $40. Shale started expansion around that time with the free money from the banks. Today in mid 2016 price of oil is $48 and it is evident that Shale is gradually closing the shop with just additional life-support from the banks to scrape the bottom of the barrel in the remaining sweet spots. ..."
"In fact the price has collapsed hasn't it, in spite of steadily worsening EROI and now
virtual cessation of exploration and development. Gail's explanation fits the evidence we have
in front of us today. Simple EROI or depletion models don't so well. "
The 2014-16 price collapse was due to over-production, which was a result of a 4-fold increase
in upstream capex over the previous 10 years. It's a cyclical event, like in 1982-86, 1998, 2001-02
and 2008-09. The global supply and demand are gradually rebalancing. Prices are already recovering
(+80% since Fenruary lows) and will rise much further in the next several years due to the current
sharp decrease in exploration and development spending.
One point I would like to make is that, unlike in response to prior cyclical downturns, OPEC,
thus far at least, has not cut production. I question if anyone has spare capacity, outside of
that caused by war/political strife.
It took massive amounts of leverage for the US and Canada to ramp up production, along with
a relatively stable oil price band of $85-$105.
It remains to be seen if that type of leverage will occur again in the immediate future.
I note, despite the price improvement, the rig count we all follow, North Dakota, is down to
24, with one still listed as stacking.
I will tell you how "sane" companies react to down turns like we are going through. They
batten down the hatches, cut costs to bare minimum. When prices recover, they do not immediately
go great guns. They first get caught up on the maintenance that was delayed due to the downturn.
Then, once that is done, they slowly begin to spend money on new wells.
Early on, most companies were hoping for a quick recovery. 2015 persistent low prices,
followed by the hammer of $20 oil in Q1 has really taken a toll, IMO. This is why we are now seeing
many BK. Q1 knocked them out.
If OPEC's goal is to finish off US companies, they will figure out a way to keep a lid on prices
this summer, and then drive prices back down into the $20s again. However, I am not sure if this
can be accomplished, or if OPEC members can even handle that. Further, it is clear to me that
Russia can ride out low prices better than most, but not $20s. The Q1 price collapse caused Russia
to act.
We are still here, and cautiously optimistic, but it is a very, very cautious optimism.
What I think should worry many people is that those of us considered "marginal" are weathering
this storm better than many of the large companies. We are operating stuff that the majors/large
independent companies got rid of decades ago, that was deemed to be too costly for them to continue
to operate.
Now, those majors/large independents are finding there is almost nothing left of "cheap"
to develop oil. Deep water, no. Shale, no. Tar sands, no.
The shale companies are spending over $5 million per well to obtain 150-400K BO over a
period of 20+ years. Folks, they have sold off assets all over the world to go after this stuff.
That should be a big concern.
This point has been made here repeatedly. Despite this severe price downturn and the alleged
glut, I think it is still true. There may be a lot of oil out there left to produce, but it will
cost a lot per BO to get it out of the ground.
…but it will cost a lot per BO to get it out of the ground.
Can you define "a lot" ?
I think $75/b (2015$) will allow a fair amount of oil to be produced profitably, but agree
it will take 6 to 12 months before there will be much of a production increase (say 1 Mb/d Worldwide)
in response to oil prices at $75/b. I imagine the slow response will result in a price spike to
$100/b as supply starts to run short (probably in 2018).
In December 2008 oil price was $40. Shale started expansion around that time with the free
money from the banks. Today in mid 2016 price of oil is $48 and it is evident that Shale is gradually
closing the shop with just additional life-support from the banks to scrape the bottom of the
barrel in the remaining sweet spots.
So the price in Shale case did not play ANY role. So where is that "cycle" that you see it?
There is no cycle. Shale was drilled regardless of price to kick the can just for few years to
mask over-leveraged economy.
Also from Dec 2008 to March 2008 only 27 wells per month were added in the Bakken/Three Forks.
Other LTO plays didn't really get going until 2010.
By August 2009 Brent was up to $72/b, from March 2009 to July 2009 the average wells added
per month in the Bakken was 40 wells/month.
Also it was the high prices earlier in 2008 that got things started, oil prices were over $80/b
from Oct 2007 to Sept 2008, the dip in oil prices was relatively brief, the oil price was under
$60/b for only 7 months from Nov 2008 to May 2009. The oil industry takes some time to react to
oil price changes. Chart with annual average Brent oil price in nominal dollars below. The price
has been above $70/b for all but 2 years from 2007 to 2015 (2009 and 2015).
There is no free market CYCLE if OPEC cuts 4.2mbd in January 2009 and then it does not cut
single barrel in November 2014. Of course there is always a "cycle" in long term.
"Prices did not remain between $40 and $48 per barrel"
That just shows you that price points are irrelevant. In 2008 when price was $40 did Shale
had crystal ball to know that price will go $100 in the next 6-7 years?
400 rigs that are drilling right now in US do they know where the price will be next year?
Reply
"... I also question as to whether or not this extreme debt-fueled LTO production will ever be able to ramp up again as we have recently seen? It looks as if gullible investors are lining up with every increase in price, but the real onslaught of bankruptcies are just beginning, imho. ..."
"... This is a pretty big bust, and as mentioned by a few insiders in the last post, (Doug Leighton and a few others), will the experienced and knowledgeable 'hands' be available to ramp up production in such big numbers, ever again? Will there be financing? Will they be forced to produce by Govt decree/intervention? How about by a 2 for 1 tax incentive like Canada has done in the past? ..."
"... Not to doom and gloom a new reality, mostly because I am optimistic by nature, nevertheless, an acknowledged Plateau or decline will shake society to its very core as we move forward. I think it will be like those cheap B level movies about the looming asteroid casting a shadow on Earth, with hordes of people frantically looking for any means to escape the ramifications. ..."
regarding statement: "but the USGS may be mistaken in assuming that US reserve growth is a good
analog for the rest of the world."
Is oil distribution different than every other resource as it applies to the US? I don't think
so. That is a very big assumption and does not take into account misrepresented reserves by more
secretive countries, as well as political unrest and other disruptions that may occur going forward.
Furthermore, as the Majors seem to be dropping in profitability will they be able to continuing
producing at today's rates, or will they wind down and/or diversify with respect to their shareholders,
their first responsibility? I also question as to whether or not this extreme debt-fueled LTO
production will ever be able to ramp up again as we have recently seen? It looks as if gullible
investors are lining up with every increase in price, but the real onslaught of bankruptcies are
just beginning, imho.
This is a pretty big bust, and as mentioned by a few insiders in the last post, (Doug Leighton
and a few others), will the experienced and knowledgeable 'hands' be available to ramp up production
in such big numbers, ever again? Will there be financing? Will they be forced to produce by Govt
decree/intervention? How about by a 2 for 1 tax incentive like Canada has done in the past?
Every one of these graphed scenarios but one show the 'Peak' 15-20 years out. Ron P, who I
respect very highly, has said in the past he believes that 2015-16 will/might/just may be the
peak, which we will know only in hindsight. Has anything really changed beyond dodgy economics
and a slowing economy? I suppose if the economy continues slowing the peak might ultimately be
delayed, but then if this is the case BAU is finished, anyway.
Not to doom and gloom a new reality, mostly because I am optimistic by nature, nevertheless,
an acknowledged Plateau or decline will shake society to its very core as we move forward. I think
it will be like those cheap B level movies about the looming asteroid casting a shadow on Earth,
with hordes of people frantically looking for any means to escape the ramifications.
I sent an oil post to my best friend last week. Actually, it was the article I shared with
this forum in the last post about Ft Mac. His response was, "wasn't Jeff Rubin the guy who once
predicted Peak Oil"? I wrote back with several other articles attached and said, "This is Peak
right now, it is beginning….the effects are simply not acknowledged, etc etc etc". The conundrum,
as I see it, is that every time this industry goes bust, for whatever reason(s), the entrenched
say, "See, there's no Peak, what a bunch of bullshit. If there was a Peak the prices would be
climbing"!
Dennis, I would really appreciate reading a strong prediction from you, and others from this
forum. I appreciate that you kind of did this with the caveat, (very polite I might add) that
said, "a more realistic decline scenario might be"… (or words to that effect), but it's driving
me nuts. I kind of see why TOD shut down, now. Their reasons were that there were simply not enough
solid articles about PO to keep a good discussion flowing. I reluctantly switched to PO.com for
daily background reading and the quality of discussion and ideas have been reduced on that site
to playground levels of name calling with lots of swearing and personal attacks tossed in. The
contibutors on this forum are the only game in town these days. I thank you all in advance for
sharing you opinions and knowledge.
Denis does good work, but its very difficult to pin down numbers when nobody releases detailed
data. The ones who have the better data bases are IHS and the oil companies which purchase it
from IHS. But nobody is about to release something that's probably worth several hundred million
$.
For example, what is the usgs estimate for reserv increases at El Furrial in Venezuela? That
reservoir has been badly mismanaged over the last 10 years. The mismanagement reduces booked reserves,
and also makes impossible the introduction of a large tertiary process project such as CO2 injection.
The same applies to dozens of fields. Several Venezuelan heavy oil fields with more than 10
billion barrels of oil in place are headed towards less than half of the pdvsa booked reserves.
And given the current practices and political regime, the reservoirs will be left gutted, which
makes impossible introducing meaningful changes in the future. The Maduro regime has turned into
a full blown dictatorship as of this week, it will change for the worse, so it looks like the
ongoing reserve destruction will continue for at least a decade.
"... Yet another BK, as Rune notified me today. Halcon, ticker HK, with operations in the Bakken and EFS. $3+ billion of debt. ..."
"... One of the Permian guys here mentioned that those of us who survive this debacle need to hoist a few cold ones sometime. I'm ready, once I am sure the debacle has passed. ..."
"... From todays article regarding Halcon: "it plans to file for a prepackaged bankruptcy that would wipe out $1.8 billion in debt and help it survive the drop in crude prices." ..."
"... It is the game of pretending where debt is wiped out as Kramer from Seinfeld would say "Jerry they write it off (debt). They do all the time". And then magically a "new" set of investors show up with newly printed or digitally created numbers on the account and start process again. And start drilling cash into the ground in order to get any oil left regardless of monetary paper loss/gain. What that tells you that current economic system is completely broken. It is running on fumes. ..."
Yet another BK, as Rune notified me today. Halcon, ticker HK, with operations in the Bakken
and EFS. $3+ billion of debt.
Further, Mr. McClendon's new company, American Energy Partners, announced they are winding
down and closing up shop.
One of the Permian guys here mentioned that those of us who survive this debacle need to
hoist a few cold ones sometime. I'm ready, once I am sure the debacle has passed.
Ves, 05/19/2016 at 9:43 am
SS,
This is not bankruptcy in real sense.
From todays article regarding Halcon: "it plans to file for a prepackaged bankruptcy that
would wipe out $1.8 billion in debt and help it survive the drop in crude prices."
It is the game of pretending where debt is wiped out as Kramer from Seinfeld would say
"Jerry they write it off (debt). They do all the time".
And then magically a "new" set of investors show up with newly printed or digitally created numbers
on the account and start process again. And start drilling cash into the ground in order to get
any oil left regardless of monetary paper loss/gain. What that tells you that current economic
system is completely broken. It is running on fumes.
"... "Saudi Arabia's crude oil stockpiles fell in March for the fifth month in a row reaching the lowest level in 18 months as the kingdom kept shipping crude to meet customer demand while keeping a lid on production." ..."
"... Sinking rig counts worldwide doesn't correspond to these fantastic planned production increases – if it was that easy to crank up production, why has everyone hasn't done it before? ..."
"... And opening the chokes, damaging the oilfield only works short term before new infills / CO2 or other expensive stuff is necessary. ..."
What does this say about Saudi spare capacity, the Doha meeting and future supply (if anything):
"Saudi Arabia's crude oil stockpiles fell in March for the fifth month in a row reaching the
lowest level in 18 months as the kingdom kept shipping crude to meet customer demand while keeping
a lid on production."
Sinking rig counts worldwide doesn't correspond to these fantastic planned production increases
– if it was that easy to crank up production, why has everyone hasn't done it before?
And opening the chokes, damaging the oilfield only works short term before new infills / CO2
or other expensive stuff is necessary.
To me this means that Saudi Arabia has peaked. And crown prince Mohammed bin Salman's plan
to ween Saudi Arabia off oil is simply additional proof of this being the case.
"... Financial crises are always ultimately credit crises. Even when the proximate cause seems to be a stock market crash, the amount of damage done depends on how much leveraged speculation took place and how that affects critical lending and payment systems. Even though Japan's payment system was never at risk in the implosion of its colossal credit bubble, its banks and economy have been in a zombie state for a full quarter century. Japan's massive bubble took place through a mere 11 massive "city banks" and another three "long term credit banks". By contrast, China has a large shadow banking system. Just like our officialdom in 2007 and 2008, it's very unlikely that they have a good grasp of the extent and the interconnectedness of the risks. They may find out very soon. ..."
"... Remember the shoddy construction in schools – earthquake collapse. Then there is the bubble in unoccupied "ghost cities" that go on forever. ..."
"... Why did Xi burst the bubble. I had suspected the smog and pollution have done more damage in death and disability than admitted. I wonder if the population is even in decline not just the labor force. ..."
"... If China is suddenly officially ready to countenance a huge rise in unemployment, one presumes they have some plan to socialize the pain, to take care of the population. ..."
"... If this is true, what's in store may be something like IIRC Lambert proposed in comments the other day: nationalize the financial institution, file the Chinese equivalent of RICO charges, impound the wealth and tie the former elite up in jail/litigation for the next decade. ..."
"... "impound the wealth" –including all the wealth offshore? including the wealth Chinese oligarchs have invested in foreign real estate? Are Chinese oligarchs any more likely to go against their own class than Western oligarchs? ..."
"... I missed that Telegraph article – it really is quite alarming. I have to say though that anecdotally, my Chinese friends are no more pessimistic than usual, so I don't think that ordinary Chinese are feeling worried yet – property prices are still going up, which is reassuring to most middle class there, and there is no evidence I've heard of any panic in the various 'informal' or shadow investing markets (lots of Chinese run what amount to unofficial banks, borrowing and investing on behalf of friends). ..."
"... AEP suggests that Xi may not be the firm hand on the tiller that everyone assumes – his overt confidence may well be a front for some very confused ideas. I think there is increasing evidence that this may be the case. For all the sound and fury, there is little real evidence of reform from within. But I think the safe bet is that the CCP has enough of a firm hand that they can prevent an outright crash – much more likely is the sort of crippling slow motion collapse that we saw in Japan a quarter of a century ago. But the longer they insist on shovelling fuel on to the fire, the less likely that happens. As Pettis constantly points out, economists consistently underestimate the speed and severity of crashes. ..."
"... Given the huge amount of foreign investment in china and how much it is likely leveraged, the global financial system will collapse again triggering the collapse of many states. proposals of bailouts would be likely met with violent resistance, even revolution. far right politicians would seize power and, where they haven't been politically neutered, maybe some leftists would, too. were it to happen before november, we could welcome into office president trump in january. ..."
Ambrose Evans-Pritchard has a must-read article on what may be the beginning of the end of the
China-as-economic-wunderkind story. The reason for the hesitancy is that the lengthy article that
appeared in early May on the front page of the house organ of the Politboro may either be an official
declaration or an effort by a powerful minority to press for a meaningful, sustained effort to stop
the growth in debt levels. Particularly since the global financial crisis, China has relied heavily
on increases in private-sector debt to keep growth levels up. Mind you, borrowing to invest is not
necessarily a bad idea if it goes into projects that are sufficiently productive. But as readers
know well, China has had investment at an unprecedented proportion of GDP for years, and most of
it has gone into assets created for speculation (housing that sits vacant and is seen by investors
as an alternative to the stock market) or unproductive increases in industrial capacity. Consider
this extract from a
March article in the South China Morning Post:
At the peak of its cement production in 2014, China turned out more cement in just two years
than the United States had produced in the previous century.
As the first chart shows, the trend finally topped out last year but it still indicates almost
30 times as much cement production in China as in the US, a much larger economy. Is this huge
volume of cement really needed? Is this sustainable?
There is certainly an argument for more cement production in China than in the US, which has
largely built its cities and its transport infrastructure. China is still in the process of doing
so. Its cement requirements are thus proportionately much greater.
True, but 30 times as great with as much cement production in two years as the US recorded
in 100 years? That's pushing things.
And while economic growth in China is faster than in the US, much of it represents just this
pouring of cement. Fixed capital formation accounts for 45 per cent of gross domestic product,
about twice the average of the rest of Asia, and higher multiples yet than the rest of the world.
This sort of excess crashes if demand turns sour. And it could take a lot more with it than just
cement and steel plants
The story is told in many more sectors than just cement. The second chart shows you that China's
steel production is topping out but is still running at five times the rate of all 28 countries
in the European Union combined and almost 10 times steel production in the US.
This steel is still being used but there are reasons to doubt the continued demand. Car production
last year of 12 million units, for instance, was three times the equivalent of domestic production
in the US.
Yes, I know Americans are importing ever more cars as they begin to share the rest of the world's
doubts about their own Chevrolets and Chryslers and, yes, car ownership ratios are still much
higher in the US than in China, but three times as much car production in China as in the US still
has a feeling of unreality. China is not rich enough yet to afford so large a car market.
AEP recaps the well-known-if-you've been-watching signs that China is in the advanced stages of
a monster debt binge. The problem with bubbles, as anyone who has lived through them knows so well,
is they typically run much further than clinical observers imagine possible. So the nay-sayers look
like gloomy Gusses while the momentum traders party until the whole thing goes kaboom. AEP's danger
signals,
from his Telegraph account :
China's debt is approaching $30 trillion. The fresh credit alone created since 2007 is greater
than the outstanding liabilities of the US, Japanese, German, and Indian commercial banking systems
combined…
To put matters in context, leverage rose by roughly 50 percentage points of GDP in Japan before
the Nikkei bubble burst in 1990, or in Korea before the East Asia crisis in 1998, or in the US
before the subprime debacle. This gauge is an almost mechanical indicator of a future credit crisis.
As we all know, China is in a class of its own. Debt has risen by 120 to 140 percentage points.
The scale of excess industrial capacity – and China's power and life and death over commodity
markets – mean that any serious policy pivot by the Communist Party would set off an international
earthquake.
Yet that is what at least an important group of the officialdom is prepared to do. The logic for
a crackdown now is that delaying a day of reckoning will only make the inevitable contraction worse:
China watchers are still struggling to identify the author of an electrifying article in the
People's Daily that declares war on debt and the "fantasy" of perpetual stimulus…
The 11,000 character text – citing an "authoritative person" – was given star-billing on the
front page. It described leverage as the "original sin" from which all other risks emanate, with
debt "growing like a tree in the air".
It warned of a "systemic financial crisis" and demanded a halt to the "old methods" of reflexive
stimulus every time growth falters. "It is neither possible nor necessary to force economic growing
by levering up," it said.
It called for root-and-branch reform of the SOE's – the redoubts of vested interests and the
patronage machines of party bosses – with an assault on "zombie companies". Local governments
were ordered to abandon their illusions and accept the inevitable slide in tax revenues, and the
equally inevitable rise in unemployment.
If China does not bite the bullet now, the costs will be "much higher" in the future. "China's
economic performance will not be U-shaped and definitely not V-shaped. It will be L-shaped," said
the text. We have been warned.
The article also describes how China put its foot on the accelerator in recent quarters, so if
this article represents a policy change, it would be a real gear shift:
The latest stop-go credit cycle began in mid-2015 and has since accelerated to an epic blow-off,
with the M1 money supply now growing at 22.9pc, by the fastest pace since the post-Lehman blitz.
Wei Yao from Societe Generale estimates that total loans rose by $1.15 trillion in the first
quarter, equivalent to 46pc of quarterly GDP. "This looks like an old-styled credit-backed investment-driven
recovery, which bears an uncanny resemblance to the beginning of the 'four trillion stimulus'
package in 2009. The consequence of that stimulus was inflation, asset bubbles and excess capacity,"
she said.
House sales rose 60pc in April, despite curbs to cool the bubble. New starts were up 26pc.
Prices jumped 63pc in Shenzhen, 34pc in Shanghai, 20pc in Beijing, and 18pc in Hefei. Panic buying
is spreading to the smaller Tier 3 and 4 cities with the greatest glut.
There is still some fiscal spending in the pipeline, so the robust times will continue at least
through the summer. But liquidity is already starting to dry up despite all the money creation as
investors are getting more and more evidence that the government will not rescue wealth management
products (which are often invested in real estate projects sponsored by local government entities)
or the bond issues of state owned enterprises (SOEs).
Again from AEP's report :
Moody's warned this month that China's state-owned entities (SOEs) have alone racked up debts
of 115pc of GDP, and a fifth may require restructuring. The defaults are already spreading up
the ladder from local SOE's to the bigger state behemoths, once thought – wrongly – to have a
sovereign guarantee…
The rot in the country's $7.7 trillion bond markets is metastasizing. Bo Zhuang from Trusted
Sources said more than 100 firms cancelled or delayed bond issues in April due to widening credit
spreads…
Ten companies have defaulted this year, with the shipbuilder Evergreen, Nanjing Yurun Foods,
and the solar group Yingli Green Energy all in trouble this month. But what has really spooked
markets is the suspension of nine bonds issued by the AA+ rated China Railways Materials, the
first of the big central SOE's to signal default. "This has greatly weakened investors' long-standing
expectation of implicit government support," he said.
Bo Zhuang said investors have poured money into bonds in the latest frenzy. The stock of corporate
bonds has jumped by 78pc to $2.3 trillion over the last year. It is the epicentre of leverage
through short-term 'repo' transactions, and it is now coming unstuck.
Financial crises are always ultimately credit crises. Even when the proximate cause seems
to be a stock market crash, the amount of damage done depends on how much leveraged speculation took
place and how that affects critical lending and payment systems. Even though Japan's payment system
was never at risk in the implosion of its colossal credit bubble, its banks and economy have been
in a zombie state for a full quarter century. Japan's massive bubble took place through a mere 11
massive "city banks" and another three "long term credit banks". By contrast, China has a large shadow
banking system. Just like our officialdom in 2007 and 2008, it's very unlikely that they have a good
grasp of the extent and the interconnectedness of the risks. They may find out very soon.
There is no evidence that cement is being stockpiled to my knowledge – its all being poured.
The problem is that the construction projects just don't have a productive return any more.
However, there is a serious point to be made about concrete in China – it is generally low
quality. This is ok for regular engineering, but for specialist needs, such as High Speed Rail,
it seriously reduces the life span of the structure. I can't find a link to it now, but a few
years ago an engineering journal was estimating that Chinas
High Speed
Rail network would have to reduce its speed limits by several mpg per year as the structures
were degrading very rapidly. It estimated that in 20 years the HSR network would be no faster
than a conventional railway network.
Our imports from China fell big last month and the department stores that sell the junk are
gone down even faster so if we lost half or 200 billion of their junk I an not sure it would be
missed or replaced. I do think that this China implosion is important. I have some questions.
China has a pork shortage and owns Smithfield but is not importing. Why?
Why did Xi burst the bubble. I had suspected the smog and pollution have done more damage
in death and disability than admitted. I wonder if the population is even in decline not just
the labor force.
Please keep covering whatever it is that is going on in China.
If China is suddenly officially ready to countenance a huge rise in unemployment, one presumes
they have some plan to socialize the pain, to take care of the population.
If this is true, what's in store may be something like IIRC Lambert proposed in comments
the other day: nationalize the financial institution, file the Chinese equivalent of RICO charges,
impound the wealth and tie the former elite up in jail/litigation for the next decade.
"impound the wealth" –including all the wealth offshore? including the wealth Chinese oligarchs
have invested in foreign real estate? Are Chinese oligarchs any more likely to go against their
own class than Western oligarchs?
I missed that Telegraph article – it really is quite alarming. I have to say though that
anecdotally, my Chinese friends are no more pessimistic than usual, so I don't think that ordinary
Chinese are feeling worried yet – property prices are still going up, which is reassuring to most
middle class there, and there is no evidence I've heard of any panic in the various 'informal'
or shadow investing markets (lots of Chinese run what amount to unofficial banks, borrowing and
investing on behalf of friends).
As one Chinese friend put it to me 'everyone in my town owes more money than they have to everyone
else'. I've always suspected its the informal/shadow system that would show stress before the
formal system. The only thing I do know is that a friend of mine who runs a business helping Chinese
people move to Europe using 'investment' visas has found more and more people of very modest means
attempting to do it – its not just the rich who are buying properties.
The usually reliable
Michael Pettis also seems his usual gently bullish, but steady self, I'd expect him to write
something if there was something nasty growing.
AEP suggests that Xi may not be the firm hand on the tiller that everyone assumes – his
overt confidence may well be a front for some very confused ideas. I think there is increasing
evidence that this may be the case. For all the sound and fury, there is little real evidence
of reform from within. But I think the safe bet is that the CCP has enough of a firm hand that
they can prevent an outright crash – much more likely is the sort of crippling slow motion collapse
that we saw in Japan a quarter of a century ago. But the longer they insist on shovelling fuel
on to the fire, the less likely that happens. As Pettis constantly points out, economists consistently
underestimate the speed and severity of crashes.
let's try to imagine the global impact of a Chinese implosion.
as china is the main source of global export demand, if they hit a brick wall it would devastate
all but the most diversified or isolated economies. from Australia to Zaire, the impact would
be devastating to employment.
Given the huge amount of foreign investment in china and how much it is likely leveraged,
the global financial system will collapse again triggering the collapse of many states. proposals
of bailouts would be likely met with violent resistance, even revolution. far right politicians
would seize power and, where they haven't been politically neutered, maybe some leftists would,
too. were it to happen before november, we could welcome into office president trump in january.
domestically, Chinese job losses would be enormous causing mass discontent and protests. indeed,
the only thing to do with legions of disgruntled, unemployed, unmarried men would be to draft
them into the army. but so much fodder requires cannons, and so, the likelihood of war would be
very high.
The problem is that Iraq government has no money to pay oil companies. So they are running on
fumes.
Notable quotes:
"... I think the title of the article is misleading. A sharp decrease in investments does not mean a peak in Iraqi oil output. It will result in a slower growth in production. Iraqi government's goal of 6 mb/d by 2020 is obviously unrealistic. But Iraq still can increase output from the current 4.3 mb/d to more than 5 mb/d in 2020. ..."
Crude output in Iraq, OPEC's second-largest producer, has probably peaked and is likely
to fall short of the country's target over the next two years, according to an official with Lukoil
PJSC, operator of one of the country's biggest fields.
I think the title of the article is misleading. A sharp decrease in investments does not mean
a peak in Iraqi oil output. It will result in a slower growth in production. Iraqi government's
goal of 6 mb/d by 2020 is obviously unrealistic. But Iraq still can increase output from the current
4.3 mb/d to more than 5 mb/d in 2020.
What this means is simple: as a result of the budget imbalance driven by low oil prices,
largely a Saudi doing, the kingdom is forced to give workers an implicit pay cut. It also means
that since the government has to "pay" through the issuance of debt, that the liquidity crisis in
the kingdom is far worse than many had anticipated.
Which brings up the question of devaluation: how long until the SAR has to follow the Yuan and
see a substantial haircut. According to the market, 12 month SAR forward are now trading at a
price which implies a 12% devaluation in the coming months.
When that happens is, of course, up to the King Salman.
What it also means is that as Saudi Arabia is now scrambling to generate any incremental cash, it
too will be caught in the deflationary spiral of excess production as it will have no choice but
to outsell its competitors, especially those rushing to grab Chinese market share such as Russia,
as it seeks to make up with volume what it has lost due to lower prices. It also means that any
hopes of a production freeze by Saudi Arabia - and thus OPEC - are hereby snuffed for the
indefinite future.
Isis claims responsibility for deadly suicide attack on Baghdad gas plant
Militants have launched a suicide attack on a natural gas plant near the Iraqi capital Baghdad,
killing at least 11 people and injuring a dozen more.
During the assault, which extremist militant group Isis said it had carried out, a car was
blown up at the entrance to the facility approximately 20km north of Baghdad.
Six people then entered the site with explosive vests and fought security officers, the
Reuters news agency reported. Three gas storage tanks were set on fire during the fighting.
Suppose they had hauled a small artillery piece within range, meaning anywhere out to fifteen
or twenty kilometers, and set up those same suicide fighters to defend the gun. My guess is they
could have burned everything that WOULD burn, and shot the rest up pretty good.
Such a gun could be concealed in a load of building material or even inside a tanker truck.
Russian Q1 GDP came in better than expected but still showing contraction at -1.2 percent YoY
(versus -2.1 percent expected). A piece in the
Wall Street Journal today addresses the challenges experienced by Russia currently, as the government
is considering raising taxes to help ease its budget deficit. As the chart below illustrates, Russia's
reserve fund is being swiftly depleted – to levels not seen since the 2009 financial crisis – as
the government tries to plug the gap left by lost revenue from lower oil prices:
"... Russia is diversifying oil and gas exports towards rapidly rising Asian markets due to economic and security considerations. But cutting oil exports to Europe, even for one month, would be inefficient and self-destroying. ..."
"... There are also serious logistical issues. Russia exports oil to Asia from the fields in Eastern Siberia and Far East. The fields in West Siberia, Volga-Urals and Timan-Pechora regions are not linked by pipelines with Russia's eastern borders and transportation costs in this case would be too high. ..."
"... Cutting energy supplies to Europe, even for a month, would destroy Russia's reputation as a reliable supplier and result in multiple lawsuits and potential multi-billion fines. Note that Russian oil companies own significant assets in Europe, including refineries, oil terminals, storage facilities, etc. ..."
"... However, if Russia (even for economic reasons) began diverting supplies to Asia via pipelines, wouldn't that mean there would be less for the West to buy? Due to the laws of mathematics? ..."
"... Try putting together a spreadsheet with sources and sinks. Use transport costs to link these two. When you do you'll see the only difference is to change transport costs and security. I used to work and live in Russia and I'm sure they are using models like we did to understand the best options to move Russian oil. I'm a bit outdated, but what we see is a need to refine oil for internal consumption with a better kit. They need to improve their refineries to grind oil molecules for real. ..."
"... This is a very questionable assumption. Supply/demand dynamics, especially reckless financing of shale in the USA was a factor (as in "crisis of overproduction" - if we remember classic Marxist term ;-), but this is only one and probably not decisive contributing factor. Paper oil, HFT, Saudis oil damping and Western MSM and agencies (Wild cries "Oil Glut !!!", "OMG Oil glut !!!" supported by questionable statistics from EIA, IEA and friends) were equally important factors. It you deny this you deny the reality. ..."
"... I agree, but this not the whole story. Western MSM went to crazy pitch trying to amplify Saudi animosities and to play "young reckless prince" card toward Iran and Russia. Do you remember the interview the prince gave to Bloomberg just before the freeze ? Do you think that this was accidental? ..."
"... definitely $50-$60 price band is not enough to revive the US shale. LTO is dead probably on any level below $80 and may be even above this level. That does not exclude "dead chicken bounce". Moreover LTO is already played card for financial industries. In reality it probably needs prices above $100 to fully recover. ..."
"... neoliberals still dominates in Russia. Especially oil and economics ministries. Reading interviews of Russian oil officials is pretty depressing. They swallow and repeat all the Western propaganda one-to-one. Unfortunately. In this area they have a lot to learn from Americans :-). ..."
"... At the same time, increasing the volume of high additional value products such as plastics, rubber, composites, etc is in best Russia's interest. It is difficult to achieve though. I think creating the ability to withhold substantial amount of oil from the markets for the periods of say 6 to 12 month is more important. And here they can get some help from OPEC members, Saudi be damned. ..."
"... This is a tricky balancing solution, but still this is some insurance against the price slumps like the current one, when Russia was caught swimming naked and did not have any viable game plan. It is unclear what is the optimal mix, but in no way this 100% or even 80% raw oil. ..."
3) Russia's oil policy is driven by economic considerations. Cutting oil exports (and hence foreign
currency revenues) in order to "punish" the West is like shooting yourself in the foot.
Aleks,
I agree that a sustained embargo on the West by Russia is not realistic economically. Cutting
supplies for a month to send a message might be.
Or you could do something else…send your supplies via pipeline to Asia.
There by you get your money and decrease the supplies the West has access to.
I am sorry, but what you and likbez are saying here sounds naïve.
Russia is diversifying oil and gas exports towards rapidly rising Asian markets due to
economic and security considerations. But cutting oil exports to Europe, even for one month, would
be inefficient and self-destroying.
1) European customers could easily find alternative sources of supply. Saudi Arabia and
Iran would be happy to take Russia's share in the European market and it would be very difficult
to take it back.
2) It is impossible to redirect all Russian oil exports to Asia. Nobody there expects sharply
increased volumes of Russian oil. China has increased oil imports from Russia, but is not willing
to depend entirely on Russian supplies. There are also serious logistical issues. Russia exports
oil to Asia from the fields in Eastern Siberia and Far East. The fields in West Siberia, Volga-Urals
and Timan-Pechora regions are not linked by pipelines with Russia's eastern borders and transportation
costs in this case would be too high.
3) Contrary to what the western MSM is saying, Russia has never used energy exports as a political
weapon. The episodes when Russia was cutting gas supplies to Ukraine were related with prolonged
non-payments from that country. As soon as payments were resumed, Russia restarted gas supplies.
Today, when relations between Russia and Ukraine are worse than ever, Russia is supplying gas
to Ukraine as Ukraine is paying for it.
Cutting energy supplies to Europe, even for a month, would destroy Russia's reputation
as a reliable supplier and result in multiple lawsuits and potential multi-billion fines. Note
that Russian oil companies own significant assets in Europe, including refineries, oil terminals,
storage facilities, etc.
In general, Russia and Europe are so interdependent in the energy sector, that any drastic
steps there may have extremely negative consequences for both sides. Not surprisingly, the western
sanctions against Russia did not include a ban on the imports of Russian oil and gas. Russia,
on its side, will never cut its energy supplies to Europe.
"Russia is diversifying oil and gas exports towards rapidly rising Asian markets due to economic
and security considerations. But cutting oil exports to Europe, even for one month, would be
inefficient and self-destroying ".
Hey AlexS,
I think you are correct with the bolded part above.
However, if Russia (even for economic reasons) began diverting supplies to Asia via pipelines,
wouldn't that mean there would be less for the West to buy? Due to the laws of mathematics?
Unless of course Russia's Oil/Gas production is growing to offset the diversion.
Also, please note that my couch potato analysis was meant to be considered under Peak Oil/ELM
conditions. Not BAU as in today. I should have specified.
If there is anyone to trust on this point…It isn't me!!! LOL!
No. Try putting together a spreadsheet with sources and sinks. Use transport costs to link
these two. When you do you'll see the only difference is to change transport costs and security.
I used to work and live in Russia and I'm sure they are using models like we did to understand
the best options to move Russian oil. I'm a bit outdated, but what we see is a need to refine
oil for internal consumption with a better kit. They need to improve their refineries to grind
oil molecules for real.
The current oil price slump is due to supply/demand dynamics, not to western conspiracies
This is a very questionable assumption. Supply/demand dynamics, especially reckless financing
of shale in the USA was a factor (as in "crisis of overproduction" - if we remember classic Marxist
term ;-), but this is only one and probably not decisive contributing factor. Paper oil, HFT,
Saudis oil damping and Western MSM and agencies (Wild cries "Oil Glut !!!", "OMG Oil glut !!!"
supported by questionable statistics from EIA, IEA and friends) were equally important factors.
It you deny this you deny the reality.
Remember the key Roman legal principle "cue bono". And who in this case is the prime suspect?
Can you please answer this question.
And please remember that the originator of the word "conspiracies" was CIA (to discredit those
who questioned the official version of JFK assassination).
2) The Doha deal was torpedoed by Saudi Arabia, primarily due to its conflict with Iran
and the intention to defend market share.
I agree, but this not the whole story. Western MSM went to crazy pitch trying to amplify
Saudi animosities and to play "young reckless prince" card toward Iran and Russia. Do you remember
the interview the prince gave to Bloomberg just before the freeze ? Do you think that this was
accidental?
BTW I agree that this was a huge win of Western diplomacy and "low oil price forever" forces.
An increase in oil prices well above $50 this year is not in Russia's or Saudi interest,
as it could reverse the declining trend in LTO output.
Nonsense. First of all mankind now needs oil above $100 to speed up the switch to hybrid cars
for personal transportation, and Russia and Saudi are the part of mankind.
It is also in best Russia's and Saudi economic interests, contrary to what you read on Bloomberg
or similar rags. World oil production is severely damaged by low oil prices and 1MB/d that shale
it can probably additionally produce in best circumstances is not that easy to achieve after this
slump.
And definitely $50-$60 price band is not enough to revive the US shale. LTO is dead probably
on any level below $80 and may be even above this level. That does not exclude "dead chicken bounce".
Moreover LTO is already played card for financial industries. In reality it probably needs prices
above $100 to fully recover.
For probably the next five-seven years everybody will be too shy in financing shale and other
high risk oil production ventures. So the oil price will probably set a new record. After that
we will have another round of "gold rush" in oil as institutional memory about the current oil
price slump will gradually evaporate. Neoliberalism is an unstable economic system, you can bet
on that.
Russia's oil policy is driven by economic considerations. Cutting oil exports (and hence
foreign currency revenues) in order to "punish" the West is like shooting yourself in the foot.
Nonsense. No nation politics is driven only by economic consideration but Russia stupidly or
not tried to play the role of stable, reliable oil and gas supplier to people who would betray
you for a penny. And sometimes this desire to play nice with the West led to betraying its own
national interests.
If I were Putin I would create strategic reserves and divert part of oil export to them to
sell them later at higher prices. Buy low, sell high: is not this a good strategy :-)
Or play some other card by artificially restricting export of oil to Western Europe to refined
products (and to please the USA, as it so badly wanted Russia to restrict supplies to EU to damage
their long time strategic partner :-) and let the EU face consequences of their own polices.
But this is probably not a possibility as neoliberals still dominates in Russia. Especially
oil and economics ministries. Reading interviews of Russian oil officials is pretty depressing.
They swallow and repeat all the Western propaganda one-to-one. Unfortunately. In this area they
have a lot to learn from Americans :-).
Exports are reliable hard currency stream. But it not a stable stream, as Russia recently discovered.
At the same time, increasing the volume of high additional value products such as plastics,
rubber, composites, etc is in best Russia's interest. It is difficult to achieve though. I think
creating the ability to withhold substantial amount of oil from the markets for the periods of
say 6 to 12 month is more important. And here they can get some help from OPEC members, Saudi
be damned.
Upgrading oil refining capacity means that Russian oil companies are able to increase
the share of refined products in total exports at the expense of crude oil.
This is a tricky balancing solution, but still this is some insurance against the price
slumps like the current one, when Russia was caught swimming naked and did not have any viable
game plan. It is unclear what is the optimal mix, but in no way this 100% or even 80% raw oil.
Goldman Sachs ... pronounced that the oil market is shifting into a deficit 'much earlier
than expected', as a fourth Nigerian crude grade, Qua Iboe, comes offline due to a damaged
pipeline. As demand growth continues to show strength, and outages start to add up, Goldman
Sachs suggests that the market has shifted into a deficit this month:
"... On May 11th the U.S. Energy Information Administration (EIA) reported that U.S. crude oil production declined by 206,000 barrels per day over the six weeks ending May 5 ..."
"... U.S. crude oil inventories unexpectedly fell by 3.41 million barrels during the week ending May 6, 2016 ..."
"... Gasoline inventories declined by 1.231 million barrels ..."
"... Distillate stockpiles fell by 1.647 million barrels ..."
"... When the oil markets are oversupplied, the speculators which control the oil futures markets tend to ignore supply outages that they consider short-term. ..."
"... The oil sands projects shut in by the fires are now coming back on-line, but it will take months before production is fully restored. ..."
"... Oil price cycles do not end well. The big ones, and this is one of the biggest ever, overshoot the mark and result in a supply shortage. With OPEC now producing flat out, there is very little excess production capacity in the world. After the end of 2016, when oil supply and demand are back in balance, all significant supply outages (i.e. Canadian fire, Nigerian militants, ISIS attacks in the Middle East, etc.) will send crude oil prices skyrocketing. The Wall Street analysts that are saying we will never see oil over $100/bbl again will be eating those words. ..."
On May 11th the U.S. Energy Information Administration (EIA) reported that U.S.
crude oil production declined by 206,000 barrels per day over the six weeks ending May 5, 2016. In
the same weekly report:
U.S. crude oil inventories unexpectedly fell by 3.41 million barrels during the week ending
May 6, 2016
Gasoline inventories declined by 1.231 million barrels
Distillate stockpiles fell by 1.647 million barrels
• The International Energy Agency (IEA) say the annual summer spike in demand
for transportation fuels has begun.
When the oil markets are oversupplied, the speculators which control the oil futures markets tend
to ignore supply outages that they consider short-term. For example, the forest fires in Alberta
that shut-in more than a million barrels per day of Canadian heavy oil products in early May did
not seem to have much impact on the price of oil. As supply and demand move back into balance, an
outage of that size will send the NYMEX strip prices sharply higher. The oil sands projects shut
in by the fires are now coming back on-line, but it will take months before production is fully restored.
Nigeria has much bigger problems
On Friday, May 13 an explosion closed a second Chevron facility in Nigeria, Africa's biggest oil
producer. The explosion was the result of an attack by militants who are upset with their government.
70 percent of Nigerians live on less than $1/day. They see the "Top 1 Percenters" living like kings,
while they have trouble finding enough food to eat. Apparently, they have money enough for guns and
explosives.
Exxon Mobil also reported on May 13 that a drilling rig damaged a pipeline, shutting off more
production of crude. Nigeria's oil production was already down 600,000 barrels per day before these
two incidents, primarily the result of militant attacks. Shell is now evacuating workers from its
offshore Bonga oilfield following a militant threat. Shell's Forcados export terminal has been shut
down since a February bombing. To say Nigeria is a mess is an understatement.
Adding to the country's problems is the fact that they are over a year behind in paying invoices
for oilfield services. Schlumberger Ltd. (SLB) has pulled personnel and equipment
out of Nigeria, apparently tired of running up the bad debts.
Venezuela: Another OPEC nation on steep decline
Latin American oil production is now down close to 500,000 bpd from year ago levels.
On May 6, Bloomberg reported that Halliburton (HAL) has joined rival Schlumberger
in curbing activity in Venezuela due to lack of payment during the oil industry's worst financial
crisis.
"During the first quarter of 2016, we made the decision to begin curtailing activity in Venezuela,"
Halliburton, the world's second-largest oil services provider, said May 6th in a filing with the
U.S. Securities and Exchange Commission. "We have experienced delays in collecting payment on our
receivables from our primary customer in Venezuela. These receivables are not disputed, and we have
not historically had material write-offs relating to this customer," the company said.
Halliburton's receivables in Venezuela rose 7.4 percent in the first quarter to $756 million compared
to the end of 2015, representing more than 10 percent of its total receivables, the Houston-based
company said. If you own Halliburton stock, prepare yourself for a big bad debt expense later this
year.
On the demand side of the equation, May is the beginning of an annual spike in demand for hydrocarbon
based liquid fuels. In their monthly Oil Market Report dated May 12, 2016 the International Energy
Agency (IEA) forecasts that demand will increase by 1.66 million barrels per day from the first quarter
of this year to the third quarter.
If history repeats itself, the demand spike will be even larger. In 2010, the final year of the
last major oil price cycle, the IEA began the year forecasting a 1.0 million barrel per day increase
that year. Actual demand growth was 3.3 million barrels per day. The forecast error made in 2010
was that IEA's formula for calculating demand, did not consider the impact of lower fuel prices on
demand. I believe they've made the same mistake this time around.
Key points from the IEA report:
Global oil demand growth for 1Q16 was revised upwards to 1.4 mb/d, led higher by strong gains
in India, China and, more surprisingly, Russia. Russia had a cold winter and they still use a
lot of oil for space heating.
Oil inventory builds are beginning to slow in the OECD; in 1Q16 they grew at their slowest
rate since 4Q14 and in February they drew for the first time in a year.
"Changes to the data in this month's Oil Market Report confirm the direction of travel of
the oil market towards balance. The net result of our changes to demand and supply data is that
we expect to see global oil stocks increase by 1.3 mb/d in 1H16 followed by a dramatic reduction
in 2H16 to 0.2 mb/d."
"We have left unchanged our outlook for global oil demand growth in 2016 at a solid 1.2 mb/d.
However, for 1Q16 revised data shows demand growing faster at 1.4 mb/d, in spite of the northern
hemisphere winter being milder than usual. This strong 1Q16 performance might raise expectations
that demand will remain at this stronger level causing us to raise our average figure for 2016."
As you can see by this statement, IEA is already seeing the error in their forecasting model.
Like most government agencies, they will never come out and say they screwed up.
During the first quarter, oil prices were under pressure from predictions that China's demand
for oil would soften this year. Chinese demand growth has slowed down from the rapid pace of the
prior ten years, but it is still going up. This is thanks in part to sales of SUVs that are still
climbing in China. Apparently the Chinese people are becoming more status driven (like Americans),
owning an SUV in China indicates your family has joined the Upper Middle Class.
Per the IEA report, India is rapidly becoming the leader in global demand growth. Oil demand in
India increased by 400,000 barrels per day year-over-year in the first quarter.
I have worked in the upstream energy sector for 38 years. During my career the industry has survived
six major and a few minor oil price cycles. It will survive this one because the products made from
crude oil, natural gas and natural gas liquids (NGLs) are critical to the world economy. Our high
standard of living depends on a steady supply of oil.
Oil price cycles do not end well. The big ones, and this is one of the biggest ever, overshoot
the mark and result in a supply shortage. With OPEC now producing flat out, there is very little
excess production capacity in the world. After the end of 2016, when oil supply and demand are back
in balance, all significant supply outages (i.e. Canadian fire, Nigerian militants, ISIS attacks
in the Middle East, etc.) will send crude oil prices skyrocketing. The Wall Street analysts that
are saying we will never see oil over $100/bbl again will be eating those words.
Oil prices do not go up or down in a smooth line, as you can see in the chart above. Investors
that can look past the short-term noise and invest in the best companies will harvest market beating
gains as this cycle moves back to the long-term trend.
"... Moody's cut the country's long-term issuer rating one notch to A1 from Aa3 after a review that began in March. ..."
"... Moody's lowered Oman to Baa1 from A3 and Bahrain to Ba2 from Ba1. The ratings agency did not downgrade Kuwait, Qatar, the United Arab Emirates or Abu Dhabi, but it assigned a negative outlook to each. ..."
...Moody's cut the country's long-term issuer rating one notch to A1 from Aa3 after a review
that began in March.
...Moody's Investors Service said Saturday that it also downgraded Gulf oil producers Bahrain
and Oman. It left ratings unchanged for other Gulf states including Kuwait and Qatar.
...Moody's lowered Oman to Baa1 from A3 and Bahrain to Ba2 from Ba1. The ratings agency did
not downgrade Kuwait, Qatar, the United Arab Emirates or Abu Dhabi, but it assigned a negative
outlook to each.
The International Energy Agency estimates that the world is dealing with a supply surplus of 1.3
million barrels per day (mb/d) right now, which should last through the end of the second quarter.
By the third and fourth quarters, however, the surplus shrinks to just 0.2 mb/d.
The IEA reiterated its forecast that demand will hold at 1.2 mb/d, and expressed a growing sense
of confidence that oil markets are only a few months away from moving into balance.
For its part, OPEC largely agreed in its May
Oil Market Report. But OPEC also chose to focus on the slightly longer-term, citing the massive
cut in capital expenditures taken over the past two years. The industry has slashed $290 billion
from 2015 and 2016 spending levels so far, with more cuts expected. The spending reductions contributed
to the shockingly low level of new oil discoveries last year – the industry discovered less than
3 billion barrels of new oil reserves in 2015, the lowest level in six decades. With few new discoveries,
and a rising number of projects deferred, there is a very low level of new projects in the pipeline,
so to speak. In other words, oil supply and demand curves are converging towards a balance, and could
even cross over at some point a few years down the line as supply fails to keep up with demand.
... ... ...
Canadian wildfires knocked off more than 1.2 million barrels per day of production, a disruption
that will be temporary, but ultimately could last a few weeks.
Nigeria has lost roughly 0.4 to 0.5 mb/d due to a handful of attacks on oil pipelines and platforms.
Shell and Chevron have shut down facilities and evacuated personnel because of attacks from the Niger
Delta Avengers. Venezuela has seen production
decline at least 0.1 mb/d from last year, and could fall another 0.2 mb/d at least over the course
of 2016.
All of these supply disruptions come on top of the expected decline in output from around
the world, especially high cost U.S. shale. U.S. oil production has fallen to 8.8 mb/d as of early
May, taking the loss in U.S. oil production to about 900,000 barrels per day since April 2015.
Some 8,000 workers at oil camps north of the fire-ravaged Canadian city of Fort McMurray were
ordered to evacuate late Monday as authorities continued the battle to bring wildfires under
control.
...Suncor, one of the major operators working on Canada's oil sands, issued a news release
late Monday confirming it had "started a staged and orderly shutdown of our base plant
operations" and that personnel were being transported to work camps further north. It stressed
there has been no damage to Suncor infrastructure.
SandRidge Energy filed for bankruptcy protection Monday, saying it hopes to convert $3.7
billion of long-term debt into equity while allowing the company to keep its operations going.
The Oklahoma City-based company filed the Chapter 11 paperwork in the U.S. Bankruptcy Court
for the Southern District of Texas. The petroleum and natural gas exploration company said it had
the support of creditors who hold more than two-thirds of its $4.1 billion in total debt.
...Under the bankruptcy plan, the company would restructure $3.7 billion of long-term debt
into equity, including $300 million of debt that would later convert to equity in the reorganized
company. The company would still owe about $425 million in reserve-based lending facility debt.
"... Angola has become Africa's biggest oil producer as Nigeria's output slumped to 1.4 million barrels a day, Oil Minister Ibe Kachikwu said Monday, endangering a budget based on production of 2.2 million barrels. ..."
"... Some 70 percent of Nigerians are living below the poverty line, according to the United Nations, despite the country's wealth. ..."
"... The threatened strike comes as militants in the Niger Delta resumed attacks and forced oil majors to evacuate some workers. There are reports the Niger Delta Avengers are sponsored by southern politicians to sabotage Buhari. The president has deployed thousands of troops to the area, where the Avengers are demanding a greater share of the country's oil wealth and protesting cuts to a 2009 amnesty program that paid 30,000 militants to guard installations they once attacked. ..."
LAGOS, Nigeria (AP) - Militant attacks on oil installations and a threatened nationwide strike
are driving Nigeria's petroleum production and its naira currency to new lows.
Angola has become Africa's biggest oil producer as Nigeria's output slumped to 1.4 million barrels
a day, Oil Minister Ibe Kachikwu said Monday, endangering a budget based on production of 2.2 million
barrels. Angolan production was steady at near 1.8 million barrels daily, according to the Organization
of Petroleum Exporting Countries.
The naira fell to 350 to the dollar on the parallel market, against an official rate of 199, amid
reports and denials that President Muhammadu Buhari's government plans an imminent devaluation, bowing
to demands of the International Monetary Fund in exchange for soft loans.
Nigeria's National Labour Congress and the Trade Union Congress, which say they represent 6.5
million workers, and some civic organizations called for a strike Wednesday to protest a 70 percent
increase in gasoline prices, forced by shortages of foreign currency. Nigeria is dependent upon imports
with oil accounting for 70 percent of government revenue.
The crisis is dividing labor leaders on religious and ethnic lines, with those from the mainly
Muslim north against the strike and Christians who dominate the oil-producing south urging citizens
to "Occupy Nigeria!" Buhari is a northerner.
The division may mean that the country will not be subjected to the massive protests that forced
the previous government to shelve plans to do away with a fuel subsidy in 2012, although many Nigerians
are stocking up on food and water.
Inflation officially rose nearly 14 percent last month and prices of food and electrical goods
have doubled while tens of thousands of workers have not been paid in months. Many angry Nigerians
say the government could not have chosen a worse time to drop the fuel subsidy, though shortages
forced people to pay double the fixed price anyway.
Some 70 percent of Nigerians are living below the poverty line, according to the United Nations,
despite the country's wealth.
Buhari took over a year ago from President Goodluck Jonathan, whose government is accused of looting
the treasury of billions of dollars.
The threatened strike comes as militants in the Niger Delta resumed attacks and forced oil majors
to evacuate some workers. There are reports the Niger Delta Avengers are sponsored by southern politicians
to sabotage Buhari. The president has deployed thousands of troops to the area, where the Avengers
are demanding a greater share of the country's oil wealth and protesting cuts to a 2009 amnesty program
that paid 30,000 militants to guard installations they once attacked.
"... Of course, as you mention, none of the companies are able to pay for wells right now out of cash flow. All have interest expense, many have interest expense in excess of $5 per barrel. Then, the question is when will any of these companies begin to use cash flow to reduce debt principal. Some have reduced debt, by buying back their own debt at distressed levels, and/or exchanging the debt with creditors for reduced principal new debt, but at much higher interest rates and more stringent terms (liens upon company assets as opposed to unsecured bonds). ..."
"... Many of the LTO companies sold their gathering and/or produced water disposal infrastructure in order to raise cash. They now are required to pay $X per barrel or mcf of gas in order to get their products to market. ..."
"... I would also note, 20% is a "base case" for Bakken royalties. ..."
Of course, as you mention, none of the companies are able to pay for wells right now out of
cash flow. All have interest expense, many have interest expense in excess of $5 per barrel. Then,
the question is when will any of these companies begin to use cash flow to reduce debt principal.
Some have reduced debt, by buying back their own debt at distressed levels, and/or exchanging
the debt with creditors for reduced principal new debt, but at much higher interest rates and
more stringent terms (liens upon company assets as opposed to unsecured bonds).
Also, another expense I have noticed with more frequency are gathering expenses. Many of the LTO companies sold their gathering and/or produced water disposal infrastructure in order to raise
cash. They now are required to pay $X per barrel or mcf of gas in order to get their products
to market.
I would also note, 20% is a "base case" for Bakken royalties. The actual figures can range
from 12.5% (1/8) to over 25% (1/4). If one is looking at the EFS or Permian, I suggest using a
"base case" royalty of 25% (1/4). However, taxes in TX are less than ND.
"... Breitburn's estimated proven reserves, which were valued at $4.5 billion at the end of 2014, were worth only $1.3 billion as of the end of 2015. ..."
"... On another part of this debacle….one of the auctioneers in West Texas saidthey are getting about $.15 on the dollar for oil field equipment at auction. ..."
"... I think this bust is trying to claim the top prize for most brutal oil and gas bust, ..."
HC Debt disease spreads to California
-About $3 billion of Breitburn's debts are bank and bond debt, topped by $1.25 billion in loans
from lenders led by Wells Fargo Bank, NA. Breitburn is carrying $650 million of senior secured
second-lien bonds and $1.1 billion in unsecured bonds.
-Breitburn's estimated proven reserves, which were valued at $4.5 billion at the end of 2014,
were worth only $1.3 billion as of the end of 2015.
-Breitburn has crude oil and natural gas assets in the Midwest, Ark-La-Tex, the Permian Basin,
the Mid-Continent, the Rockies, the Southeast and California.
"Crude Oil" ??
http://www.wsj.com/articles/breitburn-energy-partners-files-for-chapter-11-bankruptcy-1463400009
http://www.wsj.com/articles/sandridge-energy-files-for-bankruptcy-protection-1463404621
On another part of this debacle….one of the auctioneers in West Texas saidthey are getting
about $.15 on the dollar for oil field equipment at auction.
I also see the C & J services is rumored to be filing BK. I am not familiar with them, from my
reading they are a very large well completion company. Looks like their CEO passed away unexpectedly
at age 46 back on 3/11/16.
I think this bust is trying to claim the top prize for most brutal oil and gas bust,
"... China, the world's fourth-largest oil producer, pumped 5.6 percent less crude year-on-year in April, official data showed, as oil firms struggled with cost pressures with crude prices hovering around $40 a barrel. ..."
China, the world's fourth-largest oil producer, pumped 5.6 percent less crude year-on-year
in April, official data showed, as oil firms struggled with cost pressures with crude prices hovering
around $40 a barrel.
Data from the National Bureau of Statistics released on Saturday showed China produced 16.59 million
tonnes of crude oil last month, or about 4.04 million barrels per day (bpd), the lowest rate since
July 2013 on a daily basis.
Production in the first four months was down 2.7 percent over the same year-ago period to 68.14
million tonnes, or about 4.11 million bpd.
PetroChina, the country's top producer, recorded a 0.2 percent drop in oil and gas production
in the first quarter and Sinopec scaled back domestic crude production by 10.35 percent in the
same period, companies said in April.
Offshore specialist CNOOC Ltd, however, delivered a 5.1 percent rise in total net oil and gas
production in the first quarter over a year ago, thanks to new Chinese offshore fields.
Natural gas output last month rose 5.6 percent on the year to 10.6 billion cubic meters, with
production up 5.3 percent in the first four months, the data showed.
"... Prices have bounced back to $46 a barrel from February lows in the mid-$20s ..."
"... That will not help smaller producers built for far higher prices. These companies have largely exhausted funding alternatives after issuing more equity and debt, tapping second-lien loans and shedding assets over the last two years to stay afloat as banks trimmed credit lines. ..."
"... Some companies are in more acute distress, faced with the expiration of derivative contracts that had allowed them to sell oil above market prices. ..."
"... "Everybody was able to hold on for a while," said Gary Evans, former CEO of Magnum Hunter Resources, which emerged from bankruptcy protection this week. "But once the hedges roll off you can't support that debt." ..."
"... Founded in 2003, Linn has about $10 billion in debt, about twice that of Samson Resources Corp and Energy XXI Ltd, two of the largest oil and gas companies to file recently. Linn was designed as a high-yield investment vehicle, which received beneficial tax treatment in return for paying out the bulk of its profits to unitholders. Because of this structure, it took on significant debt to grow through acquisitions. ..."
The wave of U.S. oil and gas bankruptcies surged past 60 this week, an ominous sign that the
recovery of crude prices to near $50 a barrel is too little, too late for small companies that
are running out of money.
On Friday, Exco Resources Inc, a Dallas-based company with a star-studded board, said it
will evaluate alternatives, including a restructuring in or out of court. Its shares fell 35
percent to 62 cents each.
Exco's notice capped off one of the heaviest weeks of bankruptcy filings since crude prices
nosedived from more than $100 a barrel in mid-2014.
Prices have bounced back to $46 a barrel from February lows in the mid-$20s , but
the futures market shows investors do not expect U.S. benchmark crude to rise above $50 for
more than a year.
That will not help smaller producers built for far higher prices. These companies have
largely exhausted funding alternatives after issuing more equity and debt, tapping second-lien
loans and shedding assets over the last two years to stay afloat as banks trimmed credit lines.
Some companies are in more acute distress, faced with the expiration of derivative contracts
that had allowed them to sell oil above market prices.
"Everybody was able to hold on for a while," said Gary Evans, former CEO of Magnum Hunter
Resources, which emerged from bankruptcy protection this week. "But once the hedges roll off
you can't support that debt."
Bankruptcy filers this week included Linn Energy LLC and Penn Virginia Corporation. Struggling
SandRidge Energy LLC, a former high flyer once led by legendary wildcatter Tom Ward, said it
would not be able to file quarterly results on time.
The number of U.S. energy bankruptcies is closing in on the staggering 68 filings seen during
the depths of the telecommunications sector bust of 2002 and 2003, according to Reuters data,
the law firm Haynes & Boone and bankruptcydata.com.
Linn's bankruptcy was the biggest among energy companies so far in this downturn, even though
the company is a modest producer of about 59,000 barrels of oil per day, and 607 million cubic
feet of gas per day.
Founded in 2003, Linn has about $10 billion in debt, about twice that of Samson Resources
Corp and Energy XXI Ltd, two of the largest oil and gas companies to file recently. Linn was
designed as a high-yield investment vehicle, which received beneficial tax treatment in return
for paying out the bulk of its profits to unitholders. Because of this structure, it took on
significant debt to grow through acquisitions.
Exco's warning showed that the crude price rout has not spared companies with highly experienced
management. Exco has reported a loss for the last five quarters in a row. It has a number of
big-name board members including billionaire investor Wilbur Ross and executive chairman John
Wilder, who engineered the giant leveraged buyout of TXU.
Valued at about $495 million as of Thursday's stock market close, Exco had long-term debt
of $1.32 billion on March 31, according to a regulatory filing.
One probable outcome, as Exco said on Friday, may include getting rid of debt by having
debtholders become shareholders, possibly wiping out existing equity owners.
Penn Virginia's strategy is similar. "Once the restructuring is implemented, the Company
will have substantially less debt and a much stronger balance sheet," Penn Virginia's Chairman
and interim CEO Edward Cloues said in a statement.
(Reporting By Terry Wade; Editing by Luc Cohen and David Gregorio)
"... There should be some overall increased recovery, but mostly these techniques push out the peak. Saudi are looking at Safaniya Phase III development, which might be their last option for the offshore fields; once ESPs are installed in new completions on old fields, as was done in the 2012 upgrades, then you are pretty close to sucking up the dregs. Similarly for intelligent completions – I have worked on fields with horizontal producers in water flood with much simpler methods then Saudi are using but once the water contact started to rise past the producers production dropped over 60% in two years. There was a much slower decline thereafter, in fact almost a plateau for some time but it took more drilling to maintain it. H/L doesn't work in such circumstances. ..."
Using EOR methods such as artificial lift, as they have installed in Safaniya, and intelligent
multilaterals, as in Ghawar, it is possible to significantly increase production (i.e. not only
reduce decline rates but turn them into production acceleration and increased capture). But eventually
it catches up and the rates will crash, as was seen with nitrogen injection EOR on Cantarell.
There should be some overall increased recovery, but mostly these techniques push out the peak.
Saudi are looking at Safaniya Phase III development, which might be their last option for the
offshore fields; once ESPs are installed in new completions on old fields, as was done in the
2012 upgrades, then you are pretty close to sucking up the dregs. Similarly for intelligent completions
– I have worked on fields with horizontal producers in water flood with much simpler methods then
Saudi are using but once the water contact started to rise past the producers production dropped
over 60% in two years. There was a much slower decline thereafter, in fact almost a plateau for
some time but it took more drilling to maintain it. H/L doesn't work in such circumstances.
China has reported April 2016 production at 4.04 mbpd. A 5.6% decline year on year. It's down
380,000 bopd (8.6%) from the 4.42 mbpd JODI lists for June 2015.
"... As the project's most hight cost producers started to bleed cash, corporations laid off 40,000 engineers, labourers, cleaners, welders, mechanics and trades people with little fanfare and even less thanks. ..."
"... In fact bitumen has lost so much of its global investment lustre that, even before the Fort Mac blaze, Bloomberg reported that no new supplies of low-grade bitumen will enter the market in 2018. This would mark the first time in more than a decade that the rate of bitumen extraction, now at 2.4 million barrels a day, will not increase. ..."
"... Since the 1980s Koch Industries has been buying Canada's bitumen crude and turning it into high value jet fuel and gasoline at their Pine Bend refinery. In fact Koch Industries now gobbles up 300,000 barrels of bitumen a day and remains the single largest buyer of Canada's dirtiest crude. To the Kochs it's a no brainer: bitumen offers some of the most attractive refinery margins in the world. ..."
"... Bloomberg reported that no new supplies of low-grade bitumen will enter the market in 2018. ..."
"... With the oil price collapse the Kochs keep on making more money, while Alberta gets poorer.In February the Alberta government set a minimum value for bitumen at $10 per cubic metre. That equates to a value of about $1.50 per barrel of bitumen. But in 2014 the government's monthly report valued bitumen at $421 per cubic metre. The data suggests that bitumen has lost 97 per cent of its value during the price collapse. In other words companies once worth billions are now worth millions. ..."
"... When oil prices stood at $100, rash bitumen development made some sense. But when prices fell below $45 the gamble turned into Russian roulette. Unlike Saudi oil, most bitumen projects require prices of at least $60 to $70 a barrel to survive. ..."
"... And so most tar sands extractors (except those who own refineries) are now bleeding cash; many banks have developed nervous twitches; and thousands of workers have found themselves unemployed. The overproduction of bitumen explains why, says Rubin, "the oilsands morphed from an engine of economic growth into the epicenter of a made-in-Canada recession." ..."
"... Oil is currently over 45 bucks a barrel, but as Nikiforuk points out the values - especially related to raw bitumen - are insanely low and are simply cannon fodder for the Koch brothers war chest to unseat the Democrats. ..."
"... It seems to me another aspect of this is how quarterly profit driven short term thinking has ruled the day so completely that the reality that the solar energy bound up and stored in the tar-sands isn't going to evaporate is overlooked by the bean counters. One day, hopefully, someone will invent a technology that can harvest this energy without causing all the various pollution problems our current technologies create. ..."
"... Its easy to understand why the Koch brothers as but one of several parties are happy to oblige Alberta by buying low and selling high as Andrew Nikiforuk details. ..."
"... However none of the analyses exposes by what process are "Most Albertans and most Fort McMurray residents" silenced into the Koch brothers serfdom ..."
"... I quite appreciate how you observe what the problem politic is when you say "Their beliefs included 'big government is bad; the only good government is a small government' and 'self-regulation' and 'private industry always does it best'. Even after more than 35 years of spectacular failures these nutjobs still think they are on to something grand." ..."
"... Chris Hedges, from the US, a much more dysfunctional society than ours, sees violent revolution as the only way forward with many, many losers and his side being the winner. I'm in favour of that outcome but I fear it's far from certain who will be the winner while it is absolutely certain that there will be many losers. Without some immediate and significant change to our way of life both the natural environment and the social environment will soon reach a tipping point. Then there will no end to the missing people and carnage and wasted resources. ..."
"... My point is that I bought into Mr. Rubin's $200 dollar peak oil forecast. He had lots of facts and figures then too. He was still completely wrong. He may be completely wrong again today. ..."
At the end of the day the $10-billion wildfire that consumed 2400 homes and buildings in Fort
McMurray may be the least of the region's problems.
Although the chaotic evacuation of 80,000 people through walls of flame will likely haunt its
brave participants for years, a slow global economic burn has already taken a nasty toll on the region's
workers.
That fire began last year when global oil prices crashed by 40 percent and evaporated billions
of investment capital in the tarsands.
As the project's most hight cost producers started to bleed cash, corporations laid off 40,000
engineers, labourers, cleaners, welders, mechanics and trades people with little fanfare and even
less thanks.
Many of these human "stranded assets" endured home foreclosures and lineups at the food bank.
Worker flights to Red Deer and Kelowna got cancelled and traffic at the city's new airport declined
by 16 per cent. Unemployment in Canada's so-called economic engine soared to nearly nine percent.
In fact bitumen has lost so much of its global investment lustre that, even before the Fort
Mac blaze, Bloomberg
reported
that no new supplies of low-grade bitumen will enter the market in 2018.
This would mark the first time in more than a decade that the rate of bitumen extraction, now
at 2.4 million barrels a day, will not increase.
... ... ...
Since the 1980s Koch Industries has been buying Canada's bitumen crude and turning it into high
value jet fuel and gasoline at their Pine Bend refinery. In fact Koch Industries now gobbles up 300,000
barrels of bitumen a day and remains the single largest buyer of Canada's dirtiest crude. To the
Kochs it's a no brainer: bitumen offers some of the most attractive refinery margins in the world.
Up in smoke? Even before the Fort Mac blaze,
Bloomberg reported that no new supplies of low-grade
bitumen will enter the market in 2018.
With the oil price collapse the Kochs keep on making more money, while Alberta gets poorer.In February the Alberta government set a minimum value for bitumen at $10 per cubic metre. That
equates to a value of about $1.50 per barrel of bitumen. But in 2014 the government's monthly report valued bitumen at $421 per cubic metre. The data suggests
that bitumen has lost 97 per cent of its value during the price collapse. In other words companies
once worth billions are now worth millions.
... ... ...
When oil prices stood at $100, rash bitumen development made some sense. But when prices fell
below $45 the gamble turned into Russian roulette. Unlike Saudi oil, most bitumen projects require prices of at least $60 to $70 a barrel to survive.
And so most tar sands extractors (except those who own refineries) are now bleeding cash; many
banks have developed nervous twitches; and thousands of workers have found themselves unemployed. The overproduction of bitumen explains why, says Rubin, "the oilsands morphed from an engine of
economic growth into the epicenter of a made-in-Canada recession."
Selected Skeptical Comments
Kevin Logan
Oil is currently over 45 bucks a barrel, but as Nikiforuk points out the values - especially
related to raw bitumen - are insanely low and are simply cannon fodder for the Koch brothers war
chest to unseat the Democrats.
The business case in the tarpit was always very dependent on massive subsidy, low royalty and
political interference. Now that Alberta is just another Province with an NDP government and not
the conservative mecca that rules the land from coast to coast, I suspect they will dole out much
more pain for average folks.
Once the NDP there instills a massive tax regime with carbon taxes, sales tax and fees etc,
to balance the budget on the backs of the people the conservatives will once again take back power
and upscale the fleecing of the natural resource.
BC is on the same path, right now its the land of milk and honey because they need to build
out the infrastructure to fleece us, but once the LNG facilities are in and the pipes are pumping,
the pain will come. Fortunately for us they already are taxing us into the ground and hydro, fees
licensing etc is already in place, so the fleecing of our natural resource wealth will result
in less volatile boom and bust but no less of a complete fleecing - to be sure.
bruce kay > Kevin Logan
No one in Canada is being "taxed into the ground". that is an entirely fallacious statement,
especially Alberta. Now you can certainly argue that the Tax regime is not particularly progresive
in that the wealthier are proportionally under taxed but there is no doubt, particularly if one
simply views other (generally more socially successful) countries, that taxation is a key element
in creating opportunity where otherwise it does not exist.
That is at least one element that perpetuates the corporate dominance of our public policy
that you talk about
Kevin Logan > bruce kay
Trust me, for Alberta to fix their woes, the plebes will feel as if they have been taxed into
the ground. For decades the low tax environment of Alberta was its single pride and joy - the
Alberta Advantage. Which is why the Cons would not mess with new taxes. The NDP was elected to
get fair returns from the industry, but instead they capitulated and implemented a carbon tax
they did not run on that only average folk pay as oil companies can write it off against their
royalties. Bizarrely the new government plans to take that new 3 billion in annual revenue from
average folk and hand it to industry to green up and what not, as there is no specifics released
yet.
Letting off the oil companies, leaving royalty structures in tact and balancing the budget
with new taxes on average Albertans was not what they ran on, but its what they delivered and
its why the wildrose now polls first place way ahead of the NDP at some 25% in the polls.
bruce kay > Kevin Logan
Maybe I missunderstood your intent. I can't argue with that, on both counts. I'm not familiar
with how the carbon tax revenue will be directed but certainly, lower income taxpayers need to
avoid punitive costs simply because they can't avoid driving.
Otherwise, as you say the fury of populist revolt will sabotage whatever gains are made and
the Trumps will fill the power void
RiversidePaulo > Kevin Logan
You'll never see an LNG plant built in BC. That ship sailed long ago.
WWallace Mud > Kevin Logan
Hi Kevin,
It seems to me another aspect of this is how quarterly profit driven short term thinking
has ruled the day so completely that the reality that the solar energy bound up and stored in
the tar-sands isn't going to evaporate is overlooked by the bean counters. One day, hopefully,
someone will invent a technology that can harvest this energy without causing all the various
pollution problems our current technologies create.
Future Canadians, our kids and grand-kids or theirs, will need energy to power whatever industries
exist in the future, industries that will create their jobs and their future weal.
i say leave it in the ground, it'll only be worth more in the future. For sure this isn't the
best plan from the banker's and shareholder's perspective, but it's the best plan for Canada and
Canadians in the long term.
Tierra y Liberdad
I really enjoy reading Mr. Nikoruk's research on the future of oil. Clearly the numbers do
not lie. The reality of certain laws are coming home to roost: the law of supply and demand, as
well as the law of diminishing returns means bad news for the oil industry....and Canada thanks
to past government's myopic, narrow oil-orgy led policies.
political ranger > Tierra y Liberdad
Read Rubin's report for a very sobering look at our near-term future.
cliche guevera > political ranger
I think people either get it or they don't want to get it.
WAC
If I was an unemployed homeowner in McMurray, I would take the insurance money and run!
cliche guevera > WAC
And the 72 week E.I.Program Trudeau announced today, to re-train and get a new job skill that
might even pay better than the Fort Mac daily grind.
Mindcraft
Thank you Andrew Nikiforuk you have brought to light all the questions missing yet again in
the mainstream media my wife has been spouting. It is unfortunately a gold rush town.
Eduard Hiebert > Mindcraft
If "gold rush" is an appropriate metaphor, in view of recent federal and provincial politics
is it anywhere appropriate to limit this "rush" to an image of a "gold rush town"?
It's all in Canadian History, repeat, delete, repeat.
Mindcraft > Eduard Hiebert
I have agonized over making examples from the beginning of the 1990's
If an industry creates waste, including premature death, it must invest in building ways to remedy
the fallout and not employ a cover up team to continue the self distructive end game which is
the lateral part of corporate un sustainability. The pulp mill near me has many fine hands on
tech people all willing to address problems in their own time as a community yet they are constantly
seen as a threat to shareholders achieving monetary gain from experimenting with the unknown in
diversifying into creative sub groups.
No different than the Lego (before its forecasted demise
many years ago) company letting parents decide, explore products of reality and culture. We have
silo's of control in every level of governance.
Eduard Hiebert
Its easy to understand why the Koch brothers as but one of several parties are happy to oblige
Alberta by buying low and selling high as Andrew Nikiforuk details.
However none of the analyses exposes by what process are "Most Albertans and most Fort McMurray
residents" silenced into the Koch brothers serfdom
when Nikiforuk concludes "Most Albertans and
most Fort McMurray residents never wanted reckless growth. In a heartbeat they would have voted
to slow down the tarsands years ago with higher royalties and better regulations, but their political
masters refused to put on the brakes"?
def > Eduard Hiebert
The processes you refer to include the pathologies of capitalism and corporate 'democracy'.
The therapy includes 'economic democracy' in which economic decision are based upon the control
of all people effected by any given economic decision.
However, after decade after decade of corporate brainwashing such thoughts are not sufficiently
sophisticated for serious consideration by present media, thoughtless talking heads, political
propagandists, or god forbid, being explored in the curricula of the education system.
It has proved to be a voracious and merciless process that shows few if any signs of relenting.
Eduard Hiebert > def
Since its the many who bear the costs of what the few impose on us, from beginning to your
end agreed that "It has proved to be a voracious and merciless process that shows few if any signs
of relenting."
Surely you are not suggesting say the Koch brothers initiate and do the necessary change for
us as in to us when you yourself see that the answer involves "The therapy includes 'economic
democracy' in which economic decision are based upon the control of all people effected by any
given economic decision"?
Mindcraft > ScottyonDenman
6 hours ago
It is a mining camp that is sustained by federal gambling, how shrinkable is any gambling.
Sustainability starts with no waste. Corporatists start with abuse and suckers to trample on,
ie the ignoramus conmunitas.
disqus_Wf91wKMTsJ
Jeff Rubin, CIBC's former chief economist, notes that the world economy is stagnating; but
the shrinking demand for tar sands oil is just part of the reason.
Rubin, along with most folks pushing for "green" energy, are being overly optimistic if they
believe "an orderly transition that protects communities and oilsands workers, and rewards them
for the economic contributions they've made by providing funds for retraining and industry diversification",
will allow folks to avoid the economic pain that accompanies global resource scarcity.
Aside from nuclear energy, which has its own unique problems, there isn't another source of
energy that has the same energy density and the same portability that fossil fuels provide.
political ranger > Eduard Hiebert
6 hours ago
In Klein's world there was no planning, no short & long term, only the here and now. They had,
the PC's and wild-rosecrucian's still have, a rigid belief in their ideology, much like the religious
zealots in the far east, or anywhere.
Their beliefs included 'big government is bad; the only good government is a small government'
and 'self-regulation' and 'private industry always does it best'. Even after more than 35 years
of spectacular failures these nutjobs still think they are on to something grand.
Nobody cared when the riches were just flowing out of the ground. Now, as you say, the blindfolds
are not working so well.
Eduard Hiebert > political ranger
I quite appreciate how you observe what the problem politic is when you say "Their beliefs
included 'big government is bad; the only good government
is a small government' and 'self-regulation' and 'private industry
always does it best'. Even after more than 35 years of spectacular
failures these nutjobs still think they are on to something grand."
I not that by defining the ones who are doing this to us as "they" you too are not part of
that group. So how instead of us the masses being silence, do we get to have our say and not be
beholden tho the relatively few you refer to as "they"?
political ranger > Eduard Hiebert
2 hours ago
Sorry Ed, I don't know what you've written. Extensively or otherwise. Please state your thesis,
perhaps not so extensively.
I'm not advocating bloodshed, nor to be clear, do I advocate more of the status quo. We quite
clearly need a more immediate method of making culture-wide change.
How? I don't have The Solution, I'm afraid. I have advocated for a strong, aggressive and activist
government. It would likely be their one and only time at bat but perhaps they might start the
change (for the better) process.
Chris Hedges, from the US, a much more dysfunctional society than ours, sees violent revolution
as the only way forward with many, many losers and his side being the winner. I'm in favour of
that outcome but I fear it's far from certain who will be the winner while it is absolutely certain
that there will be many losers.
Without some immediate and significant change to our way of life both the natural environment
and the social environment will soon reach a tipping point. Then there will no end to the missing
people and carnage and wasted resources.
anthony rose
5 hours ago
In my opinion:
I see what is going on at the Tyee. Any one who has anything that does not fit the pr-ordained
narrative regarding Jeff Rubin, is deleted. Why?
Jeff Rubin is a man who predicted peak oil of $200 USD 10 years ago. He was wrong then and
he is likely wrong now. Why do you accept his ideas as correct all the time? What happened to
journalistic ethics and objectivity? So sad.
political ranger > anthony rose
5 hours ago
read his report.
It's chock full of facts, figures and statistics about all kinds of things that in his OPINION
leads to a decline in the petro-biz in Albaturda.
If you disagree with any of the aforementioned facts, figures and statistics; well let fly, we'd
love to hear about it. Some of us are, after all, here in the Tyee, data junkies and logic zombies
always looking for our next fix. Tell us what data is deficient and what should replace it or
what flaw in the argument could lead to a different conclusion.
If you have a different opinion, don't hold back. We've heard just about everything from your
kind. There is always a chance that one of you will actually make some sense.
anthony rose > political ranger
2 hours ago
In my opinion:
Here is a link to an article entitled: Jeff Rubin gets peak oil wrong from Canadian Business:
www.canadianbusiness.co
by the way what do you mean by the phrase : " from your kind"?
anthony rose > political ranger
an hour ago
In my opinion:
My point is that I bought into Mr. Rubin's $200 dollar peak oil forecast. He had lots of facts
and figures then too. He was still completely wrong.
He may be completely wrong again today.
Again I ask what you meant by your phrase " From your kind?" ›
Jack Lumber
Oil will boom again. Global consumption continues to rise, but the global glut has stalled
investment on new extraction. So our extraction levels will flatten out, but consumption will
still rise. Eventually it will catch up. Hopefully it does so slowly, or there could be a future
energy crisis.
"... This is a very questionable assumption. Supply/demand dynamics, especially reckless financing of shale in the USA was a factor (as in "crisis of overproduction" - if we remember classic Marxist term ;-), but this is only one and probably not decisive contributing factor. Paper oil, HFT, Saudis oil damping and Western MSM and agencies (Wild cries "Oil Glut !!!", "OMG Oil glut !!!" supported by questionable statistics from EIA, IEA and friends) were equally important factors. It you deny this you deny the reality. ..."
"... I agree, but this not the whole story. Western MSM went to crazy pitch trying to amplify Saudi animosities and to play "young reckless prince" card toward Iran and Russia. Do you remember the interview the prince gave to Bloomberg just before the freeze ? Do you think that this was accidental? ..."
"... definitely $50-$60 price band is not enough to revive the US shale. LTO is dead probably on any level below $80 and may be even above this level. That does not exclude "dead chicken bounce". Moreover LTO is already played card for financial industries. In reality it probably needs prices above $100 to fully recover. ..."
"... neoliberals still dominates in Russia. Especially oil and economics ministries. Reading interviews of Russian oil officials is pretty depressing. They swallow and repeat all the Western propaganda one-to-one. Unfortunately. In this area they have a lot to learn from Americans :-). ..."
"... At the same time, increasing the volume of high additional value products such as plastics, rubber, composites, etc is in best Russia's interest. It is difficult to achieve though. I think creating the ability to withhold substantial amount of oil from the markets for the periods of say 6 to 12 month is more important. And here they can get some help from OPEC members, Saudi be damned. ..."
"... This is a tricky balancing solution, but still this is some insurance against the price slumps like the current one, when Russia was caught swimming naked and did not have any viable game plan. It is unclear what is the optimal mix, but in no way this 100% or even 80% raw oil. ..."
I doubt that Russian will so easily forgive the West the current price slump and sanctions.
Remember it was Russia which was one on the main initiators of "freeze" the US and EU managed
to derail.
My impression is that Russia wants to process most of its oil internally which will reduce
the amount of oil available for export significantly. That's now semi-official policy.
Production figures are less meaningful in this context then export volumes and are like a smokescreen
on the eminent move to oil shortages on world markets.
Yes, production might be stable or slowly declining. But exports will not be stable. They will
be declining. Now what ?
1) The current oil price slump is due to supply/demand dynamics, not to western conspiracies.
This is very well understood by Russian officials.
2) The Doha deal was torpedoed by Saudi Arabia, primarily due to its conflict with Iran and
the intention to defend market share.
3) The output freeze deal was intended at changing the sentiment in the market and prevent
further decline in oil prices. This objective was achieved: oil prices are up 70% from February
lows, which is partly due to the talks between Russia, Saudi Arabia and others that started in
February.
Nobody expected the Doha deal to help oil prices to return to $100 levels, as an output freeze
is not an output cut. Besides, the agreement should have been non-binding and there was no mechanism
to control its implementation.
An increase in oil prices well above $50 this year is not in Russia's or Saudi interest, as
it could reverse the declining trend in LTO output. Russia's government officials, management
of oil companies and experts generally think that rebalancing of the oil market should be left
to market forces, and any attempts to artificially cut supply would be counter-productive. Therefore,
nobody saw the failure of the Doha agreement as a tragedy, particulalry as prices are already
at acceptable levels.
3) Russia's oil policy is driven by economic considerations. Cutting oil exports (and hence
foreign currency revenues) in order to "punish" the West is like shooting yourself in the foot.
4) As Russian oil production was increasing in the past 15 years, and domestic demand remained
relatively stable, the country has been ramping up exports of both crude oil and refined products.
Upgrading oil refining capacity means that Russian oil companies are able to increase the share
of refined products in total exports at the expense of crude oil.
This results in changing structure of liquid fuel exports, not in the decrease in its combined
volume. In fact, the structure of petroleum exports depends on comparative profitability of crude
and product exports. Sometimes it is more profitable to export crude rather than diesel or fuel
oil.
The current oil price slump is due to supply/demand dynamics, not to western conspiracies
This is a very questionable assumption. Supply/demand dynamics, especially reckless financing
of shale in the USA was a factor (as in "crisis of overproduction" - if we remember classic Marxist
term ;-), but this is only one and probably not decisive contributing factor. Paper oil, HFT,
Saudis oil damping and Western MSM and agencies (Wild cries "Oil Glut !!!", "OMG Oil glut !!!"
supported by questionable statistics from EIA, IEA and friends) were equally important factors.
It you deny this you deny the reality.
Remember the key Roman legal principle "cue bono". And who in this case is the prime suspect?
Can you please answer this question.
And please remember that the originator of the word "conspiracies" was CIA (to discredit those
who questioned the official version of JFK assassination).
2) The Doha deal was torpedoed by Saudi Arabia, primarily due to its conflict with Iran
and the intention to defend market share.
I agree, but this not the whole story. Western MSM went to crazy pitch trying to amplify
Saudi animosities and to play "young reckless prince" card toward Iran and Russia. Do you remember
the interview the prince gave to Bloomberg just before the freeze ? Do you think that this was
accidental?
BTW I agree that this was a huge win of Western diplomacy and "low oil price forever" forces.
An increase in oil prices well above $50 this year is not in Russia's or Saudi interest,
as it could reverse the declining trend in LTO output.
Nonsense. First of all mankind now needs oil above $100 to speed up the switch to hybrid cars
for personal transportation, and Russia and Saudi are the part of mankind.
It is also in best Russia's and Saudi economic interests, contrary to what you read on Bloomberg
or similar rags. World oil production is severely damaged by low oil prices and 1MB/d that shale
it can probably additionally produce in best circumstances is not that easy to achieve after this
slump.
And definitely $50-$60 price band is not enough to revive the US shale. LTO is dead probably
on any level below $80 and may be even above this level. That does not exclude "dead chicken bounce".
Moreover LTO is already played card for financial industries. In reality it probably needs prices
above $100 to fully recover.
For probably the next five-seven years everybody will be too shy in financing shale and other
high risk oil production ventures. So the oil price will probably set a new record. After that
we will have another round of "gold rush" in oil as institutional memory about the current oil
price slump will gradually evaporate. Neoliberalism is an unstable economic system, you can bet
on that.
Russia's oil policy is driven by economic considerations. Cutting oil exports (and hence
foreign currency revenues) in order to "punish" the West is like shooting yourself in the foot.
Nonsense. No nation politics is driven only by economic consideration but Russia stupidly or
not tried to play the role of stable, reliable oil and gas supplier to people who would betray
you for a penny. And sometimes this desire to play nice with the West led to betraying its own
national interests.
If I were Putin I would create strategic reserves and divert part of oil export to them to
sell them later at higher prices. Buy low, sell high: is not this a good strategy :-)
Or play some other card by artificially restricting export of oil to Western Europe to refined
products (and to please the USA, as it so badly wanted Russia to restrict supplies to EU to damage
their long time strategic partner :-) and let the EU face consequences of their own polices.
But this is probably not a possibility as neoliberals still dominates in Russia. Especially
oil and economics ministries. Reading interviews of Russian oil officials is pretty depressing.
They swallow and repeat all the Western propaganda one-to-one. Unfortunately. In this area they
have a lot to learn from Americans :-).
Exports are reliable hard currency stream. But it not a stable stream, as Russia recently discovered.
At the same time, increasing the volume of high additional value products such as plastics,
rubber, composites, etc is in best Russia's interest. It is difficult to achieve though. I think
creating the ability to withhold substantial amount of oil from the markets for the periods of
say 6 to 12 month is more important. And here they can get some help from OPEC members, Saudi
be damned.
Upgrading oil refining capacity means that Russian oil companies are able to increase
the share of refined products in total exports at the expense of crude oil.
This is a tricky balancing solution, but still this is some insurance against the price
slumps like the current one, when Russia was caught swimming naked and did not have any viable
game plan. It is unclear what is the optimal mix, but in no way this 100% or even 80% raw oil.
"... There are rumored to be a couple more multi-billion dollar bankruptcies being filed next week. As I have stated, I was not paying attention in 1986. I feel that things are worse in this bust than in 1998-1999. ..."
"... Well, the '86 bust was bloody terrible for me; I had kids in university then. Of course it was much worse for some of the other guys. At least my wife had her teaching/research job in Sweden so we managed. On a personal level I'd say it depends on where you're sitting. Sometimes I feel like a shit babbling on here when some very smart, productive and capable people, like you, are in the thick of it. ..."
There are rumored to be a couple more multi-billion dollar bankruptcies being filed next
week. As I have stated, I was not paying attention in 1986. I feel that things are worse in this
bust than in 1998-1999.
Wonder if there is a way to determine which of the three busts has been the worst so far (I
do not think the current one is over yet, it could last quite a while)?
Well, the '86 bust was bloody terrible for me; I had kids in university then. Of course
it was much worse for some of the other guys. At least my wife had her teaching/research job in
Sweden so we managed. On a personal level I'd say it depends on where you're sitting. Sometimes
I feel like a shit babbling on here when some very smart, productive and capable people, like
you, are in the thick of it.
"... Russia is not planning to significantly ramp production capacity. Energy Minister Novak said today that the country will be able to maintain long-term production levels within the range 525-545 million tons per year (10.5-10.9 mb/d). That's what Russian officials were saying earlier. ..."
"... According to the Saudi officials, planned expansion of the Khurais and Shaybah oil fields will only compensate for falling output at other fields. They claim that the country's "maximum sustainable output capacity is 12 million barrels per day and the nation's total capacity is 12.5 million bpd", but there are no plans to increase capacity and there is no evidence that this capacity really exists. ..."
Russia is not planning to significantly ramp production capacity.
Energy Minister Novak said today that the country will be able to maintain long-term production
levels within the range 525-545 million tons per year (10.5-10.9 mb/d). That's what Russian officials
were saying earlier.
According to the Saudi officials, planned expansion of the Khurais and Shaybah oil fields will
only
compensate for falling output at other fields. They claim that the country's "maximum sustainable
output capacity is 12 million barrels per day and the nation's total capacity is 12.5 million
bpd", but there are no plans to increase capacity and there is no evidence that this capacity
really exists.
I think that in reality Saudi Arabia is able to increase crude production from the current
10.2 mb/d to 10.5-10.6 mb/d during the peak season for local demand in the Summer, but not well
above those levels.
I agree with AlexS's assessment. In short, no not much further
increase in output will come from Russia and Saudi Arabia, certainly not
until oil prices rise above $70/b in 2018, and perhaps never.
The combined output of Russia and KSA will remain within +/- 2 Mb/d of
2015 C+C output levels until 2020 in my view.
"... …Since the start of 2015, 130 North American oil and as producers and service companies have filed for bankruptcy owing almost $44 billion, according to law firm Haynes & Boone. The tally doesn't include Chaparral Energy Inc., Penn Virginia Corp. and Linn Energy LLC, which filed for bankruptcy this week owing more than $11 billion combined." ..."
"... They survived by selling shares, junk bonds and flipping leases against a background of relentless/stupid hype. People were desperate to believe; finance lent and that was all that mattered … and matters today. ..."
"... A few more months of low(ish) prices and the hype will be unmasked as fraud. Two years = 730 tomorrows. How many more before utopia arrives … ? ..."
"... Never. $45/barrel = too low for drillers yet it is still too high for (broke) customers who would rather spend the spare change they have left on alcohol and beignets. ..."
OIL AT $45 A BARREL PROVING NO SAVIOR AS BANKRUPTCIES PILE UP
"Three bankruptcies this week shows that $45 a barrel oil isn't enough to rescue energy companies
on the verge of collapse…
…Since the start of 2015, 130 North American oil and as producers and service companies have
filed for bankruptcy owing almost $44 billion, according to law firm Haynes & Boone. The tally
doesn't include Chaparral Energy Inc., Penn Virginia Corp. and Linn Energy LLC, which filed for
bankruptcy this week owing more than $11 billion combined."
Not surprising as some (most) of these firms were underwater @ $110/barrel.
They survived by selling shares, junk bonds and flipping leases against a background of relentless/stupid
hype. People were desperate to believe; finance lent and that was all that mattered … and matters
today.
A few more months of low(ish) prices and the hype will be unmasked as fraud. Two years = 730
tomorrows. How many more before utopia arrives … ?
Never. $45/barrel = too low for drillers yet it is still too high for (broke) customers who
would rather spend the spare change they have left on alcohol and beignets.
OIL AT $45 A BARREL PROVING NO SAVIOR AS BANKRUPTCIES PILE UP
"Three bankruptcies this week shows that $45 a barrel oil isn't enough to rescue energy companies
on the verge of collapse…
…Since the start of 2015, 130 North American oil and as producers and service companies have
filed for bankruptcy owing almost $44 billion, according to law firm Haynes & Boone. The tally
doesn't include Chaparral Energy Inc., Penn Virginia Corp. and Linn Energy LLC, which filed for
bankruptcy this week owing more than $11 billion combined."
Not surprising as some (most) of these firms were underwater @ $110/barrel.
They survived by selling shares, junk bonds and flipping leases against a background of relentless/stupid
hype. People were desperate to believe; finance lent and that was all that mattered … and matters
today.
A few more months of low(ish) prices and the hype will be unmasked as fraud. Two years = 730
tomorrows. How many more before utopia arrives … ?
Never. $45/barrel = too low for drillers yet it is still too high for (broke) customers who
would rather spend the spare change they have left on alcohol and beignets.
"... Daniel Katzenberg, a senior analyst at Robert W. Baird, says investors aren't worried about profits as much as production. Quarter after quarter, the output of Pioneer's new horizontal wells has exceeded expectations, and that's why the stock price keeps rising. "What the market sees is that they're sitting on one of the most attractive and economic resource plays in the world," says Katzenberg. "Pioneer is tasked with proving their acreage is as good as the hype." ..."
"... I like this way of thinking: "investors aren't worried about profits as much as production". However absurd it sounds, that is true. There is a class of investors that aren't worried about profits. Same can be said about investors in Tesla: "investors aren't worried about profits as much as new EV technologies". ..."
"... New financing will be tough for survivors, and debt overhand will not dissipate any time soon. As for investors putting money into questionable companies (that Alex used as a counterargument) this is just throwing good money after bad. Most of those "new" investors are already up to the neck in this s**t and are afraid to write down holdings. So they decided to double down hoping that rising oil price will bail them out. ..."
"... Nothing new here. America became the nation of speculators, big and small, so a new sucker is born every minute. They expect that the rising tide will lift all boats. And they already forgot lessons of 2008: I do not think investors memory (as a class) lasts more then five years. So a new bubble and related fraud can have any period larger then five years. Almost eight year passed from previous crash, so it's about time to milk those suckers again :-) ..."
"... I think there will observable divergence between oil price rise and energy mutual funds/ETFs price rise. The latter will rise more slowly as bankruptcies might spoil the show. ..."
"... US Production is falling (substantially) and rigs are still declining so obviously "investors" are not interested in production either. So Mr Katzenberg is talking baloneys. There are no investors. This just last gasps of money printing. You can see the cracks everywhere. ..."
"... "If oil prices average $40 per barrel, U.S. shale oil production will likely decline by 3 million barrels per day between 2015 and 2020, and even if oil prices reach $60 per barrel, a decline is still imminent, according to the International Energy Agency (IEA). US shale production is not expected to halt the decline until we reach prices of $70 per barrel over the same period." ..."
"... There will be time in a year when EIA will report the same and Wall Street will proclaim "We are shocked. No one could have predicted this". Same old same old. ..."
US E&Ps were able to sell 10 billion not for the purpose of investing but for hiding the losses
for little bit longer. That shale business model is dead.
But investors don't think so.
Despite all those bankrupcies, they continue to invest in shale players, particularly in those
who continue to increase production volumes.
A good example is Pioneer, which is up almost 60% from 52-week lows.
Interesting quotes from an article in Bloomberg:
"The company, meanwhile, is spending a lot of money now in the belief that oil prices will
soon rise. Not everyone thinks it will pay off. Criticizing shale drillers at the Sohn Investment
Conference a year ago, David Einhorn singled out Pioneer, in which he has a short position, as
the "Mother-Fracker." Einhorn, president of Greenlight Capital, argued that Pioneer lost $12 for
every barrel it developed over the previous nine years. "That's like using $50 bills to counterfeit
$20s," he said.
…………………….. Daniel Katzenberg, a senior analyst at Robert W. Baird, says investors aren't worried about
profits as much as production. Quarter after quarter, the output of Pioneer's new horizontal wells
has exceeded expectations, and that's why the stock price keeps rising. "What the market sees
is that they're sitting on one of the most attractive and economic resource plays in the world,"
says Katzenberg. "Pioneer is tasked with proving their acreage is as good as the hype."
I like this way of thinking: "investors aren't worried about profits as much as production".
However absurd it sounds, that is true. There is a class of investors that aren't worried about
profits. Same can be said about investors in Tesla: "investors aren't worried about profits as
much as new EV technologies".
Dead - no. Severely squeezed - yes. New financing will be tough for survivors, and debt
overhand will not dissipate any time soon. As for investors putting money into questionable companies
(that Alex used as a counterargument) this is just throwing good money after bad. Most of those
"new" investors are already up to the neck in this s**t and are afraid to write down holdings.
So they decided to double down hoping that rising oil price will bail them out.
Nothing new here. America became the nation of speculators, big and small, so a new sucker
is born every minute. They expect that the rising tide will lift all boats. And they already forgot
lessons of 2008: I do not think investors memory (as a class) lasts more then five years. So a
new bubble and related fraud can have any period larger then five years. Almost eight year passed
from previous crash, so it's about time to milk those suckers again :-)
I think there will observable divergence between oil price rise and energy mutual funds/ETFs
price rise. The latter will rise more slowly as bankruptcies might spoil the show.
" Daniel Katzenberg, a senior analyst at Robert W. Baird, says investors aren't worried
about profits as much as production"
Alex,
" investors aren't worried about profits as much as production".
Is this America? Profits are not important? Well if investors are not worried about profits
than what is this? Charity, non-profit think-tank venture?
US Production is falling (substantially) and rigs are still declining so obviously "investors"
are not interested in production either. So Mr Katzenberg is talking baloneys. There are no investors.
This just last gasps of money printing. You can see the cracks everywhere.
Tesla is different. Tesla is still in hype 'stage" considering the number of vehicles sold..
You can run up Tesla stock so high just outside solar system and crash back and nobody will notice
a thing. Oil is different because all 7 billions of us are using it.
"If oil prices average $40 per barrel, U.S. shale oil production will likely decline by
3 million barrels per day between 2015 and 2020, and even if oil prices reach $60 per barrel,
a decline is still imminent, according to the International Energy Agency (IEA). US shale
production is not expected to halt the decline until we reach prices of $70 per barrel over the
same period."
IEA is completely disagreeing with anyone who is still claiming that shale has life below $70.
And you know what is interesting is that that 2 years ago IEA & EIA were singing the same song
but at this point IEA is splitting with that narrative because it is so obvious that you cannot
hide it anymore.
There will be time in a year when EIA will report the same and Wall Street will proclaim
"We are shocked. No one could have predicted this". Same old same old.
"... Linn Energy LLC filed for chapter 11 bankruptcy after reaching a deal with lenders to restructure its $8.3 billion debt load and obtain $2.2 billion in fresh financing. In its bankruptcy filing press release, Linn announced that the holders of more than 66 percent of its credit facility have agreed to the "broad terms" of a debt restructuring but didn't provide further details. ..."
"... energy producer Penn Virginia also filed for chapter 11 bankruptcy protection Thursday. And just like Linn, the Pennsylvania-based explorer and producer deals said it had reached a prepackaged agreement with holders of 87 percent, or $1.03 billion, ..."
In the first case, oil and gas producer Linn Energy LLC filed for chapter 11 bankruptcy after
reaching a deal with lenders to restructure its $8.3 billion debt load and obtain $2.2 billion in
fresh financing. In its bankruptcy filing press release, Linn announced that the holders of more
than 66 percent of its credit facility have agreed to the "broad terms" of a debt restructuring
but didn't provide further details. The lenders also agreed to let Linn Energy spend the cash
securing their debt, known as cash collateral, and to help fund a new $2.2 billion term loan.
... ... ...
In the day's second bankruptcy, energy producer Penn Virginia also filed for chapter 11
bankruptcy protection Thursday. And just like Linn, the Pennsylvania-based explorer and producer
deals said it had reached a prepackaged agreement with holders of 87 percent, or $1.03 billion,
of its total funded-debt obligations to restructure under chapter 11 protection and eliminate
long-term debt by more than $1 billion.
"... And just think. Linn Energy, only a month or two ago, maxed out their line of credit, paid the upper crust extra bonuses and 18 months pay. I wonder what they saw coming? So is this good luck or fraud? ..."
Linn Energy Files for Bankruptcy, SandRidge Misses Quarterly Filing
HOUSTON, May 11 (Reuters) – Linn Energy filed for bankruptcy on Wednesday, and SandRidge Energy
Inc said it could not file quarterly results in a timely manner, the latest sign of the turmoil
a deep price crash has caused among small firms in the U.S. oil and gas sector.
Linn's filing for creditor protection brings to about 60 the number of U.S. oil and gas
companies to go bankrupt since oil prices entered a slide in mid-2014.
And just think. Linn Energy, only a month or two ago, maxed out their line of credit, paid
the upper crust extra bonuses and 18 months pay.
I wonder what they saw coming? So is this good luck or fraud?
I shake my head sometimes, when it come to white collar crime, because this is just criminal
in any view of the law, other than the letter of the law!
This might be a new factor in US-Saudi relations, which indirectly might affect the price of oil....
Notable quotes:
"... Rep. Brad Sherman (D-Calif.) is criticizing the Obama administration as having tried to strong-arm a former senator who is pushing to declassify 28 pages of the 9/11 report dealing with Saudi Arabia. He recounted how Rep. Gwen Graham (D-Fla.) and her father, former Senate Intelligence Committee Chairman Bob Graham (D-Fla.), were detained by the FBI in 2011 at Dulles International Airport outside Washington. The message from the agents, according to the Grahams, was to quit pushing for declassification of the 28 pages. The FBI "took a former senator, a former governor, grabbed him in an airport, hustled him into a room with armed force to try to intimidate him into taking different positions on issues of public policy and important national policy, and the fact that he wasn't intimidated because he was calm doesn't show that they weren't trying to intimidate him," Sherman said in an interview with The Hill's Molly K. Hooper. ..."
"... If a nation expects to be ignorant & free, in a state of civilization, it expects what never was & never will be. The functionaries of every government have propensities to command at will the liberty & property of their constituents. There is no safe deposit for these but with the people themselves; nor can they be safe with them without information. Where the press is free and every man able to read, all is safe. ..."
"... The reason I believe the "28 pages" are so important is because it unquestionably demonstrates that senior members of the U.S. government care more about the public perception of Saudi Arabia, and protecting its terrorist spawn, than cares about the public interest. Indeed, focus on these pages is already beginning to achieve just that. ..."
"... A former Republican member of the 9/11 commission, breaking dramatically with the commission's leaders, said Wednesday he believes there was clear evidence that Saudi government employees were part of a support network for the 9/11 hijackers and that the Obama administration should move quickly to declassify a long-secret congressional report on Saudi ties to the 2001 terrorist attack. ..."
"... "There was an awful lot of participation by Saudi individuals in supporting the hijackers, and some of those people worked in the Saudi government," Lehman said in an interview, suggesting that the commission may have made a mistake by not stating that explicitly in its final report. "Our report should never have been read as an exoneration of Saudi Arabia." ..."
"... The 9/11 commission chairman, former Republican governor Tom Kean of New Jersey, and vice-chairman, former Democratic congressman Lee Hamilton of Indiana, praised Saudi Arabia as, overall, "an ally of the United States in combatting terrorism" and said the commission's investigation, which came after the congressional report was written, had identified only one Saudi government official – a former diplomat in the Saudi consulate in Los Angeles – as being "implicated in the 9/11 plot investigation". ..."
"... "Only one Saudi government official." Can you believe this? Meanwhile, that official was merely deported from the U.S. without ever being charged with a crime. More proof that the Saudis and bankers have been granted their own separate "justice" system. ..."
"... In the interview Wednesday, Lehman said Kean and Hamilton's statement that only one Saudi government employee was "implicated" in supporting the hijackers in California and elsewhere was "a game of semantics" and that the commission had been aware of at least five Saudi government officials who were strongly suspected of involvement in the terrorists' support network. ..."
"... The commissioner said the renewed public debate could force a spotlight on a mostly unknown chapter of the history of the 9/11 commission: behind closed doors, members of the panel's staff fiercely protested the way the material about the Saudis was presented in the final report, saying it underplayed or ignored evidence that Saudi officials – especially at lower levels of the government – were part of an al-Qaida support network that had been tasked to assist the hijackers after they arrived in the US. ..."
"... Zelikow fired a staffer, who had repeatedly protested over limitations on the Saudi investigation, after she obtained a copy of the 28 pages outside of official channels. Other staffers described an angry scene late one night, near the end of the investigation, when two investigators who focused on the Saudi allegations were forced to rush back to the commission's offices after midnight after learning to their astonishment that some of the most compelling evidence about a Saudi tie to 9/11 was being edited out of the report or was being pushed to tiny, barely readable footnotes and endnotes. The staff protests were mostly overruled. ..."
"... Zelikow, the commission's executive director, told NBC News last month that the 28 pages "provide no further answers about the 9/11 attacks that are not already included in the 9/11 commission report". Making them public "will only make the red herring glow redder". ..."
"... This from the guy who led the charge to intentionally whitewash the Saudi role and intentionally deceive the American public. Yet these people call Edward Snowden a traitor. ..."
"... But Kean, Hamilton and Zelikow clearly do not speak for a number of the other commissioners, who have repeatedly suggested they are uncomfortable with the perception that the commission exonerated Saudi Arabia and who have joined in calling for public release of the 28 pages. ..."
"... It's impossible to read the above and not conclude that senior U.S. government officials were, and continue to be, more interested in protecting their Saudi "allies" than providing justice for the thousands of innocents killed on 9/11 ..."
Rep. Brad Sherman (D-Calif.) is criticizing the Obama administration as having tried
to strong-arm a former senator who is pushing to declassify 28 pages of the 9/11 report dealing
with Saudi Arabia.
He recounted how Rep. Gwen Graham (D-Fla.) and her father, former Senate Intelligence
Committee Chairman Bob Graham (D-Fla.), were detained by the FBI in 2011 at Dulles International
Airport outside Washington. The message from the agents, according to the Grahams, was to quit
pushing for declassification of the 28 pages.
The FBI "took a former senator, a former governor, grabbed him in an airport, hustled
him into a room with armed force to try to intimidate him into taking different positions on issues
of public policy and important national policy, and the fact that he wasn't intimidated because
he was calm doesn't show that they weren't trying to intimidate him," Sherman said in an interview
with The Hill's Molly K. Hooper.
Critics of my repeated focus on highlighting the Saudi role in 9/11 claim that anything revealed
in the "28 pages" will be marginal at best, leaving many of the most important questions surrounding
the attacks shrouded in secrecy. I agree. What I disagree with is the conclusion
that aggressively pursuing a declassification of the 28 pages is therefore meaningless.
There's almost always a underlying reason behind my relentless pursuit of certain topics. One
of the key purposes of this website is to chronicle the myriad examples of U.S. government lies,
corruption and criminality on behalf of a handful of insiders at the expense of the citizenry. This
is because I agree wholeheartedly with Thomas Jefferson when he
wrote to Charles Yancey :
If a nation expects to be ignorant & free, in a state of civilization, it expects what
never was & never will be. The functionaries of every government have propensities to command
at will the liberty & property of their constituents. There is no safe deposit for these but with
the people themselves; nor can they be safe with them without information. Where the press is
free and every man able to read, all is safe.
The shadow government and its minions treat the general public as stupid malleable serfs, because
for the most large part, they are. This unfortunate state of affairs has been achieved over the decades
through absurd government propaganda slavishly peddled to the masses via mainstream media outlets.
The internet has allowed tens of millions to wake up, but hundreds of millions are necessary in order
to turn this thing around and bring forth an era of freedom, progress, creativity and spiritual renaissance.
This will never happen until people start to question and confront the unimaginably maniacal status
quo.
The reason I believe the "28 pages" are so important is because it unquestionably demonstrates
that senior members of the U.S. government care more about the public perception of Saudi Arabia,
and protecting its terrorist spawn, than cares about the public interest. Indeed, focus
on these pages is already beginning to achieve just that.
A former Republican member of the 9/11 commission, breaking dramatically with the commission's
leaders, said Wednesday he believes there was clear evidence that Saudi government employees were
part of a support network for the 9/11 hijackers and that the Obama administration should move
quickly to declassify a long-secret congressional report on Saudi ties to the 2001 terrorist attack.
The comments by John F Lehman, an investment banker in New York who was Navy secretary in the
Reagan administration, signal the first serious public split among the 10 commissioners since
they issued a 2004 final report that was largely read as an exoneration of Saudi Arabia, which
was home to 15 of the 19 hijackers on 9/11.
"There was an awful lot of participation by Saudi individuals in supporting the hijackers,
and some of those people worked in the Saudi government," Lehman said in an interview,
suggesting that the commission may have made a mistake by not stating that explicitly in its final
report. "Our report should never have been read as an exoneration of Saudi Arabia."
He was critical of a statement released late last month by the former chairman and vice-chairman
of the commission, who urged the Obama administration to be cautious about releasing the full
congressional report on the Saudis and 9/11 –
"the 28 pages" , as they are widely known in Washington – because they contained "raw, unvetted"
material that might smear innocent people.
The 9/11 commission chairman, former Republican governor Tom Kean of New Jersey, and vice-chairman,
former Democratic congressman Lee Hamilton of Indiana, praised Saudi Arabia as, overall,
"an ally of the United States in combatting terrorism" and said the commission's investigation,
which came after the congressional report was written, had identified only one Saudi government
official – a former diplomat in the Saudi consulate in Los Angeles – as being "implicated in the
9/11 plot investigation".
"Only one Saudi government official." Can you believe this? Meanwhile, that official was merely
deported from the U.S. without ever being charged with a crime. More proof that the Saudis and bankers
have been granted their own separate "justice" system.
Meanwhile, it's not even true…
In the interview Wednesday, Lehman said Kean and Hamilton's statement that only one
Saudi government employee was "implicated" in supporting the hijackers in California and elsewhere
was "a game of semantics" and that the commission had been aware of at least five Saudi government
officials who were strongly suspected of involvement in the terrorists' support network.
The commissioner said the renewed public debate could force a spotlight on a mostly unknown
chapter of the history of the 9/11 commission: behind closed doors, members of the panel's
staff fiercely protested the way the material about the Saudis was presented in the final report,
saying it underplayed or ignored evidence that Saudi officials – especially at lower
levels of the government – were part of an al-Qaida support network that had been tasked to assist
the hijackers after they arrived in the US.
In fact, there were repeated showdowns, especially over the Saudis, between the staff and the
commission's hard-charging executive director, University of Virginia historian Philip Zelikow,
who joined the Bush administration as a senior adviser to the secretary of state, Condoleezza
Rice, after leaving the commission. The staff included experienced investigators from the FBI,
the Department of Justice and the CIA, as well as the congressional staffer who was the principal
author of the 28 pages.
Zelikow fired a staffer, who had repeatedly protested over limitations on the Saudi
investigation, after she obtained a copy of the 28 pages outside of official channels. Other staffers described an angry scene late one night, near the end of the investigation,
when two investigators who focused on the Saudi allegations were forced to rush back to the commission's
offices after midnight after learning to their astonishment that some of the most compelling evidence
about a Saudi tie to 9/11 was being edited out of the report or was being pushed to tiny, barely
readable footnotes and endnotes. The staff protests were mostly overruled.
However, the commission's final report was still widely read as an exoneration, with a central
finding by the commission that there was "no evidence that the Saudi government as an institution
or senior Saudi officials individually" provided financial assistance to Osama bin Laden's terrorist
network. The statement was hailed by the Saudi government as effectively clearing Saudi officials
of any tie to 9/11.
Zelikow, the commission's executive director, told NBC News last month that the 28 pages "provide
no further answers about the 9/11 attacks that are not already included in the 9/11 commission
report". Making them public "will only make the red herring glow redder".
This from the guy who led the charge to intentionally whitewash the Saudi role and intentionally
deceive the American public. Yet these people call Edward Snowden a traitor.
But Kean, Hamilton and Zelikow clearly do not speak for a number of the other commissioners,
who have repeatedly suggested they are uncomfortable with the perception that the commission exonerated
Saudi Arabia and who have joined in calling for public release of the 28 pages.
It's impossible to read the above and not conclude that senior U.S. government officials were,
and continue to be, more interested in protecting their Saudi "allies" than providing justice
for the thousands of innocents killed on 9/11 . It should make everyone infinitely more
distrustful of our crooked government.
If that's all the "28 pages" drama achieves, I'd call that a success.
"... Something just does not make sense to me. They are saying that at current production levels, they can supply oil for the next 165 years. So why do they have to diversify? I can almost see it if they said that they wanted more citizens to be employed. But, they are diversifying into industrial jobs. Chemical plant joint ventures. Their huge shipbuilding effort to produce tanker and "oil rigs," etc. Those jobs will be filled largely by foreign workers and robots. ..."
"... IMHO this young prince currently in power is a typical adventurist. He is an excellent illustration of the danger of absolute monarchy or any too high concentration of power in single hands :-) ..."
"... If so, why on Earth they are selling their strategic resource for peanuts? Is this kind of madness or what? Unless their plan is to move royal family to France. And even in this case it is a stupid plan. ..."
Something just does not make sense to me. They are saying that at current production levels,
they can supply oil for the next 165 years. So why do they have to diversify? I can almost see
it if they said that they wanted more citizens to be employed. But, they are diversifying into
industrial jobs. Chemical plant joint ventures. Their huge shipbuilding effort to produce tanker
and "oil rigs," etc. Those jobs will be filled largely by foreign workers and robots.
If they said that they were going to establish a "silicon valley" of the Mid-east, well, I
could see that. Teach their kids high-tech skills.
Since they have already "found" the oil, and have the infrastructure in place, it would be
highly likely that if the world reduced consumption to 10 million bbl/day, that it would all come
from Saudi Arabia. Their costs would just always be far below anyone else.
World demand is currently nearly 96 million barrels (oil and liquid fuels) per day or say 35 billion
barrels per year. Do you think it's likely world consumption can be reduced to 10 million bbl/day?
And, perhaps Saudi pronouncements are best taken with a grain of sand, sorry, salt.
Saudi pronouncements are best taken with a grain of sand, sorry, salt.
IMHO this young prince currently in power is a typical adventurist. He is an excellent
illustration of the danger of absolute monarchy or any too high concentration of power in single
hands :-)
Other then religious tourism (which brings less then 10 billion a year) all their efforts are
just reshuffling the chairs of the deck of Titanic. Remove oil and gas and they are bankrupt and
probably will not last long as an independent nation.
If so, why on Earth they are selling their strategic resource for peanuts? Is this kind
of madness or what? Unless their plan is to move royal family to France. And even in this case
it is a stupid plan.
Russia is bleeding hard currency but still its oil industry is the best shape among OPEC
nations, despite low oil prices and sanctions. It might well be that Russia will preserve the level
of oil production which it reached in 2015 in 2016.
While discussing major factors influencing the oil market at the Forum, the speakers agreed
the geopolitics have become an essential factor, although the condition of the world economy and
market forces along with the technological advancement seemed to still be taking a lead in
driving oil prices.
"We must understand that the oil prices cannot change drastically because we are now reaching the
projected output level that we set out to achieve with the investments that we historically made
six, five, four years ago, and the production cannot be curtailed," said Vagit Alekperov,
LUKoil's Chief Executive Officer. According to Alekperov, last year LUKoil spent 300 billion
rubles on investments in the industry, and 112 billion rubles of investments in the first quarter
of 2016.
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Alekperov also said that the complex geopolitical situation in the Persian Gulf has caused the
OPEC members from the Middle East to compete harder for their share of the oil market.
"What we see here, is that amidst the oil prices slump the Persian Gulf countries attempt to
increase their production output to cover their budget deficits caused by slashed oil revenues,
including compensating for the part of budget they need for procuring arms", Alekperov noted.
However, LUKoil's CEO believes oil prices are passed their lowest point, and the equilibrium
price should fluctuate around $50 per barrel for the rest of 2016 and first half of 2017. Prices
should then rise in the second half of 2017 as demand begins to exceed supply.
The Chairman of the Russian Union of Industrialists and Entrepreneurs, Alexander Shohin,
described a litany of geopolitical issues affecting oil prices. "The fact that the Saudis
rejected freezing the output blaming it on Iran's absence from the negotiations and its refusal
to cooperate by announcing intention to raise the production back to pre-sanctions level of 5
million bpd plus a couple million bpd on top of that; turmoil in Libya's political situation, and
a lack of a legitimate government there ; let alone the conspiracy plots that impact oil prices
in countries that may be regarded as 'unfriendly'…all this definitely points to a high role of
geopolitics in global oil market," he said.
Some incoherent blah-blah-blah about Saudi "defending their market share" should be ignored, but
new "Margaret Thatcher of Saudi Arabia" is a gambler that pursue very risky policies. He endanger his
own county, by depleting currency reserved, he undermines OPEC. It is interesting what he is getting
in return and from whom.
The new oil minister is another step is Prince Mohammed attempt to take the full control over Saudi
oil
The elephant in the room is the level of depletion of Saudi oil reserves. land reserved probably
are in terminal stages of depletion, but off-shore might still be not. Iran ayatollahs also pursue
suicidal policy of oil production extraction despite low oil prices as if delay in six month really matter in
the longer scheme of things. So Saudi-Iran reginal rivalty was experty played and due to stupidity of
both sides that main winner is the USA, EU, China and Asian tigers.
Notable quotes:
"... Ali al-Naimi was also sympathetic to the concerns of other OPEC member nations in regards to low oil prices. Venezuela and Nigeria, among others, pressed hard for production cuts, or at a minimum, a freeze in output. Al-Naimi was open to this avenue, but Prince bin Salman is more hawkish, and seems to be much more content with a period of low oil prices. Naimi was able to countenance coordinated action with OPEC and non-OPEC producers, including Russia. The young prince is taking a tougher line, particularly when it comes to Iran. In fact, many view his opposition to a deal in Doha as at least in part motivated by the Saudi geopolitical rivalry with Iran. ..."
"... He doesn't feel the economic burden to have to cooperate with OPEC ..."
In a surprise move, Saudi Arabia sacked its long-time oil minister over the weekend, an event
that illustrates the near-total control that the new young Saudi prince has obtained over the country's
energy industry.
For many years, Ali al-Naimi, the outgoing Saudi oil minister, was the voice of Saudi Arabia's oil
industry and policy. Even seemingly insignificant remarks from al-Naimi could move oil prices up
or down. But the 80-year old oil minister has seen his power eclipsed by the 30-year old Deputy Crown
Prince Mohammed bin Salman. In April, when al-Naimi was forced to backtrack on the Doha oil freeze
deal, reportedly at the behest of the Deputy Crown Prince, it was clear that his time at the helm
was coming to an end.
Over the weekend, al-Naimi was pushed out in favor of Khalid al-Falih, the head of the state-owned
oil company Saudi Aramco. The swap was expected and had been previously announced, but the timing
came as a surprise. The move leaves the Deputy Crown Prince with undisputed control over Saudi Arabia's
energy strategy, as well as its broader economy.
... ... ...
Ali al-Naimi was also sympathetic to the concerns of other OPEC member nations in regards
to low oil prices. Venezuela and Nigeria, among others, pressed hard for production cuts, or at a
minimum, a freeze in output. Al-Naimi was open to this avenue, but Prince bin Salman is more hawkish,
and seems to be much more content with a period of low oil prices. Naimi was able to countenance
coordinated action with OPEC and non-OPEC producers, including Russia. The young prince is taking
a tougher line, particularly when it comes to Iran. In fact, many view his opposition to a deal in
Doha as at least in part motivated by the Saudi geopolitical rivalry with Iran.
"Mohammed bin Salman has changed everything," Helima Croft, head of commodities strategy at RBC Capital
Markets, told the WSJ. "He doesn't feel the economic burden to have to cooperate with OPEC."
"... From the Iranian side, I have no doubts that an increase of another 1m barrels a day is precisely what they hope will happen, but the reality will surely be different. For all oil production, whether it is from an independent oil company or a sovereign nation, capital expenditures will determine the increase or decrease that can be achieved. Iran has a decidedly arthritic oil infrastructure, slowed by the lack of Western technology and the impact of a decade of sanctions. Their own economy is too weak to generate anywhere near the capex required to increase another 1 million barrels in the next year, and their overtures to foreign oil companies for leases inside Iran has been met cooly by prime contenders Total (TOT) and Eni (E). There is a lagged amount of already developed barrels that Iran can push onto the global market – perhaps 300,000 barrels a day; but by my reckoning, already 150,000 of those barrels have been added – making their ultimate targets very unlikely indeed to be reached. ..."
"... It wouldn't be consistent to believe that for the last year and a half, the Saudis have been capable of increasing their production by another 20 percent, but have so far kept that potential under wraps. Instead, I am fully of the opinion that the Saudis are near, if not at their full production potential right now. ..."
"... The oil market seems to agree – in February, if the threat of another 3 million barrels of oil hitting the global market had been unleashed, oil might have reached below $20 a barrel; today, oil is getting very close to rallying towards $50 a barrel instead. ..."
In light of the missed opportunity at Doha to curb OPEC production, angry statements have emerged
from both Iran and Saudi Arabia on oil production – the Iranians saying that they cannot be stopped
in increasing their exports another 1m barrels a day in the next 12 months, the Saudi oil minister
in turn threatening to increase production another 2m barrels a day. Both of these statements need
to be taken with not a grain, but a 5-pound bag of salt.
From the Iranian side, I have no doubts that an increase of another 1m barrels a day is precisely
what they hope will happen, but the reality will surely be different. For all oil production, whether
it is from an independent oil company or a sovereign nation, capital expenditures will determine
the increase or decrease that can be achieved. Iran has a decidedly arthritic oil infrastructure,
slowed by the lack of Western technology and the impact of a decade of sanctions. Their own economy
is too weak to generate anywhere near the capex required to increase another 1 million barrels in
the next year, and their overtures to foreign oil companies for leases inside Iran has been met cooly
by prime contenders Total (TOT) and Eni (E). There is a lagged amount of already developed barrels
that Iran can push onto the global market – perhaps 300,000 barrels a day; but by my reckoning, already
150,000 of those barrels have been added – making their ultimate targets very unlikely indeed to
be reached.
The Saudis do not have any of the capex or technology problems that plague the Iranians. But the
question of how much capacity the Saudis actually do have comes into play when they threaten to increase
production by another 2 million barrels. For my entire career in oil, there has always been a dark
question on Saudi 'spare capacity' – How much could the Saudis ultimately pump, if they were willing
to open the spigots up fully? For years, the speculation from most oil analysts was near to 7.5m
or 8m barrels a day – a number that was blown out in the last two years as Saudi production rocketed
above 10m barrels a day.
But the strategy the Saudis have pursued has been clear – they have been working towards full
production and an aggressive fight for market share since the failure of the Vienna OPEC meeting
in November of 2014. It is very difficult to believe that the Saudis have had much, if any, remaining
capacity to easily put on the market since that time, or if any spare capacity could be developed
at all. It wouldn't be consistent to believe that for the last year and a half, the Saudis have been
capable of increasing their production by another 20 percent, but have so far kept that potential
under wraps. Instead, I am fully of the opinion that the Saudis are near, if not at their full production
potential right now.
The oil market seems to agree – in February, if the threat of another 3 million barrels of oil
hitting the global market had been unleashed, oil might have reached below $20 a barrel; today, oil
is getting very close to rallying towards $50 a barrel instead.
Unseasonably hot temperatures, extremely dry conditions and winds of up to 70km/h (44mph)
helped fuel the fire's spectacular growth to 101,000 hectares on Friday – an area more than 10
times the size of Manhattan – up from just 10,000ha earlier in the week.
With temperatures expected to hit 27C (80F) on Saturday, officials said the fire could double in
size by end of the day.
On Friday, Rachel Notley, the premier of Alberta, said Fort McMurray was still trapped in the
grip of the inferno. "The city of Fort McMurray is not safe to return to and this will be true
for a significant period of time," she told the thousands of evacuees scattered across the
province.
The extent of the destruction wreaked by the fire was evident in
a video
uploaded to YouTube on Thursday
. Apparently shot by a firefighter, the footage shows a
devastated landscape dotted with piles of blackened rubble and the burned out frames of pickup
trucks. A thick haze of smoke still hangs overhead, while small fires flare among the ruins.
"As more information comes in, it appears that the impact on production of
the wildfires in Alberta will be significant," said analysts at JBC Energy
in Austria. Analysts noted that Shell shut its Albian Sands mine and Suncor
shut its base plant, while producers Syncrude Canada and Connacher Oil &
also reduced output in the region.
"Taken together this amounts to some
0.5 million b/d of capacity that is currently offline. Infrastructure is
being affected too, with the 560,000 b/d Corridor pipeline shut down and
movement along the 140,000 b/d Polaris pipeline significantly curtailed. On
top of that, trains are not operating near Fort McMurray, according to the
Canadian National Railway," said the analysts.
But the most comprehensive answer so far comes from Morgan Stanley's
Benny Wong who estimates that the total number of offline capacity will be
anywhere between 400 and 500 mbbl/d, with the shut-in expected to last about
10 days, potentially reducing total market output by as much as 5 million
barrels.
"... Americans are driving more than ever before. Vehicle miles traveled (VMT) reached an all-time high of 3.15 trillion miles in February 2016 (Figure 2). VMT have increased 97 billion miles per month (3 percent) since the beginning of 2015 and gasoline sales have increased 187 kbpd (2 percent). The rates of increase are not proportional. ..."
Americans are driving more than ever before. Vehicle miles traveled (VMT) reached an all-time
high of 3.15 trillion miles in February 2016 (Figure 2). VMT have increased 97 billion miles per
month (3 percent) since the beginning of 2015 and gasoline sales have increased 187 kbpd (2 percent).
The rates of increase are not proportional.
... ... ...
From April 2015 to March 2016, oil production decreased 660 kbpd (-7 percent) but net crude oil
imports increased 800 kbpd (+10 percent) (Figure 5).
"... Last year, the seven biggest oil companies in the West only replaced 75 percent of their reserves. This is seriously bad news, especially combined with the fact that many new discoveries made in the last four years have disappointed. ..."
"... In the last four years the industry has seen disappointing - largely gas prone - exploration results, with the volume of liquids discovered annually falling from around 19 billion barrels between 2008 and 2011 to 8 billion barrels between 2012 and 2015 ..."
The third part of the problem is reserves replacement. New exploration is not just a form of art
for art's sake, or a means of expansion to boost bottom lines. It's an essential part of the operations
of an oil business. Oil is finite, and in order to stay profitable, an oil company needs to maintain
a consistent rate of reserves replacement.
And here's more bad news: Last year, the seven biggest oil companies in the West
only replaced 75 percent of their reserves. This is seriously bad news, especially combined with
the fact that many new discoveries made in the last four years have disappointed.
Wood Mac's exploration research vice-president told Offshore magazine that "In the last four years
the industry has seen disappointing - largely gas prone - exploration results, with the volume of
liquids discovered annually falling from around 19 billion barrels between 2008 and 2011 to 8 billion
barrels between 2012 and 2015."
"... Chevron Corp. shut down about 90,000 barrels a day of output following an attack on a joint-venture offshore platform that serves as a gathering point for production from several fields. Even before that strike on Wednesday night, Nigerian oil production had fallen below 1.7 million barrels a day for the first time since 1994, according to data compiled by Bloomberg. ..."
• Strike on Chevron platform cuts output by about 90,000 b/d
• Crude output fell in April to lowest in more than two decades
Nigeria is suffering a worsening bout of oil disruption that has pushed production to the lowest
in 20 years, as attacks against facilities in the energy-rich but impoverished nation increase
in number and audacity.
Chevron Corp. shut down about 90,000 barrels a day of output following an attack on a joint-venture
offshore platform that serves as a gathering point for production from several fields. Even before
that strike on Wednesday night, Nigerian oil production had fallen below 1.7 million barrels a
day for the first time since 1994, according to data compiled by Bloomberg.
"... Third parties like "Drilling Info", BTU Analytics, CERA, etc. provide their looks at the market for very high prices, and as such are much more granular than those from government data providers. As much as they try, they are still limited by the availability of international data and reporting time lags domestically, not to mention their own biases. ..."
"... Inevitably, we will have another price shock – or at minimum an upside surprise. It's unavoidable at this point. Oil never transitions smoothly. Just like all the oil bulls had to be run out during the declining price stage, all the price bears, like Dennis Gartman, will be run out when fundamentals hit them over the head. Gartman, to his credit, will change his tune 180 degrees when he sees the actual data shaping up. That's how he has survived so long and profitably as a trader. ..."
"... My prediction - $80/bbl in 18 months, but it won't last very long. I think $60 - $70/bbl is a healthy range. ..."
I follow oil pretty closely given our exposure. As such, I get frustrated with
many press and news show accounts of the commodity. It gets worse when the pundits
and writers should know better. Frequently inexact terminology leads to misconceptions
and sometimes I see outright falsehoods that completely distort the truth.
As a former oil analyst and professional energy investor, I feel compelled
to take those to task. As a realist, I see that all markets require a difference
of opinion and all investors talk their "book". For this reason, when Jeff Currie
at Goldman Sachs Commodities Group gets on CNBC and opines about future price
movements, I give little notice. Jeff is posturing for his customers' and GSs'
positions. Jeff can spin the story either way and chooses his statistics accordingly...That's
what he is paid very well to do.
Last week (March 28, 2016), I heard Dennis Gartman of the Gartman Letter,
a trader and investor that I respect and have learned much from, spout an outright
falsehood on CNBC. Everyone can have a bad day, but I've been hearing various
versions of this for months. Dennis said in essence that oil prices could not
rise very much because of "all the capped wells that could be brought on line
very rapidly". He predicted no more than $42/bbl this year. He estimated that
at current strip pricing, you could lock in $45/bbl in 12 months, making large
numbers of these "capped" wells profitable. The implication being that at current
prices, the market would be rapidly flooded with new oil.
I'll take the over on price, the under on production and bet all my capital
that I'm right. (Oh, I already did that...). Dennis should know better. For
fun though, I thought I'd like to take apart his thesis.
First, there are no "capped" wells in the U.S. To my knowledge not
one well has been capped due to low prices, especially relatively young horizontal
shale wells. Older wells are capped all the time when production is no longer
sufficient to pay operating expenses for the well. Generally, onshore wells
may cost something in the order of only $2,000 per month to operate. At $40
dollar oil, 3 barrels per day of production (gross) should cover operating costs.
What Dennis is likely referring to is the "Drilled Uncompleted" or DUC well
inventory in the various shale plays. Some estimates have shown as many as 4,000
of these DUCs exist and the numbers are rising. Many pundits cite these DUCs
as an effective ceiling on oil prices.
However, a DUC is very different from Gartman's implied "capped" well. There
are many reasons why a producer would drill and not complete a well. They may
have had a rig under contract, they may want to beat competitors, retain their
or their service companies' good employees, they may be able to hold expiring
acreage, they may just want to see what the rocks look like in a particular
area. However, the most likely reason is that the completion costs of these
wells can amount to over 60 percent of well cost maybe – $3 to $4 million per
well. As such, this investment is very difficult to recoup if a well's flush
initial production is sold at low prices. This is compounded when whole well
pads are completed at the same time to increase efficiency. If you don't like
the price one well gets, six wells coming on line at the same time is worse.
This also flows into the other reasons why this production will not flood
the market, namely the intersection of costs, timing and decline rates.
• Costs – 4,000 wells at even $3 million per well is $12
billion dollars. Given the upheaval among producers, where does Dennis suppose
the $12 billion will come from to "instantly" "uncap" these wells and increase
production? Not from the banks, the high yield market is tight, equity investors
have stepped up for some Permian and Eagle Ford producers, but $12 billion is
a lot of money.
• Time – Let's say that oil prices above $40/bbl equals
a green light for energy producers to attack their DUCs. (There appears to be
no factual basis for this, but let's pretend.) A quick look at C&J energy services,
which controls the country's third largest frac fleet as well as other completion
services, tells part of the story. Today, just over 50 percent of the companies'
fleet is working and the rest is "stacked" or to be retired. The people were
laid off months ago. Clearly, when they get the signal that their customers
want more completion services, they will begin to reactivate some of this idle
iron – one frac fleet at a time. The problem is the C&Js stock price is $1.46
and they have close to $1.2 billion in debt. Where will the money come from
to rehire people, and reactivate idle equipment? After that, will the people
return? Yes, but slowly and at a high cost. What about Baker and Schlumberger?
Both are in better financial shape but their fleets have been stacked also and
at this time, investors are in no mood to hear a company talk about adding capacity.
When these companies return fleets to active status, they will be competing
to hire a smaller pool of laid off workers.
• Decline rates – Wells producing from tight rock or shale
(wells that must be fracked) exhibit steep decline curves on the order of 75
percent during the first year of production. The implication is that producers
are on a never ending treadmill in order to maintain or grow production volumes.
That is, they must complete new wells in order replace the natural declines
from existing wells. There are two critical points associated with these steep
decline curves that pundits like Gartman don't appear to grasp. The first is
that based on current data, the four key liquids rich shale plays have declined
by over 600,000 bopd since their peak of production in March, 2015. This production
is gone. These wells have depleted. They can't be turned back on. The only way
to increase production again is new completions and new wells – in other words
massive new reinvestment. This is very different from past cycles when OPEC
dialed back production by idling a major field or two until demand rebounded.
These OPEC giant and super giant fields are a totally different animal. It's
all about the infrastructure, not the productivity of a single well. The entire
complex can be shut down, reworked, maintenance performed, etc. then turned
back on…more akin to a refinery than typical single or multiple well fields.
But that's another story. Bottom line – that 600,000 bopd is not magically coming
back. It took the onshore industry something like 12 months running flat out
to add those volumes. Given oil prices, it will be quite a while and it will
take higher prices before the industry even gets back to a steady walk, much
less a flat run.
Another key thing to understand about decline curves is that they are continuous
and right now declines are accelerating. However for example purposes, let's
look at the Eagle Ford. There are some 10,000 wells in the Eagle Ford producing
today, and they are all in decline. The EIA estimates the average Eagle Ford
well adds 800 bopd in its first month of production. Last month, Eagle Ford
production is estimated to have declined by 60,000 bopd. That implies that 75
new wells per month must be drilled and completed to just replace this 60,000
bopd. Assuming it takes 15 days to drill a well, that implies around 38 rigs
drilling and around 25 frac fleets running above what is running today! Today,
there are 42 rigs drilling for oil and we estimate 10 – 15 frac fleets running
in the Eagle Ford…so just to replace production, the industry would have to
increase rigs running by nearly 100 percent and frac fleets by 150 – 200 percent.
This would require a massive mobilization of capital and manpower. During this
whole mobilization process, production from existing wells is declining, month
after month. Don't get me wrong, I believe this will happen. However, I know
this won't happen quickly and won't happen at $40/bbl oil, making Gartman's
thesis and pricing argument completely false.
Production data, or lack thereof, is a primary hindrance to clear and transparent
oil fundamentals. The mechanics of the above discussion would be more obvious
if we could measure field production in real time. In fact, production data
in Texas takes some three months to even estimate, and these estimates are often
revised. The same goes for well completion data. The EIA tries to model this
through its "Drilling Productivity Report". However, there are no similar efforts
for the rest of the global oil industry, in fact, OPEC publications use third
party reporting not internal or "real" data from the companies themselves.
In Saudi Arabia, production statistics are a state secret. Not surprisingly,
many countries distort the data to suit their own needs. That's why the IEAs
look at G7 storage data is an important industry statistic. It is widely recognized
that both global demand and supply data is inaccurate, but changes in storage
inventories should reflect supply and demand changes. The only problem with
this approach is they only get data for around 2/3 of the global storage capacity.
This is what led to the recent headlines "800,000 bopd of oil is missing". Supply
estimates exceeded demand estimates by 800,000 bopd during the quarter, yet
storage didn't build, leaving the question of where did the oil go? The answer
is that there never was this extra oil…if it existed, it was burned. More than
likely, both supply and demand estimates were off by that amount.
Third parties like "Drilling Info", BTU Analytics, CERA, etc. provide
their looks at the market for very high prices, and as such are much more granular
than those from government data providers. As much as they try, they are still
limited by the availability of international data and reporting time lags domestically,
not to mention their own biases.
Generally it takes 18 months before the world has a decent picture of supply
and demand. This is little consolation to those trying to do real time analysis
on the direction of prices. That is why I can say categorically "the fix is
in". In other words, fields are declining, meaning investment is far below levels
required just to replace production. The only thing that will change the vector
of these declines is more spending, lots more spending, and the only thing will
spur lots more spending is higher prices. Significantly higher than $40/bbl.
In conclusion, we have a typical commodity price cycle. Prices have dropped
to levels destroying capital, bankrupting businesses, idling massive amounts
of equipment and manpower. The cycle is reversing now. The weekly EIA numbers
are showing steady declines in production (this is a balancing item – not real
production estimates) and also increasing demand – In the United States. The
IEA is showing the same thing in their monthly report that has a decent look
at the G7 countries and attempts to look at the G20. Between these two, there
is a large world with little accurate measurement. China for instance jailed
a Platts reporter for espionage when he tried to put together a fundamental
energy statistics database.
Inevitably, we will have another price shock – or at minimum an upside
surprise. It's unavoidable at this point. Oil never transitions smoothly. Just
like all the oil bulls had to be run out during the declining price stage, all
the price bears, like Dennis Gartman, will be run out when fundamentals hit
them over the head. Gartman, to his credit, will change his tune 180 degrees
when he sees the actual data shaping up. That's how he has survived so long
and profitably as a trader.
But by then it will be too late, the world will want incremental supplies
immediately – yet the industry cannot scale in real time. In order to motivate
producers to get busy and provide incremental supplies, prices must increase
sharply from current levels. My prediction - $80/bbl in 18 months, but it
won't last very long. I think $60 - $70/bbl is a healthy range.
"... In the US, all producers are feeling pain to varying degrees at Q1 prices, less so but still pain at current prices. ..."
"... For some reason investors are very accepting of US oil and gas losses, and only seem to get worried when there are signs that bank lines will be slashed below present balances and/or interest cannot be paid. ..."
"... It is not surprising that oil producers, both in and outside the U.S., "are feeling pain to varying degrees" at the bottom of the cycle. But most of conventional producers have much more affordable debt levels than the shale guys. ..."
"... Very true. And this is a big, I would say, decisive difference. ..."
"Money" suddenly stopped working and that is what market will realize. It is no coincidence
that same thing is happening at the same time to oil, gas, nuclear (it was article about that
on 35 billion Hinckley plant) or Tesla. We are running on fumes
In many "old" industries, "money" is still working. Companies are sticking to prudent financial
policies. BTW, this refers to most conventional oil producers.
Conventional is only losing less than shale per barrel. If they don't replace reserves as even
the most majors didn't last year than that it is just race to the bottom.
In the US, all producers are feeling pain to varying degrees at Q1 prices, less so
but still pain at current prices.
There are a lot of US industries that are showing good earnings. These are across a wide variety
of industries. Also, many of the smaller banks are also showing good results. I do not own large
banks, but have shares in some smaller regional banks, all posted record earnings.
For some reason investors are very accepting of US oil and gas losses, and only seem to
get worried when there are signs that bank lines will be slashed below present balances and/or
interest cannot be paid.
It is not surprising that oil producers, both in and outside the U.S., "are feeling pain
to varying degrees" at the bottom of the cycle.
But most of conventional producers have much more affordable debt levels than the shale guys.
"... that ND general stats show 13012 wells producing in Feb 2016 and 13212 in Oct 2016 (this is net i.e. wells added minus wells shut in), and 5) that taken together these do not indicate that there is any potential for a large production increase in the near or far future. ..."
"... I think we will have to see what happens when oil prices rise to $75/b or so, my expectation is that there will be at least 15,000 more wells completed in the Bakken/Three Forks in the next 10 years or so if oil prices rise to $75/b and remain at that level or higher. ..."
"... I expect ND Bakken/Three Forks output will increase gradually to maybe 1.22 Mb/d (only 60 kb/d above the previous peak) by about 2022 and then will gradually decline. This is under a scenario where the completion rate increases to 155 new wells per month and then gradually declines along with output. Total ERR of about 8.4 Gb and 27k total Bakken/Three Forks wells completed. The scenario requires high oil prices ($155/b in 2015$) by 2020, lower oil prices will mean less output. ..."
"... They know where it is because they searched heavily up to 2012. They didn't stop searching because of the price, or because they had so much acreage they didn't need any more. They stopped because they were hitting dry holes and ran out of places to look. That definitely does mean lack of success at the periphery. ..."
Dennis, I didn't look at well productivity, which is what you seem to be discussing. My points
were:
1) that there is no exploration drilling being conducted at present and that it declined quickly
after 2012 when prices were high, implying that there aren't any areas left worth looking at,
2) that 5 counties had high exploration success and these are the ones now responsible for
almost all production (and actually all in decline) and that the development in each county quickly
followed the exploration, suggesting core areas are key for overall production rates,
3) that other counties have been explored without success and are likely to be unproductive,
4) that ND general stats show 13012 wells producing in Feb 2016 and 13212 in Oct 2016 (this
is net i.e. wells added minus wells shut in), and 5) that taken together these do not indicate
that there is any potential for a large production increase in the near or far future.
If you think productivity increase is going to compensate for overall depletion and lack of
new exploration success then I think you are wrong.
They know where the oil is, there is not much need for exploration. I do not expect well productivity
to continue to increase, the chart was intended to show that there has been no productivity decrease
so far. I agree that at some point the sweet spots will be fully drilled and drilling will need
to move to less productive areas.
When that point is reached we will see new well productivity decrease.
Older low output wells from the non-Bakken formations have been shut in at faster rates due
to low prices, though some may be reactivated as oil prices rise. The NDIC seems to think there
are another 30,000 potential well locations, perhaps they are mistaken, the USGS also thinks there
are that many potential well sites and they could also be wrong.
I think we will have to see what happens when oil prices rise to $75/b or so, my expectation
is that there will be at least 15,000 more wells completed in the Bakken/Three Forks in the next
10 years or so if oil prices rise to $75/b and remain at that level or higher.
I also agree there won't be a large production increase (though we have not defined large).
I expect ND Bakken/Three Forks output will increase gradually to maybe 1.22 Mb/d (only
60 kb/d above the previous peak) by about 2022 and then will gradually decline. This is under
a scenario where the completion rate increases to 155 new wells per month and then gradually declines
along with output. Total ERR of about 8.4 Gb and 27k total Bakken/Three Forks wells completed.
The scenario requires high oil prices ($155/b in 2015$) by 2020, lower oil prices will mean less
output.
Exploration drilling in shale plays is important only in early stages of development. The
geology of the Bakken, Eagle Ford and the Permian is already very well known, and there is
no need for additional exploration. The fact that activity is currently concentrated in the
sweet spots does not mean lack of exploration success in the periphery. Resources are there,
but they are too costly to produce at current oil prices.
They know where it is because they searched heavily up to 2012. They didn't stop searching
because of the price, or because they had so much acreage they didn't need any more. They stopped
because they were hitting dry holes and ran out of places to look. That definitely does mean
lack of success at the periphery.
Chesapeake announced yesterday that it would sell around 42,000 acres in the Stack field in Oklahoma,
which currently produces around 3,800 barrels of oil equivalent per day.
The assets will go to
Newfield Exploration Co. for an estimated price of
$470 million.
Furthermore, due to low oil and gas prices, the company will seek to sell additional assets that
will bring between $500 million and $1 billion in its coffers by the end of the year.
"... It is very easy to destroy an industry. And neoliberals proved to be pretty adept in this task while fattening their valets. In this case the USA oil industry. Generally destruction is a much easier task that building/rebuilding something. Nothing new here, move on. ..."
"... "After me deluge" mentality might eventually lead to some neoliberals hanging from the lamp posts. They consider themselves to be aristocracy, so that will be pretty fitting. ..."
"... "Let them eat cakes" did not work too well in the past. Same with oil shortages. "History Does Not Repeat Itself, But It Rhymes" - Mark Twain. ..."
Judging from price action today there are efforts to kill oil rally. I think if banks profits
from oil trading can drop like a stone, we collectively will be better off. They desperately try
to preserve the unnatural and ultimately destructive level of rent extraction from the oil industry
they've managed to create.
First: Tesla is going to sell so many electric cars so soon, based on their CC from yesterday.
Second: Continental Resources announced a wonderful quarter, and apparently $30 oil and $1.75
natural gas is no big deal.
I need to stop reading conference call transcripts. Never have I seen so much happy talk from
two companies who are in debt up to their eyeballs and posting losses quarter after quarter.
Don't be so silly. Oil price below the cost of production is an anomaly and normalization is inevitable
despite all efforts by Wall Street, the US government and EU to slow down this process to preserve
neoliberal globalization, which is threatened by high oil prices.
They might have a year to run of fumes, but I doubt that more then that. And as a result of
their valiant efforts the normalization might happen at the level above $80/bbl. Then what?
It is very easy to destroy an industry. And neoliberals proved to be pretty adept in this
task while fattening their valets. In this case the USA oil industry. Generally destruction is
a much easier task that building/rebuilding something. Nothing new here, move on.
"After me deluge" mentality might eventually lead to some neoliberals hanging from the
lamp posts. They consider themselves to be aristocracy, so that will be pretty fitting.
"Let them eat cakes" did not work too well in the past. Same with oil shortages. "History
Does Not Repeat Itself, But It Rhymes" - Mark Twain.
Massive debt is now like the sword of Damocles hanging over the whole shale industry. And that
created qualitatively new situation with reaction of the industry on rising oil prices delayed
and more muted then at times of "carpet drilling". Even money to complete DUCs are now a scarce
commodity. Everything goes to debt repayment. In addition many companies will be forced to sell
assets like Chesapeake:
Prices have dropped to levels destroying capital, bankrupting businesses, idling massive
amounts of equipment and manpower. The cycle is reversing now. The weekly EIA numbers are showing
steady declines in production (this is a balancing item – not real production estimates) and
also increasing demand – In the United States.
The IEA is showing the same thing in their monthly report that has a decent look at the
G7 countries and attempts to look at the G20. Between these two, there is a large world with
little accurate measurement. China for instance jailed a Platts reporter for espionage when
he tried to put together a fundamental energy statistics database.
Inevitably, we will have another price shock – or at minimum an upside surprise. It's
unavoidable at this point.
Oil never transitions smoothly. Just like all the oil bulls had to be run out during the
declining price stage, all the price bears, like Dennis Gartman, will be run out when fundamentals
hit them over the head. Gartman, to his credit, will change his tune 180 degrees when he sees
the actual data shaping up. That's how he has survived so long and profitably as a trader.
But by then it will be too late, the world will want incremental supplies immediately
– yet the industry cannot scale in real time. In order to motivate producers to get busy and
provide incremental supplies, prices must increase sharply from current levels.
My prediction – $80/bbl in 18 months, but it won't last very long. I think $60 – $70/bbl
is a healthy range.
"... Suncor said evacuees were welcome at its Firebag oil sands facility, while Canadian Natural Resources Ltd (CNQ.TO) said it was working to ensure any affected CNRL workers and their families could use its camps. ..."
"... Shell Canada (RDSa.L) also said it would open its oil sands camp to evacuees and was looking to use its airstrip to fly out non-essential staff and accommodate displaced residents. ..."
"... Most oil sands facilities are to the north and east of the city. Representatives of Syncrude, CNOOC (0883.HK) subsidiary Nexen Energy and pipeline company Enbridge all said their operations were unaffected. ..."
Alberta is racing to evacuate thousands of people as an uncontrolled wildfire burns near Fort McMurray,
in the heart of Canada's oil sands region, forcing residents to flee north to safety on Tuesday.
Alberta appealed for help from other provinces and Ottawa to help fight the fire and airlift people
from the city. Authorities issued a mandatory evacuation order for all of Fort McMurray, which affects
the city's 80,000 residents.
The 2,650-hectare (6,540-acre) fire, which was discovered on May 1, shifted aggressively with
the wind on Tuesday afternoon to breach city limits. The blaze closed off the main southern exit
from the city, prompting residents to head north towards the oil sands camps
... ... ...
Suncor Energy (SU.TO), whose oil sands operations are closest to the city, said its main
plant, 25 km (16 miles) north of Fort McMurray, was safe, but it was reducing crude production in
the region to allow employees and families to get to safety.
Suncor said evacuees were welcome at its Firebag oil sands facility, while Canadian Natural
Resources Ltd (CNQ.TO) said it was working to ensure any affected CNRL workers and their families
could use its camps.
Shell Canada (RDSa.L) also said it would open its oil sands camp to evacuees and was looking to
use its airstrip to fly out non-essential staff and accommodate displaced residents.
... ... ...
Suncor said evacuees were welcome at its Firebag oil sands facility, while Canadian
Natural Resources Ltd (CNQ.TO) said it was working to ensure any affected CNRL workers and their
families could use its camps.
Shell Canada (RDSa.L) also said it would open its oil sands camp to evacuees and was looking
to use its airstrip to fly out non-essential staff and accommodate displaced residents.
... ... ...
Most oil sands facilities are to the north and east of the city. Representatives of
Syncrude, CNOOC (0883.HK) subsidiary Nexen Energy and pipeline company Enbridge all said their
operations were unaffected.
The fire is the second major one in the oil sands region in less than a year. Last May, wildfires
led to the evacuation of hundreds of workers from the region, and a 9 percent cut in Alberta's
oil sands output.
"... "Mr Sechin warned last week that the current shale boom could be another "dotcom bubble" about to burst after drillers, loaded up on risky debt, and hedge funds piled in to make a quick buck over the last five years." Seems like he was prescient in that observation as well. ..."
"... The elephant in the room is the cost of production which for most countries including the USA and Canada is far higher then the current prices. That means that the wave of bankruptcies and drop in the USA production will continue unabated. The total loss might be above 1 Mb/d for the 2016. Canada also lost some production (currently 0.5 Mb/d due to fires) and needs about $80 for tar sand production to be profitable. Chances that oil price will reach this level in 2016 are slim, so the future of Canadian tar sand oil production is grim. ..."
"... Several oil producing countries are on the verge of bankruptcy (Nigeria, Venezuela, Iraq). Saudi are losing around 100 billion a year in currency reserves while still playing a role of Trojan horse of the West in oil markets. ..."
"... This situation is unsustainable and speculator/HFT driven suppression of oil prices at some point might break and will be replaced by a new price boom. It in highly probable that the price of oil will reach, at least temporary, the level of $55 this year. ..."
"... But oil is a strategic product and high oil prices mean stagnation of Western economies. The key problem is that high oil prices threaten neoliberalism as a social system and derail neoliberal globalization. So they will be fought tooth and nail by the US and the EU elites. That's why agreement to freeze oil production by OPEN was derailed. Another victory of western diplomacy. ..."
Perhaps Igor Sechin is right (Sechin is head of the Russian energy company Rosneft and a close
ally of Putin). In a Telegraph article on 2/2/15, discussing Sechin and the remarks he made at
an oil consortium, the author comments that, "However, the real "haymaker" punch he ( meaning
Sechin ) aimed at the global energy system came with the accusation that oil futures markets
in London and New York, which set the price of the world's most vital energy commodity, are essentially
being rigged by a feral cabal of speculators and traders." That would explain the obvious disconnect
discussed by the author here concerning the red herrings put out by the oil sector. Interesting
as well, in the article mentioned above the author also notes, "Mr Sechin warned last week
that the current shale boom could be another "dotcom bubble" about to burst after drillers, loaded
up on risky debt, and hedge funds piled in to make a quick buck over the last five years." Seems
like he was prescient in that observation as well.
The elephant in the room is the cost of production which for most countries including the
USA and Canada is far higher then the current prices. That means that the wave of bankruptcies
and drop in the USA production will continue unabated. The total loss might be above 1 Mb/d for
the 2016. Canada also lost some production (currently 0.5 Mb/d due to fires) and needs about $80
for tar sand production to be profitable. Chances that oil price will reach this level in 2016
are slim, so the future of Canadian tar sand oil production is grim.
Several oil producing countries are on the verge of bankruptcy (Nigeria, Venezuela, Iraq).
Saudi are losing around 100 billion a year in currency reserves while still playing a role of
Trojan horse of the West in oil markets.
This situation is unsustainable and speculator/HFT driven suppression of oil prices at
some point might break and will be replaced by a new price boom. It in highly probable that the
price of oil will reach, at least temporary, the level of $55 this year.
But oil is a strategic product and high oil prices mean stagnation of Western economies.
The key problem is that high oil prices threaten neoliberalism as a social system and derail neoliberal
globalization. So they will be fought tooth and nail by the US and the EU elites. That's why agreement
to freeze oil production by OPEN was derailed. Another victory of western diplomacy.
Arthur Berman was a very keen observer of shale bubble in the USA until recently. Then something
changed.
"... Iraq: Production at an oilfield near Kirkuk, in northern Iraq, has been stopped after unidentified gunmen set at least two wells on fire on Tuesday night. ..."
"... US: An official update will be released next week, but Director of Mineral Resources Lynn Helms told an oil industry group in Williston he expects to see a "severe" production drop. ..."
"... IPD's prediction comes on the heels of its quarterly sector survey, which estimated Venezuela's oil output tumbled 6.8 percent to 2.59 million bpd in the first quarter compared with the same period of 2015, due to drilling delays, insufficient maintenance, theft, and diluent shortfalls. ..."
"... …Morgan Stanley's Benny Wong … estimates that the total number of offline capacity will be anywhere between 400 and 500 mbbl/d, with the shut-in expected to last about 10 days, potentially reducing total market output by as much as 5 million barrels. ..."
"... Americans are driving more than ever before. Vehicle miles traveled (VMT) reached an all-time high of 3.15 trillion miles in February 2016 Figure 2). VMT have increased 97 billion miles per month (3 percent) since the beginning of 2015 and gasoline sales have increased 187 kbpd (2 percent). The rates of increase are not proportional. ..."
Canada: Taken together this amounts to some 0.5 million [barrels a day] of capacity that is
currently offline. Infrastructure is being affected too, with the 560,000 b/d Corridor pipeline
shut down and movement along the 140,000 b/d Polaris pipeline significantly curtailed.
Lybia: An official at the port told the news agency that tanks at Hariga were 7-10 days away
from hitting their full capacity. This means, Reuters reported, that with no tankers loading oil
at the port, Libya will be forced to shut in about 120,000 bpd of output, which is the export
capacity of the port.
Iraq: Production at an oilfield near Kirkuk, in northern Iraq, has been stopped after unidentified
gunmen set at least two wells on fire on Tuesday night.
US: An official update will be released next week, but Director of Mineral Resources Lynn Helms
told an oil industry group in Williston he expects to see a "severe" production drop.
And all of that is worth a $1.17 of increase on WTI/Brent in the last 24h!!! Really? :-)
Venezuela's oil output may fall to average some 2.35 million barrels-per-day this year, as
the South American OPEC country's cash crunch and shortages weigh on production, according to
energy consulting firm IPD Latin America.
IPD's prediction comes on the heels of its quarterly sector survey, which estimated Venezuela's
oil output tumbled 6.8 percent to 2.59 million bpd in the first quarter compared with the same
period of 2015, due to drilling delays, insufficient maintenance, theft, and diluent shortfalls.
That estimate is a whisker above the 2.53 million bpd Venezuela produced in the first quarter,
according to OPEC numbers. But it marks the first time since the third quarter of 2008 that production
fell in all districts, including the extra-heavy crude Orinoco Belt, IPD added.
"…Analysts noted that Shell shut its Albian Sands mine and Suncor shut its base plant, while
producers Syncrude Canada and Connacher Oil & also reduced output in the region."Taken together
this amounts to some 0.5 million b/d of capacity that is currently offline. Infrastructure
is being affected too, with the 560,000 b/d Corridor pipeline shut down and movement along
the 140,000 b/d Polaris pipeline significantly curtailed. On top of that, trains are not operating
near Fort McMurray, according to the Canadian National Railway," said the analysts.
…Morgan Stanley's Benny Wong … estimates that the total number of offline capacity will
be anywhere between 400 and 500 mbbl/d, with the shut-in expected to last about 10 days, potentially
reducing total market output by as much as 5 million barrels.
Americans are driving more than ever before. Vehicle miles traveled (VMT) reached an all-time
high of 3.15 trillion miles in February 2016 Figure 2). VMT have increased 97 billion miles
per month (3 percent) since the beginning of 2015 and gasoline sales have increased 187 kbpd
(2 percent). The rates of increase are not proportional.
…From April 2015 to March 2016, oil production decreased 660 kbpd (-7 percent) but net crude
oil imports increased 800 kbpd (+10 percent) (Figure 5).
JP Morgan reported that its non-performing loans jumped by 665 percent in the first quarter
from $0.2 to $1.7 billion with most of the bad loans coming from the oil and gas industry. Loans
considered to be a problem are now at $21.2 billion
The surplus in early 2016 was closer to about 500,000 b/d, he says, and should continue to
fall. "The oversupply in the market is grossly overstated," King says.
A lag in output data is partly due to the high estimates, King says, and surpluses are likely to
be much lower in the coming months as surplus numbers begin to catch up with the real decreases
in supplies. "People are still suggesting it's one million or two million barrels per day-it's
nothing even close to that."
FirstEnergy sees prices for West Texas Intermediate averaging $55 for 2017, then rising to
$66.25 over 2018 and $74 in 2019, according to its quarterly market update. "In 2017 you'll start
to see things look a little bit better," King said. "The market in our view is reaching a
balanced position. Inventories are starting to roll over, demand is doing great and supplies are
coming off-the three basics you need for better pricing."
Some analysts have suggested the gradual rise in WTI prices could trigger a simultaneous rise in
U.S. shale oil production, which would ultimately offset any gains in prices. King said this
scenario was unlikely, as many producers have already locked in their 2016 spending programs, and
capital markets remain tight and the high-yield debt market continues to sputter.
"... Capital spending in the industry has fallen from around $35.7 billion in 2014 to $25 billion in 2015. The report says the only reason capital spending has remained as high as it has is because companies are focused on completing late-stage mining projects. It expects capital spending to drop off even further after 2018 once those projects are completed, with a forecast for 2010 of $17.9 billion. That's a decline of more than 50 per cent. ..."
PetroLMI, a division of Calgary-based Enform, projects the industry will lose between 16,530
and 24,425 jobs in 2016 alone due to the economic slowdown. That's on top of the 28,145 jobs, or
12 per cent, the firm says the industry lost in 2015.
... ... ...
The report blames the drop in capital spending in the industry, which it says is due to the
low oil price environment, for the decline in jobs. Capital spending in the industry has
fallen from around $35.7 billion in 2014 to $25 billion in 2015. The report says the only reason
capital spending has remained as high as it has is because companies are focused on completing
late-stage mining projects. It expects capital spending to drop off even further after 2018 once
those projects are completed, with a forecast for 2010 of $17.9 billion. That's a decline of more
than 50 per cent.
"... 72% of petroleum used is for transportation. 63% of that is light duty
vehicles. So of 90mbod, 40 million barrels are subject to potential substitution
by electric vehicles. The adoption curve need only stay ahead of the decline curve.
..."
"... As an ex Mack Trucks sales person. I always considered SUVs and pickups
as light duty. I agree they will be electrified but it's going to take a little
longer than passenger vehicles. Right now hybrids are much more feasible because
of the more extreme workload they preform. Towing a 10k trailer a couple of hundred
of miles is going to take a lot of juice. ..."
"... America already runs hybrid buses if you consider that electric. To get
were the world needs to be, we're going to need a lot of f'n batteries. Once the
world solves the battery issue, there is not much reason class 8's can't be electrified
starting with local delivery trucks. ..."
Differences of opinion are what make discussion interesting.
72% of petroleum used is for transportation. 63% of that is light
duty vehicles. So of 90mbod, 40 million barrels are subject to potential
substitution by electric vehicles. The adoption curve need only stay ahead
of the decline curve.
Why worry about Caterpillars first when transportation is the biggest
slice of the petroleum pie, and the most readily subject to supercession
by other energy sources?
Transition may be improbable, but that's different than impossible.
Assuming that an ICE is 20% as efficient as an EV, which seems reasonable
as one barrel of oil is energy equivalent to 1628.2kWh, and will produce
19 gallons of gasoline, and 12 gallons of diesel. Assuming 30 mpg economy
for each, the barrel of oil provides 930 miles of travel, while 1628.2 kWh
at 3mpkWh will provide 4,884 miles of travel.
So if the light duty transport fleet was replaced 100% with electric
vehicles, 40.8 mbo/day would require 13.3 TWh of electric power substitution.
We have increased global annual renewable power production by 3,250 TWh's
in the last decade, so to increase renewable power production by 2030 to
produce 13TWh/day to offset 40.8 MBO/day used in the transportation sector
would require that we accomplish in the next fifteen years what we have
accomplished in the last ten (+3,250TWhp/decade).
As for the vehicles, all we must do is replace 100% of the light duty
fleet with EV's in that same 15 years. Easy as pie, right? :-)
As an ex Mack Trucks sales person. I always considered SUVs and pickups
as light duty. I agree they will be electrified but it's going to take a
little longer than passenger vehicles. Right now hybrids are much more feasible
because of the more extreme workload they preform. Towing a 10k trailer
a couple of hundred of miles is going to take a lot of juice.
America already runs hybrid buses if you consider that electric.
To get were the world needs to be, we're going to need a lot of f'n batteries.
Once the world solves the battery issue, there is not much reason class
8's can't be electrified starting with local delivery trucks.
"... "I think we'll see more filings in the second quarter than in the first quarter," ..."
"... U.S. oil and gas companies sold about $350.7 billion in debt between 2010 and 2014, the peak years of the oil-and-gas boom, with junk bonds making up more than 50 percent of all issuance, according to Thomson Reuters data. ..."
LTO companies debt and energy junk bonds problem can't be swiped under the carpet. It is just
too big for that. We are talking about around 350 billion of debt with half on them in junk bonds.
That's probably half of the gain of the US economy from oil prices crash (and, of course, not
all this debt will convert into direct losses; recovery in the range of 20% is still possible).
What form the day of reckoning will take is very difficult to predict. Much depends on debt
repayment schedule and bond maturity dates. But this level of debt completely undermines chances
of quick revival of LTO production in case oil prices jump up, as new capital to finance drilling
will not be here. So any talk about quick revival of the US LTO production as a reaction on higher
oil prices does not take into account the fact that that it will be very difficult to finance
new mass drilling this time. And drilling 1000 wells is around 6 billion. 1500 - 9 billions.
The number of U.S. energy bankruptcies is closing in on the staggering 68 filings seen during
the depths of the telecom bust of 2002 and 2003, according to Reuters data, the law firm Haynes
& Boone and bankruptcydata.com. Charles Gibbs, a restructuring partner at Akin Gump in Texas,
said the U.S. oil industry is not even halfway through its wave of bankruptcies. "I think
we'll see more filings in the second quarter than in the first quarter," he said. Fifteen
oil and gas companies filed for bankruptcy in the first quarter.
… … …
Until recently, banks had been willing to offer leeway to borrowers in the shale sector, but
lately some lenders have tightened their purse strings. A widely predicted wave of mergers
in the shale space has yet to materialize as oil price volatility makes valuations difficult,
and buyers balk at taking on debt loads until target companies exit bankruptcy.
… … …
In the debt market, there are also signs that lots of money could be lost this time around,
especially in high-yield bonds. During its boom, U.S. oil and gas companies issued twice as
much in bonds as telecom companies did in the latter part of the 1990s through the early 2000s.
Between 1998 and 2002, about $177.1 billion in new bonds were sold in the U.S. telecommunications
sector; less than 10 percent were junk bonds. U.S. oil and gas companies sold about $350.7
billion in debt between 2010 and 2014, the peak years of the oil-and-gas boom, with junk bonds
making up more than 50 percent of all issuance, according to Thomson Reuters data.
"... As a warning to investors, EIA (Energy Information Administration) and IEA (International Energy Agency) data is reliable; however, their judgments are politically motivated. ..."
"... Also, there is no "glut" of oil. The market need is to power a 365-day food cycle. The reported "glut" is a storage problem of having 33.8 Days of Supply, 10 days more than the 24 Days of Supply typical for the past decade. ..."
As a warning to investors, EIA (Energy Information Administration) and IEA (International
Energy Agency) data is reliable; however, their judgments are politically motivated. Here is
a graph by the Dallas Federal Reserve on how, year after year, EIA forecasts repeatedly estimated
oil prices would drop as the 2008 economic collapse approached.
...As with failing to warn of higher oil costs in the ramp to the 2008 economic collapse, the
EIA is failing to warn the nation of the economic consequences of Peak Fracking. This provides investors
a knowledge gap.
... ... ...
To better understand oil geology and economics here are two links:
The mega-trends will force oil prices higher much faster than most believe.
Also, there is no "glut" of oil. The market need is to power a 365-day food cycle. The reported
"glut" is a storage problem of having 33.8 Days of Supply, 10 days more than the 24 Days of Supply
typical for the past decade. Economic fragility is created by not having 365 Days of Supply to meet
the needs of a 365-day food cycle; Examples: 1973 Oil Embargo, 1979 Iranian Revolution. Having 33.8
Days of Supply is only a 9% safety factor on a survival need. Take away the 18 Days of Supply required
to fill pipelines and there is a 4% safety margin on a non-elastic survival need. Fragility is extreme.
"... a true crisis is looming-and for the moment, there is no apparent way around it. ..."
"... Wood Mac's exploration research vice-president told Offshore magazine that "In the last four years the industry has seen disappointing - largely gas prone - exploration results, with the volume of liquids discovered annually falling from around 19 billion barrels between 2008 and 2011 to 8 billion barrels between 2012 and 2015." ..."
A
report by Wood Mackenzie has warned the world may face a daily oil shortage of 4.5 million barrels
by 2035. The amount represents around half of the global consumption
estimate of the International Energy Agency (IEA)
for 2016. In other words, a true crisis is looming-and for the moment, there is no apparent way around
it.
The most obvious reason is that energy companies don't want to spend money on exploration when
prices are so disappointingly low. Many of them simply can't afford to spend on exploration if they
want to survive in today's price environment. Ironically, their long-term survival can only be guaranteed
by further exploration spending.
A lot of costly projects have been shelved since the summer of 2014 when oil prices started falling,
with the initial investments basically written off. Reviving these projects will cost more money.
Where this money will come from is unclear-there is no certainty where oil prices are going in the
near term, let alone any longer period, and the European Commission today forecasted $41/barrel oil
for the rest of this year and just over $45 for 2017.
... ... ...
The third part of the problem is reserves replacement. New exploration is not just a form of art
for art's sake, or a means of expansion to boost bottom lines. It's an essential part of the operations
of an oil business. Oil is finite, and in order to stay profitable, an oil company needs to maintain
a consistent rate of reserves replacement.
And here's more bad news: Last year, the seven biggest oil companies in the West
only replaced 75 percent of their reserves. This is seriously bad news, especially combined with
the fact that many new discoveries made in the last four years have disappointed.
Wood Mac's exploration research vice-president told Offshore magazine that "In the last four years
the industry has seen disappointing - largely gas prone - exploration results, with the volume of
liquids discovered annually falling from around 19 billion barrels between 2008 and 2011 to 8 billion
barrels between 2012 and 2015."
"... Oklahoma-based Midstates Petroleum Company and Texas based Ultra Petroleum have now filed for bankruptcy, citing combined debts of more than US$5.8 billion blamed on a long run of low commodity prices that have led to irreparable financial damage ..."
"... According to a recent Deloitte analysis , which examined 500 oil and natural gas exploration and production companies worldwide, 175 of the companies (or around 35 percent) were at high risk of going bankrupt. Together, these companies have more than $150 billion in debt. The report added that the situation is "precarious" for 50 of these companies due to negative equity or leverage ratio above 100. ..."
Two more oil companies have filed for Chapter 11 bankruptcy protection, as crude oil prices
hover just above $45 per barrel and financial woes take their toll.
Oklahoma-based Midstates Petroleum Company and Texas based Ultra Petroleum have now filed for
bankruptcy, citing combined debts of more than US$5.8 billion blamed on a long run of low
commodity prices that have led to irreparable financial damage.
... ... ...
Since early last year, some 70 North American oil and gas companies have filed for bankruptcy.
The numbers aren't stark: They only account for about 1 percent of U.S. output, but there are
fears the trend could pick up pace.
According to a recent
Deloitte analysis , which examined 500 oil and natural gas exploration and production companies
worldwide, 175 of the companies (or around 35 percent) were at high risk of going bankrupt. Together,
these companies have more than $150 billion in debt. The report added that the situation is "precarious"
for 50 of these companies due to negative equity or leverage ratio above 100.
"... In a normal economic environment, we will see the price direction is rather upwards than downwards ..."
"... he low price that we saw in crude oil earlier this year may be the last time we see that for over a decade ..."
"... Even as some shale operators say that they may actually bring on rigs after we hit $50 a barrel, the truth is that many of the smaller operators will find it hard to bring rigs back on ..."
"Crude oil ended the month of April with the strongest monthly gain in 7 years, adding 22% to
the price. The low price caused "production destruction" and strong demand put the market on a
trajectory of market balance."
"We have said that oil prices have bottomed and the chief of the International Energy Agency
(IEA) agrees. "In a normal economic environment, we will see the price direction is rather upwards
than downwards," IEA Executive Director Fatih Birol said on Sunday during a G7 meeting of energy
ministers in Japan as reported by Reuters. He took the words right out of my mouth. Barring any
unforeseen economic catastrophes, the global oil market is at the low end of the cycle. We have
said for some time that now is the time to start positioning for a long term bullish move. The
low price that we saw in crude oil earlier this year may be the last time we see that for over
a decade. "
"Even as some shale operators say that they may actually bring on rigs after we hit $50 a barrel,
the truth is that many of the smaller operators will find it hard to bring rigs back on."
"... Mr Jarand Rystad told a forum yesterday that with oil companies cutting back heavily on investments, the crude oversupply will quickly turn into shortage and, in turn, drive prices up. ..."
"... In his keynote speech at the Offshore Marine Forum yesterday, Mr Rystad, managing director of Norwegian-based energy consulting firm Rystad Energy, added that oil could reach US$105 a barrel by 2020. ..."
"... "This is just a classic commodity cycle… not a structural shift," he said, noting that global oil consumption is still robust, while alternatives such as liquefied natural gas will likely have a visible impact on energy demand patterns only decades later. ..."
"... But the bigger worry, he warned, is that the massive investment cutbacks could lead to another period of cost inflation. "It is very dangerous to start to scale the industry," he said, citing how oil companies are adjusting their capacity to only a quarter of what it needs to be on a sustainable basis. ..."
Oil could rebound to US$60 to US$70 a barrel by the end of this year as increasing demand starts
to cut into the supply glut for the first time in years, according to an industry analyst.
Mr Jarand Rystad told a forum yesterday that with oil companies cutting back heavily on investments,
the crude oversupply will quickly turn into shortage and, in turn, drive prices up.
In his keynote speech at the Offshore Marine Forum yesterday, Mr Rystad, managing director of
Norwegian-based energy consulting firm Rystad Energy, added that oil could reach US$105 a barrel
by 2020.
"This is just a classic commodity cycle… not a structural shift," he said, noting that global
oil consumption is still robust, while alternatives such as liquefied natural gas will likely
have a visible impact on energy demand patterns only decades later.
But the bigger worry, he warned, is that the massive investment cutbacks could lead to another
period of cost inflation. "It is very dangerous to start to scale the industry," he said, citing
how oil companies are adjusting their capacity to only a quarter of what it needs to be on a sustainable
basis.
"Oil companies and oil service companies are laying off too many people. If you're starting to
scale, you will end up with far too low a capacity. Then you'll have to hire new people (when
the industry recovers) and then you're back to the problem of cost inflation."
Prince Muhammad Bin Salman, 30, the deputy crown prince of Saudi Arabia laid out his vision
for Saudi Arabia on Monday in a plan called "Vision 2030." He wants to get Saudi Arabia off
its oil dependence in only 4 years, by 2020, and wants to diversify the economy into manufacturing
and mining.
…As long as Saudi Arabia produces so much petroleum, it is unclear how it can industrialize
in the sense of making secondary goods.
…It ran a $100 bn. budget deficit in 2015. Saudi Arabia has big currency reserves, but I
doubt it can go on like this more than five or six years.
…So it seems to me that the Vision for 2030 is mostly smoke and mirrors… Saudi Arabia probably
cannot replace the money it will lose if oil goes out of style and so is doomed to downward
mobility and very possibly significant instability. It has been a great party since the 1940s;
it is going to be a hell of a hangover.
Prince Muhammad
Bin Salman, 30, the deputy crown prince of Saudi Arabia
laid out his vision for Saudi Arabia on Monday
in a plan called
"Vision 2030." He wants to get Saudi Arabia off its oil dependence
in only 4 years, by 2020, and wants to diversify the economy into
manufacturing and mining.
In an interview with Al Arabiya,
the prince said the future of the kingdom would be based on:
1. Its possession of the Muslim shrine cities of Mecca and
Medina and the "Arab and Muslim depth" that position gave the
kingdom
2. The kingdom's geographical centrality to world commerce, with
30 percent of global trade passing through the 3 major sea routes
that Saudi Arabia bestrides (not sure what the third is, after the
Red Sea and the Persian Gulf).
3. The creation of a $2 trillion sovereign wealth fund through a
sale of 5 percent of shares in Aramco, the world's largest oil
company.
Prince Muhammad said Monday that he thought these assets would
allow the kingdom to cease its dependence on petroleum in the very
near future.
"The planned economic diversification also involved localizing
renewable energy and industrial equipment sectors and creating
high-quality tourism attractions. It also plans to make it easier
to apply for visas and hoped to create 90,000 job opportunities in
its mining sector."
Saudi Arabia's citizen population is probably only about 20
million, so it is a small country without a big domestic market. It
is surrounded in the general region by huge countries like Egypt
(pop. 85 million), Iran (pop. 75 million) and Turkey (75 million),
not to mention Ethiopia (pop. 90 million) Without petroleum, it is
difficult to see what would be distinctive about Saudi Arabia
economically.
The excruciatingly young prince, who was born in 1985, has a BA
in Law from a local Saudi university and his way of speaking about
the elements of the economy is not reassuring. Take his emphasis on
the maritime trade routes that flow around the Arabian Peninsula.
How exactly does Saudi Arabia derive a dime from them? The only
tolls I can think of are collected by Egypt for passage through the
Suez Canal. By far the most important container port in the region
is
Jebel Ali
in the UAE, which dwarfs Jedda. His estimate of 30
percent of world trade going through these bodies of water strikes
me as exaggerated. Only about 10 percent of world trade goes
through the Suez Canal.
As for tourism, in a country where alcohol is forbidden and
religious police report to the police unmarried couples on dates,
that seems to me a non-starter outside the religious tourism of
pilgrimage to Mecca. The annual pilgrimage
brought in $16.5 billion or 3 percent
of the Saudi GDP four
years ago, but that number appears to be way down the last couple
of years. Unless the prince plans to highly increase the 2-3
million pilgrims annually, religious tourism will remain a
relatively small part of the economy.
He also spoke about the new bridge planned from Saudi Arabia to
Egypt as likely to drive trade to the kingdom and to make it a
crossroads. But the road would go through the Sinai Peninsula,
which is highly insecure and in the midst of an insurrection. And
where do you drive to on the other side? You could maybe take
fruits and vegetables by truck from Egypt to countries such as
Qatar and the United Arab Emirates. Would Saudi Arabia collect
tariffs on these transit goods? I can't see how that generates all
that much money. The big opportunity for overland transport would
be to link Egypt to a major market like Iran (pop. 77 million), and
via Iran, Pakistan and India. But Prince Muhammad and his circle
are hardliners against Iran and unlikely to foster trade with it.
Saudi Arabia suffers from the Dutch disease, i.e. its currency
is artificially hardened by its valuable petroleum assets. They may
eventually not be worth anything if hydrocarbons are replaced by
green energy or even outlawed. But in 2016, they are still
valuable, and they make the riyal expensive versus other
currencies. The result is that anything made in Saudi Arabia would
be unaffordably expensive in India (the rupee is still a soft
currency). As long as Saudi Arabia produces so much petroleum, it
is unclear how it can industrialize in the sense of making
secondary goods.
As for the sovereign wealth fund, let's say the ARAMCO partial
IPO actually realizes $2 trillion. Let's say it gets 5 percent on
its investments after overhead and that all $2 trillion are
invested around the world. That would be $100 billion a year, or
1/6 of Saudi Arabia's GDP last year. It doesn't replace the oil.
Saudi Arabia's Gross Domestic Product in 2014 was $746 bn., of
which probably 70 percent was petroleum sales. In 2015 it was only
$653 bn., causing it to fall behind Turkey, the Netherlands and
Switzerland. It will be smaller yet in 2016 because of the
continued low oil prices.
All this is not to reckon with the profligate spending in which
the kingdom is engaged, with a direct war in Yemen and a proxy war
in Syria, neither cheap. (Both wars are pet projects of Prince
Muhammad bin Salman). It also has a lot of big weapons purchases in
the pipeline, one of the reasons for President Obama's humiliating
visit last week. It ran a $100 bn. budget deficit in 2015. Saudi
Arabia has big currency reserves, but I doubt it can go on like
this more than five or six years.
Yemen in particular has proved to be a quagmire, and the Houthi
rebels still hold the capital of Sanaa. The only new initiative is
that Saudi and local forces have kicked al-Qaeda in the Arabian
Peninsula out of the port of Mukalla. This campaign shows a sudden
interest in defeating al-Qaeda, which had been allowed to grow in
Yemen while the main target was the Shiite Houthis, which Riyadh
says are allied with Iran (the links seem minor).
So it seems to me that the Vision for 2030 is mostly smoke and
mirrors.... Saudi Arabia probably cannot replace the money it will
lose if oil goes out of style and so is doomed to downward mobility
and very possibly significant instability. It has been a great
party since the 1940s; it is going to be a hell of a hangover.
Based on OPEC figures Saudi had produced 136.5 billion through 2014, so about 142 to date and, assuming
no decline, 160 by the end of 2020. Obviously their reserves are unknown outside a select few, but
news does get out including upgrades on existing fields, some new non-associated gas fields coming
on line, development of shale gas, offshore exploration and some minor discoveries. But never reported
is a major new oil field discovery or development. Pretty much all onshore areas have been fully
explored, only deep sea remains, which appears to have been a disappointment from initial results.
From wiki and other places the URR for their giant fields (Ghawar, Safaniya, Shaybah, Abqaiq,
Berri, Manifa, Abu-Sa'fah, Khurais, Neutral Zone) is 190 billion barrels; if true they could be up
to 75% through, and should be well past peak, but are managing to retain a plateau. I think that
Matt Simmons got things mostly right that there would be a collapse, but missed their ability (technically
and economically with oil at $100 plus) and need to keep pushing the peak out.
So for Ghawar that would involve continuing with multilateral, intelligent wells, re-completions,
possibly tertiary EOR methods, and new drilling up-dip where needed etc. Assume Ghawar is 90% depleted
and its infrastructure suddenly disappeared, there would still be 7 to 10 billion barrels left, probably
still representing one of the more attractive development opportunities around.
For Safaniyah there was a major upgrade project in 2012 with a new platform, wellhead upgrades,
ESPs etc. Manifa is a complicated reservoir bought fully on line a few years ago. All the reservoirs
have the best available models to allow optimum management.
There may be minor declines in their main fields, but not what would be expected given their age
and depletion. They are expanding al Shaybah and Khurais by a total of 550,000 bpd over 4 to 5 years
to 2018, which would compensate for 1 to 1.5% overall decline; to compensate for the rest would have
to come from field management (e.g. using the intelligent wells) and in fill drilling. Between 2005
and 2014 they averaged 434 well completions per year, compared to 280 the previous 10 years, which
is probably connected with this. (Note Kuwait went from 120 in 2000 through 2010 to 560 average since
2010, I'm not sure what that represents).
Eventually they are going to run out of options, the more they push things out the faster the
crash is going to be. The signals seem to be that 2020 might be it.
"... Canada produces 7 million barrels of oil equivalent per day of bitumen, crude oil, natural gas liquids and natural gas, making it the fifth largest hydrocarbon-producing jurisdiction in the world. The country won't be going off the oil and gas business anytime soon, ..."
"... One of the attractions of Canada in recent years is foreign capital was welcome to develop massive, if expensive, oil reserves. Now Iran is said to be open for business. ..."
Canada produces 7 million barrels of oil equivalent per day of bitumen, crude
oil, natural gas liquids and natural gas, making it the fifth largest hydrocarbon-producing
jurisdiction in the world. The country won't be going off the oil and gas business
anytime soon, so keeping it going will remain good business and the largest
resource industry in Canada.
But the current mantra of "lower for longer" is wrong. This is only the price
of oil. In terms of the Canadian oil and gas industry [oil production] there
are multiple reasons it could be "lower for a long time, possibly forever."
For a country that performs all elements of producing still-essential hydrocarbons
as well or better than anyone else in the world – everything from broad economic
participation to worker safety to environmental protection – that is a tragedy.
... One of the attractions of Canada in recent years is foreign capital was
welcome to develop massive, if expensive, oil reserves. Now Iran is said to
be open for business. As is Mexico. Saudi Arabia wants to diversify its economy
away from oil and sell its refining operations to global investors. The Saudis
are talking bravely about an economy no longer dependent upon oil profits as
soon as 2030.
Western Canada is not the only oil-producing jurisdiction wondering about
its future. It is, however, the highest cost oil-producing jurisdiction wondering
about its future.
the fundamentally unsustainable pricing that we've seen for much of 2016, particularly after
the 2nd failed OPEC meeting, has been much more dependent upon speculative short positions in the
market, particularly from algorithmic momentum funds. We could track the speculative short
positions against the price of crude almost exactly as prices dropped below $40 the first time,
with long positions decreasing to their lowest levels in five years as crude dropped under $30 a
barrel.
"... According to Professor Michael Jefferson, who spent nearly 20 years at Shell in various senior roles from head of planning in Europe to director of oil supply and trading, "the five major Middle East oil exporters altered the basis of their definition of 'proved' conventional oil reserves from a 90 percent probability down to a 50 percent probability from 1984. The result has been an apparent (but not real) increase in their 'proved' conventional oil reserves of some 435 billion barrels." ..."
"... Global reserves have been further inflated, he wrote in his study, by adding reserve figures from Venezuelan heavy oil and Canadian tar sands – despite the fact that they are "more difficult and costly to extract" and generally of "poorer quality" than conventional oil. This has brought up global reserve estimates by a further 440 billion barrels. ..."
"... Jefferson's conclusion is stark: "Put bluntly, the standard claim that the world has proved conventional oil reserves of nearly 1.7 trillion barrels is overstated by about 875 billion barrels. Thus, despite the fall in crude oil prices from a new peak in June, 2014, after that of July, 2008, the 'peak oil' issue remains with us." ..."
An extensive new scientific
analysis published in Wiley Interdisciplinary Reviews: Energy & Environment says that proved
conventional oil reserves as detailed in industry sources are likely "overstated" by half.
According to standard sources like the Oil & Gas Journal, BP's Annual Statistical Review of World
Energy, and the US Energy Information Administration, the world contains 1.7 trillion barrels of
proved conventional reserves.
However, according to the new study by Professor Michael Jefferson of the ESCP Europe Business
School, a former chief economist at oil major Royal Dutch/Shell Group, this official figure which
has helped justify massive investments in new exploration and development, is almost double the real
size of world reserves.
Wiley Interdisciplinary Reviews (WIRES) is a series of high-quality peer-reviewed publications
which runs authoritative reviews of the literature across relevant academic disciplines.
According to Professor Michael Jefferson, who spent nearly 20 years at Shell in various senior
roles from head of planning in Europe to director of oil supply and trading, "the five major Middle
East oil exporters altered the basis of their definition of 'proved' conventional oil reserves from
a 90 percent probability down to a 50 percent probability from 1984. The result has been an apparent
(but not real) increase in their 'proved' conventional oil reserves of some 435 billion barrels."
Global reserves have been further inflated, he wrote in his study, by adding reserve figures from
Venezuelan heavy oil and Canadian tar sands – despite the fact that they are "more difficult and
costly to extract" and generally of "poorer quality" than conventional oil. This has brought up global
reserve estimates by a further 440 billion barrels.
Jefferson's conclusion is stark: "Put bluntly, the standard claim that the world has proved conventional
oil reserves of nearly 1.7 trillion barrels is overstated by about 875 billion barrels. Thus, despite
the fall in crude oil prices from a new peak in June, 2014, after that of July, 2008, the 'peak oil'
issue remains with us."
Why Middle East producers do what they do remains a mystery. But
whatever the plan or strategy, the cash cost of finding and
producing the next barrel in this region remains the lowest in the
world. In the past it seemed Middle East oil strategy was about
price with oil sales assured. Now it looks like volume and market
share.
The Middle East may soon be the world's most active market for
drilling rigs. According to the Baker Hughes worldwide rig count,
the only area of the world (Latin America, Europe, Africa, Middle
East, Asia Pacific, U.S., Canada) still operating about the same
number of rigs in 2016 as it was in 2014 is the Middle East. The
only region that has increased its active rig count from 2013 and
2012 and its share of the global active drilling rigs is the Middle
East.
(Click to enlarge)
Source: Baker Hughes Worldwide Rig Count April 22, 2016,
average rigs operating for the period
Why? Because they can, and to sustain output, they must.
Whatever the financial situation may be for the governments in
charge, there is clearly sufficient cash flow from existing
production to fund more drilling. With the Baker Hughes U.S. total
active rig count for April 22 down to 471, the average 403 rigs
drilling in the Middle East in the first three months of 2016 make
it the second-busiest region in the world. Unless prices recover
soon, it could become number one.
Looks like you was right about timing of peak oil. The trend of production down is becoming
more clear with each month. It might be disrupted by some noise (end of Libya civil war, etc),
but still with no new major deposits discovered I do not see factors that can change it.
Higher oil prices might change things and that chart is US only.
IEA expects non-OPEC output to fall 750 kb/d in 2016, some of this may be made up by increases
in Iranian, Iraqi, and Libyan output. On an annual basis 2016 may be pretty close to average annual
output in 2015 for C+C. It will be interesting to see how things play out, I still like the plateau
scenario which I will define as World C+C output remaining between 79 and 81 Mb/d on average for
any 12 month period from now until 2025.
Higher oil prices might change things and that chart is US only.
I understand that the chart is the US only but it is the harbinger of things to come globally.
As for higher oil prices, they need to get into $70-$80 range first where high cost oil projects
including US LTO became profitable to change the current trend. Before that "recovery of oil prices"
does not change much for non conventional oil producers. For some (for example the USA) conventional
oil producers the lower range you provided before might be OK, but most oil producing countries
with national oil companies could not balance budget below $90.
IMHO prices below $70-$80 mean for non conventional producers the continuation of "survival
mode" or "extend and pretend". With the only difference that the dates of renewal of credit lines
coming closer. And that magic range of prices $70-$80 probably will not be reached this year.
So I would say your expectations are too optimistic.
When you cite IEA it make sense to provide some information of their track record of production
forecasting accuracy during previous sharp reversals of oil prices trends. My impression is that
they are way too "linear extrapolation" type of animal.
This conclusion strengthen considerably if we take into account that this is 50% propaganda
agency which needs to support "low oil price forever" regime as a part of their institutional
agenda. In other words this an agency that is serving G7 countries interested in low oil prices.
That creates certain limits on what they can say so it is natural for them to try to downplay
any possible drop in oil production. It would extremely stupid to expect from them any other behavior.
So IMHO you can safely double their estimates in such cases.
Reality is pretty grim now for oil producers and you need to understand that a lot of skeletons
in the closet (including financial skeletons) remain hidden. So actual situation can be much worse
then we assume and another quarter of low prices by which I mean prices below which conventional
oil production in the USA is unprofitable (let's say $55) might be the straw that broke the camel's
back.
So there is a hope that neoliberals lose control over oil prices at some point.
I agree with you about wild cards like Iran and Libya. But the US is ambivalent about allowing
Iran to recover oil production and there are moves directed at confiscation part of their "frozen"
funds without which this is almost impossible with the current prices. But still we can expect
that both of those cards be played to slow down price recovery (and ayatollahs proved to be extremely
stupid, if you ask me; not much different from Wahhabis sheiks. why they did not cooperate with
oil price freeze (for six months; only six months!) is beyond me. But even Iran ayatollahs arrogant
stupidity can't change general trend, which is down.
Iraq can't meaningfully increase production right now as this is an almost bankrupt by civil
war country and chances to restore peace this year are slim. Saudis and friends continue to finance
Sunni insurgency. It was inertia from "good old times" that drove their production up in 2015.
This is over.
Shale card was already played once (and it was played very well) but that's it. Now "carpet
drilling" trick will not be repeated again even if price reach magic level of $80: unlimited financing
of shale drilling is gone for good.
My impression is that there are powerful forces that are not interested in oil price recovery
and do not care about negative long term consequences of waiting so much oil instead of extending
conservation technologies.
Unless those forces (of neoliberalism) are somehow suppressed I doubt that prices can recover
to the level that allow expansion of production. And in oil prices world the tail still wags the
dog: Wall Street still determine oil prices in a sense that it is able vastly amplify the moves
via HFT.
Also oil producers also now are disorganized mob unable to protect their own interests, so
I would not expect meaningful actions from OPEC unless there is a coup d'état in KSA that removes
the young gambler prince who almost halved country currency reserves.
…found in the third group of experiments (see the scenarios for an unequal society in section
5.3), where we introduced economic stratification. Under such conditions, we find that
collapse is difficult to avoid , which helps to explain why economic stratification
is one of the elements consistently found in past collapsed societies. Importantly, in the
first of these unequal society scenarios, 5.3.1, the solution appears to be on a sustainable
path for quite a long time, but even using an optimal depletion rate () and starting with a
very small number of Elites, the Elites eventually consume too much, resulting in a famine
among Commoners that eventually causes the collapse of society. It is important to note that
this Type-L collapse is due to an inequality-induced famine that causes a loss of workers,
rather than a collapse of Nature. Despite appearing initially to be the same as the sustainable
optimal solution obtained in the absence of Elites, economic stratification changes the final
result: Elites' consumption keeps growing until the society collapses . The
Mayan collapse -in which population never recovered even though nature did recover- is an example
of a Type-L collapse, whereas the collapses in the Easter Island and the Fertile Crescent -where
nature was depleted- are examples of a Type-N collapse.
In scenario 5.3.2, with a larger depletion rate, the decline of the Commoners occurs faster,
while the Elites are still thriving, but eventually the Commoners collapse completely, followed
by the Elites. It is important to note that in both of these scenarios, the Elites -due to
their wealth- do not suffer the detrimental effects of the environmental collapse until much
later than the Commoners. This buffer of wealth allows Elites to continue 'business
as usual' despite the impending catastrophe . It is likely that this is an important
mechanism that would help explain how historical collapses were allowed to occur by elites
who appear to be oblivious to the catastrophic trajectory (most clearly apparent in the Roman
and Mayan cases). This buffer effect is further reinforced by the long, apparently sustainable
trajectory prior to the beginning of the collapse. While some members of society might
raise the alarm that the system is moving towards an impending collapse and therefore
advocate structural changes to society in order to avoid it, Elites and their supporters, who
opposed making these changes, could point to the long sustainable trajectory 'so far' in support
of doing nothing."
-------------–
"It is well known that Americans consume far more natural resources and live much less sustainably
than people from any other large country of the world. 'A child born in the United States will
create thirteen times as much ecological damage over the course of his or her lifetime than
a child born in Brazil', reports the Sierra Club's Dave Tilford, adding that the average American
will drain as many resources as 35 natives of India and consume 53 times more goods and services
than someone from China.
Tilford cites a litany of sobering statistics showing just how profligate Americans have
been in using and abusing natural resources. For example, between 1900 and 1989 U.S. population
tripled while its use of raw materials grew by a factor of 17. ' With less than 5 percent
of world population, the U.S. uses one-third of the world's paper, a quarter
of the world's oil, 23 percent of the coal , 27 percent of the aluminum, and 19 percent
of the copper', he reports. 'Our per capita use of energy, metals, minerals, forest products,
fish, grains, meat, and even fresh water dwarfs that of people living in the developing world.'.
He adds that… Americans account for only five percent of the world's population
but create half of the globe's solid waste.
Americans' love of the private automobile constitutes a large part of their poor
ranking . The National Geographic Society's annual Greendex analysis of global consumption
habits finds that Americans are least likely of all people to use public transportation-only
seven percent make use of transit options for daily commuting. Likewise, only one in three
Americans walks or bikes to their destinations… the U.S. remains the per capita consumption
leader for most resources.
Overall, National Geographic's Greendex found that American consumers rank last of 17 countries
surveyed in regard to sustainable behavior. Furthermore, the study found that U.S. consumers
are among the least likely to feel guilty about the impact they have on the environment…" ~
Scientific American
"The American way of life is not up for negotiation." ~ George Bush Sr.
Yes but China is burning that coal to make all of the "stuff" that the US buys so you could argue
that the US is consuming that coal. I may even be greater than 23%.
exactly Jef. this whole globalization is just a buzzword to hide what is really trashing the mother
earth by the global 1%. Pointing fingers who trash more is illusion fed to us so we can chew on
it and be distracted because the real game is played between 1% versus 99% no matter where they
live.
U.S. gasoline consumption, averaged over four weeks, rose 3.9 percent from
a year earlier to 9.39 million barrels a day through April 15, Energy Information
Administration data show. Demand this summer will increase 1.4 percent to a
record, the EIA said April 12. Americans drove 232.2 billion vehicle miles in
February, up 5.6 percent from a year earlier, Transportation Department data
show.
"Gasoline demand is quite strong and that's all price driven," said Thomas
Finlon, director of Energy Analytics Group LLC in Wellington, Florida. "Demand
for gasoline should provide support for crude."
The average price of regular gasoline at the pump nationwide was $2.136 a
gallon on Sunday, down 15 percent from a year earlier, according to data from
Heathrow, Florida-based AAA, a national federation of motor clubs.
Speculators' net-long position in WTI gained by 30,357 futures and options
combined to 245,987, CFTC data show. Long positions, or bets that prices will
rise, increased 4.8 percent, while shorts tumbled 19 percent.
In other markets, net bullish bets on Nymex gasoline climbed 15 percent to
23,357 contracts. Gasoline futures declined 3.5 percent in the period. Net bearish
wagers on U.S. ultra low sulfur diesel decreased 11 percent to 7,773 contracts,
the least since June as futures slipped 1 percent.
"... "There is a realization among many Saudis that the economic challenges that the kingdom is facing are daunting," said Fahad Nazer, who worked at the Saudi embassy in Washington and is now a political analyst at JTG Inc. "Given the fact that some 70 percent of Saudis are under the age of 30, Prince Mohammed's penchant for making quick decisions and holding officials accountable for their performance – or lack thereof - does have wide support among Saudis. ..."
"... "The foremost challenge Mohammed bin Salman faces over time is the inevitable need to restructure the Al Sauds' relationship with the Wahhabis," ..."
"... "Within Saudi Arabia, the main challenges MbS will face will involve not the substance of oil policy but rather resistance within the royal family to so much power being concentrated in the hands of one prince of his generation," he said. ..."
After decades of talk of diversification, more than 70 percent of Saudi government revenue came from
oil in 2015 and the state still employs two-thirds of Saudi workers. Foreigners account for nearly
80 percent of the private-sector payroll.
"The issue really is how to get the Saudi private sector
to hire locals, how to make the numbers on that right, since so much of the Saudi private sector
has had business models based on lower-wage foreign labor," said Gause.
In response to the country's weakened fiscal position, Prince Mohammed's plan is to raise non-oil
revenue by $100 billion by 2020. The government announced cuts in utility and gasoline subsidies
in December. Including future reductions, authorities expect the restructuring to generate $30 billion
a year by 2020.
"There is a realization among many Saudis that the economic challenges that the kingdom is
facing are daunting," said Fahad Nazer, who worked at the Saudi embassy in Washington and is now
a political analyst at JTG Inc. "Given the fact that some 70 percent of Saudis are under the age
of 30, Prince Mohammed's penchant for making quick decisions and holding officials accountable for
their performance – or lack thereof - does have wide support among Saudis."
Past rulers of Saudi Arabia have largely avoided seeking additional revenue from their citizens.
As water prices surged after the reduction in subsidies, Saudis turned to social media to express
their anger at the government. King Salman fired the water minister on Saturday.
Saudi leaders also have unique social challenges that other nations implementing economic changes
didn't have to manage. While steps have been taken to get women into the workforce, the kingdom still
prohibits them from driving. The country's feared religious police, despite having their powers to
arrest curbed this month, still enforce gender segregation and prayer times.
"The foremost challenge Mohammed bin Salman faces over time is the inevitable need to restructure
the Al Sauds' relationship with the Wahhabis," said James Dorsey, a senior fellow in international
studies at Nanyang Technological University in Singapore. "This restructuring is inevitable both
to be able to truly reform the economy and because the increasing toll identification with the puritan
sect is taking on Saudi Arabia's international reputation."
His efforts to shake up the economy come against the backdrop of mounting domestic security threats
and regional turmoil, with the Sunni-ruled kingdom bogged down in a war in Yemen against Shiite rebels
it says are backed by Iran. He has also consolidated more power than anyone in his position since
the founding of the kingdom.
"Within Saudi Arabia, the main challenges MbS will face will involve not the substance of
oil policy but rather resistance within the royal family to so much power being concentrated in the
hands of one prince of his generation," he said.
So perhaps the spiking money-market rates are more indicative of the potential for social unrest?
"... To me it sounds like Crown Prince Mohammed bin Salman is preparing his citizens for the day of reckoning. Why is bringing up this topic right now - probably because Saudi oil production is peaking right now. And whatever "transforming the economy away from oil" entails, the Saudi population won't like it. ..."
"... Well if KSA were going to sell wall-to-wall carpet for all these decades, maybe they can start selling the vacuum cleaners for it… and continue to put disaster capitalism to work for the kings and princes… ..."
"... "Here at Your Kingdom of Saudi Arabia™, we have just the right kind of nice soft sand for your sea-level-rise beach-replenishment projects. We also offer special discounts for all our low-lying island archipelago customers. Let us help you fill the holes that you dig yourselves out of. Wallahi, let it be YKSA." ..."
Riyadh (AFP) – Saudi Arabia said Monday it would create the world's largest sovereign investment
fund and sell shares in state energy giant Aramco under a vast plan unveiled to transform its
oil-dependent economy.
"We will not rest until our nation is a leader in providing opportunities for all through
education and training, and high quality services such as employment initiatives, health, housing
and entertainment," Mohammed wrote in an 84-page booklet outlining the plan.
If it works, Saudi Arabia "can live without oil by 2020".
To me it sounds like Crown Prince Mohammed bin Salman is preparing his citizens for the
day of reckoning. Why is bringing up this topic right now - probably because Saudi oil production
is peaking right now. And whatever "transforming the economy away from oil" entails, the Saudi
population won't like it.
Well if KSA were going to sell wall-to-wall carpet for all these decades, maybe they can start
selling the vacuum cleaners for it… and continue to put disaster capitalism to work for the kings
and princes…
"Here at Your Kingdom of Saudi Arabia™, we have just the right kind of nice soft sand for
your sea-level-rise beach-replenishment projects. We also offer special discounts for all our
low-lying island archipelago customers. Let us help you fill the holes that you dig yourselves
out of. Wallahi, let it be YKSA."
"We will not rest until our nation is a leader in providing opportunities for all through education
and training*, and high quality services such as employment initiatives**, health, housing and
entertainment***,"
* except for women and shiites
** for imported Indian and Pakistanis who live in slave-like conditions
*** And DON'T forget the entertainment! Maybe they could introduce NASCAR.
My wife, teaching a course in mathematical physics in a Swedish university, tossed a pair of
Saudi students out of her class (permanently) owing to their utter disrespect: constant disruptive
and insulting comments. In the end the Saudi embassy tried to intervene but the university stood
firm. The incident might have adversely affected Swedish-Saudi relations for awhile but the fact
remains: respect for women by Saudis doesn't exist; even a modicum of respect for a female teacher
is an impossible concept for them.
"... The US political system is dysfunctional and fully captured by neoliberals. That means that kicking the can down the road in economics requires low oil prices. So the US neoliberal elite will fight tooth and nail any substantial oil price increase from the current level, as this threaten neoliberal economic model and neoliberal globalization more then anything else. With oil around $100 shipping a 40-foot container from Shanghai to the U.S. costs around $8,000, compared to $3,000 if oil is in the $30-40 range. This increased shipping cost is the equivalent of a 9 percent tariff on all global trade, according to Canadian investment bank, CIBC World Markets. ..."
"... This reaction of neoliberal elite is one of the main reasons why the current oil price slump is so deep and so prolonged. It is like injection of steroids into ailing neoliberal economic organism. The Last Hurrah of neoliberal globalization, if you wish. Saudis at the end of the day are vassals of the USA and if the US elite really cared about the US shale industry and conventional oil producers, oil price would never dropped below $70-$60. ..."
"... That triple-digit oil prices will reverse globalization and bring about the re-emergence of local economies. In the kind of world that we'll soon be facing, distance costs money. In many cases, not in every case, moving your production to China and then importing those goods back to Western Europe or North America will be foolish. In other words, what you will save on labor costs you will more than lose on transport costs. Are your views controversial? ..."
Global economy tanks due to high oil prices but the solution to a sluggish economy is high oil
prices. Does anyone believe that there is a goldilocks price range that satisfies all factions?
Second point;
So for the history of humanity it has been a constant move to add larger quantities of cheaper,
easier to produce, more convenient to use energy sources but now all of a sudden industrial civilization
is supposedly going to continue on by "transitioning" to a highly complex, expensive, inconvenient,
toxic, sporadic, resource dependent "renewable energy"?
Jef, Does anyone believe that there is a goldilocks price range that satisfies all factions?
Good question.
My impression is that goldilocks price range for oil now is $80-160. One argument in favor
of this range is that it will allow more or less smooth transition of the US passenger car fleet
to more economic models. It will also stimulate switch of public transit transport and short range
trucks to natural gas. That also will provide stimulus for funding new technologies that might
help to increase fuel economy for example truck start blusters using pneumatics, better aerodynamics,
you name it. $5-a-gallon gasoline in the United States can do wonder with fuel economy in the
USA. And $7-a-gallon gasoline means total switch to hybrids in passenger car sector and death
of the current US infatuation with SUVs as personal transportation to work. It also might help
to cure a lot of stupid things that the global economy currently is suffering from like an Atlantic
salmon caught off the coast of Norway, then moves from that country to Germany, then to China
for filleting, and finally to a supermarket in North America. With $10 per gallon gasoline small
North America cities will be revitalized as commuting long distances by car to metropolitan centers
becomes unaffordable for all but the wealthy. Large suburban shopping centers will also wither.
That might revive smaller shops in the USA and spells trouble for Wal-Mart and Amazon.
But it is impossible to satisfy all factions. The USA neoliberal elite (which now dominated
both Democratic and Republican Parties - which as a result is, in effect, a single party exactly
like it was in the USSR, but with a nice brainwashing twist that convinces lemmings that there
are still two parties and provides a nice, extremely impressive spectacle when two preselected
by the elite candidates compete for the POTUS position; the trick that communists for some reason
did not use) needs to be dragged kicking and screaming to this range.
The US political system is dysfunctional and fully captured by neoliberals. That means
that kicking the can down the road in economics requires low oil prices. So the US neoliberal
elite will fight tooth and nail any substantial oil price increase from the current level, as
this threaten neoliberal economic model and neoliberal globalization more then anything else.
With oil around $100 shipping a 40-foot container from Shanghai to the U.S. costs around $8,000,
compared to $3,000 if oil is in the $30-40 range. This increased shipping cost is the equivalent
of a 9 percent tariff on all global trade, according to Canadian investment bank, CIBC World Markets.
That also spells deep troubles for China, so Chinese neoliberal elite is united with the USA
neoliberal elite in pushing oil prices down. In an ironic demonstration of the power of globalization,
China's troubles from high oil prices will be felt worldwide.
This reaction of neoliberal elite is one of the main reasons why the current oil price
slump is so deep and so prolonged. It is like injection of steroids into ailing neoliberal economic
organism. The Last Hurrah of neoliberal globalization, if you wish. Saudis at the end of the day
are vassals of the USA and if the US elite really cared about the US shale industry and conventional
oil producers, oil price would never dropped below $70-$60.
Globalization will soon be over, and it's the rising price of oil that will fuel this change.
So, at least, argues Jeff Rubin, former chief economist at CIBC World Markets, the investment
banking arm of the Canadian Imperial Bank of Commerce, in his new book, Why Your World Is About
to Get a Whole Lot Smaller: Oil and the End of Globalization. Rubin recently spoke with U.S.
News about the future of the world's energy habits and the implications for the globalized
economy. Excerpts:
What's the central argument of your book?
That triple-digit oil prices will reverse globalization and bring about the re-emergence
of local economies. In the kind of world that we'll soon be facing, distance costs money. In
many cases, not in every case, moving your production to China and then importing those goods
back to Western Europe or North America will be foolish. In other words, what you will save
on labor costs you will more than lose on transport costs. Are your views controversial?
I guess they're controversial in the sense that I'm saying the world we're soon going
to face isn't just about one variable-the wage rate-and that when you stop to consider what's
really required to have a globalized economy, it's very cheap oil prices and very cheap transport
costs. The controversial part of that is, in part, my argument that triple-digit oil prices
are going to become a permanent feature of our economy and not just a blip. How will the new
economy change global politics?
A lot of long-lost jobs are going to be coming home. Triple-digit oil prices in a perverse
sort of way is going to breathe new life into the rust belt. We already started to see
that just before the recession hit with a whole renaissance in industries like U.S. furniture
and U.S. steel, where transport costs were starting to make domestic producers competitive
again.
"... Lifting of the sanctions has given a major lift to Iran's economy. Last week the IMF reported that it expects Tehran's economy to grow by 4 percent this year. Iran is making an effort to collect the oil revenues from those countries that continued to take Iranian oil during the sanctions but were unable to transfer money to Tehran. Some 6.5 billion euros are said to be owing. ..."
Iran: The Iranians are now saying that their oil production will reach
pre-sanctions levels of 4 million b/d by June of this year, up from the 3.5
million b/d they claim to have produced in March. The addition of another 500,000
b/dwithin two months is certainly faster than anybody anticipated, but some
analysts are now saying it is possible. India's Reliance Industries recently
announced a long-term oil deal with Tehran.
Among the problems Iran would have in increasing production by 500,000 b/d
in the next few months is the lack of ships to move the oil to customers, if
they can find them. Many of the worlds' tankers are tied up in massive queues
at import and export terminals that are at loading and unloading capacity. Lingering
issues about US sanctions have left some tanker owners reluctant to get involved
with Tehran for fear they could be banned from doing business with the US. Much
of Iran's tanker fleet no longer meets safety standards and must be overhauled
before visiting foreign ports.
Lifting of the sanctions has given a major lift to Iran's economy. Last
week the IMF reported that it expects Tehran's economy to grow by 4 percent
this year. Iran is making an effort to collect the oil revenues from those countries
that continued to take Iranian oil during the sanctions but were unable to transfer
money to Tehran. Some 6.5 billion euros are said to be owing.
Tehran's final problem in increasing its oil export is to find foreign investors
willing to put money into its aging oil industry. While it may be possible to
increase oil production by the 500,000 b/d that Tehran is aiming for, further
production increases will require massive amounts of investment that will have
to be raised from foreign sources. Arguments in Tehran about how much foreigners
should be allowed to profit from exploiting Iranian oil continue. Iran's latest
revisions to proposed contracts for foreign oil companies are so unfavorable
that some doubt there will be many offers.
About 70 percent of the population of Saudi Arabia is under 30, and more
than 30 percent of that is unemployed. Five million new jobs would mean one
new job for roughly every six people in the country.
Riedel said he
expects to see just the outline of a plan. "They will announce a cautious
series of reforms, including opening up Aramco a little bit. They will
announce probably some cutbacks in subsidies." He said it's unclear whether
there will be any further detail on the sovereign wealth fund yet.
... ... ...
Since the sharp drop in oil prices, Saudi Arabia has been running
deficits and has dipped into its foreign reserves to cover shortfalls. It
has also floated debt, and this week it borrowed $10 billion from a
consortium of global banks in its first international loan deal in a quarter
century. The bank deal was seen as a step toward an international bond deal.
Prior to the oil price collapse, Saudi Arabia needed about $100 a barrel to
meet its budget, and that number has only dipped slightly.
Bin Salman has a great deal invested in the plan to broaden the kingdom's
revenue base while reducing unemployment and curbing subsidies. Second in
line to the throne, he has been seen as a rival to his cousin, Crown Prince
Muhammad bin Nayef, the heir apparent to 80-year-old King Salman.
"I think about this transformation plan. It makes him the center of
everything. It really does make him the most powerful person in that
country," Croft said.
Bin Salman has been seen as acquiring more power than his cousin, but
he's viewed as unpredictable.
"I think the longer this goes on, the more time he has to entrench
himself, the more power he amasses, the more he becomes inevitable. I find
his political skill craft genius. Just the sheer ability to consolidate
power with tremendous speed. He's like Frank Underwood on steroids," said
Croft, referring to the central figure in Netflix's "House of Cards," who
schemed his way into the presidency.
Bin Salman is different than other Saudi leaders in that he was educated
in the kingdom. He wears traditional dress and is popular with young Saudis.
"They see in Mohammad bin Salman someone of their own generation moving
up the ladder very quickly. He has a certain degree of popularity. He's
also grated a lot of people in the family who see him as abrasive,
inexperienced, undisciplined, impulsive," said Riedel. "In the long
run, the way Saudi Arabia works is it's more important to be important in
the family than it is in the street. This is an absolute monarchy."
... ... ...
Oppenheimer energy analyst Fadel Gheit said he is skeptical that
investors will see the transparency they would like when Aramco ultimately
comes to market. "It's going to be an enigma surrounded by secrecy," he
said. "Why would I invest in Aramco, if I could buy Shell, BP where there's
democracy, transparency." Gheit said he doubts much information on Aramco
compensation or capital spending authorization would become public.
"The reason they want to do this IPO is it will give them another window
in the global capital markets," he said. "I do not take this as a sign of a
healthy economy."
The kingdom has named JP Morgan and Michael Klein as advisors on the
Aramco deal.
"... All of them are already in decline, as well as fields discovered in the sixties and seventies. There are a few exception – fields discovered several decades ago, but developed only recently (Manifa in Saudi Arabia, Kashagan in Kazakhstan). ..."
"... Rystad Energy estimates that only 9 Billion boe were discovered during 2015. This is 30% down from 2014 which was an all-time low. For comparison, world oil production is in the order of 30+ billion barrels each year. ..."
"... only 19% of the produced conventional resources were replaced by new discovered volumes last year, says Nils-Henrik Bjurstrøm, Senior Project Manager, in Rystad Energy ..."
"... Regrettably, the negative trend continues. In January 2016, only 250 million boe were discovered (in comparison, the Goliath field in the Barents Sea has reserves of approximately 200 MMbo), indicating a possibility for an even lower exploration result in 2016, says Bjurstrøm. ..."
"... So potentially going from just 9 billion BOE in 2015 to maybe 3 billion BOE in 2016. When will the oil markets take notice of this? Also, wonder how much of that is natural gas and condensate? ..."
"... Nobody is arguing that "all the supergiants" will come off their plateaus at the same time. That's a cheap straw man argument. Plus it's meaningless because there's no sense of that "at the same time" means. ..."
"... We don't need all of the super giants to go into decline all at the same time - two or three going into decline within a five year period would suffice. Or just one - Gawhar - would do. I think the probability of several super giants going into decline more or less at the same time is quite possible. But since nobody knows what the probabilities are, making any statements about the probabilities is pointless. ..."
"... I agree. Furthermore, I think everyone here realizes most oil comes from oilfields discovered prior to 1970 and almost all oilfields that still produce an average of over 500,000 barrels per day are 70-ish years old. So, ignoring Ghawar, Burgan and Daquing, oilfields that HAD a productive capacity exceeding one million barrels a day include Samotlor (1965), Prudhoe Bay (1968) and Cantarell (1976). That's not a flush but it is three of a kind. ..."
"... And all of those 1mb/d+ supergiants are already in decline (the most recent – Daquing) ..."
From a statistics perspective the chances of all the supergiants coming off their plateaus
at about the same time is quite an unrealistic assumption. Do you guys get a lot of straight flushes
when you play poker (no wild cards)? I have played a little poker and have never seen a straight
flush in real life, only in the movies.
You are no doubt correct that the old supergiants won't all go into terminal decline together,
but it does seem reasonable to assume that most of them will peak and begin to go downhill within
some particular time frame measured from first production.
Now I am going to pull some numbers out of thin air to illustrate my point, and then maybe
somebody who knows more can elaborate on the significance of it.
Let us suppose that the really big oil fields mostly peak between say thirty and forty years
from first production.
It is my impression as a casual observer rather than a numbers cruncher or hands on investor
that just about all the really big oil fields were discovered and put into production at least
that long ago.
So taken as a group, they will probably begin going into decline AS A GROUP all together over
about the same time frame as they were discovered as a group.
Fields discovered and first produced in the fifties, if I am right about this, will probably
mostly all go into decline together over a period of about a decade or so, by way of example.
Basically what I am trying to say is that oil fields probably have a statistically predictable
life span, and that most of the really big ones are probably all roughly about the same age, in
terms of being produced. Nearly all of them will probably peak with in ten to fifteen more years,
since all of them are getting to be up around thirty or forty years of production history.
IIRC, it's been a hell of a long time since somebody discovered a new super giant or giant
field.
Somebody like Fernando ought to be able to take this observation and run with it.
"Fields discovered and first produced in the fifties, if I am right about this, will probably
mostly all go into decline together over a period of about a decade or so, by way of example."
All of them are already in decline, as well as fields discovered in the sixties and seventies.
There are a few exception – fields discovered several decades ago, but developed only recently
(Manifa in Saudi Arabia, Kashagan in Kazakhstan).
As I understand, the main sources of growth in global proved oil reserves in the past 10 years
were:
1) Rising oil prices, which enabled to include Venezuela's ultra-heavy oil from the Orinoco
belt and some other high-cost resources into proved reserve category;
2) New discoveries (which, as you say, are now much smaller than in previous decades);
3) Upward revisions of reserve estimate of the already developed fields due to reserves extension,
new reservoir discoveries in old fields, use of improved recovery techniques or equipment, etc.;
4) Inclusion of part of LTO resources into proved reserve category.
The contribution of new discoveries was actually a secondary factor.
The year 2015 was a global all-time low in terms of conventional oil and gas discoveries, says
Nils-Henrik Bjurstrøm in Rystad Energy.
Rystad Energy estimates that only 9 Billion boe were discovered during 2015. This is 30%
down from 2014 which was an all-time low. For comparison, world oil production is in the order
of 30+ billion barrels each year.
– As a result, only 19% of the produced conventional resources were replaced by new discovered
volumes last year, says Nils-Henrik Bjurstrøm, Senior Project Manager, in Rystad Energy ,
to geo365.no.
Regrettably, the negative trend continues. In January 2016, only 250 million boe were discovered
(in comparison, the Goliath field in the Barents Sea has reserves of approximately 200 MMbo),
indicating a possibility for an even lower exploration result in 2016, says Bjurstrøm.
Note: 9 Billion boe discovered during 2015 and 250 mboe discovered in 1Q16 are oil and gas.
And the discovered volumes are not immediately included in proved reserve category
So potentially going from just 9 billion BOE in 2015 to maybe 3 billion BOE in 2016. When
will the oil markets take notice of this? Also, wonder how much of that is natural gas and condensate?
Note: XOM produces over 4 million BOEPD. In 2015 proved reserves fell 24%. First time they
didn't replace 100% of reserves since 1990s.
Yes, I understand price has something to do with that. But still?
Exxon's total liquids proved reserves actually increased from 13713 million barrels on December
31, 2014 to 14724 million barrels on December 31, 2015
(source: 10-k)
There was a sharp downward revision in nat gas proved reserves, reflecting lower gas prices.
ExxonMobil Corp. added 1 billion boe of proved oil and gas reserves in 2015, replacing just
67% of production during the year compared with 115% over the past 10 years.
In 2014, the firm replaced 104% of its production by adding proved oil and gas reserves totaling
1.5 billion boe.
The 2015 total includes a 219% replacement ratio for crude oil and other liquids.
However, proved reserves of natural gas were reduced by 834 million boe primarily in the US, reflecting
the change in gas prices. The company expects this gas to be developed and booked as proved reserves
in the future.
At yearend, ExxonMobil's proved reserves totaled 24.8 billion boe. Liquids represented 59% of
proved reserves, up from 54% in 2014. ExxonMobil's reserves life at current production rates is
16 years.
Reserves during the year were added in Abu Dhabi, Canada, Kazakhstan, and Angola. Liquid additions
totaled 1.9 billion bbl.
ExxonMobil added 1.4 billion boe to its resource base through by-the-bit exploration discoveries,
undeveloped resource additions, and strategic acquisitions.
The firm's exploration activity in 2015 included the Liza oil discovery offshore Guyana (OGJ
Online, May 20, 2015), and additional discoveries in Iraq, Australia, Romania, and Nigeria. Strategic
unconventional resource additions were made in the Permian basin, Canada, and Argentina.
Overall, the company's resource base totaled more than 91 billion boe at yearend 2015, taking
into account field revisions, production, and asset sales. The resource base includes proved reserves,
plus other discovered resources that are expected to be ultimately recovered.
Really Dennis? From a statistics perspective? Assuming what probability distribution and correlation
matrix?
Nobody is arguing that "all the supergiants" will come off their plateaus at the same time.
That's a cheap straw man argument. Plus it's meaningless because there's no sense of that "at
the same time" means.
We don't need all of the super giants to go into decline all at the same time - two or
three going into decline within a five year period would suffice. Or just one - Gawhar - would
do. I think the probability of several super giants going into decline more or less at the same
time is quite possible. But since nobody knows what the probabilities are, making any statements
about the probabilities is pointless.
I agree. Furthermore, I think everyone here realizes most oil comes from oilfields discovered
prior to 1970 and almost all oilfields that still produce an average of over 500,000 barrels per
day are 70-ish years old. So, ignoring Ghawar, Burgan and Daquing, oilfields that HAD a productive
capacity exceeding one million barrels a day include Samotlor (1965), Prudhoe Bay (1968) and Cantarell
(1976). That's not a flush but it is three of a kind.
I was responding to a comment by George Kaplan, he said:
…all the supergiants have been developed with extensive IOR/EOR methods and may come off
plateau and collapse production at about the same time (for me this sudden high decline rate,
more than the actual peak is what is going to destroy the world economy if we don't do something
– in fact a lot – beforehand).
So based on the excellent comments by AlexS and Rune Likvern, we know that most of the supergiant
fields are already declining, but the question would be is it very likely they all begin a "collapse
in production" at about the same time time.
I believe the probability is low and I interpret "about the same time" as within 5 years and
"collapse in production" as a field decline of 10% or more.
It would be interesting in hearing other opinions on how likely this scenario is, I would guess
it is less than 5%.
Hi Doug,
Using the Wikipedia list of giant oil fields there are 59 fields that have a URR of 5 Gb or
more. The point is that the most notable "collapse" has been Cantarell, as long as the "collapse"
doesn't happen "at about the same time" in all 59 fields we are unlikely to see a steep decline
in World output, as long as there is adequate demand for oil to keep oil prices at a level where
it continues to be profitable to develop reserves.
If there is an economic collapse due to excessive debt, or some other reason (high oil prices
maybe), then decline might be steeper, essentially this will depend on the extent of the economic
downturn. That is difficult to predict.
"... The interview was presumably meant to be reassuring to the outside world, but instead it gives an impression of naivety and arrogance. There is also a sense that Prince Mohammed is an inexperienced gambler who is likely to double his stake when his bets fail. This is the very opposite of past Saudi rulers, who had always preferred, so to speak, to bet on all the horses. ..."
"... This is the second area in which Prince Mohammed's interview suggests nothing but trouble for the Saudi royal family. He suggests austerity and market reforms in the Kingdom, but in the context of Middle East autocracies and particularly oil states this breaches an unspoken social contract with the general population. People may not have political liberty, but they get a share in oil revenues through government jobs and subsidised fuel, food, housing and other benefits. Greater privatisation and supposed reliance on the market, with no accountability or fair legal system, means a licence to plunder by those with political power. ..."
"... This was one of the reasons for the uprising in 2011 against Bashar al-Assad in Syria and Muammar Gaddafi in Libya. So-called reforms that erode an unwieldy but effective patronage machine end up by benefiting only the elite. ..."
German intelligence memo shows the threat from the kingdom's headstrong defence minister
At the end of last year the BND, the German intelligence agency, published a remarkable one-and-a-half-page
memo saying that Saudi Arabia had adopted "an impulsive policy of intervention". It portrayed Saudi
defence minister and Deputy Crown Prince Mohammed bin Salman – the powerful 29-year-old favourite
son of the ageing King Salman, who is suffering from dementia – as a political gambler who is destabilising
the Arab world through proxy wars in Yemen and Syria.
Spy agencies do not normally hand out such politically explosive documents to the press criticising
the leadership of a close and powerful ally such as Saudi Arabia. It is a measure of the concern
in the BND that the memo should have been so openly and widely distributed. The agency was swiftly
slapped down by the German foreign ministry after official Saudi protests, but the BND's warning
was a sign of growing fears that Saudi Arabia has become an unpredictable wild card. One former minister
from the Middle East, who wanted to remain anonymous, said: "In the past the Saudis generally tried
to keep their options open and were cautions, even when they were trying to get rid of some government
they did not like."
The BND report made surprisingly little impact outside Germany at the time. This may have been
because its publication on 2 December came three weeks after the Paris massacre on 13 November,
when governments and media across the world were still absorbed by the threat posed by Islamic State
(IS) and how it could best be combatted. In Britain there was the debate on the RAF joining the air
war against IS in Syria, and soon after in the US there were the killings by a pro-IS couple in San
Bernardino, California.
It was the execution of the Shia cleric Sheikh Nimr al-Nimr and 46 others – mostly Sunni jihadis
or dissenters – on 2 January that, for almost the first time, alerted governments to the extent to
which Saudi Arabia had become a threat to the status quo. It appears to be deliberately provoking
Iran in a bid to take leadership of the Sunni and Arab worlds while at the same time Prince Mohammed
bin Salman is buttressing his domestic power by appealing to Sunni sectarian nationalism. What is
not in doubt is that Saudi policy has been transformed since King Salman came to the throne last
January after the death of King Abdullah.
The BND lists the areas in which Saudi Arabia is adopting a more aggressive and warlike policy.
In Syria, in early 2015, it supported the creation of The Army of Conquest, primarily made up of
the al-Qaeda affiliate the al-Nusra Front and the ideologically similar Ahrar al-Sham, which won
a series of victories against the Syrian Army in Idlib province. In Yemen, it began an air war directed
against the Houthi movement and the Yemeni army, which shows no sign of ending. Among those who gain
are al-Qaeda in the Arabian peninsula, which the US has been fruitlessly trying to weaken for years
by drone strikes.
None of these foreign adventures initiated by Prince Mohammed have been successful or are likely
to be so, but they have won support for him at home. The BND warned that the concentration of so
much power in his hands "harbours a latent risk that in seeking to establish himself in the line
of succession in his father's lifetime, he may overreach".
The overreaching gets worse by the day. At every stage in the confrontation with Iran over the
past week Riyadh has raised the stakes. The attack on the Saudi embassy in Tehran and its consulate
in Mashhad might not have been expected but the Saudis did not have to break off diplomatic relations.
Then there was the air strike that the Iranians allege damaged their embassy in Sana'a, the capital
of Yemen.
None of this was too surprising: Saudi-Iranian relations have been at a particularly low ebb since
400 Iranian pilgrims died in a mass stampede in Mecca last year.
But even in the past few days, there are signs of the Saudi leadership deliberately increasing
the political temperature by putting four Iranians on trial, one for espionage and three for terrorism.
The four had been in prison in Saudi Arabia since 2013 or 2014 so there was no reason to try them
now, other than as an extra pinprick against Iran.
Saudi Arabia has been engaging in something of a counter attack to reassure the world that it
is not going to go to war with Iran. Prince Mohammed said in an interview with The Economist: "A
war between Saudi Arabia and Iran is the beginning of a major catastrophe in the region, and it will
reflect very strongly on the rest of the world. For sure, we will not allow any such thing."
The interview was presumably meant to be reassuring to the outside world, but instead it gives
an impression of naivety and arrogance. There is also a sense that Prince Mohammed is an inexperienced
gambler who is likely to double his stake when his bets fail. This is the very opposite of past Saudi
rulers, who had always preferred, so to speak, to bet on all the horses.
A main reason for Saudi Arabia acting unilaterally is its disappointment that the US reached an
agreement with Iran over Tehran's nuclear programme. Again this looks naive: close alliance with
the US is the prime reason why the Saudi monarchy has survived nationalist and socialist challengers
since the 1930s. Aside from the Saudis' money and close alliance with the US, leaders in the Middle
East have always doubted that the Saudi state has much operational capacity. This is true of all
the big oil producers, whatever their ideological make-up. Experience shows that vast oil wealth
encourages autocracy, whether it is in Saudi Arabia, Iraq, Libya or Kuwait, but it also produces
states that are weaker than they look, with incapable administrations and dysfunctional armies.
This is the second area in which Prince Mohammed's interview suggests nothing but trouble for
the Saudi royal family. He suggests austerity and market reforms in the Kingdom, but in the context
of Middle East autocracies and particularly oil states this breaches an unspoken social contract
with the general population. People may not have political liberty, but they get a share in oil revenues
through government jobs and subsidised fuel, food, housing and other benefits. Greater privatisation
and supposed reliance on the market, with no accountability or fair legal system, means a licence
to plunder by those with political power.
This was one of the reasons for the uprising in 2011 against Bashar al-Assad in Syria and
Muammar Gaddafi in Libya. So-called reforms that erode an unwieldy but effective patronage machine
end up by benefiting only the elite.
Oil states are almost impossible to reform and it is usually unwise to try. Such states should
also avoid war if they want to stay in business, because people may not rise up against their rulers
but they are certainly not prepared to die for them.
"... Since King Salman succeeded to power in January, Saudi Arabia has orchestrated a military coalition to intervene in neighbouring Yemen to limit Iranian influence, increased support for Syrian rebels and made big changes in the royal succession. ..."
"... Germany's BND pointed to efforts by the two rivals to shape events in Syria, Lebanon, Bahrain and Iraq, with Saudi Arabia increasingly prepared to take military, political and financial risks to ensure it does not lose influence in the region. ..."
"... Iran, a major ally of Assad, denies having expansionist aims and accuses Saudi Arabia of undermining regional stability through its backing of Syrian rebels and intervention in Yemen. ..."
"... It pointed to risks stemming from the concentration of power in Prince Mohammad, who it said could get carried away with efforts to secure the royal family succession in his favour. ..."
"... Saudi Arabia faces a budget deficit that economists estimate could total $120 billion or more this year. This has led the Finance Ministry to close its national accounts a month early to control spending. ..."
"... Prince Mohammed, who is second-in-line to rule, is also the Saudi defence minister and head of a supercommittee on the economy. The young prince has enjoyed a dizzying accumulation of powers since his father became king and placed him in the line of succession ahead of dozens of cousins. ..."
BERLIN (Reuters) - Germany's BND foreign intelligence agency, in an unusual public statement issued
on Wednesday, voiced concern that Saudi Arabia was becoming impulsive in its foreign policy as powerful
young Deputy Crown Prince Mohammad bin Salman asserts himself.
The BND also said that with Saudi Arabia - the world's No. 1 oil exporter - losing confidence
in the United States as a guarantor of Middle East order, Riyadh appeared ready to take more risks
in its regional competition with Iran.
Since King Salman succeeded to power in January, Saudi Arabia has orchestrated a military coalition
to intervene in neighbouring Yemen to limit Iranian influence, increased support for Syrian rebels
and made big changes in the royal succession.
Riyadh has long viewed Iran as aggressive and expansionary and regarded its use of non-state proxies
such as Lebanon's Hezbollah and Iraqi Shi'ite militias as aggravating sectarian tensions and destabilising
the region. But under Salman, it has moved more assertively to counter its regional foe.
Germany's BND pointed to efforts by the two rivals to shape events in Syria, Lebanon, Bahrain
and Iraq, with Saudi Arabia increasingly prepared to take military, political and financial risks
to ensure it does not lose influence in the region.
"The thus far cautious diplomatic stance of the elder leaders in the royal family is being replaced
by an impulsive interventionist policy," the BND said, adding the Saudis remain committed to the
removal of Syrian President Bashar al-Assad.
Iran, a major ally of Assad, denies having expansionist aims and accuses Saudi Arabia of undermining
regional stability through its backing of Syrian rebels and intervention in Yemen.
The BND issued the 1-1/2 page report, entitled "Saudi Arabia - Sunni regional power torn between
foreign policy paradigm change and domestic policy consolidation", to some German media. Reuters
also obtained a copy.
It pointed to risks stemming from the concentration of power in Prince Mohammad, who it said could
get carried away with efforts to secure the royal family succession in his favour.
The BND said there was a risk he would irritate other royal family members and the Saudi people
with reforms, while undermining relations with friendly, allied states in the region.
Saudi Arabia faces a budget deficit that economists estimate could total $120 billion or more
this year. This has led the Finance Ministry to close its national accounts a month early to control
spending.
Prince Mohammed, who is second-in-line to rule, is also the Saudi defence minister and head of
a supercommittee on the economy. The young prince has enjoyed a dizzying accumulation of powers since
his father became king and placed him in the line of succession ahead of dozens of cousins.
(Reporting by Andreas Rinke; Writing by Paul Carrel; Editing by Noah Barkin/Mark Heinrich)
King Salman's son Mohammad seems to be piloting Saudi
Arabia into a series of ever more risky adventures.
In the past year, the Kingdom of Saudi Arabia has abandoned the cautious
fence-sitting that long characterised its diplomatic style in favour of an
unprecedented, hawkish antagonism. That this transformation coincides with the
meteoric rise of a previously little known prince – 30 year-old Mohammad bin Salman –
is no accident; it seems that the prince is now the power behind the throne.
Since the death of the first king of modern Saudi Arabia, Abdulaziz, in 1953, the
kingdom has been ruled by an increasingly elderly succession of six of his 45 sons;
the last incumbent, Abdullah, died last January aged 90 and was replaced by the
present king, Salman, who is 81 and rumoured to be suffering from dementia. The
youthful, sabre-rattling Prince Mohammad, insiders say, is Salman's favourite son by
his third and favourite wife, Fahda.
Salman has one remaining brother – 75 year-old Muqrin – who would normally have
been next in line for the throne. Whether alone, or at the instigation of others,
Salman
removed Muqrin from the succession three months after he became king. Prince
Mohammad now moved up the line of succession to become 'deputy Crown Prince', with
only his 56 year-old cousin, Mohammad bin Nayef between him and the throne.
King Salman then bestowed an astonishing array of portfolios and titles on his
inexperienced son, making him Defence Minister and Deputy Prime Minister – the very
same posts Salman himself occupied prior to inheriting the throne – as well as head
of the Economic Guidance Council and Chief of the Royal Court. Within weeks, bin
Nayef's court was merged with the Royal Court, now supervised by Prince Mohammad, and
one of his closest advisers was removed from the ruling cabinet.
No wonder Prince Mohammad feels mandated to pilot the kingdom into a series of
ever more risky adventures, earning himself the unofficial nickname 'Reckless'
and unfavourable comparisons with his highly intelligent half-brother, 56 year-old
Prince Sultan bin Salman, who became the first Arab astronaut in 1986 and is
currently languishing in obscurity as head of the Saudi Tourist Board.
At the heart of all Sunni Saudi Arabia's current woes is its longstanding
sectarian and political rivalry with the Shi'a republic of Iran. The toppling of the
Shah by the 1979 Islamic revolution struck fear into the Saudi royals' hearts and
consolidated Riyadh's political and military dependence on the west.
Just as King Salman got comfortable on the throne,
everything started to go wrong.
Until very recently, Iran was isolated and under heavy sanctions, the bête
noire of the west, harbouring nuclear ambitions and an aggressive attitude
towards 'the great Satan', America, and its client state, Israel. Meanwhile, Saudi
Arabia could do no wrong – despite its appalling
human
rights record,
oppression of women and rampant
corruption. Pliable and
passive in its regional politics, Washington's willing ally eagerly swapped billions
of petro-dollars for sophisticated military hardware, aircraft and weapons. Margaret
Thatcher had a special department for pushing through the
al-Yamamah
arms deal which involved record amounts of dollars and corruption. This 'special
relationship' endured: the flag over Buckingham Palace flew at half-mast when King
Abdullah passed on in January last year and David Cameron, Barack Obama and François
Hollande were among many world leaders who travelled to Riyadh for the late monarch's
memorial.
But just as King Salman got comfortable on the throne, everything started to go
wrong for the desert kingdom.
First, the west suddenly woke up to how deeply entrenched the Islamic State (IS)
had become on both sides of the Iraq/Syria border as it set about building its
'Caliphate'; this problem now replaced the removal of Syrian President Bashar
al-Assad as regional priority number one. Before this complication, alignment in
Syria had been relatively simple and along sectarian fault lines: the Alawite (a
branch of Shi'ism) Assad regime was backed by Iran, Iraq, Russia and China, while the
mainly Sunni opposition was championed by Saudi Arabia, most Gulf states, Turkey, the
US, UK and several European countries.
Recognising the growing predominance of Islamic extremists within the opposition
(a situation actively fostered by Saudi Arabia) the west now preferred a political
solution to the Syrian civil war and reluctantly conceded – largely under Russian
pressure – that this could not be achieved without Iran. Furthermore, it looked
increasingly likely that IS could not be defeated without the co-operation of the
Syrian army, transforming Assad – temporarily at least – from the problem to part of
the solution.
To the dismay of the Saudis, Washington began to court Tehran, creating a vehicle
for rapprochement by bump-starting the
nuclear limitation agreement which had been stalled for thirteen years but now
accelerated to the finishing line in a matter of months. Concluded in July, it was
finally signed by President Obama in October last year and Tehran was invited to the
Vienna conference on Syria the same month. In addition, Iranian assets were unfrozen
and sanctions lifted.
Not only did the Saudis feel betrayed, but they now faced another problem as a
result. Since November 2014, they had been exerting their considerable influence on
OPEC to keep pumping oil at levels
above the agreed ceiling, despite falling prices. Ostensibly aimed at pricing the
American fracking industry out of the market, it was also political, intended to harm
the economies of oil-rich Iran and Russia – both under international sanctions at the
time. Tehran now called Saudi Arabia's bluff, announcing that as soon as sanctions
were lifted it would
pump a million extra barrels a day. Suddenly the tables were turned and it was
the Saudi economy that was at risk, with the
IMF warning in October 2015 that the nation would bankrupt itself within five
years – despite its gargantuan sovereign funds – if it did not reverse its policy.
Nor is this the only drain on Saudi finances. Since March it has been bombarding
the Iranian-backed Houthi rebels
in Yemen, presumably at the instigation of Prince Mohammad (with his defence
minister hat on). Saudi Arabia has no history or experience of unilateral armed
intervention – it sent 3,000 soldiers to each of the major Arab-Israeli wars and a
few more to the first Gulf War – yet the prince believed that the Houthis would be
defeated in a matter of days. Ten months on, with no plan B and no exit strategy,
nothing has been achieved but the devastation of the poorest country in the Middle
East and the deaths of thousands of innocent civilians. Analysts estimate that the
financial cost of this adventure has already topped $60 billion. With oil revenues at
rock bottom, the Saudi treasury has sold billions of dollars' worth of European
stocks to meet the ongoing costs of this unwinnable war.
The question is why, when the world stands at the
brink of a catastrophic conflict, take any side at all?
Things took an even more hawkish turn last week when the Saudi regime took the
decision to behead a well-known dissident Shi'a cleric,
Sheikh Nimr al-Nimr. There were riots in Tehran where the
Saudi Embassy was set on fire; Riyadh immediately cut all
diplomatic ties with Iran and shortly afterwards a Saudi
airstrike damaged the Iranian embassy in Sanaa, Yemen. The resulting tension has
sent shock-waves through the region, with many fearing a war between the two powers
as the Saudis seek to enlist the support of fellow Sunni nations.
With the headstrong Prince Mohammad at the helm, backing down does not appear to
be an option… and if the war-chest runs out, contingencies are in place. In an
interview last week with The
Economist, Prince Mohammad revealed a plan to float Aramco – the trillion
dollar nationalised oil company and the country's most valuable asset – on the
international markets and sell billions worth of nationally-owned prime land for
private development. In addition, subsidies for the needy will be slashed and the
education and healthcare systems privatised, putting them out of reach for the
poorest members of society.
In Gulf countries, autocratic systems are generally tolerated due to an unspoken
contract between government and the people that everyone benefits from the nation's
wealth (albeit extremely unequally); Prince Mohammad's Thatcherite vision, if
implemented, risks widespread civil unrest. In addition, the restive Shi'a population
in the east is sitting on top of the country's largest oil fields and distribution
centres.
Saudi influence abroad has always been predicated on its wealth and can be
expected to diminish along with its coffers. Nevertheless, Prince Mohammad adopted
the diplomatic style of George W. Bush in his search for allies: 'Who's not with us
is against us'. The right wing press has apparently already made its decision: the
Daily Telegraphdeclared that "Britain Must Side With Saudi Arabia",
whileRoger
Boyesin The Timesopined "execution by sword is
brutal but Riyadh remains our best hope for peace in the Middle East"… well that's
not what they say about the Islamic State. In fact, the past year saw a record number
of beheadings in Saudi Arabia and 157 executions in all.
None of this is to say that Iran is any better – both theocracies are intolerant,
oppressive and cruel. The question is why, when the world stands at the brink of a
catastrophic conflict, take any side at all? Shouldn't Britain and America,
supposedly 'developed' countries claiming to be beacons of progress and democracy, be
brokering the rapprochement between these two extremist regimes that is key to
regional peace, and a political solution to the Syrian crisis? Shouldn't the west be
exercising the undoubted influence it still possesses in the Royal Palace to urge
more caution, more debate?
If the west persists, instead, in following a deluded prince into an unwinnable
battle against a fabricated monster, it might as well champion Don Quixote tilting at
windmills and declaring "a righteous war and the removal of so foul a brood from off
the face of the earth is a service God will bless".
Teapot refiners continue to show ability to process additional volumes of oil, which suggest that
a Chinese economy might be turning a corner
Notable quotes:
"... In the first quarter of this year China diverted about 787,000 barrels per day into its strategic stockpile, the highest rate since Bloomberg has been tracking the data in 2004. Overall, as of March, China was importing around 7.7 million barrels per day. ..."
"... These so-called "teapot refineries," with capacities of around 20,000 to 100,000 barrels of production per day, struggled under the old restrictions, producing at only 30 to 40 percent of capacity because of an inability to import oil. That has changed, and domestic refining production is set to rise, and with it, so are imports. ..."
In the first quarter of this year China diverted about 787,000 barrels per day into its strategic
stockpile, the highest rate since Bloomberg has been tracking the data in 2004. Overall, as of March,
China was importing around 7.7 million barrels per day.
... ... ...
Another source of additional demand comes from a policy change in the downstream sector. The central
government recently
loosened the rules on oil imports, allowing smaller refineries to import more crude oil.
These so-called "teapot refineries," with capacities of around 20,000 to 100,000 barrels of production
per day, struggled under the old restrictions, producing at only 30 to 40 percent of capacity because
of an inability to import oil. That has changed, and domestic refining production is set to rise,
and with it, so are imports.
"... Oil discoveries have dropped to being almost insignificant over the last 5 years, ..."
"... There is very little reserve growth on discoveries over the last 10 years ..."
"... The arctic is at least 25 years away or never the Atlantic and Pacific coasts are off limits, ..."
"... The current CAPEX collapse is going to be extremely disruptive ..."
"... Once investors see oil companies repeatedly unable to replace reserves they will pull all their money, ..."
"... All the supergiants have been developed with extensive IOR/EOR methods and may come off plateau and collapse production at about the same time ..."
"... Spot on George. The only thing I might have included in your list is Reservoir Creaming whereby horizontal production holes are put across the caps of oil pools to maintain high production rates at the expense of increasing depletion rates. This seems to have become standard practice ..."
"... All your six points are true (although point 5 needs clarification - you need stable oil price and diminishing reserves for this to happen; otherwise speculative forces will drive stock prices up in anticipation of higher oil prices). ..."
I think things will be worse than Jeffersons study indicates for several
reasons:
Oil discoveries have dropped to being almost insignificant over
the last 5 years,
There is very little reserve growth on discoveries over the
last 10 years (technology is so good now at estimating the oil
in place, projects are so expensive that the operators need to know
exactly what they will recover before investing, and putative drilling
in deep sea is too expensive),
The arctic is at least 25 years away or never the Atlantic and
Pacific coasts are off limits,
The current CAPEX collapse is going to be extremely disruptive
(the GoM curve above stops just at the point when production is going
to collapse as there will be very few new projects being completed and
the surge of projects that came online over the last 2 to 3 years will
suddenly come off their short plateaus and go into 10% plus decline
rates,
Once investors see oil companies repeatedly unable to replace
reserves they will pull all their money,
All the supergiants have been developed with extensive IOR/EOR
methods and may come off plateau and collapse production at about the
same time (for me this sudden high decline rate, more than the
actual peak is what is going to destroy the world economy if we don't
do something – in fact a lot – beforehand).
Spot on George. The only thing I might have included in your list is
Reservoir Creaming whereby horizontal production holes are put across the
caps of oil pools to maintain high production rates at the expense of increasing
depletion rates. This seems to have become standard practice.
All your six points are true (although point 5 needs clarification
- you need stable oil price and diminishing reserves for this to happen;
otherwise speculative forces will drive stock prices up in anticipation
of higher oil prices).
So the main efforts now should be in oil conservation area and to start
those we heed high (as in over $100 per barrel) oil price. And I think it
is coming.
"... As for OPEC reserves, I have no clue how those are arrived at, same as I seriously doubt Kuwait is producing almost 3 million BOPD from less than 2,000 oil wells, especially as the major field, Burgan, had first production 70 years ago. ..."
"... I would note your chart ends in 2014. The average oil price in 2014 was about $95 WTI. ..."
"... As Warren Buffet is fond of saying, it's only when the tide goes out that you find out who's been swimming naked. It should be obvious to anyone that countries with static reserve numbers are not being truthful. But there is a willingness among analysts and news providers to accept the published numbers. What else can they do? They can't make up their own numbers or rely on guesses from gadfly oil watchers. When production from these coutries starts going into steady decline, the truth will be known. ..."
"... Venezuela Orinoco Belt accounted for 68% of the increase in the world proved oil reserves between 2005-14, according to BP's estimate. This is entirely due to higher oil prices. Interestingly, according to BP's estimate, Canada' oil reserves actually declined in the past 10 years. ..."
Given that proved reserves are largely a function of price it is inevitable that reserves would
significantly drop as price dropped. The only reasons proved reserves have grown over the last
ten years when very few new discoveries have been made has been refined drilling techniques (fracking)
and high prices.
Andrew, although proven reserves are reserves that must be "economically recoverable" and that
would change somewhat if the price of oil changes drastically, you will find that no oil company
or nation changes their reserves up or down with the price of oil. It is assumed that what is
economically recoverable will average out as the oil price moves up and down over the years.
So no, proven reserves are not largely a function of the price of oil as you put it.
Proven reserves should decline as the oil is extracted and only about one fourth of the extracted
oil is replaced with new discoveries. But neither nations nor oil companies change their stated
proven reserves in response to the changes in the price of oil.
Publically traded oil companies are obliged to change the value of their proven reserves
up or down according to the price of oil however, but not the amount in barrels.
Ron: SEC rules do require reserve changes as oil prices change. This is reflected in the standard
measure forms. However, we can change opex and do have other considerations….for example, when
prices drop we cover the required reserve drop with performance increases (if we can back it up).
It's all done in a back office ceremony we do while wearing black robes and golden masks. So I
can't discuss it any more.
Reserves calculated per SEC guidelines definitely are affected by oil prices, although as Fernando
seems to imply, especially when there has been such a large crash in price, some magic is performed.
As for OPEC reserves, I have no clue how those are arrived at, same as I seriously doubt
Kuwait is producing almost 3 million BOPD from less than 2,000 oil wells, especially as the major
field, Burgan, had first production 70 years ago.
I would note your chart ends in 2014. The average oil price in 2014 was about $95 WTI.
As Warren Buffet is fond of saying, it's only when the tide goes out that you find out who's
been swimming naked. It should be obvious to anyone that countries with static reserve numbers
are not being truthful. But there is a willingness among analysts and news providers to accept
the published numbers. What else can they do? They can't make up their own numbers or rely on
guesses from gadfly oil watchers. When production from these coutries starts going into steady
decline, the truth will be known.
Venezuela Orinoco Belt accounted for 68% of the increase in the world proved oil reserves
between 2005-14, according to BP's estimate. This is entirely due to higher oil prices. Interestingly,
according to BP's estimate, Canada' oil reserves actually declined in the past 10 years.
World proved oil reserves (billion barrels)
source: BP Statistical Review of World Energy 2015
"As the source close to Riyadh advances, "the real nuclear option for
the Saudis would be to cooperate with Russia in a new alliance to cut back oil production
20% for all of OPEC, in the process raising the oil price to $200.00 a barrel to make up
for lost revenue, forced on them by the United States." This is what the West fear like
the plague. And this is what the perennial vassal, the House of Saud, will never have the
balls to pull off. "
That's silly. He is definitely a leftee,
but, in case you do not know, Pravda no longer exists.
And that does not disqualifies him any more then Bloomberg shilling for Saudi and
all other disingenuous "low oil price forever" MSM. We should be able to filter out outright
propaganda, aren't we?
I am more interested in new facts that he reports and which might well be true, like
A famous 3 am call did take place in Doha on Sunday. The young Salman called the
Saudi delegation and told them the deal was off. Every other energy market player
was stunned by the reversion.
So, if true, it looks like somebody played young gambler prince card again to prevent/slow
down the process of normalization of oil prices.
That makes it more difficult to deny that the collapse of oil prices was not, at least
in part, an engineered event.
"... "U.S. Secretary of State John Kerry sidestepped the issue (of a US-Saudi plot) after a trip to Saudi Arabia in September. Asked if past discussions with Riyadh had touched on Russia's need for oil above $100 to balance its budget, he smiled and said: "They (Saudis) are very, very well aware of their ability to have an impact on global oil prices." ( Saudi oil policy uncertainty unleashes the conspiracy theorists , Reuters) ..."
"... Of course, they're in bed together. Saudi Arabia is a US client. It's not autonomous or sovereign in any meaningful way. It's a US protectorate, a satellite, a colony. They do what they're told. Period. True, the relationship is complex, but let's not be ridiculous. The Saudis are not calling the shots. The idea is absurd. Do you really think that Washington would let Riyadh fiddle prices in a way that destroyed critical US domestic energy industries, ravaged the junk bond market, and generated widespread financial instability without uttering a peep of protest on the matter? ..."
"... Dream on! If the US was unhappy with the Saudis, we'd all know about it in short-order because it would be raining Daisy Cutters from the Persian Gulf to the Red Sea, which is the way that Washington normally expresses its displeasure on such matters. The fact that Obama has not even alluded to the shocking plunge in prices just proves that the policy coincides with Washington's broader geopolitical strategy. ..."
"... It happened again in 1986, when Saudi Arabia-led OPEC allowed prices to drop precipitously, and then in 1990, when the Saudis sent prices plummeting as a way of taking out Russia, which was seen as a threat to their oil supremacy. In 1998, they succeeded. When the oil price was halved from $25 to $12, Russia defaulted on its debt. ..."
"... Bottom line: Falling oil prices and the plunging ruble are not some kind of free market accident brought on by oversupply and weak demand. That's baloney. They're part of a broader geopolitical strategy to strangle the Russian economy, topple Putin, and establish US hegemony across the Asian landmass. It's all part of Washington's plan to maintain its top-spot as the world's only superpower even though its economy is in irreversible decline. ..."
"Saudi oil policy… has been subject to a great deal of wild and inaccurate conjecture in recent
weeks. We do not seek to politicize oil… For us it's a question of supply and demand, it's purely
business."
– Ali al Naimi, Saudi Oil Minister
"There is no conspiracy, there is no targeting of anyone. This is a market and it goes up and
down."
– Suhail Bin Mohammed al-Mazroui, United Arab Emirates' petroleum minister
"We all see the lowering of oil prices. There's lots of talk about what's causing it. Could
it be an agreement between the U.S. and Saudi Arabia to punish Iran and affect the economies of
Russia and Venezuela? It could."
Are falling oil prices part of a US-Saudi plan to inflict economic damage on Russia, Iran and
Venezuela?
Venezuelan President Nicolas Maduro seems to think so. In a recent interview that appeared in
Reuters, Maduro said he thought the United States and Saudi Arabia wanted to drive down oil prices
"to harm Russia."
Bolivian President Evo Morales agrees with Maduro and told journalists at RT that: "The reduction
in oil prices was provoked by the US as an attack on the economies of Venezuela and Russia. In the
face of such economic and political attacks, the nations must be united."
Iranian President Hassan Rouhani said the same thing,with a slightly different twist: "The main
reason for (the oil price plunge) is a political conspiracy by certain countries against the interests
of the region and the Islamic world … Iran and people of the region will not forget such … treachery
against the interests of the Muslim world."
US-Saudi "treachery"? Is that what's really driving down oil prices?
Not according to Saudi Arabia's Petroleum Minister Ali al-Naimi. Al-Naimi has repeatedly denied
claims that the kingdom is involved in a conspiracy. He says the tumbling prices are the result of
"A lack of cooperation by non-OPEC production nations, along with the spread of misinformation and
speculator's greed." In other words, everyone else is to blame except the country that has historically
kept prices high by controlling output. That's a bit of a stretch, don't you think? Especially since–according
to the Financial Times - OPEC's de facto leader has abandoned the cartel's "traditional strategy"
and announced that it won't cut production even if prices drop to $20 per barrel.
Why? Why would the Saudis suddenly abandon a strategy that allowed them to rake in twice as much
dough as they are today? Don't they like money anymore?
And why would al-Naimi be so eager to crash prices, send Middle East stock markets into freefall,
increase the kingdom's budget deficits to a record-high 5 percent of GDP, and create widespread financial
instability? Is grabbing "market share" really that important or is there something else going on
here below the surface?
The Guardian's Larry Elliot thinks the US and Saudi Arabia are engaged a conspiracy to push down
oil prices. He points to a September meeting between John Kerry and Saudi King Abdullah where a deal
was made to boost production in order to hurt Iran and Russia. Here's a clip from the article titled
"Stakes are high as US plays the oil card against Iran and Russia":
"…with the help of its Saudi ally, Washington is trying to drive down the oil price by flooding
an already weak market with crude. As the Russians and the Iranians are heavily dependent on oil
exports, the assumption is that they will become easier to deal with…
John Kerry, the US secretary of state, allegedly struck a deal with King Abdullah in September
under which the Saudis would sell crude at below the prevailing market price. That would help
explain why the price has been falling at a time when, given the turmoil in Iraq and Syria caused
by Islamic State, it would normally have been rising.
The Saudis did something similar in the mid-1980s. Then, the geopolitical motivation for a
move that sent the oil price to below $10 a barrel was to destabilize Saddam Hussein's regime.
This time, according to Middle East specialists, the Saudis want to put pressure on Iran and to
force Moscow to weaken its support for the Assad regime in Syria… (Stakes
are high as US plays the oil card against Iran and Russia, Guardian)
That's the gist of Elliot's theory, but is he right?
Vladimir Putin isn't so sure. Unlike Morales, Maduro and Rouhani, the Russian president has been
reluctant to blame falling prices on US-Saudi collusion. In an article in Itar-Tass, Putin opined:
"There's a lot of talk around" in what concerns the causes for the slide of oil prices, he
said at a major annual news conference. "Some people say there is conspiracy between Saudi Arabia
and the US in order to punish Iran or to depress the Russian economy or to exert impact on Venezuela."
"It might be really so or might be different, or there might be the struggle of traditional
producers of crude oil and shale oil," Putin said. "Given the current situation on the market
the production of shale oil and gas has practically reached the level of zero operating costs."
(Putin says oil market price conspiracy
between Saudi Arabia and US not ruled out, Itar-Tass)
As always, Putin takes the most moderate position, that is, that Washington and the Saudis may
be in cahoots, but that droopy prices might simply be a sign of over-supply and weakening demand.
In other words, there could be a plot, but then again, maybe not. Putin is a man who avoids passing
judgment without sufficient evidence.
The same can't be said of the Washington Post. In a recent article, WP journalist Chris Mooney
dismisses anyone who thinks oil prices are the result of US-Saudi collaboration as "kooky conspiracy
theorists". According to Mooney:
"The reasons for the sudden (price) swing are not particularly glamorous: They involve factors
like supply and demand, oil companies having invested heavily in exploration several years ago
to produce a glut of oil that has now hit the market - and then, perhaps, the "lack of cohesion"
among the diverse members of OPEC." (Why
there are so many kooky conspiracy theories about oil, Washington Post)
Oddly enough, Mooney disproves his own theory a few paragraphs later in the same piece when he
says:
"Oil producers really do coordinate. And then, there's OPEC, which is widely referred to in
the press as a "cartel," and which states up front that its mission is to "coordinate and unify
the petroleum policies" of its 12 member countries…. Again, there's that veneer of plausibility
to the idea of some grand oil related strategy." (WP)
Let me get this straight: One the one hand Mooney agrees that OPEC is a cartel that "coordinates
and unify the petroleum policies", then on the other, he says that market fundamentals are at work.
Can you see the disconnect? Cartels obstruct normal supply-demand dynamics by fixing prices, which
Mooney seems to breezily ignore.
Also, he scoffs at the idea of "some grand oil related strategy" as if these cartel nations were
philanthropic organizations operating in the service of humanity. Right. Someone needs to clue Mooney
in on the fact that OPEC is not the Peace Corps. They are monopolizing amalgam of cutthroat extortionists
whose only interest is maximizing profits while increasing their own political power. Surely, we
can all agree on that fact.
What's really wrong with Mooney's article, is that he misses the point entirely. The debate is
NOT between so-called "conspiracy theorists" and those who think market forces alone explain the
falling prices. It's between the people who think that the Saudis decision to flood the market is
driven by politics rather than a desire to grab "market share." That's where people disagree. No
denies that there's manipulation; they merely disagree about the motive. This glaring fact seems
to escape Mooney who is on a mission to discredit conspiracy theorists at all cost. Here's more:
(There's) "a long tradition of conspiracy theorists who have surmised that the world's great
oil powers - whether countries or mega-corporations - are secretly pulling strings to shape world
events."…
"A lot of conspiracy theories take as their premise that there's a small group of people who
are plotting to control something, to control the government, the banking system, or the main
energy source, and they are doing this to the disadvantage of everybody else," says University
of California-Davis historian Kathy Olmsted, author of "Real Enemies: Conspiracy Theories and
American Democracy, World War I to 9/11″. (Washington Post)
Got that? Now find me one person who doesn't think the world is run by a small group of rich,
powerful people who operate in their own best interests? Here's more from the same article:
(Oil) "It's the perfect lever for shifting world events. If you were a mad secret society with
world-dominating aspirations and lots of power, how would you tweak the world to create cascading
outcomes that could topple governments and enrich some at the expense of others? It's hard to
see a better lever than the price of oil, given its integral role in the world economy." (WP)
"A mad secret society"? Has Mooney noticed that - in the last decade and a half - the US has only
invaded nations that have huge natural resources (mainly oil and natural gas) or the geography for
critical pipeline routes? There's nothing particularly secret about it, is there?
The United States is not a "mad secret society with world-dominating aspirations". It's a empire
with blatantly obvious "world-dominating aspirations" run by political puppets who do the work of
wealthy elites and corporations. Any sentient being who's bright enough to browse the daily headlines
can figure that one out.
Mooney's grand finale:
"So in sum, with a surprising and dramatic event like this year's oil price decline, it would
be shocking if it did not generate conspiracy theories. Humans believe them all too easily. And
they're a lot more colorful than a more technical (and accurate) story about supply and demand."
(WP)
Ah, yes. Now I see. Those darn "humans". They're so weak-minded they'll believe anything you tell
them, which is why they need someone as smart as Mooney tell them how the world really works.
Have you ever read such nonsense in your life? On top of that, he gets the whole story wrong.
This isn't about market fundamentals. It's about manipulation. Are the Saudis manipulating supply
to grab market share or for political reasons? THAT'S THE QUESTION. The fact that they ARE manipulating
supply is not challenged by anyone including the uber-conservative Financial Times that deliberately
pointed out that the Saudis had abandoned their traditional role of cutting supply to support prices.
That's what a "swing state" does; it manipulates supply keep prices higher than they would be if
market forces were allowed to operate unimpeded.
So what is the motive driving the policy; that's what we want to know?
Certainly there's a strong case to be made for market share. No one denies that. If the Saudis
keep prices at rock bottom for a prolonged period of time, then a high percentage of the producers
(that can't survive at prices below $70 per barrel) will default leaving OPEC with greater market
share and more control over pricing.
So market share is certainly a factor. But is it the only factor?
Is it so far fetched to think that the United States–which in the last year has imposed harsh
economic sanctions on Russia, made every effort to sabotage the South Stream pipeline, and toppled
the government in Kiev so it could control the flow of Russian gas to countries in the EU–would coerce
the Saudis into flooding the market with oil in order to decimate the Russian economy, savage the
ruble, and create favorable conditions for regime change in Moscow? Is that so hard to believe?
Apparently New York Times columnist Thomas Freidman doesn't think so. Here's how he summed it
up in a piece last month: "Is it just my imagination or is there a global oil war underway pitting
the United States and Saudi Arabia on one side against Russia and Iran on the other?"
It sounds like Freidman has joined the conspiracy throng, doesn't it? And he's not alone either.
This is from Alex Lantier at the World Socialist Web Site:
"While there are a host of global economic factors underlying the fall in oil prices, it is
unquestionable that a major role in the commodity's staggering plunge is Washington's collaboration
with OPEC and the Saudi monarchs in Riyadh to boost production and increase the glut on world
oil markets.
As Obama traveled to Saudi Arabia after the outbreak of the Ukraine crisis last March, the
Guardian wrote, "Angered by the Soviet invasion of Afghanistan in 1979, the Saudis turned on the
oil taps, driving down the global price of crude until it reached $20 a barrel (in today's prices)
in the mid-1980s… [Today] the Saudis might be up for such a move-which would also boost global
growth-in order to punish Putin over his support for the Assad regime in Syria. Has Washington
floated this idea with Riyadh? It would be a surprise if it hasn't." (Alex Lantier,
Imperialism
and the ruble crisis, World Socialist Web Site)
And here's an intriguing clip from an article at Reuters that suggests the Obama administration
is behind the present Saudi policy:
"U.S. Secretary of State John Kerry sidestepped the issue (of a US-Saudi plot) after a trip to
Saudi Arabia in September. Asked if past discussions with Riyadh had touched on Russia's need for
oil above $100 to balance its budget, he smiled and said: "They (Saudis) are very, very well aware
of their ability to have an impact on global oil prices." (Saudi
oil policy uncertainty unleashes the conspiracy theorists, Reuters)
Wink, wink.
Of course, they're in bed together. Saudi Arabia is a US client. It's not autonomous or sovereign
in any meaningful way. It's a US protectorate, a satellite, a colony. They do what they're told.
Period. True, the relationship is complex, but let's not be ridiculous. The Saudis are not calling
the shots. The idea is absurd. Do you really think that Washington would let Riyadh fiddle prices
in a way that destroyed critical US domestic energy industries, ravaged the junk bond market, and
generated widespread financial instability without uttering a peep of protest on the matter?
Dream on! If the US was unhappy with the Saudis, we'd all know about it in short-order because
it would be raining Daisy Cutters from the Persian Gulf to the Red Sea, which is the way that Washington
normally expresses its displeasure on such matters. The fact that Obama has not even alluded to the
shocking plunge in prices just proves that the policy coincides with Washington's broader geopolitical
strategy.
And let's not forget that the Saudis have used oil as a political weapon before, many times before.
Indeed, wreaking havoc is nothing new for our good buddies the Saudis. Check this out from Oil Price
website:
"In 1973, Egyptian President Anwar Sadat convinced Saudi King Faisal to cut production and
raise prices, then to go as far as embargoing oil exports, all with the goal of punishing the
United States for supporting Israel against the Arab states. It worked. The "oil price shock"
quadrupled prices.
It happened again in 1986, when Saudi Arabia-led OPEC allowed prices to drop precipitously,
and then in 1990, when the Saudis sent prices plummeting as a way of taking out Russia, which
was seen as a threat to their oil supremacy. In 1998, they succeeded. When the oil price was halved
from $25 to $12, Russia defaulted on its debt.
The Saudis and other OPEC members have, of course, used the oil price for the obverse effect,
that is, suppressing production to keep prices artificially high and member states swimming in
"petrodollars". In 2008, oil peaked at $147 a barrel." (Did
The Saudis And The US Collude In Dropping Oil Prices?, Oil Price)
1973, 1986, 1990, 1998 and 2008.
So, according to the author, the Saudis have manipulated oil prices at least five times in the
past to achieve their foreign policy objectives. But, if that's the case, then why does the media
ridicule people who think the Saudis might be engaged in a similar strategy today?
Could it be that the media is trying to shape public opinion on the issue and, by doing so, actually
contribute to the plunge in oil prices?
Bingo. Alert readers have probably noticed that the oil story has been splashed across the headlines
for weeks even though the basic facts have not changed in the least. It's all a rehash of the same
tedious story reprinted over and over again. But, why? Why does the public need to have the same
"Saudis refuse to cut production" story driven into their consciousness day after day like they're
part of some great collective brainwashing experiment? Could it be that every time the message is
repeated, oil sells off, and prices go down? Is that it?
Precisely. For example, last week a refinery was attacked in Libya which pushed oil prices up
almost immediately. Just hours later, however, another "Saudis refuse to cut production" story conveniently
popped up in all the major US media which pushed prices in the direction the USG wants them to go,
er, I mean, back down again.
This is how the media helps to reinforce government policy, by crafting a message that helps to
push down prices and, thus, hurt "evil" Putin. (This is called "jawboning") Keep in mind, that OPEC
doesn't meet again until June, 2015, so there's nothing new to report on production levels. But that
doesn't mean we're not going to get regular updates on the "Saudis refuse to cut production" story.
Oh, no. The media is going to keep beating that drum until Putin cries "Uncle" and submits to US
directives. Either that, or the bond market is going to blow up and take the whole damn global financial
system along with it. One way or another, something's got to give.
Bottom line: Falling oil prices and the plunging ruble are not some kind of free market accident
brought on by oversupply and weak demand. That's baloney. They're part of a broader geopolitical
strategy to strangle the Russian economy, topple Putin, and establish US hegemony across the Asian
landmass. It's all part of Washington's plan to maintain its top-spot as the world's only superpower
even though its economy is in irreversible decline.
"... By Nafeez Ahmed,s an investigative journalist and international security
scholar. He writes the System Shift column for VICE's Motherboard, and is the winner
of a 2015 Project Censored Award for Outstanding Investigative Journalism for his
former work at the Guardian. He is the author of A User's Guide to the Crisis of
Civilization: And How to Save It (2010), and the scifi thriller novel Zero Point,
among other books. Originally published at AlterNet ..."
"... I'm not a huge Rolling Stones fan, but whenever I see a complex economic
analysis like this, I'm reminded of what Mick Jagger said when they asked him why
he dropped out of the London School of Economics: "There's too many variables."
..."
"... It's a lot more complicated even than that, it really depends on where
you draw the boundaries of the system. Prieto and Hall did an analysis of Spanish
solar that was probably the most comprehensive yet, including things like the truck
trips to lay the gravel for the surface roads, maintenance trips to clean the panels,
etc, and got a much lower EROEI figure than is typically given for solar. ..."
"... The carbon-energy situation needs to be placed in a context of the slow
burn debt deflation we are experiencing, which at a minimum is usually death for
the financial performance of commodities and any long term debt supported business.
NC has well documented the issues this poses for actuarial based investments (life
insurance, think Japan in the early '90s, pensions, etc.). ..."
"... Last thought, the debt situation is likely much worse in the short run
as the decline in oil revenues are likely already causing local and regional recessions
(e.g., Bakken, Houston) and correlated impact on commercial real estate, home values,
mortgages, etc. plus are we facing a sovereign debt crisis in such countries as
Venezuela (which used PDVSA to massively borrow on the countries behalf), Brazil,
Russia, etc. ..."
"... This short term glut will probably accentuate the coming problems because
it gives the impression that there is no peak oil. People have trouble understanding
that there are short-term cycles within a long-term cycle. This bad signal is giving
us the impetus to continue investing in energy intensive projects instead of reshaping
our economy. And this will make things even worse in 5-10 years. ..."
"... If the total cost of extraction is more than 40$ and consumers are paying
$40 or less, then somewhere along the way, someone is subsidizing the cost. It could
be low tax rates, eZ money, growing deficits, underfunded pensions, underfunded
restoration funds, etc. ..."
"... There is no glut. All the oil is being bought. The problem is that there
in not yet enough of a shortage to drive the price up. A small distinction but huge
ramifications if you understand it. And by the way higher prices is not a solution
to what ails us. ..."
"... The way I see it is that you have convinced yourself that you will be on
the winning side when calamity strikes. Whether you are is another matter… just
like the slowest bug does not get to the field on time to get exterminated by the
sprayed pesticides, work and efficiency do not guarantee anything. ..."
"... The author blames the oil patch bust on a geophysical crisis. There is
some truth to this argument but by far the biggest driver of the bust is Fed policy.
Artificially cheap debt financing led to overcapacity and a vicious cycle of continued
overproduction as drillers desperately try to avoid defaulting. ..."
Yves here. The strength and weakness of this article is the range of information
it covers. That comes at points at the expense of providing context. For instance,
it describes how 65% of the independent oil and gas companies are at risk of
going bankrupt. But it doesn't tell you how large the independents are relative
to the "majors". Similarly, it appears to switch two paragraphs later to the
total debt of oil and gas companies, which is $2.5 trillion. So one should read
this with some attention to definitions and context.
By Nafeez Ahmed,s an investigative journalist and international
security scholar. He writes the System Shift column for VICE's Motherboard,
and is the winner of a 2015 Project Censored Award for Outstanding Investigative
Journalism for his former work at the Guardian. He is the author of A User's
Guide to the Crisis of Civilization: And How to Save It (2010), and the scifi
thriller novel Zero Point, among other books. Originally published at
AlterNet
It's not looking good for the global fossil fuel industry. Although the world
remains heavily dependent on oil, coal and natural gas-which today supply around
80 percent of our primary energy needs-the industry is rapidly crumbling.
This is not merely a temporary blip, but a symptom of a deeper, long-term
process related to global capitalism's escalating overconsumption of planetary
resources and raw materials.
New scientific research shows that the growing crisis of profitability facing
fossil fuel industries is part of an inevitable period of transition to a post-carbon
era.
But ongoing denialism has led powerful vested interests to continue clinging
blindly to their faith in fossil fuels, with increasingly devastating and unpredictable
consequences for the environment.
Bankruptcy Epidemic
In February, the financial services firm Deloitte
predicted [3] that over 35 percent of independent oil companies worldwide
are likely to declare bankruptcy, potentially followed by a further 30 percent
next year-a total of 65 percent of oil firms around the world. Since early last
year, already 50 North American oil and gas producers have filed bankruptcy.
The cause of the crisis is the dramatic drop in oil prices-down by two-thirds
since 2014-which are so low that oil companies are finding it difficult to generate
enough revenue to cover the high costs of production, while also repaying their
loans.
Oil and gas companies most at risk are those with the largest debt burden.
And that burden is huge-as much as
$2.5 trillion [4] , according to The Economist. The real figure is probably
higher.
At a speech at the London School of Economics in February, Jaime Caruana
of the Bank for International Settlements
said [5] that outstanding loans and bonds for the oil and gas industry had
almost tripled between 2006 and 2014 to a total of $3 trillion.
This massive debt burden, he explained, has put the industry in a double-bind:
In order to service the debt, they are continuing to produce more oil for sale,
but that only contributes to lower market prices. Decreased oil revenues means
less capacity to repay the debt, thus increasing the likelihood of default.
Stranded Assets
This $3 trillion of debt is at risk because it was supposed to generate a
3-to-1 increase in value, but
instead [6] -thanks to the oil price decline-represents a value of less
than half of this.
Worse, according to a Goldman Sachs
study [7] quietly published in December last year, as much as $1 trillion
of investments in future oil projects around the world are unprofitable; i.e.,
effectively stranded.
Examining 400 of the world's largest new oil and gas fields (except U.S.
shale), the Goldman study found that $930 billion worth of projects (more than
two-thirds) are unprofitable at Brent crude prices below $70. (Prices are now
well below that.)
The collapse of these projects due to unprofitability would result in the
loss of oil and gas production equivalent to a colossal 8 percent of current
global demand. If that happens, suddenly or otherwise, it would wreck the global
economy.
The Goldman analysis was based purely on the internal dynamics of the industry.
A further issue is that internationally-recognized climate change risks mean
that to avert dangerous global warming, much of the world's remaining fossil
fuel resources cannot be burned.
All of this is leading investors to question the wisdom of their investments,
given fears that much of the assets that the oil, gas and coal industries use
to estimate their own worth could consist of resources that will never ultimately
be used.
The Carbon Tracker Initiative, which analyzes carbon investment risks, points
out that over the next decade, fossil fuel companies risk wasting up to $2.2
trillion of investments in new projects that could turn out to be "uneconomic"
in the face of international climate mitigation policies.
More and more fossil fuel industry shareholders are pressuring energy companies
to stop investing in exploration for fear that new projects could become worthless
due to climate risks.
"Clean technology and climate policy are already reducing fossil fuel demand,"
said James Leaton, head of research at Carbon Tracker. "Misreading these trends
will destroy shareholder value. Companies need to apply 2C stress tests to their
business models now."
In a prescient report published last November, Carbon Tracker identified
the energy majors with the greatest exposures-and thus facing the greatest risks-from
stranded assets: Royal Dutch Shell, Pemex, Exxon Mobil, Peabody Energy, Coal
India and Glencore.
At the time, the industry scoffed at such a bold pronouncement. Six months
after this report was released-a week ago-Peabody went bankrupt. Who's next?
The Carbon Tracker analysis may underestimate the extent of potential losses.
A new paper just out in the journal Applied Energy, from a team at Oxford University's
Institute for New Economic Thinking,
shows [8] that the "stranded assets" concept applies not just to unburnable
fossil fuel reserves, but also to a vast global carbon-intensive electricity
infrastructure, which could be rendered as defunct as the fossil fuels it burns
and supplies to market.
The Coming Debt Spiral
Some analysts believe the hidden trillion-dollar black hole at the heart
of the oil industry is set to trigger another global financial crisis, similar
in scale to the Dot-Com crash.
Jason Schenker, president and chief economist at Prestige Economics,
says [9] : "Oil prices simply aren't going to rise fast enough to keep oil
and energy companies from defaulting. Then there is a real contagion risk to
financial companies and from there to the rest of the economy."
Schenker has been ranked by Bloomberg News as one of the most accurate financial
forecasters in the world since 2010. The US economy, he forecasts, will dip
into recession at the end of 2016 or early 2017.
Mark Harrington, an oil industry consultant, goes further. He believes the
resulting economic crisis from cascading debt defaults in the industry could
make the 2007-8 financial crash look like a cakewalk. "Oil and gas companies
borrowed heavily when oil prices were soaring above $70 a barrel," he
wrote [6] on CNBC in January.
"But in the past 24 months, they've seen their values and cash flows erode
ferociously as oil prices plunge-and that's made it hard for some to pay back
that debt. This could lead to a massive credit crunch like the one we saw in
2008. With our economy just getting back on its feet from the global 2008 financial
crisis, timing could not be worse."
Ratings agency Standard & Poor (S&P) reported this week that 46 companies
have defaulted on their debt this year-the highest levels since the depths of
the financial crisis in 2009. The total quantity in defaults so far is $50 billion.
Half this year's defaults are from the oil and gas industry, according to
S&P, followed by the metals, mining and the steel sector. Among them was coal
giant Peabody Energy.
Despite public reassurances, bank exposure to these energy risks from unfunded
loan facilities remains high. Officially, only 2.5 percent of bank assets are
exposed to energy risks.
But it's probably worse. Confidential Wall Street sources
claim [10] that the Federal Reserve in Dallas has secretly advised major
U.S. banks in closed-door meetings to cover-up potential energy-related losses.
The Federal Reserve denies the allegations, but refuses to respond to Freedom
of Information requests on internal meetings, on the obviously false pretext
that it keeps no records of any of its meetings.
According to Bronka Rzepkoswki of the financial advisory firm Oxford Economics,
over a third of the entire U.S. high yield bond index is vulnerable to low oil
prices, increasing the risk of a tidal wave of corporate bankruptcies: "Conditions
that usually pave the way for mounting defaults-such as growing bad debt, tightening
monetary conditions, tightening of corporate credit standards and volatility
spikes – are currently met in the U.S."
The End of Cheap Oil
Behind the crisis of oil's profitability that threatens the entire global
economy is a geophysical crisis in the availability of cheap oil. Cheap here
does not refer simply to the market price of oil, but the total cost of production.
More specifically, it refers to the value of energy.
There is a precise scientific measure for this, virtually unknown in conventional
economic and financial circles, known as Energy Return on Investment-which essentially
quantifies the amount of energy extracted, compared to the inputs of energy
needed to conduct the extraction. The concept of EROI was first proposed and
developed by Professor Charles A. Hall of the Department of Environmental and
Forest Biology at the State University of New York. He found that an approximate
EROI value for any energy source could be calculated by dividing the quantity
of energy produced by the amount of energy inputted into the production process.
Therefore, the higher the EROI, the more energy that a particular source
and technology is capable of producing. The lower the EROI, the less energy
this source and technology is actually producing.
A new peer-reviewed
study [11] led by the Institute of Physics at the National Autonomous University
of Mexico has undertaken a comparative review of the EROI of all the major sources
of energy that currently underpin industrial civilization-namely oil, gas, coal,
and uranium.
Published in the journal Perspectives on Global Development and Technology,
the scientists note that the EROI for fossil fuels has inexorably declined over
a relatively short period of time: "Nowadays, the world average value EROI for
hydrocarbons in the world has gone from a value of 35 to a value of 15 between
1960 and 1980."
In other words, in just two decades, the total value of the energy being
produced via fossil fuel extraction has plummeted by more than half. And it
continues to decline.
This is because the more fossil fuel resources that we exploit, the more
we have used up those resources that are easiest and cheapest to extract. This
compels the industry to rely increasingly on resources that are more difficult
and expensive to get out of the ground, and bring to market.
The EROI for conventional oil, according to the Mexican scientists, is 18.
They estimate, optimistically, that: "World reserves could last for 35 or 45
years at current consumption rates." For gas, the EROI is 10, and world reserves
will last around "45 or 55 years." Nuclear's EROI is 6.5, and according to the
study authors, "The peak in world production of uranium will be reached by 2045."
The problem is that although we are not running out of oil, we are running
out of the cheapest, easiest to extract form of oil and gas. Increasingly, the
industry is making up for the shortfall by turning to unconventional forms of
oil and gas-but these have very little energy value from an EROI perspective.
The Mexico team examine the EROI values of these unconventional sources,
tar sands, shale oil, and shale gas: "The average value for EROI of tar sands
is four. Only ten percent of that amount is economically profitable with current
technology."
For shale oil and gas, the situation is even more dire: "The EROI varies
between 1.5 and 4, with an average value of 2.8. Shale oil is very similar to
the tar sands; being both oil sources of very low quality. The shale gas revolution
did not start because its exploitation was a very good idea; but because the
most attractive economic opportunities were previously exploited and exhausted."
In effect, the growing reliance on unconventional oil and gas has meant that,
overall, the costs and inputs into energy production to keep industrial civilization
moving are rising inexorably.
It's not that governments don't know. It's that decisions have already been
made to protect the vested interests that have effectively captured government
policymaking through lobbying, networking and donations.
Three years ago, the British government's Department for International Development
(DFID) commissioned and published an in-depth
report [12] , "EROI of Global Energy Resources: Status, Trends and Social
Implications." The report went completely unnoticed by the media.
Its findings are instructive: "We find the EROI for each major fossil fuel
resource (except coal) has declined substantially over the last century. Most
renewable and non-conventional energy alternatives have substantially lower
EROI values than conventional fossil fuels."
The decline in EROI has meant that an increasing amount of the energy we
extract is having to be diverted back into getting new energy out, leaving less
for other social investments.
This means that the global economic slowdown is directly related to the declining
resource quality of fossil fuels. The DFID report warns: "The declining EROI
of traditional fossil fuel energy sources and its eventual effect on the world
economy are likely to result in a myriad of unforeseen consequences."
Shortly after this report was released, I met with a senior civil servant
at DFID familiar with its findings, who spoke to me on condition of anonymity.
I asked him whether this important research had actually impacted policymaking
in the department.
"Unfortunately, no," he told me, shrugging. "Most of my colleagues, except
perhaps a handful, simply don't have a clue about these issues. And of course,
despite the report being circulated widely within the department, and shared
with other relevant government departments, there is little interest from ministers
who appear to be ideologically pre-committed to fracking."
Peak Oil
The driving force behind the accelerating decline in resource quality, hotly
denied in the industry, is 'peak oil.'
An extensive
scientific analysis [13] published in February in Wiley Interdisciplinary
Reviews: Energy & Environment lays bare the extent of industry denialism. Wiley
Interdisciplinary Reviews (WIRES) is a series of high-quality peer-reviewed
publications which runs authoritative reviews of the literature across relevant
academic disciplines.
The new WIRES paper is authored by Professor Michael Jefferson of the ESCP
Europe Business School, a former chief economist at oil major Royal Dutch/Shell
Group, where he spent nearly 20 years in various senior roles from Head of Planning
in Europe to Director of Oil Supply and Trading. He later became Deputy Secretary-General
of the World Energy Council, and is editor of the leading Elsevier science journal
Energy Policy.
In his new study, Jefferson examines a recent 1865-page "global energy assessment"
(GES) published by the International Institute of Applied Systems Analysis.
But he criticized the GES for essentially ducking the issue of 'peak oil."
"This was rather odd," he wrote. "First, because the evidence suggests that
the global production of conventional oil plateaued and may have begun to decline
from 2005."
He went on to explain that standard industry assessments of the size of global
conventional oil reserves have been dramatically inflated, noting how "the five
major Middle East oil exporters altered the basis of their definition of 'proved'
conventional oil reserves from a 90 percent probability down to a 50 percent
probability from 1984. The result has been an apparent (but not real) increase
in their 'proved' conventional oil reserves of some 435 billion barrels."
Added to those estimates are reserve figures from Venezuelan heavy oil and
Canadian tar sands, bringing up global reserve estimates by a further 440 billion
barrels, despite the fact that they are "more difficult and costly to extract"
and generally of "poorer quality" than conventional oil.
"Put bluntly, the standard claim that the world has proved conventional oil
reserves of nearly 1.7 trillion barrels is overstated by about 875 billion barrels.
Thus, despite the fall in crude oil prices from a new peak in June, 2014, after
that of July, 2008, the 'peak oil' issue remains with us."
Jefferson believes that a nominal economic recovery, combined with cutbacks
in production as the industry reacts to its internal crises, will eventually
put the current oil supply glut in reverse. This will pave the way for "further
major oil price rises" in years to come.
It's not entirely clear if this will happen. If the oil crisis hits the economy
hard, then the prolonged recession that results could dampen the rising demand
that everyone projects. If oil prices thus remain relatively depressed for longer
than expected, this could hemorrhage the industry beyond repair.
Eventually, the loss of production may allow prices to rise again. OPEC estimates
that investments in oil exploration and development are at their lowest level
in six years. As bankruptcies escalate, the accompanying drop in investments
will eventually lead world oil production to fall, even as global demand begins
to rise.
This could lead oil prices to climb much higher, as rocketing demand-projected
to grow 50 percent by 2035-hits the scarcity of production. Such a price spike,
ironically, would also be incredibly bad for the global economy, and as happened
with the 2007-8 financial crash, could feed into inflation and
trigger another spate [14] of consumer debt-defaults in the housing markets.
Even if that happens, the assumption-the hope-is that oil industry majors
will somehow survive the preceding cascade of debt-defaults. The other assumption,
is that demand for oil will rise.
But as new sources of renewable energy come online at a faster and faster
pace, as innovation in clean technologies accelerates, old fossil fuel-centric
projections of future rising demand for oil may need to be jettisoned.
Clean Energy
According to another
new study [15] released in March in Energy Policy by two scientists at Texas
A&M University, "Non-renewable energy"-that is "fossil fuels and nuclear power"-"are
projected to peak around mid-century … Subsequent declining non-renewable production
will require a rapid expansion in the renewable energy sources (RES) if either
population and/or economic growth is to continue."
The demise of the fossil fuel empire, the study forecasts, is inevitable.
Whichever model run the scientists used, the end output was the same: the almost
total displacement of fossil fuels by renewable energy sources by the end of
the century; and, as a result, the transformation and localisation of economic
activity.
But the paper adds that to avoid a rise in global average temperatures of
2C, which would tip climate change into the danger zone, 50 percent or more
of existing fossil fuel reserves must remain unused.
The imperative to transition away from fossil fuels is, therefore, both geophysical
and environmental. On the one hand, by mid-century, fossil fuels and nuclear
power will become obsolete as a viable source of energy due to their increasingly
high costs and low quality. On the other, even before then, to maintain what
scientists describe as a 'safe operating space' for human survival, we cannot
permit the planet to warm a further 2C without risking disastrous climate impacts.
Staying below 2C, the study finds, will require renewable energy to supply
more than 50 percent of total global energy by 2028, "a 37-fold increase in
the annual rate of supplying renewable energy in only 13 years."
While this appears to be a herculean task by any standard, the Texas A&M
scientists conclude that by century's end, the demise of fossil fuels is going
to happen anyway, with or without considerations over climate risks:
… the 'ambitious' end-of-century decarbonisation goals set by the G7
leaders will be achieved due to economic and geologic fossil fuel limitations
within even the unconstrained scenario in which little-to-no pro-active
commitment to decarbonise is required… Our model results indicate that,
with or without climate considerations, RES [renewable energy sources] will
comprise 87–94 percent of total energy demand by the end of the century.
But as renewables have a much lower EROI than fossil fuels, this will "quickly
reduce the share of net energy available for societal use." With less energy
available to societies, "it is speculated that there will have to be a reprioritization
of societal energetic needs"-in other words, a very different kind of economy
in which unlimited material growth underpinned by endless inputs of cheap fossil
fuel energy are a relic of the early 21st century.
The 37-fold annual rate of increase in the renewable energy supply seems
unachievable at first glance, but new data just released from the Abu Dhabi-based
International Renewable Energy Agency shows that clean power is well on its
way, despite lacking the massive subsidies behind fossil fuels.
The data reveals that last year, solar power capacity rose by 37 percent.
Wind power grew by 17 percent, geothermal by 5 percent and hydropower by 3 percent.
So far, the growth rate for solar power has been exponential. A Deloitte
Center for Energy Solutions
report [16] from September 2015 noted that the speed and spread of solar
energy had consistently outpaced conventional linear projections, and continues
to do so.
While the costs of solar power is consistently declining, solar power generation
has doubled every year for the last 20 years. With every doubling of solar infrastructure,
the production costs of solar photovoltaic (PV) has dropped by 22 percent.
At this rate, according to analysts like Tony Seba-a lecturer in business
entrepreneurship, disruption and clean energy at Stanford University-the growth
of solar is already on track to go global. With eight more doublings, that's
by 2030, solar power would be capable of supplying 100 percent of the world's
energy needs. And that's even without the right mix of government policies in
place to support renewables.
According to Deloitte, while Seba's forecast is endorsed by a minority of
experts, it remains a real possibility that should be taken seriously. But the
firm points out that obstacles remain:
"It would not make economic sense for utility planners to shutter thousands
of megawatts of existing generating capacity before the end of its economic
life and replace it with new solar generation."
Yet Deloitte's study did not account for the escalating crisis in profitability
already engulfing the fossil fuel industries, and the looming pressure of stranded
assets due to climate risks. As the uneconomic nature of fossil fuels becomes
evermore obvious, so too will the economic appeal of clean energy.
Race against time
The question is whether the transition to a post-carbon energy system-the
acceptance of the inevitable death of the oil economy-will occur fast enough
to avoid climate catastrophe.
Given that the 2C target for a safe climate is widely recognized to be inadequate-scientists
increasingly argue that even a 1C rise in global average temperatures would
be sufficient to trigger dangerous, irreversible changes to the earth's climate.
According to a 2011 report by the National Academy of Sciences, the scientific
consensus
shows [17] conservatively that for every degree of warming, we will see
the following impacts: 5-15 percent reductions in crop yields; 3-10 percent
increases in rainfall in some regions contributing to flooding; 5-10 percent
decreases in stream-flow in some river basins, including the Arkansas and the
Rio Grande, contributing to scarcity of potable water; 200-400 percent increases
in the area burned by wildfire in the US; 15 percent decreases in annual average
Arctic sea ice, with 25 percent decreases in the yearly minimum extent in September.
Even if all CO2 emissions stopped, the climate would continue to warm for
several more centuries. Over thousands of years, the National Academy warns,
this could unleash amplifying feedbacks leading to the disappearance of the
polar ice sheets and other dramatic changes. In the meantime, the risk of catastrophic
wild cards "such as the potential large-scale release of methane from deep-sea
sediments" or permafrost, is impossible to quantify.
In this context, even if the solar-driven clean energy revolution had every
success, we still need to remove carbon that has already accumulated in the
atmosphere, to return the climate to safety.
The idea of removing carbon from the atmosphere sounds technologically difficult
and insanely expensive. It's not. In reality, it is relatively simple and cheap.
A new book by Eric Toensmeier, a lecturer at Yale University's School of
Forestry and Environmental Studies, The Carbon Farming Solution, sets out in
stunningly accessible fashion how 'regenerative farming' provides the ultimate
carbon-sequestration solution.
Regenerative farming is a form of small-scale, localised, community-centred
organic agriculture which uses techniques that remove carbon from the atmosphere,
and sequester it in plant material or soil.
Using an array of land management and conservation practices, many of which
have been tried and tested by indigenous communities, it's theoretically possible
to scale up regenerative farming methods in a way that dramatically offsets
global carbon emissions.
Toensmeier's valuable book discusses these techniques, and unlike other science-minded
tomes, offers a practical toolkit for communities to begin exploring how they
can adopt regenerative farming practices for themselves.
According to the
Rodale Institute [18] , the application of regenerative farming on a global
scale could have revolutionary results:
Simply put, recent data from farming systems and pasture trials around
the globe show that we could sequester more than 100 percent of current
annual CO2 emissions with a switch to widely available and inexpensive organic
management practices, which we term 'regenerative organic agriculture'…
These practices work to maximize carbon fixation while minimizing the loss
of that carbon once returned to the soil, reversing the greenhouse effect.
This has been widely corroborated. For instance, a 2015
study [19] part-funded by the Chinese Academy of Sciences found that "replacing
chemical fertilizer with organic manure significantly decreased the emission
of GHGs [greenhouse gases]. Yields of wheat and corn also increased as the soil
fertility was improved by the application of cattle manure. Totally replacing
chemical fertilizer with organic manure decreased GHG emissions, which reversed
the agriculture ecosystem from a carbon source… to a carbon sink."
Governments are catching on, if slowly. At the Paris climate talks, 25 countries
and over 50 NGOs signed up to the French government's '4 per 1000' initiative,
a
global agreement [20] to promote regenerative farming as a solution for
food security and climate disaster.
The Birth of Post-Capitalism
There can be no doubt, then, that by the end of this century, life as we
know it on planet earth will be very different. Fossil fueled predatory capitalism
will be dead. In its place, human civilization will have little choice but to
rely on a diversity of clean, renewable energy sources.
Whatever choices we make this century, the coming generations in the post-carbon
future will have to deal with the realities of an overall warmer, and therefore
more unpredictable, climate. Even if regenerative processes are in place to
draw-down carbon from the atmosphere, this takes time-and in the process, some
of the damage climate change will wreak on our oceans, our forests, our waterways,
our coasts, and our soils will be irreversible.
It could take centuries, if not millennia, for the planet to reach a new,
stable equilibrium.
But either way, the work of repairing and mitigating at least some of the
damage done will be the task of our childrens' children, and their children,
and on.
Economic activity in this global society will of necessity be very different
to the endless growth juggernaut we have experienced since the industrial revolution.
In this post-carbon future, material production and consumption, and technological
innovation, will only be sustainable through a participatory 'circular economy'
in which scarce minerals and raw materials are carefully managed.
The fast-paced consumerism that we take for granted today simply won't work
in these circumstances.
Large top-down national and transnational structures will begin to become
obsolete due to the large costs of maintenance, the unsustainability of the
energy inputs needed for their survival, and the shift in power to new decentralized
producers of energy and food.
In the place of such top-down structures, smaller-scale, networked forms
of political, social and economic organization, connected through revolutionary
information technologies, will be most likely to succeed. For communities to
not just survive, but thrive, they will need to work together, sharing technology,
expertise and knowledge on the basis of a new culture of human parity and cooperation.
Of course, before we get to this point, there will be upheaval. Today's fossil
fuel incumbency remains in denial, and is unlikely to accept the reality of
its inevitable demise until it really does drop dead.
The escalation of resource wars, domestic unrest, xenophobia, state-militarism,
and corporate totalitarianism is to be expected. These are the death throes
of a system that has run its course.
The outcomes of the struggles which emerge in coming decades-struggles between
people and power, but also futile geopolitical struggles within the old centers
of power (paralleled by misguided struggles between peoples)-is yet to be written.
Eager to cling to the last vestiges of existence, the old centers of power
will still try to self-maximize within the framework of the old paradigm, at
the expense of competing power-centers, and even their own populations.
And they will deflect from the root causes of the problem as much as possible,
by encouraging their constituents to blame other power-centers, or worse, some
of their fellow citizens, along the lines of all manner of 'Otherizing' constructs,
race, ethnicity, nationality, color, religion and even class.
Have no doubt. In coming decades, we will watch the old paradigm cannibalize
itself to death on our TV screens, tablets and cell phones. Many of us will
do more than watch. We will be participant observers, victims or perpetrators,
or both at once.
The only question that counts, is as follows: amidst this unfolding maelstrom,
are we going to join with others to plant the seeds of viable post-carbon societies
for the next generations of human-beings, or are we going to stand in the way
of that viable future by giving ourselves entirely to defending our 'interests'
in the framework of the old paradigm?
Whatever happens over coming decades, it will be the choices each of us make
that will ultimately determine the nature of what survives by the end of this
pivotal, transitional century.
And one such solution is at hand. People. Too many people to subsist
in a crazed-fossil-fueled capitalists world means there will be changes.
If the MIT professor is correct and the solution is decentralized regenerative
farming, aka organic farming on a vast scope, then we've certainly got the
people power to do it. It's always good to hear that China understands these
things. I'm sure India does too.
Thanks, Yves, for posting this information rich and pertinent article.
Your curation is impeccable.
The cited documents are lengthy and I intend to read further. At a glance,
I was surprised to learn that, despite years of Peak Oil investigations:
1) EROI is virtually unknown in conventional economic and financial circles.
2) Lack of institutional awareness and disinterest at DFID is widespread,
such that research isn't influencing policy. The essence of irony!
3) Experts remain focused on comparitively high energy solutions (such as
underground carbon capture technologies) over low energy biological solutions
(such as carbon sequestration by soil organisms, trees and plants).
I'm heartened, though, to see some regenerative farming citations. Eric
Toensmeier and the Rodale Institute are wonderful. Bill Mollison, David
Holmgren, Brad Lancaster, Geoff Lawton and Darren J. Doherty are also excellent
resources. BTW, the 60999 EROI Global Energy Resources pdf cites a Lambert,
et al 2013. Is that THE Lambert?
A broader understanding of energy is and will remain critical in a post-capitalism,
post-carbon future. Currently, work is neglected because "it doesn't pay"
to do it. That is a tragic squandering of available resources. By any meaningful
metric, it pays to liberate latent energy to do the work of restoring the
environment.
There was a lively discussion this week about community building. I'm
happy to spend my days installing earthworks, natural building, growing
yummy stuff…
Thx for highlighting the regenerative agriculture references. An important
resource I'd add to the list regarding regenerative agriculture and large
scale carbon sink benefits is the
Savory Institute . Their
website is constantly adding links to recent research.
I'm not a huge Rolling Stones fan, but whenever I see a complex economic
analysis like this, I'm reminded of what Mick Jagger said when they asked
him why he dropped out of the London School of Economics: "There's too many
variables."
Fascinating article. One niggling question about EROI. I get how it's
relatively easy to calculate the EROI of a barrel of oil - the barrel holds
a specific number of gallons and each gallon is capable of producing X amount
of energy. But what about renewables? You know the production cost of a
wind turbine, for instance, but the energy it produces over its lifetime
is much more open-ended. So the Energy Return for it must be the total expected
energy returned over the turbine's projected service life, right? If so,
the longer it lasts, the higher it's EROI.
It's a lot more complicated even than that, it really depends on
where you draw the boundaries of the system. Prieto and Hall did an analysis
of Spanish solar that was probably the most comprehensive yet, including
things like the truck trips to lay the gravel for the surface roads, maintenance
trips to clean the panels, etc, and got a much lower EROEI figure than is
typically given for solar. As far as wind goes, turbines tend to fail
at a higher frequency than manufacturers estimate (go figure) so the best
way to measure things like turbine lifespan is to look at those in the field.
The article is generally correct that renewable EROEI tends to be lower
than that of fossil fuels, although it seems not to contemplate that there
is a lower bound on EROEI beyond which these systems can't/won't be sustained
anyway. It's not just that less energy is available for non-energy production
use but that there is an EROEI return below which you probably can't operate
the infrastructure necessary to mine/smelt materials for renewables on the
scale being contemplated here (total replacement of FF-burning infrastructure)
It's best to think of these as order-of-magnitude comparisons with each
other. Local conditions provide huge variability on energy generated by
renewables. Likewise fossil fuel extraction.
I've invested in LED lighting for a long time. Output per unit increases
by a rule-of-thumb called Haitz's law, about a factor of 20 per decade.
Many bulbs tout a lifetime of 20 years, but haven't been around that long,
so that's an extrapolation, and I have the dead bulbs to prove the point.
So when someone talks about LED efficiency, it's not a static number, but
it's still useful for discussion.
A factor that I believe is missing from EROI is cost of clean up or,
lacking clean up, the cost of consequences, which should be determined taking
into account the negative effects of our propensity for corruption, personal
gain at the expense of the whole, (which is why nuclear should have a stratosphericly
high cost, for ex.). For oil, coal and uranium, this is a high cost that
should be subtracted from EROI. For solar and wind, the cost is
much less, except possibly in the manufacture of components that convert
sun/wind into electricity. Life span is supposed to be around 30 years so
the clean up/consequence cost of manufacture should be divided by that number.
I am quite a bit disappointed with this "article". First off, we have
to acknowledge that other than meteorologists (and yes demographics) we
have we skill at forecasting the future. So to me this article reads as
though it started from a future condition than constructed a series of facts
and thesis that get you there. The reality is we don't know and one may
as well flip a coin.
That said, there is clearly right now much to be concerned about. Humans
seem to be internally wired to be short-term based. "Tell me where my next
meal is coming from is all I care about". So, tackling issues like climate
change is not something we're good at; and there is no historic precedent
I can think of for all of mankind collaborating to solve a problem.
The carbon-energy situation needs to be placed in a context of the
slow burn debt deflation we are experiencing, which at a minimum is usually
death for the financial performance of commodities and any long term debt
supported business. NC has well documented the issues this poses for actuarial
based investments (life insurance, think Japan in the early '90s, pensions,
etc.).
Last thought, the debt situation is likely much worse in the short
run as the decline in oil revenues are likely already causing local and
regional recessions (e.g., Bakken, Houston) and correlated impact on commercial
real estate, home values, mortgages, etc. plus are we facing a sovereign
debt crisis in such countries as Venezuela (which used PDVSA to massively
borrow on the countries behalf), Brazil, Russia, etc.
This short term glut will probably accentuate the coming problems
because it gives the impression that there is no peak oil. People have trouble
understanding that there are short-term cycles within a long-term cycle.
This bad signal is giving us the impetus to continue investing in energy
intensive projects instead of reshaping our economy. And this will make
things even worse in 5-10 years.
If the total cost of extraction is more than 40$ and consumers are
paying $40 or less, then somewhere along the way, someone is subsidizing
the cost. It could be low tax rates, eZ money, growing deficits, underfunded
pensions, underfunded restoration funds, etc.
A country's most important asset is energy and historically, countries
have never willingly cut total energy consumption. They might increase efficiencies
but the total does not drop. This means that most countries, as long as
there exist other sectors that can be squeezed, will continue to subsidize
the energy sector squeezing out these sectors that are deemed less important
or simply those with less clout.
It is quite obvious that our lives are even more energy dependent than
they were when this monetary cycle started in the early 70s. And our system
is still based on growing this even more. With NIRP, we are getting very
close to the end of this cycle.
There is no glut. All the oil is being bought. The problem is that
there in not yet enough of a shortage to drive the price up. A small distinction
but huge ramifications if you understand it. And by the way higher prices
is not a solution to what ails us.
A few thoughts:
-time scale – this thing we are in will roll on for thousands of years –
the K-T mass extinction took 2-3 million years before species started to
increase again;
-They (we) will keep the oil flowing as long as they can – look how ugly
the coal industry's slow death is getting – until climate events are overwhelming
and require extraordinary efforts just to mitigate. My money's on sea level
rise focusing all attention;
-billions of humans will die – many in climate change-triggered wars
and famines – the Four Horsemen are saddling up;
-like it or not, people in the developed world, less densely populated
parts, anyway (USA, Canada, e.g.) once they are over the necessities like
lower standards of living (no more trinkets and geegaws ) and hard physical
labor in sustainable agriculture, are way better off than over-populated
places. However, it will get ugly at the borders, as Europe is experiencing
right now.
-expect more authoritarian governments – the human response to crisis.
Tribalism will rule.
-and the doom-and-gloomers can fuck off they are useless, unable to adapt
or evolve, and are just scaring the stupid unnecessarily. The living planet
will adapt and evolve as it has always done – and humans in some form or
other also. DO you really think the most adaptable species, inhabiting every
biome, will not?
No my strategy is hard work. Respectful of the planet's living processes.
And honesty.
Most doomers are at an early stage of consciousness of the magnitude
of our society's death spiral. My aim is to shake them out of their (totally
understandable) depression – work is the cure. COllective efforts on a large
scale but managed locally – resilient ecology requires complexity – monocultures
are doomed.
The way I see it is that you have convinced yourself that you will
be on the winning side when calamity strikes. Whether you are is another
matter… just like the slowest bug does not get to the field on time to get
exterminated by the sprayed pesticides, work and efficiency do not guarantee
anything.
The doomers are those who are not convinced they will be spared. Maybe
they can place themselves in the winning group with positive thinking and
hard work, but maybe not so in such a case they need help deluding themselves
so they can become perma-optimists.
Well I'm glad you have that insight into my thinking! Not!
I see it rather that my own death is inevitable, and that of my lineage
and tribe as having a probability of greater than 0. Luck (divine providence?)
counts for a lot, as you note.
Deluded optimists can be organized to do useful work. Better than idle
pessimists.
I utterly reject the "winning side" as a useful concept – there is only
living struggle through the generations.
I have to wonder, if it is really so easy to clean up the carbon and
other toxins we have polluted the atmosphere and oceans with, then why bother
to stop producing oil, coal and nuclear other than that they come to be
less economical?
i strongly doubt the projected ease of such a clean up whether it be
the biological feasibility or the willingness of humans to work together
for common goals – extinction seem to be almost an afterthought – (or conversely,
the more realistic "Hillary" element in people to work feverishly for personal
gain at the expense of others). Going from coal to sunlight is easy. Going
from Clinton to Sanders, not so much.
Well President Trump will make the thing go faster and expose the failings
of fossil-fueled society as he has the corruption of our fundamentally racist
nation. By being the bad thing.
All major cultures are in terminal decline, which should be expected,
and is not to say that they will not be replaced or that some will not recover,
which is neither good nor bad.
The geneticists and psychologists are snakeoil salesmen. All the geneticists
have proven is that you have the same basic gene set as a worm, making up
about 2% of your DNA. They haven't begun to decipher the 98% if then feedback
code. Science tells you that the last thing you want to do is inject everyone
with the same mitochondrial DNA, but medicine isn't about science; its about
printing money on fear.
What the psychologists learned is that an irrational majority can be
conditioned to do whatever you want. Ironically, in America you are an unfit
parent if you have a scientific mind or believe in others, as a Christian,
leaving the majority, which lives in fear, to raise children, which doesn't
bode well except for the morons running the show, for now.
Projecting the future on biased data is a waste of time, the status quo.
Too funny, critters who have never developed seed debating corporate versus
yuppie farming techniques.
Medicine will never understand synaptic response, immunological adaptation,
intercellular signalling or blood clotting / mRNA feedback, because it is
not paid to do so. You are nature's test tube, and the majority fears the
unknown, as conditioned by the cave people running public education.
As a carbon based life form, it is in your interest to learn how that
carbon chain is popped on and off the stack to maintain event horizons.
That last line is too funny, but I agree with you.
Getting out there and doing something now that we understand what is
going on is probably a better use of our time than trying to protect the
current economic structure. Build a new energy paradigm that better fits
our ecosystem and see what kind of economic, social, and political structures
begin to develop around that.
Surely, whatever develops will model what has come before it but it needs
to be rooted in the physical environment, which clearly it is not currently.
The author blames the oil patch bust on a geophysical crisis. There
is some truth to this argument but by far the biggest driver of the bust
is Fed policy. Artificially cheap debt financing led to overcapacity and
a vicious cycle of continued overproduction as drillers desperately try
to avoid defaulting.
"... Jean Laherrere's graph confirms that inflection point happened around 1980, roughly 20 years after the peak in discoveries. This puts a 40 year lag between the peak in discoveries and the peak in production, the latter being scheduled for about the year 2000. ..."
"... We are now at the peak of that much broader and flatter curve (which has been frequently mis-characterized as an "undulating plateau") with conventional global annual production well below 40 Gb and looking very much like it is finally on its way down. This despite the giant pump and dump scheme otherwise known as the "shale revolution". ..."
Jean Laherrere's graph is particularly interesting.
Anyone familiar with Hubbert's full statistical analysis knows that the peak of proved reserves
roughly corresponds to the same point in time when the production curve crosses the discovery
curve (also backdated), which is roughly the halfway point between the peaks of the discovery
and production curves.
Jean Laherrere's graph confirms that inflection point happened around 1980, roughly 20 years
after the peak in discoveries. This puts a 40 year lag between the peak in discoveries and the
peak in production, the latter being scheduled for about the year 2000.
All of which is perfectly consistent with Hubbert's 1972 Congressional analysis of global discoveries
and production which he put at about 2 trillion bbl URR and a production peak of about 40 Gb per
year in 1995 or thereabouts.
What happened, you may ask, to the production peak? The years 1995 and 2000 have come and gone.
Simple, the global geopolitics of oil. The Arab oil embargo and Iranian revolution of the 70's
but a huge crimp in the global production curve and pushed a significant portion of the area under
the curve into the future by a decade or two.
In Jean Laherrere's world discoveries and production graph above you can clearly see the inflection
point in 1980, before which the world was clearly on the "ideal" Hubbert curve that would have
reached 40 Gb per year in 2000. After 1980 the reality of the geopolitics of oil and energy set
in and constrained global production which visibly flattened out the curve.
Something which Hubbert himself fully acknowledged could happen, both in his analysis and in
subsequent interviews.
We are now at the peak of that much broader and flatter curve (which has been frequently mis-characterized
as an "undulating plateau") with conventional global annual production well below 40 Gb and looking
very much like it is finally on its way down. This despite the giant pump and dump scheme otherwise
known as the "shale revolution".
"... "They (Saudis) have the ability to raise output significantly. But so do we," Russian Energy Minister Alexander Novak told journalists on the sidelines of an international energy conference in Moscow. ..."
"... He said Russia was "in theory" able to raise production to 12 or even 13 million bpd from current record levels of close to 11 million bpd. ..."
"... Russian oil output has repeatedly surprised on the upside over the past decade, rising from as low as 6 million bpd at the turn of the millennium. Oil experts have repeatedly predicted an unavoidable decline but it has yet to happen. ..."
"... we are headed for some incredibly rough times. We need for oil to be just like Goldilock's porridge, not to hot, not too cold, not too plentiful and cheap, not too scarce and expensive, for at least another couple of decades. ..."
Russia said on Wednesday it was prepared to push oil production to new historic highs, just
days after a global deal to freeze output levels collapsed and Saudi Arabia threatened to flood
markets with more crude.
The deal had been meant to help the market rebalance by removing a large chunk of oversupply
and a stockpile glut.
But Saudi Arabia said it could jack up output instead – by as much as 2 million barrels per
day (bpd) to over 12 million, which would allow it to overtake Russia as the world's largest producer.
"They (Saudis) have the ability to raise output significantly. But so do we," Russian
Energy Minister Alexander Novak told journalists on the sidelines of an international energy
conference in Moscow.
He said Russia was "in theory" able to raise production to 12 or even 13 million bpd from
current record levels of close to 11 million bpd.
Russian oil output has repeatedly surprised on the upside over the past decade, rising
from as low as 6 million bpd at the turn of the millennium. Oil experts have repeatedly predicted
an unavoidable decline but it has yet to happen.
"Oil experts have repeatedly predicted an unavoidable decline but it has yet to happen."
This is a "WHEN" question, rather than an "if" question. Let's hope and pray to the Sky Daddy
or Sky Mommy of our choice that the supply of oil holds up well enough, long enough, for the renewables
and electric car industries to grow up.
Otherwise, we are headed for some incredibly rough times. We need for oil to be just like
Goldilock's porridge, not to hot, not too cold, not too plentiful and cheap, not too scarce and
expensive, for at least another couple of decades.
"... It was US intervention in the Middle East, say the Saudis, that led us to create first al-Qaeda and then ISIS. The US attack on Iraq tipped the balance in the region in favor of Iran and counter-measures needed to be taken. ..."
"... This is nothing new. The CIA helped create and back the Mujahideen in Afghanistan to counter the 1979 Soviet invasion. And the CIA knew about (at the least) Saudi plans to counter Iran's rise in the region and the uncertainty produced by US-instigated "Arab Spring" beginning in 2011. ..."
It was US intervention in the Middle East, say the Saudis, that led us to create first
al-Qaeda and then ISIS. The US attack on Iraq tipped the balance in the region in favor of Iran
and counter-measures needed to be taken.
This is nothing new. The CIA helped create and back the Mujahideen in Afghanistan to
counter the 1979 Soviet invasion. And the CIA knew about (at the least) Saudi plans to counter
Iran's rise in the region and the uncertainty produced by US-instigated "Arab Spring" beginning
in 2011. The lesson? Interventionism has consequences, some intended and some unintended.
Usually counter to the stated objectives. Trying to order the world, the central planners have
only created chaos.
Blast from the past (this article was published in april 2014 -- two years ago)
Notable quotes:
"... To decrease oil and gas prices significantly, which would be a serious blow to Russia's state treasury, and to achieve substantial reductions in the consumption of Russian oil and gas by the West. ..."
"... However, the rulers of the KSA want much more, and above all, they want Assad's regime to be destroyed, and American help in order to stop the growing influence of Iran, as well as to form a "Shiite Arc" in the region. Only then can Riyadh recover from the strongly shaken position of the kingdom in the Islamic world. And the overthrow of Assad and capturing Damascus by the pro-Saudi Islamist opposition in Damascus are the only things that can strengthen the position of Saudi Arabia as a leader among the Arab states. This would allow the implementation of its plans for further regional expansion – from establishing a Jordanian-Palestinian federation to the formation of an anti-Shiite league from the Arabian Peninsula to India. ..."
"... Thus, while B. Assad stays in power, the construction of the gas pipeline from Qatar to the Mediterranean coast of Syria is impossible. Energy experts calculated back in 2009-2010, that if Sunnis came to power in Syria, instead of the Alawite regime of Bashar Assad, the gas pipeline 'Qatar – Saudi Arabia – Jordan – Syria – Turkey' would be built in two years. This would result in huge financial losses for Russia, whose gas cannot compete with Qatari gas, due to the extremely low cost of the latter. Hence, Saudi Arabia is trying to subdue Qatar, through a conflict within the GCC, in order to cut off another option – the construction of a gas pipeline from Iran (South Pars) through Iraq and Syria, which could be a joint project with Russia. Doha would play only a secondary, supporting role, being dependent on Tehran. ..."
"... Earlier, American billionaire George Soros said that the U.S. strategic oil reserves are more than twice larger than the required level, and the sale of a part of these reserves would allow exerting pressure on Russia. That is, the blows would hit Moscow from two directions – from the United States and from the Persian Gulf. However, later on, the U.S. Secretary of Energy denied this possibility. ..."
"... However, there is the question: Did the U.S. President manage to agree with Saudi Arabia to increase oil supplies to the world market to bring down prices? Does the KSA have a possibility to offer significant volumes of oil on the world market, for example up to 3-4 million b/d? ..."
"... The fact is that the price of $110 per barrel is just the thing that Saudi Arabia needs, because the leadership of the kingdom has extensive socio-economic obligations. And if the standard of living of the Saudis decreases somewhat, due to the fall in oil prices and due to the fall of oil income, the country would be very much at risk to fall into the situation of the "Arab Spring", like it was the case in Tunisia, Libya, Egypt. And the Saudis are afraid of a repetition of the Arab revolutions ..."
"... Alexander Orlov, political scientist, expert in Oriental Studies, exclusively for the online magazine "New Eastern Outlook" . http://journal-neo.org/2014/04/02/rus-zachem-obama-priezzhal-v-e-r-riyad/ ..."
The deterioration of the situation in Ukraine made substantial changes in the agenda of talks
of U.S. President Obama with Saudi leadership in Riyadh on March 28 this year. The main subject of
the discussion included the situation around Ukraine, possible joint steps to decrease energy prices,
in order to weaken Russia's economy, promotion of Iran's moving to a more pro-Western position, to
weaken Tehran's cooperation with Moscow, and only then about Syria and the situation in the GCC.
Obama's support of the coup in Ukraine and the tough American opposition towards Russia in Ukrainian
affairs, led to Washington developing the idea of urgent mobilization of the resources of its rich
Arab allies – to oppose Moscow. This is because it turned out that the U.S. and its allies in NATO
and the EU had no financial or political leverage, for exerting pressure on Russia.
That is why the White House's decision, urgently to revive its relations with those major Arab
partners, with whom they have not been good recently, seems logical. The more so that, although Riyadh
and Washington had differences in the approaches to some international and regional issues, the two
countries reduced neither their energy nor military cooperation, as well as intelligence interaction
was not stopped in the war being conducted by the United States and the Kingdom of Saudi Arabia against
Iran and Syria. In addition, the White House decided to try to form a united front with the leading
country in the Arab world against Moscow, and to neutralize Tehran at the same time.
As it became known, in the course of the conversation, Obama suggested that the ruling Saudi dynasty
"take vengeance" on Russia for Crimea, by making strikes on three fronts. In Syria, in order to take
it out of the orbit of influence of Moscow and Tehran, and to put the whole Levant under the U.S.
and Saudi control. To provide financial assistance to the new government in Kiev, in order to make
Ukraine an outpost of anti-Russian activities in Eastern Europe. To decrease oil and gas prices
significantly, which would be a serious blow to Russia's state treasury, and to achieve substantial
reductions in the consumption of Russian oil and gas by the West.
Washington is well aware that Obama cannot act in any of these areas without Riyadh, especially
in terms of using the "energy weapon" against Moscow. In exchange, Obama offered to "give a free
hand" to the KSA in the Middle East and the Persian Gulf. The more so, that Riyadh has been granted
the right to build a special relationship with Egypt, after the overthrow of Mursi's government.
In general, the U.S. and the West have turned a blind eye to the harsh crushing of the protests of
Shiites in Bahrain and the Eastern Province of the KSA. The Saudis received the right to carry out
an operation to "subdue" Qatar and to defeat the Muslim Brotherhood. Moreover, the White House has
admitted Riyadh to work on the question that is the most important issue for it and Israel, i.e.,
the Israeli-Palestinian settlement, by giving the Saudis a "green light" to work with Jordan, which
now has a special role in the new scheme to settle the Palestinian issue.
However, the rulers of the KSA want much more, and above all, they want Assad's regime to
be destroyed, and American help in order to stop the growing influence of Iran, as well as to form
a "Shiite Arc" in the region. Only then can Riyadh recover from the strongly shaken position of the
kingdom in the Islamic world. And the overthrow of Assad and capturing Damascus by the pro-Saudi
Islamist opposition in Damascus are the only things that can strengthen the position of Saudi Arabia
as a leader among the Arab states. This would allow the implementation of its plans for further regional
expansion – from establishing a Jordanian-Palestinian federation to the formation of an anti-Shiite
league from the Arabian Peninsula to India.
In addition, the Saudis have their own logic here – since Syria can play a key role in supplying
Qatari gas to Europe. In 2009-2011, Damascus was the main obstacle to the implementation of a project
for the construction of a pipeline from Qatar's North Field to the EU, which would have allowed a
strike at "Gazprom", via a sharp increase in supplies of cheap Qatari gas to Europe. For various
reasons, Damascus did not consent to laying of a gas pipeline through its territory from Qatar to
Turkey and the Mediterranean coast of the SAR for further transit to the EU. Thus, while B. Assad
stays in power, the construction of the gas pipeline from Qatar to the Mediterranean coast of Syria
is impossible. Energy experts calculated back in 2009-2010, that if Sunnis came to power in Syria,
instead of the Alawite regime of Bashar Assad, the gas pipeline 'Qatar – Saudi Arabia – Jordan –
Syria – Turkey' would be built in two years. This would result in huge financial losses for Russia,
whose gas cannot compete with Qatari gas, due to the extremely low cost of the latter. Hence, Saudi
Arabia is trying to subdue Qatar, through a conflict within the GCC, in order to cut off another
option – the construction of a gas pipeline from Iran (South Pars) through Iraq and Syria, which
could be a joint project with Russia. Doha would play only a secondary, supporting role, being dependent
on Tehran.
Therefore, in Obama's negotiations with the Saudi rulers, the latter sought U.S. consent to a
large increase in the comprehensive assistance provided to Syrian rebels. In particular, to supply
heavy weapons and man-portable air defense systems (MANPADS), which would reduce to naught the superiority
of the Syrian government forces in terms of firepower, and its complete superiority in the air, and
thereby change the military balance in favor of "the anti-Assad opposition". After that, it would
be possible to act under the tested scheme: the creation of no-fly zones near Turkish and Jordanian
borders, turning this area into a stronghold of militants, supplying arms and sending large mercenary
forces there and the organization of a march on Damascus. In this case, according to the logic of
the Saudis, Iran would be forced to move to a strategic defense, which would satisfy Riyadh at this
stage, before the next move – arranging a coalition aimed at stifling the Islamic regime in Tehran.
Obama asked the Saudis to give $15 billion, in return for all that, in order to support current Ukrainian
authorities, explaining that the KSA would be compensated for these financial costs and a temporary
drop in oil prices later, by the energy "isolation" of Russia and Iran.
The more so, that there was a precedent for this, when President Reagan and Saudi King caused
a sharp decline in oil prices by the dumping of Saudi oil on the world market in the mid-1980s, because
Soviet troops were sent into Afghanistan, which ultimately led to the disintegration of the Soviet
Union, because of the subsequent economic problems. Today, a much smaller decrease in oil prices
– from the current $107 per barrel to around 80-85 dollars – would be enough to make Russia suffer
huge financial and economic damages. This would allow the U.S. president not only to get revenge
for Crimea, but also to undermine significantly the economy of the Russian Federation, which would
be followed by negative domestic political consequences for the current Russian government.
Earlier, American billionaire George Soros said that the U.S. strategic oil reserves are more
than twice larger than the required level, and the sale of a part of these reserves would allow exerting
pressure on Russia. That is, the blows would hit Moscow from two directions – from the United States
and from the Persian Gulf. However, later on, the U.S. Secretary of Energy denied this possibility.
However, there is the question: Did the U.S. President manage to agree with Saudi Arabia to
increase oil supplies to the world market to bring down prices? Does the KSA have a possibility to
offer significant volumes of oil on the world market, for example up to 3-4 million b/d?
The fact is that the price of $110 per barrel is just the thing that Saudi Arabia needs, because
the leadership of the kingdom has extensive socio-economic obligations. And if the standard of living
of the Saudis decreases somewhat, due to the fall in oil prices and due to the fall of oil income,
the country would be very much at risk to fall into the situation of the "Arab Spring", like it was
the case in Tunisia, Libya, Egypt. And the Saudis are afraid of a repetition of the Arab revolutions.
Apparently, the Saudis are not going to offer additional oil on the market in order to bring down
the price, just due to the hatred of the United States for the Russian Federation – as this is not
profitable for them at all. They could agree on other things, including Qatari gas, Syria and Iran.
In addition, the available production capacity of the KSA is not engaged now. This is about 4 million
barrels per day. However, it would be impossible to do this quickly. It could take up to one month
to increase the production. This is about as much as Iran produced at one time. However, now Iran
is going to increase its production, due to lifting a part of the sanctions, and the Saudis are likely
not to increase, but to reduce their production to keep oil prices high. And the prices will remain
within the range they have been for quite a long time already. They will be in the range from 100
to 110, as this is the most comfortable range for both consumers and producers. Many countries, especially
those that can influence the prices, via some manipulations with supply, are extremely interested
in having high level of prices. Socio-economic programs are carried out in Venezuela at a price level
of about $120 per barrel. In Iran, this figure is 110, and the same in Saudi Arabia. Thus, no one
is interested in bringing down prices.
As for Iran, only one thing is clear for the time being: President Barack Obama has reassured
Saudi King Abdullah that he would not agree to a "bad deal" with Iran on the nuclear issue. That
is, Riyadh did not get what it wanted even on the Iranian issue. After the two leaders discussed
their "tactical disagreements", they both agreed that their strategic interests coincide, said an
administration official. The statement of the White House on the results of the two-hour talks reads
that Obama reaffirmed the importance for Washington of strong ties with the world's largest oil exporter.
At the same time, the administration official said that the parties had no time to discuss the situation
with human rights in Saudi Arabia during their negotiations. In addition, a trusted source in the
U.S. State Department said that Washington and Riyadh also discussed the conflict in Syria. According
to him, the two countries carried out good joint work aimed at reaching a political transition period,
and the support of moderate factions of the Syrian opposition. As for a possible supply of man-portable
air defense systems to opposition militants, an informed source in Washington said that the U.S.
still was concerned regarding the provision of such weapons to the rebels. However, there is information
that Obama's administration is considering the possibility of lifting the ban on the supply of MANPADS
to the Syrian opposition. According to this source, the recent successes of the Syrian Army against
the opposition forces may force the U.S. president to change his point of view.
Apparently, Obama and King Abdullah failed to reach clear and specific agreements on all issues
on the agenda. There are differences, and the financial and economic interests are more important
to Saudi Arabia than helping Washington in implementing its "revenge" on Russia for Crimea. Riyadh
is well aware that Moscow and its partners on energy matters have things with which to respond to
Saudi Arabia if the kingdom is blindly led on a string by the White House. And it is aware even more
that Moscow has levers of political influence in the Middle East and the Persian Gulf. The U.S.,
in turn, is not ready to resume its confrontation with Iran, especially when Tehran is fulfilling
agreements to freeze its nuclear uranium enrichment program. In addition, Washington cannot work
actively on Syrian affairs now, in the conditions of ongoing tensions in Ukraine. In addition, the
chemical arsenal of the SAR has been half destroyed. And, apparently, Obama saw for himself during
his, albeit short, stay in the kingdom that great changes are coming there, associated with the upcoming
replacement of the current elderly generation of rulers by another one, which might be accompanied
by unpredictable internal perturbation in the KSA. Hence, there is almost complete absence of victorious
statements about the "historical" success of the U.S. President's visit to Saudi Arabia.
"... The level of effort dedicated to overcoming challenges will depend in part on sustained high oil prices to encourage sufficient investment in and demand for alternatives. ..."
The U.S. economy depends heavily on oil, particularly in the transportation sector. World oil production
has been running at near capacity to meet demand, pushing prices upward. Concerns about meeting increasing
demand with finite resources have renewed interest in an old question: How long can the oil supply
expand before reaching a maximum level of production--a peak--from which it can only decline? GAO
(1) examined when oil production could peak, (2) assessed the potential for transportation technologies
to mitigate the consequences of a peak in oil production, and (3) examined federal agency efforts
that could reduce uncertainty about the timing of a peak or mitigate the consequences. To address
these objectives, GAO reviewed studies, convened an expert panel, and consulted agency officials.
Most studies estimate that oil production will peak sometime between now and 2040. This range of
estimates is wide because the timing of the peak depends on multiple, uncertain factors that will
help determine how quickly the oil remaining in the ground is used, including the amount of oil still
in the ground; how much of that oil can ultimately be produced given technological, cost, and environmental
challenges as well as potentially unfavorable political and investment conditions in some countries
where oil is located; and future global demand for oil. Demand for oil will, in turn, be influenced
by global economic growth and may be affected by government policies on the environment and climate
change and consumer choices about conservation. In the United States, alternative fuels and transportation
technologies face challenges that could impede their ability to mitigate the consequences of a peak
and decline in oil production, unless sufficient time and effort are brought to bear. For example,
although corn ethanol production is technically feasible, it is more expensive to produce than gasoline
and will require costly investments in infrastructure, such as pipelines and storage tanks, before
it can become widely available as a primary fuel.
Key alternative technologies currently supply the
equivalent of only about 1 percent of U.S. consumption of petroleum products, and the Department
of Energy (DOE) projects that even by 2015, they could displace only the equivalent of 4 percent
of projected U.S. annual consumption. In such circumstances, an imminent peak and sharp decline in
oil production could cause a worldwide recession. If the peak is delayed, however, these technologies
have a greater potential to mitigate the consequences. DOE projects that the technologies could displace
up to 34 percent of U.S. consumption in the 2025 through 2030 time frame, if the challenges are met.
The level of effort dedicated to overcoming challenges will depend in part on sustained high oil
prices to encourage sufficient investment in and demand for alternatives. Federal agency efforts
that could reduce uncertainty about the timing of peak oil production or mitigate its consequences
are spread across multiple agencies and are generally not focused explicitly on peak oil. Federally
sponsored studies have expressed concern over the potential for a peak, and agency officials have
identified actions that could be taken to address this issue.
For example, DOE and United States
Geological Survey officials said uncertainty about the peak's timing could be reduced through better
information about worldwide demand and supply, and agency officials said they could step up efforts
to promote alternative fuels and transportation technologies. However, there is no coordinated federal
strategy for reducing uncertainty about the peak's timing or mitigating its consequences.
"... A famous 3 am call did take place in Doha on Sunday. The young Salman called the Saudi delegation and told them the deal was off. Every other energy market player was stunned by the reversion. ..."
US President Barack Obama landed in Saudi Arabia for a GCC petrodollar summit and to proverbially
"reassure Gulf allies" amidst the oiliest of storms.
The Doha summit this past weekend that was supposed to enshrine a cut in oil production by OPEC,
in tandem with Russia – it was practically a done deal – ended up literally in the dust.
The City of London – via the FT – wants to convey the impression to global public opinion that
it all boiled down to a dispute between Prince Mohammed bin Salman – the conductor of the illegal
war on Yemen - and Saudi Oil Minister Ali Al-Naimi. The son of - ailing - King Salman has been dubbed
"the unpredictable new voice of the kingdom's energy policy."
A famous 3 am call did take place in Doha on Sunday. The young Salman called the Saudi delegation
and told them the deal was off. Every other energy market player was stunned by the reversion.
Yet the true story, according to a financial source with very close links to the House of Saud,
is that "the United States threatened the Prince that night with the most dire consequences if he
did not back down on the oil price freeze."
So – predictably - this goes way beyond an internal Saudi matter, or the Prince's "erratic" behavior,
even as the House of Saud is indeed racked by multiple instances of fear and paranoia, as I analysed
here .
As the source explains, an oil production cut would have "hindered the US goal of bankrupting
Russia via an oil price war, which is what this is all about. Even the Prince is not that erratic."
Iran had made it more than clear that after the lifting of sanctions it does not have any reason
to embark on a production cut. On the contrary; oil contributes to 23% of Iran's GDP. But as far
as the House of Saud is concerned – feeling the pain of a budget deficit of $98 billion in 2015 -
a moderate cut was feasible, along with most of OPEC and Russia, as Al-Naimi had promised.
Another key variable must also be taken into account. Not only the whole saga goes way beyond
an internal Saudi dispute; no matter what Washington does, the
oil price has not crashed as expected. This would indicate that the global surplus of oil has
been largely sopped up by falling supply and increasing demand.
As a GCC-based oil market source reveals, "have you noticed how much attention Kerry and Obama
have been giving Saudi Arabia out of all proportion to the past to keep that oil price down? Yet
WTI is up and holding over $40.00 a barrel. That's because oil demand and supply is tightening."
The oil market source notes, "oil surplus is now probably less than a million barrels a day." So
the only way, in the short to medium term, is up.
Blowback from His Masters' Voice?
The House of Saud, by flooding the market with oil, believed it could accomplish three major feats.
1) Kill off competition – from Iran to the US shale oil industry.
2) Prevent the competition from stealing market share with key energy customer China.
3) Inflict serious damage to the Russian economy. Now it's blowback time – as it could come from
none other than His Masters' Voice.
The heart of the whole matter is that Washington has been threatening Riyadh to freeze Saudi assets
all across the spectrum if the House of Saud does not "cooperate" in the oil price war against Russia.
That reached the tipping point of the Saudis shaking the entire turbo-capitalist financial universe
by issuing
their own counter threat ; the so-called $750 billion response.
The - burning - issue of freezing all Saudi assets across the planet has come up with the US Congress
considering a bill exposing he Saudi connection to 9/11.
The declassification and release of those
notorious 28 pages would do little to rewrite recent history; 9/11 – with no serious investigation
- was blamed on "Islamic terror", and that justified the invasion of Afghanistan and the bombing/invasion/occupation
of Iraq, which had no connection to 9-11 nor any weapons of mass destruction.
The 28 pages did intimidate the House of Saud and Saudi intelligence though. Especially because
the odd sharp brain in Riyadh could make the connection; the 28 pages were being paraded around in
Western corporate media before the OPEC meeting to keep the Saudis in line on the oil war against
Russia. That may have been yet another Mafia-style "offer you can't refuse"; if the House of Saud
cuts oil production, then it will be destroyed by the release of the 28 pages.
So we are now deep into Mutually Assured Threat (MAT) territory, more than Mutually Assured Destruction
(MAD).
No one really knows how much Saudi Arabia has tied up in US Treasuries – except for a few insiders
in both Riyadh and Washington, and they are not talking. What is known is that the US Treasury bundles
Riyadh's holdings along with other GCC petrodollar monarchies. Together, that amounted to $281 billion
two months ago.
Yet the Saudis are now saying they would get rid of a whopping $750 billion. A New York investment
banker advances that "six trillion dollars would be more like it." Earlier this year,
I revealed on Sputnik how the House of Saud was busy unloading at least $1 trillion in US securities
on the market to balance its increasingly disastrous budget. The problem is no one was ever supposed
to know about it.
The fact is the US and the West froze $80 billion in assets that belonged to the deposed head
of the Egyptian snake, Mubarak. So a freeze tied up with framing Saudi Arabia for terrorism would
not exactly be a hard sell.
The nuclear option
For all the pledges of eternal love, it's an open secret in the Beltway that the House of Saud
is the object of bipartisan contempt; and their purchased support, when push comes to shove, may
reveal itself to be worthless.
Now picture a geopolitical no exit with a self-cornered House of Saud having both superpowers,
the US and Russia, as their enemies.
Obama's visit is a non-event. Whatever happens, Washington needs to sell the fiction that the House
of Saud is always an ally in the "war on terra", now fighting ISIS/ISIL/Daesh (even if they don't.)
And Washington needs Riyadh for Divide and Rule purposes – keeping Iran in check. This does not mean
that the House of Saud may not be thrown under the bus in a flash, should the occasion arise.
As the source close to Riyadh advances, "the real nuclear option for the Saudis would be to cooperate
with Russia in a new alliance to cut back oil production 20% for all of OPEC, in the process raising
the oil price to $200.00 a barrel to make up for lost revenue, forced on them by the United States."
This is what the West fear like the plague. And this is what the perennial vassal, the House of Saud,
will never have the balls to pull off.
"... Historically, feuding within the royal family has weakened its grip on power, and it was familial infighting that caused the second Saudi state's collapse in the late 1800s. ..."
"... The prince – whose age seems to be a well protected state secret, but lies somewhere between 27 and 34 years – has few merits. Through the appointment, Salman violates a number of key royal norms: all previous kings have promoted their own sons in terms of power and wealth, but within reasonable limits. ..."
"... Salman's tough and militaristic foreign policy – known as the "Salman Doctrine" – can be seen in light of his consolidation of power. ..."
"... The decision to bomb the Huthis was arguable partly driven by the king's desire to consolidate the position of Muhammad bin Salman, who, besides being deputy crown prince, is the world's youngest minister of defence. ..."
On April 29th 2015 the official Saudi Press Agency announced a royal decree stating that
the king's half-brother, Muqrin, had been replaced as the new heir apparent by Muhammad bin
Nayif, the king's nephew and interior minister. At the same time Muhammad bin Salman, son of
King Salman, was appointed deputy crown prince, while Foreign Minister Prince Sa'ud al-Faysal
was replaced by Adil al-Jubayr, the Saudi ambassador to the U.S. King Salman's reshuffling
will arguably not bring more stability to Saudi Arabia, but rather increase the long-term risk
of political instability. It underpins the notion that the Al-Sudayri clan of the royal family
has carried out a "palace coup". The survival of a dynastic regime like the Al-Sa'ud depends
on unity within the elite. Because of Salman's reshuffling of key positions the Sudayris are
now on their own at the helm of the kingdom. The new king's ultimate goal seems to be to
consolidate the succession within his branch of the family and for his favourite son. Salman's
recent appointments will probably trigger considerable dissatisfaction within the royal
family, and nurture future rivalry and potential conflicts among the various family factions.
In particular, the appointment of Muhammad bin Salman is likely to be a source of discord.
On April 29th 2015 the official Saudi Press Agency announced a royal decree stating that the
king's half-brother, Muqrin, had been replaced as the new heir apparent by Muhammad bin Nayif,
the king's nephew and interior minister. Salman relieved Crown Prince Muqrin of his post
reportedly "upon his own request". This is the first time that a grandson of the founder of the
modern kingdom, King 'Abd al-'Aziz (Ibn Sa'ud) rather than a son has been appointed crown prince,
marking a generational change at the top of the ruling house. At the same time Muhammad bin
Salman, King Salman's son, was appointed deputy crown prince, while Foreign Minister Prince Sa'ud
al-Faysal, who had held this important ministerial post since 1975, was replaced by Adil al-Jubayr,
who is not a member of the royal family, but has served as the Saudi ambassador to the U.S.
King Salman's reshuffling of top posts might increase the long-term risk of political
instability in Saudi Arabia. It underpins the notion that the Al-Sudayri clan of the royal family
has carried out a "palace coup". Although none of the members of the family has aired any
discontent publicly, with the exception of a single tweet by the notorious loose cannon Prince
Talal, it is highly likely that King Salman's recent moves have created considerable tension
within the royal family. The reshuffling alters the balance between the various family fractions.
Historically, feuding within the royal family has weakened its grip on power, and it was
familial infighting that caused the second Saudi state's collapse in the late 1800s.
It is not surprising that Muqrin was deposed as crown prince – given that he has a weak
personal power base and that his mother was a concubine of Yemeni descent. The need for King 'Abd
Allah to explicitly stipulate in the decree appointing Muqrin that the decision could not be
altered or changed in the future by any party clearly indicates that the late king was aware that
the appointment of his half-brother would be met with resistance from within the family. That
said, Salman's prompt decision to sideline Muqrin challenges established norms within the royal
house: it is neither common that a new king sets aside the heir apparent appointed by his
predecessor nor that he overrules a royal decree issued by the late king. Neither did it come as
a surprise that Muhammad bin Nayif was promoted to crown prince, although his appointment as
deputy crown prince in January was controversial within the royal family. He is one of the
seniors among Ibn Sa'ud's grandsons and has a reputation as a skilled leader. However, what came
as a surprise was the appointment of the young wunderprince Muhammad bin Salman as deputy crown
prince.
The prince – whose age seems to be a well protected state secret, but lies somewhere
between 27 and 34 years – has few merits. Through the appointment, Salman violates a number of
key royal norms: all previous kings have promoted their own sons in terms of power and wealth,
but within reasonable limits.
In 1964 King Sa'ud was deposed by his own brothers partly because he sought to amass power in
the hands of himself and his sons at the expense of other powerful members of the royal family.
Age, experience and kingly qualities have always been the basis for the choice of a successor to
the throne. According to the "Basic Law", which is the closest Saudi Arabia comes to a
constitution, each of Ibn Sa'ud's grandsons has the right to be king, and they number around 200.
By appointing his own son Salman has bypassed numerous other royals who are both older and far
more experienced. After Salman became king 'Abd Allah's family branch and the former king's
allies have lost political influence. Khalid al-Tuwaijri, the former head of the royal court, was
the first one to be deposed. Two sons of 'Abd Allah, who were deposed as governors of the key
provinces of Riyadh and Mecca, followed him. Currently Mitab bin 'Abd Allah, who is minister and
commander of the Saudi Arabian National Guard, is the only one among the late king's sons who has
retained an important position, and it will not come as a huge surprise if he too has his
political wings clipped. Muqrin, the now-deposed crown prince, was also among the late king's
closest aides.
One should not read too much into the replacement of Sa'ud al-Faysal, who was first appointed
in 1975, making him the world's longest-serving foreign minister, and who has struggled with
health problems. Faysal "asked to be relieved of his duties due to his health conditions", said
the royal decree, which may well be correct. However, it is known that there was disagreement
between Faysal and the younger princes Muhammad bin Nayif and Muhammad bin Salman over the
decision to bomb the Huthi rebels in Yemen, with Faysal arguing for a diplomatic rather than a
military approach.
Salman's tough and militaristic foreign policy – known as the "Salman
Doctrine" – can be seen in light of his consolidation of power.
The decision to bomb the Huthis was arguable partly driven by the king's desire to consolidate
the position of Muhammad bin Salman, who, besides being deputy crown prince, is the world's
youngest minister of defence.
Throughout the military campaign Saudi media loyal to the king have
painted a picture of the young prince as a decisive military commander. In Saudi Arabia rumours
are saying that Prince 'Abd al-'Aziz bin Salman, the fourth son of King Salman, could soon
replace the current oil minister, 79-year-old technocrat 'Ali al-Na'imi. If this happens, the
prince, who was promoted from assistant oil minister to deputy oil minister earlier this year,
would be the first member of the royal family to run this important ministry – another move that
arguably would strengthen the king's line.
Former kings have appointed non-royals to this ministerial post to avoid creating the notion
that one family branch controls the country's main source of income and the source of the royal
family's wealth. The survival of a dynastic regime like the Al-Sa'ud depends on unity within the
elite. King Salman and former king 'Abd Allah were known for having a rather bad relationship on
a personal level. Because of Salman's reshuffling of key positions the Sudayris are now on their
own at the helm of the kingdom. The new king's ultimate goal seems to be to consolidate the
succession within his branch of the family and for his favourite son. Salman's recent moves to
enhance the power of his own line will probably trigger considerable dissatisfaction within the
royal family, and nurture future rivalry and potential conflicts among the various family
factions. In particular, the appointment of Muhammad bin Salman is likely to be a source of
discord, and he will find it very difficult to become a respected and unifying figure within the
family. Time will show how long it will take for a backlash to occur, which might be when the
king and his Sudayri companions are facing such a dire situation that they will need the support
of the rest of the Al-Sa'ud.
The royal decree that announced the promotion of Muhammad bin Salman underlines the young
prince's qualifications, the needs of the state and the support of the majority of the members of
the Allegiance Council, in addition to the granting of a month's extra pay to all military and
civilian security personnel. The fact that these details are included probably reflects some
anticipation by King Salman that the appointment might be met with scepticism both within and
outside the royal elite. In February and March there was a drop of as much as $36 billion dollars
in the kingdom's net foreign currency reserves, equivalent to around 5% of the total, the largest
recorded two-month decline ever, which was partly due to the extra pay. Besides "buying the
support" of the people, the king has sought backing from conservative elements within the clergy
– who were sidelined by late king 'Abd Allah – by appointing conservative clerics to important
positions and reinvigorating his predecessor's efforts to crush the Muslim Brotherhood in Egypt.
Finally, it is ironic that Salman is the one making these controversial appointments, which
eventually might upset the stability of Saudi Arabia.
For five decades – when he was governor of Riyadh Province – Salman played an important role
in terms of maintaining unity within the royal family; it was often him the royals turned to when
they needed to resolve family conflicts or deal with other family matters.
Stig Stenslie is assistant deputy general and head of the Asia Division of the Norwegian
Defence Staff. He has held visiting fellowships at, among others, the Norwegian Institute for
Defence Studies in Oslo, the National University in Singapore and Columbia University in New
York. He holds a doctorate on royal family politics in Saudi Arabia from the University of Oslo.
He is the author of several publications on the contemporary Middle East and China, the most
recent being, with Marte Kjær Galtung, 49 Myths about China (Rowman & Littlefield, 2014), Regime
Stability in Saudi Arabia: The Challenge of Succession (Routledge, 2011) and, with Kjetil Selvik,
Stability and Change in the Modern Middle East (IB Tauris, 2011). Disclaimer The content of this
publication is presented as is. The stated points of view are those of the author and do not
reflect those of the organisation for which he works or NOREF. NOREF does not give any
warranties, either expressed or implied, concerning the content. THE AUTHOR The Norwegian
Peacebuilding Resource Centre Norsk ressurssenter for fredsbygging Email: [email protected] -
Phone: +47 22 08 79 32 The Norwegian Peacebuilding Resource Centre (NOREF) is a resource centre
integrating knowledge and experience to strengthen peacebuilding policy and practice. Established
in 2008, it collaborates and promotes collaboration with a wide network of researchers,
policymakers and practitioners in Norway and abroad. Read NOREF's publications on
www.peacebuilding.no and sign up for notifications. Connect with NOREF on Facebook or @PeacebuildingNO
on Twitter
Poor President Barack Obama flew to Saudi Arabia this past week but its
ruler, King Salman, was too busy to greet him at Riyadh's airport.
This snub was seen across the Arab world as a huge insult and violation of traditional desert
hospitality. Obama should have refused to deplane and flown home.
Alas, he did not. Obama went to kow-tow to the new Saudi monarch and his hot-headed son, Crown
Prince Muhammed bin Nayef. They are furious that Obama has refused to attack Iran, Hezbollah in Lebanon,
and Syria's Assad regime.
They are also angry as hornets that the US may allow relatives of 9/11 victims to sue the Saudi
royal family, which is widely suspected of being involved in the attack.
Interestingly, survivors of the 34 American sailors killed aboard the USS Liberty when it was
attacked by Israeli warplanes in 1967, have been denied any legal recourse.
The Saudis, who are also petrified of Iran, threw a fit, threatening to pull $750 billion of investments
from the US. Other leaders of the Gulf sheikdoms sided with the Saudis but rather more discreetly.
Ignoring the stinging snub he had just suffered, Obama assured the Saudis and Gulf monarchs that
the US would defend them against all military threats – in effect, reasserting their role as western
protectorates. So much for promoting democracy.
Saudi Arabia and the Gulf states have been de facto US-British-French protectorates since the
end of World War II. They sell the western powers oil at rock bottom prices and buy fabulous amounts
of arms from these powers in exchange for the west protecting the ruling families.
As Libya's late Muammar Kadaffi once told me, "the Saudis and Gulf emirates are very rich families
paying the west for protection and living behind high walls."
Kadaffi's overthrow and murder was aided by the western powers, notably France, and the oil sheiks.
Kadaffi constantly denounced the Saudis and their Gulf neighbors as robbers, traitors to the Arab
cause, and puppets of the west.
Many Arabs and Iranians agreed with Kadaffi. While Islam commands all Muslims to share their wealth
with the needy and aid fellow Muslims in distress, the Saudis spent untold billions in casinos, palaces
and European hookers while millions of Muslims starved. The Saudis spent even more billions for western
high-tech arms they cannot use.
During the dreadful war in Bosnia, 1992-1995, the Saudis, who arrogate to themselves the title
of 'Defenders of Islam" and its holy places, averted their eyes as hundreds of thousands of Bosnians
were massacred, raped, driven from their homes by Serbs, and mosques blown up.
The Saudi dynasty has clung to power through lavish social spending and cutting off the heads
of dissidents, who are routinely framed with charges of drug dealing. The Saudis have one of the
world's worst human rights records.
Saudi's royals are afraid of their own military, so keep it feeble and inept aside from the air
force. They rely on the National Guard, a Bedouin tribal forces also known as the White Army. In
the past, Pakistan was paid to keep 40,000 troops in Saudi to protect the royal family. These soldiers
are long gone, but the Saudis are pressing impoverished Pakistan to return its military contingent.
The US-backed and supplied Saudi war against dirt-poor Yemen has shown its military to be incompetent
and heedless of civilian casualties. The Saudis run the risk of becoming stuck in a protracted guerilla
war in Yemen's wild mountains.
The US, Britain and France maintain discreet military bases in the kingdom and Gulf coast. The
US Fifth Fleet is based in Bahrain, where a pro-democracy uprising was recently crushed by rented
Pakistani police and troops. Reports say 30,000 Pakistani troops may be stationed in Kuwait, the
United Arab Emirates and Qatar.
Earlier this month, the Saudis and Egypt's military junta announced they would build a bridge
across the narrow Strait of Tiran (leading to the Red Sea) to Egypt's Sinai Peninsula. The clear
purpose of a large bridge in this remote, desolate region is to facilitate the passage of Egyptian
troops and armor into Saudi Arabia to protect the Saudis. Egypt now relies on Saudi cash to stay
afloat.
But Saudi Arabia's seemingly endless supply of money is now threatened by the precipitous drop
in world oil prices. Riyadh just announced it will seek $10 billion in loans from abroad to offset
a budget shortfall. This is unprecedented and leads many to wonder if the days of free-spending Saudis
are over. Add rumors of a bitter power-struggle in the 6,000-member royal family and growing internal
dissent and uber-reactionary Saudi Arabia may become the Mideast's newest hotspot.
Eric S. Margolis is an award-winning, internationally syndicated columnist. His articles have
appeared in the New York Times, the International Herald Tribune the Los Angeles Times, Times of
London, the Gulf Times, the Khaleej Times, Nation – Pakistan, Hurriyet, – Turkey, Sun Times Malaysia
and other news sites in Asia. http://ericmargolis.com
"... the Arabian peninsula now accounts for nearly 30 percent of all active rigs outside North America, up from less than 18 percent when the slump began ..."
"... Does this not sound exactly like the red queen situation? I think it completely supports Ron's contention that they are producing flat out - and having trouble keeping their current production level up. ..."
"The rig count has increased by 50 since oil prices started to fall in mid-2014 and has almost
doubled over the last five years"
"As a result, the Arabian peninsula now accounts for nearly 30 percent of all active rigs
outside North America, up from less than 18 percent when the slump began "
Does this not sound exactly like the red queen situation? I think it completely supports Ron's
contention that they are producing flat out - and having trouble keeping their current production
level up.
"... This short term glut will probably accentuate the coming problems because it gives the impression that there is no peak oil. People have trouble understanding that there are short-term cycles within a long-term cycle. This bad signal is giving us the impetus to continue investing in energy intensive projects instead of reshaping our economy. And this will make things even worse in 5-10 years. ..."
"... A country's most important asset is energy and historically, countries have never willingly cut total energy consumption. They might increase efficiencies but the total does not drop. This means that most countries, as long as there exist other sectors that can be squeezed, will continue to subsidize the energy sector squeezing out these sectors that are deemed less important or simply those with less clout. ..."
"... It is quite obvious that our lives are even more energy dependent than they were when this monetary cycle started in the early 70s. And our system is still based on growing this even more. With NIRP, we are getting very close to the end of this cycle. ..."
"... There is no glut. All the oil is being bought. The problem is that there in not yet enough of a shortage to drive the price up. A small distinction but huge ramifications if you understand it. And by the way higher prices is not a solution to what ails us. ..."
"... The author blames the oil patch bust on a geophysical crisis. There is some truth to this argument but by far the biggest driver of the bust is Fed policy. Artificially cheap debt financing led to overcapacity and a vicious cycle of continued overproduction as drillers desperately try to avoid defaulting. ..."
This short term glut will probably accentuate the coming problems because it gives the impression
that there is no peak oil. People have trouble understanding that there are short-term cycles
within a long-term cycle. This bad signal is giving us the impetus to continue investing in energy
intensive projects instead of reshaping our economy. And this will make things even worse in 5-10
years.
If the total cost of extraction is more than 40$ and consumers are paying $40 or less, then
somewhere along the way, someone is subsidizing the cost. It could be low tax rates, eZ money,
growing deficits, underfunded pensions, underfunded restoration funds, etc.
A country's most important asset is energy and historically, countries have never willingly
cut total energy consumption. They might increase efficiencies but the total does not drop. This
means that most countries, as long as there exist other sectors that can be squeezed, will continue
to subsidize the energy sector squeezing out these sectors that are deemed less important or simply
those with less clout.
It is quite obvious that our lives are even more energy dependent than they were when this
monetary cycle started in the early 70s. And our system is still based on growing this even more.
With NIRP, we are getting very close to the end of this cycle.
There is no glut. All the oil is being bought. The problem is that there in not yet enough of a shortage to drive the price up. A small distinction
but huge ramifications if you understand it. And by the way higher prices is not a solution to what ails us.
The author blames the oil patch bust on a geophysical crisis. There is some truth to this argument
but by far the biggest driver of the bust is Fed policy. Artificially cheap debt financing led
to overcapacity and a vicious cycle of continued overproduction as drillers desperately try to
avoid defaulting.
Saudi Arabia single-handedly ruined the Doha meeting, knowing beforehand that Iran would not participate.
The Russians and others agreed to proceed without Iran, planning to include them at a later date. Why
did the Saudi's take a huge risk of alienating from Russia and the OPEC community?
Was it simply stupid yong gambler at the help? Or was it hostility toward Iran?
Notable quotes:
"... saudi arabia has 268 billion barr ..."
"... Nothing is proven in this figure. The real figure is a state secret. Most probably this estimate is a plain vanilla propaganda like a lot of other Saudi statistics. Saudis oil deposits are extremely depleted and they definitely entered the phase of Red Queen Race, when they need to drill more and more wells just to keep the output from falling. With this new reckless young prince they also depleted their currency reserves. That's why they are now talking about converting their economy away from oil. One of the key problems with the absolutism that one misfit on the throne can take the country down, unless promptly deposed or killed. Saudi oil sector now is facing deep uncertainty in the wake of sweeping changes to the governance of the oil ministry and the state energy company Saudi Aramco by King Salman, who ascended to the throne in January, 2015 and delegated much of his power on his 30 year old son Prince Mohammed Bin Salman: Naive, Arrogant Saudi Prince Is playing With Fire ( http://www.mintpressnews.com/prince-mohammed-bin-salman-naive-arrogant-saudi-prince-is-playing-with-fire/212660/ ) ..."
"... My impression is that all this talk about lessening KSA dependence of oil is a pipe dram: KAS is built on oil and will not be able to restructure on something else without dramatic drop of standard of living and elimination of Saudi monarchy. ..."
saudi arabia has 268 billion barrels of 'proved' reserves.
Nothing is proven in this figure. The real figure is a state secret. Most probably this estimate
is a plain vanilla propaganda like a lot of other Saudi statistics. Saudis oil deposits are extremely
depleted and they definitely entered the phase of Red Queen Race, when they need to drill more
and more wells just to keep the output from falling. With this new reckless young prince they
also depleted their currency reserves. That's why they are now talking about converting their
economy away from oil. One of the key problems with the absolutism that one misfit on the throne
can take the country down, unless promptly deposed or killed. Saudi oil sector now is facing deep
uncertainty in the wake of sweeping changes to the governance of the oil ministry and the state
energy company Saudi Aramco by King Salman, who ascended to the throne in January, 2015 and delegated
much of his power on his 30 year old son Prince Mohammed Bin Salman: Naive, Arrogant Saudi Prince
Is playing With Fire (
http://www.mintpressnews.com/prince-mohammed-bin-salman-naive-arrogant-saudi-prince-is-playing-with-fire/212660/
)
At the end of last year the BND, the German intelligence agency, published a remarkable one-and-a-half-page
memo saying that Saudi Arabia had adopted "an impulsive policy of intervention". It portrayed
Saudi defence minister and Deputy Crown Prince Mohammed bin Salman – the powerful 29-year-old
favourite son of the ageing King Salman, who is suffering from dementia – as a political gambler
who is destabilising the Arab world through proxy wars in Yemen and Syria.
My impression is that all this talk about lessening KSA dependence of oil is a pipe dram:
KAS is built on oil and will not be able to restructure on something else without dramatic drop
of standard of living and elimination of Saudi monarchy. Despite BBC claims:
"But talk of the collapse of the House of Saud seems premature. It is after all a huge structure,
with an estimated 7,000 princes."
"... An unresolved question remains whether a listing will include the division of Aramco that includes its vast reserves of crude oil. It manages, but doesn't own, the kingdom's 260 billion barrels of reserves, the most in the world. ..."
"... I don't think it will ever happen, not even 5%. 5% of ARAMCO would have to include 5% of reserves. And there would have to be confirmation that those reserves actually exist. And of course they do not exist, not 266 billion barrels of reserves anyway. ..."
"... I have had exactly the same thought. How can KSA "cash in" on ARAMCO without the public disclosure required? But maybe they will find a way. Maybe they can sucker investors into believing their reserve numbers? Maybe they can do their offering in a country with less stringent regulations? I don't know much about how that works and I could be way off base, but I do know that where there's a will (and tons of money) there often is a way. And KSA has a BIG TIME desire to cash in, which should tell anyone all they need to know about the state of their economy. ..."
"... Bloomberg does seem rather cozy with the Saudis lately. ..."
"... Smoke and mirrors … they are burning massive amounts of money today, they have about 3-4 years left at the current burn rate. And Saudi invests have been such great things as growing wheat in the desert, destroying their aquifers. ..."
still no mention of "if" any partial float would include reserves ?
potentially – this could enable the game to be played a little longer ?
Saudi Aramco IPO Could Be 5% of Value
22/04/2016 03:05AM AEST
PARIS-Saudi Arabian Oil Co., the largest energy firm in the world, is considering listing up
to 5% of its value on a stock exchange in New York within the next year, a top Saudi oil official
said Thursday.
By listing even a tiny fraction of the company, known as Saudi Aramco, the offering would create
one of the world's most valuable energy firms. Estimates of Saudi Aramco's value have varied,
but using a conservative number of $2.5 trillion, a 5% listing would give it a potential value
of $125 billion-bigger than BP PLC and French oil titan Total SA.
The Saudis are considering listing Aramco at a time when the kingdom is trying to raise cash
during a period of sharply lower oil prices and transition to a world that is less dependent on
oil. Deputy Crown Prince Mohammed bin Salman is overseeing a "National Transformation Plan" to
promote private-sector growth and reduce government reliance on petroleum revenues.
New York has emerged as the leading place for an Aramco listing, but London and Hong Kong are
also being considered, said Ibrahim Muhanna, a top adviser at the Saudi oil ministry. Mr. Muhanna
said the kingdom wouldn't list the company only on Saudi Arabia's bourse, the Tadawul, because
it was too small.
"The Saudi market cannot take a company like this," Mr. Muhanna said on the sidelines of a
conference in Paris.
He didn't disclose which firms were working on the listing for Aramco. He said a price for
the stock was still being determined and that it may take another year for a listing to be completed.
Pricing "has to be decided by international markets," Mr. Muhanna said. "It has to be competitive."
An unresolved question remains whether a listing will include the division of Aramco that
includes its vast reserves of crude oil. It manages, but doesn't own, the kingdom's 260 billion
barrels of reserves, the most in the world.
Saudi Aramco Chairman Khalid al-Falih has sent conflicting signals about whether the reserves
will be include. Mr. Muhanna didn't address the issue.
A number of Saudi experts and insiders have said Saudi Arabia wouldn't include its production
assets in any listing. Aramco is essentially an instrument of state policy, and its methods and
reserves tantamount to state secrets.
The company produces more than 10% of the world's oil supply every day and controls a large
chain of refineries and petrochemical facilities to complement its exploration and production
operations.
I don't think it will ever happen, not even 5%. 5% of ARAMCO would have to include 5% of reserves.
And there would have to be confirmation that those reserves actually exist. And of course they
do not exist, not 266 billion barrels of reserves anyway.
Ron Wrote:
"I don't think it will ever happen, not even 5%. 5% of ARAMCO would have to include 5% of reserves.
And there would have to be confirmation that those reserves actually exist. And of course they
do not exist, not 266 billion barrels of reserves anyway."
I think they will fangle a way around the reserve reporting problem. Didn't Brazil's Petrobras
over state its reserves, yet was able to raise over $100 billions in capital.
Jan 29, 2016:
"Brazil's state-controlled oil producer Petrobras slashed its oil and natural gas reserves 20
percent on Friday, hit by a plunge in energy prices, a heavy debt load, high costs and a corruption
scandal."
I have had exactly the same thought. How can KSA "cash in" on ARAMCO without the public disclosure
required? But maybe they will find a way. Maybe they can sucker investors into believing their
reserve numbers? Maybe they can do their offering in a country with less stringent regulations?
I don't know much about how that works and I could be way off base, but I do know that where there's
a will (and tons of money) there often is a way. And KSA has a BIG TIME desire to cash in, which
should tell anyone all they need to know about the state of their economy.
There are people with money willing to believe just about anything.
Eight unprecedented hours with "Mr. Everything," Prince Mohammed bin Salman.
Peter Waldman, Bloomberg, April 21, 2016
For two years, encouraged by the king, the prince had been quietly planning a major restructuring
of Saudi Arabia's government and economy, aiming to fulfill what he calls his generation's
"different dreams" for a postcarbon future .
from your link: "The likely future king of Saudi Arabia says he doesn't care if oil prices
rise or fall. If they go up, that means more money for nonoil investments, he says. If they go
down, Saudi Arabia, as the world's lowest-cost producer, can expand in the growing Asian market."
Smoke and mirrors … they are burning massive amounts of money today, they have about 3-4 years
left at the current burn rate.
And Saudi invests have been such great things as growing wheat in the desert, destroying their
aquifers.
"... "There can be no doubt, then, that by the end of this century, life as we know it on planet earth will be very different. Fossil fueled predatory capitalism will be dead. In its place, human civilization will have little choice but to rely on a diversity of clean, renewable energy sources." ..."
"... My quibble is that predatory capitalism will be dead. The Machiavellian ideology arrived prior to fossil fuels of any sort, and I think likely will be around quite a bit longer. ..."
"... Large top-down national and transnational structures will begin to become obsolete due to the large costs of maintenance, the unsustainability of the energy inputs needed for their survival, and the shift in power to new decentralized producers of energy and food. ..."
"... The end of cheap oil probably means end of neoliberalism. It is still unclear what will replace it as a dominant social system. ..."
This article seems to me to be an attempt at taking a long term look at a huge issue – humanities
future over the next 85-years or so. Given the available text space (no doubt many volumes could
cover a small fraction of the subject) Ahmed does a great job of summarizing and provides some
promising links to sources.
One quick quibble, Ahmed writes,
"There can be no doubt, then, that by the end of this century, life as we know it on
planet earth will be very different. Fossil fueled predatory capitalism will be dead. In its
place, human civilization will have little choice but to rely on a diversity of clean, renewable
energy sources."
Of course, I agree life will be different in 2100. I also agree that we are witnessing the
fossil fuel end game (as Amory Lovins at RMI would say), and certainty if one looks at current
rates of investment in various energy technologies, renewable sources are the future. My quibble
is that predatory capitalism will be dead. The Machiavellian ideology arrived prior to fossil
fuels of any sort, and I think likely will be around quite a bit longer.
Granted, Ahmed makes some caveats in the article about how difficult the next few decades will
be. He then writes,
" Large top-down national and transnational structures will begin to become obsolete
due to the large costs of maintenance, the unsustainability of the energy inputs needed for
their survival, and the shift in power to new decentralized producers of energy and food.
In the place of such top-down structures, smaller-scale, networked forms of political, social
and economic organization, connected through revolutionary information technologies, will be
most likely to succeed. For communities to not just survive, but thrive, they will need to
work together, sharing technology, expertise and knowledge on the basis of a new culture of
human parity and cooperation."
Imagine the Sanders campaign working on issues outside electoral politics, run by occupy wall
street organizers for example. I suspect there is some truth in Ahmed's speculations. Enough to
be hopeful about. It may just come down to a choice – despair in business as usual, or taking
a leap to hope, and work for, the success of some rational changes for the better.
likbez, April 23, 2016 at 3:51 pm
The end of cheap oil probably means end of neoliberalism. It is still unclear what will
replace it as a dominant social system.
"... My guess at this point is sometime between 2018 & 2020 we will begin to see substantial declines of 3% to 7% per year (slow at first, but increasing over time). The current investment in CapEx isn't sufficient to prevent much higher depletion rates. ..."
"The scenario I think most likely is and undulating plateau in C+C output to about 2021 and then
gradual decline of under 1.5% though about 2027 and by 2030 that declining output will cause an
economic crisis and a World recession."
I have serious doubts that infill drilling will hold
out anywhere near that long. if it wasn't for infill drilling scraping the bottom of depleted
fields, we would already be in a serious decline, even with the shale bubble. How long can infill
drilling last, I don't know, but its not-sustainable.
My guess at this point is sometime between 2018 & 2020 we will begin to see substantial declines
of 3% to 7% per year (slow at first, but increasing over time). The current investment in CapEx
isn't sufficient to prevent much higher depletion rates.
DC Wrote:
"By that time it will be clear that peak oil has been reached and perhaps policy measures will
be aggressively implemented to alleviate the problem."
It will be to late by then. Its already too late now. I expect when production problems develop.
the World gov't will turn to the same old tactics that make the problems worse: Price Controls,
Rationing, even more excessive gov't regulation, cronyism, and of course, more war.
DC wrote:
"An economic crisis (such as the 1930s in some parts of the World) can lead to positive social
changes, they can also be very negative."
I cannot recall a single period in history that an economic crisis lead to positive social
change. Its only after a wave of bloodshed and destruction that civilization makes a change. However,
never in history did the world experience a economic collapse rife with revolution/social change,
armed with nuclear weapons and nuclear power plants. Whatever remains of humanity in the aftermath,
will likely be another 1000 years of the dark ages (ie the fall of Rome)
Also consider in most cases it was war that made the economy better. Since the beginning of
the industrial revolution, war has create a rapid progress in technology. For instance, WW1 paved
the way for rapid use of machinery (farm tractors, trucks, cars, etc). The factories built to
make tanks, trucks, etc during the war, started mass producing consumer goods after the war, and
increase worker productivity. WW2 create the electronic revolution (computers, development of
broad antibiotics, new materials: Plastics, etc).
Unfortunately nuclear weapons rules out future tech revolutions since our weapons can now destroy
civilization and damage the global environment for hundreds to thousands of years. A nuclear war
will be over in a matter of a few days perhaps as long as few weeks, killing billions and there
will be no time to develop new technologies. Nuclear weapons are the Apex of war developed tech.
We've become the Suicide race.
DC Wrote:
"Hopefully we will not forget our history."
We already did! See the rise of socialism in the West as a prime example. The lessons of war and
politcican follies are lost after the last generation that suffered the horrors dies off. The
WW 2 generation is nearly gone, Thus ushering in a new wave of folly.
"The rig count has increased by 50 since oil prices started to fall in mid-2014 and has almost
doubled over the last five years"
"As a result, the Arabian peninsula now accounts for nearly 30 percent of all active rigs outside
North America, up from less than 18 percent when the slump began"
Does this not sound exactly like the red queen situation? I think it completely supports Ron's
contention that they are producing flat out - and having trouble keeping their current production
level up.
"... A study by Wood Mackenzie (chart = h/t @WoodMacKenzie ) highlights that the trend of lower investment is set to persist. Their study projects $91 billion in capex cuts across 121 upstream companies this year: ..."
"... EIA has analyzed the annual reports of 40 publicly-traded U.S. oil producers, highlighting the significant differences in their financial situations. The group as a whole saw combined losses of $67 billion last year, although these losses varied wildly from company to company. ..."
IEA's chief Fatih Birol has chimed in on the topic today, highlighting low oil
prices have
cut investment
by about 40 percent over the past two years, and how the sharpest falls
have been in the U.S., Canada, Latin America and Russia.
4) A study by
Wood Mackenzie (chart = h/t @WoodMacKenzie)
highlights that the trend of lower investment is set to persist. Their study
projects $91 billion in capex cuts across 121 upstream companies this year:
... ... ...
6) Finally, the EIA has analyzed the annual reports of 40 publicly-traded U.S. oil producers,
highlighting the significant differences in their financial situations. The
group as a whole saw combined losses of $67 billion last year, although these
losses varied wildly from company to company.
Eighteen of the forty companies experienced losses in 2015 in excess of 100
percent of their equity (termed as high loss companies – HGLs). The driving
force behind the HLG's deteriorating financial conditions was leverage; their
long-term debt-to-shareholder equity ratio averaged 99 percent, compared to
the non-HLGs whose debt was at much-lesser level of 58 percent of shareholder
equity.
Not only were the HLGs the most leveraged, but their assets were revised
down the most too. Last year the 18 HLGs saw a 21 percent reduction in proved
oil reserves, while the non-HLG group saw a drop of just 6 percent. The lower
reserves for the HLG group caused impairment charges, decreasing the value of
their assets. This lower asset value is ultimately reflected in lower credit
availability to these companies.
"... non-OPEC production would fall this year by the most in a generation. ..."
"... IEA chief Fatih Birol said low oil prices had cut investment about 40 percent over the past two years, with sharp falls in the United States, Canada, Latin America and Russia. ..."
Oil rose in early trade after the International Energy Agency (IEA) said
non-OPEC production would fall this year by the most in a generation.
IEA chief Fatih Birol said low oil prices had cut investment about 40
percent over the past two years, with sharp falls in the United States,
Canada, Latin America and Russia.
This is a typical Council of Foreign Relations propaganda. Omissions (Yemen
problem, oil price problems for the US shale industry were not even mentioned),
foreign policy recommendations has definite neocon
focus... As
Daniel Larison aptly said on April 21, 2016, 3:16 PM "Keeping
the Saudis happy isn't worth the price of enabling war crimes and implicating
the U.S. in the senseless devastation and starvation of an entire country
(Yemen)." Compare with "the lowbrow whores at the Brookings Institute are always
willing to take Gulf money" -
Mr. Obama goes to Riyadh: Why the United States and Saudi Arabia still need each
other
The Saudis are the major money behind the war on Syria. They are building
ISIS and Al-Qaeda not only in Syria but also
in Yemen and elsewhere. A former Saudi foreign minister, quoted in
in
yesterdays Financial Times (see
here), admitted this fact: "Saud al-Feisal, the respected Saudi foreign
minister, remonstrated with John Kerry, U.S. secretary of state, that "Daesh
[ISIS] is our [Sunni] response to your support for the Da'wa" - the Tehran
aligned Shia Islamist ruling party of Iraq." See also
America's War for the Greater Middle East A Military History Andrew J. Bacevich
Notable quotes:
"... The Saudis would like a commitment from Obama to defang Iran, change the balance of power in the Syrian civil war to the detriment of Bashar Assad and resolve the Israeli-Palestinian conflict. ..."
"... Beyond that, Obama comes armed with no real new U.S. Middle East policy, apart from the latest developments in the Iran nuclear deal-which is not anything the Tehran-phobic Saudis want to talk about. ..."
"... America has no desire for nation-building even among nations it helped to destroy such as Iraq and Libya. ..."
"... As far as containing Iran, while America may not go as far as resuming ties with Iran as the Gulf regimes fear, it is not beyond reaching tactical accommodations with Tehran in places such as Iraq and on issues such as dealing with the Islamic State. ..."
"... Ray Takeyh is a Senior Fellow at the Council on Foreign Relations and the co-author of The Pragmatic Superpower: Winning the Cold War in the Middle East. ..."
Barack Obama traveled to Saudi Arabia on Tuesday in what could be his
last-and likely most futile-visit as president. It's not just that there's
bad blood over Congress' effort to make Riyadh liable for lawsuits from the
families of 9/11 victims. These days, when the United States and Saudi
Arabia look at the region, they see two completely different landscapes and
conflicting sets of interests. Riyadh sees a series of conflicts that the
United States must resolve and a series of failing states that it must
rehabilitate. The Saudis would like a commitment from Obama to defang
Iran, change the balance of power in the Syrian civil war to the detriment
of Bashar Assad and resolve the Israeli-Palestinian conflict.
... ... ...
Beyond that, Obama comes armed with no real new U.S. Middle East
policy, apart from the latest developments in the Iran nuclear deal-which is
not anything the Tehran-phobic Saudis want to talk about. Obama, who
recently expressed his pique over U.S. allies he called "free riders,"
plainly is not eager to get any more embroiled in the region than he already
is; he has expressed a vague desire that Iran and Saudi Arabia should "share
the neighborhood" without saying how he hopes that will be accomplished. And
after much investment, the administration seems disinclined to resume its
peacemaking efforts between Israel and the Palestinian entity. America
has no desire for nation-building even among nations it helped to destroy
such as Iraq and Libya.
As far as containing Iran, while America may not go as far as
resuming ties with Iran as the Gulf regimes fear, it is not beyond reaching
tactical accommodations with Tehran in places such as Iraq and on issues
such as dealing with the Islamic State. For the Obama administration,
its nuclear agreement with Iran is truly a landmark achievement, testifying
to benefits of reaching out to an ideologically implacable adversary. It is
perhaps the first time that America does not seem to object to the Islamic
Republic's aggrandizement in the strategically vital Persian Gulf.
... ... ...
The Saudis see in the latest congressional effort to grant the families
of 9/11 victims the opportunity to sue the kingdom as another indication
that Washington no longer values the alliance (despite a veto threat from
the White House). By threatening to withdraw their assets from the United
States in retaliation they are sending their own message that they will be
prone to act in a manner that shows as little disregard for the alliance as
that they feel America is demonstrating.
Ray Takeyh is a Senior Fellow at the Council on Foreign Relations and
the co-author of The Pragmatic Superpower: Winning the Cold War in the
Middle East.
"... With respect to the longer term, however, capital expenditure cuts are slowly becoming visible. Non-OPEC supply growth (year-over-year) stood at 2.9 million barrels per day at the end of 2014. Supply did not grow in December and January and preliminary data indicate large year-on-year declines in February and March 2016. Low oil prices curbed capital spending worldwide by an estimated 24 percent last year and could trim another 20 percent from capex this year. ..."
Giovanni Staunovo, commodities analyst at UBS Wealth Management
Oil prices are under pressure following the failure of OPEC and major
non-OPEC producers to agree on a production freeze at Sunday's meeting in
Doha.
We expect Brent crude prices to drop toward $30 a barrel during the
current quarter but recover to $55 a barrel in 12 months as the oversupply
of oil dissipates towards the end of this year.
... ... ...
With respect to the longer term, however, capital expenditure cuts
are slowly becoming visible. Non-OPEC supply growth (year-over-year) stood
at 2.9 million barrels per day at the end of 2014. Supply did not grow in
December and January and preliminary data indicate large year-on-year
declines in February and March 2016. Low oil prices curbed capital spending
worldwide by an estimated 24 percent last year and could trim another 20
percent from capex this year.
Incredible joy in Western MSM due to the fact that OPEC did not agree to freeze oil prices, with
KAS playing the role of a spoiler. And here is GS with its "talking your own book" forecasts...
Notable quotes:
"... Goldman said on Monday that it was maintaining its fourth-quarter 2016 forecast of $45 a barrel for WTI crude and said that its full-year 2017 average WTi forecast was $58 a barrel ..."
Global oil prices and stock markets tumbled on Monday after major oil producers failed to agree
on a deal to freeze output, but analysts are insisting that no deal is actually the best possible
outcome for markets.
... ... ...
Despite the collapse of talks, oil market watchers said the lack of a "Doha deal" would be better
in the long term and would mean that a rebalancing process of supply and demand can continue to its
natural conclusion.
... ... ...
Goldman said on Monday that it was maintaining its fourth-quarter 2016 forecast of $45 a barrel
for WTI crude and said that its full-year 2017 average WTi forecast was $58 a barrel, Reuters
reported. In the short-term it said its forecast for $35 a barrel for WTI in the second quarter was
now "more likely" following the decision not to freeze production.
The founder and CEO of
Continental Resources, who previously told CNBC that "the fundamentals of
supply and demand were really close," reiterated during a
"Power Lunch"
interview on Monday that this year's third-quarter will absorb most of the excess
oil supply, which in turn will lead to "stronger pricing."
The billionaire
suggested that oil is past an inflection point and prices have surged 50 percent
from previous lows. Hamm foresees crude prices soaring to $60 a barrel by the
end of the year, as lower oil prices are unsustainable. He contends, however,
that even when the oil "overhang goes away," ramping up production will take
U.S. producers a long time, as rig counts are at an all-time low.
He added that U.S. rig counts "are down 77 percent."
...Hamm
argued that oil producers in the Middle East are "pretty much tapped out."
"... Emerging market economies will increase global oil demand about 1.4 percent a year through 2020, stronger than the past decade, Bernstein analysts said in a research note e-mailed today. ..."
"... The world is well supplied with oil, which will keep the average price between $60 and $70 a barrel through the end of the decade, Bernstein said ..."
"... Emerging economies will spur global oil demand growth from 94.6 million barrels a day last year to 100 million by 2020 and 108 million between 2030 and 2035. In developed countries, crude demand is beginning to shrink amid improvements in energy efficiency and as consumers switch to alternative fuels, outweighing expanding populations and economic growth. ..."
Emerging market economies will increase global oil demand about 1.4 percent
a year through 2020, stronger than the past decade, Bernstein analysts said
in a research note e-mailed today. Demand will peak between 2030 and 2035, creating
a window for one final spike in prices before the fossil fuel begins its inexorable
slide to irrelevance amid greater fuel efficiency and more electric vehicles.
"We still believe that there could be one more super-cycle in oil before
demand peaks in 2030-35," Bernstein said in its note. "Assuming tight oil peaks
out before demand does, it could result in another period of supply tightness
as OPEC becomes a dominant force in supply, just as it did in the 1970s."
The world is well supplied with oil, which will keep the average price between
$60 and $70 a barrel through the end of the decade, Bernstein said. The relatively
low prices will lead to more use, with demand growth from 2016-2020 expected
to be the highest since 2001-2005.
Emerging economies will spur global oil demand growth from 94.6 million barrels
a day last year to 100 million by 2020 and 108 million between 2030 and 2035.
In developed countries, crude demand is beginning to shrink amid improvements
in energy efficiency and as consumers switch to alternative fuels, outweighing
expanding populations and economic growth.
If U.S. shale oil production peaks before demand does, the world will have
to go back to higher cost oil production, such as deepwater and Canadian oil
sands, necessitating higher prices to justify investment. In previous super-cycles
in the 1970s and 2000s, inflation-adjusted oil prices rose about tenfold, Bernstein
said.
In the long run, oil demand will peter out to about 20 million barrels a
day by 2100 as the world becomes more energy efficient and switches to lower-carbon
energy sources. As that happens, the intensity of oil decreases and economic
growth no longer creates crude demand growth.
"... The severance and extraction tax takes 10% off the top. So call it $20. Then look at company 10K for LOE, gathering and transportation, G & A. Also, look at the interest expense. Keep in mind those figures are in BOE. ..."
"... Bakken well produces 3,000 barrel of oil and 3,000 mcf of gas. Assume 20% royalty (in TX I'd say assume 25% royalty). Net is 2,400 barrel of oil and 2,400 mcf of gas. Divide the gas production by six and we get 2,800 BOE. Assume $22 oil price and $1.50 gas price at the well. So we sold $52,800 of oil and $3,600 of gas. So if my math is correct, the $ realized per BOE is $20.14. 10%, or $2.01 comes off the sales, in state severance and extraction taxes, so now down to $18.13. Then subtract the rest. There couldn't have been much, if any cash flow for CAPEX. I will say the larger companies likely received closer to $25-26 per barrel of oil in Q1. ..."
"... Hedging will make a tremendous difference in Q1 2016. ..."
"... http://www.theoildrum.com/node/9821 A good discussion from yesteryear worth reviewing. 10,898 wells at 6 million each is a major investment. The more than 64 billion dollar gamble. No different than launching a satellite into space, flying it by wire to Mars then it crashes into the Martian surface because you forgot to change from miles to kilometers. Everybody makes mistakes. ..."
Of course, if you have any skin in the game, the most important statistic
in the post is that the average posted price for oil in the Williston Basin
for the last three months is $22.
The severance and extraction tax takes 10% off the top. So call it
$20. Then look at company 10K for LOE, gathering and transportation, G &
A. Also, look at the interest expense. Keep in mind those figures are in
BOE.
A typical Bakken producer had $8 LOE, $3 of G & A, $2 of gathering and
transport and $5 of interest expense, all on a BOE basis.
I have looked at the earnings forecasts for Q1, WOW!! Reno Hightower
,
04/16/2016 at 9:30 am
So with a 20% royalty (I have no idea what their nets are) they are
getting back $16 before you take out the $8 LOE, $3 G&A, $2 gathering
and $5 interest for a loss of $2 per barrel produced. All before you
factor in the Drilling and Completion and acreage costs.
Reno. US companies report BOE produced after payment of royalties.
Example:
Bakken well produces 3,000 barrel of oil and 3,000 mcf of gas. Assume
20% royalty (in TX I'd say assume 25% royalty). Net is 2,400 barrel of oil
and 2,400 mcf of gas. Divide the gas production by six and we get 2,800
BOE. Assume $22 oil price and $1.50 gas price at the well. So we sold $52,800
of oil and $3,600 of gas. So if my math is correct, the $ realized per BOE
is $20.14. 10%, or $2.01 comes off the sales, in state severance and extraction
taxes, so now down to $18.13. Then subtract the rest. There couldn't have
been much, if any cash flow for CAPEX. I will say the larger companies likely
received closer to $25-26 per barrel of oil in Q1.
http://www.theoildrum.com/node/9821
A good discussion from yesteryear worth reviewing. 10,898 wells at 6 million
each is a major investment. The more than 64 billion dollar gamble. No different
than launching a satellite into space, flying it by wire to Mars then it
crashes into the Martian surface because you forgot to change from miles
to kilometers. Everybody makes mistakes.
It forecasts that "After a brief retrenchment due to low prices and falling
investment, US tight oil production is now expected to plateau in the 2030s
at nearly 8 Mb/d, accounting for almost 40% of total US oil production."
US shale gas is expected to grow by around 4% p.a. over the Outlook.
This causes US shale gas to account for around three-quarters of total US
gas production in 2035 and almost 20% of global output.
An alternative scenario implies that tight oil and shale gas have even
greater potential.
"North American tight oil output increases to 16 Mb/d by 2035, nearly twice
its level in the base case, with its share of global liquids output reaching
14%. "
North American shale gas production is around 72 Bcf/d higher by 2035,
with North American shale gas accounting for almost a third of global gas
supplies in the 'stronger shale' case.
----------–
What do they know about shale oil and gas that we don't know?
And what has changed since BP's last year's forecast?
Base case U.S. tight oil forecast vs. previous years' projections
"... There is a LOT of food for thought in it. Russia may soon peak as as oil producer, but gas production is another story. Russia may now turn out to be the swing producer in some respects. ..."
"... I read that the Russian government is selling a 19.5% stake in Rosneft and looking for a "non-greedy" partner for the interest. Russia also says do not expect prices to rise after Doha meeting. I believe we discussed this back in February. The goal is not necessarily to return prices back to 2011-14 levels, but to stop the speculators driving the prices into the $20s and below. ..."
"... I wish they shale guys would say they need $70 to survive. Then OPEC and Russia would be ok with $60, and $60 WTI would be just fine by us for quite awhile. ..."
"... Wait, you're playing the speculator card? I thought those HFT engines were all that was putting it at $110. ..."
This link is a longer one ( not for sound bite fans ) going into some substantial detail concerning
Russia as an energy exporting country, and what it means to the rest of the world politically
and economically.
Read it for insight. There is a LOT of food for thought in it. Russia may soon peak as as oil
producer, but gas production is another story. Russia may now turn out to be the swing producer
in some respects.
Russia can sell pipeline gas cheaper than we yankees can sell LNG overseas for instance.
I read that the Russian government is selling a 19.5% stake in Rosneft and looking for a "non-greedy"
partner for the interest. Russia also says do not expect prices to rise after Doha meeting. I
believe we discussed this back in February. The goal is not necessarily to return prices back
to 2011-14 levels, but to stop the speculators driving the prices into the $20s and below.
I wish they shale guys would say they need $70 to survive. Then OPEC and Russia would be
ok with $60, and $60 WTI would be just fine by us for quite awhile.
"... He is bluffing. His remarks are aimed at financiers of higher cost non-conventional production. Saudis and Russians are not afraid of other conventional producers they are terrified by the possibility of higher cost non-conventional oil flooding the market using debt-fueled growth. ..."
"... In order to keep banks in check, Prince takes to the media to warn of consequences, but in essence he is bluffing. Saudis cannot increase and sustain production above current levels. ..."
"... Saudi Arabia has told the Obama administration and members of Congress that it will sell off hundreds of billions of dollars' worth of American assets held by the kingdom if Congress passes a bill that would allow the Saudi government to be held responsible in American courts for any role in the Sept. 11, 2001, attacks. ..."
The KSA prince say they could increase output to 11.5 million barrels a day immediately and go to
12.5 million in six to nine months "if we wanted to".
Is he: 1. Dreaming 2. Confused 3. Just playing around and bs everyone 4. Thinking it can be done
5. Don't know the what the hell he is talking about
I know there as been dissuasion here on how the actual reserves look like. Whats your thoughts?
He is bluffing.
His remarks are aimed at financiers of higher cost non-conventional production. Saudis and Russians
are not afraid of other conventional producers they are terrified by the possibility of higher cost
non-conventional oil flooding the market using debt-fueled growth.
In order to keep banks in check, Prince takes to the media to warn of consequences, but in essence
he is bluffing. Saudis cannot increase and sustain production above current levels.
"WASHINGTON - Saudi Arabia has told the Obama administration and members of Congress that it will
sell off hundreds of billions of dollars' worth of American assets held by the kingdom if Congress
passes a bill that would allow the Saudi government to be held responsible in American courts
for any role in the Sept. 11, 2001, attacks."
What the chance we will see the conclusions before Oil exports fro KSA tank?
"... At the rate the rig count is dropping we should be negative territory around October. (ba da bump) But seriously folks, from January to February dropped 23%, from February to March dropped 20%. How low can you go. ..."
"... I know this has been discussed, but I'm still not clear how much of it takes to get those 9,000 odd uncompleted wells completed. How much more do they have to spend to complete a well and how does that compare to the total cost of the well? I'm kind of stunned that they are drilling at all with a back log that big. ..."
"... It does make you wonder how many are actually dry holes. Maybe not completely dry but not worth completing and fracking. I could see where a company would not want to admit that their investment had turned into a liability and would require scarce money to P&A. ..."
"... I feel with this little up tick in oil price, may have kept a few rigs out there a little longer than expected. It seems from H&P, there are still rigs with on going long term contracts, which will cost money to get out of. I suspect XTO with all their support can afford to ride the oil price out, and at least get some value out contracted rigs, where the more cash strapped companies just have to write off cancellation fees as a bad call. ..."
At the rate the rig count is dropping we should be negative territory around October. (ba da bump) But seriously folks, from January to February dropped 23%, from February to March dropped 20%.
How low can you go.
I know this has been discussed, but I'm still not clear how much of it takes to get those 9,000
odd uncompleted wells completed. How much more do they have to spend to complete a well and how
does that compare to the total cost of the well? I'm kind of stunned that they are drilling at
all with a back log that big.
It does make you wonder how many are actually dry holes. Maybe not completely dry but not worth
completing and fracking.
I could see where a company would not want to admit that their investment had turned into a liability
and would require scarce money to P&A.
Shallow Sands, laboriously went through all the annual reports, and counted low to mid 20's
of rigs the oil companies expected to have working during the year in ND. The early drop in the
rig count this year, is just aliening the count with their 2016 budgets.
The thing to watch is whether the recent uptick in the oil price, allows any of them to put rigs
back to work, or whether the April bank loan reviews puts a total clamp on their operations?
Toolpush. The wild card on rigs from the 10K was XTO. No mention in XOM's 10K of specifics that
i recall. If I am reading it right, their production was up significantly in February. At least that
is the way it looked to me on Enno's site. The others that I am not sure about, or may have messed up were Statoil and Hess. Statoil I
am not sure of. I thought Hess was dropping down to two, but they haven't yet.
It looks like one of Statoil's rigs is drilling an SWD well. I thought rigs would bottom around
26. Pretty close now. I'd say more relevant are/will be completion of DUC's.
BH is actually showing 26 for ND. As you say SWD well. Burlinton has a 20 thousand well. Most
likely a workover/re-frac, that will not be counted by BH, so you are getting pretty close to
the money.
I feel with this little up tick in oil price, may have kept a few rigs out there a little longer
than expected. It seems from H&P, there are still rigs with on going long term contracts, which
will cost money to get out of. I suspect XTO with all their support can afford to ride the oil
price out, and at least get some value out contracted rigs, where the more cash strapped companies
just have to write off cancellation fees as a bad call.
You should be getting close to throwing the red pen away, well at least putting in back in
the draw, and buying a brand new black one?
"... The FED production index for oil and gas came also out today. It covers production data for March. The crude oil index fell year over year 6% at a monthly rate of close to 3%. ..."
"... The year over year production change leads the production index quite strictly by 9 month. So, if this correlation holds, production will be down around 30% by year end. ..."
The FED production index for oil and gas came also out today. It covers production data for
March. The crude oil index fell year over year 6% at a monthly rate of close to 3%.
The year over year production change leads the production index quite strictly by 9 month.
So, if this correlation holds, production will be down around 30% by year end.
"... The Telegraph has a story indicating Chinese oil imports are jumping from 6.7 million barrels per day in 2015 to 8 million barrels per day in 2016. Estimated to be 10 million barrels per day in 2018. Barclays estimates. Chinese production is set to fall slightly in 2016. ..."
"... US production looks to fall to 8 million bopd by end of 2016. US oil demand is also rising. ..."
"... Yeah I'm biased. I'm sick of sub $40 in the field. We have been below $40 in the field since 7/15. Haven't seen above $55 in the field since 11/14. Havent seen these oil prices since 2003-2004. ..."
"... Oil is still very low, yet gasoline has popped up over $2. Low here was $1.29. ..."
"... Refining friends say US gasoline demand will be very high this summer. Their turnaround is winding down, they are going to refine a record number of barrels this year. Just observations. ..."
The Telegraph has a story indicating Chinese oil imports are jumping from 6.7 million barrels
per day in 2015 to 8 million barrels per day in 2016. Estimated to be 10 million barrels per day
in 2018. Barclays estimates.
Chinese production is set to fall slightly in 2016.
US production looks to fall to 8 million bopd by end of 2016. US oil
demand is also rising.
Yeah I'm biased. I'm sick of sub $40 in the field. We have been below $40 in the field since
7/15. Haven't seen above $55 in the field since 11/14. Havent seen these oil prices since 2003-2004.
Great weather here today. People driving all over the place in our little burg. Didnt see one
electric
car today. Still know of one Tesla in town. There is, however, also one
used Leaf. That is new in the past
year. It is driven by a teenager to and from school. Her father has an F350 diesel, her mother
has a Chevy Suburban. The Tesla owner also has two gasoline powered vehicles.
Oil is still very low, yet gasoline has popped up over $2. Low here was $1.29.
Refining friends say US gasoline
demand will be very high this summer. Their turnaround is winding
down, they are going to refine
a record number of barrels this year. Just observations.
"... This could be a really big deal. First sign that the people of the GCC are not going to take reduced living standards easily. ..."
"... Good! I will go with Ron. They are all maxed out anyway. If they had signed a freeze agreement, then everyone would say that the price is rigged and blame the oil companies. I am willing [lost my ass on a lot of oil stock investments] to just wait and see how everything plays out without artificial agreements, that, in my opinion, would have meant nothing. ..."
"... Clueless. I understand where you are coming from. Given early signs from Kuwait, there may be no need for a cut or freeze. Assuming Kuwait just went down about 2 million, wouldn't it be prudent for the rest to wait and see what happens? I think austerity in the kingdoms maybe is not going so smoothly? ..."
"... As for us, we are kind of like Russia, don't want to see another sub $30 test. Would like to get to $55-60 WTI and see how shale, tar sands, etc react. So, if freeze talk is why we had a bounce, and we drop back below $30 WTI, we wont be happy campers about no freeze deal. ..."
Kuwait Oil Company (KOC) has lowered crude output to 1.1 million barrels per day (bpd) from its
normal production level of about 3 million bpd, company spokesman Saad Al-Azmi said in a posting
on the KOC Twitter account.
Now thats a cut to write home about. So not sure about that how much the "glut" is but if they
take of 2mb/d does it mean we are below daily demand now.
Some talk about freeze – the are definitely not talking, :-)
Oh sorry. Just copied a slice of the article and missed that vital information.
Anyway, let the market party start. It will definitely test the fundamentals of the oil market.
Words vs. Supply
DOHA OIL PRODUCERS MEETING ENDS WITHOUT AN AGREEMENT
"A summit in Doha between the world's largest oil producing countries ended without an agreement
on Sunday, as country leaders failed to strike a deal to freeze output and boost sagging crude
prices."
Good! I will go with Ron. They are all maxed out anyway. If they had signed a freeze agreement,
then everyone would say that the price is rigged and blame the oil companies. I am willing [lost
my ass on a lot of oil stock investments] to just wait and see how everything plays out without
artificial agreements, that, in my opinion, would have meant nothing.
Clueless. I understand where you are coming from.
Given early signs from Kuwait, there may be no need for a cut or freeze. Assuming Kuwait just went down about 2 million, wouldn't it be prudent for the rest to wait
and see what happens? I think austerity in the kingdoms maybe is not going so smoothly?
As for us, we are kind of like Russia, don't want to see another sub $30 test. Would like to
get to $55-60 WTI and see how shale, tar sands, etc react. So, if freeze talk is why we had a
bounce, and we drop back below $30 WTI, we wont be happy campers about no freeze deal.
In retrospect, costs got out of hand at $100 oil. Pretty much everything is cheaper now, except
for electricity.
$55-60 WTI would be wonderful. It would better if the market achieves it than through a cut.
However, history is that a cut is necessary to get the traders to dump their shorts.
There are a lot of John Kilduff's out there who are almost maniacal in their desire to drive
WTI back below $26.
I long ago quit trying to figure out why oil trades like it does, or how it can get so high
or low for periods of time.
I'd say the new Saudi prince who is apparently now in charge seems to be taking a different
approach than his predecessors.
"... Another possibility is differences between Saudi officials themselves on how to approach Doha. Doubts over a potential success in Doha surfaced in recent weeks following comments from Saudi Arabia's Deputy Crown Prince Mohammed bin Salman, who laid out Saudi Arabia's position not to freeze without Iran following suit. He reiterated those comments three days before the meeting. "If all major producers don't freeze production, we will not freeze production," Prince Salman said on April 14. "If we don't freeze, then we will sell at any opportunity we get." ..."
One possibility is that Saudi Arabia had at least some intention of signing
up to the freeze, but let its antipathy towards Iran get in the way at the last
minute. "The fact that Saudi Arabia seems to have blocked the deal is an indicator
of how much its oil policy is being driven by the ongoing geopolitical conflict
with Iran," Jason Bordoff, the director of the Center on Global Energy Policy
at Columbia University,
told Bloomberg.
Another possibility is differences between Saudi officials
themselves on how to approach Doha. Doubts over a potential success in Doha
surfaced in recent weeks following comments from Saudi Arabia's Deputy Crown
Prince Mohammed bin Salman, who laid out Saudi Arabia's position not to freeze
without Iran following suit. He reiterated those comments three days before
the meeting. "If all major producers don't freeze production, we will not freeze
production," Prince Salman said on April 14. "If we don't freeze, then we will
sell at any opportunity we get." Much of the world, including many negotiators,
again thought that this was bluster.
The Wall Street Journal
hinted at the fact that Saudi Arabia's delegation to Doha, led by the
iconic oil minister Ali al-Naimi, had quite a different tone from the
powerful young prince. As late as Saturday, the Saudi delegation appeared to
be "willing to sign a deal despite what they described as political
statements from Prince Salman," the WSJ wrote, based on comments from its
sources familiar with the talks. On Sunday, al-Naimi unexpectedly
backtracked, and the Doha negotiations dragged on for hours before
ultimately falling apart. Although it is unclear what caused the change, one
would have to wonder if Prince Salman ultimately prevailed over his
country's delegation to take a hard line over Iran.
Separately, Kuwait's oil workers could do more for the markets than any
OPEC production freeze. While oil traders are focusing on the failed Doha
talks, Kuwait's oil production dropped by half this weekend because of a
worker strike. Kuwait Oil Company reported that its oil production
fell to a staggering 1.1 mb/d after workers began a strike over wages.
The world's major oil producing nations failed to strike an agreement on Sunday
night to freeze production, saying they needed more time to agree a deal to
try to buoy the price of oil.
What producers had hoped would be the
first deal in 15 years ran into difficulty after
Saudi Arabia
– the largest exporter of oil – demanded that Iran join an
agreement to freeze output.
Iran
has been reluctant to agree to hold back on oil production while it
attempts to return its market share to pre-sanction levels.
The meeting in Doha had been called on Sunday for 18 countries to sign off
on a deal that would helped to put a floor on the price of crude oil which,
at
$45 a barrel
, has risen 60% from its lows in January.
But Reuters quoted sources saying that Saudi Arabia wanted all
Opec
members to attend talks, despite insisting earlier on excluding Iran,
its political rival in the region, because Tehran had refused to freeze production.
If a deal cannot be struck soon, it is possible that recent rises in the
price of oil will stall.
Economists at French bank Société Générale said: "When it comes to oil, the
principle of Goldilocks applies in full. Too low a price raises fear of a vicious
circle of default, spillover to bank balance sheets, eroding financial conditions
and a new headwind for the real economy.
"Too high a price, on the other hand, erodes the welcome boost to purchasing
power. But, if higher oil prices are driven by stronger demand, then this is
good news."
They noted that a recent report by the
International Energy Agency
warned that a mere production freeze would have
a limited effect on physical oil supply.
Even so, expectations had been high before the Sunday meeting that a deal
could be struck between Opec and non-Opec oil producers to hold output at January's
levels until October. Reuters was reporting that producers were instead agreeing
to freeze oil production at "an agreeable level" as long as all Opec countries
and major exporting nations participated.
"If there is no deal today, it will be more than just Iran that Saudi Arabia
will be targeting. If there is no freeze, that would directly affect North American
production going forward, perhaps something Saudis might like to see," Natixis
oil analyst Abhishek Deshpande told Reuters.
So here is where I start to sense that OPECs monthly oil market report
and reality have, let's say, diverged onto different paths. OPEC details how
production is essentially falling all over the world after achieving strong
growth in 2015. In particular, non-OPEC supplies grew by 1.5 mb/d to reach
57.1 mb/d in 2015. In 2016, noting the aforementioned large drop in CAPEX
and the corresponding rig count, non OPEC production is expected to fall by
nearly 800,000 bpd.
In both cases, U.S. tight oil is leading the way. In particular, U.S.
tight oil volumes are falling the fastest. They note that in March, these
volumes are expected to be down over 700,000 bpd from their peak in the
first quarter of 2015. They also note the falling rig count as a major
driver, possibly leading to increasing rates of production declines during
2016. Got it – rig counts drop to the lowest levels since the 1980s,
production falls hard. Especially in tight oil where new wells typically
decline by 75 percent in their first year of production. No brainier there.
Most analysts have realized this.
However, what about the current oversupply you ask? Are they not just
saying that the market will just absorb the excesses of a currently
oversupplied market? Yes. However, based on their own estimates, the market
is basically in balance today. As such, here is where their projections
start to deviate from logic – or to suggest a rebound is upon us. Below is
OPEC's forecast of non-OPEC production by quarter. The group notes that the
world has seen a sharp drop in oil production during the first quarter of
2016. Various sources have already reported much of this information.
Importantly, OPEC is predicting larger decreases in production in the second
quarter of 2016 as the drop in activity that accelerated last December,
really starts to impact production. Once again, this is starting to be
accepted by those that pay attention to the data. These declines have
recently garnered some press attention and I believe played a role in the
recent oil price rebound.
This is all as expected – the global oil industry cannot grow volumes in
a $30/bbl oil world. In fact, at that price, cash flows are insufficient to
warrant investment even to the levels necessary to replace production – much
less grow volumes. Many have been saying this and dropping production is the
evidence that they are correct.
... ... ...
Sober analysts have been downgrading production estimates almost
universally for the past few months. Likewise, service companies have been
steadily lowering revenue estimates for the second quarter and the remainder
of the year. As such, what changes in the third and fourth quarters? We are
in mid-April now. The fourth quarter is only a short 5 months away – the
industry better get going.
Sober analysts have been downgrading production estimates almost
universally for the past few months. Likewise, service companies have been
steadily lowering revenue estimates for the second quarter and the remainder
of the year. As such, what changes in the third and fourth quarters? We are
in mid-April now. The fourth quarter is only a short 5 months away – the
industry better get going.
... ... ...
While the industry is getting more and more efficient, the laws of large
numbers are immutable. With tens of thousands of horizontal wells declining
daily, several thousand new wells are required to replace these volumes, and
there is no evidence of any rebound yet.
... ... ...
...assuming flat OPEC volumes, based on this chart, supply and demand are
effectively in balance in 3Q 2016. In fact, demand slightly exceeds supply
implying that high global inventories begin to drop. This is the point where
prices stabilize and begin to rebound.
... ... ...
In reality, what is likely to happen is the third quarter call on OPEC
will be about 1 mb/d above supply, resulting in strong inventory draws. This
will push oil prices to the highest levels seen at least over the past 12
months. Given this signal, the industry will start to put capital back to
work.
However, this will take a while – most of those laid off last year and
this have found other jobs. Remember the 6-9 month lag between increases in
rig count and volume growth? It could be even longer before volumes are
truly growing again. If not in the U.S., certainly in the most of the rest
of the world.
As such, let's say fourth quarter is flat with our revised third quarter.
Then the call on OPEC would be around 1.5 mb/d, resulting in further
reductions in global inventories. In addition, oil prices would likely head
higher and the strip would enter backwardation, prompting further draws from
inventories. Under this scenario, non-OPEC volumes are unlikely to grow
sufficiently to meet global demand until the second half of 2017. To achieve
this, rising oil prices are just around the corner.
In every cycle, analysts and pundits try to make sense of the current
environment. When oil prices were above $100/bbl, many argued such high
prices were necessary because global F&D costs had risen to that point.
Likewise, at the bottom, many have argued that $30/bbl is the new price
level and given OPEC's low marginal costs, prices could not rise. Neither
was true. Prices and supplies are cyclical and the oil market is
self-correcting. Wells decline daily. Cash must be invested in large
quantities just to keep production flat and even in larger quantities to
grow production
... ... ...
we can recognize that the correction process is happening. But the
rebound in investment is nowhere in sight making it unlikely that volume
declines suddenly stop and then reverse in the second half of 2016. What
this really tells me is that prices got out of control, dropped much further
than the cartel expected, but they couldn't reverse course without losing
credibility. Maybe we all will be better off when they just leave markets
alone.
"... Looks more like while they initialed the price slump, they were quickly taken for a ride by "paper oil producers", who promptly assume control and drove the price to the current price band. And intend to maintain it as long as possible (look at all "low oil price forever" propaganda in Western MSM). ..."
…..Why would a price spike above $40 be a bad thing for Saudi Arabia?
Because it would provide a life support to American frackers who have undermined the pricing
power of the Kingdom these days, as was discussed in a previous piece here.
The predatory pricing initiated by KSA in mid 2014 was not directed against the USA frackers and
in no way directed at establishing $30-40 per barrel price band. They viewed US frackers as a
useful balancing mechanism (and this was stressed several times by high level Saudi officials),
that allow to establish and maintain $70-$80 or so price range. and that probably was their initial
intention. But they quickly lost control to Wall Street, which has other plans.
And they think that this price range is also OK for the world economy. I can't find quotes
now but there were such quotes by Saudi oil minister.
Looks more like while they initialed the price slump, they were quickly taken for a ride by
"paper oil producers", who promptly assume control and drove the price to the current price band.
And intend to maintain it as long as possible (look at all "low oil price forever" propaganda
in Western MSM).
That's why Saudis were forced to ally with Russia in "freezing production" scheme.
likbez – "Looks more like while they initialed the price slump, they were quickly taken for a
ride by "paper oil producers", who promptly assume (sic) control and drove the price to the current
price band." This theory makes the "paper oil producers" God like.
Since the early 1970's I have heard almost nothing except that the "paper oil producers" have
artificially made oil much more expensive than it should be. Of course, during that same period
of time, with respect to farm products, all I heard was that the "paper farmers" were artificially
making farm product prices cheaper than they should be. They must all be Gods.
Thus, I have never paid attention to what "paper" people are doing. Rather, I try to look at
the fundamentals. For example, assume that we are "paper" traders [with access to billions of
$'s], and we think that the price of oil should be $70. But, we get together and hatch a plan.
At $70 we will sell short billions of $ of oil contracts and that will force the market down and
force Saudi Arabia and Russia to keep cutting their prices and we will make a fortune. That sounds
like a reasonable plan – NOT!!
It is like when oil got to $70, you bet me a billion $'s that prices would go down and I took
your bet, thinking that they would not go down. So you told OPEC and Russia about our bet and
they took your side.
"All oil producing countries … now started accelerated development of petrochemical industry.
This is probably the most important consequence of this oil price slump.
They all want to export more refined products and products with substantial added value (plastics,
composites)."
This process started at least 10 years ago and has nothing to do with the drop in oil prices.
See, for example, the chart below:
Russia's crude oil and refined products exports (million tons)
Not so fast. I remember that Sechin on one of International conferences had proudly pumped
his chest explaining how good a player Russia is in a sense that they are just exporting raw oil
instead of refined products. This guy dumped huge amount of money into Arctic shelf instead of
building refineries and other chemical plants which would help enormously in 2015.
Can you please compare that with KSA dynamics. Because that will tell us how backward in this
respect Russians were up to this day in comparison with Arab sheikhs.
The recent refinery built in KSA (0.4 Mb/d):
Yanbu Aramco Sinopec Refining Company (YASREF) Ltd. King Salman and Chinese President Xi
Jinping inaugurate YASREF Refinery Riyadh, Saudi Arabia, January 20, 2016 The Custodian of
the Two Holy Mosques King Salman bin Abdulaziz Al Saud, the King of Saudi Arabia and His Excellency
Xi Jinping, the President of the People's Republic of China today jointly inaugurated the Yanbu
Aramco Sinopec Refining Company (YASREF)refinery.
https://lnkd.in/eCBZ4PZ W.J
I do not know what you remember, but there are statistical facts.
The share of refined products in Russia's oil and product exports increased from 25-30% in 2000-2005
to 41-42% in 2014-2015.
In volume terms, exports of refined products increased by 174% (almost 3 times) between 2000 and
2015.
Given that Russia has sufficient primary distillation capacity, there was an intensive modernization
program.
Saudi Arabia has also been developing refining capacity and currently covers all its domestic
needs. In 2015, refining products accounted for 13% of total crude and products exports.
Saudi Arabia's crude and refined product exports (mb/d)
source: JODI
As you mentioned Sechin, here is a brief summary of Rosneft's refinery modernization program:
"Rosneft is implementing the most ambitions modernization program in RF: more than 30 construction
projects, reconstruction of re-refinery units. The Company's refineries are implementing the modernization
program that implies significant increase of the refining depth and improvement of the produced
petroleum products (all motor fuels will correspond to the European environmental class Euro-5).
The capacity of the modernization program projects:
primary processing – 12.0 million tons/year;
conversion processes – 23.6 million tons/year;
reforming processes – 35.9 million tons/ year.
At present, within the framework of implementation of the program, reconstruction and construction
works are being performed with respect of the following:
reforming, isomerization, alkylation plants for production of high-octane gasoline components;
catalytic cracking plants for production of high-quality gasoline components and oil conversion
rate increase;
hydrocracking plants for production of high-quality diesel fuel components, jet fuel and oil conversion
rate increase;
hydrotreatment plants for compliance with the requirements of the Technical Regulations of the
Customs Union in terms of sulfur content in the products."
Lenders including JPMorgan Chase & Co., Wells Fargo & Co. and Bank of America Corp. are slashing
credit lines for struggling energy companies. It's a tacit acknowledgment that energy prices aren't
coming back, and represents an abrupt turnaround from last year when banks were lenient on struggling
drillers in the hope that better times were coming.
Since the start of 2016 lenders have yanked $5.6 billion of credit from 36 oil and gas producers,
a reduction of 12 percent, making this the most severe retreat since crude began tumbling in mid-2014,
according to data compiled by Bloomberg.
And it isn't over yet. Banks are in the middle of a twice-yearly review of energy loans, where
they decide how much credit they are willing to extend to junk-rated companies based on the value
of their oil and gas reserves. With crude hovering near $40 a barrel, drillers' assets are worth
far less than they were two years ago.
Banks are cutting their oil and gas exposure in part because they are facing pressure from
regulators and investors to rein in risk.
"The banks are walking a tightrope," said Spencer Cutter, a credit analyst with Bloomberg Intelligence.
"They don't want to push the companies into bankruptcy, but on the other hand they're getting
a lot of heat from regulators and investors. They can't keep kicking the can down the road like
they did last year."
A bank that denies credit to a company could find itself liable for damage to the borrower,
said David Feldman, a restructuring lawyer at Gibson Dunn & Crutcher LLP.
"Lenders are very torn because it's a difficult call," Feldman said.
Borrowers are feeling the pinch. At least 15 companies have seen their credit lines cut, including
Whiting Petroleum Corp., Rex Energy Corp., and Halcon Resources Corp. Goodrich Petroleum Corp.'s
lenders cut its credit line in January to $40.3 million from $75 million, limiting how much the
cash-starved company could draw. The oil and gas driller gave creditors until May 6 to vote on
a reorganization plan.
Last month, in exchange for waiving Energy XXI Ltd.'s loan covenants, lenders led by Wells
Fargo cut the company's credit line to $377.7 million, the amount the oil producer had already
borrowed under what had been a $500 million facility. The lenders also required Energy XXI to
cash out its oil hedges and use the money to pay down the loan, according to Securities and Exchange
Commission filings.
Banks are setting aside more money to cover losses on energy loans. Wells Fargo, which had
$17.4 billion in outstanding oil and gas loans at the end of 2015, set aside $1.2 billion to cover
potential losses. JPMorgan, which had $14 billion in outstanding oil and gas loans, said in a
February presentation that it will boost its energy loan loss reserves to $1.3 billion in the
first quarter, a $500 million increase from the end of the year.
Goldman Sachs, Morgan Stanley, JPMorgan, Bank of America and Citigroup could need an additional
$9 billion to cover souring oil and gas loans in the worst-case scenario, Moody's Investors Service
said in an April 7 report. Still, the lenders would be able to absorb such losses out of one quarter's
earnings.
Thanks AlexS, great article. I think this comes under the general heading of closing the barn
door after the cows are gone. Which is normal operating procedure for banks. I laugh at the idea
that banks are walking a tightrope. Of course they are - they built the tightrope and jumped onto
it happily. The only question for the banks at this point is how do you unwind this thing without
killing it, and themselves, in the process.
China's exports jumped 11.5%, the most in a year, and declines in imports narrowed to 7.6%
, adding to evidence of stabilization in the world's second-biggest economy.
(b) continuing growth in vehicle sales, supporting strong growth in gasoline consumption
"Vehicle sales in China rose 8.8 percent in March from a year earlier to 2.4 million, the China
Association of Automobile Manufacturers said on Tuesday, supporting strong gasoline demand in
the country." http://www.reuters.com/article/us-global-oil-idUSKCN0X800I
Average oil demand in the world's second-largest crude consumer is expected to grow by 420,000
barrels a day this year, the bank [Standard Chartered] said, adding that apparent oil product
demand expanded 6.2 percent last year to 9.4 million barrels a day. China will account for 37
percent of global demand growth this year, Standard Chartered estimates.
http://www.bloomberg.com/news/articles/2016-03-25/china-seen-sustaining-strong-crude-imports-on-refining-reserves
2/ Falling domestic oil production (for the first time in many years)
"China Petroleum and Chemical Corp, or Sinopec Corp., plans to … cut crude production by 5%
in 2016 as a result of cutting capital expenditures by 10.6% from 2015"
"Total upstream production last year fell 1.7% to 471.91 million barrels of oil equivalent, with
crude output down 3.1%"
[ Hong Kong (Platts)–30 Mar 2016
http://www.platts.com/latest-news/oil/hongkong/chinas-sinopec-expects-steady-throughput-5-lower-27408416
]
"PetroChina Co. sees oil and gas output falling the first time in 17 years as it shuts high-cost
fields that have "no hope" of making profits at current prices."
"PetroChina forecasts crude production this year at 924.7 million barrels, down 4.9 percent."
"China's output in 2016 will decline as much as 5 percent from last year's record 4.3 million
barrels a day, according to estimates last month from Nomura Holdings Inc. and Sanford C. Bernstein
& Co. That would be the first drop in seven years, and the biggest in records going back to 1990."
5/ Strong refining margins, which encourage increasing processing volumes and contribute to
increasing oil product exports (which means that the increase in net imports was less than gross
imports)
They are owed almost a billion. I wonder how that works. They say if you owe a bank a million
and can't pay, you have a problem. If you owe a billion, the bank has a problem. I wonder if they
will actually pull out or be forced to continue to provide services to protect their receivables.
Maduro has been alleging that the US is seeking to scrap the OPEC freeze plan.
"... The weekly decline stands now at -31 kb/d which is annualized 1.6 mill b/d. In my view decline rates will now accelerate until oil prices – and more importantly drilling – are up. So, it is also my opinion that the next rise in US liquid hydrocarbon production will not be up before summer 2017. ..."
The weekly decline stands now at -31 kb/d which is annualized 1.6 mill b/d. In my view
decline rates will now accelerate until oil prices – and more importantly drilling – are up. So,
it is also my opinion that the next rise in US liquid hydrocarbon production will not be up before
summer 2017.
Interesting also that 'other supply' (including fuel ethanol and processing gains) is down
70 kb/d. So, the market works and lays the foundation of a price recovery.
Oil traders see the bottom for crude prices. After nearly two years of a down
market, oil traders are growing confident that we have passed the low point. "The down market is
behind us," Torbjorn Tornqvist, CEO of Gunvor Group Ltd.,
said on Tuesday at the FT Global Commodities Summit in Lausanne. "It is the beginning of the
end of that for sure." Although there will be a lot of volatility for quite a while, Tornqvist
said that "from here on, the trend is up." The CEO of Trafigura Jeremy Weir
echoed that sentiment at the commodities summit. "I believe we've seen the bottom unless there is
some sort of catastrophic situation political or otherwise," he said. Glencore's (LON:
GLEN) top executive was a little more cautious, arguing that a rebound would not be
quick because of the large stockpiles of oil that need to be worked through.
... ... ...
U.S. banks hit by energy. Major U.S. banks are set to report earnings this
week, and many are facing regulatory pressure from the Federal Reserve, the Federal Deposit
Insurance Corporation and the Office of the Comptroller of the Currency to reduce their exposure
to risky energy companies. Most banks insist that energy is a small part of their portfolio, but
the FT
reports that the banks' trading and investment banking units could report their worst quarter
since the financial crisis in 2009, although much of that is likely due to turmoil in global
financial markets. Still, credit re-determinations are wrapping up, and many analysts expect cuts
of 15 to 20 percent on average to the credit line for oil and gas companies.
"... Researchers at Bernstein expect global oil demand to increase at a mean annual rate of 1.4 percent between 2016 and 2020, compared with annual growth of 1.1 percent over the past decade. ..."
Researchers at Bernstein expect global oil demand to increase at a mean annual rate of 1.4
percent between 2016 and 2020, compared with annual growth of 1.1 percent over the past decade.
"We expect oil markets to rebalance by the end of 2016. This will allow prices to recover towards
the marginal cost of $60 per barrel," Bernstein said, adding that it expects global demand to
reach 101.1 million bpd by 2020, from the current 94.6 million bpd.
"... Producers are not just shrinking production; they are also laying off staff in the thousands. Over the short-term, this will help them, or at least some of them, to survive. In the medium-term, however, production curbs and layoffs will benefit the energy industry in another way: it will make them temporarily less capable of responding to the growing demand for oil and gas. ..."
"... A report from Bernstein puts the mean growth rate for oil demand at 1.4 percent annually for the next five years, up from 1.1 percent for the last decade. The International Energy Agency expects average annual demand growth of 1.3 percent, much of which will come from non-OECD economies. ..."
There's not much money in new well drilling these days. In fact, the latest
figures from the American Petroleum Institute (API) reveal a 70 percent annual decline in new
natural gas well completions along with a staggering 90 percent drop in new oil wells as of the start
of April.
The drop hardly comes as a surprise, especially in the light of the continual
reduction in active drilling rigs across the U.S. as
reported on a
weekly basis by Baker Hughes.
As of April 8, there were 354 active oil rigs-8 fewer than the week before, and 406 fewer than
a year ago. The number of active gas rigs was 89, down from 225 on April 8, 2016.
Given the low oil and gas prices that have pushed many energy firms to the brink of bankruptcy,
these developments were only to be expected, although they are certainly worrying with regard to
the resilience of some players in the sector. Yet, gloomy as the news seems, its implications for
the future are rather positive.
Prices of crude oil and natural gas are at multi-year lows. Producers are not just shrinking
production; they are also laying off staff in the thousands. Over the short-term, this will help
them, or at least some of them, to survive. In the medium-term, however, production curbs and layoffs
will benefit the energy industry in another way: it will make them temporarily less capable of responding
to the growing demand for oil and gas. And demand will grow.
A report from Bernstein puts the mean growth rate for
oil demand at 1.4 percent
annually for the next five years, up from 1.1 percent for the last decade. The International Energy
Agency expects average annual demand growth of 1.3 percent, much of which will come from non-OECD
economies.
"... even if LTO output starts to recover, its annual growth rate will never return to previous high growth rate of 1 mb/d. ..."
"... Potential 300-400 kb/d annual growth in LTO output will be much less than 1.2mb/d projected growth in global demand. ..."
"... I do not dispute Russian companies are cash flow positive. My point is, what do Russian oil and gas industry workers make in salary and benefits, in relation to their US peers? If it is substantially less, is this why, in part, Russian oil and gas companies are still cash flow positive? ..."
"... Yes, salaries in Russia are generally much lower than in the U.S., not just in the oil industry. Especially, if they are measured in dollar-terms, rather than in real purchasing power. Locally produced equipment, pipes, other materials, electricity, services, etc. are also much less expensive, especially after the depreciation of the local currency. ..."
"... Finally, and particularly important, Russia produces higher volume of C+C with a much less number of wells. The number of new wells drilled annually is also several times less than in the U.S. ..."
"... Old conventional onshore fields are on average less mature. There is almost no stripper wells. There is much less (high-cost) deep offshore production. And almost no LTO output. ..."
"... I do not know a lot about Russian oil and gas production, but it does appear to me that a combination of lower costs, and less mature fields, is keeping Russian oil and gas companies generally profitable, despite the downturn. ..."
"... Maybe too simplistic, but there was a time, from 1986-2004, where we would have been cheering $40 WTI. A combination of lower production volumes, combined with much higher costs, make $40 WTI a money loser in most onshore US fields, or at least not enough for new wells. I guess maybe Russia is just where the US was 30 years ago? 30 years ago, $40 WTI would have been very profitable in most US onshore fields. ..."
"I read Russian companies are still making money, but the purchasing power of their currency is
much less than it was."
shallow sand,
Their revenues are mostly in dollars, and 90% of costs are in rubles. So the decline of the
ruble's rate versus the dollar is very positive for the Russian companies, as it partially mitigates
the negative effect of low oil prices.
Which means that OPEC decision not to cut output was correct. One year more of relatively low
oil prices ($40-50) and LTO will not be a threat to other producers.
The excess supply will be eliminated by that time. And even if LTO output starts to recover,
its annual growth rate will never return to previous high growth rate of 1 mb/d.
Potential 300-400 kb/d annual growth in LTO output will be much less than 1.2mb/d projected
growth in global demand.
I do not dispute Russian companies are cash flow positive. My point is, what do Russian
oil and gas industry workers make in salary and benefits, in relation to their US peers? If it
is substantially less, is this why, in part, Russian oil and gas companies are still cash flow
positive?
I do not know the answer, maybe you could provide some information in that regard?
Yes, salaries in Russia are generally much lower than in the U.S., not just in the oil
industry. Especially, if they are measured in dollar-terms, rather than in real purchasing power.
Locally produced equipment, pipes, other materials, electricity, services, etc. are also much
less expensive, especially after the depreciation of the local currency.
Finally, and particularly important, Russia produces higher volume of C+C with a much less
number of wells. The number of new wells drilled annually is also several times less than in the
U.S.
Old conventional onshore fields are on average less mature. There is almost no stripper
wells. There is much less (high-cost) deep offshore production. And almost no LTO output.
Thanks. I always appreciate your comments on this site.
I do not know a lot about Russian oil and gas production, but it does appear to me that
a combination of lower costs, and less mature fields, is keeping Russian oil and gas companies
generally profitable, despite the downturn.
Maybe too simplistic, but there was a time, from 1986-2004, where we would have been cheering
$40 WTI. A combination of lower production volumes, combined with much higher costs, make $40
WTI a money loser in most onshore US fields, or at least not enough for new wells. I guess maybe
Russia is just where the US was 30 years ago? 30 years ago, $40 WTI would have been very profitable
in most US onshore fields.
Fernando, I also agree on the spending part, but I doubt you will find many places more consumer
spending driven than the US. But I am going to refrain from further comment on this topic, as
last time I discussed it, I put both feet in my mouth. And we need to stick to the oil topic.
LOL!
"... KSA is the primary driver into the turmoil in Syria. KSA is sitting on vast NatGas fields underneath their oil fields. However, producing NatGas from these fields would cause severe Oil production issues, so they won't tap the NatGas until their Oil fields are tapped out. KSA needs to path to get its NatGas into Europe, which requires a pipeline through Syria. So if they are pressing to remove Assad from power, I suspect that KSA production problems aren't too far into the future. ..."
"... Iran & KSA appear to be gearing up for war. Both nations are buying military equipment and are running multiple proxy wars. I believe KSA is now has the 4 or 5 biggest military budget for 2016. Both KSA and Iran also have a limited number of nuclear weapons. Should the proxy wars turn into a hot war, then it really doesn't matter how much oil is left to be produced. ..."
"... I have wondered this for awhile too. They appear to handle so much water. As I have stated, handling water is a major expense in producing oil. I wonder how much chemical KSA has to use and as well how much electricity. I also wonder what pressure is required on the injected water. There are very few water floods in the US with LOE much under $15 per BOE. Most are well over $20. Same applies to steam floods, CO2 and polymer floods. ..."
"... What happens as the "old" big fields that provided decades of oil comes to an end of their economic life, shortened by the collapse in the oil price and the lasting low oil price? Generally the discoveries that wait in line for development are smaller, so to keep the level and/or grow becomes THE Red Queen race. Then throw in that several of the majors have had a Reserves Replacement Ratio (RRR) of less than 100%, meaning reserves are depleted faster than they are being replaced. ..."
"... Let's say Ghawar begins to decline, that is one field, I imagine that you believe it is unlikely that all the large fields in the World will begin their decline phase simultaneously. So let's assume they do not. For simplicity we will assume Ghawar produces about 5 Mb/d and that it will decline at 3%/ year (similar to US before LTO production started from 1985-2004), we will also assume each year the equivalent of one Ghawar begins to decline until all World production is eventually declining at 3% per year. For simplicity we will assume all fields decline at 3% (in reality some will be more than this and some will be less and the rate won't be constant over time. This is a very simple model. ..."
"... I expect than when the Oil column dips some where between 10 feet and 3 feet, Production is going to collapse at a much faster rate than 3% per year, Perhaps as high 10 to 20% per year. I think as the remaining Oil column shrinks its going to be much harder to extract oil since it will be difficult to steer laterals to follow the uneven remaining oil column. The water cut will grow increasing problematic, and drilling will need to increase to keep laterals on near the top of the oil column. ..."
"... My understanding average large fields are declining at a rate of 5% to 7% per year. Horizontal and other advance drilling\extraction tech has prevented significant production declines so far, but this trend isn't sustainable. At some point I believe we will see shocking decline rates no matter what tech is developed, or how much the Price of Oil increases into. ..."
"... Yes. But I think KSA would likely go to war first as a diversion to internal unrest. Ron Patternson would be a better source than me, since I never visited or worked in KSA. Ron has. So far KSA is using brutal tactics to prevent protests and uprisings. ..."
"... Will economic and social problems become a crisis before Oil production collapses begin? Lots of nations are downing in debt, have aging population with no or inadequate retirement savings, and younger labor pools unequipped (educated/skilled) to meet the needs of businesses. I can't image that the global economy can be sustained for much longer (EU, Asia & South America in recession & the US teetering on the end of another recession). Since when in history have major industrial powers have negative interest rates? ..."
"... I believe the most of the Ghawar formation has a profile where its narrow at the bottom and much wider at the top. There is more volume at the top of the formation than at the bottom. So the decline in oil column depth is not linear. ..."
"... "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." "The average annual production decline for those 261 fields has been 6.5 percent. " ..."
"... "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 have 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." ..."
"... The increased use of in-fill drilling (e.g. moving horizontal producers up dip) and IOR/EOR techniques was foreseen with it's effect on prolonging the plateau, we are yet to see if the sudden collapse that was also predicted. The thing that was missed in the predictions around 2009 to 2013 was a flood of free money and with it the ability of the oil industry to ramp up non-conventional production, and I'd also say for Iraq. ..."
"... Great post George: an excellent summary of PO describing rapid ongoing production decline from most key fields that has been temporarily deferred by enormous pulse of infill drilling and EOR paid for via free money leading to current situation. What else do we need to know? ..."
"... As I have repeated many times on this blog, Saudi has been able to mask the decline of its old giant oil fields by bringing old oil previously mothballed fields back on line. These fields are Shaybah, Khurais and Manifa. ..."
"... to even suggest that Ghawar might go into decline is preposterous. Ghawar has long been into decline. I am shocked that you are ignorant of that fact. ..."
"... I have no idea what Ghawar's current production numbers are because it is a Saudi state secret. But I would guess somewhere in the neighborhood of 3 million barrels per day. But if it were not a state secret and Saudi were proud of the numbers, then it would be in the neighborhood of 5 million barrels per day. ..."
"... "Although Saudi Arabia has about 100 major oil and gas fields, more than half of its oil reserves are contained in eight fields in the northeast portion of the country…The Ghawar field has estimated remaining proved oil reserves of 75 billion barrels" ..."
"... The EIA estimates Saudi Arabia's oil production capacity (ex NGLs) at around 12 mb/d, including ~300kb/d in the Saudi part of the Neutral zone. The latest estimate by the IEA is 12.26 mb/d ..."
"... Alex, Ghawar can in no way produce anywhere near 5.8 million barrels per day. But then if you believe anything that is printed on the internet then….. ..."
"... Incidentally, the EIA agrees with Saudi Arabia on their proven reserves of 266 billion barrels. Which says nothing other than "We take Saudi's word for everything. ..."
"... The recent increase in Saudi Arabia's oil production was largely due to higher utilization of production capacity. The last large increase in capacity was in 2009, when Khurais field capacity was increased to 1.2 mb/d. The start of the Manifa field in 2013 and its ramp-up in 2014 largely offset declining production at the mature fields. ..."
"... If we assume a 6.5% annual decline rate since 2009 we would be at 3.4 Mb/d in 2015. At some point Saudi Arabia as a whole will begin to decline, when this will happen I do not know. Just as in the US where there has been extensive infill drilling and secondary, tertiary recovery methods employed and decline rates have remained under a 3% annual rate, the same is likely to be true of other large producing nations with a combination of on shore and offshore projects. ..."
"... The best analogy for Ghawar is probably Cantarell, they have both been developed with the best available secondary and tertiary recovery methods. Cantarell production dropped like a stone once those techniques were exhausted (about 15% per year in 2006 to 2008). My guess is Ghawar will go (or is going) even faster as the IOR/EOR techniques and software models available for its development are more advanced and it is onshore, making their application easier. Daqing might go the same way. Samotlor has been declining at around 5%. ..."
"... I know this is probably an impossible question but how long do you think it will take to deplete the remaining oil column? If it is correct that it took 10 years to drop from 100 to 25 feet (assuming this is correct too) then that doesn't bode well for future production from Ghawar over the next decade. ..."
"... The next five years should tell a lot if the oil column is now that thin. 5 mbopd can't continue forever, nor can 3% decline in a permeable reservoir under water flood. When the water mostly reaches the top, the oil stained water becomes too expensive to separate out and production stops at greater than a 3% rate. ..."
1. Ghawar started with a Oil column of ~1300. I believe by 2005, the Oil column shrunk to about
100 feet. Today its about 20-25 feet. The remaining Oil is floating on water and KSA is using
horizontal drilling to extract it. In some regions of Ghawar they are on their second or third
string of horizontal wells as the water column flood above the wells, and they had to drill above
to get back into the Oil column.
2. KSA restarted production in existing wells that have already been depleted decades ago.
Better tech and mapping information permitted them to sweep up trapped oil in these wells.
3. KSA is now using advanced Oil recovery in Ghawar and other fields (CO2/Nitrogen injection)
in order to free up trapped oil.
4. Saudi Americo, posts tech articles (quarterly) on their website. They usually don't include
which fields they are discussing, but with a little bit of effort, its not to difficult to determine
which fields discussed. This is where I found the three above items. I posted excerpts on this
blog over the past couple of years from SA tech articles.
5. KSA is the primary driver into the turmoil in Syria. KSA is sitting on vast NatGas fields
underneath their oil fields. However, producing NatGas from these fields would cause severe Oil
production issues, so they won't tap the NatGas until their Oil fields are tapped out. KSA needs
to path to get its NatGas into Europe, which requires a pipeline through Syria. So if they are
pressing to remove Assad from power, I suspect that KSA production problems aren't too far into
the future.
FWIW: Its just not KSA that is the problem. Most of the global production has been maintained
from old depeleted wells, using new tech to sweep up trapped oil. Obviously this can't be continued
indefinitely. I fear that at some point all of the major fields will begin to see sharp declines
as remains of trap oil is extracted, an newer technology isn't going to extract Oil that doesn't
exist. With the extremely low oil prices, no one is developing any new fields (deep water, arctic,
etc). By the time oil prices recover that makes it profitable resume these expensive projects
it will be too late and there will likely be permanent crisis. It may take 5 to 7 years to develop
new project to produce Oil. 5 to 7 years is a long lag time, which depletion continues to march
on.
That said, its possible that other problems trump Oil production problems, such as, the Debt
crisis or the demographic crisis (aging populations). We are very close to another major debt
crisis as gov'ts start going bankrupt (ie rest of the PIGS – Portugal, Spain, Italy), China, Japan,
Most of South America, and perhaps a lot of US cities and even US states (Puerto Rico, Illinois,
Pennsylvania, West Virginia, and perhaps California).
Iran & KSA appear to be gearing up for war. Both nations are buying military equipment
and are running multiple proxy wars. I believe KSA is now has the 4 or 5 biggest military budget
for 2016. Both KSA and Iran also have a limited number of nuclear weapons. Should the proxy wars
turn into a hot war, then it really doesn't matter how much oil is left to be produced.
I have wondered this for awhile too. They appear to handle so much water. As I have stated,
handling water is a major expense in producing oil. I wonder how much chemical KSA has to use
and as well how much electricity. I also wonder what pressure is required on the injected water.
There are very few water floods in the US with LOE much under $15 per BOE. Most are well over
$20. Same applies to steam floods, CO2 and polymer floods.
What happens as the "old" big fields that provided decades of oil comes to an end of their
economic life, shortened by the collapse in the oil price and the lasting low oil price? Generally
the discoveries that wait in line for development are smaller, so to keep the level and/or grow
becomes THE Red Queen race. Then throw in that several of the majors have had a Reserves Replacement
Ratio (RRR) of less than 100%, meaning reserves are depleted faster than they are being replaced.
Let's say Ghawar begins to decline, that is one field, I imagine that you believe it is
unlikely that all the large fields in the World will begin their decline phase simultaneously.
So let's assume they do not. For simplicity we will assume Ghawar produces about 5 Mb/d and that
it will decline at 3%/ year (similar to US before LTO production started from 1985-2004), we will
also assume each year the equivalent of one Ghawar begins to decline until all World production
is eventually declining at 3% per year. For simplicity we will assume all fields decline at 3%
(in reality some will be more than this and some will be less and the rate won't be constant over
time. This is a very simple model.
Chart below has World C+C output in Mb/d on left axis and annual decline rate (dashed line)
on right axis. It is assumed in this scenario that a nuclear war in the middle east does not occur.
I expect than when the Oil column dips some where between 10 feet and 3 feet, Production
is going to collapse at a much faster rate than 3% per year, Perhaps as high 10 to 20% per year.
I think as the remaining Oil column shrinks its going to be much harder to extract oil since it
will be difficult to steer laterals to follow the uneven remaining oil column. The water cut will
grow increasing problematic, and drilling will need to increase to keep laterals on near the top
of the oil column.
My understanding average large fields are declining at a rate of 5% to 7% per year. Horizontal
and other advance drilling\extraction tech has prevented significant production declines so far,
but this trend isn't sustainable. At some point I believe we will see shocking decline rates no
matter what tech is developed, or how much the Price of Oil increases into.
That said I don't have a crystal ball or a time machine that shows me what is going to happen.
George Kaplan Asked:
"Do you think there is a significant risk of internal disruption"
Yes. But I think KSA would likely go to war first as a diversion to internal unrest. Ron
Patternson would be a better source than me, since I never visited or worked in KSA. Ron has.
So far KSA is using brutal tactics to prevent protests and uprisings.
"Based upon your thoughts, what do you think that the average cost per barrel is for KSA oil?"
I don't have a clue. I would imagine production costs are constantly rising.
Rune rhetorically asked:
"What happens as the "old" big fields that provided decades of oil comes to an end of their
economic life, shortened by the collapse in the oil price and the lasting low oil price?
yes, that was the point I was leading to. That said: Will economic and social problems
become a crisis before Oil production collapses begin? Lots of nations are downing in debt, have
aging population with no or inadequate retirement savings, and younger labor pools unequipped
(educated/skilled) to meet the needs of businesses. I can't image that the global economy can
be sustained for much longer (EU, Asia & South America in recession & the US teetering on the
end of another recession). Since when in history have major industrial powers have negative interest
rates?
Dave P asked:
"I know this is probably an impossible question but how long do you think it will take to deplete
the remaining oil column?"
I don't' have a clue. I believe the most of the Ghawar formation has a profile where its
narrow at the bottom and much wider at the top. There is more volume at the top of the formation
than at the bottom. So the decline in oil column depth is not linear.
"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." "The average annual production decline for those 261 fields has
been 6.5 percent. "
"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 have 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."
The increased use of in-fill drilling (e.g. moving horizontal producers up dip) and IOR/EOR
techniques was foreseen with it's effect on prolonging the plateau, we are yet to see if the sudden
collapse that was also predicted. The thing that was missed in the predictions around 2009 to
2013 was a flood of free money and with it the ability of the oil industry to ramp up non-conventional
production, and I'd also say for Iraq.
Great post George: an excellent summary of PO describing rapid ongoing production decline
from most key fields that has been temporarily deferred by enormous pulse of infill drilling and
EOR paid for via free money leading to current situation. What else do we need to know?
Dennis, Ghawar is not one oil field, it is five. That is not even counting Fazran. There are
Ain Dar, Shedgum, Uthmaniyah,
Hawiyah, and Haradh. Four of the five Gahwar fields are in decline and the fifth, Haradh,
is on a plateau.
To even suggest that Ghawar "might" begin to decline shows an astonishing ignorance of Saudi
oil production capabilities.
As I have repeated many times on this blog, Saudi has been able to mask the decline of
its old giant oil fields by bringing old oil previously mothballed fields back on line. These
fields are Shaybah, Khurais and Manifa.
Dennis, for God's sake, to even suggest that Ghawar might go into decline is preposterous.
Ghawar has long been into decline. I am shocked that you are ignorant of that fact.
I have no idea what Ghawar's current production numbers are because it is a Saudi state
secret. But I would guess somewhere in the neighborhood of 3 million barrels per day. But if it
were not a state secret and Saudi were proud of the numbers, then it would be in the neighborhood
of 5 million barrels per day.
But it is a state secret and it is not, in my estimation, anywhere near 5 million barrels
per day.
"Although Saudi Arabia has about 100 major oil and gas fields, more than half of its oil
reserves are contained in eight fields in the northeast portion of the country…The Ghawar field
has estimated remaining proved oil reserves of 75 billion barrels"
The EIA estimates Saudi Arabia's oil production capacity (ex NGLs) at around 12 mb/d, including
~300kb/d in the Saudi part of the Neutral zone.
The latest estimate by the IEA is 12.26 mb/d
more than half of its oil reserves are contained in eight fields in the northeast portion of
the country
More than half no less. Well hell, I cannot argue with that.
Alex, all your listed fields come to 11.75 million barrels per day. And that is more than
half. Wow! Alex, do you really believe that shit?
That does not include Berri? How could they not count Berri? Or Safah? Or any of the
other fields that would be giant fields in any other country? If you add them all up it would
likely come to at least 15 to 20 million barrels per day. Which is a joke of course. Saudi is
now producing flat out.
Alex, Ghawar can in no way produce anywhere near 5.8 million barrels per day. But then
if you believe anything that is printed on the internet then…..
If 11.75 is more than half then they likely figure around 20 million barrels per day
is possible. Yeah right!
Incidentally, the EIA agrees with Saudi Arabia on their proven reserves of 266 billion
barrels. Which says nothing other than "We take Saudi's word for everything.
Ron, I am actually rather skeptical about EIA's international statistics. Obviously, I'm not saying
that those numbers are correct.
Do you think they may have included NGLs (given that KSA produces more than 2 mb/d of NGLs)?
Alex, the EIA does have a tendency to include NGLs in their estimates. That is likely here since
Saudi is producing nowhere near what they say their their major fields are capable of.
But no one has any idea what each individual field in Saudi is producing. They have only Saudi's
word for it. Which is worth about the same as a bucket of warm spit.
The recent increase in Saudi Arabia's oil production was largely due to higher utilization
of production capacity. The last large increase in capacity was in 2009, when Khurais field capacity
was increased to 1.2 mb/d. The start of the Manifa field in 2013 and its ramp-up in 2014 largely
offset declining production at the mature fields.
Saudi Arabia's oil production and capacity (mb/d)
source: IEA (capacity), JODI (production)
I do not know the output of Ghawar, nor it's decline rate as we have no data. If the output
is 3 Mb/d, it is less of a factor than if output was 5 Mb/d. Yes there are several fields that
are grouped together and called Ghawar. All fields will decline eventually, the "might" is only
about when those declines occur. The simple illustrative model is to show what happens
when all fields don't start their decline at one moment in time. The 5 Mb/d was chosen simply
because at one time "Ghawar" supposedly produced 5 Mb/d in 2009 (according to the Wikipedia article).
What is your source for your 3 Mb/d estimate?
If we assume a 6.5% annual decline rate since 2009 we would be at 3.4 Mb/d in 2015. At
some point Saudi Arabia as a whole will begin to decline, when this will happen I do not
know. Just as in the US where there has been extensive infill drilling and secondary, tertiary
recovery methods employed and decline rates have remained under a 3% annual rate, the same is
likely to be true of other large producing nations with a combination of on shore and offshore
projects.
A lower URR oil shock model (3000 Gb including 500 Gb oil sands) still has an annual decline
rate under 2%/year.
Your analogy of the USA with Ghawar is not applicable. Aggregates of differently aged individuals
do not behave like an oversized average of those individuals. A country does not represent a basin,
a basin does not represent a field and a field does not represent an individual well.
The best analogy for Ghawar is probably Cantarell, they have both been developed with the
best available secondary and tertiary recovery methods. Cantarell production dropped like a stone
once those techniques were exhausted (about 15% per year in 2006 to 2008). My guess is Ghawar
will go (or is going) even faster as the IOR/EOR techniques and software models available for
its development are more advanced and it is onshore, making their application easier. Daqing might
go the same way. Samotlor has been declining at around 5%.
Burgan is probably the best placed of the super giants as it has natural water drive and didn't
use secondary recovery until 2010, and still not much, so there is a lot of potential to accelerate
production and arrest the decline (at the expense of rapid decline later of course). Note however
that wiki indicates 14% decline there, but with no citation so maybe just a guess.
I am comparing US with Saudi Arabia. I expect when Saudi Arabia begins to decline the annual
rate of decline will be 3% per year or less.
Cantarell was pushed much harder than Ghawar, relative to reserves and is an exceptional case.
In any case I do not know what will happen to the fields that make up Ghawar, I don't have any
data so I will not speculate any further. World output will be determined by the output of all
fields, Ghawar is important, but if Ron's estimate is correct, it is 4% of World output.
The 3000 Gb scenario above with 2500 Gb of C+C less oil sands (or extra heavy oil) and 500
Gb of extra heavy (XH) oil is based on Jean Laherrere's 2013 estimate of XH oil and a Hubbert
Linearization of C+C-XH from 1993 to 2015 in chart below.
Dennis – you state "For simplicity we will assume Ghawar produces about 5 Mb/d and that it will
decline at 3%/ year (similar to US before LTO production started from 1985-2004)", and then say
"I am comparing US with Saudi Arabia. I expect when Saudi Arabia begins to decline the annual
rate of decline will be 3% per year or less.". Which one is it, because they aren't both correct?
"Cantarell was pushed much harder than Ghawar" Please provide details of how you know this.
Thanks Techguy, that was an interesting post. I know this is probably an impossible question
but how long do you think it will take to deplete the remaining oil column? If it is correct that
it took 10 years to drop from 100 to 25 feet (assuming this is correct too) then that doesn't
bode well for future production from Ghawar over the next decade.
Much as I love Dennis' charts, I just don't see his 3% continuing very long, if Ghawar is indeed
down to a thin layer of oil over water. There could just be a clunk as the field is shut down
after a short period of steeper decline.
The next five years should tell a lot if the oil column is now that thin. 5 mbopd can't
continue forever, nor can 3% decline in a permeable reservoir under water flood. When the water
mostly reaches the top, the oil stained water becomes too expensive to separate out and production
stops at greater than a 3% rate.
There will be fields that decline more than 3% and fields that will decline less, the average
will roughly match the US decline (the most mature large oil producing nation) from 1986 to 2004
which was less than 3% per year.
Ghawar is several fields, Tech Guy's comments probably do not apply to all the fields of Ghawar.
People also seem to forget that new fields will continue to be developed and infill drilling
and EOR will continue in many fields. These factors will reduce the rate of decline for overall
World C+C output.
5. KSA is the primary driver into the turmoil in Syria. KSA is sitting on vast NatGas fields
underneath their oil fields. However, producing NatGas from these fields would cause severe Oil
production issues,
I assume you are referring to the Kluff nat gas field under lying the Ghawar oil field. I know
the Kluff field was being produced, but not sure if it was near its potential or very restricted
flow. I remember a discussion with some Exxon reservoir people, on the liquids being produced,
and how to define them. Oil or condensate. The Saudis chose condensate as they were not counted
in the export quotas at the time.
Are you saying that Kluff is in communication the Ghawar? If they were surely there would be
pressure issues in the upper field.
I believe there is communication in the water table between Burgan and Safaniya, but that is
a different issue.
It is hard to see where the production of an under lying gas field would affect an over lying
oilfield, apart from a few drilling issues of under pressure thief zones, which can be dealt with
by casing design, mud properties, and maybe even a little managed pressure drilling if required.
"Are you saying that Kluff is in communication the Ghawar? If they were surely there would
be pressure issues in the upper field."
I was just referred to what I read in Saudi Americo's tech articles. If I recall, correctly,
several fields in KSA had NatGas reserves. The article(s) I recall reading referred to delaying
production of NatGas to avoid impacting Oil production. I don't recall the exact details, and
I don't believe that the article(s) mention which fields they are delaying NatGas Production.
These Saudi Americo tech articles do not disclose which fields they are about.
Toolpush wrote:
"It is hard to see where the production of an under lying gas field would affect an over
lying oilfield, apart from a few drilling issues of under pressure thief zones"
I would image drawing down the NatGas would alter the levels were the Oil is located. Since
most of the Oil is now extracted via horizontal wells. I am speculating on how it impacts production.
Perhaps there are more details in the articles than I recall. You can read them as the are publicly
available on SA's website.
Thanks for the feedback. Do you have a link to where these reports are located?
As for gas communication. If the reservoir has a gas cap, then this gas cap can't be drawn
down without effecting the pressure in the reservoir, and therefore oil production. The fact that
most if not all the fields have water injection to maintain well bore pressure, we can assume
pressure maintenance is at a premium.
Now if as you described and I know the Kluff field conforms to this line. The gas is in a separate
trap, separated by it's own cap rock from the oil, then there can't be any communication. If there
was, the gas would ride to the high oil reservoir, and as the gas in at a greater depth than the
oil, is will also have a pressure. If this higher pressure was allowed to communicate with the
upper reservoir, then the upper reservoir would become over pressured, and this over pressure
would have been discovered in the exploration wells.
So I will be very interested to read their explanation to gas production being held back from
under lying gas reserves, rather than any gas bubbles sitting on top of the oil currently being
produced.
Regarding ToolPush Question about NatGas reserves in Oil Fields:
Yes, you have the correct link. I don't recall which article had discuss delaying natGas production
from their oil fields, I read through over a dozen their Tech Publications.
I have found where Kluff has been widely discussed, but not other gas fields, though I have
only scratched the surface. I can see I have a lot of reading to do, but I know I will learn a
lot by the time i am finished.
One little point I noticed. The unconventional gas they talk about, seems to be in carbonates!
Yet to see any shale mentioned, but i will keep going. Closer to Austin Chalk than Eagle Ford.
"... However, if there is no deal, oil could trade lower immediately. West Texas Intermediate crude futures settled just above $40 per barrel Monday, and Brent was just under $43. Blanch expects Brent to trade at around $47 per barrel this summer and above $50 at year-end. ..."
"... This is a clear and present danger, if they don't get oil prices higher. Maybe Mohammed bin Salman doesn't care, but these other GCC countries care ..."
"... If Saudi Arabia does not agree to a freeze, the prince could find himself at odds with Putin. Russia has said it would support a freeze, and it is reported to be interested in brokering a deal between Saudi Arabia and Iran ..."
"... The gambler prince has crashed the Saudi economy and is too arrogant to change course ..."
"... 30 years old = he did not earn his power and position, he inherited it. That's about the biggest slap in the face I can imagine. Knowing no one around you really respects you, and that the only reason you matter on a planet of 6 billion people is because of who your daddy is. ..."
"... House Minority Leader Nancy Pelosi on Sunday said she wants 28 redacted pages declassified from a 2003 congressional report on the intelligence community's prepaparedness for and response to the 9/11 attacks. ..."
"... Seems like a huge number of paragraphs to simply confirm the general consensus on SA's position. All wrapped up in "wild card" grabbers that mean...nothing. ..."
"... I used to pad reports in school to meet word count requirements. But I did a much better job. ..."
In a five-hour interview with Bloomberg, bin Salman recently laid out his position on a freeze
deal, saying Saudi Arabia would participate only if major producers, including Iran, also participate.
... ... ...
Iran has said it would participate in the Doha meeting this weekend, but it will not freeze production.
Iran is working to return oil to market, now that it is no longer under sanctions for its nuclear
program, and its goal is to bring back 1 million barrels in a year.
"If all countries including Iran, Russia, Venezuela, OPEC countries and all main producers freeze
production, we will be among them," bin Salman told Bloomberg. He also said that Saudi Arabia was
not threatened by the drop in oil prices. Analysts say that comment signaled a willingness to persevere
with low prices as long as it takes to end the supply glut.
... ... ...
"It's going to require creativity this week. I think the effort will be made ... you have the
Kuwaitis out there, saying 'We're going to get a deal.' You have these other GCC (Gulf Cooperation
Council) countries still holding out hope. I think they're invested in trying to get this thing done,"
said Croft. "I think what they're looking to do is close their fiscal gap ... they are all concerned
about increased borrowing costs."
... ... ...
Francisco Blanch, Bank of America Merrill Lynch's head of global commodities and derivatives research,
said he sees a slight chance Iran could agree to something, possibly a production cap just slightly
above its current 3.2 million barrels a day output.
... ... ....
"The downside risk is the Doha meeting ends up being another big disappointment, like the previous
OPEC meetings have been. There is risk of that. We know there's a proposal on the table. We know
the market has bounced somewhat on that proposal. It's also somewhat on the back of other seasonal
factors that are driving prices higher. I still think even if we get some kind of freeze agreement
and OPEC stops talking the market down, that leaves us where we are," said Blanch.
However, if there is no deal, oil could trade lower immediately.
West Texas Intermediate crude futures settled just above $40 per barrel Monday, and Brent was
just under $43. Blanch expects Brent to trade at around $47 per barrel this summer and above $50
at year-end.
... ... ...
Croft said the message from Saudi Arabia has changed, with more conciliatory comments previously
from Saudi Oil Minister Ali al-Naimi, now overshadowed by bin Salman's remarks. But Morse said Naimi
left the door open to disagree when he said the Saudis would supply any customers who are looking
for oil.
"This is a clear and present danger, if they don't get oil prices higher. Maybe Mohammed bin Salman
doesn't care, but these other GCC countries care," said Croft.
She said Russia is also looking for a deal. "I think the Russians, they're incentivized to get
this done from the standpoint of a fiscal position," she said. "Russia's been pretty adamant about
getting this done."
If Saudi Arabia does not agree to a freeze, the prince could find himself at odds with Putin.
Russia has said it would support a freeze, and it is reported to be interested in brokering a deal
between Saudi Arabia and Iran, but Morse said a deal could have come over Syria but that could
prove elusive since the Russians have pulled out of Syria.
Or... Saudi Arabia stands alone as the only holdout and Russia pushes them out of OPEC. Something
is going to happen at this meeting, because all of the other OPEC members are really hurting really
bad.
Don't assume things remain status quo. That is a huge mistake.
There you go assuming things stay status quo. Russia produces as much oil as the Saudis. If you
understand how and why OPEC was created, you will understand where I'm going with this.
xdir
The gambler prince has crashed the Saudi economy and is too arrogant to change course,
the price Saudi Arabia paid to "kill" shale has to be the biggest phyrric victory in business,
they spent around a $Trillion to hurt their competition and achieved nothing.
INSERTSCREENNAMEHERE
30 years old = he did not earn his power and position, he inherited it. That's about
the biggest slap in the face I can imagine. Knowing no one around you really respects you, and
that the only reason you matter on a planet of 6 billion people is because of who your daddy
is.
DreWhite
House Minority Leader Nancy Pelosi on Sunday said she wants 28 redacted pages
declassified from a 2003 congressional report on the intelligence community's prepaparedness
for and response to the 9/11 attacks.
Obama Under Pressure to Declassify the 9/11 Report's Secret 28 Pages
The 28 pages are believed to expose a number of links between various officials in Saudi
Arabia and the 9/11 hijackers
I wonder if Obama will bow before the King again.....hmmm
Andylit
Seems like a huge number of paragraphs to simply confirm the general consensus on SA's
position. All wrapped up in "wild card" grabbers that mean...nothing.
I used to pad reports in school to meet word count requirements. But I did a much better
job.
…..Why would a price spike above $40 be a bad thing for Saudi Arabia?
Because it would provide a life support to American frackers who have undermined the pricing
power of the Kingdom these days, as was discussed in a previous piece here.
But there's another, more important problem: high crude prices can help Russia and Iran raise
the funds they need to support insurgent movements that threaten the Kingdom's regime………
Saudi Arabia and Russia are by no means at the end of their finances as can be seen from their
still unabated drilling activity, buying refineries in the US, investing in Europe…:
Heinrich, your assertion that I am trying to prevent people from expressing their opinion is insulting
as well as misplaced. I did nothing of the sort. Also, I certainly don't consider Forbes to be
good company on pretty much any subject. SA's foreign exchange reserves dropped from about $740
billion in Oct 2014 to about $590 billion today, having dropped $9 billion in February alone.
I'm not saying they are on the ropes yet, but the Kingdom is scaling back on social welfare payments.
They are running a massive budget deficit. Anyone who thinks this is part of some brilliant strategy
is misguided.
Your assertion that unabated drilling activity is a sign of financial strength is not supported
by the link you provided. That's about investing in LNG facilities. What does that have to do
with oil production?
…..Why would a price spike above $40 be a bad thing for Saudi Arabia?
Because it would provide a life support to American frackers who have undermined the pricing
power of the Kingdom these days, as was discussed in a previous piece here.
The predatory pricing initiated by KSA in mid 2014 was not directed against the USA frackers and
in no way directed at establishing $30-40 per barrel price band. They viewed US frackers as a
useful balancing mechanism (and this was stressed several times by high level Saudi officials),
that allow to establish and maintain $70-$80 or so price range. and that probably was their initial
intention. But they quickly lost control to Wall Street, which has other plans.
And they think that this price range is also OK for the world economy. I can't find quotes
now but there were such quotes by Saudi oil minister.
Looks more like while they initialed the price slump, they were quickly taken for a ride by
"paper oil producers", who promptly assume control and drove the price to the current price band.
And intend to maintain it as long as possible (look at all "low oil price forever" propaganda
in Western MSM).
That's why Saudis were forced to ally with Russia in "freezing production" scheme.
"... I don't get Dennis' contention that only an outside event such as a world
war can create a Seneca cliff. Of course, a definition of what comprises a Seneca
cliff would be useful. Let's get away from that and just talk about what rate of
decline in oil production would be sufficient to throw the world into a tizzy. I
think something as low as 3% annually would be enough. After a few years at that
rate we would be in a bad situation. Doesn't require a huge drop. ..."
"... I believe we have entered the end game. ..."
"... Geology – drillers need prospects and as more and more fields go dry they
aren't going to drill them again. It took $100 oil to get Bakken going, I think
it will take even more than that as sweet spots are tapped out. And once oil gets
to that level, the economy will push demand back down. ..."
"... It's hard for me to imagine money flowing back into drilling the way it
did in the past few years. Wall Street follows fads and the tight oil fad has run
its course. There will still be money for selected investments, but the terms will
be tougher, the scrutiny will be greater, and the opportunities fewer. ..."
"... Exactly. "Carpet drilling" can't return without return of "loan abundance"
regime. And the latter is gone for good. The trend in production is not their friend
anymore. As Arthur Berman said "EIA forecasts that [natural] gas prices will increase
to $3.31 by the end of 2017 but that is overly conservative because it assumes an
immediate and improbable return to production growth once the supply deficit and
higher prices are established. " ..."
"... The same thinking is applicable to subprime oil. ..."
Also, I don't get Dennis' contention that only an outside event such
as a world war can create a Seneca cliff. Of course, a definition of what
comprises a Seneca cliff would be useful. Let's get away from that and just
talk about what rate of decline in oil production would be sufficient to
throw the world into a tizzy. I think something as low as 3% annually would
be enough. After a few years at that rate we would be in a bad situation.
Doesn't require a huge drop.
And with rig counts declining as fast as they are, I could imagine such
a drop. And furthermore, I don't see the rigs coming back as quickly as
they are being dropped even if prices do recover to the $100 level.
I can't see any compelling that drilling wouldn't pick up quickly again
if oil went back to a hundred bucks and supplies got chancy with inventories
declining fast.
The biggest two problems would be the hands on guys retiring, but enough
money will entice them to work again, if not actually pulling levers and
turning wrenches, then standing over trainees, one on one if necessary.
The other thing would be the money. In a real pinch, governments will provide
emergency financing or loan guarantees to drillers and steam roller some
environmental regs.
But I do think peak oil is either here now, or will be here within the
next two or three years.
It might take a while for exploratory drilling to pick up again, I am
thinking about new wells in producing fields and fields already explored
but not yet well developed.
Drilling will increase at higher prices, no argument there. But I don't
see rig counts going up as fast as they are now coming down. Two reasons:
1. Geology – drillers need prospects and as more and more fields
go dry they aren't going to drill them again. It took $100 oil to get Bakken
going, I think it will take even more than that as sweet spots are tapped
out. And once oil gets to that level, the economy will push demand back
down.
2. Finances – It's hard for me to imagine money flowing back into
drilling the way it did in the past few years. Wall Street follows fads
and the tight oil fad has run its course. There will still be money for
selected investments, but the terms will be tougher, the scrutiny will be
greater, and the opportunities fewer.
There will still be money for selected investments, but the terms
will be tougher, the scrutiny will be greater, and the opportunities
fewer.
Exactly. "Carpet drilling" can't return without return of "loan abundance"
regime. And the latter is gone for good. The trend in production is not
their friend anymore. As Arthur Berman said "EIA forecasts that [natural]
gas prices will increase to $3.31 by the end of 2017 but that is overly
conservative because it assumes an immediate and improbable return to production
growth once the supply deficit and higher prices are established. "
"... Looks like this is what the West wants Russia to want, not what Russia wants :-). I think in reality Russia wants $80 or higher, but with capex reduced most Russian oil companies for some short period might be content with $50-$60 range. ..."
"... If we are talking about a fair price of oil globally, I believe this is $80 per barrel. Keep in mind that a significant part of oil – about a third – is produced offshore, where the cost can be high. And there is a deep-water shelf, for example, in Brazil, where one of the first well cost more than $300 million. Subsequent wells would of course cost less, around the half the price, but still very expensive. ..."
Russia and Saudi Arabia gave signals that they want to have a price of no more than USD 45
per barrel as this prevents high cost oil to gain market share for some time.
Thus, Saudi Arabia prefers to export 10 mill bbl/d at USD 45 per barrel rather than 5 mill
bbl/d at USD 90 per barrel. Saudi Arabia has still 2 mill bbl/d as reserve capacity, which will
take some time to come to the market, yet I think the Saudis are ready to use this. USD 45 per
barrel is a comfortable price for Saudi Arabia and Russia.
As a conclusion, it could take – depending on the Saudis – a long time until prices can go
up again, which is clearly a disadvantage for shale. It is now up to the shale production to reduce
capacity and bring prices up again.
Russia and Saudi Arabia gave signals that they want to have a price of no more than USD
45 per barrel as this prevents high cost oil to gain market share for some time.
Looks like this is what the West wants Russia to want, not what Russia wants :-). I think
in reality Russia wants $80 or higher, but with capex reduced most Russian oil companies for some
short period might be content with $50-$60 range. See interview of the President of the Union
of oil and gas Industrialists of Russia Gennady Shmal (
http://peakoilbarrel.com/open-thread-petroleum-oil-natural-gas/#comment-565010 ):
A: If we are talking about a fair price of oil globally, I believe this is $80 per barrel.
Keep in mind that a significant part of oil – about a third – is produced offshore, where the
cost can be high. And there is a deep-water shelf, for example, in Brazil, where one of the
first well cost more than $300 million. Subsequent wells would of course cost less, around
the half the price, but still very expensive. Therefore, the capex of this oil extraction
is high enough. The breakeven price of our oil production without taxes is around $10 per barrel,
nationally. But when we include taxes, we get around $30 per barrel. But this cost is not no
tragedy for us. I remember a time when a barrel of oil was less than $10. Then we dreamed about
the price rising to $20.
When the three-year average cost of oil was above $100 per barrel, we got too used to it.
But the high price has one big drawback – it can negatively affect demand and stimulates production.
And that's what basically happened.
Therefore, now our oil companies might be now content with the price around $50-60 per barrel.
And I think in general, globally it would be OK price for both producers and consumers.
Even for the United States that would be an acceptable price. Canadians with their oil sands
would need a higher price – up to $80. But as the Canadian oil going to the United States,
anyway, losses can be compensated with the domestic shale production and they would have to
come to a common denominator.
I have to laugh at the argument that today's low oil prices are something Saudi Arabia wants in
order to (1) punish LTO producers in the U.S or (2) punish Russia or (3) punish other OPEC producers
or (4) punish (insert country name here). There is no way SA wants low prices and their economy
is suffering. They are burning through their foreign reserves. So why are the continuing to produce
flat out as Ron insightfully informs us?
Because they have no choice! They need every dollar they can get and they don't control the
price of oil. If they export less the price of oil will go up somewhat, of course, but not enough
to increase their net take. In other words, their profitability would go up but their total profit
would decrease.
Now it's true that SA has made statements that make it look like this is part of some strategy,
but I believe that is all just public relations. Putting lipstick on a pig, if you will (apologies
to Muslim readers). If prices remain low we could be looking at some big time internal and regional
disruption as poor Saudi's (and there are lots of them) become desperate and the privileged Saud
class finds their standard of living declining. Saudi Arabia has been a pillar of stability (yes,
repressive stability) in the mid east for decades. If that changes many bad things could happen.
But please, stop with the talk that SA wants low oil prices.
If KSA cut production by 3 million barrels per day (for example), I'd bet my life savings that
oil prices would at least double to say 70 or even 80 USD per barrel – and I think that is being
conservative. That cut would totally eliminate the current rate of oversupply.
That sacrifice would reduce their volume of oil exported by about 30%, but revenue from that
oil would double – with that production providing greater profit margins as well for the same
given revenue.
I don't think it is accurate to say that a) they couldn't control the price of oil at least
directionally, and b) that their total profit would decrease – it simply wouldn't, it would increase.
How else did OPEC work in the past if that was not the case?
Well, you can make your bet and I'd make mine. When I say control the price of oil I mean CONTROL
the price - not just influence it. Any producer can influence the price at some marginal level.
But Saudi Arabia is seen by many as holding the key to world prices. So your assertion is that
KSA could cut back and increase the price sufficiently to more than make up for the lost exports.
So why aren't they? To hurt the US frackers? To hurt Russia? To hurt Iran? I just don't but it.
They are burning through their foreign exchange reserves at a blistering pace. And if they someday
decide to cut production and increase world prices, won't that just bring back the other producers?
It's all my opinion, of course, and we are all entitled to one, but I don't see how KSA is
operating on some kind of brilliant strategy.
I have to laugh at the argument that today's low oil prices are
something Saudi Arabia wants in order to (1) punish LTO producers in the U.S or (2) punish Russia
or (3) punish other OPEC producers or (4) punish (insert contry name here). There is no way SA
wants low prices and their economy is suffering. They are burning through their foreign reserves.
So why are the continuing to produce flat out as Ron insightfully informs us?
KSA used predatory pricing to drive down oil prices. This is undisputable. It takes two for
tango and they were supported by growth of US shale production and the heavy artillery of the
USA MSM claiming "Oh my God, oil glut, oil glut !" as well as disingenuous statistics from EIA
and IEA (both controlled by the same people).
It looks that oil glut did occurred, mainly due to condensate overproduction for the second
half of 2014 and the first half of 2015 and this fact was used to drive oil prices from over $100
to below $30 or three times. Wall Street guys are called "masters of the universe" for a reason.
That put most oil producing nations in a very precarious situation with several countries balancing
of the wedge of bankruptcies. This also was equivalent to huge monetary stimulus for the Western
and Asian economies. For the USA it was equivalent to the continuation of the Fed stimulus program.
Probably around 600 billion per year worldwide were redistributed from oil producing nations
to oil consuming nations.
KSA actions also created tensions between two groups of OPEC nations - Gulf monarchies and
everybody else to the extent that OPEC now exists only formally (not withstanding that cheating
OPEC quotas was widespread practice even before).
In February the situation looked really grim for oil producing nations and Russians became
really concerned that Wall Street manipulators (aka paper oil producers) will manage to drive
oil to $20 (you can almost sense the level of panic in Sechin speech in London
http://www.rosneft.com/attach/0/57/51/pdf_10022016_en.pdf
)
Our message about the gap between the financial instruments of the oil market which, in
fact, determine the prices and specifics of the actual industry development has been clearly
confirmed. The financial market observes its own interests, and they are often abstracted from
the problems of sustainable development of the industry. In this market, prices can both fall
to the "bottom" where any development or stable functioning are impossible, and climb to unreasonably
high levels.
Financial players have tools that allow them making profit on both rise and fall in prices.
Today, the financial technique implies that decisions are often made by robots at the trading
platforms, and the programs managed by them impersonally respond instantly to such short-term
changes of the situation or information on the oil reserves movements;
Link of the price dynamics with the parameters of production is primarily important to the
producers who have a long-term horizon of decision-making, investment and implementation of
major projects, and the consumers who are also interested in predictability. In the past year,
we saw developments in which producers were split up, and some of them announced a "price war"
setting up a mission to oust "ineffective" suppliers from the market and take their place at
the market, in fact, this price war should have determined who is "ineffective".
In these circumstances, it is quite expected that the financial market players went bears
while the related (if not affiliated) think tanks helpfully prompted lower and lower price
benchmarks to the market.
Who was the main beneficiary of the current crisis? Apparently, not consumers because the
retail prices fell by less than 20% on average, but rather financial players who, by the way,
have not redirected $250-300 bln investments released from oil sector into projects in other
sectors of the economy so far.
Slide 5. Explosive growth of shale oil production in the US in 2013-2014 ceased in 2015
As we know, the explosive growth of shale production in the US in 2013-2014 became another
crucial factor, and even the "trigger" of the crisis.
In 2013-2014, this growth was probably unprecedented in the world history in terms of its
scale and pace. We have already noted that this reflected the advantage of the developed
US market with its financial instruments (large-scale hedging of risks, availability of cheap
investment, propensity of investors to take prompt decisions, use of land pledge and encumbrances,
etc.), and its capacities in drilling, service and transportation.
In late 2014, some of the leading oil producers from the Middle East followed the example
of the US strategy in increasing oil production.
As the result, the problems of excess oil on the market, long-time decline in oil prices,
falloff in capacity of commercial shale oil production in the US have become worse.
Slide 6. OPEC actions gave backing to imbalance in the oil market
There is every reason to believe that these producers have deliberately created and continue
to maintain a surplus of supply over demand claiming their commitment to the policy of low
prices. The consequences of this policy, even if it is changed or adjusted, will have affect
for a certain time.
Slide 7. Positions of major speculators in the oil futures markets
We have to admit we underestimated the fact that the financial market players have no restrictions
in dealing with their sheer financial objectives and are ready to "test" any price levels –
for example, 27$ in January – down to $10 per barrel as it was recently announced by a reputable
investment structure. What is it if not "an invitation to the irresponsible game" for an unlimited
price drop?
That's why all those talks about freeze started in February - this was a meek attempt of damage
control of KSA reckless gambit from which other oil producing nations suffered greatly (and Saudis
decided to get on board of this initiative for a simple reason that events got out of control
and they also feel really threatened by the possibility of $20 oil).
The most interesting is the fact that Saudis cooperated with Russia (whom they consider their
enemy). Russia in turn decided to cooperate with KSA not out of good will toward KSA. They consider
Wahhabism a mortal threat for Russia and you can get in jail if you just get Wahhabi literature
in Russia, to say nothing about openly declaring yourself to be adherent of this dominant in KSA
sect (it is considered to be criminal organization in Russia). That tells us something about the
precarious situation in which oil producing nations has found themselves in February.
In any case, in February it looked like oil producing nations will be taken for a ride by Wall
Street for 2016 and probably 2017. And financially raped.
That's why this freeze agreement was announced and it helped to push prices slightly higher
even before it full ratification which might occur in late April despite all the efforts by the
West to torpedo the agreement (and somewhat duplicitous behavior of Iran, which it seems does
not understand that producing 4 Mb/day at $30 is equivalent to producing 2 Mb/d at $60).
Russia also launched a national program of development of their petrochemical industry which
will eventually reduce the amount of oil available for export, even if production remains flat.
Saudis did the same and actually on much larger scale. So their internal consumption will be
rising faster then their production capacities.
To get out this KSA induced fiasco with oil prices this cocky and impulsive new Saudi prince
is now trying to save his butt pretending to be Margaret Thatcher of Saudi Arabia. He is trying
to launch the program of privatization of state assets including part of Aramco to lessen the
draw of foreign reserves due to budget deficit (currently around $100 billion a year; KAS needs
around $90 per barrel to balance the budget; Russia needs around $60).
So either with gentle encouragement of Obamoids or on their own initiative this new prince
( who actually rules the county instead of his father king who is suffering from dementia ) essentially
destroyed around one third of the country foreign reserves, engaged in destructive war in Yemen,
deteriorated relations with the major geopolitical rivals such as Iran (via war in Yemen and the
execution of Shiite cleric) and Russia (by supporting and financing (indirectly) Syria jihadists)
and got nothing in return.
Moreover he managed even to cool relations with the USA - the major beneficiary of his actions.
That clearly demonstrates the grave danger inherent in absolute monarchy - a lot depends on
the man at the top.
…..Why would a price spike above $40 be a bad thing for Saudi Arabia?
Because it would provide a life support to American frackers who have undermined the pricing
power of the Kingdom these days, as was discussed in a previous piece here.
But there's another, more important problem: high crude prices can help Russia and Iran raise
the funds they need to support insurgent movements that threaten the Kingdom's regime………
Saudi Arabia and Russia are by no means at the end of their finances as can be seen from their
still unabated drilling activity, buying refineries in the US, investing in Europe…:
Heinrich, your assertion that I am trying to prevent people from expressing their opinion is insulting
as well as misplaced. I did nothing of the sort. Also, I certainly don't consider Forbes to be
good company on pretty much any subject. SA's foreign exchange reserves dropped from about $740
billion in Oct 2014 to about $590 billion today, having dropped $9 billion in February alone.
I'm not saying they are on the ropes yet, but the Kingdom is scaling back on social welfare payments.
They are running a massive budget deficit. Anyone who thinks this is part of some brilliant strategy
is misguided.
Your assertion that unabated drilling activity is a sign of financial strength is not supported
by the link you provided. That's about investing in LNG facilities. What does that have to do
with oil production?
"... This is a typical Bloomberg "low oil price forever" propaganda trick. BTW Saudi Arabia produced on average 11.6 million bbl/d of total petroleum liquids in 2013. ..."
"... The question is who and when in Aramco said that (taking into account their growing depletion rate and changes in quality of extracted oil - trend toward producing more of heavy oil) ? And what will be NGL share in this new production? Actually oil is only 9.5 of 10 Mb/d total KSA CC+NLG production ..."
"... There are currently no plans to increase oil production capacity. Saudi Arabia's long-term goal is to further develop its lighter crude oil potential and maintain current levels of production by offsetting declines in mature fields with newer fields. ..."
"…State-owned Saudi Aramco says this will let it ease pumping from older fields yet maintain a
production capacity of more than 12 million barrels per day, 2 million barrels above its current
rate.
For Kuwait and the U.A.E., the goals are even higher. Kuwait plans to raise production capacity
by 5 percent from 3 million barrels a day by the third quarter, and to reach 4 million barrels
by 2020. Abu Dhabi means to lift production capacity to 3.5 million barrels a day by 2017 from
about 3 million."
"…State-owned Saudi Aramco says this will let it ease pumping from older fields yet maintain
a production capacity of more than 12 million barrels per day, 2 million barrels above its current
rate.
This is a typical Bloomberg "low oil price forever" propaganda trick. BTW Saudi Arabia produced
on average 11.6 million bbl/d of total petroleum liquids in 2013.
The question is who and when in Aramco said that (taking into account their growing depletion
rate and changes in quality of extracted oil - trend toward producing more of heavy oil) ? And
what will be NGL share in this new production? Actually oil is only 9.5 of 10 Mb/d total KSA CC+NLG
production now:
http://www.saudiaramco.com/en/home/about/key-facts-and-figures.html
Production and reserves
•Recoverable Crude Oil & Condensate (billions of barrels): 261.1
•Recoverable Gas (Associated and Nonassociated) (trillions of standard cubic feet): 294.0
•Crude Oil Production (annual/billions of barrels): 3.5; (daily/millions of barrels): 9.5
•Crude Oil Exports (millions of barrels): 2,544
•Delivered Sales Gas and Ethane Gas (trillions of standard cubic feet): 4.1; (trillions of
Btu, British thermal unit per day) Sales Gas: 8.4; Ethane Gas: 1.4
•NGL from Hydrocarbon Gases (millions of barrels): 471.3
•Raw Gas to Gas Plants (billions of standard cubic feet per day): 11.3, up 3% compared to 2013
•Refined Products Production (millions of barrels): 561
•Refined Products Exports (millions of barrels): 168
According to EIA Saudi Arabia consumed 2.9 million barrels per day (bbl/d) of oil in 2013,
almost double the consumption in 2000 (in three years). Chief Executive Officer of Saudi Aramco,
Khalid al-Falih, said that domestic liquids demand was on pace to reach more than 8 million bbl/d
of oil equivalent by 2030 if there were no improvements in energy efficiency.
There are currently no plans to increase oil production capacity. Saudi Arabia's long-term
goal is to further develop its lighter crude oil potential and maintain current levels of production
by offsetting declines in mature fields with newer fields.
There are too few new projects being sanctioned by non-state oil companies to offset the
inevitable decline in output from existing fields and to meet additional demand. This is expected
to increase by 1.2 million barrels a day each year for the rest of the decade. New fields due to
start producing this year and next are the result of investment decisions taken when oil was
about $100 and expected to stay there.
The collapse in company spending is illustrated perfectly by the level of drilling activity.
After all, if you don't drill, you can't get the oil out of the ground.
Baker Hughes updated its monthly international drilling statistics last week. Unsurprisingly,
they showed another steep drop in rigs drilling for oil, a 12 percent decline between February
and March. There were 1,551 rigs active last month in the countries covered by Baker Hughes, the
least since September 1999 and down nearly 60 percent in little more than a year.
"... Refiners are already complaining that so-called "blended crudes" contain too much lease condensate, and they are seeking out better crudes straight from the wellhead. Brown has dubbed all of this the great condensate con. ..."
"... Exactly how much of America's and the world's presumed crude oil production is actually condensate remains a mystery. The data just aren't sufficient to separate condensate production from crude oil in most instances. ..."
"... Brown explains: "My premise is that U.S. (and probably global) refiners hit in late 2014 the upper limit of the volume of condensate that they could process" and still maintain the product mix they want to produce. That would imply that condensate inventories have been building faster than crude inventories and that the condensate is looking for an outlet. ..."
"... Brown believes that worldwide production of condensate "accounts for virtually all of the post-2005 increase in C+C [crude plus condensate] production." What this implies is that almost all of the 4 million-barrel-per-day increase in world "oil" production from 2005 through 2014 may actually be lease condensate. And that would mean crude oil production proper has been nearly flat during this period--a conjecture supported by record and near record average daily prices for crude oil from 2011 through 2014 . Only when demand softened in late 2014 did prices begin to drop. ..."
"... "Oil traders are acting on fundamentally flawed data," Brown told me by phone. Often a contrarian, Brown added: "The time to invest is when there's blood in the streets. And, there's blood in the streets." ..."
"... He explained: "Who of us in January of 2014 believed that prices would be below $30 in January of 2016? If the conventional wisdom was wrong in 2014, maybe it's similarly wrong in 2016" that prices will remain low for a long time. ..."
"... Brown points out that it took trillions of dollars of investment from 2005 through today just to maintain what he believes is almost flat production in oil. With oil companies slashing exploration budgets in the face of low oil prices and production declining at an estimated 4.5 and 6.7 percent per year for existing wells worldwide, a recovery in oil demand might push oil prices much higher very quickly. ..."
lease condensate which
gets carelessly lumped in with crude oil? And, why is this important to understanding the true state
of world oil supplies?
In order to answer these questions we need to get some preliminaries out of the way.
Lease condensate consists of very light hydrocarbons which condense from gaseous into liquid form
when they leave the high pressure of oil reservoirs and exit through the top of an oil well. This
condensate is less dense than oil and can interfere with optimal refining if too much is mixed with
actual crude oil. The oil industry's own engineers classify oil as hydrocarbons having an API gravity
of less than 45--the higher the number, the lower the density and the "lighter" the substance.
Lease condensate
is defined as hydrocarbons having an API gravity between 45 and 70. (For a good discussion about
condensates and their place in the marketplace, read
"Neither Fish nor Fowl – Condensates Muscle in on NGL and Crude Markets.")
Brown points out that U.S. net crude oil imports for December 2015 grew from the previous December,
according to the
U.S. Energy Information Administration (EIA), the statistical arm of the U.S. Department of Energy.
U.S. statistics for crude oil imports include condensate, but don't break out condensate separately.
Brown believes that with America already awash in condensate, almost all of those imports must have
been crude oil proper.
Brown asks, "Why would refiners continue to import large--and increasing--volumes of actual crude
oil, if they didn't have to--even as we saw a huge build in [U.S.] C+C [crude oil plus condensate]
inventories?"
Part of the answer is that U.S. production of crude oil has been
declining since mid-2015. But another part of the answer is that what the EIA calls crude oil
is actually crude plus lease condensate. With huge new amounts of lease condensate coming from America's
condensate-rich tight oil fields--the ones tapped by hydraulic fracturing or fracking--the United
States isn't producing quite as much actual crude oil as the raw numbers would lead us to believe.
This EIA chart
breaking down the API gravity of U.S. crude production supports this view.
Exactly how much of America's and the world's presumed crude oil production is actually condensate
remains a mystery. The data just aren't sufficient to separate condensate production from crude oil
in most instances.
Brown explains: "My premise is that U.S. (and probably global) refiners hit in late 2014 the
upper limit of the volume of condensate that they could process" and still maintain the product mix
they want to produce. That would imply that condensate inventories have been building faster than
crude inventories and that the condensate is looking for an outlet.
That outlet has been in blended crudes, that is heavier crude oil that is blended with condensates
to make it lighter and therefore something that fits the definition of light crude. Light crude is
generally easier to refine and thus more valuable.
Trouble is, the blends lack the characteristics of nonblended crudes of comparable density (that
is, the same API gravity), and refiners are discovering to their chagrin that the mix of products
they can get out of blended crudes isn't what they expect.
Here it is worth mentioning that when oil companies talk about the price of oil, they are referring
to the price quoted on popular futures exchanges--prices which reflect only the price of crude oil
itself. The exchanges do not allow other products such as condensates to be mixed with the oil that
is delivered to holders of exchange contracts. But when oil companies (and governments) talk about
oil supply, they include all sorts of things that cannot be sold as oil on the world market including
biofuels, refinery gains and natural gas plant liquids as well as lease condensate.
Which leads to a simple rule coined by Brown: If what you're selling cannot be sold on the world
market as crude oil, then it's not crude oil.
The glut that developed in 2015 may ultimately be tied to some increases in actual, honest-to-god
crude oil production. The accepted story from 2005 through 2014 has been that crude oil production
has been growing, albeit at a significantly slower rate than the previous nine-year period--15.7
percent from 1996 through 2005 versus 5.4 percent from 2005 through 2014 according to the EIA.
If Brown is right, we have all been victims of the great condensate con which has lulled the world
into a sense of complacency with regard to actual oil supplies--supplies he believes have been barely
growing or stagnant since 2005.
"Oil traders are acting on fundamentally flawed data," Brown told me by phone. Often a contrarian,
Brown added: "The time to invest is when there's blood in the streets. And, there's blood in the
streets."
He explained: "Who of us in January of 2014 believed that prices would be below $30 in January
of 2016? If the conventional wisdom was wrong in 2014, maybe it's similarly wrong in 2016" that prices
will remain low for a long time.
Brown points out that it took trillions of dollars of investment from 2005 through today just
to maintain what he believes is almost flat production in oil. With oil companies slashing exploration
budgets in the face of low oil prices and production declining at an estimated
4.5 and 6.7 percent per year for existing wells worldwide, a recovery in oil demand might push
oil prices much higher very quickly.
That possibility is being obscured by the supposed rise in crude oil production in recent years
that may just turn out to be an artifact of the great condensate con.
"... Looks like China is importing a lot of oil as there is also a traffic jam in Qingdao, China. ..."
"... A surge in oil buying by China's newest crude importers has created delays of up to a month for vessels to offload cargoes at Qingdao port, imposing costly fees and complicating efforts to sell to the world's hottest new buyers. ..."
"... China's independent refiners, freed of government constraints after securing permission to import just last year, have gorged on plentiful low-cost crude in 2016. This has created delays for tankers that have quadrupled to between 20 to 30 days at Qingdao port in Shandong province, the key import hub for the plants, known as teapots, according to port agents and ship-tracking data. ..."
China has recently allowed imports of crude oil by small independent "teapot"
refineries. So tanker jams do not necessarily mean an increase in final
demand.
From Reuters:
China teapot refiner oil buying spree creates tanker jam at Qingdao
A surge in oil buying by China's newest crude importers has created
delays of up to a month for vessels to offload cargoes at Qingdao port,
imposing costly fees and complicating efforts to sell to the world's hottest
new buyers.
China's independent refiners, freed of government constraints after
securing permission to import just last year, have gorged on plentiful low-cost
crude in 2016. This has created delays for tankers that have quadrupled
to between 20 to 30 days at Qingdao port in Shandong province, the key import
hub for the plants, known as teapots, according to port agents and ship-tracking
data.
Moscow isn't sowing Middle East chaos to drive up oil prices.
Russia's leaders certainly do care about oil prices, and with good reason. Plunging oil prices
decrease the ruble's value, which closely follows oil prices. Oil exports are important to Russia's
federal budget and to its overall balance of trade. Indeed, when monthly average Brent oil prices
peaked at about $125 per barrel in March 2012, the ruble was close to its own peak, at approximately
twenty-nine rubles to every U.S. dollar. When Brent prices fell to $30.70 per barrel in January 2016,
the ruble had fallen to about eighty rubles to the dollar. It is easy to examine this currency-resource
correlation by comparing U.S. Energy Information Administration oil price data with Russian Central
Bank ruble values. As a result, the Russian government has imposed sweeping budget cuts that will
now affect defense expenditures as well as social programs and other areas.
... ... ...
On the contrary, Russia has been working with Riyadh to contain prices and announcing a withdrawal
from Syria and a new focus on peace talks there. If Russia were determined to play the oil card,
it could do so in many different ways. For example, one option might be to step up support for Assad's
government to win a comprehensive military victory over its foes. If Russia looked seriously at this
option, the changing conditions could draw Saudi Arabia and other supporters of the Syrian opposition
more deeply into the conflict and perhaps expand it. This is much more likely to raise oil prices
than what Moscow has done in the past. But Syria is not a major oil producer or exporter. So perhaps
Russia's policy in Syria is not oil centric, but its approach to other problems could. Unfortunately,
there is not much evidence to support this argument either.
One of the strongest counterarguments to the oil-price theory of Russian foreign policy is
the recent Iran nuclear agreement, known as the Joint Comprehensive Plan of Action (JPCOA). If higher
oil prices were Russia's principal goal in dealing with Iran-which has the world's fourth-largest
proven oil reserves-why facilitate the JPCOA at all? It would be far better to block the agreement
in hopes of forcing a showdown between Washington and Tehran, possibly including U.S. military action.
Alternatively, Russia could have agreed to Western proposals to tighten sanctions on Iran's
energy sector, further limiting oil supplies. Or Moscow could have delayed the talks, hoping that
this would create sufficient uncertainty to raise oil prices. Instead, at a time when Russia was
already suffering economically from low oil prices and from Western economic sanctions, President
Vladimir Putin decided to support an agreement that would only further decrease oil prices.
... ... ...
...Russia did much less to oppose U.S. and NATO air strikes in Libya in 2011-so maybe this proves
that Moscow wanted disorder there to increase oil prices? It doesn't look that way. First, then-president
Dmitry Medvedev agreed to accept the strikes after intense pressure from President Obama and appeared
to do so in large part to appease the United States. Second-perhaps more importantly-then-prime minister
Putin criticized Medvedev's decision to order Russian diplomats to abstain in United Nations Security
Council vote, prompting a rebuke from Medvedev. Since Putin has been controlling Russian foreign
policy for most of the last sixteen years, Medvedev's move was likely an exception rather than the
rule. Finally, oil prices were already quite high in early 2011 when Medvedev made his choice. Even
if moving oil prices upward was a top priority in Russian foreign policy, it would have been much
less necessary at this specific time.
While oil prices are important for Russia, they are generally not a driving factor of Russian
leaders' key decisions. Thus, Russia does seek to shape oil prices, but does so through routine diplomatic
processes. There are many reasons for this, but one of the most significant is that Russia sees
critical national-security interests in the Middle East that override its concerns over oil prices.
In fact, in each of the above cases-Syria, Iran and Iraq-President Putin has pursued policies that
appear intended to produce stability. So Russia's supposed secret plans to boost oil prices
may produce entertaining conversation, but they don't lead to much else.
Paul J. Saunders is Executive Director at the Center for the National Interest and a Research
Scientist at CNA Corporation.
Borgþór Jónsson > Guest
You are correct,except the US wars are not so secret.
They are there for everyone to see.
Sinbad2 > Borgþór Jónsson
Americans don't see their wars. The US Government keeps the American people in a cocoon of
ignorance.
O_Pinion > Guest
Who needs secret wars when you can have secret bank accounts?
So the US fracking oil boom never happened, iraq's oil output didn't increase to an all time
high, there are no macroeconomic forces cooling demand and the law of supply and demand is a fiction.
it is all simply a grand conspiracy cooked up by Saudi Arabia and the US.
Serge Krieger > Sinbad2
It is very complex topic. I think too many things came together to create this perfect
storm. Frankly, new oil reserves are not profitable at anything below $70.
I guess it was both market overproduction with Canadian sands and US fracking and Saudis and
possibly even Russian oil production that caused this. I do not think Saudis alone would be capable
of such fit.
Sensible analysis, its much more likely Russia is just preparing the way to make sure it doesn't
end up with an American boot stamping on its face forever.
Because of this Russia is in the cross hairs of the Anglo-Zionists who can only survive if they
tear apart Russia and take control of its vast resources.
China and the US who are the 2 biggest purchasers of energy in the world, have been doubling
their investments in renewable energy!
Castlerock58
The US,Turkey and Saudi Arabia are promoting the instability in the Middle East.
Bankotsu
"Moscow isn't sowing Middle East chaos...."
I think the writer confused Russia with U.S.
Pacemaker4
Russia oil and gas industry accounts for 15% of their GDP.... that fact is lost on the
author.
Kalinin Yuri > HotelQuebec
All the vessels in the ocean instead of Diesel should use some nuclear reactors, right? The
trucks that move all the goods - also batteries? Has anybody calculated emissions from power
stations in order to charge a car that runs 80 km? Also how much does it cost to recycle the
batteries?
Sinbad2 > Kalinin Yuri
The silicon used in solar panels, is one of the dirtiest refining processes on the planet.
Hippies are well meaning critters, but not very smart.
Gregory Anbreit
Oh wow, so it was Russia who started all the chaos in the Middle East? Is this a joke? Who
invaded Iraq in 2003? Who has destroyed Libya? Who was supporting "Arab springs"? Who sends
weapons to AQ and ISIS in Syria?
But yeah, blame Russia.....how typical.
deadman449
Russia exports two things. Oil and weapons. If you think about it, it makes sense to cause
mischief in other countries near oil production. Question is, then why is the oil price so
low?
Andre
If Russia really wanted to use conflict to raise oil prices and achieve irridentist
ambitions at the same time, it would launch a Crimean/Donbas-type dirty war in northern
Kazakhstan with a view to annexing the Russian-inhabited areas. Kazakhstan occupies a similar
position with respect to oil production as Libya did in 2011 and its cost of production is not
too much more than many Gulf Arab states. Kazakhstan is also non-aligned and quite frankly
indefensible. From a geopolitical standpoint I see this move as much more likely than some
dangerous play in the Baltics which would yield little in terms of added Russian citizens or
resources.
Andre
If Russia really wanted to use conflict to raise oil prices and achieve irridentist ambitions at
the same time, it would launch a Crimean/Donbas-type dirty war in northern Kazakhstan with a view
to annexing the Russian-inhabited areas. Kazakhstan occupies a similar position with respect to
oil production as Libya did in 2011 and its cost of production is not too much more than many
Gulf Arab states. Kazakhstan is also non-aligned and quite frankly indefensible. From a
geopolitical standpoint I see this move as much more likely than some dangerous play in the
Baltics which would yield little in terms of added Russian citizens or resources.
Roman Lvovskiy > Andre
you're like Tom Clancy reborn, honestly
Andre > Roman Lvovskiy
Tom Clancy was remarkably prescient among techno-thriller writers, although some works were much
better than others, particularly "The Hunt for Red October", "Red Storm Rising" and "SSN".
You may consider my opinions fanciful, but look at the academic debate: there is an assumption
that Russian military intervention in Georgia and Ukraine poses a threat to NATO, and that the
Syrian adventure merely compounds this.
In comparison, I maintain the view that while Putin can be reckless - a common human flaw - his
aggression has been highly targeted to interests that have been articulated for many years,
including prior to his presidency e.g. absorbing the ethnic Russian diaspora bordering the RF,
halting NATO expansion, regaining global prestige.
Both Georgia and Ukraine were non-aligned countries when he invaded, and there is every
indication that he is aware of the distinction between NATO and non-NATO members. Therefore, if
he is planning on intervening anywhere, I would expect that country to: (a) be a "core interest",
(b) be non-aligned and (c) feature developments that challenge Russian interests. Belarus and
Kazakhstan both meet all these criteria, as each is drifting away from Russia. In Kazakhstan's
case, the recent policies concerning the official use of Kazakh and Russian are increasingly
discriminatory toward Russian-speakers, more so than any policies even contemplated by the
post-Maidan Ukrainian government. Unlike Belarus, Kazakhstan features immense natural resources
and many more ethnic Russians...
Roman Lvovskiy > Andre
i suspect it, that 'Red Storm Rising' is your fave. i like it as well, despite the fact that it's
hardly accurate when it comes to wording out actual features possessed by the Soviet hardware of
that period, described thereby.
one thing that eludes you always is that Putin can not afford to subjugate anyone. that would be
stretching beyond capacity, both financially and politically. also, there's hardly that much of
anyting that is in Kazakhstan's possession presently or in short-to-midterm perspective to make
Putin even think about considering the risks.
so i'm guessing it's just your wishful thinking. i'd also suggest reading something more
profound, like something by Vonnegut or Trumbo. there's more to American culture than your garden
variety of trash usually presented on TV, sadly - less and less with each passing year.
Andre > Roman Lvovskiy
You're correct that Putin can't afford a grinding counter-insurgency, and he seems to have taken
in the Soviet experience in occupying East-Central Europe, as well as the quagmires in
Afghanistan and Chechnya. Interestingly, as soon as it became apparent that support for union
with Russia was not as warm in Donbas as Crimea, the Novorossiya project was quietly buried.
But Putin certainly has his eye on Belarus and Kazakhstan, and Astana's been taking an
increasingly independent line. There is a demographic and economic case, as I've laid out in
prior comments. But this is not a "call", after all, Crimea was annexed 20 years after analysts
were worried about it.
I'll be honest with you - I've never read a Clancy book all the way through - I've read many
papers on military technology and strategy, but I still find Clancy too dry. There are more
contemporary American authors that are great, McCarthy being one.
dennis powell
There seems to be a lot of russian supporters , who are seeing the world thru rose colored
glasses , commenting here. Russia would love nothing more then to see oil higher. Inside their
own country the fall of the ruble isn't as much a big deal as it is when they try and conduct
business outside of russia.
They are paying for their actions in the ukraine. The annexation of
crimea was a just move to take back what should have never been given away. Their mistake was in
how it was done. Their move into syria wasn't about right and wrong but about protecting their
military interests. Any one who says anything different is being foolish. Their subsequent
withdrawal is an indication that they have satisfied that end. It also , I suspect , is to
contain the costs of such an operation. Russia is a gas station parading as a country.
Their only
claim to significance is their nuclear arsenal. They have an overblown view of themselves which
masks their deep paranoia. Take away their nuclear arsenal and they wouldn't be anymore
significant then brazil.
Frank Blangeard > dennis powell • 6 days ago
The last three lines of your comment seem to apply more to the United States than to Russia.
Randal > dennis powell • 7 days ago
"They are paying for their actions in the ukraine."
How
have Russia's actions in the Ukraine caused the oil price to fall
dramatically? The US sphere sanctions are an irrelevant pinprick in
comparison.
"The annexation of crimea was a just move to take back what
should have never been given away. Their mistake was in how it was
done."
I'd love to hear how you think it could possibly have been done
any other way.
"Their move into syria wasn't about right and wrong but about
protecting their military interests. Any one who says anything
different is being foolish."
What military interests? Surely you aren't talking about the
Tartus base? Have you actually seen it? Apart from that they had
almost zero military interests in Syria before the commencement of
the regime change attempt there.
"Their subsequent withdrawal is an indication that they have
satisfied that end. It also , I suspect , is to contain the costs
of such an operation."
Given the trivial costs in Russian budgetary terms of their
relatively small operation in Syria, how do you justify claiming
that would be an overwhelming factor in their decision making?
"Russia is a gas station parading as a country."
That pretty much discredits you terminally as any kind of
objective observer on Russia, I think.
"Their only claim to significance is their nuclear arsenal.
They have an overblown view of themselves which masks their deep
paranoia. Take away their nuclear arsenal and they wouldn't be
anymore significant then brazil."
Oh, really? Do feel free to explain exactly how their nuclear
arsenal enabled them to intervene successfully in Syria, in stark
contrast to the US regime's repeated failures. And while you are
about it, feel free also to explain the utility of their nuclear
arsenal in recovering the Crimea, or any of Russia's other recent
activities.
Presumably you think Brazil could have done both, if it only had
a nuclear arsenal like Russia's.
Borgþór Jónsson > dennis powell
Of course Putin went to Syria to protect the bases,but there are also several other
reasons.
Putin wanted to protect the sovereignty of Syria.
He did not want a state similar to Libya so close to his boarders.
That is exactly what would have happened if he did not intervene.
It would have happened ,because that is what the US wanted. They wanted to grow a terrorist
state close to Russia borders.
Putin also went to Syria because he wanted to fight terrorism in area where they would be
easier to defeat than in Caucasus.
Imagine the trouble it had cost him if he had a terrorist state in Syria constantly supplying
terrorists and weapons to the Caucasus.
That was one of the aims of the US,that is the reason they fed the terrorists with weapons.
The final goal was that they would later use those weapons against Russian people.
Same goes for the Ukraine.
The final goal there is that the Ukrainian Nasis will finally attack Russia.That is the
reason for the Us cooperation with Ukrainian nationalists. Ukrainian nationalists are violent
idiots on par with ISIS as you know.
You are not the only person that are obsessed with that misunderstanding that Russia is a
gas station. This misunderstanding is the reason the US sanctioned Russia. But it does not
work,because after all, the oil is only 12% of the Russian GDP. It is uncomfortable because it
is so big part of the export, but Russia is in no way going to collapse because of it.
In fact the Russian economy is exceptionally strong,I believe that no other nation on
earth would have been able to withstand such hardship as the sharp fall of their export and at
the same time sanctions from the western powers.
Later this year or next year their economy will most likely start growing again. Well
done Russia.
Borgþór Jónsson > Borgþór Jónsson
I forgot to address another misunderstanding of yours. Russia has not left Syria.
In the beginning Russia used SU 24 and SU 25 plains for strategic bombing. What it means is
that they were used for taking out the oil business of the terrorists and also their weapons
depots,their control stations and training facilities. That is now over and those plains are
sent home.
Now they have the SU 34 And SU 35 that are more suitable for assisting the Syrian Army in
their offence. On top of that they have the MI 28 attack helicopters and of course the
the dreaded KA 52. All those plains and helicopters played a vital role in the liberation of
Palmyra.
The Russians are not home yet,they will stay in Syria and fight the terrorists till the end.
Valhalla rising
its not the jewish NeoCohens and liberal Hawks that destabilized the Middle East.Nope the
Russians are goyim -- The Russians are evil goyim -- Czar Putin shuts us down --
The Russians disposed Muhammad Gaddafi --
The Russians supported the Muslim Brotherhood in egypt --
The Russians supported the islamic onslaught against Assad --
... ... ...
http://www.dailystormer.com/gl...
"... My impression is that the US elite is now really afraid that the level of world control reached after the dissolution of the USSR might escape from their hands. Also like British people in the past the US people now started suffering from the economic consequences of their elite imperial policies. And that makes the USA less governable by the old neocon elite (simplifying, Bush and Clinton families) that were in power since 1980th. Emergence of Trump and Sanders as viable candidates for POTUS are just two sides of the same coin. ..."
"... Low oil prices represents a powerful sanctions regime against "resource nationalists" who oppose neoliberal globalization such as Russia. In this sense pathological animosity of the USA elite toward Russia is just another variant of desire to knock down one of the last remaining opposing forces for neoliberal globalization, or as they used to say in Rome "Carnage should be destroyed". ..."
"... In fact, the present dramatic fall in the price of oil might well be a part of a long-term plan to force the 'nationalist' part of the Russian elite to submit to the Transnational Elite's (TE) rule, despite the aspirations of the overwhelming majority of the Russian people… This was clearly shown when this majority enthusiastically welcomed the only real counter-attack so far against the continuing and intensifying attack by the TE against Russia, i.e. the re-integration of Crimea. ..."
"... Two of the most common words found in accounts of the events leading to 2008 financial collapse are avarice and hubris. Usually these are used to refer to individual malfeasance, but the more interesting possibility that they also define the neoliberal economic culture. The same words apply to the shale boom. In more ways that one, this was a subprime oil boom. ..."
What was not discussed here is the importance of low oil price regime for maintaining neoliberal
"status quo". I think it is important for all members of this forum to understand the connection
between "cheap oil regime" and neoliberalism.
Among issues that make low oil price regime of paramount
importance we can mention:
Cheap oil reverses the flow of capital toward Western countries
representing a steroid injection that keeps Western economies from
sliding into another phase of the "Great Recession". The US oil industry is
just a collateral damage here. In other words the current low oil price
regime might be viewed as a desperate attempt to reverse "Secular
Stagnation" of Western economies. To reignite growth via low oil prices
as "financialization" does not work anymore. See also:
High oil prices represent a direct threat to neoliberal globalization. It directly threatens
transnationals shipment of goods and oil prices above $80 make some goods production in China
less profitable (office furniture) due to shipment costs. To save fuel ships are running at lower
speed when oil prices are high adding delays in transatlantic shipments (several days). Also the
aero transportation of fresh fruits and vegetables became more expensive as well, which destroys
the competitive
advantage of globalizing fruit production.
My impression is that the US elite is now really afraid that the level of world control reached
after the dissolution of the USSR might escape from their hands. Also like British people in the
past the US people now started suffering from the economic consequences of their elite imperial
policies. And that makes the USA less governable by the old neocon elite (simplifying, Bush and
Clinton families) that were in power since 1980th. Emergence of Trump and Sanders as viable candidates
for POTUS are just two sides of the same coin.
Low oil prices represents a powerful sanctions regime against "resource nationalists"
who oppose neoliberal globalization such as Russia. In this sense pathological animosity of the USA
elite toward Russia is just another variant of desire to knock down one of the last remaining
opposing forces for neoliberal globalization, or as they used to say in Rome "Carnage should be
destroyed". Nothing personal, this is strictly business. It also increases chances of regime change
in Russia although currently there is no such powerful fifth column as Western Ukrainian nationalists
represented in Ukraine (and who ensured the success of the coup to overthrow corrupt Yanukovich
government, replacing it with no less corrupt Poroshenko government; "As in Franklin Roosevelt
famous quote "
He May Be An SOB But He's Our SOB" ),
The fifth column which could ensure the success of a "color revolution".
In fact, the present dramatic fall in the price of oil might well be a part of a long-term
plan to force the 'nationalist' part of the Russian elite to submit to the Transnational Elite's
(TE) rule, despite the aspirations of the overwhelming majority of the Russian people… This
was clearly shown when this majority enthusiastically welcomed the only real counter-attack
so far against the continuing and intensifying attack by the TE against Russia, i.e. the re-integration
of Crimea.
… … …
As Engdahl put it, "we now see as evidence that clearly indicates there was a CIA coup d'état
backing Boris Yeltsin to be the man of Washington, so as to dismantle the Russian economy entirely
after 1990".[10] It was in this sense that one may talk of a collapse of the USSR, … which
led to the destruction not only of the socialist revolution but of the Russian economy itself.
Two of the most common words found in accounts of the events leading to 2008 financial collapse
are avarice and hubris. Usually these are used to refer to individual malfeasance, but the more
interesting possibility that they also define the neoliberal economic culture. The same words apply
to the shale boom. In more ways that one, this was a subprime oil boom.
The U.S. saw oil production fall by 14,000 barrels last week. The U.S. oil industry has posted
consistent declines in recent months, and while the weekly data from the EIA is sometimes inaccurate,
the best guess is that the U.S. is producing 9.008 million barrels per day right now. While it could
take weeks or months to know conclusively, the U.S. could be about to drop below the key threshold
of 9 million barrels per day in oil production.
... ... ...
A massive fire hit ExxonMobil's (NYSE: XOM) refinery in Baytown, Texas on April 7, spewing black
smoke into the air. The fire was extinguished and there were no injuries reported.
The Russian energy ministry sees the very real possibility that Russian oil production enters
long-term decline, possibly even falling by half by 2035. Russia's major oil fields are decades
old, so it will be increasingly difficult to prevent output from falling. At the same time,
Russian oil companies are not discovering new sources of supply that could replace that lost
output. The Arctic offers one area where very large reserves could be exploited, but western
sanctions have blocked the participation of major international oil companies, which could help
Russian companies pull off the expensive and tricky Arctic drilling operations.
Meanwhile, Russia's natural resources minister said in late March – with an eye on the Doha
meeting – that Rosneft will likely lower its output this year. Rosneft actually did not comment
on his remarks, but the minister's comments were likely meant to demonstrate Russia's willingness
to cooperate with OPEC in Doha.
... ... ....
Russian output is expected to decline by 20,000 barrels per day on average this year,
according to OPEC's latest assessment.
Oilprice.com: The IEA has been accused of overestimating global supplies. The WSJ says that
somewhere around 800,000 barrels per day are unaccounted for, meaning they are not consumed nor
have they ended up in storage. Are these "missing" barrels a big deal?
Mike Rothman: The issue has not been one of the IEA over-estimating supply, but rather
under-estimating demand. There are basically two ways to arrive at figures for global oil demand.
The IEA methodology is built on an estimate of GDP and an assumed ratio of oil demand growth to
GDP growth.
... ... ...
OP: The oil industry is making massive cuts in investment. Should we be bracing ourselves
for a price shock at some point in time? If yes when do you see this occurring?
MR: You cannot cut CAPEX and reduce upstream activity and somehow think future production growth
goes unaffected. We forecast non-OPEC supply to contract this year for the first time since 2008.
That was a way-out-of-consensus call to make a year-ago when most pundits vigorously argued
non-OPEC production would still expand even with the drop in oil prices. What we've communicated
to our clients – and those we deal with directly in OPEC – is that the spike down in oil prices
is basically setting up an eventual spike up.
OP: Will bankruptcies in the U.S. shale industry do anything to balance the market?
MR: We expect that it will feed into the contraction we forecast for U.S. output. We also see the
credit availability issue as likely being a limiting factor moving forward, sort of like what we
saw in 1986 and then again in 1999.
... ... ...
OP: Lenders to the oil and gas industry have been fairly lenient with companies. Do you
believe that the banks will start to tighten the screws a bit more as the periodic credit
redetermination period finishes up?
MR: The old joke is that bankers are the guys who will lend you an umbrella and then ask to have
it returned as soon as it starts to rain. Yes, we think lending will become much more highly
scrutinized and financing less readily available.
"... What's critical to note is how the media, and surprisingly most analysts, see global oil merely through the prism of U.S. independent shale players. To me, this is the critical grave mistake they make. Recent lease outcomes in the Gulf of Mexico, problems in Brazil and the likely end of spending for all new Russian oil projects are just a few of the other gargantuan gaps in global production we're likely to see after 2016. ..."
"... the shale players, even with their low well drilling costs and backlog of 'drilled but uncompleted wells' (DUCs) cannot in any way repeat their frantic production increases they achieved from 2012-2014 ever again. I believe this because of financing constraints and the lack of quality acreage among other reasons – but I don't have to even "win" this predictive argument. ..."
"... Chevron estimated in 2013 that oil companies would have to spend a minimum of $7-10 trillion dollars to 2030 to merely keep up with demand growth and the natural decline of current wells. And this was without factoring in the drop in exploration spending that is occurring now and throughout the next two years. Severe capex cuts from virtually every oil company and state-run producer over the last two years has put this necessary spending budget way behind schedule. ..."
"... You can see why I tend to have a much more radical view of the decline line in production beginning in late 2016 and lasting, in my view, at least until the middle of 2018, when production again only begins to get the funding (and time) it needs to try and "catch up". ..."
...most analysts agree that the sharp drop in Capex budgets, not just among shale producers, will
have its effect on sharply lowering production this year and putting growth in reverse, efficiencies
and well cost reductions notwithstanding. What's critical to note is how the media, and surprisingly
most analysts, see global oil merely through the prism of U.S. independent shale players. To me,
this is the critical grave mistake they make. Recent lease outcomes in the Gulf of Mexico, problems
in Brazil and the likely end of spending for all new Russian oil projects are just a few of the other
gargantuan gaps in global production we're likely to see after 2016.
... ... ...
While the EIA and most other analysts agree that sharp capex drops will begin to have their halting
effects on oil production, they tend to argue over when those production drops come and how steep
they will be. In all cases, they argue that any drop in production will be answered by a rally in
oil prices, to the degree that U.S. shale players again 'turn on the spigots' and reestablish the
gluts that have kept us under $50 a barrel for most of the last year. In this scenario, production
never – or at least exceedingly slowly – rebalances to match demand.
I see it much differently. I could argue that the shale players, even with their low well drilling
costs and backlog of 'drilled but uncompleted wells' (DUCs) cannot in any way repeat their frantic
production increases they achieved from 2012-2014 ever again. I believe this because of financing
constraints and the lack of quality acreage among other reasons – but I don't have to even "win"
this predictive argument.
Longer-term projects from virtually all other conventional and non-conventional sources that have
not been funded for the past two years will see their results, in that there won't be the oil from
them that was planned upon. Chevron estimated in 2013 that oil companies would have to spend
a minimum of $7-10 trillion dollars to 2030 to merely keep up with demand growth and the natural
decline of current wells. And this was without factoring in the drop in exploration spending that
is occurring now and throughout the next two years. Severe capex cuts from virtually every oil company
and state-run producer over the last two years has put this necessary spending budget way behind
schedule.
You can see why I tend to have a much more radical view of the decline line in production beginning
in late 2016 and lasting, in my view, at least until the middle of 2018, when production again only
begins to get the funding (and time) it needs to try and "catch up".
"... Thanks for the analysis and forecast of Norwegian crude oil production. Figure 01 shows that combined output of the currently producing fields will drop from 1.57mb/d in 2015 to around 250 kb/d in 2030. That implies an average annual decline rate of 11.5%. ..."
"... Looking at the total production from fields started as of 2004 and 2012 these had a year over year decline of more than 15% from 2014 to 2015. ..."
"... This illustrates how many smaller fields with short plateaus and steep declines influences the total decline rate and until Johan Sverdrup starts to flow, these smaller fields' portion of total extraction will grow. ..."
"... The low oil price recently caused the Vette development to be scrapped. All things equal this makes for a steeper decline in total extraction than what is now reflected in my forecast. ..."
"... I am [and have for some years been] firmly in the camp that think it will take a loooooong time before we again see a sustained $100+/b [$2016], even as the present supply overhang from whatever reasons comes to an end. ..."
Thanks for the analysis and forecast of Norwegian crude oil production.
Figure 01 shows that combined output of the currently producing fields will
drop from 1.57mb/d in 2015 to around 250 kb/d in 2030. That implies an average
annual decline rate of 11.5%.
Decline for the fields that were producing in 2001 during the period
to 2013 was about 9% per year. Is this projected acceleration due to the
rising share of the small deepwater fields with higher decline rates? What
are combined decline rates for the old mature fields?
What are your oil price assumptions? Do you think that potential sharp
increase in oil prices after 2020 may slow production decline, like in 2014-15?
For several of the mature fields that still contributes meaningfully,
the developments of discoveries within their business areas (like Gullfaks,
Oseberg) and infill drilling [made commercial/profitable from a higher oil
price] makes it now difficult to pull out/estimate their [call it "underlying"]
decline rates [from data in the public domain] post these developments.
The reserves added from these developments and infill drilling are reported
within the business areas [reserve growth].
For all fields started before 2002;
From 2012 to 2013 the decline slowed to 2 %/a.
From 2013 to 2014 extraction grew about 3%/a.
From 2014 to 2015 extraction grew about 2%/a.
Several of the decisions that led to this reversal was made while the oil
price was high and thus funding available.
Looking at the total production from fields started as of 2004 and
2012 these had a year over year decline of more than 15% from 2014 to 2015.
(Grane [reserves 900+Mb] started in 2003 and saw a slowdown in its decline
in 2015.) This illustrates how many smaller fields with short plateaus
and steep declines influences the total decline rate and until Johan Sverdrup
starts to flow, these smaller fields' portion of total extraction will grow.
As alluded to in the text I have not made any oil price assumptions for
the forecast [which is based on sanctioned developments]. Presently, several
fields are planned plugged and abandoned (P&A) as the lasting, low oil price
has shortened their economic life. Plans now call for Jette, Varg, Volve
to be P&A later this year.
More will follow according to various sources.
The low oil price recently caused the Vette development to be scrapped.
All things equal this makes for a steeper decline in total extraction than
what is now reflected in my forecast.
I am [and have for some years been] firmly in the camp that think
it will take a loooooong time before we again see a sustained $100+/b [$2016],
even as the present supply overhang from whatever reasons comes to an end.
Interesting post. Presumably "Expectations" = Crude Oil Futures
Contracts. If so, who controls the price of Oil futures contracts and made
the decision to throw the Bakken under the bus, along with more than a few
sovereign nations who rely to a significant degree on oil exports
economically and to maintain domestic political stability?
Role of demand suppression from high levels of consumer debt, China's
economic slowdown, ongoing fallout from the 2008 financial collapse,
neoliberal government austerity policies, improvement in energy efficiency,
emergence of renewables, and other factors were understated here IMO.
In the past here has also been a variable time lag between low oil prices
and rising levels of economic activity.
But maybe this development is overall not such a bad thing given global
warming considerations.
CG, I was thinking something similar, that "expectations" is the
euphemism for speculation in the futures markets, which, as most know
from this site, is now dominated by investor-speculators. The model they
used refers to Killian who is one of the handful of academics who try to
refute anyone who argues speculators have influenced oil (and other
commodity) prices.
My own take (anyone interested can read it
here) is there was a series of bubbles generated from the futures
market that created the belief higher oil prices were here to stay.
Noted your article was written before the Central Banks-Primary
Dealer cartel renewed pumping equities on February 11 IMHO. Jury is
out on whether they've jumped the shark. Also, whether they care.
'The observed drop in oil prices should have a slightly positive
impact on the EU economy.'
Probably true. But likely there's a "J-curve effect."
That is, the initial deflationary shock hikes corporate bond spreads
(driven by the energy sector) and feeds recession fears. Such fears
encourage investors to seek the safe haven of government bonds, at the
expense of stocks and credit bonds.
Later as confidence returns, the beneficial effect of lower energy costs
(including bolstered consumer demand) can actually be realized.
Arguably, Jan-Feb 2016 constituted the bottom of the "J." We'll see.
\Blatant lies are in blue. Libya can't rump up production as civil war is
still ongoing and there is no signs ofreconsiliation betwtnn two major pforces
with ISIS as a third force, a spoler.
By the end of 2015, Saudi Arabia supplied 8.1 percent of the global oil
demand, which is higher than the 2014 figure of 7.9 percent, but still well
below its 8.5 percent global market share in 2013.
Saudi Arabia realized that the price war was not helping it to increase
its market share, instead, the price was taking a toll on revenue due to
plummeting crude oil prices. Ballooning budget deficits, depleting foreign
reserves, and the necessity of introducing unpopular measures brought about
memories of the
Arab
Spring.
Similarly, Russia, which is pumping at close to its peak capacity, is
worried about losing its market share in
Europe to Saudi Arabia.
The other nations participating in the meeting are also pumping near
maximum limits. With a production freeze, most nations will retain their
existing clients without worrying about losing them to the competitors.
This excludes Iran and Libya, which will
not take part in the production freeze talks, as both are in the process
of ramping up production.
Initially, this all started out as a price war with U.S. shale oil drillers
as the Saudi's feared they would lose their dominant hold over the oil markets.
But the outcome was not what the Saudi's expected. The Saudi's found themselves
isolated with no support from the U.S., fearing alienation if they continued
to oppose the majority demand of the OPEC nations to cut production.
See an interesting interview (slightly edited Google translation). Looks like the new oil reserves
in Russia are very expensive, on par with the US shale and the old are mostly depleted.
The President of the Union of oil and gas Industrialists of Russia Gennady Shmal told "Izvestia"
about what oil price is needed for Russia and when the industry will overcome dependence on imported
equipment
Q: OPEC believe that soon the price of oil should stabilize at a "normal", but not a too
high level. What do you think, what level of oil prices can be considered normal for Russia today?
A: If we are talking about a fair price of oil globally, I believe this is $80 per barrel.
Keep in mind that a significant part of oil – about a third – is produced offshore, where the
cost can be high. And there is a deep-water shelf, for example, in Brazil, where one of the first
well cost more than $300 million. Subsequent wells would of course cost less, around the half
the price, but still very expensive. Therefore, the capex of this oil extraction is high enough.
The breakeven price of our oil production without taxes is around $10 per barrel, nationally.
But when we include taxes, we get around $30 per barrel. But this cost is not no tragedy for us.
I remember a time when a barrel of oil was less than $10. Then we dreamed about the price rising
to $20.
When the three-year average cost of oil was above $100 per barrel, we got too used to
it. But the high price has one big drawback – it can negatively affect demand and stimulates production. And that's
what basically happened.
Therefore, now our oil companies might be now content with the price around $50-60
per barrel.
And I think in general, globally it would be OK price for both producers and consumers. Even
for the United States that would be an acceptable price. Canadians with their oil sands would
need a higher price – up to $80. But as the Canadian oil going to the United States, anyway,
losses can
be compensated with the domestic shale production and they would have to come to a common denominator.
Q: You're talking about this level of prices, without taking into account the Arctic shelf
projects?
A: Arctic shelf – it is quite another matter. My point of view on this issue is different from
the most popular view that exists today. I believe that we need to engage the shelf in terms of
prospecting, exploration. We generally do not even know that there, how much oil we have on the
shelf. We have so far only preliminary estimates of reserves – C2, C3 (preliminary estimated reserves,
potential reserves). And in order to have A, B, C1 (proven reserves), it is necessary to drill.
I am sure that we are not ready to work on the Arctic shelf both technically and technologically,
nor economically.
We do not have qualified people for that too. First of all, we need several platforms. One
platform for "Prirazlomnoe" that we now have been built for more than 15 years, and we sank into
it about $4 billion
And this one is not a new one, this is a second hand equipment. In order to seriously develop
the shelf, we need not one, but dozens of platforms, support vessels. Also offshore operations
must have the regulatory framework.
That means all the necessary technical regulations, standards. We have nothing. But the main
thing – the cost effectiveness of this oil: it is necessary to consider how profitable in today's
environment to produce Arctic oil. So, I think we now have enough things to do on land – in Eastern
Siberia, for example, before we need to jump with two legs into arctic oil extraction.
Q: How record oil production that Russian oil companies demonstrate in the past few years,
affects the structure of the Russian economy?
A: First of all, I believe that there are no records. Yes, we produced 534 million tons. But
in 1987 the Russian Federation has produced 572 million tons. Compared to the 1990s there is a
certain growth in recent years, but I would not talk about records. Second, the question about
optimal production volumes is a very complex one. The main question to which I have no answer
today: how much oil we need to extract?
Without answer on this question it is impossible to say whether we produced too little oil
or too much. If we consider that in 2015 we extracted more then 246 million tons, then, I would
say
we produced too much. This is not the way this business should be run. The fact is that Russia
can not influence the world oil price too much because we make only 19-20% of the market. But
we can and should make the country less dependent on raw oil price fluctuations. We could process
all extracted oil and export mainly gasoline and diesel fuel, as well as products with high added
value in the form of chemicals, petrochemicals, composite materials.
That means that we need to adopt a different approach to the structure of our industrial production.
For example, China in the last twenty years has built a series of petrochemical plants, and
today they have the chemical products sector with total value of production about $1.4 trillion,
or around 20% of China GDP. It should be noted that China's GDP is eight times more than ours.
Our chemical sector production is around $80 billion – 1.6% of Russia's GDP. In 2014 alone BASF
Chemicals (which is a single German company) produced 1.5 times more than all the chemical enterprises
of Russia. Petrochemicals may be the critical link, pulling which we could change the whole structure
of industrial production in Russia.
Q: If we talk about production prospects, what we levels of production we can expect in
the future, based on our today's oil reserves
structure?
A: Unfortunately, today we do not have a reliable statistics. According to some estimates,
of
those oil reserves that are under development, about 70% are so-called hard-to-extract oil. That
is, stocks, where oil production is complicated mining and geological, geographical conditions.
In these fields there might be tight reservoirs, reservoirs with low permeability, viscous
oil, etc. By the way, today we have no any clear definition of hard-to-extract inventory, although
this defines the benefits that can be granted to companies to work on the fields with such
reserves. Therefore we need serious work on the classification and definition of reserves that
will be put into the hard-to-extract category.
By the way, the current production mostly (about
70%) relies on the old fields, which now have a high water content, high percentage of
depletion of reserves. Of course, they will not last forever. Therefore, sooner or later, will
have to enter the development of the fields with hard to recover reserves.
Q: Extraction of hard inventory requires new technologies, which in Russia does not fully
have. What are the tools the government has to encourage their development?
A: The state has a lot of tools to stimulate those technological developments. Our tax
system can perform stimulating role along with fiscal and re-distributive functions. However,
our tax system currently performs mostly fiscal function and only slightly – re-distributive
function. Simulative
function is not yet here. As an illustration, take Texas, USA: if the well there gives 500 liters
of oil per day, it is considered a cost-effective – this way the tax system is built. For us a
well, which gives 4000 liters per day, is already viewed as unprofitable, and is moved into the
idle fund. Now, of course, some work is being done in respect of incentives for low producing
wells – MET rates introduced.
But I believe that the future of our oil industry is largely dependent on whether we are
able to create the technology of oil production from the Bazhenov Formation or not. Because the
geological reserves of the Bazhenov Formation in Western Siberia are more than 100 billion tons
of oil. Even at a conservative estimate, if it is possible to extract around 40-60 billion tones
of oil with the current technologies.
And please remember that all we have in Russia today, all C2 stocks, are just around 28
billion tons So if we find the necessary technology that can be applied to the
Bazhenov Formation,
the peak oil production issue for Russia can be resolved for a sufficiently long period of time.
And in respect of the help from the state it could be such measures such as tax holidays, tax
exemption, reduction in mineral extraction tax, etc.
But currently the Ministry of Finance is interested only in filling the budget. We need to
make sure that taxes are fair. For this, they must be applied to the end result of production.
In our country today we have taxes on earnings – up to 65-70% of the average withdrawal. Norway,
for example, has high taxes too, but they are levied on profits.
Taxes should be applied to profits, not revenue, the latter for us looks like the absolutely
wrong approach.
Q: According to various estimates, in the Russian oil and gas industry today up to 45-50%
of the equipment are imported. Will Russian oil companies to move away from this dependence
in view of sanctions. And what should be role of the state in achieving this results?
A: At the request of "Lukoil" we did last year such a study. We've got that on average
53% of drilling equipment in Russia is imported. Of course, we must bear in mind that, for
example, pipes, with rare exceptions, we can produce domestically. But today there are some
technological segments where there is a high dependence of Russian oil from foreign suppliers.
Those segments include: software control, automation and remote control.
Today, the Ministry of Energy to the Ministry of Industry set up working groups that
are engaged in import substitution. And we have already been there for some equipment that is
competitive with foreign models. So, one of the factories in Perm began to produce excellent pumps,
which match in quality the best foreign analogues. Some factories in Bashkortostan started the
production of valves, cut-offs switches and other fittings for any type of drilling. But it is
not necessary to replace all the foreign oil production equipment. And, of course, we can not
do this.
We make good tanks, but we do not produce luxury cars like Mercedes. We just don't produce
them. I believe that if we had a dependence on imports in the range of 20-25%, it would be acceptable
and probably close to optimal.
Today we can get rigs from China. Our experts say that they are of a sufficient level of quality.
We also have a factory, which in 1990 produced drilling rigs – "Uralmash". Then, the plant produced
365 sets of drilling equipment per year. In the past year – only 25.
Therefore we need to rely on the Chinese oil extracting equipment, as they have learned to
make a decent drilling equipment. And for the price, no one can match them. I believe that we
need to very clearly define few areas of oil extraction equipment, which are critical for us.
and then pay close attention and allocate resources to those areas. We do not need to cover everything.
And I am sure that before the end of 2020 Russia could reduce this dependence on foreign equipment
to 25-30%.
"... there is one thing I do know, that is if oil prices remain in the region of $39 a barrel then production will definitely continue to fall and fall rather dramatically. And that is not just in the USA but around the world. ..."
"... A prolonged price of $39 dollars a barrel would be devastating for the oil industry. ..."
"... they will have to rise to a lot higher than $39 a barrel, or even $50 a barrel. $50 a barrel will not be high enough to cause world production to start to increase again. ..."
"... That is because oil at above $100 a barrel did not cause oil in the rest of the world, outside the US and Canada to increase in the last five years. Well, that is outside of OPEC. OPEC, or Persian Gulf OPEC, is another matter. That is because politics come into play here and not just geology. ..."
"... I would be surprised if we had not reached $100/b by then unless there is a severe global recession between 2016 an 2018. ..."
WTI averaged $30/b for the month of February. Do you believe oil prices will remain under $40/b
for the remainder of 2016? I do not. Output will fall by 700 kb/d in the US to 8450 kb/d by the
end of the year and oil prices will rise, to $50/b or more in my opinion.
Dennis, I have no idea where oil prices will remain for the remainder of 2016. But there is
one thing I do know, that is if oil prices remain in the region of $39 a barrel then production
will definitely continue to fall and fall rather dramatically. And that is not just in the USA
but around the world.
A prolonged price of $39 dollars a barrel would be devastating for the oil industry.
Yes, I do believe oil prices will rise. But they will have to rise to a lot higher than
$39 a barrel, or even $50 a barrel. $50 a barrel will not be high enough to cause world production
to start to increase again.
Any increase in production caused by an increase in price to above $50 a barrel would have
to come from the US and Canada. That is because oil at above $100 a barrel did not cause oil
in the rest of the world, outside the US and Canada to increase in the last five years. Well,
that is outside of OPEC. OPEC, or Persian Gulf OPEC, is another matter. That is because politics
come into play here and not just geology.
I agree, $39/b will not cause the decline in output to stop, but my guess is that the decline
would be faster at $30/b than at $40/b and faster at $40/b than it would be at $50/b. In fact
at $50/b the decline might stop eventually, but I agree with Guy who suggested $60/b will be needed
to get drilling to increase and probably more like $80/b for 6 months before any noticeable increase
in US and Canadian output. That might not occur until 2018, it will depend on the World economy
and demand for oil. I would be surprised if we had not reached $100/b by then unless there
is a severe global recession between 2016 an 2018.
"... That honestly sounds like a difficult way to make a living, but I guess oil-industry networking is so lucrative that it drives people to crime. ..."
"... Right now there is an aura of fear among the general population and even the expats in Saudi. The police throw people in jail for the slightest provocation. No one dares to protest or even speak against the regime. They could be jailed or even publically whipped. But if things get really bad and enough people lose their fear of the police, then all hell could break loose. ..."
"... Then there are the mullahs. They have authority over the populace which the authorities allow in order to keep the peace, and to keep the people in their place. I have seen them hit people with a cane for window shopping during prayer time. All stores must close during prayer time. ..."
"... Saudi Arabia is basically a police state with the mullahs acting as if they are part of the police. But there is a deep resentment among the people with little money and no power. It is a powder keg that could blow if things get really bad. And when oil production starts to slide things could get bad very fast. ..."
Saudi Arabia may be preparing for a post-oil world now, but back in 2014 the oil industry
was so hot that the founder of an oil-industry networking site allegedly hacked into another
oil-industry networking site (that he had also founded!) to steal customer information, solicit
new customers, and ultimately sell his new company to his old company. That honestly sounds
like a difficult way to make a living, but I guess oil-industry networking is so lucrative
that it drives people to crime.
Alleged crime. Was so lucrative. Anyway here is the criminal
case against the founder, David Kent, who founded Rigzone in 2000, sold it to DHI Group in
2010 "for what ended up being about $51 million," founded Oilpro after his non-compete expired,
and allegedly hacked into Rigzone to get customers.
Outside of the oil industry - by which
I mean, "on Finance Twitter" - Oilpro is perhaps best known for its delightful Instagram account,
which I hope will be maintained regardless of the outcome of this case.
Saudi Arabia is getting ready for the twilight of the oil age by creating the world's
largest sovereign wealth fund for the kingdom's most prized assets.
Over a five-hour conversation, Deputy Crown Prince Mohammed bin Salman laid out his vision
for the Public Investment Fund, which will eventually control more than $2 trillion and help wean
the kingdom off oil. As part of that strategy, the prince said Saudi will sell shares in Aramco's
parent company and transform the oil giant into an industrial conglomerate. The initial public
offering could happen as soon as next year, with the country currently planning to sell less than
5 percent.
"IPOing Aramco and transferring its shares to PIF will technically make investments the source
of Saudi government revenue, not oil," the prince said in an interview at the royal compound in
Riyadh that ended at 4 a.m. on Thursday. "What is left now is to diversify investments. So within
20 years, we will be an economy or state that doesn't depend mainly on oil." Almost eight decades since the first Saudi oil was discovered, King Salman's 30-year-old son is
aiming to transform the world's biggest crude exporter into an economy fit for the next era. As
his strategy takes shape, the speed of change may shock a conservative society accustomed to decades
of government handouts.
Buying Buffett and Gates
The sale of Aramco, or Saudi Arabian Oil Co., is planned for 2018 or even a year earlier,
according to the prince. The fund will then play a major role in the economy, investing at home
and abroad. It would be big enough to buy Apple Inc., Google parent Alphabet Inc., Microsoft Corp.
and Berkshire Hathaway Inc. - the world's four largest publicly traded companies.
I would bet that Deputy Crown Prince Mohammed bin Salman is a believer in peak oil.
I bet they think the political risk of being invested in a nation loaded with would be terrorists
is too high. They plan to park a chunk of cash offshore and wait for the shoe to drop. I wouldn't
invest in Aramco given this reality.
There can never be a transition from oil in Saudi Arabia. When the oil starts to seriously decline
there will be turmoil in Saudi.
Right now there is an aura of fear among the general population and even the expats in Saudi.
The police throw people in jail for the slightest provocation. No one dares to protest or even
speak against the regime. They could be jailed or even publically whipped. But if things get really
bad and enough people lose their fear of the police, then all hell could break loose.
Then there are the mullahs. They have authority over the populace which the authorities allow
in order to keep the peace, and to keep the people in their place. I have seen them hit people
with a cane for window shopping during prayer time. All stores must close during prayer time.
Saudi Arabia is basically a police state with the mullahs acting as if they are part of the
police. But there is a deep resentment among the people with little money and no power. It is
a powder keg that could blow if things get really bad. And when oil production starts to slide
things could get bad very fast.
"... Maybe they know they're peaking and this is a big psy-op/economic warfare to confuse the competition, maybe it's a tumultuous power transition that lacks strategic continuity and the new king/clique is not a good strategist ..."
"... This hypothesis along with "hurt Russia" hypothesis (which simultaneously hurt their main regional rival Iran) are the most plausible IMHO. Please note that KSA is a vassal of the USA. So by extension it looks like "team Obama" is not a good strategist either. ..."
"... A recent WikiLeaks revelation cited a warning from a senior Saudi government oil executive telling that the kingdom's crude oil reserves may have been overstated by as much as 300bn barrels, or by nearly 40%!" the American political analyst underscores. ..."
"... "Where Americans' interests are concerned, while President Obama has been parlaying trendy terms like 'renewable energy' and his supposed climate change agenda, the fact is petroleum still powers 96% of all transportation in America," Butler emphasizes. ..."
"... To paraphrase the old song, oil makes the world go round… ..."
Does anybody have any insight or interesting ideas on Saudi Arabia? I believe they are disingenuous
with their 'market share' explanation…. I'm just using made up numbers here but my point is that
they have sacrificed 90 billion in profit to get 30 billion in market share. Last time I checked
business was about profits not about market share. If the IMF report I saw is correct then SA
needs $106/barrel to balance the national budget (not sure how that works at $106/barrel when
their 2015 budget was $229 billion but expenditures in 2015 ended up being $260 billion
http://www.bloomberg.com/news/articles/2015-12-28/a-breakdown-of-the-2016-saudi-budget-and-its-implications
). For the sake of argument lets call their national budget 'corporate overhead'. I suspect
SA is at a crossroads of some kind. Drilling rigs are up quite a bit the last couple years but
production is up slightly/wobbly.
Maybe they know they're peaking and this is a big psy-op/economic warfare to confuse the
competition, maybe it's a tumultuous power transition that lacks strategic continuity and the
new king/clique is not a good strategist….. I could go on. The intrigue could be deep or
shallow. Anybody have a good theory or read on where SA is at and going to? My guess is 30 million
people soon to be on foot headed for Europe.
The World C+C output has either peaked (in 2015) or will do so within 10 years, we will have
to wait 10 years to find out. Oil guys such as Fernando Leanme have claimed that a rise in oil
prices to $150/b (in 2015$) will make a lot more of existing oil resources profitable to produce,
whether this is enough to offset depletion is an open question as is the level of oil prices that
the World economy can afford.
On oil prices we can do the following back of napkin estimate. World real GDP at market exchange
rates about $80T 2015$ and assume 2% real GDP growth for the next 5 years which would bring us
to about $88T real GWP in 2015$ in 2020. Let's assume the world can only spend 4% of GWP on oil
without causing a recession and that C+C output remains at 80 Mb/d in 2020 (29 Gb/year).
The 4% of 88T is $3520B and we divide by 29B and get $121/b in 2020. An oil price of $150/b would
be close to 5% of GWP and would likely cause a recession.
I will let the oil guys comment on whether $120/b is enough to bring on adequate oil supply
to avoid a recession, a crisis will eventually occur as I expect that demand will eventually outrun
supply in the short term (next 10 years) and oil prices will spike above $150/b and lead to a
global recession. At that point the peak may finally be clear to all and a transition away from
oil will begin in earnest.
maybe it's a tumultuous power transition that lacks strategic continuity and the new king/clique
is not a good strategist
This hypothesis along with "hurt Russia" hypothesis (which simultaneously hurt their main
regional rival Iran) are the most plausible IMHO. Please note that KSA is a vassal of the USA.
So by extension it looks like "team Obama" is not a good strategist either.
A recent WikiLeaks revelation cited a warning from a senior Saudi government oil executive
telling that the kingdom's crude oil reserves may have been overstated by as much as 300bn
barrels, or by nearly 40%!" the American political analyst underscores.
Butler refers to a phenomenon called "peak oil." According to M. King Hubbert's theory,
peak oil is the point in time when the maximum rate of extraction of petroleum is reached and
the crude capacity will only decline.
Whether one likes it or not, peak oil has been reached, the analyst underscores.
However, while the global oil reserves are decreasing steadily, Riyadh has been pumping
its crude faster than anyone.
And here is the root cause of Saudi Arabia's warmongering. To maintain its status quo, the
Saudi kingdom has established an alliance with
Turkey , planning to
seize Syria and Iraq's
oil fields.
Still, it's only half the story, since the global economy also remains petroleum-centered.
"Where Americans' interests are concerned, while President Obama has been parlaying
trendy terms like 'renewable energy' and his supposed climate change agenda, the fact is petroleum
still powers 96% of all transportation in America," Butler emphasizes.
To paraphrase the old song, oil makes the world go round…
The question then arises, whether we are on the doorstep of new "energy wars."
In terms of a C&C peak pushed out for 10 years my question would be "Where's the oil?" even at
$120 per barrel.
Apologies that the following is too long, with no charts for many (or any) to read all the
way but some parts may be of interest.
The last few years have shown declining oil discoveries since 2010. What has been found is
more often than not deep water and relatively small. Such fields generally have short plateaus
and steep decline rates (not much better of those seen in LTO for fields less than about 150 million
barrels). The larger basins found offshore have been in the 5 to 10 mmboe range rather than around
50 found in the earlier days.
I don't have access to IHS or Rystad databases but picking amongst recent press releases I'd
say 2013 was about eight billion, 2014 nine or so and 2015 four or five. This year maybe only
three discoveries with a significant amount of oil – Kuwait might be significant. More gas than
oil is being found
There has been a noticeable reduction in development times for projects in GoM and North Sea
in recent years from around 7 years down to as low as 3. That to me indicates a dearth of good,
large projects to choose from.
Of some of the main producers:
Saudi; 50% increase in rig count since 2012 to keep production just about steady, announced
"the most fields discovered" in 2012 or 2013 but a combination of oil and gas and they didn't
give quantities, have spoken of developing tight gas and solar to allow increased oil exports.
Russia; some conflicting announcements but it looks like a decline next year, largest recent
find was by Repsol at about 240 mmboe. Sanctions have had an impact and may continue to do so,
especially offshore.
Canada; very little drilling activity, four fields coming on over the next 2 to 3 years will
add up to 400,000 bpd, but then nothing planned and at least 4 year lead times for tar sands projects.
Tar sands projects have long plateaus but it appears some of the earliest mining operations are
starting to see thinner seams so decline will become more evident.
Brazil; cut backs in developments and may start to decline next year, they have mostly deep
water production with high decline rates and rely on continuous stream of new projects to maintain
production – the oil price, 'carwash' scandal, debt/bankruptcy problems and (maybe) just running
out of suitable projects have stopped this, expect 6 to 10% decline through 2017.
Mexico; EOR developments seem to have run out of steam and not much interest in their opening
up the industry to outsiders, expect at least 4% per year decline.
USA; discussed a lot here, some expansion in GoM through 2017, unknown response to LTO drillers
depending on price and credit availability, liquids from gas have been another significant and
rapid boost to production recently which EIA indicate are still rising (mostly for NGLs), but
surely must run out of steam sometime soon. Possibly some shut in stripper wells won't be worth
restarting.
China; reliant on EOR recently to maintain plateau (including a lot of steam flood from the
EIA report) but predicting 5% decline next year, no great success on offshore discoveries.
North Sea; saw a spate of projects recently, mostly heavy oil, with a few more to come over
the next two years and then Johan Sverdrup and Johan Castberg but these only delay decline for
2 or 3 years, recent discoveries especially in UK sector have been very poor.
Offshore Africa; Nigeria and Angola have a number of projects this year and next ( a bit more
oil than gas), but after that I'm not clear, political unrest might be particularly important
here as well. That said recent exploration success has been relatively good in Africa overall
(e.g. Kenya, Ghana).
Venezuela; not sure if their numbers can be trusted but they seem to be in decline, I know
little of their particular technical issues but assume that in order to increase extra heavy oil
production they would need new upgraders and possibly a source of natural gas, like Canada, and
possibly dedicated refineries to handle the heavy metal content (and assuming they can find willing
creditors and EPC partners).
Iran and, possibly, Iraq and Kuwait look like the only likely areas that can show some increase,
but Iran is developing South Pars gas field more than oil and Iraq/Kurdistan might have run out
of impetus. Burgan field in Kuwait looks in better shape than other aging super giants and Kuwait
has an active exploration and development program. And of course maybe US LTO takes off again,
$80 appears a threshold but that is for WTI, ND oil has a $10 discount, the lighter LTO oil everywhere
may be lower still and overall away from the sweet spots above $100 might be nearer the mark.
The seven largest oil majors have shown declining reserves of 1 and then 2 billion barrel equivalent
over the last two years – this may be purely price related, but I'm not so sure especially with
BP, Shell and Chevron looking to sell assets, also I don't have the figures but I'd guess that
they have lost more in oil reserves as some of their big finds have been for gas.
To ramp up of production is going to be dependent on a work force which was aging and retiring
in 2014 and now has been decimated by layoffs and recruitment cut backs. Increasing prominence
of environmental issues may hinder both future recruitment efforts and the pace at which projects
can be developed. Significant new oil, including reserve growth, has to come from deep water –
those rigs are complicated and very expensive to run, a lot are currently being stacked.
Ramp up also needs the main stakeholders to regain their acceptance of financial risk, which
is currently as low as I can remember, and significantly higher sustained prices. The other side
to the equation for prices is demand. The world economy doesn't look great to me, we're due a
recession based on approximate 8 year cycles, TPTB have chucked everything but the kitchen sink
at it and industrial output is definitely in decline or growing only slowly (I don't know how
energy use is split for service versus manufacturing but I'd guess it's of smaller relative importance
in the service sector). A relatively small oil price increase might be enough to kick a recession
off properly.
Hubbert Linearization of C+C less oil sands suggests about 2500 Gb for a URR, in the past this
method has tended to underestimate the URR, we have produced about half of this so far. There
is also about 600 Gb of URR in the oil sands of Canada and Venezuela. The USGS estimates TRR of
C+C less oil sands at about 3100 Gb, I use the average of the HL estimate and USGS estimate with
a URR of 2800 for C+C less oil sands and oil sands URR of 600 Gb. Total C+C URR is 3400 Gb in
my medium scenario. If extraction rates continue to grow at the rate of the past 6 years and then
level off we get the scenario below.
Model based on Webhubbletelescope's Oil Shock Model.
I personally believe Saudi Arabia's oil production strategy since 2014 has 3 pillars:
1. Maintaining market share: This is Saudi Arabia's primary asset – the ability to exert power
over other countries via its oil supply. Saudi Arabia has the power to cripple rivals by flooding
the market, and can also cripple OECD countries by limiting supply. Without the PERCEPTION that
this is true Saudi Arabia's only genuine political leverage evaporates.
2. Group Think: The behavior of the new Saudi King Salman, the revolt within the Royal Family
as a result of his policies, and the breaking of tradition to name his "ambitious" 31 year old
son as the heir apparent all suggest a breakdown of technocratic, informed policy. Say what you
will about Saudi Arabia, but its political structure was technocratic until January 2015. Since
then I believe there is a significant influence of Group Think, and there's consensus that the
young son if currently deciding policy, and often chooses against the advice of experienced council.
This 31 year old who doesn't listen to expert advice, who has caused a revolt within the House
of Saud, may very well believe that Saudi oil fields can produce any quantity of oil, for however
long he demands without consequence or depletion issues. It's important to note that the previous
King and Council decided on the current "market share" strategy, and deep animosity toward Iran
as it re-enters the market may influence SA's strategy to their own detriment.
3. There were several long-term projects such as Manifa and Khurais that were coming online
regardless of a glut. These mega-projects were guaranteed to put a floor under production numbers.
In concert with the sustained high rig counts to win the "maintain market share" strategy SA's
production reached record levels.
It is important to note that it took a truly herculean effort, record rig counts, and re-developing
several mathbolled fields to raise production from 9.5 mbpd in 2008 to 10.25 mbpd in 2015. They
threw in the kitchen sink and got 750,000 bpd of extra production.
That is telling in and of itself.
SA has followed an explicit strategy of maintaining market share i.e. producing every barrel
they possibly can. SA took on a multi-year effort to push their production as high as possible.
We now know SA's maximum possible production, and the incredible effort required to maintain it.
I personally do not believe SA will ever be capable of producing 11 mbpd.
It is not at all unknown for an aggressive minded political leader to bite off more than he can
chew, and choke on it, due to being unwilling to listen to expert advice.
Hitler almost for sure could have won a substantial empire and Germany could probably have
kept control of it for a quite a long time, if he had been ten percent as talented in military
terms as he was in political terms ( not to mention being a world class evil character of course)
IF he had LISTENED to his very capable senior military guys.
Brian is probably right. This young SA guy, King Salman , may be in the process of making the
same mistake, namely failing to listen to his technical guys.
Even if Salman realizes he is not going to be able to increase production much if any, or even
maintain it at current levels mid to long term, he may still be full of testosterone, and willing
to bet his kingship, and potentially his entire country, on his current policies.
It is well known, a trusim or cliche, that one of the best ways a leader in trouble can maintain
and consolidate his power is to go to war, and SA is (obviously in the opinion of many observers
) fighting an economic war with rival oil producing countries.
I have long believed that SA is a powder keg awaiting a spark. One serious mistake on the part
of the leadership could set it off. One random event could set it off. The House of Saud has made
many a bargain with the devil in the guise of the super conservative priesthood which enables
it ( SO FAR! ) to maintain control of the country without resorting to the business end of rifles.
Radical change is coming to SA, because it information moves too freely in the modern world
to keep the people in the dark much longer. Too many privileged young folks are traveling, and
doing to suit themselves, and too many poor people are growing more radical by the day. Too many
outsiders are working in the country.
If it weren't for oil, and to a much lesser extent, some other mineral wealth, the rest of
the world would barely notice even the existence of that mostly desolate patch of sand.
This is purely anecdotal. For the past three years, we have rented our unused bedrooms to several
Saudi students, here to study in the US. They first go to a language school, and then on to a
university. In just this brief time, they speak of the Saudi government no longer footing the
bill for this. This means that the student's families must send money. For some, this is clearly
not a problem, but for many it is.
The young guy is Mohammed bin Salman, second in line to the throne last I looked, Defense Minister,
in charge of an overlook body for Saudi Aramco, and other things. He may, as you say, not be listening
to his technical advisors–may in fact be a loose cannon–and he is widely considered to be the
power behind the throne.
He isn't the king, though. That's Salman himself, and he is often said not always to know where
he is or what he has just said. Scary situation there, you bet.
There was an interesting documentary on Saudi Arabia last night on Frontline.
Lots of Saudis living in poverty, women begging in the street to feed their families, while
very nice cars drive by. Shiite minorities in the eastern (oil-producing) region protesting and
being repressed by the government.
There was hidden-camera footage inside a shopping mall - much like a mall in the US, with a
Cinnabon, Victoria's Secret, high-end makeup counter, etc, but very few people. But what the mall
also had was religious police beating people who buy the stuff, and it showed them beating what
appeared to be a plump middle-aged housewife, covered head-to-toe in a black burqa, who was buying
makeup. So the government is simultaneously allowing the mall to sell this stuff and paying religious
police to beat those who buy it.
It very much looked like a powder keg that could blow at any time.
Frontline documentaries are a personal favorite of mine. Always stellar, genuine investigative
news journalism. Even on subjects I think I am fairly knowledgeable about I always come away having
learned a lot.
It is 2nd only to Ken Burns' documentaries, but it's hard to compare since his documentaries
are history documentaries and Frontline is investigative news.
"... The last few years have shown declining oil discoveries since 2010. What has been found is more often than not deep water and relatively small. Such fields generally have short plateaus and steep decline rates (not much better of those seen in LTO for fields less than about 150 million barrels). The larger basins found offshore have been in the 5 to 10 mmboe range rather than around 50 found in the earlier days. ..."
"... There has been a noticeable reduction in development times for projects in GoM and North Sea in recent years from around 7 years down to as low as 3. That to me indicates a dearth of good, large projects to choose from. ..."
In terms of a C&C peak pushed out for 10 years my question would be "Where's the oil?" even at
$120 per barrel.
Apologies that the following is too long, with no charts for many (or any) to read all the
way but some parts may be of interest.
The last few years have shown declining oil discoveries since 2010. What has been found is
more often than not deep water and relatively small. Such fields generally have short plateaus
and steep decline rates (not much better of those seen in LTO for fields less than about 150 million
barrels). The larger basins found offshore have been in the 5 to 10 mmboe range rather than around
50 found in the earlier days.
I don't have access to IHS or Rystad databases but picking amongst recent press releases I'd
say 2013 was about eight billion, 2014 nine or so and 2015 four or five. This year maybe only
three discoveries with a significant amount of oil – Kuwait might be significant. More gas than
oil is being found
There has been a noticeable reduction in development times for projects in GoM and North Sea
in recent years from around 7 years down to as low as 3. That to me indicates a dearth of good,
large projects to choose from.
Of some of the main producers:
Saudi; 50% increase in rig count since 2012 to keep production just about steady, announced
"the most fields discovered" in 2012 or 2013 but a combination of oil and gas and they didn't
give quantities, have spoken of developing tight gas and solar to allow increased oil exports.
Russia; some conflicting announcements but it looks like a decline next year, largest recent
find was by Repsol at about 240 mmboe. Sanctions have had an impact and may continue to do so,
especially offshore.
http://uk.reuters.com/article/uk-russia-oil-rosneft-idUKKCN0WV1I3
Canada; very little drilling activity, four fields coming on over the next 2 to 3 years will
add up to 400,000 bpd, but then nothing planned and at least 4 year lead times for tar sands projects.
Tar sands projects have long plateaus but it appears some of the earliest mining operations are
starting to see thinner seams so decline will become more evident.
Brazil; cut backs in developments and may start to decline next year, they have mostly deep
water production with high decline rates and rely on continuous stream of new projects to maintain
production – the oil price, 'carwash' scandal, debt/bankruptcy problems and (maybe) just running
out of suitable projects have stopped this, expect 6 to 10% decline through 2017.
http://oilprice.com/Energy/Crude-Oil/Future-Of-Brazils-Oil-Industry-In-Serious-Doubt.html
USA; discussed a lot here, some expansion in GoM through 2017, unknown response to LTO drillers
depending on price and credit availability, liquids from gas have been another significant and
rapid boost to production recently which EIA indicate are still rising (mostly for NGLs), but
surely must run out of steam sometime soon. Possibly some shut in stripper wells won't be worth
restarting.
http://www.theenergycollective.com/u-s-production-of-hydrocarbon-gas-liquids-expected-to-increase-through-2017/
China; reliant on EOR recently to maintain plateau (including a lot of steam flood from the
EIA report) but predicting 5% decline next year, no great success on offshore discoveries.
North Sea; saw a spate of projects recently, mostly heavy oil, with a few more to come over
the next two years and then Johan Sverdrup and Johan Castberg but these only delay decline for
2 or 3 years, recent discoveries especially in UK sector have been very poor.
Offshore Africa; Nigeria and Angola have a number of projects this year and next ( a bit more
oil than gas), but after that I'm not clear, political unrest might be particularly important
here as well. That said recent exploration success has been relatively good in Africa overall
(e.g. Kenya, Ghana).
http://www.offshore-technology.com/projects/region/africa/
Venezuela; not sure if their numbers can be trusted but they seem to be in decline, I know
little of their particular technical issues but assume that in order to increase extra heavy oil
production they would need new upgraders and possibly a source of natural gas, like Canada, and
possibly dedicated refineries to handle the heavy metal content (and assuming they can find willing
creditors and EPC partners).
Iran and, possibly, Iraq and Kuwait look like the only likely areas that can show some increase,
but Iran is developing South Pars gas field more than oil and Iraq/Kurdistan might have run out
of impetus. Burgan field in Kuwait looks in better shape than other aging super giants and Kuwait
has an active exploration and development program. And of course maybe US LTO takes off again,
$80 appears a threshold but that is for WTI, ND oil has a $10 discount, the lighter LTO oil everywhere
may be lower still and overall away from the sweet spots above $100 might be nearer the mark.
The seven largest oil majors have shown declining reserves of 1 and then 2 billion barrel equivalent
over the last two years – this may be purely price related, but I'm not so sure especially with
BP, Shell and Chevron looking to sell assets, also I don't have the figures but I'd guess that
they have lost more in oil reserves as some of their big finds have been for gas.
To ramp up of production is going to be dependent on a work force which was aging and retiring
in 2014 and now has been decimated by layoffs and recruitment cut backs. Increasing prominence
of environmental issues may hinder both future recruitment efforts and the pace at which projects
can be developed. Significant new oil, including reserve growth, has to come from deep water –
those rigs are complicated and very expensive to run, a lot are currently being stacked.
Ramp up also needs the main stakeholders to regain their acceptance of financial risk, which
is currently as low as I can remember, and significantly higher sustained prices. The other side
to the equation for prices is demand. The world economy doesn't look great to me, we're due a
recession based on approximate 8 year cycles, TPTB have chucked everything but the kitchen sink
at it and industrial output is definitely in decline or growing only slowly (I don't know how
energy use is split for service versus manufacturing but I'd guess it's of smaller relative importance
in the service sector). A relatively small oil price increase might be enough to kick a recession
off properly.
Hubbert Linearization of C+C less oil sands suggests about 2500 Gb for a URR, in the past this
method has tended to underestimate the URR, we have produced about half of this so far. There
is also about 600 Gb of URR in the oil sands of Canada and Venezuela. The USGS estimates TRR of
C+C less oil sands at about 3100 Gb, I use the average of the HL estimate and USGS estimate with
a URR of 2800 for C+C less oil sands and oil sands URR of 600 Gb. Total C+C URR is 3400 Gb in
my medium scenario. If extraction rates continue to grow at the rate of the past 6 years and then
level off we get the scenario below.
Model based on Webhubbletelescope's Oil Shock Model.
"... Any forecasts of oil (and gas) demand/supplies and oil price trajectories are NOT very helpful if they do not incorporate forecasts for changes to total global credit/debt, interest rates and developments to consumers'/societies' affordability. ..."
Any forecasts of oil (and gas) demand/supplies and oil price trajectories are NOT very
helpful if they do not incorporate forecasts for changes to total global credit/debt, interest rates
and developments to consumers'/societies' affordability.
The permanence of the global supply overhang could be prolonged if consumption/demand developments
soften/weakens and it is not possible to rule out a near term decline.
Recent demand/consumption data for total US petroleum products supplied show signs of saturation
which provides headwinds for any upwards movements in the oil price.
While prices were high many oil companies went deeper into debt in a bid to increase production
of costlier oil. Many responded to the price collapse with attempts to sustain/grow production
in efforts to moderate cash flow declines and thus ease debt service.
If the forward [futures] curve moves from a present weak contango (ref also figure
02) to backwardation, this would erode support for the oil price.
Some suggest that growth from India will take over as China's growth slows.
Looking at the data from the Bank for International Settlements (BIS) there is nothing there that
now suggests India (refer also figure 05) has started to accelerate its debt expansion.
The Indian Rupee has depreciated versus the US dollar, thus offsetting some of the stimulative
consumption effects from a lower oil price.
The recent weeks oil price volatility has likely been influenced by several factors like short
squeezes, rumors and fluid sentiments.
Near term factors that likely will move the oil price higher.
Continued growth in debt primarily in China and the US. {This will go on until
it cannot!}
Another round with concerted efforts of the major central banks with lower interest rates
and quantitative easing.
"... Your prediction looks sensible to me. A few years with oil prices below $70/b will reduce supply, let's say until 2018, then maybe by 2019 oil prices rise to $100/b or more, if they remained under $125/b for 5 years (and more than $100/b) the World might be able to muddle along at slow growth of 1% to 2%, but that scenario does seem far fetched. ..."
Loooong is less than 100 years, but several years. Several years
with oil prices, say below $70/b, will affect the supply side.
In this context a sustained oil price [$100+/b] lasts more than 5
years.
Sorry, I think it is difficult to be more precise as everything
increasingly now seems to become fluid.
I appreciate your answer, that clarifies your statement
a lot. I agree predictions in this environment are difficult,
yours would be much better than mine, in my opinion.
Your prediction looks sensible to me. A few years with
oil prices below $70/b will reduce supply, let's say until 2018,
then maybe by 2019 oil prices rise to $100/b or more, if they
remained under $125/b for 5 years (and more than $100/b) the
World might be able to muddle along at slow growth of 1% to 2%,
but that scenario does seem far fetched.
More likely is a spike in oil prices by 2022 or sooner to
over $150/b (2016$) and then a severe recession within a year or
two which will bring oil prices below $100/b.
This may not be what you have in mind, but it roughly matches
a few years under $100/b and less than 5 years at more than
$100/b and seems moderately plausible, at least to me.
Lenders to the oil and gas industry have been extraordinarily lenient
amid the worst downturn in decades,
allowing indebted companies
to survive a little while longer in hopes of a rebound in oil prices. But
the screws are set to tighten just a bit more as the periodic credit
redetermination period finishes up.
Banks reassess their credit lines to oil and gas firms twice a year,
once in the spring and once in the fall. While the lending arrangements
vary from bank to bank and from borrower to borrower, lenders largely
punted
on both redetermination periods last year, providing a grace
period for drillers to wait out the bust in prices. But oil prices have
not rebounded much since the original crash in late 2014.
Time could run out for companies that have been hanging on by
a thread.
Debt was not seen as a big problem in the past, as triple-digit oil
prices had both lenders and borrowers eager to see drilling accelerate
and spread to new frontiers. Indeed, debt rose even when oil prices
exceeded $100 per barrel. According to The Wall Street Journal,
the
net debt
of publically-listed global oil and gas companies grew
threefold over the past decade
, hitting a high of $549 billion
last year. In fact, debt accumulated in the sector at a faster rate
between 2012 and 2015 – a period when oil prices were exceptionally high
– than in previous years.
With oil prices down more than 60 percent from the 2014 peak, piling
on ever more debt to a loss-making operation looks increasingly
untenable.
Distressed energy loans – loans in danger of default –
account for
more than half
of the energy portfolio at several major banks.
"When oil was at $100 a barrel, debt was easy to get," Simon Thomson,
CEO of Cairn Energy, told the WSJ in an interview.
"What
we're seeing today is a number of people suffering the hangover of having
secured that debt and now possibly having trouble servicing it."
About 51 oil and gas companies from North America have filed for
bankruptcy since early 2015, but there are 175 more that are in danger of
not being able to meet debt payments. For context, 62 oil and gas
companies fell into bankruptcy during the financial crisis in 2008 and
2009.
Companies struggling with debt payments and shrinking revenue could
see the taps shut off or at least reduced.
Some analysts see cuts
to credit lines on the order of 20 to 30 percent.
Whiting Petroleum, for instance,
announced
in early March that its credit line would be slashed by
more than $1 billion, a reduction that could be one of the industry's
largest. Whiting had a $2.7 billion loan revolver at the end of 2015, and
the company's CEO expects to have "at least $1.5 billion" left after this
spring redetermination.
Regulators are also pressing banks for more scrutiny, and lenders are
increasingly using the metric of classifying loans to companies with debt
exceeding four times EBITDA as "substandard" or lower. According to
Oil & Gas 360
,
banks are moving loans with a debt-to-EBITDA
ratio exceeding 4x to their workout units.
"This has the makings of a gigantic funding crisis,"
the head of Deloitte's restructuring department, William Snyder, told the
WSJ.
Oil & Gas 360 says that banks are also marketing their troubled debt
to hedge funds, marking down distressed debt to cents on the dollars.
Hedge funds could buy up discounted debt in hopes of repayment.
Meanwhile, although the credit markets are squeezing drillers,
equity markets remain open, at least to some.
Reuters
reported
last week that about 15 companies have announced new equity
offerings in 2016, and most have not been adversely impacted. Most of the
15 companies issuing new stock have performed better than an oil and gas
producer index by about 3 percent on average. Of course, only relatively
strong firms have decided that the equity markets would be open to them.
Around $10 billion in fresh equity has been issued so far this year.
The credit redeterminations are currently wrapping up and the
details of many of them could soon be released.
The deeper banks
cut their credit facilities, the more likely struggling oil and gas
companies could be forced into bankruptcy.
So basically Yellen is behind the scenes sucking off bankers to
hold off on O&G companies. I'm guessing we will get some sort of QE
plan starting by June whereby the FRB will buy up the loans off the
banks books. It has to be soon as mark-to-market is actually going to
be implimented again...well until TPTB find out how shitty the books
and market are, then be promptly suspended again.
Any good insider sources for bank lending exposure in O&G? I have a
good friend at a major bank who swears most of the majors have
syndicated or otherwise laid off almost all of their risk.
Just another demonstration of the failures of "free market"
economics. Sound companies MUST borrow as much as they can get their
hands on, in order to withstand competitors who borrow and spend on
rapid growth. He who lags last, no matter how sound his management,
is eliminated from the competition by those who get bigger feeding on
funny money. Then the funny money goes away and the entire industry
collapses. Big Banking eventually destroys any industry they touch,
but it's always blamed on wayward executives and mismanagement. In
fact the system forces management to make decisions which are
guaranteed to be unsound in the long term, in order to assure
short-term survival (and the size of their own retirement funds for
when it all goes bust).
Strict banking regulation is a NECESSARY component of any
large-scale market, as nations from ancient Babylon to Ancien Regime
France have proven, each in their own ways. It's not optional;
failure to keep bankers in their places leads to economic collapse
each and every time it's tried, while well-regulated nations such as
Ptolomaic Egypt or Tokugawa Japan are stable and prosperous.
For just and obvious reasons, it's illegal under U.S. law for
foreign governments to finance individual candidates or political
parties.
Unfortunately, this doesn't stop them from
bribing politicians and bureaucrats using other opaque channels.
About half of the oil produced in the continental United States last year
came from wells drilled after January 2014,
according to the U.S. Energy Information Administration. The data
provides insight into the importance of short-cycle shale production and
advances in oil industry technologies.
Many companies are targeting
short-cycle investments, lower-cost projects that take months, rather
than years, to come online.
... ... ...
With a large number of short-cycle wells, the EIA expects average U.S. production to fall
7.4 percent in 2016 – about 700,000 barrels a day. Despite an increase in shale oil
production during the past few years, individual wells have steep decline rates, losing
nearly 70 percent of initial production in the first year.
Those confirmed so far are Saudi Arabia, Russia, Kuwait, the United Arab Emirates, Venezuela,
Nigeria, Algeria, Indonesia, Ecuador, Bahrain, Oman and Qatar.
The collapse in oil prices has demolished investment in new projects,
the results of which will be felt in the 2018 to 2021 timeframe, due to
multiyear lead times
Oil production in the UK actually
increased a bit in 2015, after about two decades of steady declines.
The additional 100,000 barrels per day came from new offshore oil projects
that were initiated in 2012 when oil prices were much higher, plus extra
oil squeezed out from existing fields.
The collapse in oil prices has demolished investment in new projects,
the results of which will be felt in the 2018 to 2021 timeframe, due to
multiyear lead times. The number of new projects greenlighted in 2015 was
less than half of the level seen in 2013 and 2014.
As a result, beginning in 2018, the UK could see more severe production
declines.
Oil prices have hovered at $40 per barrel for much of the last week, as the
markets try to avoid falling back after the strong rally since February.
Investors
see shale production falling and demand continuing to rise, which point to the
ongoing oil market balancing.
But it is unclear at this point if the rally from
$27 per barrel in February to today's price just below $40 per barrel is here
to stay. Fundamentals, while trending in the right direction, are still weak.
India consumed 4.2 million barrels per day (mb/d) in 2016, overtaking Japan as the world's third largest oil consumer. The Indian
government is hoping to incentivize domestic oil production to help meet rising demand.
Sub-$40 oil claimed more than 1,100 jobs across Texas in recent weeks, the Texas Workforce Commission
detailed on Tuesday.
The lost jobs included 500 jobs in Harris County at international supermajor BP, 608 positions
at the tank car division of Trinity Rail in Gregg and Harrison counties in East Texas, 60 jobs at
Cudd Energy Services in Bexar County and 65 at Rotary Drilling Tools in Fort Bend County.
BP spokesman Jason Ryan said the cuts were part of the about 4,000 upstream jobs its plans to eliminate
in 2016. The company is also aiming to trim about 3,000 downstream jobs by the end of 2017.
... ... ...
BP has taken around $1.5 billion in restructuring charges over the past five quarters and expects
the total to approach $2.5 billion by the end of 2016. The company has also sold $10 billion in assets
since October 2013 and plans to sell an additional $3-5 billion during 2016.
Overall, the company said it has lowered the cash costs its controls by $3.4 billion in 2015 compared
to 2014, and said it expects to hit $7 billion in savings by 2017.
Mar 29, 2016
Allen Kitchen
So why has the price of Gas shot up so much in the last couple of weeks? 50% jump while the
price of the oil is unchanged?
Refineries are switching to summer blend. Typical this time of the year. It will peak around
Memorial Day, if no other purprises. Be grateful it's still under $2.
Science-liberation For-all
Typical corporate America earning record profits but laying off people. These people getting
layoffs are the same that vote republican so no real sympathy.
"... The problem for the international community is while destroying ISIS is their stated priority, both Libya's rival camps see each other as the greater threat. ISIS is a threat, but neither camp believes it is an existential threat, so the priority for both camps is fighting each other. ..."
The problem for the international community is while destroying ISIS is their stated priority,
both Libya's rival camps see each other as the greater threat. ISIS is a threat, but neither camp
believes it is an existential threat, so the priority for both camps is fighting each other.
Props to
Saudi Arabia.
Unlike other producers, including U.S. shale
producers, it maintained financial strength and flexibility during the
last boom.
When it began to shift the paradigm of global supply,
the kingdom was explicit about its goal - market share - even if it
didn't always trumpet the proactive steps it was taking towards that
goal.
The now-evident objective of low prices, having been
achieved and sustained, begs the question of why Saudi Arabia defended
its market share.
The position of Saudi Arabia among producers in 2014 resembled
the position of Germany in the European Union in prior years.
Both had maintained financial strength despite the prodigal habits of
other members, and both were called upon to make unique sacrifices to
rescue their neighbors. Germany had closer ties to its partners and
seemed to see the ultimate benefit of helping. Perhaps because it didn't
have such ties, Saudi seems to have weighed the benefits differently.
Indeed, Saudi had no moral obligation or economic need to
sacrifice itself in order to redirect wealth to other producers.
Their actions suggest that they
intended to drive prices toward a basement price
-stepping supply up
when prices reached the $60s, slowly tuning it down when prices hit the
$40s and below, and increasing its capacity for production even as prices
fell. The recent address of Saudi Oil Minister Ali Al-Naimi in Houston
was straightforward and polite, but it might be crudely paraphrased as,
"Get used to the low prices. Adapt or die."
The possibility of his bluffing is belied by historical
actions.
As recently as Monday, the OPEC report on monthly
volumes showed the kingdom continuing to produce more than half a million
barrels a day above its rates in late 2014.
Saudi Arabia has had
the will and means to drive prices, giving market forces some push.
As oil has been its only resource and industry of value, the kingdom
has treated the business as the treasure that it is.
The
centuries-long fate of the royal family and its kingdom depends upon how
they manage themselves during the era of oil, particularly the epoch of
increasing demand.
Surely, the highly intelligent, disciplined
and motivated planners knew the short-term consequences of the actions
which the rest of the world is just beginning to appreciate fully.
And even last month, Minister Al-Naimi professed the acceptability of $20
oil.
Normally the benefit of market share is obvious-increased
revenue and increased performance.
This assumes, however, stable
prices and economies of scale. If one maintains market share, or even
gains a few percent, but prices drop by 50 or 70 percent, then revenue
drops to half or a third of what it had been. Said differently, the
Saudis could have absorbed all of the increasing production from the rest
of the world, dropped their production by half to about 5 million barrels
per day (mb/d) and still have had the same or more revenue than they have
enjoyed during this transition.
Market share is not its own
reward. Evidently Saudi Arabia has some strategic plan that results in
its making more money in the long run than it is losing in the short run.
Perhaps the Saudis view 'market share' not just in terms of
oil production but in terms of total energy use.
By 2014 shale
oil had posted an acute rise in supply, and other high-cost sources like
oil sands were building momentum. Natural gas and renewables were
tracking their own, chronic ascent. Moreover, the high cost of oil
created incentives toward alternatives, both unconventional oil and
non-oil forms, and global demand growth for liquid oil was forecast to
grow below historical trends due to conservation and lesser economic
activity. Minister Al-Naimi has said that oil demand would peak long
before supply.
Before the current price crash, that peak demand
was within sight, perhaps 2040 give or take a decade. High prices were
slowly killing the goose that lays the golden eggs.
If the strategic focus on market share does not involve increased
revenue or efficiencies,
then the market power is the only
compelling explanation for the strategy.
With power they can
perhaps maximize their own decades-long revenue stream rather than
passively treat their national treasure as a cash cow, perhaps exerting
some control over their own destiny rather than ceding to less
economically rational sources.
The new paradigm of supply/demand balance seems to have at least two
major tenants:
Price should be low enough to discourage
run-away supply and perhaps to encourage the use of oil.
Saudi Arabia may cooperate but will not unilaterally support prices.
Around these pillars are two routes back to prices which can sustain
long-term supply: slow rebalancing as supply slides and demand creeps,
with cooperation for widespread cuts. Or prices could recover by a
challenge to the new paradigm, namely conflict to threaten or to
interrupt even a small portion of supply.
A freeze in production growth as headlined in the last month
would be a mostly irrelevant step on the first route or a minor step
towards the second route.
The large majority of OPEC production
comes from countries not able or not inclined to increase production.
With Iran still adamantly and publicly opposed, the idea of a freeze in
supply growth is more publicity than policy change. Perhaps the most
important take-away is that Saudi Arabia has signaled that its floor
price is somewhere above $30.
Even if cooperation cannot be achieved, the rest of the world
may not remain a hapless victim of Arabian pricing power.
Oil
consumers may appreciate the drop, but countries like Russia and Iran do
not. T
hey also have motives and objectives similar to those
of Saudi Arabia; they desperately need oil revenue. Only they have
different forms of power at their disposal to influence oil price.
We have seen before that the numbers provided for production do not
match the numbers for oil in storage. There is less oil in storage
than there should be if the production numbers were true. What Saudi
Arabia is doing is they tell the world they are producing a certain
amount and they actually produce much less. They get to slam the
price of oil down as everyone goes off the headline numbers of massive
production growth but in truth Saudi Arabia keeps their real oil for
after their competitors go out of business and the price of oil goes
back up. There was an article on ZH about the differences in
Production and Storage numbers and "no one" can figure out what is
happening. Saudi Arabia is playing chess on the oil fields.
Russia's oil output hit a post-Soviet record of 10.9 mb/d in January 2016, but that could be a
ceiling as the country's massive oil fields face decline. The bulk of Russia's oil output
comes from its aging West Siberian fields, which require ever more investment just to keep output
stable. The depreciation of the ruble has helped a bit, lowering the real cost of spending on
production and allowing Russian companies to increase investment by one-third this year. However,
some long-term projects are being pushed off due to the financial squeeze from western sanctions
and low oil prices. An estimated 29 projects, amounting to 500,000 barrels per day in new
production, have been delayed. With most of Russia's large oil fields having been under
production since the Soviet era, and with precious few new sources of supply, Russia is facing
long-term decline.
Short sellers have begun
targeting Texas banks with ties to the energy industry, betting that damaged oil and gas
drillers will impair their lenders as well. Short bets on regional banks in Texas increased by 35
percent so far this year. Energy loans typically make up only a small portion of most banks'
lending portfolio. But for banks where energy makes up more than 4 percent of their portfolio,
their share prices have plunged more than 22 percent.
"... "There is a clear risk for a pull-back in Brent crude oil with a return to deeper contango again. Long positioning in Brent is at record high and vulnerable for a bearish repositioning." ..."
"... Barclays said in a note on Monday net flows into commodities totaled more than $20 billion in January-February, the strongest start to a year since 2011, and prices could fall 20 to 25 percent if that were reversed. ..."
OPEC and other major suppliers, including Russia, are to meet on April 17 in Doha to discuss
an output freeze aimed at bolstering prices.
But with ballooning global inventories, signs some OPEC members are losing market share, plus
little evidence of a strong pick-up in demand, analysts said oil is likely to trade in a range.
"There is a rebalancing on the way, but we are still running a surplus and stocks are building up
as far as we can see," SEB commodities analyst Bjarne Schieldrop said.
"There is a clear risk for a pull-back in Brent crude oil with a return to deeper contango
again. Long positioning in Brent is at record high and vulnerable for a bearish repositioning."
Data on Monday from the InterContinental Exchange showed speculators hold the largest net long
position in Brent futures on record. [O/ICE]
U.S. commercial crude oil stockpiles were expected to have reached record highs for a seventh
straight week, while refined product inventories likely fell, a preliminary Reuters survey showed
late on Monday.
Barclays said in a note on Monday net flows into commodities totaled more than $20 billion in
January-February, the strongest start to a year since 2011, and prices could fall 20 to 25
percent if that were reversed.
While the recent surge of oil seems to have run into a wall at $40, one thing seems to be in
place. The market lows appear to have been put in with the drop into the mid-$20s and subsequent
bounce back, and at least one top firm we cover here at 24/7 Wall St. thinks the low for the
cycle is in.
A new Jefferies research note says that for the first time in history global capital expenditures
in the energy industry will have fallen for two consecutive years. In addition, a combination of
demand growth and non-OPEC production declines could very well set the stage for a $50 price
handle by the end of this year.
"... But Saudi Arabia is also prioritizing refined product exports, which fetch higher prices. It hopes to double refining capacity to 10 mb/d. Additionally, while Saudi Arabia may have lost market share in some places, it is also taking stakes in large refineries around the world, helping it to lock in customers for its crude. ..."
Over the past three years, Saudi Arabia has lost market share in nine out of the top 15 countries
to which it exports oil, according to the
FT. That comes despite a ramp up in production since November 2014. For example, Saudi Arabia's
share of China's oil imports declined from 19 percent in 2013 to near 15 percent in 2015. Likewise,
Saudi Arabia saw its market share in the U.S. drop from 17 to 14 percent over the same timeframe.
But Saudi Arabia is also prioritizing refined product exports, which fetch higher prices. It hopes
to double refining capacity to 10 mb/d. Additionally, while Saudi Arabia may have lost market share
in some places, it is also taking stakes in large refineries around the world, helping it to lock
in customers for its crude.
Meanwhile, according to the latest data, Saudi Arabia's cash reserves
dwindled to $584 billion as of February as the oil kingdom tries to keep its economy afloat and
preserve its currency. That is down from a peak of $737 billion in August 2014.
"... Iraq war and its aftermath failed to stop the beginning of peak oil in 2005 ..."
"... I think the Iraq war was instigated by an alliance of neocon/Israel lobby plus oil/service company and weapons complex interests. But the overriding interest seems to have been the neocon strategy to get the USA tangled in Middle East wars. This in turn would weaken Israel's enemies and increase animosity between the Muslim and Christian worlds. Such animosity plays very well if it leads to all out war between "the West" and Muslims. As long as the USA keeps behaving as an Israeli puppet the conflict will intensify. ..."
"... What I outlined above is a distilled version of writings/books by former CIA analyst Michael Scheuer, former CIA operatives, and books such as "Fiasco" by Thomas E. Ricks. I've also incorporated recent material written about ISIS and its birthing at the US Army's Camp Bucca. ..."
I think the Iraq war was instigated by an alliance of neocon/Israel lobby plus oil/service company
and weapons complex interests. But the overriding interest seems to have been the neocon strategy
to get the USA tangled in Middle East wars. This in turn would weaken Israel's enemies and increase
animosity between the Muslim and Christian worlds. Such animosity plays very well if it leads
to all out war between "the West" and Muslims. As long as the USA keeps behaving as an Israeli
puppet the conflict will intensify.
What I outlined above is a distilled version of writings/books by former CIA analyst Michael
Scheuer, former CIA operatives, and books such as "Fiasco" by Thomas E. Ricks. I've also incorporated
recent material written about ISIS and its birthing at the US Army's Camp Bucca.
"... Oil production from the Eagle Ford shale basin in Texas was relatively unchanged in January, decreasing about 11,000 barrels per day (b/d), or less than 1%, vs. the previous month, the latest analysis showed. This marks the sixth month since June 2015 that the Eagle Ford shale has continued its trend of decline. Similarly, crude oil production in the North Dakota section of the Bakken shale formation of the Williston Basin dipped slightly. It was down 12,000 b/d, or just over 1%, on a month-over-month basis in January. This continued the trend of marginal decline that began last summer. ..."
"... "A number of major producers (outside the Northeast) have stated that they will reduce capital spending and cut their drilling programs significantly in some instances," said Yahya. "Those producers will have to complete their DUCs in order to sustain their production levels. Efficiency gains are not enough anymore to help keep production volumes afloat." ..."
"... I agree Eagle Ford output has declined, especially from March 2015 to August 2015. The rate of decline has slowed since then by a factor of 2. I agree that Texas output may not have increased in Jan, I think it was probably flat to down slightly from Dec 2015. ..."
The EIA has been underestimating oil production in Texas in 2015, and had to revise upwards its
numbers when it changed its methodology, which is now based on producers' surveys. I do not exclude
that the numbers for Texas production in 2015 can again be slightly revised, but:
I still think that there was a downward trend in EFS last year;
I doubt that production in the Eagle Ford and Texas in general has increased in January 2016.
Apart from the DPR, EIA regular monthly production statistics (based on producers' surveys); the
numbers from DrillingInfo (see one of my charts) and some other sources still show a declining trend.
This includes statistics from Bentek Energy (apologies for a long quote):
Report: Production in Bakken, Eagle Ford drops slightly in January
Production in the Eagle Ford and Bakken shale plays dropped slightly in January vs. December 2015,
according to Platts Bentek, an analytics and forecasting unit of Platts.
Oil production from the Eagle Ford shale basin in Texas was relatively unchanged in January,
decreasing about 11,000 barrels per day (b/d), or less than 1%, vs. the previous month, the latest
analysis showed. This marks the sixth month since June 2015 that the Eagle Ford shale has continued
its trend of decline. Similarly, crude oil production in the North Dakota section of the Bakken shale
formation of the Williston Basin dipped slightly. It was down 12,000 b/d, or just over 1%, on a month-over-month
basis in January. This continued the trend of marginal decline that began last summer.
The average oil production from the South Texas, Eagle Ford basin in January was 1.4 million barrels
per day. On a year-over-year basis, that was down about 200,000 barrels per day, or about 13%, from
January 2015, according to Sami Yahya, Platts Bentek energy analyst. The average crude oil production
from the North Dakota section of the Bakken in January was 1.2 million b/d, about 3% lower than year
ago levels, he said.
"Current internal rates of return in both the Eagle Ford and Bakken shales are weak, under 10%,"
said Yahya. "And producers need to continue generating cash flow for their operations. The number
of active rigs in those basins has gotten so low that it is almost a certainty that producers are
dipping into their inventory of drilled but uncompleted wells. Those wells are cheaper to complete
since the drilling costs are already sunk."
Yahya pointed to the new analysis conducted by Platts/Bentek of the drilled but uncompleted (DUC)
wells for many of the major shale basins. According to the results, current DUC inventories total
831 wells in the Williston Basin. In the Eagle Ford Basin, there are approximately 1,022 wells that
are awaiting completion. These figures refer to wells drilled between the start of 2014 and October
2015. These well inventories disregard more recent wells because of the difficulty in distinguishing
between wells that have been intentionally left uncompleted and wells that are simply in the process
of being completed.
"A number of major producers (outside the Northeast) have stated that they will reduce capital
spending and cut their drilling programs significantly in some instances," said Yahya. "Those producers
will have to complete their DUCs in order to sustain their production levels. Efficiency gains are
not enough anymore to help keep production volumes afloat."
It is important to not that the discrepancy between various estimates of oil production in the
Eagle Ford is partly due to differences in the geographical area included in EFS.
The number of Texas counties included in EFS area varies from 14 to 30.
I agree Eagle Ford output has declined, especially from March 2015 to August 2015. The
rate of decline has slowed since then by a factor of 2. I agree that Texas output may not have
increased in Jan, I think it was probably flat to down slightly from Dec 2015.
First month delinquent leases dropped from 9048 in NOV to 5014 by January 16. Second month delinquent
leases dropped from 1292 for Oct 15 to 817 for Dec 15.
Texas seems to be doing something to get the data in quicker. This may mean that the reported
increase is due to better reporting of declining production. It is hard to say without a lease
by lease analysis.
The drop in Eagle Ford oil output, when we account for incomplete data is from about 1300 kb/d
in March 2015 to 1140 kb/d in Aug 2015, since then the decline has been modest to about 1070 kb/d
by Nov 2015. I used your awesome website to get the RRC numbers for the Eagle Ford and then assumed
the amount of "missing" data is uniform throughout Texas, the assumption may not be valid. When
I have used this method in the past it has given fairly good estimates. The estimate actually
matches the DPR estimate fairly well through Nov 2015. The December and January estimates are
higher than the DPR, based on my Eagle Ford Model, I think the DPR estimate is too low. Time will
tell.
The numbers for Eagle Ford are slightly lower than in the DPR, as the DPR data includes some
conventional production in the "Eagle Ford region". Both sources show a visible declining trend
in output from the peak in March 2015.
The EIA/DrillingInfo estimate for January 2016 is 1230.3 kb/d vs. 1332.5 kb/d in the latest
issue of the DPR.
Hey guys, Kind of busy right now, but taking a quick look.
I suggest comparing specific company EFS production on the RRC site to what is reported in
the company's 2015 10K's and/or press releases.
For example, I took a quick look at MRO's 10K and press release. They break down production
by region and have EFS broken out separately.
Two issues to keep in mind. First, the production amounts in the 10K, etc are net of royalties.
Second, hard to know how many company operated wells have non-operated working interest owners,
plus how many non-operated working interests they own that would show up under a different operator
on RRC website.
However, comparing 10K/press release to RRC data may offer some clues. Also, companies typically
report number of completions by area/basin also. Could compare to RRC data also.
The LTO production drop appears to offset the offshore project increases forecasted for 2016.
Remember the EIA forecasts from last year? They were forecasting beefier USA production, weren't
they?
I'll be damned, I could swear that plot you show confirms my point. Thus far it sure looks like
the offshore won't make up the losses, 2016 will be down about 0.5 mmbopd versus 2015. Time will
tell if it can reverse the decline. It depends on the oil price later this year, I suppose.
Through quarter 1 of 2016 Fernando's statement is roughly correct, remember that all forecasts
tend to be incorrect.
Chart below has a revised Eagle Ford model using data from Enno's website to construct a well
profile used from July 2014 forward, I used my old well profile for Jan 2010 to June 2014. From
Jan 2016 to Dec 2016 the model assumes 146 new wells are completed per month. The 2014 well profile
was used for first 25 months and then the old well profile from months 26 to 139. EUR is 131 kb
at 24 months, 173 kb at 60 months and 209 kb at 139 months when the well is shut in at 10 b/d.
Latest rig count : 37
Even if the rig efficiency improved over the last year, like we've seen in the Bakken, say to
1.5, that would still be a far cry from 146.
There are DUCs. The rig count can increase.
What is your estimate for wells completed in 2016?
I have tended to underestimate, I agree 146 may be optimistic but over 200 wells were added
to the schedule in February 2016. There have been times when wells completed were 2x the rigs
I have no clue, but I expect it to be << 146 wells/month.
One indication is EOG :
In 2016, "
EOG plans to complete approximately 150 net wells in the Eagle Ford, compared to 329 net wells
completed in 2015″
EOGs output (not corrected for net revenue interest) was a little over 20% of EFs output in
October. As a very simple rough estimate I therefore would take something like 5 * 150 = 750 wells
= just over 60 wells / month. So, somewhere between 40 – 90 wells / month?
the chart below shows that the number of well completions in the Eagle Ford in December 2015
was around 125.
Since then, the rig count dropped significantly.
The number of well completions may have not declined as much due to the DUCs. But 146 completions
on average for 2016 seems too high.
It depends on oil prices. I doubt oil prices will remain low in February 200 oil wells were
added to the schedule. Note that the total wells reported on February 1 was similar to Enno's
count.
The drillinginfo data is better, but still relies on RRC data which is incomplete.
The "oil wells on schedule data" may also be incomplete, but so far the well completion rates
through Feb 2016 have not slowed much in the Eagle Ford. Output has declined less than 100 kb/d
since Aug 2015 in my estimation.
"My guess is that the data processing in Texas has been improving dramatically over the past 7
months." Where have I heard that before? Oh, yeah, I said it several months ago, and got roundly
pooh, poohed.
It has gotten to be a small town since they were completing 2200 wells a month in 2014. Of
course it has gotten faster, and there is not going the huge increases expected on prior months
that had been anticipated. The producers are faster, and so is RRC.
Let's talk about the great and mighty "drilling efficiency". I admit there has been a measurable
amount of drilling efficiency, but what they are mainly deriving the most recent number from is
from mainly drilling in the sweet spots. Duh, yes it looks more efficient overall, because of
heavy drilling in areas that may get 250,000+ barrels the first year. That is not the norm for
the Eagle Ford, for sure. From what I can tell from looking, is that the DUCs are accumulating
in the areas that get less than 120,000 barrels the first year. Some of those are significantly
less than 120k, so they may be completed to keep the leases before price gets to $70, but it will
have to be offset by the sweet spots to keep cash flow intact. Only what they have to.
Bad energy debt to exceed good energy debt. The number of
energy loans that are in danger of default could jump above 50 percent this year, according to The
Wall Street Journal, presenting some problems for several major banks. Lenders are starting to back
away from new loans, declining to renew credit, and selling off bad debt. That could slash the available
credit lines for some struggling oil and gas producers this year, potentially raising some liquidity
pressure on E&P companies. (Coming to the Oil Patch: Bad Loans to Outnumber the Good
)
An estimated 51 oil and gas companies have fallen into bankruptcy since
early 2015. The periodic credit redetermination period is coming up, which could result in credit
lines offered to energy companies being reduced by 20 to 30 percent. The total debt in the entire
oil and gas sector hit $3 trillion in 2014, or about three times higher than 2006 levels.
... ... ...
Oil
industry still able to access capital. Despite posting record losses in potentially seeing
credit lines cut, several oil companies have returned to the equity markets, where they are still
being welcomed with open arms. Reuters reports that at least 15 oil companies have
announced
new offerings in 2016, with minimal damage to their share prices. The companies surveyed have
outperformed an oil and producers index by 3 percent on average.
But another way of looking at that statistic is that only well-positioned companies have issued
new stock.
Companies like Pioneer Natural Resources (NYSE: PXD), Callon Petroleum Co (NYSE: CPE),
and Oasis Petroleum (NYSE: OAS) have performed better than some of their peers since announcing new
stock offerings. Shareholders seem willing to provide companies with new cash infusions.
"People
would rather they have money in their pocket and survive," Irene Haas, analyst at Wunderlich Securities,
told Reuters. "They'll worry about dilution later." U.S. oil and gas exploration companies have issued
a combined $10 billion in new equity this year.
Just
over three months after the authorities lifted the four-decade ban on crude oil exports, the U.S.
has actually exported less this year than it did over the same period the year before, when the ban
was still in place.
According to Clipper Data market intelligence cited by the
Financial Times , we've seen a 5 percent decline in U.S. crude oil export volumes since the beginning
of this year. The data suggests that on average we are exporting (waterborne) 325,000 barrels per
day now, compared to 342,000 barrels per day during the first months of 2015.
And there's no official data yet-not since the beginning of this year, when the U.S. Energy Information
Administration (EIA) noted that during the
week ending 22 January , the U.S. had exported just shy of 400,000 barrels of oil, which again
was 25 percent less than what was exported for the same week in 2014.
An oil tanker that reached a French port in January was the first post-ban delivery of U.S. crude
oil, but things haven't really picked up pace since then.
January's cargoes, totaling about 11.3 million barrels, marked a 7 percent decline from U.S. crude
exports in December, according to data by the
U.S. Census Bureau . Shipments during January went to Curacao and France, in addition to Canada,
the primary destination. The total number of tankers that have set sail with U.S. crude oil will
not be known until comprehensive data on February's shipments is released by the U.S. Census Bureau.
The immediate beneficiaries of the ban suspension are gas and oil companies such as Chevron and
Exxon Mobil-among the most tireless lobbyers against the ban-and oil trading giants such as Vitol
Group BV and Trafigura Ltd Pet.
Europe and Asia are flooded with oil from Russia and the Middle East, though the first two shipments
to leave the U.S. post-export ban went to Europe: one to Germany and the other to France, to be used
in a
refinery in Switzerland . Dutch media outlets
reported in January that a tanker from Houston had reached Rotterdam port, but this remains just
a drop in the global export bucket.
In Asia, even China's state-run Sinopec-the world's second-largest refiner-has imported a consignment
of U.S. oil, according to a
Reuters source . Japan's Cosmo Oil was the first Asian buyer of U.S. oil, purchasing some 300,000
barrels of U.S. crude in mid-January, which will be delivered to its refineries in mid-April.
The current market turmoil has created a once in a generation opportunity for savvy energy investors.
Whilst the mainstream media prints scare stories of oil prices falling through the floor smart investors
are setting up their next winning oil plays.
The very first South American country that will import U.S. crude oil is Venezuela. In early February,
Venezuela's state-run oil company PDVSA imported a 550,000-barrel cargo of West Texas Intermediate
(WTI) through its U.S.-based
Citgo
Petroleum affiliate . Venezuela started importing foreign crudes in 2014 amid a fall in its own
production - buying mostly Angolan and Nigerian light grades.
WTI is also expected to be exported to
Israel, where Swiss commodities house Trafigura will ship some 700,000 barrels. Atlantic Trading
& Marketing, the U.S. trading unit of French Total SA, has been planning an export cargo of U.S.
crude from Cushing.
Also, earlier this month, Exxon
became the first U.S. oil company to export U.S. crude, sending a tanker from Texas to a refinery
it owns in Italy.
However, storage is now at the highest level in at least a decade.
U.S., crude storage levels
hit 487 million barrels in early November, closing in on the 80-year high of 518 million barrels
in the last week of February.
According to the EIA ,
about 60 percent of the U.S. working storage capacity is filled.
Globally, the picture isn't much better, with the International Energy Agency (IEA) saying that
1 billion barrels were added to storage in 2015 alone. OPEC has reported that crude oil stockpiles
in OECD countries currently exceed the running five-year average by 210 million barrels.
By
Irina Slav
Posted on Sat, 26 March 2016 00:00 |
0
After the slow and
painful death of Canadian oil exports - helped along by crashing
oil prices, a global supply glut, and the languishing Keystone XL
Pipeline - Canada has opened up some other outlets for exporting
its crude oil to refineries on the U.S. Gulf Coast, experiencing a
two-fold increase since 2014.
According to new data,
Canadian crude oil exports to U.S. Gulf Coast refineries
topped
389,000 barrels per day last year-double the amount in
2014-and it was all made possible by new pipelines that came on
stream over the course of last year.
The three new pipelines to the Gulf Coast-Seaway, Southern
Access, and Cushing Marketlink-added a combined throughput capacity
of 1.85 million bpd to the transport system for crude between
Canada and the U.S., said Canada's National Energy Board's market
analyst Melissa Merrick.
All in all, Canada exported most of its 3.87 million bpd output,
or 3.035 million barrels. Of this, 3.009 million barrels went to
the U.S.
In the
first week of January
, Canadian crude oil exports to the U.S.
reached an all-time record of 3.4 million barrels per day,
according to preliminary data from the U.S. Energy Information
Administration (EIA).
However, while this is good news for Canada, the figures aren't
quite as sensational as the headlines tend to be. The actual amount
heading to the U.S. Gulf Coast is a relatively small portion of
overall Canadian crude exports to its southern neighbor. The bulk
goes to the U.S. Midwest, which received 1.916 million bpd last
year from Canada.
At the same time, oil imports also
increased
, to 736,000 bpd, of which crude from down south
accounted for 62.4 percent, or almost 500,000 bpd, up from around
340,000 bpd in 2014.
What's more, according to Beth Lau from the Canadian Association
of Petroleum Producers, the twofold increase is unlikely to be
repeated this year because there is not enough throughput capacity.
This brings us back around to Keystone XL, which could have
added 830,000 bpd of throughput capacity to the pipelines carrying
crude to the Gulf Coast refineries had it not been cancelled by the
Obama administration in November 2015. That's not an insignificant
amount of oil capacity, given the fact that Western Canadian Select
(WCS) is trading at a substantial discount to WTI. The May contract
for the Canadian crude closed at a bit over $13 per barrel on March
24, while WTI is well over $30 at the moment.
The current market
turmoil has created a once in a generation opportunity for
savvy energy investors.
Whilst the mainstream media prints scare stories of oil
prices falling through the floor smart investors are
setting up their next winning oil plays.
WCS is a real bargain for U.S. refineries. But it's not going to
come through Keystone.
But the absence of Keystone simply means that Canadian crude has
to find other routes, both rail and alternative pipelines.
TransCanada
, the would-be operator of Keystone XL, has now
agreed to buy Houston-based Columbia Pipeline Group Inc. for $10.2
billion, which owns some 15,000 miles of gas pipeline running from
New York to the Gulf of Mexico, along with one of the biggest
underground storage systems in the U.S.
At the end of the day, some believe that Canadian export figures
indicate that Canada is gaining U.S. market share as a result of
the oil price crisis, and as U.S. shale production gets shut in,
waiting for better days.
"That's the one piece of puzzle you don't hear too much about -
the market share Canada is gaining in the U.S.," said Carl Evans,
senior crude oil analyst at energy research firm Genscape,
told the Financial Post
.
But you don't hear too much about it because it's a bit of a red
herring.
According to Platts
, Alberta's crude is selling at a major
discount because it doesn't have enough export outlets. That means
that if it wants to get overseas, it's got to go through the U.S.
for the most part, and even then, pipeline space is limited and
more expensive (and dangerous) rail is often the only option.
"In 2015, the seven biggest publicly traded Western energy companies, including Exxon Mobil Corp.
and Royal Dutch Shell PLC, replaced just 75% of the oil and natural gas they pumped, on average,
according to a Wall Street Journal analysis of company data. It was the biggest combined drop
in inventory that companies have reported in at least a decade."
"... That should give some thoughts to shale enthusiasts. In 2020 the shale industry has to pay back over USD 200 bn. The total revenue is currently less than 100 bn per year. Even if the industry can roll over debt, how will it get more debt for new production in 2020? ..."
"... Still this is "too late to drink mineral water to cure your liver, damaged by binge drinking" type of the situation. ..."
That should give some thoughts to shale enthusiasts. In 2020 the shale industry has to
pay back over USD 200 bn. The total revenue is currently less than 100 bn per year. Even if the
industry can roll over debt, how will it get more debt for new production in 2020?
@ Dennis,
I was out in the woods last weekend, so I didn't have the opportunity to respond to your questions
in last Ronpost.
Dennis: "if you think that LTO output of 4.5 Mb/d can go to zero and OPEC, Canada, and Russia
can make up that difference, I believe you are incorrect."
I believe LTO output of 4.5 Mb/d will go to (nearly) zero rather soon (5 or 6 years, so 2021 or
2022), but I do not believe OPEC, Canada and Russia can make up that difference.
"Is that your assumption? Do you believe OPEC will fill that 4.5 Mb/d gap"
No. My assumption is that gap will not be filled. My assumption is the world will encounter Peak
Oil very soon (if not yet).
"What are your assumptions about the future price of oil?"
That's a tough one. Despite the model provided above by Ian Schindler. Let me take a wild guess:
WTI in the $70-$80 range by december 2016. $110 by mid 2017 followed by another collapse of the
price, due to real problems in China or India.
"Do you think the Brent oil price will be $35/b in Dec 2016 (STEO forecast)?"
See above: Brent versus WTI will vary within a 15% margin from eachother – mayby Brent being the
cheaper one during 2016. (If you ask why?: This is just gut feeling.)
Thank you for your input. Very interesting considerations, that actually correlate with my
own thoughts on the subject. Especially possible return to recession in the second half of 2017
. I also feel that Brent might be very close to WTI from now on. Lifting export ban eliminated
premium. Unless "artificial WTI" shipments spoil the broth.
One question. If we assume that is the return to recession in the second half 2017, will it
necessary cause another collapse in oil prices; or may be downturn in oil prices will be more
muted ?
One feature of the return to recession is the collapse of junk bond market, which makes financing
of both shale and oil sands more difficult. And it typically happens before the actual economic
downturn. That will make ramping up shale oil production in 2017 extremely challenging. High oil
prices will be only of limited help, as there is no return to "good old days" of Ponzi financing
of shale.
Even speculative financing (revolving credit, aka evergreen loans) is already under threat
and will remain in this condition for the foreseeble future.
So shale players might have no money to re-start "carpet drilling" again.
I think difficult days are coming for US shale/LTO players and even temporary return to above
$100 price range might not restore previous financing bonanza for them - with enough financial
thrust you can make pigs fly, but you better do not stand in the place where they are going to
land.
Of course they may be propped by the next administration for strategic reasons. Who knows…
I don't know. Really. I'm just trying to get grip on things like most of us. I't been a tough
day in here in Belgium today. A lot of game changers might come to surface very soon. I mean very
soon.
This is not investment advice, but I think both of you are correct.
I've been working from an old Deutsche Bank analysis which expects big swings in the price
of oil. The high prices cause demand to drop and the low prices prevent exploration from happening.
Result: total oil production declines continuously.
Citing the "dramatic decline in oil prices, the continued low prices of oil and natural gas,
and the general uncertainty in the energy markets," another Denver energy company has filed for
bankruptcy protection.
Emerald Oil Inc. ( NYSE: EOX) said it's filed voluntary Chapter 11 petitions in the U.S.
Bankruptcy Court for the District of Delaware. Its oil and gas operations are located in the
Williston Basin of North Dakota and Montana.
... ... ...
Emerald headquarters are at 200 Columbine St. in Denver and the company has 42 employees,
according to YahooFinance.
It's the second Denver energy company bankruptcy filing this month: On March 18, Venoco Inc., an
oil and gas company focused on pumping oil in southern California, filed a voluntary petition for
Chapter 11 bankruptcy protection.
"... The contango, as the structure is known, narrowed to $5.82 on Monday, its lowest in almost nine months, and down nearly two thirds from about a month ago. ..."
"... Surely they don't. They think that the oil price rally is not sustainable, so they want to lock in prices in low $40s, for 2016 and $45-50 for 2017-18. ..."
"... Locking in through 2017 scores of wells completed in 2015 that will never payout. ..."
"... "locking in the high side at these levels also locks in a long period of little cash flow " Exactly. That's why I think they will hedge only a small part of their sales at current prices. According to IHS, as of the beginning of 2016, North American E&Ps have hedged just 14% of their total oil production volumes for 2016 and 2% for 2017. ..."
"... Sub $50 WTI simply doesn't work for US onshore lower 48 production to any significant scale. There is a big media disconnect between LOE and CAPEX. Although a broad generalization, the lower the current LOE, the newer the well and the higher the decline rate in the next year, etc. ..."
"... I have been looking at Q1 2016 earnings estimates for US E&P, as well as FY 2016 earnings estimates. Horrible. Two years in a row of record losses are coming, with year 2 worse than year 1. ..."
Struggling U.S. shale producers have scrambled to sell future output at their fastest pace in
about six months in recent weeks, curbing a rebound in prices and potentially prolonging the oil
market's worst rout in a generation, traders say. As spot prices of crude rallied almost 60 percent
from 12-year lows touched in mid-Feb, turnover in the long-dated oil contracts has soared to record
highs, as producers started to lock in prices in the $40s, traders have said. Turnover in the U.S.
crude contracts for December 2017 surged to record highs of over 30,000 lots this past Friday while
volumes in the December 2016 delivery touched an all-time high of nearly 94,000 lots. Combined, that equates to almost 125 million barrels of oil worth over $5 billion, a small portion
of overall daily volume in U.S. crude futures, but enough to catch traders' attention.
Now, brokers and traders say that has turned into execution, with some producers willing to hedge
in the high $30s or low $40s in 2016 and between $45-50 next year, levels that are just about breakeven
for many.
That is also below the $50 psychological threshold that many had thought would be necessary to
prompt producers to seek price protection, suggesting drillers have accepted a new reality of lower-for-longer
prices as
"The cost of production has declined to the point where at mid-40s they can hedge actively to
remain viable." Piling on hedges could prevent prices rallying through $45 a barrel while the extra
protection may delay further U.S. production cuts, seen as key to eroding the glut
The impact of the pickup in hedging activity was most conspicuous in longer dated oil contracts.
The 2017 WTI price strip has risen only about 15 percent over the past six weeks, much lower than
the prompt contract's gains, while the selling has almost erased the far forward contract's premium
over spot.
The contango, as the structure is known, narrowed to $5.82 on Monday, its lowest in almost
nine months, and down nearly two thirds from about a month ago.
John Saucer, vice president of research and analysis at Mobius Risk Group in Houston, said he
saw a "material" increase in producer hedging, with most action in this and next year's contracts,
but extending through the whole of 2018.
Lack of forward buying by major consumers, like the airlines, has also meant prices have not received
any boost as producers have been selling, adding to the pressure on prices.
To be sure, many hope for prices to go even higher.
"If prices recovered to that range north of $60, we'll be seriously considering hedging," billionaire
wildcatter Harold Hamm said on a conference call.
Do they really make money on these prices, since most of them where barely profitable at 100$+
oil?
Or do they just log in to make profit by pumping from their already drilled holes while ignoring
front load costs? If they would make money after hedging, why isn't there a new boom where everybody drills like
mad?
Surely they don't. They think that the oil price rally is not sustainable, so they want
to lock in prices in low $40s, for 2016 and $45-50 for 2017-18.
One wonders if much of the hedging is being required by banks.
Hedges at these levels likely locks in enough cash flow to pay LOE, taxes, G &A and interest.
However, locking in the high side at these levels also locks in a long period of little cash flow
for CAPEX and/or retiring debt principal.
An interesting exercise once the hedges are fully disclosed would be to insert the resulting
revenue number into cash inflows in the SEC 10K, and then calculating both undiscounted and discounted
future net cash flows.
Also, assume we have a Bakken well that produces 120,000 barrels after royalties, that was
completed 1/1/15 and has been hedged at an average price of $47 WTI for 2015-17.
A $7 discount puts us at $40. 10% severance puts us at $36.
Our $6-9 million well has only grossed $4.3 million in its first three years. Hedging at these
levels locks in many wells to no hope of payout, as we will likely need to subtract another $6-8
per barrel, or more for LOE and $2-3 more for G & A. Oh yes, and another $4-7 more per barrel
of interest expense.
Locking in through 2017 scores of wells completed in 2015 that will never payout.
Sub $50 WTI simply doesn't work for US onshore lower 48 production to any significant
scale. There is a big media disconnect between LOE and CAPEX. Although a broad generalization,
the lower the current LOE, the newer the well and the higher the decline rate in the next year,
etc.
For example, California Resources corporation has LOE around $20 per barrel, yet lower decline
rates, while US LTO is around $6-9 per barrel, but has high decline rates. Further, CRC LOE will
be more stable over time. Without addition of substantial new wells, US LTO LOE will surpass that
of companies like CRC in less than 5 years IMO.
Again, I am speaking in broad terms, each well is different from every other, and each varies
over time.
My view is Bakken wells producing under 1000 barrels net of royalties per month have LOE of
$15+ generally.
I do apologize for mixing up OPEX and LOE over the last year plus.
I guess OPEX includes royalties, lifting costs and severance taxes?
LOE is lifting and operating expense. Same is calculated on net barrels, after royalties are
paid. Expenses such as severance taxes, interest and general and administrative expenses are not
included in LOE.
Further, always be aware that LOE is calculated in BOE, so gas and NGLs are included. Gas is
on a 6 to 1 ratio with oil.
Many US LTO are touting reduced LOE, when the reality is the company wide gas to oil ratio
is increasing. One BOE of gas is selling for $6-10 at the well head right now.
CLR is a good example. Their gas to oil ratio has went from 30:70 to 40:60 in about three years.
So, part of the LOE per BOE is directly offset by lower realized per BOE prices. Further, gas
is usually cheaper to produce than oil on a BOE basis in the US, so this also must be factored
in.
I have been looking at Q1 2016 earnings estimates for US E&P, as well as FY 2016 earnings
estimates. Horrible. Two years in a row of record losses are coming, with year 2 worse than year
1.
Bloomberg still promotes oil glut myth. There are paranoidal about rising oil
prices and for a good reason: the US economy might well be toast if proces return
to $100 level.
Notable quotes:
"... Iran boosted output by 187,800 barrels a day to 3.13 million a day in February, the biggest monthly gain since 1997, OPEC said in a report on Monday. Brazil will also add more than 100,000 barrels of supply this year and has shown little interest in taking part. ..."
There are reasons to be doubtful that the planned freeze can radically alter
an oil market that's fallen victim to a global fight for market share, causing
stockpiles to rise to a record. Most significantly, Iran is seeking to increase
production after the end of economic sanctions and has said it won't participate
in any accord until its output has recovered.
Iran boosted output by 187,800
barrels a day to 3.13 million a day in February, the biggest monthly gain since
1997, OPEC said in a report on Monday. Brazil will also add more than 100,000
barrels of supply this year and has shown little interest in taking part.
Saudi Arabia boosted oil exports to a 10-month high of 7.84 million barrels
a day in January, just weeks before the initial freeze agreement, according
to the Joint Organisations Data Initiative, an oil industry group overseen by
the International Energy Forum.
"We will now see if OPEC and Russia are able to freeze the bears in the oil
market," said Olivier Jakob, managing director at consultants Petromatrix GmbH.
"The significance of the agreement is that it could remove the perception that
OPEC is fighting for market share."
Other forces have driven prices higher in recent weeks. Outages from Iraq
and Nigeria have disrupted more than 800,000 barrels a day of supply and tightened
the Brent market, according to Citigroup Inc. And falling drilling activity
in the U.S. shale industry has seen analysts raise forecasts for declines in
North American production.
One key question is how fast shale production could come back if OPEC and
some non-OPEC producers succeed in driving prices higher.
Oil ministers for Argentina, Venezuela and Colombia didn't immediately respond
to questions on whether they would attend. Ecuador's oil minister said he still
plans to gather Latin American producers before April 17, after a planned meeting
earlier this month was postponed.
"It's not surprising they'd be willing to agree to this because the outlook
for a further production increase was quite limited," Jeff Currie, global head
of commodities research at Goldman Sachs Group Inc., said in an interview on
Bloomberg Television. "You can't operate a cartel the way you used to."
That should give some thoughts to shale enthusiasts. In 2020 the shale industry has to pay
back over USD 200 bn. The total revenue is currently less than 100 bn per year. Even if the industry
can roll over debt, how will it get more debt for new production in 2020?
Production down 30 kb/d;
Total crude and product stocks up 6.9 million barrels (to new records);
Net crude imports up 691 kb/d in just one week (!) and 1.1 mb/d from a year ago.
Despite a glut in the local market, U.S. refiners and traders are rapidly increasing crude
imports.
"... Rystad Energy estimates that the crash in oil prices has cut into upstream investment so severely that natural depletion rates will overwhelm the paltry new sources of supply in 2016. Existing fields will lose about 3.3 million barrels per day (mb/d) in production this year, while new fields brought online will only add 3 mb/d. This does not take into account rising oil demand, which will soak up most of the excess supply by the end of the year. ..."
"... But the 3 mb/d of new supply in 2016 will mostly come from large offshore projects that were planned years ago ..."
"... However, outside of these large-scale multiyear offshore projects, the queue of new oil fields is starting to be cleared out. By 2017, the supply/depletion balance will go deeper into negative territory. Depletion will exceed new sources of production by around 1.2 mb/d before widening even further in 2018 and 2019. ..."
"... The coming supply crunch stands in sharp contrast to the short-term picture. ..."
"... But the Rystad Energy figures show that the supply-demand balance could quickly swing back in the other direction as upstream investment has screeched to a halt. As soon as later this year, or perhaps in 2017, demand could catch up to supply. Inventories will begin falling quickly and prices will start to rise. However, since supply is inelastic in the short run, the industry may struggle to satisfy demand at stable prices. The oil markets have always suffered from booms and busts, and this is just more of the same. The current bust is sowing the seeds of the next boom. ..."
The depletion of
old oil wells is expected to surpass new sources of supply in 2016,
as the ongoing oil price slump puts a long list of oil projects on
the shelf.
Bloomberg flagged new data from the Norwegian consultancy firm
Rystad Energy, which predicts that legacy production will tip the
supply balance into the negative in 2016 for the first time in
years.
The production from an average conventional oil field typically
ramps up in the early years, plateaus and then enters a period of
decline. Depletion rates vary wildly from field to field, but a
rule of thumb for conventional oil fields – which make up the bulk
of total global supply – is that they
decline something like 6 percent per year on average. Again,
those depletion rates can differ depending on location, levels of
investment, etc., but one thing that is clear is that the oil
industry needs to bring new oil fields online every year in order
to merely keep production flat.
Rystad Energy estimates that the crash in oil prices has cut
into upstream investment so severely that natural depletion rates
will overwhelm the paltry new sources of supply in 2016. Existing
fields will lose about 3.3 million barrels per day (mb/d) in
production this year, while new fields brought online will only add
3 mb/d. This does not take into account rising oil demand, which
will soak up most of the excess supply by the end of the year.
But the 3 mb/d of new supply in 2016 will mostly come from large
offshore projects that were planned years ago, investments that
were made before oil prices started crashing. The
EIA
sees four offshore projects starting up in 2016 – projects from
Shell, Noble Energy, Anadarko, and Freeport McMoran – plus two more
in 2017. The industry completed eight projects in the Gulf in 2015.
U.S. Gulf of Mexico production will climb from 1.63 mb/d in 2016 to
1.91 mb/d by the end of 2017.
However, outside of these large-scale multiyear offshore
projects, the queue of new oil fields is starting to be cleared
out. By 2017, the supply/depletion balance will go deeper into
negative territory. Depletion will exceed new sources of production
by around 1.2 mb/d before widening even further in 2018 and 2019.
A few months ago, Wood Mackenzie estimated that around
$380 billion in planned oil projects had been put on ice due to
the crash in oil prices. Wood Mackenzie says that between 2007 and
2013, the oil industry greenlighted about 40 large oil projects on
average each year. That figure plunged to fewer than 10 in 2015.
The coming supply crunch stands in sharp contrast to the
short-term picture. The EIA
reported on
March 23 that crude oil storage levels once again increased,
surging by 9.4 million barrels last week to break yet another
record. Total inventories in the U.S. now stand at 532.5 million
barrels. Record high storage levels, which continue to climb, are
signs of short-term oversupply. The IEA expects supply to continue
to outstrip demand by about 1.5 mb/d until later this year. Oil
storage levels will have to
fall to more normal levels before oil prices can rise
substantially.
But the Rystad Energy figures show that the supply-demand
balance could quickly swing back in the other direction as upstream
investment has screeched to a halt. As soon as later this year, or
perhaps in 2017, demand could catch up to supply. Inventories will
begin falling quickly and prices will start to rise. However, since
supply is inelastic in the short run, the industry may struggle to
satisfy demand at stable prices. The oil markets have always
suffered from booms and busts, and this is just more of the same.
The current bust is sowing the seeds of the next boom.
Of course, U.S. shale has demonstrated its ability to ramp up
quickly, and those short lead times could
allow new supply to come online as prices rise. But it remains
to be seen if U.S. shale, more or less on its own in the short run,
can meet rising demand in 2017 and 2018 as conventional oil
drilling remains on the sidelines.
"... "Two things happened: we had high oil prices, and central banks had zero interest rates and quantitative easing policies," says Spencer Dale, the chief economist of BP, who formerly held that role at the Bank of England. "That was a potent mix." ..."
It was a classic bubble, says Philip Verleger, an energy economist. "It was irrational investment:
expecting prices to rise continually. Companies that borrowed heavily when prices were high are going
to have a very tough time."
...In June 2014, a barrel of Brent crude for 2020 delivery was $98. And central banks' post-crisis
monetary policies pushed investors towards riskier assets, including oil and gas companies' equity
and debt.
"Two things happened: we had high oil prices, and central banks had zero interest rates and quantitative
easing policies," says Spencer Dale, the chief economist of BP, who formerly held that role at the
Bank of England. "That was a potent mix."
From 2004 to 2013, annual capital spending by 18 of the world's largest oil
companies almost quadrupled, from $90bn to $356bn, according to Bloomberg data. The assumptions used
to justify that borrowing were fuelled by a textbook example of disruptive technological innovation:
the advances in
hydraulic fracturing and horizontal drilling that made it possible to produce oil and gas from
previously unyielding shales. The success of those techniques added more than 4m barrels a day to
US crude production between 2010 and 2015, creating a glut in world markets that has sent prices
down 65 per cent since the summer of 2014.
The expectations of sustained high prices have vanished: crude for 2020 delivery is $52 a barrel.
Oil is now back to where it was in 2004, but most of the debt that was taken on in the boom years
is still there.
In the US and Europe, banks have been quick to reassure shareholders that, while their losses
are mounting, they are entirely manageable. French banks account for four of the 10 banks with the
highest exposure. Crédit Agricole, whose $29.8bn credit exposure to energy is the second highest
in Europe, has told investors that 84 per cent of the portfolio was investment grade. The disclosures
were largely effective in soothing fears about energy debt.
... "It's alarming that things are getting pulled forward so much," says Julie Solar, an analyst at
Fitch Ratings. "The pace of deterioration is coming quicker than what was previously disclosed."
... Since crude prices began to fall in the summer of 2014, investors in oil and gas companies
have lost more than $150bn in the value of their bonds, and more than $2tn in the value of their
equities, according to FT calculations.
... At Machinery Auctioneers, Mr Dickerson has been stocking up on cut-price oilfield equipment. He
bought four mobile sand containers used in fracking, with list prices of up to $275,000, for $17,000
apiece. When the industry recovers, he expects to sell them for up to $100,000 each. But before that
recovery comes there are likely to be plenty more bargains on his lots.
The state-owned Brazilian oil company announced that
it lost more than 36 billion reals in the fourth quarter, or USD$9.6 billion, a 40 percent
increase compared to the fourth quarter of 2014.
the company has enough cash flow from its operations to meet all of its obligations through
the end of 2017 at least, even if it fails to realize the planned $14 billion in asset sales.
"Even if we hit a road-bump we have sufficient cash through 2017," Bendine said. "This doesn't
mean if we have good opportunities to raise cash or lengthen maturities we won't do it."
"... I have grave reservations about the alleged spare capacity of Iran. The assumption is that the big, bad sanctions resulted in a huge drop in Iran's oil production. I am not buying it. I think the sanctions were a joke. For starters many nations refused to take part in the sanctions. Nations like India, china, japan and South Korea for starters. It would not be difficult to then reexport this oil to the rest of the world on the sly. Would you please comment on this important matter. Does anyone have any inside information about this? nuassembly 20 Mar 2016, 11:25 AM Comments (13) | + Follow | Send Message Agree, most of us follow news as herd effect, but devil is in the detail. Before the sanction, Iran was export 2.5 million barrels of oil per day but had to import almost 0.5million barrels of processed fuel, gasoline and diesel. ..."
"... Now, 4 years after the sanction starts, Iran already built up the refinery capacity, so it will no longer need import of refined fuels; instead it will be exporting, how much is yet to be decided. So, right there, we will see over 0.5 million barrels of reduction in the oil to be exported from Iran. Yes, the sanction reduced the Iranian oil export from 2.5million to 1.5million per day, but the net effect after sanction now will be less than 0.5 million per day to the world market. ..."
I have grave reservations about the alleged spare capacity of Iran.
The assumption is that the big, bad sanctions resulted in a huge drop in
Iran's oil production. I am not buying it. I think the sanctions were a
joke. For starters many nations refused to take part in the sanctions. Nations
like India, china, japan and South Korea for starters. It would not be difficult
to then reexport this oil to the rest of the world on the sly.
Would you please comment on this important matter. Does anyone have
any inside information about this?
Agree, most of us follow news as herd effect, but devil is in the detail.
Before the sanction, Iran was export 2.5 million barrels of oil per
day but had to import almost 0.5million barrels of processed fuel, gasoline
and diesel.
Now, 4 years after the sanction starts, Iran already built up the refinery
capacity, so it will no longer need import of refined fuels; instead it
will be exporting, how much is yet to be decided. So, right there, we will
see over 0.5 million barrels of reduction in the oil to be exported from
Iran. Yes, the sanction reduced the Iranian oil export from 2.5million to
1.5million per day, but the net effect after sanction now will be less than
0.5 million per day to the world market.
40 years, I would be surprised if you didn't have reservations. You aren't
the only one. Iran's infrastructure wasn't that great before the sanctions
so I would guess they are abysmal now.
I don't think they can get to 4 million this year, but the problem with
that is I am speculating so we will just have to track its exports and see
what happens. Right now, I think it would be ok to reduce that number by
400K BO/d.
I think the biggest issue is Iran thinks its possible, so maybe there
is something going on we haven't thought about. Probably not, but it is
still something to consider. I wasn't a big fan of the sanctions either,
but some politicians would say they worked. I think it is very possible
to re-export the oil the only problem is the very large volumes Iran can
produce. If this was a small producer it is probably easy if you sell it
cheap enough (like ISIS does).
A typical disinformation bunged with the obvious attempt to amplify differences
within the OPEC. In spite of all this noise about oversupply i t will be difficult
to return to the lows of the year. Oil prices have surged more than 50 percent from
12-year lows since the OPEC floated the idea of a production freeze, boosting Brent
up from around $27 a barrel and U.S. crude from around $26. 15 oil-producing nations
representing about 73% of oil production have agreed to take part.
Notable quotes:
"... Qatar, which has been organizing the meeting, has invited all 13 OPEC members and major outside producers. The talks are expected to widen February's initial output freeze deal by Qatar, Venezuela and Saudi Arabia, plus non-OPEC Russia. ..."
"... Iran produced about 2.9 million bpd in January and officials are talking about adding a further 500,000 bpd to exports. So far though, Iran has sold only modest volumes to Europe after sanctions were removed. ..."
...Libya has made its wish to return to pre-conflict oil production rates
clear since four countries reached a preliminary deal on freezing output in
February. Other producers understand this, the delegate said. "They appreciate
the situation we are in."
Qatar, which has been organizing the meeting, has invited all 13 OPEC
members and major outside producers. The talks are expected to widen February's
initial output freeze deal by Qatar, Venezuela and Saudi Arabia, plus non-OPEC
Russia.
The initiative has supported a rally in oil prices, which were about $41
a barrel on Tuesday, up from a 12-year low near $27 in January, despite doubts
over whether the deal is enough to tackle excess supply in the market.
Iran has yet to say whether it will attend the meeting. But Iranian officials
have made clear Tehran will not freeze output as it wants to raise exports following
the lifting of Western sanctions in January.
The potential volume Libya and Iran could add to the market is significant.
But conflict in Libya has slowed output to around 400,000 barrels per day since
2014, a fraction of the 1.6 million bpd it pumped before the 2011 civil war.
Iran produced about 2.9 million bpd in January and officials are talking
about adding a further 500,000 bpd to exports. So far though, Iran has sold
only modest volumes to Europe after sanctions were removed.
"... From 2006 to 2014, the global oil and gas industry's debts almost tripled, from about $1.1tn to $3tn, according to the Bank for International Settlements. The smaller and midsized companies that led the US shale boom and large state-controlled groups in emerging economies were particularly enthusiastic about taking on additional debt. ..."
Distress in the oil and gas industry is acute . Many companies are being liquidated
or forced to cut to the bone:
About 600 people packed on to the Machinery Auctioneers lot on the outskirts of San Antonio,
Texas, last week to pick up some of the pieces shaken loose by the oil crash.
Trucks, trailers, earth movers and other machines used in the nearby Eagle Ford shale formation
were sold at rock-bottom prices. One lucky bargain hunter was able to pick up a flatbed truck
for moving drilling rigs - worth about $400,000 new - for just $65,000.
Since the decline in oil prices began in mid-2014, activity in the Eagle Ford, one of the heartlands
of the shale revolution, has slowed sharply. The number of rigs drilling for oil has dropped from
a peak of 214 to 37, and businesses, from small "mom and pop" service providers to venture capital
companies, are trying to offload unused equipment.
Terry Dickerson, Machinery Auctioneers' founder, says sales doubled last year, in part thanks
to the oil crash. Sellers are sometimes disappointed by low prices for oil-related assets, but
they have to accept reality, he says. "I feel like a funeral director," he adds. "I'm the one
that has to tell them the bad news."
Lenders went on a spree . While this is a notoriously cyclical industry, the
shale gas frenzy drew in a lot of newbies, particularly among investors. The fact that so many players
made heavy use of borrowings, with the Fed's negative real interest rate policies all too successfully
pushing lenders into risky assets, has amplified the damage. From the story:
From 2006 to 2014, the global oil and gas industry's debts almost tripled, from about $1.1tn to
$3tn, according to the Bank for International Settlements. The smaller and midsized companies that
led the US shale boom and large state-controlled groups in emerging economies were particularly enthusiastic
about taking on additional debt.
The hangover has only just begun :
Standard & Poor's, the credit rating agency, assesses oil companies based on an assumption
of an average crude price of $40 this year. On that basis, 40 per cent of the US production and
oilfield services companies it covers are rated B-minus or below. "B-minus is a very weak rating,"
says Thomas Watters of S&P. "You don't have a long lifeline."
Make no bones about it: a B- or worse means you are barely hanging on. To illustrate:
Linn Energy, one of the 20 largest US oil and gas producers, warned last week that it expected
to breach its debt covenants. It has net debts of $3.6bn, but only $1m in borrowing capacity.
Many US producers are now having their borrowing limits, which are based on the value of their
reserves, redetermined by their banks. The falling value of those reserves means loan facilities
will be cut back, leaving some companies without enough liquidity to stay afloat.
Even when companies can be restructured, lenders are taking big hits :
When oil and gas companies go into bankruptcy, there are often slim pickings for creditors.
Quicksilver Resources, a Texas-based gas producer, went into Chapter 11 bankruptcy protection
last year with about $2.4bn of debt. This year it announced sales of its US assets for just $245m,
and some of its Canadian assets for $79m. Its creditors are on course for losses of about $2bn.
Do the math. That's an 83% loss of principal. The story reassuringly points out that even bigger
amounts are at risk at national oil companies like PDVSA of Venezuela and Petrobras.
In a worrisome parallel to subprime risk before the crisis, investors are getting rattled by banks
increasing their forecasts of losses:
"It's alarming that things [bank loan loss estimates are getting pulled forward so much," says
Julie Solar, an analyst at Fitch Ratings. "The pace of deterioration is coming quicker than what
was previously disclosed."…
Since crude prices began to fall in the summer of 2014, investors in oil and gas companies
have lost more than $150bn in the value of their bonds, and more than $2tn in the value of their
equities, according to FT calculations.
The grim reaper tone of the article suggests that things will get worse in energy-land before
they get better. The oil bust in 1980-1981, which was a regional affair in the US, was bloody and
took down pretty much all of the Texas banking industry. It's hard to know from this far a remove
what the trajectory will look like, particularly since even with things his visibly dire, the incumbents
all have strong incentives to make things appear less bad than they are. Any reader intelligence
would be very welcome.
craazyman ,
March 22, 2016 at 7:07 am
every real man wants to keep drilling until the money runs out. And if you can't keep drilling,
you have to find a new hole. That's what they say. Some holes cost more than others, but a real
man needs a hole. What does a man do now, when his hole is dry and he can't drill? Or if drilling
doesn't get him where it used to? Those were the days, when a man could drill around and have
it be good every time. Each real man has to face the day when just showing up with his drill doesn't
work anymore. He better hope the hole he has is good. And he better not have drilled on borrowed
cash, because once a hole is dry for a man there's no going back to the good times, that's for
sure.
My dad got stuck into KYN, a high yield energy-related MLP back in 2011 – considered suitable
for IRAs.
The dividend got its first 16% haircut in Dec. The div was maintained in Q1 2016. But when I took
a cursory glance at the financial statements of the top five holdings that comprised 48% of this
MLP, this is what I uncovered:
Collectively, these 5 companies had a combined net income of ~40m and ended 2015 with 849m
in cash. One of these companies had a negative (~ -1.5b) net income. Collectively, they paid out
~13b in dividends in 2015. The funding of those 13b in dividends was largely accomplished through
~17b in financing activities, via issuing debt and selling stock. Needless to say, they are all
heavily in debt and the financing activities doesn't even address financing interest expenses
and the like.
The reason I mention the above is to cite the caption "companies have borrowed heavily to fund
their growth" in the EIA chart above as a gross mis-characterization. Their financing activities
were funding their dividends in 2015, and without access to the same funding channels in 2016,
not only will the divs l be zeroed out – they will all be fighting for survival with little cash
cushion and little net income to see them through to another day.
Maybe we could use the high yield to buy Credit Default Swaps on the high-yield fund and retire
on those?
Peabody Energy is going tits-up. Similar story, gorged itself on roid's in the form of cheap
debt to fuel "growth" and now all of that bulk is pulling it down the drain. A -800% return on
the stock in last 4 years. Impressive. Almost 99 % yield on the unsecured bonds. Chapter 11 seems
to be priced in.
From what I've read, the investment arms of banks have been busy issuing new stocks and bonds
in energy companies with bad loans on the parent bank's books. The proceeds go to repay these
outstanding bank loans, mitigating some or all the damage banks face. What's left will be largely
unsecured loans that the banks could care less about since they belong to some other sucker. Of
course the stocks when issued have declined sharply in price thus burning shareholders as well.
It appears banks may have learned their lesson from previous meltdowns by farming out the losses.
"One lucky bargain hunter was able to pick up a flatbed truck for moving drilling rigs - worth
about $400,000 new - for just $65,000."
Lucky? @15 cents vs new? 86′ the bottom fishing was at 9% or less – sold in many cases by the
pound
The First Liens of the Banks are seriously underwater especially in Canada. The surge in oil
prices and the associated refinancing of bonds and secondary stock offerings will get some high
profile company exposure off the books of the banks as they take the liquidity for a pay down
– but the decline will last far beyond the momentary manipulation.
This exposure extends well beyond oil and gas to all natural resources worldwide – in 86′ the
problem was isolated. The previous five years had interest rates for Treasuries north of 9% –
in fact deep double digits by 85′ – so the cancer of debt issuance was more limited for that reason
plus Junk Bonds 82′ to 85′ were in their market infancy and so were the Commercial Banks acceptance
since the Investment Banks were unrelated entities.
This debacle will prove the integrity of the principles of Glass Steagall between Commercial
and Investment Banking are absolutely necessary as the separation of Church and State.
Supposedly smart insiders like banks also caught the falling safe of the subprime market by
buying mortgage servicers in the supposed bottom of January 2007.
Everything in the FT piece is true, and it's a useful read. But there's a problem with the
timing. This thing is likely to go into the books alongside the famous Business Week cover story
on "The Death of Equities".
Two things about oil: First, the glut is not as big as you think. IMO games are being played
– in effect painting the tape with big imports that show up in US storage (where the reporting
is most transparent) and are hyped by players with agendas. More important, there are 10 – 15
people in the world who can collectively decide – within broad limits – where oil should trade.
They can't put it back at $100 – not right away, not this year – but they can pop it $20 from
here with no trouble at all. That will happen soon, because they need it to.
If you're feeling lucky you can rummage through that pile of junk debt, and find yourself an
issuer that might not go bankrupt. Then buy the bonds – not the stock.
If a man lives by drilling from bed to bed on borrowed cash, it's not likely to end well. A
real man knows when the holes runs dry to him and the cash is gone it's time to hit the road -
because the bed don't work no more.
If you're a man who lent money to a man who's hole's ran dry and has nowhere to drill, and
not even a bed, then it's time for you to look in the mirror and see the way a real man sees.
The way a cowboy looks at the blue sky, out from under the shade of his hat, and thinks about
God.
it means there'll be a lot of holes open to drills that still have cash to spend. If your drill
is tired, you can upgrade to a huge new drill and a truck for next to nothing and drive around
hoping to get lucky. But if you do, make sure it's a hole you want to live with, because it might
dry up on you and your drill may lose its juice. When it does, you won't want to hit the road
anymore. That's a game for a man with a drill that's just getting going.
At the very least, it means many people with high-paying jobs going on unemployment, a lot
of areas whose real estate prices rose seeing them fall, and a lot of loans not being made as
credit dries up as banks try to meet their reserve obligations as they write off the loses. At
worst, it means another round of bank bail-outs and even greater political anger and strife here
in the home of fracking, the good old US of A.
"... Millions needed to clean up sites and mitigate environmental risk ..."
"... Alberta's Orphan Well Association is now responsible for 704 wells, up from 164 last year, according to Pat Payne, the association's manager. ..."
"... We started drilling over 130 years ago and we have been decommissioning the wells for a number of years, but we're getting to a point where the number of wells being drilled are less than the number of wells that need to be decommissioned ..."
"... Right now there … isn't enough cash flow in the system to do all the wells that need to be done. ..."
Petroleum Services Association of Canada wants $500M in federal money to decommission inactive
wells
By Canadian Press, Erika Stark, CBC News Posted: Mar 15, 2016 12:08 PM MT
"We started drilling over 130 years ago and we have been decommissioning the wells for a
number of years, but we're getting to a point where the number of wells being drilled are less
than the number of wells that need to be decommissioned," he said.
Salkeld stressed that PSAC's proposal isn't a bailout.
"We're in no way saying that oil companies aren't responsible," he said. "They are and they
fully accept that. The regulations have increased and the costs have increased. Right now there
… isn't enough cash flow in the system to do all the wells that need to be done."
A wave of projects approved at the start of the decade, when oil traded near $100 a barrel, has
bolstered output for many producers, keeping cash flowing even as prices plummeted. Now, that production
boon is fading. In 2016, for the first time in years, drillers will add less oil from new fields
than they lose to natural decline in old ones.
About 3 million barrels a day will come from new projects this year, compared with 3.3 million
lost from established fields, according to Oslo-based Rystad Energy AS. By 2017, the decline will
outstrip new output by 1.2 million barrels as investment cuts made during the oil rout start to take
effect. That trend is expected to worsen.
"There will be some effect in 2018 and a very strong effect in 2020," said Per Magnus Nysveen,
Rystad's head of analysis, adding that the market will re-balance this year. "Global demand and supply
will balance very quickly because we're seeing extended decline from producing fields."
A lot of the new production is from deepwater fields that oil majors chose not to abandon after
making initial investments, Nysveen said in a phone interview.
... ... ...
Companies cut capital expenditure on oil and gas fields by 24 percent last year and will reduce
that by another 17 percent in 2016, according to the International Energy Agency. That's the first
time since 1986 that spending will fall in two consecutive years, the agency said Feb. 22.
"... According to Art Berman, during the 5 year period (2008-2012), Chesapeake, Southwestern, EOG, and Devon spent over 50 billion dollars more than they took in. Such a great profitability. ..."
The question that needs answering is what was the effect of cheap funding?
The LTO oil boom was the result of companies making a nice return at $100+ oil. At that price
range production increased at a rate of one million barrels a day for three years.
If the cost of funding was say 3 to 5% higher what would have been the results?
Companies would still be making money, and they would also be borrowing, but the amount borrowed
would have been lower.
At a lower amount of borrowing, production growth would not have been one million per year.
One estimate that growth would have been around 750 kbd.
So after three years, U.S. Production would have been 750 kbd lower than it was.
At that growth rate world production would have stayed in balance, prices would have stayed
in the $100 range, and the Saudis would not have ramped up production by 1 to 1.5 million a day.
So IMO the net effect of cheap money was to grow production more than the market could use
and then crash prices.
In either case, with or without cheap money, the LTO boom would still have happened.
I believe that $100 plus oil prices was the real fuel that fed the growth in LTO production.
At that price a very good ROR was made and fund were provided.
It was simply the situation in which Wall Street needed a place to dump money provided by Fed
and shale came quite handy.
According to Art Berman, during the 5 year period (2008-2012), Chesapeake, Southwestern, EOG,
and Devon spent over 50 billion dollars more than they took in. Such a great profitability.
Most of the companies you talked about are Nat gas production companies. We are talking about
LTO.
But Art only talked about what was spent. If you look at LTO what was gotten was in increase
in production of about 4 million barrels a day of production. That is a rate of 1,460, 000,000
barrels a year.
That generates sales at $100 oil of $146,000,000,000 per year.
Art Berman talked about what these companies have spent (capex) and what they got (operating cashflow).
During the whole period of the shale boom, shale companies' capex significantly exceeded their
operating cashflows.
That doesn't mean that all that cash was "burned". Operating cashflow is what they get from today's
sales. Capex is what is spent on tomorrow's production. Given that until recently production volumes
were rapidly increasing, that partly justified cash overspending.
"... Don't waste your time calculating something that is so fuzzy as breakeven price. Price of oil went up 55% in month and half? So demand went up that much? In middle of winter? :-) In the middle of "glut" and oil storages bursting from that overflow of oil? :-) Just like that with a snap of finger. ..."
"... There is a huge difference between daily price curve and average quarterly price curve. Using average price for a longer period instead of daily price helps to smooth abrupt price movements and allow models like presented above to look more reasonable. Think about price curve as the result of juxtaposing of several sinusoid waves with different periods like in Fourier transform. Using average for a longer period essentially filters waves with a short period. ..."
Daniel, Don't waste your time calculating something that is so fuzzy as breakeven price.
Price of oil went up 55% in month and half? So demand went up that much? In middle of winter?
:-) In the
middle of "glut" and oil storages bursting from that overflow of oil? :-) Just like that with
a snap of finger.
There is a huge difference between daily price curve and average quarterly price curve. Using
average price for a longer period instead of daily price helps to smooth abrupt price movements
and allow models like presented above to look more reasonable. Think about price curve as the
result of juxtaposing of several sinusoid waves with different periods like in Fourier transform.
Using average for a longer period essentially filters waves with a short period.
There was pretty long exchange between me and Alex on this subject some time ago that covered
those issues.
"... One question. If we assume the return to recession in the second half 2017, will it necessary cause another collapse in oil prices; or may be downturn in oil prices will be more muted ? ..."
"... I think difficult days are coming for US shale/LTO players and even temporary return to above $100 price range might not restore previous financing bonanza for them - with enough financial thrust you can make pigs fly, but you better do not stand in the place where they are going to land. ..."
@ Dennis,
I was out in the woods last weekend, so I didn't have the opportunity to respond to your questions
in last Ronpost.
Dennis: "if you think that LTO output of 4.5 Mb/d can go to zero and OPEC, Canada, and Russia
can make up that difference, I believe you are incorrect."
I believe LTO output of 4.5 Mb/d will go to (nearly) zero rather soon (5 or 6 years, so 2021 or
2022), but I do not believe OPEC, Canada and Russia can make up that difference.
"Is that your assumption? Do you believe OPEC will fill that 4.5 Mb/d gap"
No. My assumption is that gap will not be filled. My assumption is the world will encounter Peak
Oil very soon (if not yet).
"What are your assumptions about the future price of oil?"
That's a tough one. Despite the model provided above by Ian Schindler. Let me take a wild guess:
WTI in the $70-$80 range by december 2016. $110 by mid 2017 followed by another collapse of the
price, due to real problems in China or India.
"Do you think the Brent oil price will be $35/b in Dec 2016 (STEO forecast)?"
See above: Brent versus WTI will vary within a 15% margin from eachother – mayby Brent being the
cheaper one during 2016. (If you ask why?: This is just gut feeling.)
Thank you for your input. Very interesting considerations, that actually correlate with my
own thoughts on the subject. Especially possible return to recession in the second half of 2017
. I also feel that Brent might be very close to WTI from now on. Lifting export ban eliminated
premium. Unless "artificial WTI" shipments spoil the broth.
One question. If we assume the return to recession in the second half 2017, will it necessary
cause another collapse in oil prices; or may be downturn in oil prices will be more muted ?
One feature of the return to recession is the collapse of junk bond market, which makes financing
of both shale and oil sands more difficult. And it typically happens before the actual economic
downturn. That will make ramping up shale oil production in 2017 extremely challenging. High oil
prices will be only of limited help, as there is no return to "good old days" of Ponzi financing
of shale.
Even speculative financing (revolving credit, aka evergreen loans) is already under threat
and will remain in this condition for the foreseeable future.
So shale players might have no money to re-start "carpet drilling" again.
I think difficult days are coming for US shale/LTO players and even temporary return to
above $100 price range might not restore previous financing bonanza for them - with enough financial
thrust you can make pigs fly, but you better do not stand in the place where they are going to
land.
Of course they may be propped by the next administration for strategic reasons. Who knows…
One month ago, as we pounded the table on the biggest threat to the fundamental case for oil,
namely that even a modest rebound in oil prices could unleash another round of production by the
"marginal", US shale oil producers, we warned that a rebound in the price of oil as modest as $40
per barrel, could be sufficient to get drillers to resume production.
As
noted in late February , among the companies prepared to flip the on switch at a moment's notice
are Continental Resources led by billionaire wildcatter Harold Hamm, which said it is prepared to
increase capital spending if U.S. crude reaches the low- to mid-$40s range, allowing it to boost
2017 production by more than 10 percent, chief financial official John Hart said last week. Then
there is rival Whiting Petroleum which may have stopped fracking new wells, but added it would "consider
completing some of these wells" if oil reached $40 to $45 a barrel, Chairman and CEO Jim Volker told
analysts. Then there was EOG Chairman Bill Thomas who did not say what price would spur EOG to boost
output this year, but said it had a "premium inventory" of 3,200 well locations that can yield returns
of 30 percent or more with oil at $40, and so on, and so on.
The reason for the plunging breakeven price? The same one we suggested on February 3: surging,
rapid efficiency improvement which "have turned U.S. shale, initially seen by rivals as a marginal,
high cost sector, into a major player - and a thorn in the side of big OPEC producers."
To be sure, while many had expected low oil prices to curb output, virtually nobody had predicted
that even a modest jump in oil (when we wrote our article on February 29 oil was at $33, just $7
from the $40 threshold) would lead to a major portion of US shale going back on line. The threat
of a shale rebound is "putting a cap on oil prices," said John Kilduff, partner at Again Capital
LLC. "If there's some bullish outlook for demand or the economy, they will try to get ahead of the
curve and increase production even sooner."
However, the cap was not big enough, because late last week driven by the relentless short squeeze
and the sliding dollar, WTI soared well over $40 hitting a fresh 2016 high.
And, as warned, with oil surging above the critical $40 new "floor" price, as
Reuters
put it moments ago , " a dreaded scenario for U.S. oil bulls might just be becoming a
reality."
What exactly is this scenario?
According to Reuters, some U.S. shale oil producers, including Oasis Petroleum and Pioneer
Natural Resources Co, are activating drilled but uncompleted wells (DUCs) in a reversal in strategy
that threatens to bring more crude to a saturated market and dampen any sustained rebound in prices.
When oil prices started their long slide in mid-2014, many producers kept drilling wells, but
halted expensive fracking work that brings them online, waiting for prices to bounce back.
But now, with crude futures hovering near multi-year lows and many doubting recent modest gains
that brought oil prices near $40 a barrel can hold, the backlog of DUCs is already shrinking in some
areas. In key shale areas such as Eagle Ford or Wolfcamp and Bone Spring in Texas such backlog has
fallen by as much as a third over the past six months, according to data compiled by Alex Beeker,
a researcher at Wood Mackenzie.
"If the number of DUCs brought online is surprising to the upside, that means U.S. production
won't decline as quickly as people expect," said Michael Wittner, global head of oil research
at Societe Generale. " More output is bearish."
In the Wolfcamp, Bone Spring and Eagle Ford, the combined backlog of excessive wells remains around
600, Beeker estimates. About 660 wells could be the equivalent of between 100,000 and 300,000 barrels
per day of potential new supply, according to Ed Longanecker, president of Texas Independent Producers
and Royalty Owners Association (TIPRO)
And with its usual 2-4 month delay, the market is finally starting to realize just this.
As expected, Reuters writes that for now, most of the wells are activated in Texas, where proximity
to refiners allows producers to sell their crude closer to benchmark prices, and by well-hedged companies
that have locked in higher prices.
Still, the pace of fracking of the uncompleted wells may quicken if cash-strapped producers
facing debt repayments can no longer afford to store their oil in the ground.
While the potential additional supply is a fraction of total U.S. production of around 9 million
bpd, the fresh flow would reinforce concerns about a growing global glut just as Iran ramps up
output and inventories in domestic storage tanks from the Gulf to Cushing, Oklahoma, test new
highs on a weekly basis.
But back to the DUCs, which are a new development for many of the algos which have been trading
oil on nothing but momentum:
Wood Mackenzie reckons that the backlog of excess DUCs will decline over the next two years,
and return to normal levels by the end of 2017. It is expected to fall 35 percent from current
levels in the Bakken and 85 percent in the Eagle Ford by the end of 2016. With service costs down,
now is a good time to bring a well online if a company has hedged its production and covered its
costs, said Jonathan Garrett, an analyst with Wood Mackenzie. The U.S. crude breakeven for such
wells is one-third lower than for new ones, according to Wood Mackenzie.
Typically, average DUC inventory is around 550 in the Wolfcamp/Bone Spring formations and around
300 in the Eagle Ford, Beeker estimates. Rival Oasis is also focusing on drawing down its backlog
this year, executives said during the company's last earnings call.
In each of those formations, the excess has fallen by about 150-175 over the past six months,
bringing the surplus to around 300 wells in each. " We're just going to be continuously
completing the wells there (in the Permian) with our fleets and so you will not see any DUCs in
Midland basin," Pioneer Chief Operating Officer, Tim Dove, told a recent earnings conference.
And then the story verges off to something else we have warned about, namely soaring hedging as
oil has rebounded, allowing producers to lock in profits even in case oil should once again resume
sliding from this price. Both Pioneer and rival Oasis have locked in future sales at prices well
above current levels. Oasis has 70 percent of its oil production for 2016 hedged above $50 a barrel
and roughly 20 percent of its 2017 production hedged at about $47 a barrel. Similarly, Pioneer has
locked in a minimum price for 85 percent of this year's production.
To be sure, not everyone will be able to ramp up production: in North Dakota, the second-largest
oil-producing state where producers like Whiting Petroleum Corp sell their oil at steep discounts,
it might not be economic Reuters calculates. There, the number of DUCs climbed above 1,000 in September
before falling to 945 in December, according to the latest data from the state's energy regulator.
Bakken producer Continental Resources Inc which made waves when it unwound its hedges in late
2014, has said it would continue to defer completions until prices rise. Bakken discounts were
just too steep, said Garrison Allen, a research associate at Raymond James. "It doesn't make sense
to do anything up there."
But not everyone is needed to ramp up production: even if shale output rises by just a few hundred
thousand barrels in the short term, that will be enough to push the US storage situation, already
at critical point, into beyond operation capacity levels, and lead to dumping of oil in the open
market, resulting in the next major leg lower in oil prices, which in turn will spillover into energy
stocks and the broader market, and force central banks to consider what until recently was merely
a joke, namely monetizing crude in the open market. After all, at this point when central banks have
lost all credibility, why not?
Rapid swings in supply/demand and prices is actually one of the predictions of what would happen
when we hit peak (or long plateau if you prefer). World peak oil was expected somewhere between
2008 and 2020 by the majority of estimates. Remember, peak oil isn't about running out of crude
. It's about falling extraction rates in the face of higher costs to extract. Tar sands and shale,
for example, is very expensive oil as evidenced by the drop off of the industry in Canada and
North Dakota when prices fell below $50 . Once the easy oil peaks, and capital no longer is able
to respond to the rapid feast and famine , THEN you'll start to notice the reality that was always
there with peak oil.... $5 gas, gas lines, etc. It will be the Jimmy Carter days all over again.
If amount of the energy needed to extract and process a unit of gas/oil is greater or equal
to the amount of energy from a unit of gas/oil, then oil/gas stays in the ground irresspective
of the volume.
REUTERS is the establishment propaganda mouthpiece. production may be increasing, but i DOUBT
its gonna hurt the price. they just want you to think that.
"... The key factor here is that the amount of oil to replace natural depletion of existing wells that can be extracted at prices below $70 is low to compensate natural depletion. For example, despite all this buzz about rising efficiency of shale production, the US shale does not belong to this category. ..."
"... Low oil price regime started to show crack already in early 2016, when agreement to freeze production was first discussed. Essentially in plain English that is a message to oil importing countries "f*ck yourself". ..."
"... The next step will be agreement to limit production based on natural decline rates and low capex environment. The huge, paranoid level of fear of such an agreement is clearly visible now in MSM. And of course the US state department along with EU will do the best to crash such a possibility. ..."
"... In other words this shale/Saudi induced price crash just speeded up the day of reckoning by several years and will make the next spike of oil prices much closer and much higher. ..."
"... How long the oil prices can be suppressed by the threat of resumption of shale production remain to be seen, but if there will be a bounce in shale production at below $80 prices it will be a "dead cat bounce" and will not last long as if prices drop again all those guys who tried to anticipate higher price environment and started "carpet bombing", sorry, drilling, again will be swimming naked again. Shale is a Red Queen race in any case. That means that shale will add to amplitude of the oscillations of the oil prices and might somewhat prolong the agony, but can't prevent oil price rise to above $80 level. ..."
All I am sure that none of us know what will happen.
What do you mean? Here most posters are adherents of the peak oil hypothesis. If so, this is
a nonsense statement.
Bets when oil will , say, above $80 belong to the casino, but if trend is predicted right then
it is clear that the prices should rise at least to the max level they reached before (above $100)
within some reasonable period (say before magic 2020). And to above $70 within much shorter time
period. Probably with some crazy spikes in both directions in between. When Wall Street speculators
see profits around 25% a quarter they are ready to kill own mother.
The key factor here is that the amount of oil to replace natural depletion of existing
wells that can be extracted at prices below $70 is low to compensate natural depletion. For example,
despite all this buzz about rising efficiency of shale production, the US shale does not belong
to this category.
It will be more difficult to induce the second oscillation of oil prices by repeating the same
trick again with forcing debt burdened producers to produce at a loss. When oil producers were
caught naked in 2014 with a lot debt to service they have no choice but to continue production.
That was an interesting neoliberalism induced wealth redistribution play in which oil producing
countries started to subsidize oil importing countries (aka G7) to the tune of 0.5 trillion a
year. They did it instead of working together on conservation and keeping oil price at reasonable
level they destabilized the system using Saudi in a bait and switch fashion. It might be an Obama
attempt to bring Russia to knees, attempt to save economy from secular stagnation or sling to
new recession, whatever. What is done, is done. But this racket can't run forever. And what can't
run forever will eventually stops.
Low oil price regime started to show crack already in early 2016, when agreement to freeze
production was first discussed. Essentially in plain English that is a message to oil importing
countries "f*ck yourself".
The next step will be agreement to limit production based on natural decline rates and
low capex environment. The huge, paranoid level of fear of such an agreement is clearly visible
now in MSM. And of course the US state department along with EU will do the best to crash such
a possibility.
But if such an agreement materialize despite all efforts to block it, it will have effect of
the A-bomb on Wall street speculators and the second nail into "oil price forever" myth coffin.
The same speculators who drove the oil price down from this point will drive it up like there
is tomorrow. And as GS trading desk change their bets, those despicable presstitutes from Bloomberg
instantly will change tone and start crying loud about coming oil crisis. Financial oligarchy
has no allegiance to any country, only to their own bank accounts.
In other words this shale/Saudi induced price crash just speeded up the day of reckoning
by several years and will make the next spike of oil prices much closer and much higher.
How long the oil prices can be suppressed by the threat of resumption of shale production
remain to be seen, but if there will be a bounce in shale production at below $80 prices it will
be a "dead cat bounce" and will not last long as if prices drop again all those guys who tried
to anticipate higher price environment and started "carpet bombing", sorry, drilling, again will
be swimming naked again. Shale is a Red Queen race in any case. That means that shale will add
to amplitude of the oscillations of the oil prices and might somewhat prolong the agony, but can't
prevent oil price rise to above $80 level.
"... Crude Mystery: Where Did 800,000 Barrels of Oil Go? Last year, there were 800,000 barrels of oil a day unaccounted for by the International Energy Agency, the energy monitor that puts together data on crude supply and demand. Where these barrels ended up, or if they even existed, is key to an oil market that remains under pressure from the glut in crude. ..."
"... "The most likely explanation for the majority of the missing barrels is simply that they do not exist," said Paul Horsnell, an oil analyst at Standard Chartered. ..."
Crude Mystery: Where Did 800,000 Barrels of Oil Go?
Last year, there were 800,000 barrels of oil a day unaccounted for by the International Energy
Agency, the energy monitor that puts together data on crude supply and demand. Where these barrels
ended up, or if they even existed, is key to an oil market that remains under pressure from the
glut in crude.
Some analysts say the barrels may be in China. Others believe the barrels were created by flawed
accounting and they don't actually exist. If they don't exist, then the oversupply that has driven
crude prices to decade lows could be much smaller than estimated and prices could rebound faster.
Whatever the answer, the discrepancy underscores how oil prices flip around based on data that
investors are often unsure of.
… "The most likely explanation for the majority of the missing barrels is simply that they do not
exist," said Paul Horsnell, an oil analyst at Standard Chartered.
"... It looks more like the chaos of a failed state rather than a popular uprising to remove an authoritarian government. The implication of this difference is that a return of Libyan oil production to prior levels is highly unlikely until there is a massive stabilization achieved, and I wouldn't be holding my breathe for that. ..."
"... The people are hungry and without hope as long as conditions remain the way they are so they riot to try to change them. It is, very likely, just the first stages of world collapse. ..."
"... Arab spring is a variant of a "color revolution". From Google search of the term: ..."
Minor quibble Dennis.
You commented- "Libya is struggling with their own Arab Spring"
I think that characterization of what is going there on is off base.
It looks more like the chaos of a failed state rather than a popular uprising to remove an authoritarian
government.
The implication of this difference is that a return of Libyan oil production to prior levels is
highly unlikely until there is a massive stabilization achieved, and I wouldn't be holding my
breathe for that.
It's Ron, not Dennis. It all depends on your definition of "Arab Spring" And I see you have provided
your own definition, "a popular uprising to remove an authoritarian government."
The Arab Spring was a series of anti-government protests, uprisings and armed rebellions
that spread across the Middle East in early 2011. But their purpose, relative success and outcome
remain hotly disputed in Arab countries, among foreign observers, and between world powers looking
to cash in on the changing map of the Middle East….
But the events in the Middle East went in a less straightforward direction.
Egypt, Tunisia and Yemen entered an uncertain transition period, Syria and Libya were
drawn into a civil conflict, while the wealthy monarchies in the Persian Gulf remained largely
unshaken by the events. The use of the term the "Arab Spring" has since been criticized for
being inaccurate and simplistic.
The Arabs themselves cannot agree on the definition of "Arab Spring". It is basically just
an uprising of the general population protesting the hardships of their lives. I would say that
the Arab Spring, in any country, is just the first stages of a failed state. I think there is no doubt that what is happening in Libya was caused by the same conditions
that has caused similar uprisings throughout the Arab world. The people are hungry and without
hope as long as conditions remain the way they are so they riot to try to change them. It is, very likely, just the first stages of world collapse.
The dream of transition to a 'consuming' economy just crashed into
the wall of excess debt and leverage. 2016 has started with a
44% collapse in China passenger car sales
. This is
the
biggest sequential crash and is 50% larger than any
other plunge in history.
Coming at a time when vehicle
inventories are near record highs relative to sales, the world's
automakers - all toeing the narrative line that growth will be from
China - now face a harsh reality of massie mal-investment deja vu.
"... There has been a long history of oil price model failures. I was wondering whether you could comment on how your model has overcome the weaknesses of earlier models. I have the impression that the oil price in the short, medium but also long term depends on many highly non-linear factors. That just makes it difficult for me to see how any model, even just theoretical, could make reasonable predictions. ..."
There has been a long history of oil price model failures. I was wondering whether you could
comment on how your model has overcome the weaknesses of earlier models. I have the impression
that the oil price in the short, medium but also long term depends on many highly non-linear factors.
That just makes it difficult for me to see how any model, even just theoretical, could make reasonable
predictions.
Suppose there was such a model, that had a little better predictive power than the market.
Wouldn't market participants then not rush in to make money using the model, which would again
destroy its predictive power?
The idea to use autocorrelation came from just eyeballing Figure 1. Low prices seemed to be
associated with constant rates of growth. If the rate of growth decreases or stops, the price
pops. I gave a bunch of variables to Aude (who is a statistician) and asked her to look for correlations.
She fiddled around with the data for some time trying different transformations. When she came
back with what worked I slapped myself and wondered why I hadn't told her to try that first.
As I said in the introduction, this work is preliminary and there is a lot we don't know. What
I believe is going on is that many variables normally associated with demand are hidden in past
extraction data. Exactly which variables are included and which excluded is to be determined.
I think that if traders started using this model to estimate prices the model would work better.
It would be a self fulfilling prophecy. The reason for this is that I think price speculation
is not included in the variables used, so if the speculators were closer to the "right" price,
there would be less variation.
If data were available it would be interesting to split the model by API density using the
average price for each tranche of density. The model explained past data much better with EIA
C & C data than it did with the BP data that included NGL (as Dennis thought it would).
If you have references to other price models, I am interested as well.
"... Since the EIA analysis is based on current production, changes in EURs and future areas of
derisked production are not included. For example the Permian, and Three Forks have zones that have
little production history and are not included. Also plays that are just opening up, like the Unita,
which has 1.2 trillion barrels of OOIP, is just now seeing horizontal wells with good results being
drilled in zones that has never see this type of drilling. ..."
"... With respect to LTO extraction, in my opinion the big revolution is that because of high initial
flow rates and short investment cycles, LTO extraction has introduced boom bust economics to oil extraction.
In terms of the price model LTO extraction could bring on a faster decline in oil extraction by scaring
investors away from longer cycle extraction projects such as deep water. ..."
"... The Saudis recognized that LTO production growth was a product of cheap and plentiful financing.
They set out to pop the bubble and they have. The bankruptcies are piling up. LTO economics are overstated.
The wells will not produce anything close to what the companies claim. LTO could come back if the banks
and debt investors are dumb enough to lend to the companies. My guess is that any debt financing will
have much higher costs and tighter covenants. Borrowing for 10 years unsecured at 4-5% probably won't
be coming back. ..."
One of the problems with using historical models to make predictions is that when disruptive technology
comes along this type of model may have errors that are hard to adjust for.
Many believe that Light Tight Oil (LTO, also known incorrectly as shale oil), is only a high
priced flash in the pan, that will quickly die. Over the past few years both of these assumptions
are proven to be quite wrong.
The EIA on Sept 24, 2015 came out with an updated report under "Analyisis & Projections" called
"World Shale Oil Assessments"
This analysis places the U.S. LTO resource potential at 78.2 billion barrels. A detailed breakdown
can be seen by clicking on "US" in the
table.
The U.S. analysis is a bottoms up analysis taking (1) the area of potential, (2) well spacing,
(3) EUR per well to determine what they call the "Technically Recoverable Resource " (TRR). When
doing a Peak Oil Analysis, these is what the ultimate recoverable is.
It should be noted that EURs can change quite a bit so for example for the Bakken they sub
divided it into 41 subregions.
The other piece of the disruptive technology is the cost of production. Over the last few years
this has come down much more than many believe. The lower costs can be seen in two ways.
The first place is in the EIAs monthly "Productivity Report" which shows that rig production
in barrels per day per month, for the last five years, in the Bakken has gone from 100 to 230,
and in the Eagle Ford it has gone from 100 to 300. This equates to a major reduction in costs.
The second way lower costs can be seen is what ROR the oil and gas companies are expecting.
For example EOG is estimating that their ATROR for five different plays is 30% at a WTI price
of $40. Just a few years ago the threshold price of LTO was throught to be $80 to $100.
Since the EIA analysis is based on current production, changes in EURs and future areas
of derisked production are not included. For example the Permian, and Three Forks have zones that
have little production history and are not included. Also plays that are just opening up, like
the Unita, which has 1.2 trillion barrels of OOIP, is just now seeing horizontal wells with good
results being drilled in zones that has never see this type of drilling.
The beautiful part of this model is that it does not take extraction cost into account. Whatever
the cost of extraction, based on what is extracted, this model gives you the price.
With respect to LTO extraction, in my opinion the big revolution is that because of high
initial flow rates and short investment cycles, LTO extraction has introduced boom bust economics
to oil extraction. In terms of the price model LTO extraction could bring on a faster decline
in oil extraction by scaring investors away from longer cycle extraction projects such as deep
water. Can LTO extraction replace all other types of extraction? If extraction levels decrease,
the model says the base price will decrease as well. This will accelerate the contraction phase.
I believe that what has happened in this cycle in the oil market is that an increase in U.S. production
from LTO of one million barrels a day for four years caused the S/D balance to shift to over supply.
The difference in this cycle, making it longer and deeper than expected is the Saudi change
in response.
From 1999 to 2013, each time there was a dip in price the Saudis cut their production by an
average of 1.5 million barrels a day. This happened five times.
In 2013 as prices started down they started to cut production, but then something changed.
As prices went lower instead of cutting production they increased it by over one million a day.
Was it to punish Iran or Russia. I don't think so. I believe it was to slow down the runaway
freight train of US LTO production. I believe that they understand the potential of this new resource
to change the oil market.
The Saudis recognized that LTO production growth was a product of cheap and plentiful financing.
They set out to pop the bubble and they have. The bankruptcies are piling up. LTO economics are
overstated. The wells will not produce anything close to what the companies claim. LTO could come
back if the banks and debt investors are dumb enough to lend to the companies. My guess is that
any debt financing will have much higher costs and tighter covenants. Borrowing for 10 years unsecured
at 4-5% probably won't be coming back.
"... Light tight oil is not your average crude oil. I suspect it is clogging up US inventories after the import substitution phase ended and after some modifications to US refineries were completed. This glut created the perception in markets that there is a global glut (and contributed to bring down oil prices) while it is not ..."
"... Where actually is that much-hyped global oil glut? http://crudeoilpeak.info/where-actually-is-that-much-hyped-global-oil-glut ..."
Light tight oil is not your average crude oil. I suspect it is clogging up US inventories after
the import substitution phase ended and after some modifications to US refineries were completed.
This glut created the perception in markets that there is a global glut (and contributed to bring
down oil prices) while it is not
In fact crude imports went up again in the last months. Anyway, shale production has peaked
now according to the latest drilling productivity report. The following 2014 report describes
the mismatch between shale oil production and US refinery capabilities (slides 7-9)
"... It is sometimes said the futures curve is not "forward-looking". If that means the curve is not a simple forecast and is not good at predicting what will happen to spot prices in future, the statement is correct. ..."
"... Given many market participants believe oil supplies will fall sharply, demand will increase, and stocks will peak and begin to fall later this year, the recent rise in prices and narrowing of the contango are entirely rational. Any other price response would be irrational because it would violate the requirement for inter-temporal consistency. The market could be wrong in its expectations for supply, demand, stocks and prices later in the year and in 2017, but it is being absolutely rational. ..."
"... If futures prices are above the spot price, the spread is negative and the market is said to be in contango. If futures prices are below the spot, the spread is positive and the market is trading in backwardation. ..."
"... In most cases, rising spot prices will be accompanied by a narrowing of the contango (or a move from contango into backwardation). Conversely, falling spot prices will normally be accompanied by a widening of the contango (or a move from backwardation into contango). This is exactly what is happening at the moment: the market's newfound bullishness is resulting both in a rise in the spot price of Brent and a narrowing in the contango. ..."
"... In most cases, higher prices have been associated with a narrower contango, or even backwardation, while lower prices have been associated with a wider contango ( tmsnrt.rs/22p6Fmy ). ..."
"... In the current environment, the oil market is looking past short-term oversupply towards the end of 2016 and 2017 when oversupply is expected to be much less, or there might even be excess demand. ..."
"... Via the storage and inventory financing relationships embedded in the futures curve, the expectation of a future tightening in the supply-demand balance later in 2016 and 2017 is pulling up the spot price of oil now. ..."
LONDON, March 17 The oil futures curve is flattening as a wave of bullishness washing across the
market raises the price of near-dated contracts faster than that of contracts for deferred delivery.
Brent for delivery in May 2016 has risen more than $10 per barrel since early February, while
prices for delivery in 2017 are up less than $7 over the same period.
The discount for Brent crude delivered in May 2016 compared with the average of 2017, a price
structure known as contango, has narrowed from $9 to well under $6 per barrel since Feb. 11 (
tmsnrt.rs/22p4vn8 ).
The shape of the futures curve is intimately connected with expectations about supply, demand,
stocks and the availability of storage ("Brent contango is hard to square with missing barrels",
Reuters, March 10). So the narrowing contango implies the market now expects less oversupply and
a smaller build-up in stocks in the months ahead. But market bullishness is at odds with warnings
from influential analysts forecasting supply will continue to outstrip demand and stocks rise ("Oil
shrugs off Goldman warning about premature rally", Reuters, March 14).
MAYBE WRONG, BUT RATIONAL
It is sometimes said the futures curve is not "forward-looking". If that means the curve is
not a simple forecast and is not good at predicting what will happen to spot prices in future, the
statement is correct.
But the futures market is actually very forward-looking and focused on how the balance between
supply, demand, stocks and prices will evolve in the coming months and years. Via the futures curve
and the mechanism of financing and storage, those expectations about medium-term supply, demand,
stocks and prices are ruthlessly discounted back to the present.
Given many market participants believe oil supplies will fall sharply, demand will increase,
and stocks will peak and begin to fall later this year, the recent rise in prices and narrowing of
the contango are entirely rational. Any other price response would be irrational because it would
violate the requirement for inter-temporal consistency. The market could be wrong in its expectations
for supply, demand, stocks and prices later in the year and in 2017, but it is being absolutely rational.
SPOT PRICES AND SPREADS
The price of oil for delivery on a future date (e.g. calendar average 2017) can be thought of
as the sum of a spot price (May 2016) and a spread (the price difference between May 2016 and the
calendar average of 2017).
As a matter of convention, the spread is normally expressed as the spot price minus the futures
price (it can just as easily be expressed the other way round).
If futures prices are above the spot price, the spread is negative and the market is said
to be in contango. If futures prices are below the spot, the spread is positive and the market is
trading in backwardation.
For example, if the future price is $50 and the spot price is $40, the future price can be analyzed
as a spot price of $40 plus a spread of $10 contango.
Many real trades are arranged this way, with the customer buying (selling) near-dated futures
contracts and then adjusting their position by selling (buying) the spread between the near date
and the forward one. The advantage of executing trades as two transactions (spot and spread) rather
than just one is that it enables dealers and customers to make best use of the greater liquidity
in spot contracts. In principle, spot prices and spreads are determined independently and can move
separately. In practice, there is normally a high degree of correlation between them.
In most cases, rising spot prices will be accompanied by a narrowing of the contango (or a
move from contango into backwardation). Conversely, falling spot prices will normally be accompanied
by a widening of the contango (or a move from backwardation into contango). This is exactly what
is happening at the moment: the market's newfound bullishness is resulting both in a rise in the
spot price of Brent and a narrowing in the contango.
PRICES MOVE TOGETHER
As the market becomes more bullish, the price of contracts for short-term delivery rises faster
than the price of contracts for later delivery. The result seems paradoxical since an improved outlook
for supply-demand balance over the next few months and years has its biggest impact on the price
of oil delivered now. In fact, this behaviour is typical for oil and other commodity markets.
Over the period from 1992 to 2016, taken as a whole, there is no correlation between the level
of oil prices and the degree of contango or backwardation in the futures curve (
tmsnrt.rs/22p42kQ ).
High spot prices have coincided with backwardation (January 2008) and contango (May 2008). Low
spot prices have coincided with contango (January 1999) and backwardation (April 1999).
But the large shifts in the absolute level of prices since 1992 obscure the short-term relationship
between spot prices and the shape of the futures curve. A more granular analysis reveals there has
been a fairly close correspondence between spot prices and the shape of the futures curve for most
sub-periods since 1992.
In most cases, higher prices have been associated with a narrower contango, or even backwardation,
while lower prices have been associated with a wider contango (
tmsnrt.rs/22p6Fmy ). This relationship
has held in almost all sub-periods since 1992 with the exception of 2005/06 and the first half of
2008 ( tmsnrt.rs/22p49wG ).
The relationship grows even stronger if we compare the change in prices with the change in the
shape of the curve.
That makes sense since an increase in spot prices is associated with a narrowing of the contango,
and a fall in spot prices is associated with a widening of the contango; both respond to the expected
supply-demand balance.
LOOKING BEYOND THE GLUT
Since 1992, changes in the outlook for oil production, consumption and stocks have had the biggest
impact on futures contracts near to delivery rather than those with longer maturities.
As a result, spot prices have been much more volatile than the price of futures contracts with
many months or years to delivery. In the current environment, the oil market is looking past
short-term oversupply towards the end of 2016 and 2017 when oversupply is expected to be much less,
or there might even be excess demand.
Via the storage and inventory financing relationships embedded in the futures curve, the expectation
of a future tightening in the supply-demand balance later in 2016 and 2017 is pulling up the spot
price of oil now.
The market might be wrong to expect the supply-demand balance to tighten by the end of 2016 or
early 2017. The short-term increase in oil prices could also be self-defeating if it stimulates more
production and thereby perpetuates the oversupply ("New oil order: the good, the bad and the ugly",
Goldman Sachs, March 11). But if the market is right to expect the supply-demand balance will tighten
later in the year or in 2017, then spot prices have to rise now and the contango must narrow. Any
other outcome would be time-inconsistent. (Editing by Dale Hudson)
The 21st century version of the American gold rush is coming to a swift end.
A shakeout is sweeping through the U.S. oil and gas business, putting small-time petroleum
prospectors who got rich off of shale energy out of business as rock-bottom oil prices reshape
the sector despite the commodity's slight uptick in recent weeks.
The pain low oil prices have sparked has spread into other corners of the energy industry. This
week, coal miner Peabody Energy warned that it may have to file for bankruptcy protection and
SunEdison, a developer, installer and operator of alternative energy plants said it discovered
problems in its accounting processes, the latest in a string of troubles for the company.
"... Iran's condensate production is increasing along with production of natural gas. Gains followed completion a few months ago of several development phases at giant offshore South Pars field, including phases 12, 15-16, and 17-18, which added 120,000 b/d of condensate ready for export. Most of the condensate is being stored at sea, occupying two thirds of Iran's current floating capacity and awaiting a buyer. Iran's condensate production is expected rise even further in 2016. ..."
"... It is thus conceivable that Iran can raise its crude oil production about 500,000-700,000 b/d within 3 months, and up to 800,000 b/d within 6 months. ..."
"... Most of Iran's competitors supplying similar crude oil to the same markets, mainly Saudi Arabia and Kuwait, have secured their sales by signing term agreement with customers. These commitments are usually for at least 1 year. ..."
"... Since Iran lacks a huge capacity to store unsold oil, it could increase crude oil production only slowly and cautiously. ..."
"... The outlook for Iranian condensate is different. High in sulfur, Iran's condensate is considered a light crude and is traded at prices higher than those of its heavy oil. Iran has fewer competitors for condensate-for which demand, particularly in Asia, is high-than for oil. ..."
"... Condensate flow will increase with gas production, particularly from South Pars field, an extension of Qatar's supergiant North field. The field has been Zangeneh's highest priority for development. ..."
Iran's mature oil fields are in advanced stages of decline. The US Energy
Information Administration estimates that Iranian oil fields have natural
decline rates of 8-11% and recovery rates of 20-25%.
Iran had planned to employ water and gas injection for enhanced oil recovery.
Gas injection in mature field was to have reached 330 million cu m/day by
the end of 2016. Since 2011, however, Iran hasn't been able to reach more
than 60% of its gas-injection goals. The average of actual gas injected
between March 2006 and March 2011 never increased more than 75% of what
was originally planned.
... ... ...
After the European Union-imposed embargos on exports and shipping insurance
in 2012, Iranian oil exports fell to almost half their level of a year earlier,
forcing National Iranian Oil Co. (NIOC) to cut production and shut down
some of its fields. The cuts of course focused on very mature, inefficient
fields and wells, especially those producing heavy and extra-heavy crude
oil.
In all, Iran's production and production capacity have been hammered.
Since Iran cannot produce crude oil at maximum potential rates, and because
it has had to halt production from some of its older fields, analysts cannot
precisely estimate Iran's production capacity. Estimating potential recovery
from idle fields would be guesswork.
The Iranian oil ministry estimates the country's crude oil production
capacity at 3.5-3.7 million b/d. With condensate considered to be light
crude oil, production capacity rises to perhaps 4 million b/d.
Production rebound
Aside from real uncertainties about oil production capacity, Iran's ability
to increase production in case of sanctions relief is another major question.
If sanctions are lifted, how much and for how long will it take Iran to
increase its production?
Oil Minister Bijan Zangeneh announced that Iran's production could increase
by up to 1 million b/d quickly. The International Energy Agency estimates
that Iran's production capacity is 3.6 million b/d and that the country
can increase output by 600,000-800,000 b/d within 3 months. In May, the
IEA reported Iranian production in April of 2.88 million b/d, up 90,000
b/d from March.
Two main uncertainties hamper predictions about Iran's oil production
rebound. The first is Iran's technical ability to raise output. The second
is the country's ability to export oil.
Some observers argue that production cuts in old fields have enabled
reservoir pressures to increase and might allow production to resume at
high rates. Gas injection also might boost output in mature fields within
3-6 months.
Iran's condensate production is increasing along with production
of natural gas. Gains followed completion a few months ago of several development
phases at giant offshore South Pars field, including phases 12, 15-16, and
17-18, which added 120,000 b/d of condensate ready for export. Most of the
condensate is being stored at sea, occupying two thirds of Iran's current
floating capacity and awaiting a buyer. Iran's condensate production is
expected rise even further in 2016.
It is thus conceivable that Iran can raise its crude oil production
about 500,000-700,000 b/d within 3 months, and up to 800,000 b/d within
6 months.
But the other question, access to the market, remains unanswered. The
sanctions target Iranian exports. It might take at least 3-6 months from
the time of a nuclear agreement for sanctions to be lifted significantly.
And removal of the ban on imports of Iranian oil in Europe requires a consensus
of EU members. This might be hard to achieve quickly.
There is no doubt that any nuclear deal will have an immediate psychological
effect on the market. Sales negotiations will start, and Iran at least could
slightly increase its crude oil and condensate exports, particularly by
the last quarter of this year when a seasonal demand increase in Iran would
absorb some of the incremental production.
Regaining market share
Beyond sanctions, Iran's other challenge for raising its oil exports
is regaining lost market share. This problem is particularly acute at a
time of oversupply and low oil prices.
Most of Iran's competitors supplying similar crude oil to the same
markets, mainly Saudi Arabia and Kuwait, have secured their sales by signing
term agreement with customers. These commitments are usually for at least
1 year.
So Tehran has no choice other than to sell most of its oil in the spot
market for the next year. It will have to create incentives for signing
term contracts to regain long-term market share. Since Iran lacks a
huge capacity to store unsold oil, it could increase crude oil production
only slowly and cautiously. With prices low, it doesn't make sense
for Iran to rent tankers as floating storage and sell oil at further discounts.
Oil stored at sea will encourage Iran's customers to push for further discounts.
The outlook for Iranian condensate is different. High in sulfur,
Iran's condensate is considered a light crude and is traded at prices higher
than those of its heavy oil. Iran has fewer competitors for condensate-for
which demand, particularly in Asia, is high-than for oil.
Condensate flow will increase with gas production, particularly from
South Pars field, an extension of Qatar's supergiant North field. The field
has been Zangeneh's highest priority for development.
Condensate makes up much of the 30 million bbl of oil Iran currently
holds in floating storage, which will provide the first cargos ready for
immediate export when sanctions are lifted. This offloading would reduce
rental costs while Iran prepared to boost production. Therefore, we can
expect an immediate release of oil from floating storage upon any possible
deal at the end of June or in early July.
If negotiations lead to a comprehensive deal on Iran's nuclear program
by the end of June or early July, Iranian production and exports will rise
about 200,000 b/d by the end of 2015 because at least some of the sanctions
might then have been eased and because global demand will be seasonally
high. The rest of the country's production and export increase would enter
the market gradually through mid-2016.
An open question is how extra Iranian supply would affect the global
oil market. While predictions vary for production from shales and other
low-permeability formations in 2016, most analysts expect low oil prices
at least to suppress growth rates from these sources if not to cause declines
in the next year or two. Decline forecasts have been as high as 1 million
b/d of so-called tight oil.
A gradual rise of crude and condensate from Iran thus might be offset
by a decline from shale next year and have a modest impact on the price
of oil. That balance, of course, has a broader geopolitical context as crises
in Yemen and Iraq keep upward pressure on the crude price.
The author Sara
Vakhshouri is founder and president of SVB Energy International, a strategic
energy consulting firm based in Washington, DC. She advises international
corporations, think tanks, investment banks, and law firms on global energy
markets, geopolitics of energy, and investment patterns. During 2000-08,
she worked in the public and private sectors of the Iranian energy industry.
From 2004 to 2005, she worked as an advisor to National Iranian Oil Co.
International, a division responsible for marketing and sale of Iranian
crude oil and products. Vakhshouri holds a PhD in energy security and Middle
Eastern studies and was a visiting fellow at Oxford Institute for Energy
Studies. She has MA degrees in business management (international marketing)
and international relations.
For last month, OPEC's crude oil production dropped 90,000 barrels per day, on some small losses
in Iraq, Nigeria and the United Arab Emirates, but new production from Iran and the maintenance of
the production status quo in Saudi Arabia has kept losses to an overall minimum. Production from
Iraqi, Nigeria and UAE combined fell by 350,000 barrels per day in February.
We could also expect continued declines of exports coming from Iraq in March
"... I have read your comment on the last thread and I completely disagree with your point 2 that you make: "shale companies have always been growth-oriented, and the market (investors and lenders) has been rewarding them for growth rather than capital discipline." This a definition of ponzi scheme that you describe and ponzi always end when you run out of greater fools. And shale is at that point. Their relentless drilling of the remaining sweet spots AT ANY price will not change their financials at all. ..."
"... Oil price will steadily rise as shale start running out of the sweet spots and their production start decreasing so shale will never meet that imaginary price of $80-$100. Shale will run out of sweet spots long before the price is at $80-100 range. ..."
"... If we both agree that shale is continuously drilling regardless of price and profit how can you claim (on the last thread) that shale will make new peak in production at some imaginary future higher price point? What is the basis of that assumption? ..."
"... There was a very simple, albeit pervert, economic logic in 2015 - top brass bonuses (along with several other factors like pipeline contracts, etc). Redistribution of wealth up should never stop :-) ..."
"... Are you sure? Which of major banks anticipates bright conditions for junk bond market, and especially shale junk bonds, in 2017 ? I think most banks increased their loss provisions from junk for 2016. In view that survival of companies is in question, inquiring minds want to know, who are those happy investors who by trying to earn some extra points (chasing yield) already lost quite a bit of money and want to lose more. Or this is just new fools from never ending global supply. But like with oil there might be that "peak fools" moment is behind us :-) . ..."
"... If WTI is on average $40-45 by the end of the 2016 how much US shale and US total production will be on December 2017? ..."
"... The decline might be as high as 1.5 Mb/d for total US output if oil prices remain under $43/b, with shale maybe about half of this (800 kb/d), the EIA is predicting WTI at $35/b in Dec 2016 and $45/b in Dec 2017 (the EIA's oil price forecast is too low in my view). ..."
"... Very difficult to predict, it may be that capitulation in the US oil sector is close at hand. In that case output falls by more than I have guessed, but there is no way the EIA price forecast turns out to be correct in that case. ..."
"... If US falls by 1 Mb/d, that may be enough to balance the oil market,… ..."
"... And what do you think might happen in the rest of the world? In 2016 oil production will fall in most oil producing countries. Oil production will rise in a very few countries. The oil market may balance a lot sooner than a lot of people realize. ..."
"... You may be correct on that point. If we take the US and Canada out of the equation I think increases in Iran's output might balance the declines in World minus US+Canada+Iran. The question then becomes (if my previous assumption is roughly correct), how much does US+ Canada decline in 2016? My guess is 1.25 Mb/d. I would be interested in your estimate, because you track the numbers more closely than me. Or just your estimate for World C+C decline in 2016 would be fine. ..."
"... Thanks Dennis. I don't think the increase in Iranian production will come close to offsetting the decline in the rest of the world minus the US and Canada. I believe the decline in ROW less US and Canada will be about twice the increase expected from Iran. ..."
"... Breaking it down, Iran may increase production, from February, another half a million barrels per day. That would be almost 700,000 bpd from their January production. The rest of OPEC will be flat to down, most likely down slightly. Non-OPEC, less US and Canada will be down from one million to 1.2 million bpd from their December production numbers. ..."
"... Did you mean 1-2 oil sands project that are very close to completion in 2018? I think there is very minor one. But here is some hush – hush info from oil sands patch that there will not be any new oil sands project even if the price goes much higher in the near future without export pipeline in place. But who knows. ..."
I have read your comment on the last thread and I completely disagree with your point 2
that you make: "shale companies have always been growth-oriented, and the market (investors
and lenders) has been rewarding them for growth rather than capital discipline." This a
definition of ponzi scheme that you describe and ponzi always end when you run out of greater
fools. And shale is at that point. Their relentless drilling of the remaining sweet spots AT ANY
price will not change their financials at all.
Oil price will steadily rise as shale start running out of the sweet spots and their production
start decreasing so shale will never meet that imaginary price of $80-$100. Shale will run out
of sweet spots long before the price is at $80-100 range.
You asked why companies are still drilling when oil price is $37 and they are making losses?
I said that I do not see economic logic, but they were doing that in the past, continue to do
so now, and will continue to drill and complete wells at loss in the future.
I do not mind if you call it "ponzi scheme", but this is reality. In the first 2 months of
2016 shale companies sold about $10 in equity, diluting existing shareholders, but they found
new buyers. Bondholders are happy that oil companies' bonds are up 20% in the past month and are
ready to invest more. Private equity is ready to invest tens of billions in distressed companies.
I do not mind if you call all them fools, but this is reality.
Did I say that this is normal? I didn't. Did I say that this will continue forever? I didn't.
If we both agree that shale is continuously drilling regardless of price and profit how
can you claim (on the last thread) that shale will make new peak in production at some imaginary
future higher price point? What is the basis of that assumption?
Alex, You asked why companies are still drilling when oil price is $37 and they are making losses?
I said that I do not see economic logic
There was a very simple, albeit pervert, economic logic in 2015 - top brass bonuses (along
with several other factors like pipeline contracts, etc). Redistribution of wealth up should never
stop :-)
But 2016 is a completely different game. "After me deluge" type of thinking on the top run
its course: they run out of money and can't get new loans. For most shale companies it was something
like waking up the next morning after several days of binge drinking…
Bondholders are happy that oil companies' bonds are up 20% in the past month and are
ready to invest more.
Are you sure? Which of major banks anticipates bright conditions for junk bond market,
and especially shale junk bonds, in 2017 ? I think most banks increased their loss provisions
from junk for 2016. In view that survival of companies is in question, inquiring minds want to
know, who are those happy investors who by trying to earn some extra points (chasing yield) already
lost quite a bit of money and want to lose more. Or this is just new fools from never ending global
supply. But like with oil there might be that "peak fools" moment is behind us :-) .
http://knowledge.wharton.upenn.edu/article/do-junk-bond-defaults-signal-trouble-for-2016/
The iShares iBoxx $ High Yield Corporate Bond ETF, a $14.4-billion exchange traded fund
that tracks the performance of the junk-bond market, posted an annual loss of 5.5%, and ended
2015 off a startling 12.4% from its February high. Likewise, the S&P U.S. Issued High Yield
Corporate Bond Index lost 3.99% for the year, while BofA Merrill Lynch U.S. High Yield Index
fell 5% for the year, its first annual loss since 2008.
BTW Vanguard increased the quality of bonds in their junk bond fund. And that means that they
think that the storm is ahead not behind us.
In the Bakken, the number of well completions has fallen from 185/month for the 12 months ending
in March 2015 to 70 well completions in January.
If US falls by 1 Mb/d, that may be enough to balance the oil market, output in Canada may also
fall, the low oil prices will eventually reduce output and oil prices will rise maybe by late
2016, eventually (probably 6 months later) oil output will gradually flatten and then rise, possibly
reaching the previous peak, this will depend in part on demand for oil and the price of oil.
The decline might be as high as 1.5 Mb/d for total US output if oil prices remain under
$43/b, with shale maybe about half of this (800 kb/d), the EIA is predicting WTI at $35/b in Dec
2016 and $45/b in Dec 2017 (the EIA's oil price forecast is too low in my view).
Very difficult to predict, it may be that capitulation in the US oil sector is close at
hand. In that case output falls by more than I have guessed, but there is no way the EIA price
forecast turns out to be correct in that case.
Hi Dennis,
I agree on EIA price prediction in sense that I always stay away from predicting price for anything.
Even for my weekly grocery shopping bag. :-)
If US falls by 1 Mb/d, that may be enough to balance the oil market,…
And what do you think might happen in the rest of the world? In 2016 oil production will
fall in most oil producing countries. Oil production will rise in a very few countries. The oil
market may balance a lot sooner than a lot of people realize.
You may be correct on that point. If we take the US and Canada out of the equation I think
increases in Iran's output might balance the declines in World minus US+Canada+Iran. The question
then becomes (if my previous assumption is roughly correct), how much does US+ Canada decline
in 2016? My guess is 1.25 Mb/d. I would be interested in your estimate, because you track the
numbers more closely than me. Or just your estimate for World C+C decline in 2016 would be fine.
Thanks Dennis. I don't think the increase in Iranian production will come close to offsetting
the decline in the rest of the world minus the US and Canada. I believe the decline in ROW less
US and Canada will be about twice the increase expected from Iran.
Breaking it down, Iran may increase production, from February, another half a million barrels
per day. That would be almost 700,000 bpd from their January production. The rest of OPEC will
be flat to down, most likely down slightly. Non-OPEC, less US and Canada will be down from one
million to 1.2 million bpd from their December production numbers.
Thanks. I was under the impression that there were projects coming on line in that would offset
some of the 1.2 Mb/d decline in non-OPEC less US and Canada. I may be wrong of course (happens
all the time). :-)
Did you mean 1-2 oil sands project that are very close to completion in 2018? I think there
is very minor one. But here is some hush – hush info from oil sands patch that there will not
be any new oil sands project even if the price goes much higher in the near future without export
pipeline in place. But who knows.
Reuter in firmly in the "low price forever" camp so this article is within "central tendency".
The problem with this article that the accuracy of oil production reports is below 1Mb/d. So
0.76Mb/d "excess supply" might well be a statistical mirage.
LONDON (Reuters) - OPEC on Monday predicted global demand for its crude oil will be less than
previously thought in 2016 as supply from rivals proves more resilient to low prices, increasing
the excess supply on the market this year.
Demand for OPEC crude will average 31.52 million barrels per day this year, the Organization of
the Petroleum Exporting Countries said in a monthly report, down 90,000 bpd from last month's
forecast.
OPEC pumped 32.28 million bpd in February, the group said citing secondary sources, down about
175,000 bpd from January.
The report points to a 760,000-bpd excess supply in 2016 if the group keeps pumping at February's
rate, up from 720,000 bpd implied in last month's report.
While the oil price will rise in 2016, it will stay below the level at which shale
production is profitable. But drilling activity will start increasing again at price levels below
breakeven. I have recently read a prediction that we need to see $60-70 WTI to see many rigs added.
Completion rate will fall to around 50 new wells per month by May and might stays at that level
until Dec 2016. It is unclear how many more wells can be drilled in the remaining "sweet spots" and
drilling might be forced to move into more marginal areas Hovering around 100 per month during 2015,
spuds plunged in February 2016 to a multi year low of 29.
https://www.dmr.nd.gov/oilgas/stats/2016monthlystats.pdf.
Notable quotes:
"... In my opinion, the industry has finally cut production in earnest. This is very likely the main reason for the recent price recovery. The latest action provides a good basis for a significant price rise in the fall of 2016. ..."
In my opinion, the industry has finally cut production in earnest. This is very likely the
main reason for the recent price recovery. The latest action provides a good basis for a significant
price rise in the fall of 2016.
"... "The peaking of world oil production presents the U.S. and the world with an unprecedented risk management problem. As peaking is approached, liquid fuel prices and price volatility will increase dramatically, and, without timely mitigation, the economic, social, and political costs will be unprecedented. Viable mitigation options exist on both the supply and demand sides, but to have substantial impact, they must be initiated more than a decade in advance of peaking." ..."
"... Phil Butler, is a policy investigator and analyst, a political scientist and expert on Eastern Europe, exclusively for the online magazine "New Eastern Outlook" . http://journal-neo.org/2016/03/10/key-crisis-point-is-saudi-arabia-running-out-of-gas/ ..."
Saudi Arabia's ever increasingly hostile stance toward neighbors may not be as secular as some have
suggested. Given the nature of the country's oil reserves, and almost unlimited production for decades,
it's possible the Saudis could simply be running out of gas. Here's a candid look at the Saudi situation,
one which should be thought provoking. If the world has really reached the "peak oil" threshold,
a Middle East war may be inevitable.
Saudi Arabia has been a sort of model country for much internal
progress since the oil embargo of 1973 catapulted the members of the organization of petroleum exporting
countries (OPEC) into immeasurable profitability. Not the least of "progress" aspects derived from
oil money has been the elevated living standard of the nation's people. For a bit of a history lesson
on this, I revert to the bid by OPEC in the mid 70's.
The 1970's Happened
Be the end of the oil embargo imposed by OPEC, the price of oil had risen from $3 per
barrel to nearly $12 globally. In the US we felt the sting even more significantly as I recall.
The crisis literally shocked America, and later the 1979 "second oil shock" was to do even more catastrophic
damage. This was in the aftermath of several key events, but the Nixon administration's discovery
America could no longer keep up production of oil was the most significant. The story is a deep one,
but Saudi Arabia coming out on top as a world energy power was the end result. It was at about this
time Saudi production went into overdrive, and Saudi leaders soon became billionaires. Here's where
my story gets interesting.
Americans will remember an economic theory of the US President Ronald Reagan at about this time.
The so-called "Trickle Down Theory" was the catch phrase that captivated the masses then. Part joke,
part real economics, the idea of the fabulously wealthy getting richer, and their win filtering down
to poor people – well, it caught on big time. Reagan was one of the most popular presidents ever,
and for a time his economics worked. Trickle Down worked in Saudi Arabia too, in fact all the oil-exporting
nations accumulated vast wealth. That is until the bubble busted recently. I'll address the Saudi
social empowerment in a moment, but the effects of OPEC on the Cold War bear scrutiny here as well.
The United States' hegemony prior to the oil crisis was solely focused on the Soviet Union and China,
but with OPEC's bid at emergence, Washington faced a new "third world" threat. Drastic measures were
undertaken as a result, measures we see the effects of now in Syria, Ukraine, with regard to Russia
and Iran, and worldwide. For one thing, NATO and the rest of the leagues of nations were forced to
be far more "pro-Arab" than ever before. While this was a very good thing in many respects, nations
of these coalitions refocused strategies accordingly. The Saudis and others became increasingly dependent
on defense by the United States, which in turn led us to the veritable vassal state situation in
Europe.
Sputtering Oil Fields
Returning to my original argument, Saudi Arabia is now going broke via an American bid to reshuffle
the economic and policy deck. America's last shale reserves are being pumped dry in an effort to
break Russia and other nations dependent on exporting energy resources for their economies. And while
Russia could probably overcome any hardship out of sheer necessity, Saudi Arabia has nothing but
oil to rely on. Saudi royalty has for decades built a civil system relying on lavish schemes and
placating the masses, paid for by an unsustainable commodity. While the western press touts Wahhabi
desires to eliminate vestiges of Shia religiosity within Saudi's sphere of influence as a causal
point in Saudi aggressiveness of late, going broke would seem the greater fear to me. Assuming my
theory has merit, let's turn to Saudi oil reserves, and to recent austerity moves by the leadership.
New VAT and other taxes are in the wind, funding for external projects has slumped, and business
in Riyadh has screeched to a halt in some sectors. New projects like the lavish architectural creations
looming in the deserts have halted, the Saudis are not happy people like they were. Even the filthy
rich there have their own forms of austerity, which involve emptying their swimming pools, swapping
gas-guzzling SUVs for more economical transport, and even turning off the AC. Last month the Wall
Street Journal reported that dashed oil prices have already wiped out the Saudi budgetary plan.
RT reports
of debt defaults already looming large, so one can only imagine what will happen if the oil truly
runs out. By way of an illustration the Ghawar Field, largest in the world, is running out after
about 65 years of continuous production. Reports the Saudi Aramco will be starting the CO2-EOR process
to extract the last of the field's oil, they tell us this field will be depleted totally soon. Once
this happens, Saudi Arabia will return to an almost medieval third world status. Either this or those
billions horded by Saudi princes will have to be used to placate or to subdue the people.
Click on the picture to enlarge
This August, 2015 The Telegraph piece by author
Ambrose Evans-Pritchard notwithstanding, Saudi Arabia going broke due to low oil prices may not
be the issue really. To the point, a recent Citigroup study suggested that Saudi Arabia may actually
run out of óil by the year 2030. Furthermore, a recent WikiLeaks revelation cited a warning from
a senior Saudi government oil executive telling that the kingdom's crude oil reserves may have been
overstated by as much as 300bn barrels, or by nearly 40%! With the world having reached a threshold
known as "peak oil" already, we can easily ascertain "why" the Saudis, the US hegemony, and other
players seem desperate for war nowadays. For those unaware of what I am talking about, let me frame
what "peak oil" really means.
Peak oil refers to an event based on M. King Hubbert's theory, where the maximum
rate of extraction of oil is reached. After this date, oil capacity will fall into irreversible decline.
Hubbert was one of those genius types who was a significant geoscientist noted for his important
contributions to geology, geophysics, and petroleum geology. He worked with Shell Oil at their labs
back in Houston, and is quoted as saying about our overall dependency:
"We are in a crisis in the evolution of human society. It's unique to both human and geologic
history. It has never happened before and it can't possibly happen again. You can only use oil
once. You can only use metals once. Soon all the oil is going to be burned and all the metals
mined and scattered."
Hubbert's "peak oil" prognosis was actually supposed to take hold back in 1995, and it is my sincere
belief that it did. His science is essentially irrefutable. If you run down his theory of "peak oil"
you'll inextricably come to a graphic of a bell curve of world oil production. For my part, I have
taken Hubbert's math and overlaid other "depletive" curves for production and resource allocation
simply to satisfy my own scientific curiosity. I studied environmental geography under one of the
world's most renowned former Shell geologist,
Dr. Mitch Colgan. That said, the graph you see from Hubbert's
1956 report to the
American Petroleum Institute, on behalf of Shell Oil, shows Ohio oil production, which mirrors Texas,
or any other region where such a resource is depleted. The "fact" the world will run out of oil is
incontestable, like I said. And the Saudis have been pumping massive quantities of oil longer, and
faster than anyone.
There's not space here for an exhaustive study of whether or not we've achieved the "peak oil"
threshold. I would like to leave off on M. King Hubbert here with an ironic note,
a case I discovered
concerning his association in World War II with the US Board of Economic Warfare. Hubbert was evidently
a candidate for helping this Washington D. C. agency, but was somehow deemed "ineligible" or undesirable,
which in turn caused some controversy. You will no doubt find the letter from the chairman of the
economic warriors interesting. I'll wager most people never even knew America has such departments.
But I need to sum up.
Now What, More War?
Where Americans' interests are concerned, while President Obama has been parlaying trendy terms
like "renewable energy" and his supposed climate change agenda, the fact is petroleum still powers
96% of all transportation in America. Furthermore, fossil fuels 44% of the industrial sector, and
coal provides 51% of the nation's electricity still. Nuclear provides this biggest chunk of electricity
after coal, just to be clear here. Denial that peak oil has been reached is not only idiotic, it
may end up being catastrophic. The Saudi leadership is drawing back with austerity measure against
the people. Saudi militarism is on a gigantic upswing, as we see in Yemen and with the Turkey innuendo.
Evidence Obama and other western leaders know of the "peak oil" crisis abounds. A recent Department
of Energy request to expert Robert Hirsch in 2005 revealed a damning truth. I quote
from the report, which mysteriously disappeared in PDF and other forms from the web:
"The peaking of world oil production presents the U.S. and the world with an unprecedented
risk management problem. As peaking is approached, liquid fuel prices and price volatility will
increase dramatically, and, without timely mitigation, the economic, social, and political costs
will be unprecedented. Viable mitigation options exist on both the supply and demand sides, but
to have substantial impact, they must be initiated more than a decade in advance of peaking."
Within the various reports by
Hirsch (PDF) and other, we find statements like the one from Dr. Sadad al-Husseini, a retired
senior Saudi Aramco oil exploration executive, who went on record saying, "that the world is heading
for an oil shortage." The world consumes 85 billion barrels of oil each day. That's about 40,000
gallons per hour, and demand is not slowing, but increasing exponentially. Geologists have already
determined that more than 95% of all the recoverable oil has already been found.
Saudi aggression in Yemen, the recent siding with Turkey, and the withdrawal of aid earmarked
for military purchases by
Lebanon are all clear signs of a nation in big trouble. If my theory is correct and if these
Saudi oil fields are running out, then rumors of a
re-Islamification of Turkey make the Saudi alliance meaningful. Oil fields in Syria and Northern
Iraq may in fact be a vision of continued Saudi wealth gathering. So the deepening of strategic ties
in between Turkey and Saudi Arabia, and against the Russian and Iranian interests in Syria, may reveal
another unseen plan. Or at least the only feasible way any nation totally dependent on oil exports
might survive in tact. Washington likes to make religion the source of all conflict, or Vladimir
Putin one, but the reality is, Saudi Arabia is "probably" running out of gas.
"... A recent WikiLeaks revelation cited a warning from a senior Saudi government oil executive telling that the kingdom's crude oil reserves may have been overstated by as much as 300bn barrels, or by nearly 40%!" the American political analyst underscores. ..."
"... "Where Americans' interests are concerned, while President Obama has been parlaying trendy terms like 'renewable energy' and his supposed climate change agenda, the fact is petroleum still powers 96% of all transportation in America," Butler emphasizes. ..."
"... To paraphrase the old song, oil makes the world go round… ..."
A recent WikiLeaks revelation cited a warning from a senior Saudi government oil executive
telling that the kingdom's crude oil reserves may have been overstated by as much as 300bn barrels,
or by nearly 40%!" the American political analyst underscores.
Butler refers to a phenomenon called "peak oil." According to M. King Hubbert's theory, peak oil
is the point in time when the maximum rate of extraction of petroleum is reached and the crude capacity
will only decline.
Whether one likes it or not, peak oil has been reached, the analyst underscores.
However, while the global oil reserves are decreasing steadily, Riyadh has been pumping its crude
faster than anyone.
And here is the root cause of Saudi Arabia's warmongering. To maintain its
status quo, the Saudi kingdom has established an alliance with
Turkey, planning to seize
Syria and Iraq's oil fields.
Still, it's only half the story, since the global economy also remains petroleum-centered.
"Where
Americans' interests are concerned, while President Obama has been parlaying trendy terms like 'renewable
energy' and his supposed climate change agenda, the fact is petroleum still powers 96% of all transportation
in America," Butler emphasizes.
To paraphrase the old song, oil makes the world go round…
The question then arises, whether we are on the doorstep of new "energy wars."
This author was probably one year early in his forecasts, but the direction was right -- we might
face oil shortages in 2017.
Notable quotes:
"... "In permitting low oil prices, the Saudis seek to bring the market back into equilibrium. At present, our calculation of break-even system-wide is in the $85–$100 a barrel range on a Brent basis." ..."
Low oil prices today may be setting the world up for an oil shortage as early as 2016. Today we
have just 2% more crude oil supply than demand and the price of gasoline is under $2.00/gallon in
Texas. If oil supply falls too far, we could see gasoline prices doubling within 18 months. For a
commodity as critical to our standard of living as oil is, it only takes a small shortage to drive
up the price.
On Thanksgiving Day, 2014 Saudi Arabia decided to maintain their crude oil output of approximately
9.5 million barrels per day. They've taken this action despite the fact that they know the world's
oil markets are currently over-supplied by an estimated 1.5 million barrels per day and the severe
financial pain it is causing many of the other OPEC nations. By now you are all aware this has caused
a sharp drop in global crude oil prices and has a dark cloud hanging over the energy sector. I believe
this will be a short-lived dip in the long history of crude oil price cycles. Oil prices have always
bounced back and this is not going to be an exception.
To put this in prospective, the world currently consumes about 93.5 million barrels per day of
liquid fuels, not all of which are made from crude oil. About 17% of the world's total fuel supply
comes from natural gas liquids ("NGLs") and biofuels.
One thing that drives the Bears opinion that oil prices will go lower during the first half of
2015 is that demand does decline during the first half of each year. Since most humans live in the
northern hemisphere, weather does have an impact on demand. I agree that this fact will play a part
in keeping oil prices depressed for the next few months. However, low gasoline prices in the U.S.
are certain to play a part in the fuel demand outlook for this year's vacation driving season.
Brent oil prices are now hovering around $60 a barrel. In my opinion, this is quite a bit lower
than Saudi Arabia thought the price would go and may lead to an "Emergency" OPEC meeting during the
first quarter. But for now, I am assuming that Saudi Arabia is willing to let the other OPEC members
suffer until the next scheduled OPEC meeting in June.
The commonly held belief is that Saudi Arabia is doing this to put a stop to the rapid growth
of production from the U.S. shale oil plays. Others believe it is their goal to crush the Russian
and Iranian economies. If the oil price remains at the current level for a few months longer it will
do all of the above.
My forecast models for 2015 assume that crude oil prices will remain depressed during the first
quarter, then slowly ramp up and accelerate as next winter approaches. I believe that by December
we will see a much tighter oil market and significantly higher prices. In a December 24, 2014 article
in The National, Steven Kopits managing director of Princeton Energy Advisors states that, "In
permitting low oil prices, the Saudis seek to bring the market back into equilibrium. At present,
our calculation of break-even system-wide is in the $85–$100 a barrel range on a Brent basis."
Mark Mobius, an economist and regular guest on Bloomberg TV recently said he sees Brent rebounding
to $90/bbl by the end of 2015.
Since 2005, only North America has been able to add meaningful crude oil supply. Outside of Canada
and the United States (including the Gulf of Mexico), the rest of the world's crude oil production
netted to a decline of a million barrels per day from December, 2010 to December, 2013. More than
half of the OPEC nations are now in decline. We've been able to supplement our fuel supply during
the last ten years with biofuels, but that is limited since we need the farmland for food supply.
I believe the current low crude oil price could be overkill and result in the next "Energy Crisis"
by early 2016. Enjoy these low gasoline prices while they last.
The upstream U.S. oil companies we follow closely are all announcing 20% to 50% cuts in capital
spending for 2015. We will start seeing the impact on supply at the same time the annual increase
in demand kicks in. Our model portfolio companies are all expected to report year-over-year increases
in production, but at a much slower pace than the last few years.
The current market turmoil has created a once in a generation opportunity for savvy energy
investors.
Whilst the mainstream media prints scare stories of oil prices falling through the floor
smart investors are setting up their next winning oil plays.
A study released by Credit Suisse two weeks ago shows that U.S. independents expect capital-expenditure
(Capex) cuts of one-third against production gains of 10 per cent next year. This would imply production
growth of 600,000 bpd of shale liquids, and perhaps another 200,000 bpd from Gulf of Mexico deepwater
projects. At the same time, U.S. conventional onshore production continues to fall. I have seen estimates
of 500,000 to 700,000 bpd declines within twelve months. If these forecasts are accurate, U.S. oil
production growth would be barely positive next year and headed for a material downturn in 2016.
North American unconventionals (oil sands, shale and other tight formations) have been almost
all of net global supply growth since 2005. If unconventional growth grinds to zero and conventional
growth is falling outright, the supply side heading into 2016 looks highly compromised. At today's
oil price, only the "Sweet Spots" in the North American Shale Plays and the Canadian Oil Sands generate
decent financial returns to justify the massive capital requirements needed to continue development.
Global deepwater exploration is rapidly coming to a halt.
Were demand growth muted, this might not matter. Demand for liquid fuels goes up year-after-year.
It even increased in 2008 during the "Great Recession" and ramped up sharply during 2009 and 2010
despite a sluggish global economy. Low fuel prices are increasing demand today and my guess is that,
with U.S. GDP growth now forecast at 5% in 2015, we could see demand for fuels increase by close
to 1.5 million barrels per day this year. The current IEA forecast is for oil demand to increase
by 900,000 bpd in 2015.
If this plays out, the oil markets will be heading into a significant squeeze in the first half
of 2016.
The last extended period of low oil prices was 1985 to 1990. In 1985, when oil prices collapsed
similar to what's happening now, the world had 13 million bpd of spare capacity, with 7 million bpd
in Saudi Arabia alone. OPEC was well-positioned to comfortably meet any increase in demand.
Today, just about all of the world's discretionary spare capacity resides in Saudi Arabia and
amounts to an estimate 2 million bpd. Lou Powers, an EPG member and author of "The
World Energy Dilemma," has said that Saudi Arabia will have difficulty maintaining production
at over 10 million bpd for an extended period. If we do swing to a supply shortage, Saudi Arabia
may find itself in the position of needing to run the taps full out for much of 2016. In such an
event, the world will be headed right back into an oil shock and we will see much higher oil prices
than $100/bbl.
The oil price may have finally bottomed out, the International Energy Agency (IEA) said Friday, noting
its "remarkable recovery" over recent weeks.
In its monthly report, the IEA said talk among oil
producers to freeze production amounts to "a first stab at co-ordinated action" with the presumed
aim of pushing oil up to US$50 a barrel, compared with about US$40 now.
Among other factors restraining oil supply the IEA said that Iran's return to the market had been
"less dramatic than the Iranians said it would be".
The bank said it expects Brent prices to average US$39 a barrel in 2016
and US$60 a barrel in 2017, down from its previous forecasts of US$45 and
US$62 a barrel respectively.
Goldman also trimmed its 2016 West Texas
Intermediate (WTI) price forecast by US$7 to US$38 a barrel, and its 2017
price forecast by US$2 to US$58 a barrel.
Predicting a slower recovery into next year and sharper oil production
declines in 2016, the bank said it does not foresee production hitting
previous peaks until mid-2018.
"... Bondholders are paying dearly for backing a shale boom that was built on high-yield credit. Since the start of 2015, 48 oil and gas producers have gone bankrupt owing more than US$17 billion, according to law firm Haynes and Boone. Fitch Ratings Ltd predicts US$70 billion of energy, metal and mining defaults this year, and notes that US$77 billion of energy bonds are bid below 50 cents, according to a note Thursday. ..."
Investors are facing US$19 billion in energy defaults as the worst oil crash in a generation leaves
drillers struggling to stay afloat.
The wave could begin within days if Energy XXI Ltd, SandRidge
Energy Inc. and Goodrich Petroleum Corp. fail to reach agreements with creditors and shareholders.
Those are three of at least eight oil and gas producers that have announced missed debt payments,
triggering a countdown to default.
"Shale was a hot growth area and companies made the mistake of borrowing too much," said George
Schultze, founder and chief investment officer of Schultze Asset Management in New York, which has
been betting against several distressed energy companies.
"It's amazing that so many people were willing to lend them money. Many are going to file for
bankruptcy, and bondholders and equity are going to get wiped out en masse."
Bondholders are paying dearly for backing a shale boom that was built on high-yield credit. Since
the start of 2015, 48 oil and gas producers have gone bankrupt owing more than US$17 billion, according
to law firm Haynes and Boone. Fitch Ratings Ltd predicts US$70 billion of energy, metal and mining
defaults this year, and notes that US$77 billion of energy bonds are bid below 50 cents, according
to a note Thursday.
A representative at Energy XXI declined to comment. Representatives for SandRidge and Goodrich
didn't respond to requests seeking comment.
"Absent a material improvement in oil and gas prices or a refinancing or some restructuring of
our debt obligations or other improvement in liquidity, we may seek bankruptcy protection," Energy
XXI said in a March 7 public filing.
Goodrich Petroleum is asking shareholders and bond investors to approve a restructuring deal that
would convert its unsecured debt and preferred shares into common stock. For the plan to work, shareholders
must approve it at a March 14 meeting and enough bondholders need to participate by the March 16
exchange deadline.
"Absent a successful completion of the recapitalisation plan, the company will have no alternatives
other than to seek protection through the bankruptcy courts," Walter Goodrich, chairman and chief
executive officer, said on a March 9 conference call.
"... Not an expert on Canada drilling but the production numbers won't be that impressive in 6 months as I understand this is the time they suppose to be drilling. ..."
"... AND since US + Canada are the ones that been keeping world production up we all need to hope for some serious Iran drilling in the coming months (won't happen though). Price spike here we come my and my guess this is in August/September. ..."
Although the overall decline in oil rigs is slowing, key tight oil
basins have lost 10 oil rigs.
Also note a significant decline in horizontal rigs.
Horizontal rigs drilling for oil:
– down from 311 to 301 for the week.
– down 120 units (-28.5%) from the end of 2015
– down 814 units (-73%) from the peak on November 26, 2014
Canadian Rig Count is down 31 rigs from last week to 98, with oil rigs down 22 to
28, and gas rigs down 9 to 70.
Canadian Rig Count is down 122 rigs from last year at 220, with oil rigs down 57, and gas rigs
down 65.
Not an expert on Canada drilling but the production numbers won't be that impressive in 6 months
as I understand this is the time they suppose to be drilling.
AND since US + Canada are the ones that been keeping world production up we all need to hope for
some serious Iran drilling in the coming months (won't happen though). Price spike here we come
my and my guess this is in August/September.
Everyone will be like: I thought we had a surplus? WTF happened?
"... If consumption is 10 million metric tons burned each day, it is 3,652,500,000 tonnes per year consumed by the gaping maws of industry to allow civilization be in the gluttony mode, with half of it gone, 150,000,000,000 tonnes to go, then there is a fifty year supply in the ground and under the seas and oceans. ..."
"The two basic factors of the world's oil supply are (1) geologic (discoveries) and (2) economic
(distribution). Petroleum geologists have done such a good job of finding oil that it looks as
easy as growing crops, and our engineers deliver the petroleum like clockwork. Consequently, the
public and many planners consider global distribution to be the only supply problem and attribute
all price swings to simple economics. They erroneously ignore critical long-term geological facts
and assume that cash spent = oil found. This premise is invalid where no oil exists or where prospects
are poor. Most people are unaware that the global quality of geological/oil prospects has declined
so much that the amount of new oil found per wildcat well has dropped 50% since a 1969 peak. Discoveries
of the most critical but easiest to find giant fields (each with over 500 million bbl of recoverable
oil) are now stalled at 315 known worldwide. We are simply no longer finding enough new crude
oil to replace the world's huge consumption of 20 billion bbl (840 billion gal) per year."
2,200,000,000,000/7.3=301,369,863,014 metric tons
of total oil extracted, yet of be extracted, past production and future production.
If consumption is 10 million metric tons burned each day, it is 3,652,500,000 tonnes per year
consumed by the gaping maws of industry to allow civilization be in the gluttony mode, with half
of it gone, 150,000,000,000 tonnes to go, then there is a fifty year supply in the ground and
under the seas and oceans.
The metric system is of an advantage when calculating the numbers, IMO.
Thanks to Robert Wilson for the links to L.F. Ivanhoe's findings and conclusions, appreciate
it.
2,200,000,000,000/7.3=301,369,863,014 metric tons
of total oil extracted, yet of be extracted, past production and future production.
If consumption is 10 million metric tons burned each day, it is 3,652,500,000 tonnes per year
consumed by the gaping maws of industry to allow civilization be in the gluttony mode, with half
of it gone, 150,000,000,000 tonnes to go, then there is a fifty year supply in the ground and
under the seas and oceans.
The metric system is of an advantage when calculating the numbers, IMO.
Thanks to Robert Wilson for the links to L.F. Ivanhoe's findings and conclusions, appreciate
it.
Global debt has grown some $57 trillion since the collapse of Lehman Brothers in 2008, reaching
a back-breaking $199 trillion in 2014, more than 2.5 times global GDP, according to the McKinsey
Global Institute. Servicing these debts will most likely become increasingly difficult over
the coming years, especially if growth continues to stagnate, interest rates begin to rise,
export opportunities remain subdued, and the collapse in commodity prices persists.
Much of the concern about debt has been focused on the potential for defaults in the eurozone.
But heavily indebted companies in emerging markets may be an even greater danger. Corporate
debt in the developing world is
estimated to have reached more than $18 trillion dollars, with as much as $2 trillion of it
in foreign currencies. The risk is that – as in Latin America in the 1980s and Asia in the
1990s – private-sector defaults will infect public-sector balance sheets.
If global growth stagnates, interest rates won't rise by much. So high interest
rates and low GDP growth is not a very realistic scenario. Very poor monetary policy could accomplish
it (like Volcker in the 80s), but we may have learned something since then about monetary policy.
Chinese crude imports hit a record of 8 million b/d in February despite severe economic
problems and contracting imports and exports. One reason for the surge may have been the
extremely low oil prices in January which attracted more buying for strategic stocks and to
refine for exports. China's small independent refiners were only recently allowed to import oil
for their needs rather than procuring it domestically.
"... A US judge ordered Iran to pay over $10 billion in damages to families of victims who died on September 11, 2001 – even though there is no evidence of Tehran's direct connection to the attack. The same judge earlier cleared Saudi Arabia from culpability. ..."
"... The default judgement was issued by US District Judge George Daniels in New York on Wednesday. Under the ruling, Tehran was ordered to pay $7.5 billion to 9/11 victims' families, including $2 million to each victim's estate for pain and suffering, and another $6.88 million in punitive damages. Insurers who paid for property damage and claimed their businesses were interrupted were awarded an additional $3 billion in the ruling. ..."
"... Saudi Arabia was legally cleared from paying billions in damages to families of 9/11 victims last year, after Judge Daniels dismissed claims that the country provided material support to the terrorists and ruled that Riyadh had sovereign immunity. Saudi attorneys argued in court that there was no evidence directly linking the country to 9/11. ..."
"... "absurd and ridiculous." ..."
"... "I never heard about this ruling and I'm very much surprised because the judge had no reason whatsoever to issue such a ruling… Iran never took part in any court hearings related to the events of September 11, 2001," ..."
"... "Even if such an absurd and ridiculous decision has been made, the charges simply hold no water because Iran has never been mentioned at any stage of the investigation and the trials that followed." ..."
"... While Sheikholeslam argued that Iran didn't take part in related hearings, that lack of participation may have contributed to the decision. A default judgment is typically issued when one of the parties involved in a case does not respond to court summons or appear in court to make their case. ..."
"... "advice and training" ..."
"... "provided material support" ..."
"... "direct support" ..."
"... "There was no direct connection between Iran and the attacks of September 11." ..."
"... "The people who committed those terrorist attacks were neither friends nor allies of Iran," ..."
"... "They were our sworn enemies, members of Al-Qaeda, which considers Iran as their enemy. Fifteen out of the 19 terrorists were Saudi citizens, which happens to be America's best friend. The remaining four terrorists lived in Saudi Arabia and enjoyed Saudi support. Therefore the perpetrators of the 9/11 attacks had nothing to do with Iran." ..."
A US judge ordered Iran to pay over $10 billion in damages to families
of victims who died on September 11, 2001 – even though there is no evidence
of Tehran's direct connection to the attack. The same judge earlier cleared
Saudi Arabia from culpability.
The default judgement
was issued by US District Judge George Daniels in New York on Wednesday.
Under the ruling, Tehran was ordered to pay $7.5 billion to 9/11 victims' families,
including $2 million to each victim's estate for pain and suffering, and another
$6.88 million in punitive damages. Insurers who paid for property damage and
claimed their businesses were interrupted were awarded an additional $3 billion
in the ruling.
The ruling is noteworthy particularly since none of the 19 hijackers on September
11 were Iranian citizens. Fifteen were citizens of Saudi Arabia, while two were
from the United Arab Emirates, and one each from Egypt and Lebanon.
Saudi Arabia was legally cleared from paying billions in damages to families
of 9/11 victims last year, after Judge Daniels dismissed claims that the country
provided material support to the terrorists and ruled that Riyadh had sovereign
immunity. Saudi attorneys argued in court that there was no evidence directly
linking the country to 9/11.
In response to the latest ruling, Hossein Sheikholeslam, a senior aide to
Iran's parliamentary speaker, called the decision "absurd and ridiculous."
"I never heard about this ruling and I'm very much surprised because
the judge had no reason whatsoever to issue such a ruling… Iran never took part
in any court hearings related to the events of September 11, 2001," he
told
Sputnik. "Even if such an absurd and ridiculous decision has been made,
the charges simply hold no water because Iran has never been mentioned at any
stage of the investigation and the trials that followed."
While Sheikholeslam argued that Iran didn't take part in related hearings,
that lack of participation may have contributed to the decision. A default judgment
is typically issued when one of the parties involved in a case does not respond
to court summons or appear in court to make their case.
Judge Daniels found that Iran failed to defend itself against claims that
it played a role in 9/11. Iran believes the lawsuit is unnecessary because it
says it did not participate in the attack.
In the US, Tehran's role in 9/11 has been debated heavily over the years.
The
9/11 Commission Report stated that some hijackers moved through Iran and
did not have their passports stamped. It also stated that Hezbollah, which the
US designates as a terrorist organization supported by Iran, provided "advice
and training" to Al-Qaeda members.
In a
court document filed in 2011 regarding the latest case, plaintiffs claimed
Hezbollah "provided material support" to Al-Qaeda, such as facilitating
travel, plus "direct support" for the 9/11 attacks. As a result, the
plaintiffs argued Iran was liable.
However, the commission report itself found no evidence to suggest Iran was
aware of the 9/11 plot, and suggested the possibility that if Hezbollah was
tracking the movements of Al-Qaeda members, it may not have been eyeing those
who became hijackers on 9/11.
While the report suggested further investigation into the issue, President
George W. Bush has said, "There was no direct connection between Iran and
the attacks of September 11."
Iran, inhabited mostly by Shia Muslims, has also denied any connection to
Al-Qaeda – a militant Sunni group – and cooperation between the two has been
questioned due to religious differences. Al-Qaeda views the Shia as heretics,
for example.
"The people who committed those terrorist attacks were neither friends
nor allies of Iran," Iran Press Editor-in-Chief Emad Abshenas told Sputnik.
"They were our sworn enemies, members of Al-Qaeda, which considers Iran
as their enemy. Fifteen out of the 19 terrorists were Saudi citizens, which
happens to be America's best friend. The remaining four terrorists lived in
Saudi Arabia and enjoyed Saudi support. Therefore the perpetrators of the 9/11
attacks had nothing to do with Iran."
How the case moves forward after Daniels' ruling is unclear. According to
Bloomberg, it can be very hard to obtain damages from another country, but plaintiffs
might try to do so by targeting Iranian funds frozen by the US.
I'm always interested in the stuff you have to hunt around to find reported. Someone on a web
board earlier mentioned a pipeline bombed in Nigeria. Didn't see it anywhere, very sporadically
reported, apparently 300kbpd there, in reading that I found the pipeline from Kurdistan to Turkey
has been out for three weeks, apparently up to 600kbpd there.
If it was something about the glut, bloomberg would be all over it. This, zip. I used to wonder
about conspiracies, but I started following a few bloomberg reporters late last year and they
are some of the laziest SOBs I'd ever encountered. The amount of copy/paste and rehash the prevailing
sentiment without checking a few facts was astonishing. Talk about slobs, it really was about
getting all the current keywords and search descriptions into the article and particularly the
first paragraph and not much else.
Thanks. My feelings, exactly. But at the same time, what to expect from them? Is not Bloomberg
to a certain extent a GS propaganda arm ? May we need to lower our expectations.
Some grains of truth with additional effort still can be extracted from the piles of lies and
lazy, incompetent reporting (aka rehashing somebody else talking points).
Funny, but this is a kind of "Back in the USSR" situation. Our feelings are probably 1:1
correspond to the feelings of Soviet citizens about the USSR government economic reporting
:-).
7) Finally, the graphic below
from Rystad energy shows how it sees shale costs showing substantial improvements, and across
various shale plays. It projects that wellhead breakeven prices have dropped by more than 40%
between 2013 and 2015:
"... We hated to disappoint all those hopeful condensate exporters last year, but the handwriting was on the wall. Regardless of unfettered export regs, if it is worth more here than it is there, then you ought to keep it here. Only about 100 Mb/d of newly legal condensate exports left U.S shores in 2015, because the economics were upside down. A harbinger of things to come for crude exports? Absolutely. ..."
5. It is nice that condensate exports are legal, but the economics of condensate exports
don't make much sense.
We hated to disappoint all those hopeful condensate exporters last year, but the handwriting
was on the wall. Regardless of unfettered export regs, if it is worth more here than it is there,
then you ought to keep it here. Only about 100 Mb/d of newly legal condensate exports left U.S
shores in 2015, because the economics were upside down. A harbinger of things to come for crude
exports? Absolutely.
"... Turkey announced today that the Kurdish pipeline should be back online
in about a week. There's been a major mine-sweeping effort going on there since
the break. ..."
"... Turks can fix the pipeline but Turks cannot support financially and politically
the whole Iraq's Kurdistan entity where the oil is coming from. You still got eat
even when the oil is $30 :), so the Kurds are doing bidding process on who will
help pay the most. Iraqis central government has an offer dangling to take care
of Kurdish government employees in exchange for re-routing that kurdish oil through
central government for sale. ..."
"... But Turks have way bigger problems than one pipeline. They are in real
bind and are pushed real hard from both Russians and Americans. When it is all said
and done they could be in process of being dismembered. ..."
"... The only leverage that Turks have is over Euro elite that still needs them
for their dirty work in ME. Notice how Ms. Markel can easily find 3 billion for
Turkey (refugees will not see a single penny of it) while last year Euro pensioners
in Greece/Spain/Italy/France all they got is austerity. ..."
"... It is a class war and it has always been like that. ..."
"... The damaged pipeline is an Iraqi pipeline; it carries Iraqi oil all the
way to Ceyhan, a Turkish port on the Mediterranean. The KRG built a pipeline that
joins it at the Turkish border, so the pipeline carries Kurdish oil too. It's in
Iraq's interest to have it open but since SE Turkey is essentially a war zone that
can be hard to bring about. ..."
Turkey announced today that the Kurdish pipeline should be back online
in about a week. There's been a major mine-sweeping effort going on there
since the break.
The PKK denies blowing up the pipeline. Who knows?
Turks can fix the pipeline but Turks cannot support financially and
politically the whole Iraq's Kurdistan entity where the oil is coming from.
You still got eat even when the oil is $30 :), so the Kurds are doing bidding
process on who will help pay the most. Iraqis central government has an
offer dangling to take care of Kurdish government employees in exchange
for re-routing that kurdish oil through central government for sale.
But Turks have way bigger problems than one pipeline. They are in
real bind and are pushed real hard from both Russians and Americans. When
it is all said and done they could be in process of being dismembered.
The only leverage that Turks have is over Euro elite that still needs
them for their dirty work in ME. Notice how Ms. Markel can easily find 3
billion for Turkey (refugees will not see a single penny of it) while last
year Euro pensioners in Greece/Spain/Italy/France all they got is austerity.
It is a class war and it has always been like that.
The damaged pipeline is an Iraqi pipeline; it carries Iraqi oil all
the way to Ceyhan, a Turkish port on the Mediterranean. The KRG built a
pipeline that joins it at the Turkish border, so the pipeline carries Kurdish
oil too. It's in Iraq's interest to have it open but since SE Turkey is
essentially a war zone that can be hard to bring about.
I suspect that Iraqi Kurdistan could support itself from sale of the
oil they produce if they were allowed to just sell it and not have the money
come from Baghdad–and if they straightened out their own corrupt economy.
Executives of the Woodlands-based oil explorer had said last month it would reduce its capital
spending by half this year amid low oil prices and evaluate its staffing needs as it reduces
activity.
... ... ...
After an 18-month oil bust, energy layoffs are nothing new. Oil producers, their suppliers,
service providers and equipment makers, along with refineries and pipeline operators, have so far
cut more than 320,000 jobs worldwide, according to Houston consultancy Graves & Co., which has
tracked industry layoffs since the downturn began.
Within the United States, Anadarko produces oil and gas in Colorado's DJ Basin, in the Permian
Basin in West Texas, in the Gulf of Mexico and elsewhere. After ConocoPhillips, it's the
second-largest independent U.S. oil company, which means it doesn't have its own refining assets
like Chevron Corp. and Exxon Mobil Corp.
... ... ...
It's about the same size reduction that Apache Corp. made last year. Houston-based Apache cut
more than 1,000 employees, or 20 percent of its workforce, through direct reductions and asset
sales in 2015, which included its liquefied natural gas assets in Canada and Australia and its
upstream unit in Australia.
David Walters · Houston Community College
All that bold talk a year ago how Houston's economy is so much more diverse is facing its
first real test.
Glenn Gustafson · University of Houston
Trouble in the oil bidness always means tough times for Houstonians. Best wishes to those
who have/will lose jobs because of this.
Douglas James Fusilier · Spring, Texas
Thank God I'm still holding on. I feel for all my colleagues who have lost jobs in this
downturn.
Terry Smith · Publisher/General Manager at Amazing Publishers
Fourth largest oil company and they only have about 6,000 employees?
"... The most significant event of the last decade regarding crude oil has been the rise of U.S. shale oil as a credible and long-lasting competitor to the OPEC. The shale oil boom has led to an almost doubling of production in the U.S. in the last 10 years. Booming oil prices, easy credit, consistently rising demand and improved technological methods of fracking led to the current production rate, which would have increased further had OPEC cut their production. ..."
Quite simply, the Saudis want to maintain their market share, but their means to control that
are dwindling.
The whole internet is jam-packed with analysis portraying Saudi Arabia and OPEC as villains for
the oil price collapse. On a closer look, however, the Saudi's could have taken no reasonable
steps to avert this situation. This is a transformational change that will run its full course,
and the major oil producing nations will have to accept and learn to live with lower oil prices
for the next few years.
Why the Saudi's are not to blame
(Click to enlarge)
As seen in the chart above, barring the period during the last
supply glut, the Saudi's have more or less maintained constant oil
production, increasing production only modestly at an average of
roughly 1 percent per year.
The most significant event of the last decade regarding crude oil has been the rise of U.S.
shale oil as a credible and long-lasting competitor to the OPEC. The shale oil boom has led to an
almost doubling of production in the U.S. in the last 10 years. Booming oil prices, easy credit,
consistently rising demand and improved technological methods of fracking led to the current
production rate, which would have increased further had OPEC cut their production.
"... All of this is to say that the level of effort and the focus of Western states in Libya, at least as regards ISIS, are on strict counterterrorism as opposed to creating conditions in which competing claimants to governing legitimacy can work out a compromise. In the meanwhile, the competing governing factions will have to defend themselves against not only other claimants to legitimacy but also ISIS and other smaller groups that have begun to attack Libyan oil production and export facilitates with increasing regularity. ..."
"... The recent attack in neighboring Tunisia also points to the problem of ISIS presence in Libya not only helping to continue the instability and political stalemate there but also spreading unrest further in Northern Africa. ..."
Sarah Emerson, Managing Principal, Petroleum & Alternative Fuels | Energy Security Analysis Inc.
(ESAI)
... ... ...
While there are ongoing negotiations, or attempts at negotiations pushed by Washington and key
European states, so far it does not look at all hopeful. In the meanwhile, the efforts of the West
are focused on two issues. First is conducting strikes against ISIS leaders and key operatives who
might be either planning on targeting Western targets or who might be consolidating control over
parts of Libya. Second is keeping refugees from flowing into southern Europe (whether they are Libyans
or Africans who are taking advantage of the lack of governance in Libya to launch from its shores).
News reports indicate that the United States, France, the United Kingdom and Italy all have Special
Forces on the ground in Libya largely to support intelligence gathering and targeting ISIS cells
or leaders. The recent U.S. airstrikes two weeks ago against ISIS leaders and a training camp in
Libya may or may not reflect this small ground presence, but the attacks indicate that Washington
is focusing on elements of the terrorist group that might be planning attacks on Western targets.
The news information on the French aircraft carrier also hints that any strikes that Paris may carry
out will be against those potentially plotting against French targets. All of this is to say that
the level of effort and the focus of Western states in Libya, at least as regards ISIS, are on strict
counterterrorism as opposed to creating conditions in which competing claimants to governing legitimacy
can work out a compromise. In the meanwhile, the competing governing factions will have to defend
themselves against not only other claimants to legitimacy but also ISIS and other smaller groups
that have begun to attack Libyan oil production and export facilitates with increasing regularity.
The recent attack in neighboring Tunisia also points to the problem of ISIS presence in Libya
not only helping to continue the instability and political stalemate there but also spreading unrest
further in Northern Africa.
Sarah Emerson, Managing Principal, Petroleum & Alternative Fuels | Energy Security Analysis Inc.
(ESAI)
"... The rising clamor at home from the crashing shale sector and the banks that financed it; the resilience of Russia in spite of sanctions and its exclusion from Western capital markets; Russia's entrance into the Syrian take-down attempt having put Russia into a new position of influence in the Middle East; demands for higher prices from more and more OPEC members; Russian and Iranian resistance to demands that they agree to limit production; Kuwait refusing to limit production; Venezuela and Mexico nearing default; Ukraine melting down politically, financially, and militarily: financial tremors at home and in Europe; and the rise of Trump and Bernie as an election nears, - these factors have led Western leaders to stop suppressing the price of crude. ..."
IMHO, the rise in crude prices is evidence that the West has blinked and is giving up on its
attempt to bankrupt Russia in order to make Putin kowtow to the West.
The rising clamor at home from the crashing shale sector and the banks that financed it; the
resilience of Russia in spite of sanctions and its exclusion from Western capital markets; Russia's
entrance into the Syrian take-down attempt having put Russia into a new position of influence
in the Middle East; demands for higher prices from more and more OPEC members; Russian and Iranian
resistance to demands that they agree to limit production; Kuwait refusing to limit production;
Venezuela and Mexico nearing default; Ukraine melting down politically, financially, and militarily:
financial tremors at home and in Europe; and the rise of Trump and Bernie as an election nears,
- these factors have led Western leaders to stop suppressing the price of crude.
The commodities traders and their algos will now be allowed to manipulate up the prices. Fundamentals
of excess supply and weak demand do not matter, and have not mattered for a long time. Futures
contracts, refinery shutdowns for fires or scheduled maintenance, pipeline ruptures, and rumors
of international instability can all be used to increase crude prices.
While some investors are predicting that market expectations for oil at $50 a barrel might be
too fast, and too soon , Bill Smith, chief investment officer and senior portfolio manager at
Battery Park Capital, told CNBC the energy sector will find equilibrium by the second quarter of
2016. And it will not be pretty for those holding bearish trades.
Speaking to CNBC's " Squawk Box ", Smith said if indeed oil prices stabilize, much-battered
energy stocks will follow crude prices higher.
"It's going to be a short covering rally that rips people's faces off," said Smith. "It's going
to be ugly."
Battery Park Capital has assets under management worth $340 million. Short-selling refers
to selling an asset in the hope of buying it back at a lower price later. The recovery in oil
prices has been supported by reports suggesting that oil producers are planning to work together
to reduce excess supply in the market.
Earlier this week Reuters, citing New York-based oil industry consultancy PIRA , reported major
OPEC producers were discussing a new price equilibrium of around $50 a barrel.
Broadly, Smith was less upbeat about the U.S. economy. He said while the economy wasn't heading
into recession, it wasn't growing either.
.. View gallery
Oil market rally could 'rip people's faces …
Nick Oxford | Reuters. Investors betting on falling shares of energy companies could have their
&quo …
"We don't have the building blocks to bust out and go on a growth trajectory," he said, adding
there's no reason for runaway inflation at this point in time.
Government data showed core inflation rose 1.7 percent in the 12 months ended in January. The
U.S. Federal Reserve 's inflation target is at 2 percent.
But Smith said he doesn't see any reason why the Fed would raise interest rates just yet, even
due to currency risks.
Last December, the Fed raised interest rates from near zero percent for the first time since
2006. Following the rate hike, the dollar initially found strength against major currencies
around the world before losing some momentum earlier this year. But the move also created a major
sell-off in global stock markets in January.
The Federal Open Market Committee is due to meet next on Mar. 15 - 16.
Smith said, "Every time they even talk about raising rates, the dollar rips higher and it's just
creating chaos globally. So, I would much rather see them sit on the sidelines now."
"... We all are living under neoliberalism , aren't we? And current fascinating developments with Bernie and Trump is nothing more than unorganized protest of shmucks against " masters of the universe " - neoliberal elite that captured Washington, DC (along with London, Paris, Berlin and other G7 capitals). And they still have quite strong fifth column in Moscow too (Yeltsin was their man) ..."
"... The revolt which BTW have little chances for success. As Orwell aptly stated, contrary to Marx delusions "the lower classes are never, even temporarily, successful in achieving their aims". ..."
"... The key idea of neoliberalism is redistribution of wealth up from shmucks to international (predominately financial) elite. So nobody care that either camel lovers or Putin lovers lose money on oil and that they are selling it below the cost. What is important that the "masters of the universe" became richer. And sustainability is provided by grabbing asset of distressed countries and companies when they go too deeply in debt slavery. So the key idea here is get those countries and companies "conditioned" enough to grab them on a cheap. In old days that was called "shock therapy" now it is called "disaster capitalism". ..."
"... Destabilization as in "drop of oil prices to unsustainable levels" can be extremely profitable (see The Shock Doctrine: The Rise of Disaster Capitalism. ). This is the way the neoliberalism enforces its Washington consensus rules on other countries, especially resource nationalists like Putin's Russia. ..."
"... This was not done in case of "shale bubble" and other countries were implicitly stimulated by it to rump up production as well as by regime of high oil prices and cheap Western credits. Now we have a real crisis when "resource nationalist" are quickly running out of money. If Washington is able to crush them, it is also will show the other countries who are trying to oppose neoliberal globalization "who is the boss". It is not accidental that all establishment candidates in the current presidential race are extremely, pathologically jingoistic and are ready to bomb yet another half-dozen of countries in short order after coming to power. In this sense differences between H, C and R are superficial. They all are servants of neoliberal oligarchy in Washington and Wall Street (for H in the opposite order). ..."
Art Berman looks at the numbers and says oil should go back to $30, or even lower. It
does take capitalism time to work.
This looks like too theoretical post well outside the scope of this blog, but still there are
some basic facts that everybody needs to be aware of.
We all are living under
neoliberalism, aren't we? And current fascinating developments with Bernie and Trump is
nothing more than unorganized protest of shmucks against "masters of the universe" -
neoliberal elite that captured Washington, DC (along with London, Paris, Berlin and other G7
capitals). And they still have quite strong fifth column in Moscow too (Yeltsin was their man)
The revolt which BTW have little chances for success. As Orwell aptly stated, contrary to
Marx delusions "the lower classes are never, even temporarily, successful in achieving their
aims".
The key idea of neoliberalism is redistribution of wealth up from shmucks to international
(predominately financial) elite. So nobody care that either camel lovers or Putin lovers lose
money on oil and that they are selling it below the cost. What is important that the "masters
of the universe" became richer. And sustainability is provided by grabbing asset of distressed
countries and companies when they go too deeply in debt slavery. So the key idea here is get
those countries and companies "conditioned" enough to grab them on a cheap. In old days that
was called "shock therapy" now it is called "disaster capitalism".
Destabilization as in "drop of oil prices to unsustainable levels" can be extremely
profitable (see
The Shock Doctrine: The Rise of Disaster Capitalism.). This is the way the neoliberalism
enforces its Washington
consensus rules on other countries, especially resource nationalists like Putin's Russia.
The countries and companies in question were gently pushed to increase the production to
the level that assured the crisis to happen. While this sounds like another conspiracy theory,
and can well be such, the simple logic suggests that in XXI century the elite understands the
natural dynamics of capital accumulation well enough to freeze too enthusiastic Ponzi schemers
before they do the major damage, if they want it. At least suppress them enough to avoid "Minsky
moment."
This was not done in case of "shale bubble" and other countries were implicitly stimulated
by it to rump up production as well as by regime of high oil prices and cheap Western credits.
Now we have a real crisis when "resource nationalist" are quickly running out of money. If
Washington is able to crush them, it is also will show the other countries who are trying to
oppose neoliberal globalization "who is the boss". It is not accidental that all establishment
candidates in the current presidential race are extremely, pathologically jingoistic and are
ready to bomb yet another half-dozen of countries in short order after coming to power. In
this sense differences between H, C and R are superficial. They all are servants of neoliberal
oligarchy in Washington and Wall Street (for H in the opposite order).
It can well be that US shale was a part this Brzezinski's
The Grand Chessboard " gambit and now is a pawn sacrificed in a wider geopolitical game.
By
Rakesh
Upadhyay 09 March 2016 21:1
Iran is expected to raise the April Official Selling Price (OSP) of its flagship
light crude oil to Asia to 25 cents above the Saudi's similarly graded Arab
light. This is the highest premium since 2011 and is an increase of 30 cents
over the previous month.
Iran will likely price its light crude at 50 cents a barrel below the average
of Oman and Dubai quotes, whereas the OSP for Iran Heavy will likely be $2.60
a barrel below Oman and Dubai quotes.
But not all crudes are equal, and when it comes to
Iran Heavy Grade , pricing will remain aggressively competitive. Heavy Grade
is Iran's main export grade, which must compete with Latin America, Iraq and
Saudi Arabia-all of whom supply a similar grade.
When it comes to its light crude, though, the competitive price Iran has
offered so far was for internal reasons and intended to reduce gasoline imports.
Many experts believed that Iran would offer large discounts to regain the
market share it lost under the sanctions regime. However, Iran is using a calculative
approach towards increasing its share and is looking to consolidate and increase
exports to its existing partners such as China, South Korea, and India, in Asia.
Iran expects to
increase exports to India to 460,000 bpd from the current 260,000 bpd. Similarly,
it expects to further increase its exports to
South Korea ,
which has already imported 203,165 bpd-its highest level since 2012.
Demand from Europe has been a little slow to pick up due to ship insurance
and banking-related issues. Nevertheless, the
first shipment to Europe landed in Southern Spain on 6 March 2016. Three
more tankers--one bound for
Romania , another to France and a third to the Mediterranean--are expected
to reach their destinations soon.
The current market turmoil has created a once in a generation opportunity
for savvy energy investors.
Whilst the mainstream media prints scare stories of oil prices falling through
the floor smart investors are setting up their next winning oil plays.
BIMCO's chief shipping analyst,
Peter Sand, said, "Former clients of Iran are the ones who are likely to
return as buyers... Italy, Spain and Greece were the top EU importers in 2011."
The mid-March meeting between OPEC, Russia and other major producers offers
a window of opportunity for Iran to increase production gradually, since the
major nations have agreed to a production freeze. On top of that, Russia is
planning to offer a different deal to Iran, which will allow it to ramp up its
production to pre-sanction levels.
The lifting of sanctions couldn't have come at a better time for Iran. It
is benefitting from the strong bounce in oil, and it is unlikely to face huge
competition, barring U.S. exports, if the production freeze is adhered to by
the major oil producers.
Tehran has cause for celebration, indeed. This was clear when Iranian Oil
Minister Bijan
Zanganeh said : "We look forward to the beginning of co-operation between
Opec and non-Opec countries and we support any measure that can stabilise the
market and increase prices."
The world can take comfort from the fact that Iran has not flooded the market
with cheap oil as previously envisaged by the experts. Capturing market share
is one thing, but there are internal needs to consider as well.
Oil production in Russia will inevitably decline by 2035 according to an Energy Ministry
report seen by the Vedomosti business daily. The different scenarios predict an output drop from
1.2 percent up to 46 percent two decades from now.
The document, obtained by the newspaper and confirmed by a source in the ministry, says by
2035 existing oil fields will be able to provide Russia with less than half of today's production
of about 10.1 million barrels per day.
The shortfall should be met by increased production from proven reserves, according to projections
by the Energy Ministry.
In the best case for oil producers, short-term growth remains possible only until 2020, according
to the report. After that, production will contract. The figures vary from 1.2 percent to 46 percent,
depending on prices, taxation and whether or not anti-Russian sanctions will be in force.
A slight increase in production is possible only for smaller companies like Slavneft and Russneft,
while the market leaders are facing the depletion of existing deposits. Added to an unfavorable
tax environment, their production is set to fall by 39-61 percent.
To counter the decline in oil production, the Energy Ministry proposes giving private companies
access to the Arctic shelf, to soften the tax regime and support for small and medium-sized
independent companies.
The Ministry also suggests promoting the processing of high-sulfur and super viscous
heavy oil with the introduction of preferential rates of excise duties on fuel produced from
such oil.
This forecast published by "Vedomosti" is for crude only and excludes condensate (around 520 kb/d
in 2015). It was not yet officially released. Condensate production growth in 2014-15 was
higher than crude only. There are gas condensate fields in the far north of West Siberia that
should start production in the next few years.
The worse case assumes very low oil prices and sanctions remaining for the whole period. Is
$30-40 oil a realistic scenario to 2035?
Base case implies 2035 crude production only 2.1% below 2015 levels
"Reasonably favorable" scenario: crude production in 2020-2030 slightly above 2015 levels;
2035: 1.6% below 2015.
Russian crude (ex condensate) production scenarios.
Source: Vedomosti newspaper based on the Energy Ministry data
Meanwhile, the EIA in its Short-Term Energy Outlook has revised upwards estimates and projections
for Russian oil production in 2015-17.
From the report:
"Russia is one example of production exceeding EIA's expectations. Fourth quarter 2015 oil
production in Russia is 0.2 million b/d higher than in last month's STEO, with initial data indicating
it has remained at high levels in early 2016. This higher historical production creates a higher
baseline level that carries through the forecast period. Russia's production is expected to increase
by 0.2 million b/d in 2016 and then decline by 0.1 million b/d in 2017. Russia's exposure to low
oil prices has been mitigated by the depreciation of the ruble relative to the dollar, given ruble-denominated
production costs, and by Russia's taxation regime for the oil sector."
The EIA is the last of the key international energy forecasting agencies to revise the numbers
for Russia (others are IEA, JODI and OPEC)
Besides what Alex already said, I want to add another important point: the recovery of oil-in-place
in Russia is very low compared to international averages, around 20-25%. This is why there is
a lot of potential just by improving extraction from current fields.
P.S. Then, there is shale oil, really a lot of it, but it requires much higher prices for it
to be developed, and economically it makes more sense to first increase the % extracted of oil-in-place
"... EIA oil price projections are unrealisticly low IMO. Removing 1.5 million bopd from USA, plus world wide demand growth of 1-1.2 in 2016, plus other worldwide declines that Ron has illustrated, add up to more than Iraq and Iran can boost production. KSA appears to be incapable of going past 10.5 million. Russia cannot quickly increase production. ..."
"... Things can change fast regarding oil prices, witness the volatility since 1/1/16. We are hearing there could be a real supply squeeze coming and are seeing real evidence of that anticipation based upon some long term offers to hedge well above the current strip, sharply increased local basis and refinery planning chatter. ..."
"... And that talk of 500k from Iran waiting to flood the market is bogus story from the beginning and it was just used to perpetuate "glut" narrative. ..."
"... Iran will not piss 500k at these prices unless there is a deal between Russians and Saudis regarding the quotas. ..."
"... As for prices, Alex should always superimpose EIA STEO prediction from a year ago on the current. Otherwise posting such a graph does not make much sense and looks like a free promotion for crappy job that EIA performs with this metric :-) ..."
"... BTW they are unrealistic by design as they are based on futures. Futures are a bad predictor of oil prices dynamics as they are often used by producers and by hedge funds for hedging and offsetting other bets. Probably worse then a typical "oil expert" predictions :-) ..."
ND rigs at 33. Burlington has one to stack. My estimate is rigs will bottom at 26-27.
EIA oil price projections are unrealisticly low IMO. Removing 1.5 million bopd from USA, plus
world wide demand growth of 1-1.2 in 2016, plus other worldwide declines that Ron has illustrated,
add up to more than Iraq and Iran can boost production. KSA appears to be incapable of going past
10.5 million. Russia cannot quickly increase production.
Things can change fast regarding oil prices, witness the volatility since 1/1/16. We are hearing
there could be a real supply squeeze coming and are seeing real evidence of that anticipation
based upon some long term offers to hedge well above the current strip, sharply increased local
basis and refinery planning chatter. All are anecdotal, but are not signifying worries of tanks
topping.
Also add 600k disruption from Iraq Kurdish area due to complete change in
geopolitics in that area, that 600k is NOT coming back to the market until there is deal and safe
infrastructure on moving that oil towards the south terminals through areas controlled by Iraq
government. And that talk of 500k from Iran waiting to flood the market is bogus story from
the beginning and it was just used to perpetuate "glut" narrative.
Iran will not piss 500k at these prices unless there is a deal between Russians and Saudis
regarding the quotas.
I would just watch March 20th meeting and try to decode the statements from the meeting.
EIA oil price projections are unrealistically low IMO
As for prices, Alex should always superimpose EIA STEO prediction from a year ago on the current.
Otherwise posting such a graph does not make much sense and looks like a free promotion for crappy
job that EIA performs with this metric :-)
BTW they are unrealistic by design as they are based on futures. Futures are a bad predictor
of oil prices dynamics as they are often used by producers and by hedge funds for hedging and
offsetting other bets. Probably worse then a typical "oil expert" predictions :-)
Economics 101 for Dummies – an OFM type of a post.
Art Berman looks at the numbers and says oil should go back to $30, or even lower. It does
take capitalism time to work. But, EVERYONE, including Saudi Arabia and Kuwait, is losing $20/bbl
or more. Those two countries are losers because they have already spent the money before it came
in. So, the industry is losing $2 billion per day minimum. Probably $1 trillion/year at current
prices. It will change. Relatively fast.
Look at the reverse. Suppose that a loaf of bread went up to $100 in the US. 99.999% of the
population would be screaming for government price controls. OFM would be getting no sleep. Why
is that? Because he would be baking bread 24/7.
Before the crash of the Soviet Union, TV reported stories of shortages of everything in their
Union. It supposedly took 3 months of labor for a typical factory worker, saving 100% of his/her
earnings, to have enough money to buy a cloth coat. That was unsustainable. Why? Because you could
quit your job, stay home and knit a coat a week and get 12 times your salary.
Heck, even the French farmers were smart enough that when milk prices went below the cost of
production, they just dumped it in the streets.
These US corps that are selling stock to shore up their balance sheets are not stupid. They
will not start drilling again until their stock prices are well above where they diluted existing
shareholders.
I think the release of the LTO company annual reports let the cat out of the bag, so to speak.
At $50.28 WTI, no one can make a go of it, if you just read the financials on these companies.
The companies will deny that and say all kinds of stuff, but the proof is in the SEC reports.
Sure, they can get by for a long time in survival mode, but $50 as a long term price absolutely
doesn't work. Actually around $80 WTI is needed long term to have a viable LTO business, with
there obviously being a range around that price, depending on many company specific factors.
When something like 70% of XOM's upstream estimated net future cash flows disappear, and their
proved reserves drop 24%, from the previous year, just imagine what happens to all of their lesser
peers. Many had to show huge production and development cost cuts to even have net future cash
flows at $50.28, and then we dropped to $30 the first two months of 2016? Again, can get by awhile
but long term, no way.
No business media report on this stuff, and very few retail investors discuss this stuff. But
you can bet the institutional people look at reserves and estimates of future cash flows. Seeing
how bad those looked, and knowing that those are likely the BEST CASE SCENARIOs the independent
reservoir engineering firms would allow, it had to have an affect. I do not think it is a coincidence
that we were bombed with LTO 10K in February and the price has rocketed up since. The traders
realized they overshot. They believed the company "break even hype" too much, and the 10K confirmed
it is a lot of hype.
That is why I was so surprised when EOG came out and said what they did about economic at $30,
after the release of their 10K. Unless the 10K is wrong, they have $0 net future cash flow at
$32 WTI and $1.70 HH. Some heavy hitters had to get into EOG's ear in order for them to say that.
My conspiracy mind says political people, but likely it was Goldman Sachs types? It was just too
"Red, White and Blue" talk coming from them,( i.e. we MUST be cost competitive with KSA and "win"
this war).
I am not saying the low oil price nightmare that US producers have experienced is over, short
term is a tough one. But, absent some major demand decreases or major OPEC production increases,
low prices cannot last as the EIA is currently predicting.
likbez says:
03/09/2016 at 10:55 pm
ShallowS,
I think the release of the LTO company annual reports let the cat out of the bag, so to speak.
I am with you, but let me to assume the position of "devil advocate". Your statement above is true
if you view "the small picture". But if you view "the large picture" the situation is slightly different.
Here are my admittedly unprofessional (aka naïve) view:
1. In a sense "the cat out of the bag" is the necessary conditions for the recovery of oil prices,
as only an incompetent, or a stooge now can talk about prices below $70 as sustainable for shale
industry. But jury is out whether it is sufficient. May be the extinction of shale companies is in
the cards, may be they will quietly kept afloat by extending loans and by sale of shares for an additional
year. Life is complex thing and economics reflects life in more then one way.
2. That's true that individual shale companies are forced into unsustainable position (aka charge
of light oil brigade in the "death valley", see https://en.wikipedia.org/wiki/Charge_of_the_Light_Brigade
). They fight bravely but the cards were against them. But for the county as a whole, low oil prices
are a powerful economic doping, which probably helped the USA to avoid recession in 2016. Obama administration
probably has a hand in staging the drop via Saudi as they openly admit (http://oilprice.com/Energy/Oil-Prices/Did-The-Saudis-And-The-US-Collude-In-Dropping-Oil-Prices.html
)
3. IMHO low oil prices are critical to prevent slide from "secular stagnation" back into a new Great
Recession. So keeping oil prices low in 2016 is one way of kicking the can down the road for Obama
administration. Which definitely would prefer postpone possible economic problems connected with
the recovery of oil price to the next administration.
4. Putin made a move against the current oil price "status quo" and being a powerful geopolitical
player he managed to keep in line such possible detractors as Azerbaijan and Iran. So on March 20
oil price might get a boost like many suggested as shortages of oil might became reality much sooner
the some people expected (Saudi suggested that excluding Iran the drop can be closer to 0.5Mb/quarter
(1 Mb/d for the second half of 2016) then the current estimate of $0.3Mb/quarter). Their own production
is dropping too:
Nov. 30, 2015 10.04M
Oct. 31, 2015 10.14M
Sept. 30, 2015 10.19M
Aug. 31, 2015 10.29M
July 31, 2015 10.29M
5. Saudi position about continuation of their predatory oil pricing game is now fuzzy as on one hand
they still want to suppress growth of their regional rivals and Russia but on the other hand losing
$100 billion a year is not an attractive option either. In no way Saudis ever considered US shale
oil industry as a geopolitical competitor. As a nuisance yes, as a possible (and in a certain sense
welcome, from the global economy health view, with a special emphasis of G7 economies health) player
in the limiting of upper bound of the price of oil to the $80-$100 band for a decade, yes. But as
a geopolitical competitor in the global oil market, I think, no. This is all MSM lies. IMHO neither
quality, not quantity, nor status of the USA as an oil importer allow shale to play a significant
role in the global oil market. The same is true for shale gas.
China did increase its oil imports over the last few months to over 30 mill tons per month
(see below chart). Together with natgas and cyclical hydrocarbon imports this adds up to 40 mill
tons of hydrocarbons per month, which is around 10 mill barrels per day.
Slowly the fundamentals are building up for an oil price rise, although I think we will get
a pullback over summer.
"The data also showed China's February crude oil imports jumped 20 percent on year to their highest
ever on a daily basis, driven by import quotas and stockpiling."
In addition to the surge of oil imports, natgas is up year over year 100%, copper 50%, copper
ore and extractives up 92%. The increase is all up in volume as imports in dollar terms are still
very low due to low prices. However these numbers are huge as China is one of the largest importers
in the world.
To me this looks like the early sign of a nascent commodity recovery.
1) state and commercial stockpiling
2) robust gasoline demand (not closely correlated with economic growth, as opposed to weak diesel
demand).
3) rising fuel exports
"Fuel exports in February rose 71.8 percent on a daily basis compared to the same month last
year, reaching 2.99 million tonnes, or 721,700 bpd, after hitting a record 975,500 bpd in December,
as China continues to export more diesel amid weakening domestic demand for the industrial fuel."
"…as China continues to export more diesel amid weakening domestic demand for the industrial
fuel."
Plus: There's increasing demand in China for gasoline as more cars are built and sold. More
gasoline coming from refineries means more diesel coming from refineries, as they produce both.
The small "teapot" refineries are being given permission to import gasoline now, I believe,
so that will help reduce overproduction of diesel, and the government has imposed a price floor
too; that helps reduce the panic exporting.
The Chinese car market is much bigger than the US car market. And also growing much faster.
When a commodity cycle starts, metals (gold, silver, base metals…) are first to soar. Oil is
actually the last to rise as oil in most cases brings a commodity cycle to its end due to higher
inflation.
There is little doubt that China is in the early stage of a massive upswing. Anyone who hopes
for higher oil prices should hope also for a Chinese recovery. Oil prices will not go up without
a Chinese recovery.
As the demand growth in 2015 has been way underestimated in 2014, it is again underestimated
for 2016.
The IEA numbers for 2016 are just an estimate and not yet a fact. Car registrations and import
numbers reveal way higher numbers are likely for China in 2016.
A strong sign of a Chinese recovery is the recent strength of the yuan, record high of new
loans (2500 bn yuan) and strong money suppley (+14%).
You are right, the IEA has significantly increased its estimate of China's oil demand for 2015.
Last year, incremental demand was actually higher that in the previous 4 years.
I also agree with you that IEA likely underestimates China's demand growth in 2016.
But this growth will still be slower than last year; it will not accelerate.
Growing imports reflect buying by the government and oil companies for stockpiling and increasing
exports.
As I said above, there is also a serious structural shift in China's oil consumption.
It is now driven by gasoline, which is due to growing private car ownership.
By contrast, demand for diesel, which is mainly consumed in the industry and construction, has
sharply decelerated.
And this seems to be a long-term trend, as China is gradually changing its economic model from
export-oriented, based on heavy industries and construction, to a more focused on private consumption.
China: y-o-y growth in gasoline consumption
source: IEA
It is possible that diesel fuel is being used more efficiently by the Chinese economy. For
example diesel is essentially the same as heating oil and as China develops less will be used
for heating buildings as natural gas pipeline infrastructure expands, there might also be some
switching to heat pumps for heating. These switches take time and there is a significant time
lag between high oil prices (from 2011 to mid-2014) and when we see the long run demand effects.
Also the expansion of auto sales tends to increase employment and economic activity throughout
the economy.
For these reasons I think a focus on total oil demand makes more sense than a focus on only
diesel demand.
Yes, there is an effect of fuel substitution.
I'm not sure if a lot of diesel is used for heating in China (I think they are mostly using LPG,
coal, firewood, etc.), but certainly there are sectors of the economy where it can be substituted
or used more efficiently.
For example, in the 2000s, a lot of diesel and residual fuel was used for power generation,
as despite a rapid growth in generation capacity China often experienced serious power shortages.
In particular, that explains a spike in oil consumption in 2004. China now has sufficient generation
capacity, so diesel use for power generation in the commercial and residential sectors is diminishing.
But more important is a structural shift in China's economy and energy consumption patterns.
The country is undergoing a gradual transition to an economy oriented toward private consumption.
The share of less energy-intensive sectors, such as services, in GDP is increasing. Fixed investment/GDP
ratio is declining from 40-50% to more sustainable levels, which means relatively slower growth
and less infrastructural developments. All this should lead to a less energy-intensive economy
and relatively lesser use of industrial fuels, including diesel.
By contrast, gasoline demand is driven by rising living standards, growing middle class, and
hence rapidly increasing car ownership. Gasoline consumption will continue to grow at a high rate,
even though economic growth is slowing.
Here's the deal. China may actually be the country where EVs take off in a big way first (if you
leave Norway out of it). The following insideevs.com piece rates China as the number one EV market
in the world. I don't understand the metrics used by the author for the countries below China
on the list but, it is hard to deny that China is the fastest growing market for EVs or that the
highest absolute numbers of EVs are being sold in China.
up from #3; local sales 207,000, plus a lot more buses and commercial trucks. Claim to fame:
easily overtook USA this year for the global volume title; increased 300% over 2014; most sales
locally made by a diverse domestic industry; makes and deploys the vast majority of the world's
EV Buses.
China has once again proven that despite its huge size, it can turn its economy and industry
on a dime. They've been doing this every few years now, in a manner rivaling what the USSR and
USA accomplished during World War II.
As always, when you crank out an omelette this big, eggs will break. Indeed, the sooty fallout
of last decade's massive industrial push is one big reason why China is in such a hurry now to
clean up its energy grid, and its car and bus fleet. Hopefully they are learning some lessons,
and not just causing problems just as big downstream.
This concern is important. For example, in January Amnesty International published a meticulous
report, showing that China's Huyaou Cobalt company buys cobalt mined off of Congolese child and
slave labor. It then sells the cobalt directly or indirectly to Li-ion battery makers, including
BYD and interestingly, Korean LG Chem and Samsung. This must stop.
That said.
It is simply mind-boggling, that in 2012 China had all of 3,000 EV sales. The US was already
at 52,000 at the time. Three years later, they have apparently crossed 200,000 sales for the year,
with 35,000 EV sold in December 2015 alone.
he Chinese government intends to further augment plug-in electric vehicle sales by increasing
purchases from various government departments.
The latest move sets buying guidelines of more than 50% of new purchases to be NEVs (New
Energy Vehicles – electric or plug-in hybrid).
What this means for future gasoline consumption growth in China is anybody's guess but, it
appears to me that EVs are in the early stages of an exponential growth phase.
This article has all signs "a am short on oil" bias. As such this can serve as an
example of fine art of disinformation. Previously the same deso as now about Kuwait was
promoted about Azerbaijan. i could well be that Zerohedge traders are hurt by this "short
covering" oil rally. They never disclose their positions.
Notable quotes:
"... According to Reuters, Kuwait's oil minister said on Tuesday that his country's participation in an output freeze would require all major oil producers, including Iran, to be on board. ..."
"... Kuwait's announcement followed a report by Goldman overnight in which, as we reported, Jeff Currie said that the "commodity rally is not sustainable" and it is time to sell crude. "While these dynamics (rising prices) could run further, they simply are not sustainable in the current environment," the analysts wrote. "Energy needs lower prices to maintain financial stress to finish the rebalancing process; otherwise, an oil price rally will prove self-defeating, as it did last spring." ..."
"... China's February vehicle sales, a key driver for gasoline demand, were down 3.7 percent year on year, data from the country's Passenger Car Association showed. ..."
Back in late February, when crude prices had just hit a 13 year low, one catalyst unleashed a
furious short-covering rally: a WSJ report which cited a delayed SkyNews interview with the UAE energy
minister, according to which OPEC would freeze, if not cut production. Since then we learned, courtesy
of the Saudi oil minister Al-Naimi himself, that the Saudis will never reduce output, however, in
a utterly meaningless gesture, Saudi Arabia and Russia agreed to "freeze" production at levels which
are already at maximum capacity and under one condition: that all other OPEC members join the freeze,
with the possible exception of Iran which may be allowed to produce until it hits its pre-embargo
export levels.
Of course, even the said "freeze" is nothing but a stalling tactic employed by an OPEC member
(Saudi Arabia), to give the impression that OPEC still exists as a production-throttling cartel when
OPEC ceased to exist in that capacity in November 2014. Everything since then has been one surreal
redux of "Weekend at Bernies" where everyone pretends not to notice the corpse in the room.
However, while many had pretended to at least play along with the charade, today a core OPEC member
effectively broke ranks when Kuwait said it would only agree to an output freeze if all major producers
take part including Iran.
According to Reuters, Kuwait's oil minister said on Tuesday that his country's participation in
an output freeze would require all major oil producers, including Iran, to be on board.
"I'll go full power if there's no agreement. Every barrel I produce I'll sell," Anas al-Saleh
told reporters in Kuwait City. And since Iran has made it very, very clear that it will not join
the production freeze at its current mothballed output, and will need at least 9-12 months before
it regains its pre-embargo capacity levels, one can forget about a production freeze well into 2017,
if not forever, since by then at least one if not more OPEC members will be bankrupt (they know who
they are: they are the source of those "ALL CAPS" flashing read headlines every day).
Putting Kuwait's production in context, Kuwait - the small Gulf state Saddam invaded 25 years
ago - is currently producing 3 million barrels of oil per day. Incidentally, this is precisely how
much the oil market is oversupplied each and every day, and why in addition to PADD1, 2 and 3 being
almost full, and excess oil now being stored in ships, pipelines and trains, and re-exported to Europe,
quite soon empty swimming pools will be full with the "black gold" as the algos continue to refuse
to pay any attention to the constantly deteriorating fundamentals.
Kuwait's announcement followed a report by Goldman overnight in which, as we reported, Jeff Currie
said that the "commodity rally is not sustainable" and it is time to sell crude. "While these dynamics (rising prices) could run further, they simply are not sustainable in the
current environment," the analysts wrote. "Energy needs lower prices to maintain financial stress
to finish the rebalancing process; otherwise, an oil price rally will prove self-defeating, as it
did last spring."
Perhaps, but not just yet: in addition to China's abysmal exports, we also learned that in February
its crude imports soared 19.1% to 31.80 million tons, or about 8 million barrels per day, an all-time
high, suggesting China - like the US - is filling every available container including its SPR at
a time when prices are relatively low even if organic demand continues to deteriorate.
As Reuters writes, "despite strong oil demand, questions about the sustainability of growing consumption
weighed on markets after China's overall exports tumbled by a quarter in February."
China's February vehicle sales, a key driver for gasoline demand, were down 3.7 percent year
on year, data from the country's Passenger Car Association showed. "This is really a poor start
for trade this year," said Zhang Yongjun, senior economist at the China Centre for International
Economic Exchanges.
However, judging by the latest bounce in crude in the last hour of trading, the only thing that
still matters is who the daily "short squeeze" will rip higher. By the looks of things, at least
one major trader already got the tap on the shoulder.
I suspect farmers were buying diesel fuel in the past several weeks for field work coming up in
the next two months.
Two million farmers buying 2100 gallons of diesel fuel is 42,000,000,000 gallons, 1,000,000,000
barrels of diesel fuel; there it was, gone.
A thousand gallon on farm diesel tank, pour some into the tractors, trucks, all which will
hold another thousand gallons easy, you have your demand in storage waiting to be burned doing
field work. The pickups have a one hundred gallon tank in the pickup bed for some more fuel, fill
those too. Fill the combine too, add some stabilizer, you're ready to go.
Plus a can of starting fluid for cold starts, just what you need to start a cold diesel engine.
Might as well order it before the price starts to rise in April. No sense in spending another
fifty cents per gallon, that is another 21 billion dollars and might as well have it in the bank
account for some fertilizer and soybean seed.
My point is that in the energy space, shockingly, money continues to pour in whenever
it's being requested.
The facility of even the most distressed oil company to raise capital, and the least
distressed feeling the need to do so, combined with the short covering move in oil futures, rightly
spooked the equity shorts everywhere in the oil sector. You might be waiting to see a stock go, rightly,
to zero, but if companies are continually able to extend their timelines on that at will, the possibility
that oil will recover in time to save them obviously increases the risk in the short position.
The short-covering panic affected the sector stocks differently, of course -- those
with the strongest balance sheets and lowest short commitment rallied the least; those on the other
side of the spectrum -- the ones most likely (still) to face Chapter 11 (like SeaDrill) rallied spectacularly.
But now where are we? There's been a long-overdue, short-covering rally that I've been
expecting. So what? And now what?
Here are some things I can say:
Oil has bottomed. We won't see any of the $10 or $20 targets that
some have picked. Unless the momentum algorithms regroup and again begin to accumulate (which is
easily trackable), we won't even see another $26 retest again, in my view. The contango (again trackable)
would have to begin to spike outwards as well.
Oil still isn't ready to get long-term bullish, yet, either. While
this short covering could easily take prices back to $40, that still only gets oil from a ridiculously,
unsustainably low price to merely an unsustainably low price. We still need to see a whittling away
of producers and drillers before any rally can be sustained. Drillers like SeaDrill have managed
to "add wick to their time bomb fuses" but we still await a few of those bombs to explode before
we'll be convinced the bear market is turning for good.
"... Brent prices are expected to climb from an average of $40 per barrel in 2016 to between $65 and $70 per barrel by the end of the decade. ..."
"... The price expectations are based on an email survey sent to more than 2,500 energy professionals working in oil and gas, banking, hedge funds, research, professional services, trading and specialist media earlier this month. ..."
"... That's great -- Now unwashed public knows the future. I think it is true the forecasts they got are tightly clustered because it is simply easier to answer what is expected from you (aka to give a "politically correct" answer) and avoid any personal responsibility ;-). Also such surveys have some propaganda value as they form people expectations. I am less sure whether they correctly report the true distribution of answers as some people are not shills and outliers are important. ..."
Oil prices are expected to rise gradually over the next five years but will remain well below
the pre-crash level, according to a survey of professionals who follow the oil industry.
Brent prices are expected to climb from an average of $40 per barrel in 2016 to between $65 and
$70 per barrel by the end of the decade.
The price expectations are based on an email survey sent to more than 2,500 energy professionals
working in oil and gas, banking, hedge funds, research, professional services, trading and specialist
media earlier this month.
More than 800 responded.
The results are more bullish than the futures strip, where Brent is currently trading around
$50 per barrel on average in 2020.
In the survey, there is a high degree of consensus about prices for the rest of 2016. Most forecasts
for 2016 are tightly clustered between $35 and $45 per barrel. Nearly all lie between $30 and
$50.
Brent prices have averaged just $33 per barrel so far in 2016, so most respondents expect prices
to be slightly firmer in the remainder of the year.
But in the latter years covered by the survey there is far less consensus about what will happen,
reflecting uncertainty about how far and how fast prices might recover from the crash.
The central forecast rises progressively by $5 to $10 per year between 2017 and 2020, but the
range of expectations also becomes successively more dispersed.
Most respondents expect prices to rise to around $65 to $70 per barrel by 2020. But as many as
a quarter think prices will remain stuck below $55, while another 25 percent think they will have
risen to more than $80 by then.
Despite market chatter about a looming supply crunch as a result of cuts in investment spending,
only 7 percent of respondents expect Brent prices to climb back to $100 or more by the end of
the decade.
I would greatly prefer the quotes with which you personally agree instead of the whole article.
There are several warning signs about this article:
The price expectations are based on an email survey sent to more than 2,500 energy professionals
working in oil and gas, banking, hedge funds, research, professional services, trading and
specialist media earlier this month.
More than 800 responded.
Quick question: What is the average level of those professionals and how many of them are talking
their books ?
Now another typical and dirty MSM trick in forming public expectations (very similar to use
of polls in elections):
Most forecasts for 2016 are tightly clustered between $35 and $45 per barrel.
That's great -- Now unwashed public knows the future. I think it is true the forecasts they
got are tightly clustered because it is simply easier to answer what is expected from you (aka
to give a "politically correct" answer) and avoid any personal responsibility ;-). Also such surveys
have some propaganda value as they form people expectations. I am less sure whether they correctly
report the true distribution of answers as some people are not shills and outliers are important.
I would like to ask a related and no less important question: the approximate number of bankruptcies
among US LTO producers and amount of junk bond written off in 2016 if this forecast materialize.
I do not know where the oil prices will be in a year or two, but IMHO it is important to view
skeptically Reuters info in general and their oil price survey in particular. Typically their
value is zero or less. Reuters clearly belongs to the "low oil price forever" camp (like most
MSM). Jeffrey Brown recently reminded us about similar position of The Economist (another respectable
completely reliable MSM :-) in 1999:
http://peakoilbarrel.com/the-ieas-oil-production-predictions-for-2016/#comment-558646
In any case, here is an excerpt from the March, 1999 Economist Magazine cover story on oil
prices:
Here is a thought: $10 might actually be too optimistic. We may be heading for $5. Thanks
to new technology and productivity gains, you might expect the price of oil, like that of most
other commodities, to fall slowly over the years. Judging by the oil market in the pre-OPEC
era, a "normal" market price might now be in the $5-10 range. Factor in the current slow growth
of the world economy and the normal price drops to the bottom of that range.
Generally this is the same situation as with S&P500 annual forecasts. Bought analysts from
crooked firms talk their books.
"... In an interview with Reuters, Ross said oil should recover to $50 a barrel by the end of the year, potentially aided by eventual supply cuts from leading producers among the Organization of the Petroleum Exporting Countries (OPEC). ..."
"... Instead, they would keep pumping and allow prices to fall. While they did not anticipate the longest and deepest oil price rout since the mid-1980s, the effort has at last begun to curb the rise of rival higher-cost producers such as U.S. shale drillers, another sign that prices may have found a bottom. ..."
"... In his note to clients, Ross also pointed to the recent agreement between major OPEC members and leading non-OPEC producer Russia to "freeze" production at January levels as a factor boosting market sentiment after a brutal period when the only safe trade seemed to be sell. ..."
"... Officials from less influential members such as Venezuela or Angola have occasionally referenced specific prices, generally in the vicinity of $70 to $80, ..."
Major OPEC producers are privately starting to talk about a new oil price equilibrium of $50 a
barrel, adding to signs that the market's long, deep rout is officially over, says one of the
industry's leading prognosticators.
Gary Ross, the founder, executive chairman and chief oil soothsayer at New York-based consultancy
PIRA, told clients 2-1/2 weeks ago that he reckoned the "lows are in" for crude, which was then
about $30 a barrel. U.S. futures <CLc1> have rallied since then to close at nearly $36 on Friday,
with a handful of analysts also cautiously calling a bottom.
In an interview with Reuters, Ross said oil should recover to $50 a barrel by the end of the
year, potentially aided by eventual supply cuts from leading producers among the Organization of
the Petroleum Exporting Countries (OPEC).
"They want $50 oil, this is going to become the new anchor for global oil prices," said Ross, one
of the industry's most respected forecasters for his bold price predictions and decades-long
history of consulting with OPEC members.
"While it may not be an official target price, you'll hear them saying it. They're trying to give
the market an anchor."
If Saudi Arabia and other powerful Gulf OPEC members begin invoking $50 as "fair price for
producers and consumers" - a once-favored phrase that has been absent for several years - it may
could signal the end of an unusual and extended period in which the group abandoned efforts to
manage the market.
After years of signaling satisfaction with prices hovering at around $100 a barrel, top
exporter Saudi Arabia in late 2014 led OPEC in its most dramatic policy shift in decades. No
longer would the world's top oil exporter, or its OPEC allies, agree to cut their own production
to support such high prices, which they feared would erode their share of the world market.
Instead, they would keep pumping and allow prices to fall. While they did not anticipate the
longest and deepest oil price rout since the mid-1980s, the effort has at last begun to curb the
rise of rival higher-cost producers such as U.S. shale drillers, another sign that prices may
have found a bottom.
In his note to clients, Ross also pointed to the recent agreement between major OPEC members
and leading non-OPEC producer Russia to "freeze" production at January levels as a factor
boosting market sentiment after a brutal period when the only safe trade seemed to be sell.
The pact will do little to curb immediate oversupply, especially with Iran exports still swelling
after the end of sanctions. Still, working together on "verbal intervention" was a positive start
that "could lead to eventual cuts" after a period in which Saudi Arabia and Russia made little
effort toward any kind of cooperation, he said.
"Russian production is going down anyway, why not agree to a freeze and then cuts?" Ross told
Reuters.
The $50 figure was in line with analysts' consensus for 2017 U.S. prices, according to the last
Reuters poll, although much higher than the $38 a barrel median for this year.
Ross, whose forecasts are not normally made public, was among the few analysts to anticipate
OPEC's decision to let prices fall in 2014.
While he was wrong-footed in the first part of last year, when crude's rebound to around $60 a
barrel proved temporary, he joined others such as Goldman Sachs in taking a much more bearish
view in more recent months, predicting in December that U.S. crude would drop below $30 a barrel
in February.
Ever since the market detached from the $100 a barrel figure that anchored it from 2010 to 2014,
analysts, traders and executives have struggled to pinpoint where it might ultimately settle,
agreeing only that it would be a period of extraordinary volatility in the absence of any overt
OPEC guidance.
Officials from less influential members such as Venezuela or Angola have occasionally
referenced specific prices, generally in the vicinity of $70 to $80, but the bigger Gulf
producers have largely avoided any public mention of a new reference point, leaving the market
adrift.
"... Interesting we are seeing a crude oil rally in March, as in 2009 and 1999. Of course, we also had a rally in April in 2015 that didn't hold. ..."
"... There are some that are saying this is due to a massive short squeeze ..."
"... Could be anything. Could be short squeeze, could be Chinese, could be Japan (based on a secret G-20) agreement. Who is the biggest beneficiary of an oil price "stabilizing" around $35 – 45? Besides the containment of contagion from energy to banking sector – Obama to Hillary baton hand-off. ..."
There are some that are saying this is due to a massive short squeeze as happened
recently with iron ore, but I had not thought about the March correlation.
Last April didn't include the most important presidential election this country has seen in decades.
If either of the two insurgent candidates wins it could deliver a mortal blow to the empire. Anyone
who thinks they know why the price of oil is rallying is living in crazy-town.
Could be anything. Could be short squeeze, could be Chinese, could be Japan (based on a
secret G-20) agreement. Who is the biggest beneficiary of an oil price "stabilizing" around $35
– 45? Besides the containment of contagion from energy to banking sector – Obama to Hillary baton
hand-off.
The more recent descent of oil prices below $30 per barrel is inducing another period of
contraction in drilling activity, which is clearly visible with the rig count in free fall.
Individual shale basins are feeling the pinch to various degrees. The Eagle Ford shale in
South Texas, for example, had over 200 rig counts as of late 2014. That figure has fallen to just
46 as of early March. Oil production from the Eagle Ford has declined by 0.5 million barrels per
day since the middle of last year. The Permian Basin in West Texas had over 500 oil and gas rigs
at the end of 2014, a level that has plunged to just 158. Oil production from the Permian has
finally come to a halt, and could begin to decline through this year.
There tends to be a lag between movements in the oil price and the resulting effects on the
rig count. As a result, the rig count may not rebound immediately even if oil prices rise. That
means that with production in the U.S. now declining, the declines should continue at a steady
pace until oil prices post a sustained rally.
Oil speculators are becoming more bullish on oil prices. Hedge funds are rapidly liquidating
their short bets, as fears of sub-$20 oil have all but vanished for now. According to data from
the CFTC, net-short positions fell by 15 percent for the week ending on March 1. "We might see
the real bottom being behind us," Ed Morse, head of global commodity research at Citigroup Inc.,
said on Bloomberg TV on March 4.
In addition, although a lot of questions remain, OPEC representatives are planning on meeting
with Russia's energy minister between March 20 and April 1 to follow up on their production
"freeze" agreement. An outright cut to production remains a long-shot, especially since Saudi
Arabia's oil minister Ali al-Naimi all but ruled it out at the IHS CERAWeek conference in Houston
in late February. It is hard to imagine OPEC and Russia shifting course from the production
freeze, but any agreement to take additional action represents an upside risk to oil prices.
Given the mounting evidence, it seems that the oil price rally is finally here, then? Maybe.
But it is also possible that bullish sentiment is starting to outstrip the fundamentals, even if
the fundamentals are trending in the right direction.
"... Anyone who thinks they know why the price of oil is rallying is living in crazy-town. Could be anything. Could be short squeeze, could be Chinese, could be Japan (based on a secret G-20 agreement). ..."
There are some that are saying this is due to a massive short squeeze as happened recently with
iron ore, but I had not thought about the March correlation.
Last April didn't include the most important presidential election this country has seen in decades.
If either of the two insurgent candidates wins it could deliver a mortal blow to the empire.
Anyone
who thinks they know why the price of oil is rallying is living in crazy-town. Could be anything.
Could be short squeeze, could be Chinese, could be Japan (based on a secret G-20 agreement). Who
is the biggest beneficiary of an oil price "stabilizing" around $35 – 45? Besides the containment
of contagion from energy to banking sector – Obama to Hillary baton hand-off.
Though Iran hasn't committed to a production freeze, since it wants to ramp up production to pre-sanction
levels, Russian Energy Minister
Aleksander
Novak has noted that "Iran has a special situation as the country is at its lowest levels
of production. So I think, it might be approached individually, with a separate solution."
With all the major Gulf nations agreeing, Iraq, which is without a credible political leadership,
will also likely follow suit if Russia assures them of stronger support against ISIS.
If the
above scenario plays out, Russia will emerge as the de facto leader of the major oil producing
nations of the world, accounting for almost 73 percent of the global oil supply.
Along with this, Russia has been in the forefront of plans to move away from Petrodollars,
and Moscow has formed pacts with various nations to trade oil in local currencies. With this new
cartel of ROPEC (Russia and OPEC nations), a move away from petrodollars will become a reality
sooner rather than later.
Russia is smart. Vladimir Putin is genius. Moscow senses the opportunity that is almost tangibly
floating about in the low crude price environment and appears to be ready to capitalize on it
in a way that would reshape the geopolitical landscape exponentially.
Crude oil traders like Vitol Group and BP (BP)
take advantage of the broader contango market. These traders buy front-month crude oil futures contracts
and take delivery upon their expiration. They store this crude oil in Cushing, Oklahoma, and then
sell it at higher prices in six months. Industry surveys estimate that leasing costs at large tanks
in Cushing were 25–35 cents per barrel per month compared to the 12-month contango price of $8.27
per barrel, as shown in the chart above. Thus, the storage cost of crude oil for 12 months could
be $4.20 per barrel at most, keeping administrative fees and other pumping costs at $1 per barrel
for 12 months. This means traders could make a profit of $3 per barrel.
Further, the EIA (U.S. Energy Information Administration) estimates that storing crude oil in
large oil tankers for several months is expensive. It estimates that the trade will be unviable until
contango conditions reach $10–$12 per barrel. Citigroup suggests that if oil prices fall below $30
per barrel, it would be unviable to store crude oil at sea.
Effect on crude oil tankers
However, long-term oversupply and the broader contango market have benefited oil tankers like
Nordic American Tankers (NAT),
Teekay Tankers (TNK), Frontline
(FRO), Euronav (EURN),
DHT Holdings (DHT), and Tsakos
Energy Navigation (TNP).
The steep contango conditions in the ultra-low sulfur diesel market provide opportunity for contango
traders and supertankers. Ultra-low sulfur diesel inventories in the United States have risen more
than total motor gasoline inventories since the middle of June 2014.
ETFs and ETNs like the United States Oil Fund (USO),
the iPath S&P GSCI Crude Oil Total Return Index ETN (OIL),
the VelocityShares 3X Long Crude Oil ETN (UWTI),
and the ProShares UltraShort Bloomberg Crude Oil ETF (SCO)
are also influenced by the rises and falls in crude oil prices.
In the next part of this series, we'll shift our focus to the US crude oil rig count.
"... The trader's life is also made trickier by the volatility in the market, which has seen prices rise and fall by several dollars a barrel in a day. "Over the last two or three years we've seen a huge increase in volatility and that's probably due to moving more from a physical group of companies trading to a financial-based scenario," he says. ..."
"... "It's the momentum of these big hedge funds and financial institutions, which makes the market move by percentage points rather than the 30 or 40 cents you used to get three or four years ago." ..."
"... Those sudden, big movements make it difficult for traders to be off-duty. "You can never leave your position, even if technically you've left it, ie you've gone home," Ms Clubley says. ..."
Oil traders never stop talking to each other. Oil traders have to weigh up a great deal of
information
The most popular software among oil traders is not an oil trading package or even a news service
such as Reuters - it is Yahoo Instant Messenger.
"Trading oil is about getting information and knowing where the market is," says Eivind Lie who
runs the trading desk at the Norwegian oil company StatoilHydro's offices in London.
"So being a trader your life is pretty much either on Yahoo or on the telephone trying to get an
overview of the market."
Keeping in touch
While people trading shares or currencies can get a lot of their information from analysts' notes
and computerised trading systems, the oil trader still relies on chatting to a wide range of
people, ranging from other traders to specialist oil trading journalists, to try to find out what
is going on in the world.
Everything from war or natural disasters to more mundane events such as seasonal changes to
temperatures or elections can affect oil prices, so for the traders it pays to be informed.
Richard Wickham, one of the crude oil traders at Statoil, makes his first call to the office on
the way to the station after he has dropped his children off at the nursery.
Then as soon as he gets to the office he will read price reports and messages from Statoil staff
who have been trading in the US and Asia and talk to the London-based analyst.
After that, the less formal process of talking to people really gets going.
"Collating information is more than half the job," Mr Wickham says.
"Executing trades is almost small in comparison - if you don't have the information you're
blind," he says, staring at the four computer screens on his desk, which display a bewildering
array of graphs, figures, reports and message windows.
There is little else on the desk besides family photographs and a strategically-placed Norwegian
dictionary, for when he is trying to understand messages from the company's head office in
Stavanger.
Distressed cargoes
Statoil is one of the world's largest exporters of oil and, with oil topping $100 a barrel on
supply concerns, its products are in great demand.
Yet it has a relatively small trading desk in London, with just a handful of traders. "If it's a
weak market then we have to go out and sell it more actively, if it's a strong market they come
and buy it from us," Mr Lie says. Currently, demand is strong, though the traders are
nevertheless on the phone, talking to other traders, analysts and brokers.
Everyone in the market for physical oil - as opposed to paper market traders, who do not want to
end up owning any oil - is looking for that precious piece of information that will allow them to
sell oil for more, or buy it for less.
"From our side, as the seller of oil, we want to get to know the buyer's position," Mr Lie says.
"Are they short of oil, do they really need more?" The holy grail for buyers is to find a seller
having difficulty selling a shipment. "If you get too close to the delivery date, when it's taken
aboard a ship in the North Sea, and it's not sold, then the buyers know that we have what's
called a 'distressed cargo', so they will try to get a cheap price for that," he adds.
Volatile market
It may be a good time to be a seller of oil, but the way oil is traded means it can still be
nerve-wracking. "There are a lot of market price contracts where I would sell you oil today, but
we price it the day the ship loads, which might be in three of four weeks time," says Sally
Clubley, an independent oil consultant who trains oil traders.
"So we've done the deal today, but we don't know the price today and there's a lot of oil traded
on that basis."
The trader's life is also made trickier by the volatility in the market, which has seen
prices rise and fall by several dollars a barrel in a day. "Over the last two or three years
we've seen a huge increase in volatility and that's probably due to moving more from a physical
group of companies trading to a financial-based scenario," he says.
"It's the momentum of these big hedge funds and financial institutions, which makes the
market move by percentage points rather than the 30 or 40 cents you used to get three or four
years ago."
Those sudden, big movements make it difficult for traders to be off-duty. "You can never
leave your position, even if technically you've left it, ie you've gone home," Ms Clubley says.
"It really is a 24-hour job because they don't trust anybody else with it."
Mr Lie agrees.
"I think some of the traders always carry their phones, even on vacations," he says. "It's a
lifestyle more than a job so you have to enjoy it."
Looks like the range of oil prices below $70 which represents the "death valley" for US LTO production
also exists for UK North Sea fields.
Most fields might degrade at natural depletion rate already
in 2016. Which is up to 22%.
Investment in the UK's embattled oil and gas industry is expected to fall by almost 90 per
cent this year, raising urgent industry calls for the Government to reform its North Sea tax
regime to safeguard the industry's future, reports
RT reports that if Brent price in 2016 stays in 0-70 range capex in the North Sea fields might
be reduced by almost 90%.
According to the report of the British Association of oil and gas industry, with current prices,
almost half of the oil fields in the UK produce oil at a loss.
The fall in oil prices has a negative impact on the UK economy. According to the report
of the British Association of oil and gas industry, the country plans to reduce by 90% investments
in the development of offshore fields in the North Sea. According to the expert in the field
of oil industry of Mamdouh Salamah, for the United Kingdom will be cheaper to import crude,
not to invest in new projects.
With current prices, almost half of the oil fields in the UK produce oil at a loss.
An expert in the field of oil industry Mamdouh Salama believes that in this situation for
the United Kingdom would be more profitable to import oil, not to invest in new projects. According
to him, for resumption of capital investments, the level of oil prices should be higher than
$60-70 per barrel.
"Given the fall in oil prices it's more profitable for the UK to import crude oil and refine
it locally, rather than invest in the North sea fields" said Salam.
"... So, bottom line is, filling up of oil storage early in the cycle is an indicator of oversupply. But in the current late cycle of low oil prices [1.5 yrs already] it is a useless indicator of future oil price movement, oil demand or supply. ..."
Ron, I am a regular reader of your blog and find it very insightful. I have not seen much written
about Oil super contango and reasons for oil storage at multi decade high so would like to highlight
below.
When there is a temporary over supply, it fills up storage, as more and more storage get filled
up it leads to an increase in storage cost. This in turn lead to a contango, meaning future oil
prices being at premium. Currently premium stands at 20% for 1 year forward contract. This is
super contango and a bonanza for oil traders. If you can find a place to store oil you can make
risk free returns of 20% – (storage cost). So, why storage space are filling up so fast its because
commodity traders are scrambling to make this trade. It's a positive feedback loop. It can only
end when supply falls below the consumer demand.
So, bottom line is, filling up of oil storage early in the cycle is an indicator of oversupply.
But in the current late cycle of low oil prices [1.5 yrs already] it is a useless indicator of
future oil price movement, oil demand or supply.
"... In the years of $100 oil, U.S. oil companies took out half a trillion in risky corporate debt known as junk bonds and leveraged loans, both of which are considered at high risk of default. That money fueled the nation's shale oil bonanza. Since December, some of the same domestic explorers have raised $9.54 billion from equity investors to cover their swelling debt obligations. ..."
"... Tillerson's assessment of the U.S. oil industry likely comes as a disappointment to market observers speculating that Exxon Mobil will make a multibillion-dollar corporate acquisition anytime soon. ..."
"... What's more, companies that would consider selling themselves are still expecting too-high prices, so deal-making has "gotten more difficult, not easier," Tillerson said. ..."
"... "We take a lot of grief when the volumes don't grow," Tillerson said. "It doesn't bother us. We know it's all about the shareholder's money. One of the things that seems to be lost on people is just staying flat when you're running a depleting business, that's quite an accomplishment." ..."
"... He said the company invested about $190 billion over the past decade – that's about half its current stock-market value – but its production growth has lagged behind wildcatting peers. ..."
"... Exxon Mobil has had a reputation of relentless cost-cutting for more than a century, since the days of J.D. Rockefeller's Standard Oil, its 19th century corporate ancestor, which, unlike many other modern oil companies, started as a margins-based refining business, and gradually entered the oil-production side. ..."
"... "This current environment actually plays to our strengths," Tillerson said. ..."
"... The Exxon Mobil chief said oil prices could go lower than current levels, as producers are still oversupplying a global oil market that doesn't need as much oil at the moment. The global economy isn't "particularly inspiring," with U.S. gross domestic product likely to come in under 3 percent this year and China's transition from a diesel-heavy manufacturing economy. ..."
"... Still, even when oil prices recover, it may not matter for some over-levered companies. "We don't feel compelled to be in a big rush (to transact an acquisition) even if the environment changes for some of these companies, it doesn't necessarily change the value proposition because of the shape they put themselves in," Tillerson said. ..."
The CEO of Exxon Mobil says buying a rival U.S. oil driller would be like
purchasing a home with a big mortgage and a sliver of equity: it's a lot of
debt to pay off, with little to show for it.
For the biggest U.S. oil company, the nation's shale oil and gas resources
look promising, but they've been "encumbered" by smaller independent exploration
and production companies that are struggling to pay off high levels of debt
and that have diluted shareholder value in a recent string of stock sales.
"There's been a fair amount of value destruction in the past year as they
have continued to access capital markets and levered up," Exxon Mobil Chairman
and CEO Rex Tillerson told investors on Wednesday, during an annual investor
update. The big question in weighing today's slate of takeover targets, he said,
is this: "Is it going to add value or has the value just kind of been destroyed?"
In the years of $100 oil, U.S. oil companies took out half a trillion
in risky corporate debt known as junk bonds and leveraged loans, both of which
are considered at high risk of default. That money fueled the nation's shale
oil bonanza. Since December, some of the same domestic explorers have raised
$9.54 billion from equity investors to cover their swelling debt obligations.
Deal or no deal?
Tillerson's assessment of the U.S. oil industry likely comes as a disappointment
to market observers speculating that Exxon Mobil will make a multibillion-dollar
corporate acquisition anytime soon.
It is perhaps the only large integrated oil company with the cash to purchase
a major rival amid the ongoing oil downturn, but even after a year and a half,
it hasn't explicitly telegraphed it will be part of an impending wave of corporate
consolidation in the oil industry – an event often predicted by often-frustrated
observers.
What's more, companies that would consider selling themselves are still
expecting too-high prices, so deal-making has "gotten more difficult, not easier,"
Tillerson said.
"It's tough for us because we would like to do something," he said. "We see
there's a lot of quality resources out there, it's just how they've been encumbered.
What we're finding is we're spending more of our time on asset deals."
Borrowing to invest
Exxon Mobil this week announced it would borrow $12 billion in corporate
debt, which could supplement the Irving-based company's war chest of cash if
it wanted to buy another company.
But Tillerson didn't go into detail about what the sum was meant for, only
reemphasizing the company's focus on building value for long-term shareholders,
either through investing in projects or sending the cash it generates back to
investors.
"These projects have returns that are multiples over our borrowing costs,"
he said. "So that's the way I view the borrowing. We're going to put the money
to work. We're not going to borrow to write a check to somebody."
Exxon Mobil is planning to cut its capital spending 25 percent this year
to $23.3 billion, after a rough 2015 in which the company wrung less than half
the cash out of the dollars it spent compared to the last five years.
The company's return on capital employed, one of the most important financial
metrics for Exxon Mobil, sank from an average 18 percent over the past five
years to 7.9 percent in 2015, but it was still 4 percentage points above its
closest rival, French oil company Total.
Depleting business
As it cuts back, the company believes it will produce between 4 million and
4.2 million barrels of oil equivalent a day through the end of the decade, keeping
its production flat, in line as last year's 4.1 million barrels a day. That's
less than the daily 4.3 million barrels it had planned in 2017, but it's doesn't
deter Exxon Mobil from its true goal – building shareholder value, Tillerson
said.
"We take a lot of grief when the volumes don't grow," Tillerson said.
"It doesn't bother us. We know it's all about the shareholder's money. One of
the things that seems to be lost on people is just staying flat when you're
running a depleting business, that's quite an accomplishment."
He said the company invested about $190 billion over the past decade
– that's about half its current stock-market value – but its production growth
has lagged behind wildcatting peers.
"That just tells you how hard it is to hold your own in a depleting business,"
he said. "What we're really trying to do is just deliver the best value. Nothing
has changed about that."
Exxon Mobil has had a reputation of relentless cost-cutting for more
than a century, since the days of J.D. Rockefeller's Standard Oil, its 19th
century corporate ancestor, which, unlike many other modern oil companies, started
as a margins-based refining business, and gradually entered the oil-production
side.
"This current environment actually plays to our strengths," Tillerson
said.
Current environment
The Exxon Mobil chief said oil prices could go lower than current levels,
as producers are still oversupplying a global oil market that doesn't need as
much oil at the moment. The global economy isn't "particularly inspiring," with
U.S. gross domestic product likely to come in under 3 percent this year and
China's transition from a diesel-heavy manufacturing economy.
"I don't think we can look to the market's demand side to necessarily solve
this quickly for us," he said.
Still, even when oil prices recover, it may not matter for some over-levered
companies. "We don't feel compelled to be in a big rush (to transact an acquisition)
even if the environment changes for some of these companies, it doesn't necessarily
change the value proposition because of the shape they put themselves in," Tillerson
said.
"... He points out that his billionaire owner has given him $250 million (quarter of a billion) to buy up worthwhile acquisitions and he can hardly find anything worth buying. Slim pickings indeed. ..."
"... I should add that the company does not deal in LTO–conventional only. LTO isn't the only area hurting. ..."
He points out that his billionaire owner has given him $250 million (quarter of a billion)
to buy up worthwhile acquisitions and he can hardly find anything worth buying. Slim pickings
indeed.
That quarter of a billion will be raised to one billion dollars if the new acquisitions justify
it. If there isn't enough available, though, the owner will close the company.
"... I do not agree that $55 (assume WTI) is enough to keep the basins flat or grow production, without significantly more cost reductions. The company 10K, demonstrate that. Not enough future net cash flow. Especially as those calculations are sans interest and g & a. ..."
"... the average Bakken well produces 190K in 60 months. 152K is assumed 80% NRI. ..."
"... These guys just throw out prices, never any substance behind what they say. For once I would like to see an article that walks through the numbers and proves us wrong, but they can't, so they won't. ..."
I do not agree that $55 (assume WTI) is enough to keep the basins flat
or grow production, without significantly more cost reductions. The company
10K, demonstrate that. Not enough future net cash flow. Especially as those
calculations are sans interest and g & a.
Again, the average
Bakken well produces 190K in 60 months. 152K is assumed 80% NRI.
152,000 x $48 per barrel (assumed $7 basis discount) is $7,296,000.00
$7,296,000.00 less 10% severance = $6,566,400.00
Subtract gathering of $1.50, LOE of $8 and G &A of $2.50. We are now
at $4,742,000.00. This isn't enough in 60 months for a well that costs $6.5-8
million.
These guys just throw out prices, never any substance behind what
they say. For once I would like to see an article that walks through the
numbers and proves us wrong, but they can't, so they won't.
Sure, a standout well can work. Our standout wells work at $20. No one
has only standouts, unless they are fairly small.
"... These figures are backed up by EIA. There is some horizontal Mississippian production in KS, and it is down significantly, but so are all the larger production conventional counties. This is a 21% decline in under one year. ..."
"... Again, these numbers fairly correspond to EIA. This is decline of 20%. Anecdotal, I agree. Have to wonder if declines this steep have occurred in other parts of the world? I am an American through and through. But, I will admit that, not only do we have very short attention spans, but we tend to hyper focus on things. I have hyper focused on shale like the rest, but I at least realize there are many places where production has absolutely tanked. ..."
"... Many think lower for much longer. It could very well be that once the hype in the US turns, things could go quickly. ..."
"... WTI is up almost 40% since 2/11/15, 15 trading days. ..."
"... IMHO for "things go quickly" we need a trigger event that suddenly becomes a focus of news coverage. Some large bankruptcy. Whatever. May be March 20 meeting in Moscow can serve as a trigger for some short squeeze, despite the measure to be taken is an old news. But just the level of determination of oil producing countries on this meeting might be interpreted as an important market signal. ..."
"... The time lag between rig counts and actual production stands around 2 to 4 years for the general oil production index, which includes conventional and unconventional off- and onshore production (see below chart). In my view the time lag for shale is just six months and for conventional production it is at least 18 months. As an example in 2005 a doubling of the rig count did not raise oil production until 2009. ..."
These figures are backed up by EIA. There is some horizontal Mississippian production in KS,
and it is down significantly, but so are all the larger production conventional counties. This is a 21% decline in under one year.
Per the Utah Department of Natural Resources, Division of Oil, Gas and Mining:
1/15. 110,594 barrels of oil per day, 5,127 producing wells, 772 shut in, 169 T'A.
12/15. 88,469 barrels of oil per day, 4,796 producing wells, 1,157 shut in, 149 T'A.
Again, these numbers fairly correspond to EIA. This is decline of 20%. Anecdotal, I agree. Have to wonder if declines this steep have occurred in other parts of the
world? I am an American through and through. But, I will admit that, not only do we have very short
attention spans, but we tend to hyper focus on things. I have hyper focused on shale like the
rest, but I at least realize there are many places where production has absolutely tanked.
Many think lower for much longer. It could very well be that once the hype in the US turns,
things could go quickly.
WTI is up almost 40% since 2/11/15, 15 trading days.
As AlexS pointed out, there will likely be at least a 6 month lag until US activity pick up.
He thinks longer, and it makes sense. Balance sheets need major repair. Believe me, speaking from
personal experience here.
I do not foresee a straight shot up, but the world has lost a lot of oil due to this crash
IMO.
Many think lower for much longer. It could very well be
that once the hype in the US turns, things could go quickly.
I think Obama administration might object, as they need another 10
months to drive into the sunset
:-)
Dominant (sustained by propaganda machine) myths like "oil glut",
"storage overflow", fight for market share and mass overproduction by oil
producing countries (except, of course, the USA, where shale producers
suffer under brutal attack from Saudi Arabia :-)
have now a life of their own and are difficult to change even when
completely detached from reality.
IMHO for "things go quickly" we need a trigger event that suddenly
becomes a focus of news coverage. Some large bankruptcy. Whatever. May be
March 20 meeting in Moscow can serve as a trigger for some short squeeze,
despite the measure to be taken is an old news. But just the level of
determination of oil producing countries on this meeting might be
interpreted as an important market signal.
The time lag between rig counts and actual production
stands around 2 to 4 years for the general oil production index, which
includes conventional and unconventional off- and onshore production (see
below chart). In my view the time lag for shale is just six months and
for conventional production it is at least 18 months. As an example in
2005 a doubling of the rig count did not raise oil production until 2009.
If rig counts stay low until the end of this year, production is set
for a huge decline over the next year. Some interpret the still high
production at low rig counts as a miracle improvement in rig
productivity. If this is the case, the rig productivity must have been
extremely low about four years ago when a high rig count gave a then
still low production. So where does the huge turnaround come from?
One way to tell that a bear market move has run its course, or is getting
close at least, is when front page stories on major news outlets declare that
all hope is lost, and none of the experts think things will get better for a
long time, if ever.
Well, forever is a very long time, and even if it weren't, the bell has tolled,
since Bloomberg, on Feb. 12,
declared the following: The Oil Industry Got Together and Agreed
Things May Never Get Better.
"Thousands of industry participants gathered in London for their annual
get-together, only to find a world awash in crude and hardly a life jacket
in sight."
The head of commodity research at mighty Goldman even said: "I wouldn't
be surprised if this market goes into the teens."
Whether or not Jan. 20 was the bottom for Brent (an ominous day being exactly
one year from the next Presidential inauguration), closing under $30, is yet
to be determined. But if nothing else, the extreme pessimism on offer at the
London gathering make it likely that a rally, if not a turning of the tide,
is in order. And, if that is the case, now that the oil price seems to be a
symptom rather than a cause of global growth, or lack thereof, there is reason
to believe that the S&P is also due for a rally.
The following dynamic
Bloomberg
graphic shows the utter collapse in U.S. drilling rigs. The most recent
figure for rigs is getting close to the record low set in 1999, when Brent was
trading in the teens.
...The IEA predicts that China will need to import another 2.6 million barrels
per day five years from now.
"... There will be no more waving of hands and their always new breakeven price
OCD type of messages from shale crowd but very quiet departure in the sunset. ..."
"... Quantity at some point turns into quality. Now there two ranges of oil
prices that matter for shale: 0-70 and 80- infinity . With "hope" range 70-80 in
between. ..."
"... Strengthening of oil prices within the range 0-70 probably no longer matter
much for indebted shale companies and their production and by extension rig count.
Investment climate changed and will remain generally very cautious in this range,
taking into account the possibility of yet another price slump (for example, if
the price recovery overshoot; or Libya civil war ends). Mad drilling with negative
cash flow is probably the thing of the past. Taking over the companies by lenders
will be a more common practice than rescuing them. ..."
"... I think range 0-$70 now represents "death valley" for shale in which only
the "dead cat bounce" of production is possible. Investors might not return in-full
before the price reach about $80 and stays at this level for a while. Because, those
who were burned and balanced on losses around 60% on their loans (40 cents on a
dollar) probably understand, that it just does not make any economic sense. Any
belief in "shale miracle" if such existed is now busted. ..."
"... What we have now is as Ves said, "a very quiet departure into the sunset".
Of cause, we can play with numeric ranges, but you got the idea. ..."
"... IMHO it does not matter how shale E&P companies behave. Cards are stack
against them and they are in a trap. It's Minsky moment for them, when euphoria
is gone and the harsh reality started to assert itself. So the meaning of the number
of rigs now is very similar to sweating of the patient in the famous anecdote when
a doctor asks the nurse "Did the patient sweat before dying? Oh, yes. Very good,
very good". ..."
"... My point is that for "below $70 range" ( +-$10) shale companies will remain
in a "slow dying" mode. Availability of "sweet spots" does not improve with the
age of the field. Loans availability is either gone or severely cut and cash flow
is either negative or barely enough for the maintenance and for "evergreen" loans
interest payments (speculative mode of production according to Minsky). Most of
them suffer from the high level of existing debt. ..."
"... At $50.28 WTI companies lost record amounts and generally have PV10 all
categories equal to long term debt, with radical reductions in future estimated
production costs and development costs. But all are eager to show they can operate
lower than their peers. Also, the stock market seems to get ahead of itself. Look
at today, for example. ..."
"... Trading $14+ below last year SEC prices, all is not yet well. A DOUBLE
in price is needed, but likely will not occur in 2016. ..."
I think everything is clear. Rigs are going
down regardless of this uptick in the price since bottom of $26 because
it is clear that if there is sustainable price for the majority of world
production, contribution has to come from Opec and non-Opec. There will
be no more waving of hands and their always new breakeven price OCD type
of messages from shale crowd but very quiet departure in the sunset.
Despite strengthening oil prices, U.S. oil and gas rig count is
down 13 units.
Quantity at some point turns into quality. Now there two ranges of
oil prices that matter for shale: 0-70 and 80-infinity. With "hope"
range 70-80 in between.
Strengthening of oil prices within the range 0-70 probably no longer
matter much for indebted shale companies and their production and by extension
rig count. Investment climate changed and will remain generally very cautious
in this range, taking into account the possibility of yet another price
slump (for example, if the price recovery overshoot; or Libya civil war
ends). Mad drilling with negative cash flow is probably the thing of the
past. Taking over the companies by lenders will be a more common practice
than rescuing them.
I think range 0-$70 now represents "death valley" for shale in which
only the "dead cat bounce" of production is possible. Investors might not
return in-full before the price reach about $80 and stays at this level
for a while. Because, those who were burned and balanced on losses around
60% on their loans (40 cents on a dollar) probably understand, that it just
does not make any economic sense. Any belief in "shale miracle" if such
existed is now busted.
What we have now is as Ves said, "a very quiet departure into the
sunset". Of cause, we can play with numeric ranges, but you got the idea.
The E&P companies have set their budgets and placed drilling contracts.
What the price of oil does over the next three to six months won't make
much difference to the rig count. It may influence completions though as
they can be conducted on a faster turn around.
ND has lost three rigs and is likely to lose up to another ten rigs in
the coming weeks as Whiting and Continental shut down drilling, QEP and
Hess reduce to one or two rigs only, and maybe a couple of the smaller private
companies go bust.
The E&P companies have set their budgets and placed drilling contracts.
What the price of oil does over the next three to six months won't make
much difference to the rig count.
IMHO it does not matter how shale E&P companies behave. Cards are
stack against them and they are in a trap. It's Minsky moment for them,
when euphoria is gone and the harsh reality started to assert itself. So
the meaning of the number of rigs now is very similar to sweating of the
patient in the famous anecdote when a doctor asks the nurse "Did the patient
sweat before dying? Oh, yes. Very good, very good".
For conventional oil it is a completely different game and there can
be some Renaissance.
My point is that for "below $70 range" ( +-$10) shale companies will
remain in a "slow dying" mode. Availability of "sweet spots" does not improve
with the age of the field. Loans availability is either gone or severely
cut and cash flow is either negative or barely enough for the maintenance
and for "evergreen" loans interest payments (speculative mode of production
according to Minsky). Most of them suffer from the high level of existing
debt.
Also their costs rise with the rise of oil price if only because they
consume a lot of diesel fuel (if we assume EROEI 5 you need 8 gallons of
diesel per barrel of oil, so effectively your barrel contains only 42-8=34
gallons). Only a fraction of the price rise improves their economic conditions
(a large part of the "increased efficiency", lower cost of production blah-blah-blah
was based on the same effect but acting in the opposite direction). The
problems also might start when investors realize that they have a better
chance to recoup their investments by taking a hold of assets in a rising
oil price environment…
AlexS, note that in the 1998-99 price crash, oil rigs did not bottom until
a few months after the OPEC cut.
This time may be different, remains to
be seen.
At $50.28 WTI companies lost record amounts and generally have PV10
all categories equal to long term debt, with radical reductions in future
estimated production costs and development costs. But all are eager to show
they can operate lower than their peers. Also, the stock market seems to
get ahead of itself. Look at today, for example.
Trading $14+ below last year SEC prices, all is not yet well. A DOUBLE
in price is needed, but likely will not occur in 2016.
"... Bullshit. Imports are rising because oil from shale is shitty shitty oil. It is barely better than condensate. ..."
"... Refineries dont make much money on very light crude, API 45. It doesnt produce a very high volume of fuels. It is feedstock material, and there is a limited market for feedstock. Much of US LTO production is greater than API 45. ..."
Despite domestic production declining and demand surging, the EIA reported oil inventories
surge by more than 10 million barrels, or more than three times what was expected.
The 10.4 million barrel increase was mostly due to a near record increase in imports of
490,000 b/d (3.4 million barrels weekly) and an adjustment swing of 352,000 b/d (2.5 million
barrels weekly) by the EIA. The latter has been a repeated pattern to exaggerate the levels of inventory,
a pattern going back to 2015. Thus, over half of the said increase in inventory was driven
by higher imports and an arbitrary adjustment that seems routine by the EIA. Domestic production
actually fell by 25,000 B/D in the week ending on February 26. Also gasoline inventories fell 455,000
barrels, or nearly 5 percent, as capacity utilization rose 1 percent. Total gasoline supplied, which
is a gauge of demand over last 4 weeks, has risen a whopping 7 percent.
Now the real question is with U.S. production declining and inventories at record levels,
why are refiners still importing at such heights? The 8.2 million barrels per day
imported in the week came very close to the record in December, missing by some few percentage points.
U.S. commercial domestic crude oil stocks are now nearly 17 percent above last year levels. None
of this adds up: We are producing less, inventories are rising, while demand is at records and yet
we are using more imported oil?
Although raw shale oil can be immediately burnt as a fuel oil, many of its applications require
that it be upgraded. The differing properties of the raw oils call for correspondingly various
pre-treatments before it can be sent to a conventional
oil refinery . [35]
Shale oil produced by some technologies, such as the
Kiviter process ,
can be used without further upgrading as an oil constituent and as a source of
phenolic compounds
. Distillate oils from the Kiviter process can also be used as
diluents for petroleum-originated
heavy oils and as an adhesive-enhancing additive in
bituminous materials such
as asphalt
Refineries are designed to use specific types of crude, with some flexibility. Those set
up to use heavy crude need something close or at least a blend. US shale oil isn't heavy crude,
it's very light oil from what I understand.
Koch Industries spent large to modify their northern refineries to take bitumen from Canada
because it is heavily discounted (cheap). Output in Canada hasn't changed much, although exploration
and development have been greatly reduced.
US shale oil has pipeline issues in some areas and has to be transported by rail which
is considerably more expensive. Especially significant for refineries with port access.
The Saudi's have some guarantees as to minimum imports, or so I have read. When they partnered
with Shell to expand a joint refinery project on the Gulf and make it the largest refinery
in the US, apparently they got a guarantee from the US gov't on how much heavy crude they could
import. That was back when there was supposedly a great deal of excess refining capacity in
that area.
Long term availability of shale / tight oil may be in doubt to the extent investing in
refinery modifications to handle different feedstock may not be attractive.
Refineries don't make much money on very light crude, API >45. It doesn't produce a very
high volume of fuels. It is feedstock material, and there is a limited market for feedstock. Much
of US LTO production is greater than API 45.
"It was a tumultuous week in the world of hydraulic fracturing ("fracking")
for shale oil and gas, with a few of the biggest companies in the U.S. announcing
temporary shutdowns at their drilling operations in various areas until
oil prices rise again from the ashes."
And if the sordid news for the frackers were not bleak enough on the bottoming
out of oil prices, David Hughes - a former oil industry geoscientist and
current fellow with the Post Carbon Institute - recently delivered sworn
testimony to the North Carolina Utilities Commission that shale gas production
will peak in 2017 nationwide and then begin a rapid productivity decline.
There will be a "dramatic price movement" when the meeting between OPEC members
and Russia takes place, Nigerian Petroleum Minister Emmanuel Kachikwu said at
a conference in Abuja on Thursday. Saudi Arabia, Russia, Qatar and Venezuela
agreed on Feb. 16 in Doha that they would freeze production, if other producers
followed suit, in an effort to tackle the global oversupply.
"... I wonder if all the bankruptcies might change the culture a bit. It sure will make finding money to burn more difficult and investors may look beyond the investor presentations to the 10k and the bottom line and reward fiscal discipline. ..."
"... Hard to know for sure. The banks may pull back and the bond investors may require very high interest rates and industry behavior might change as a result. ..."
"... If the entire Shale industry goes bankrupt, they will have trouble with financing new wells in my opinion. So increasing output will be difficult without financing. ..."
"... If the assets are bought by companies using there own cash (no bank or bond financing), they will not throw money away on wells that will never break even. ..."
Maybe so. I wonder if all the bankruptcies might change the culture a bit. It sure will
make finding money to burn more difficult and investors may look beyond the investor presentations
to the 10k and the bottom line and reward fiscal discipline.
Hard to know for sure. The banks may pull back and the bond investors may require very
high interest rates and industry behavior might change as a result.
"once the entire U.S. shale space goes bankrupt, it will emerge debtless only to start drilling
and pumping anew prompting the Saudis to continue to ratchet up the pressure in an endless
deflationary merry-go-round."
If the entire Shale industry goes bankrupt, they will have trouble with financing new wells
in my opinion. So increasing output will be difficult without financing.
If the assets are bought by companies using there own cash (no bank or bond financing),
they will not throw money away on wells that will never break even.
Oil rose to an eight-week high in New York after U.S. production declined
and a weaker dollar boosted the attractiveness of commodities.
Futures rose as much as 1.9 percent. Output fell for a sixth week to 9.08
million barrels a day, the lowest level since November 2014, according to the
Energy Information Administration. Crude inventories rose, keeping supplies
at the highest in more than eight decades. OPEC members will meet with Russia
and other producers in Moscow on March 20 to resume talks on an output cap,
Nigeria's oil minister said.
"The mood has changed in the market and we are a little bit more optimistic
about the future," said Phil Flynn, senior market analyst at the Price Futures
Group in Chicago. "The market is shaking off the big inventories builds that
we saw in recent weeks."
Oil is still down about 5 percent this year on speculation a global glut
will be prolonged amid brimming U.S. stockpiles and the outlook for increased
exports from Iran after the removal of sanctions. Exxon Mobil Corp. scaled back
production targets and said drilling budgets will continue to drop through the
end of next year as the oil market shows no signs of a significant recovery.
West Texas Intermediate for April delivery rose 41 cents to $35.07 a barrel
at 11:19 a.m. Eastern time on the New York Mercantile Exchange, after reaching
$35.32. The contract rose 26 cents to $34.66 on Wednesday, the highest close
since Jan. 5. Total volume traded was about 2 percent above the 100-day average.
Brent for May settlement gained 22 cents to $37.15 a barrel on the London-based
ICE Futures Europe exchange. The global benchmark crude was at a premium of
46 cents to WTI for May.
The Bloomberg Dollar Spot Index fell 0.5 percent, after earlier gaining 0.1
percent.
U.S. crude stockpiles expanded by 10.4 million barrels to 518 million, according
to a report from the EIA Wednesday. Supplies at Cushing, Oklahoma, the delivery
point for WTI and the nation's biggest oil-storage hub, rose for a fifth week
to a record 66.3 million barrels.
The market's saying "You can't ignore fundamentals," said Tariq Zahir, a
New York-based commodity fund manager at Tyche Capital Advisors. "With the massive
amount of supplies that we have, the market should go lower. I think prices
will go back to below $30 in a few weeks."
Others are more optimistic. There will be a "dramatic price movement" when
the meeting between OPEC members and Russia takes place, Nigerian Petroleum
Minister Emmanuel Kachikwu said at a conference in Abuja on Thursday. Saudi
Arabia, Russia, Qatar and Venezuela agreed on Feb. 16 in Doha that they would
freeze production, if other producers followed suit, in an effort to tackle
the global oversupply.
Exxon's output will be the equivalent of 4 million to 4.2 million barrels
a day through 2020, compared with the previous target of 4.3 million as soon
as next year, Chairman and Chief Executive Officer Rex Tillerson said at the
company's annual strategy session in New York on Wednesday. Capital spending
will fall about 25 percent this year to $23.2 billion and will decline again
in 2017.
"... The meeting of oil-producing countries will be held on March 20th in Russia, the Minister of oil of Nigeria, Emmanuel Kachikwu, announced. According to him, it will be attended by representatives of countries who are OPEC members and countries that are not members in the organization. Mr. Kachikwu noted that producers seek to restore oil prices to $50 per barrel ..."
here is some good news. You have heard it first from me here on POB 2 weeks ago. We are moving
in direction of restoring the prices to acceptable level that major producers can live temporarily.
"The meeting of oil-producing countries will be held on March 20th in Russia, the Minister
of oil of Nigeria, Emmanuel Kachikwu, announced. According to him, it will be attended by representatives
of countries who are OPEC members and countries that are not members in the organization. Mr.
Kachikwu noted that producers seek to restore oil prices to $50 per barrel."
"... Instead, it reprieved the fading remnants of the military-industrial-congressional complex, the neocon interventionist camp and Washingtons legions of cold war apparatchiks. All of the foregoing would have been otherwise consigned to the dust bin of history. ..."
"... The Saudis geopolitical goal is to contain the economic and political power of the kingdoms principal rival, Iran, a Shiite state, and close ally of Bashar Assad. The Saudi monarchy viewed the U.S.-sponsored Shiite takeover in Iraq (and, more recently, the termination of the Iran trade embargo) as a demotion to its regional power status and was already engaged in a proxy war against Tehran in Yemen, highlighted by the Saudi genocide against the Iranian backed Houthi tribe. ..."
"... But the Sunni kingdoms with vast petrodollars at stake wanted a much deeper involvement from America. On September 4, 2013, Secretary of State John Kerry told a congressional hearing that the Sunni kingdoms had offered to foot the bill for a U.S. invasion of Syria to oust Bashar Assad. In fact, some of them have said that if the United States is prepared to go do the whole thing, the way weve done it previously in other places [Iraq], theyll carry the cost. Kerry reiterated the offer to Rep. Ileana Ros-Lehtinen (R-Fla.): With respect to Arab countries offering to bear the costs of [an American invasion] to topple Assad, the answer is profoundly yes, they have. The offer is on the table. ..."
"... Gazproms gas exports to Europe – including Turkey – had increased to 158.6 billion cubic meters in 2015 with a 8.2 percent increase compared to 2014 ..."
Stockman's Tales of western intervention into the ME Oil Puzzle.
"The Trumpster Sends The GOP/Neocon Establishment To The Dumpster"
"And most certainly, this lamentable turn to the War Party's disastrous reign had nothing to do
with oil security or economic prosperity in America. The cure for high oil is always and everywhere
high oil prices, not the Fifth Fleet"
It goes all the way back to the collapse of the old Soviet Union and the elder Bush's historically
foolish decision to invade the Persian Gulf in February 1991. The latter stopped dead in its
tracks the first genuine opportunity for peace the people of the world had been afforded since
August 1914.
Instead, it reprieved the fading remnants of the military-industrial-congressional complex,
the neocon interventionist camp and Washington's legions of cold war apparatchiks. All of the
foregoing would have been otherwise consigned to the dust bin of history.
Yet at that crucial inflection point there was absolutely nothing at stake with respect
to the safety and security of the American people in the petty quarrel between Saddam Hussein
and the Emir of Kuwait.
Having alienated Iraq and Syria, Kim Roosevelt fled the Mideast to work as an executive
for the oil industry that he had served so well during his public service career at the CIA.
Roosevelt's replacement as CIA station chief, James Critchfield, attempted a failed assassination
plot against the new Iraqi president using a toxic handkerchief, according to Weiner. Five
years later, the CIA finally succeeded in deposing the Iraqi president and installing the Ba'ath
Party in power in Iraq. A charismatic young murderer named Saddam Hussein was one of the distinguished
leaders of the CIA's Ba'athist team.
… … …
The EU, which gets 30 percent of its gas from Russia, was equally hungry for the pipeline,
which would have given its members cheap energy and relief from Vladimir Putin's stifling economic
and political leverage. Turkey, Russia's second largest gas customer, was particularly anxious
to end its reliance on its ancient rival and to position itself as the lucrative transect hub
for Asian fuels to EU markets. The Qatari pipeline would have benefited Saudi Arabia's conservative
Sunni monarchy by giving it a foothold in Shia-dominated Syria. The Saudis' geopolitical goal
is to contain the economic and political power of the kingdom's principal rival, Iran, a Shiite
state, and close ally of Bashar Assad. The Saudi monarchy viewed the U.S.-sponsored Shiite
takeover in Iraq (and, more recently, the termination of the Iran trade embargo) as a demotion
to its regional power status and was already engaged in a proxy war against Tehran in Yemen,
highlighted by the Saudi genocide against the Iranian backed Houthi tribe.
Of course, the Russians, who sell 70 percent of their gas exports to Europe, viewed the
Qatar/Turkey pipeline as an existential threat. In Putin's view, the Qatar pipeline is a NATO
plot to change the status quo, deprive Russia of its only foothold in the Middle East, strangle
the Russian economy and end Russian leverage in the European energy market. In 2009, Assad
announced that he would refuse to sign the agreement to allow the pipeline to run through Syria
"to protect the interests of our Russian ally."
… … …
But the Sunni kingdoms with vast petrodollars at stake wanted a much deeper involvement
from America. On September 4, 2013, Secretary of State John Kerry told a congressional hearing
that the Sunni kingdoms had offered to foot the bill for a U.S. invasion of Syria to oust Bashar
Assad. "In fact, some of them have said that if the United States is prepared to go do the
whole thing, the way we've done it previously in other places [Iraq], they'll carry the cost."
Kerry reiterated the offer to Rep. Ileana Ros-Lehtinen (R-Fla.): "With respect to Arab countries
offering to bear the costs of [an American invasion] to topple Assad, the answer is profoundly
yes, they have. The offer is on the table."
"The EU, which gets 30 percent of its gas from Russia, was equally hungry for the pipeline, which
would have given its members cheap energy and relief from Vladimir Putin's stifling economic and
political leverage."
That is nonsense. The issue is that Russia has quite limited leverage: They can not replace
the European customers on short notice – pipeline chain producer to certain customers – and they
urgently need the income.
The more interesting question for Russia is how to cope with a customers who may reduce the
demand for NG by 1% per year for the next few decades.
"The issue is that Russia has quite limited leverage: They can not replace the European customers
on short notice"
Leverage is always mutual in the gas trade that involves long term contracts and long gas supply
lines. It is like marriage :-)
"The more interesting question for Russia is how to cope with a customers who may reduce the
demand for NG by 1% per year for the next few decades."
I am not sure that this is the case.
"Gazprom's gas exports to Europe – including Turkey – had increased to 158.6 billion cubic
meters in 2015 with a 8.2 percent increase compared to 2014."
BAGHDAD (AP) - Iraq's Oil Ministry said Tuesday that crude exports averaged
3.225 million barrels a day in February, far below levels planned to provide
the nation with badly needed cash for ongoing military operations against Islamic
State extremists.
Last month exports grossed about $2.2 billion, based on an average price
of about $23 per barrel, ministry spokesman Assem Jihad said in a statement.
Iraq's 2016 budget is based on an expected price of $45 per barrel with a daily
export capacity of 3.6 million.
January's daily exports averaged 3.283 million barrels, bringing that month's
revenues to $2.261 billion.
The figures do not include oil being independently exported from Iraq's self-ruled
northern Kurdish region since mid-2015, preventing the government from reaping
revenues of nearly 600,000 barrels a day.
Iraq holds the world's fourth largest oil reserves, some 143.1 billion barrels,
and oil revenues make up nearly 95 percent of its budget. But like other oil-reliant
countries, Iraq's economy has been severely hit by plummeting oil prices since
2014.
This year's budget stands at nearly 106 trillion Iraqi dinars, or about $89.7
billion. It runs with a deficit of over 24 trillion dinars (about $20.5 billion)
that are planned to be relieved through loans from local and international lenders.
In the summer of 2014, Iraq was plunged into its worst crisis in the aftermath
of the withdrawal of U.S. troops at the end of 2011. The Islamic State group
- which emerged out of al-Qaida's branch in Iraq - blitzed across vast swaths
of Iraqi territory, including the country's second largest city, Mosul, and
captured nearly a third of Iraq.
Iraq introduced austerity measures earlier this year - eliminating government
posts, merging some ministries, halting spending on construction projects and
imposing new taxes to pay for civil servants and fund its military.
"... And the number of DUCs reached their peak while prices were still high. There are DUCs because there is always a delay between when the drillers finish their work and when the frackers start their work. And the number of DUCs grew, during high prices, because there were more wells being drilled than wells fracked. ..."
"... higher prices will only bring on more completions if there is money to pay for them, which is not a given. ..."
"... You don't have to be an economist or a CPA to figure out how difficult it will be for oil companies to again be growing at this point. ..."
There are always DUCs. There have always been DUCs, even when the price
was well above $100 a barrel. In fact the inventory of DUCs grew every year
that the price of oil was in the $100 range. And the number of DUCs
reached their peak while prices were still high. There are DUCs because
there is always a delay between when the drillers finish their work and
when the frackers start their work. And the number of DUCs grew, during
high prices, because there were more wells being drilled than wells fracked.
Higher prices will bring on more completions, bringing on more production,
knocking prices back down again, keeping prices lower for longer. Right
or wrong, that is simple logic. It is not nonsense.
That interrupts the logic, and is not to be considered. It is not important
that upstream companies are out of bucks, and nobody will lend them any.
Drilling will continue to be done with cash available until which time,
the coffers start filling. May take some time to put into completing those
wells that are only profitable at 80. Be quacking for quite a while. However,
that interrupts the logic of lower for longer, so it is not to be considered.
You don't have to be an economist or a CPA to figure out how difficult
it will be for oil companies to again be growing at this point. It
is mostly going to be funded by internal cash flow. Let's assume that EIA'S
estimate of the average Eagle Ford's EUR to be 168,000 bbls, and somewhat
meaningful. So, maybe the average first year's production to be 75,000 bbls.
At 100 a barrel, they recover the cost of the capex, plus a little more.
They can drill another well with positive cash flow. Probably describes
the average DUC. At 80 a barrel, they are in negative cash flow. Probably,
a profitable well, but negative cash flow. They did not make back enough
money to drill a new well the first year. Later, next year, but not by the
end of the year. So amount available for capex goes down. At 40, they may,
or may not recover the cost of the well. If the DUC is an average Eagle
Ford EUR, then it could sit for quite a while if lower for longer is the
logic.
That is the main reason you won't see large scale ramp ups on production
until it stays over 70 for a while. A large percentage of the area is average,
or less than average.
Brazilian state-owned oil company Petrobras, the most indebted oil company
in the world, could soon lose its status as the top operator in some of the
country's most prolific offshore oil assets.
Petrobras is reeling from a wide-reaching corruption scandal and it is drowning
in a mountain of debt that exceeds $100 billion. It no longer has the funds
to front large-scale drilling in the way that it once did. Petrobras executives
are now trying to manage shrinking the company's footprint.
In order to raise cash it has plans to sell off assets far and wide. But
there are questions surrounding the company's ability to raise the funds that
it needs to – since just about every company is unloading oilfields and infrastructure,
asset prices may not be as high as sellers want them to be.
Nevertheless, Brazilian news services reported that Petrobras could take
in $5 to $6 billion by selling off its natural gas pipeline unit in Brazil's
southeast. Canadian, French, and Chinese companies are submitting bids ahead
of a deadline next Tuesday. The sale is part of a plan to raise $14 billion
in cash in asset sales this year, funds that will be used to trim the company's
debt.
It looks like the the US oil refiners like a bargain when they see one.
http://www.eia.gov/petroleum/supply/weekly/pdf/highlights.pdf
"U.S. crude oil imports averaged 8.3 million barrels per day last week,
up by 1.2 million barrels per day from the previous week. Over the last
four weeks, crude oil imports averaged 7.6 million barrels per day"
They don't seem to worried about the so called glut of US oil production with an increase
of oil imports like that?
That was always one of the funniest things about this "Oil Glut". The US stocks though they
were in the upper range, were certainly not overfull. Now I know the US is not the world, but
they do use 25% of the words oil, and do put out some of the best number on a timely manner, and
therefore a good guide to what is going on in the market, but maybe there were keeping their powder
dry, and are now racing to fill their boots, while the 50% discount sign is still on display.
What Kiernan fails to understand is that peak oil does not happen overnight. We have hit
the peak of conventional low cost oil production and demand exceeding that conventional oil production
has pushed prices up to a level where higher cost oil is now possible to develop.
If we had an option, we wouldn't be spending money to produce shale oil, because it is high
cost. But at the current level of demand we need shale production. That is why the drop in oil
prices is not going to be permanent. The price of oil needs to be at a level that allows shale
production to continue.
"... I think the "shale revolution" may never really recover from the price collapse. Investors will think twice before putting any money there again. Unless the oil price goes alot higher than 100 $/barrel and stays there for a while. ..."
"... Hard to how a business can keep running on negative cash flow, falling price of its only commodity, and interest rates continuing to rise, if a lender can be found, that is? ..."
"... "What is clear is that the world has become addicted to central bank stimulus. Bank of America said 56pc of global GDP is currently supported by zero interest rates, and so are 83pc of the free-floating equities on global bourses. Half of all government bonds in the world yield less that 1pc. Roughly 1.4bn people are experiencing negative rates in one form or another. ..."
Current oil price collapse is exposing many false claims about shale profitability.
Oil price will recover, but investors will forever become more cautious.
Drilling pace in shale oil mainly determined by credit availability and cost. With investors
being more cautious, drilling activity will become less aggressive .
I think the "shale revolution" may never really recover from the price collapse. Investors
will think twice before putting any money there again. Unless the oil price goes alot higher than
100 $/barrel and stays there for a while.
Down in the comments, I thought this was very interesting,
"A quick check indicates that both Whiting and EOG, two of the better shale plays, continue
to show negative free cash flow"
Hard to how a business can keep running on negative cash flow, falling price of its only
commodity, and interest rates continuing to rise, if a lender can be found, that is?
"What is clear is that the world has become addicted to central bank stimulus. Bank of
America said 56pc of global GDP is currently supported by zero interest rates, and so are 83pc
of the free-floating equities on global bourses. Half of all government bonds in the world yield
less that 1pc. Roughly 1.4bn people are experiencing negative rates in one form or another.
These are astonishing figures, evidence of a 1930s-style depression, albeit one that is still
contained. Nobody knows what will happen as the Fed tries to break out of the stimulus trap, including
Fed officials themselves."
"... The momentum of the shale boom can be seen in the large overhang of drilled but uncompleted wells (DUCs) sitting out in the field today, looming over the market and weighing on any potential oil price recovery… ..."
Raymond James analysts shared a similar viewpoint, noting a certain dynamic
on the oilservice industry. "Lower returns and crimped cash flow lead operators
to slow activity and conserve cash in any way possible," the note said. "Since
many of the land rigs had longer-term contracts and the frack crews didn't,
the quickest way to conserve cash is to drill but not complete."
But wells are obviously being completed. In fact more wells are being completed
than being drilled but we obviously don't know just how many. And…
DUCs to Prolong Shale Boom Hangover
Many prognosticators of oil and gas markets have found themselves on the
wrong side of U.S. production calls throughout the shale era after failing to
understand and model the risks associated with operational momentum. Increases
in well productivity brought higher potential returns, and every company in
the oil patch scrambled to gain the assets, people, and infrastructure to grow
production (and hopefully cash) in the future. As supply growth outpaced demand,
prices sank, but production hasn't responded with an equal intensity. Why doesn't
production respond accordingly? The same reason you can't turn around an aircraft
carrier on a dime, momentum.
The momentum of the shale boom can be seen in the large overhang of drilled
but uncompleted wells (DUCs) sitting out in the field today, looming over the
market and weighing on any potential oil price recovery…
Until the number of DUCs returns to levels more aligned with historical working
inventory levels (3-6 months of drilling), we expect their threat to loom large
over the market and have a dampening effect on any near-term price recovery.
But their longer term impact could loom just as large. If producers steer too
much capital away from drilling, and instead harvest DUCs to maintain production
and cash flow in 2016, the human capital behind the rig fleet could be lost
to other industries, making service cost inflation all but guaranteed when U.S.
supply growth is again needed. It looks like this hangover will be felt for
years to come.
Conclusion
The decline in the oil rig count cannot, in the near term, be directly linked
to a decline in oil production due to so many DUCs. But eventually it must.
Steep declines in oil production must eventually follow steep declines in the
rig count. And as we see a drop in production we will see a corresponding rise
in prices. This, in turn, will cause an increase in well completions, knocking
the price back down again.
So don't expect any quick recovery of either oil prices or production. Yes,
it looks like the hangover will be felt for years to come. And in the meantime
peak oil will be in the rear view mirror. But no one will notice for years to
come.
"... This ship has some big holes in it and is taking on water; what else is the captain going to say to it's passengers? Abandon ship? Some folks are getting ahead of themselves; EOG had a plus 40 dollar hedge and lost money last quarter. Now it says it can make money at 30. If anybody thinks EOG has been "saving" its good locations for high grading, or super high grading, whatever they want to call it, that is ridiculous. Oil companies don't drill the worse stuff first and save the best for last. I drive thru the guts of EOG's operations all the time; they have been hammering that stuff down there for years. There are stinkin' shale wells everywhere. Look at a TRRC GIS map for Karnes County. ..."
"... Shale oil that declines at the rate of 73% the first 3 years of production cannot compete with the rest of the world's conventional fields. Haven't we just learned that? ..."
"... The horse is gone and over the hill; closing the barn door now by slashing CAPEX costs is a day late. And several hundred billion dollars short. And when these shale companies have to come off the drilling hamster wheel, and those steep declines on exiting wells really kick in, hold on to your knickers, boys. ..."
These guys are getting desperate. I think because no shale oil company can qualify for additional
lending based on the 65% yardstick of PV10, it is back to trying to raise money again by promoting
stock to grandmas and grandpas. I think there is evidence this might even be working?
EOG stated it could reduce costs, maintain production (essentially) and even deleverage. Right.
It's important to recognize that this latest round of rhetoric, and bluster, fails to address the
issue of existing debt. I think these shale guys want a do over.
I like EOG and hope they succeed, but at a development pace that is conducive to price stability,
not production spikes. Oil price volatility will be the death of the American oil industry and it
is up to companies like EOG to control production spikes and help keep oil prices stable. EOG led
the way in LTO oversupply and that is the primary reason we are in a nine line bind now, all of us;
LTO oversupply. I don't believe a vowel of what the shale oil industry says anymore and so myself
and several much smarter friends try and stick to the numbers, and not the hype. EOG states it is
going to slow development and not bleed as much cash in 2016. That's a necessity, not a plan. My
smart buddy up hole thinks they are still going to gush cash this year (and by the way, his numbers
do not even include G&A or interest expense!). EOG has been drilling in the lower EF and geo steering
in 10 ft. windows for years. It's sweet spots are pretty well delineated. Go to Cheapside, Texas
(now called Richside) here: http://wwwgisp.rrc.state.tx.us/GISViewer2/
and decide how much saturation drilling it can still do. It is already drilling wells 18H and higher
on their 1000 plus/minus acre units. Again, we don't "save" our best locations for last in the oil
industry so we can drill them when oil prices decline 70%, I assure you. CAPEX costs can't come down
too much more, I don't think. OPEX costs have come down very little.
Mega frac's cost mega bucks. They make for bigger IP's so shale companies can create bigger EUR's
to make themselves look healthier than they are and to meet lender covenants. Higher IP's appear
to be resulting in steeper declines and not much more UR, not enough to pay for the mega frac's.
The funky EUR stuff is going to come out, big time, pretty quick.
These shale guys are NOT making money and the interest meter on their massive debt never stops.
The PV10 value of their reserves are now vastly insufficient to be able to still borrow money; many
of the best shale companies barely have assets equal to total debt. They owe lots of money and by
2018 that is all come to head, big time.
This ship has some big holes in it and is taking on water; what else is the captain going to say
to it's passengers? Abandon ship? Some folks are getting ahead of themselves; EOG had a plus 40 dollar
hedge and lost money last quarter. Now it says it can make money at 30. If anybody thinks EOG has
been "saving" its good locations for high grading, or super high grading, whatever they want to call
it, that is ridiculous. Oil companies don't drill the worse stuff first and save the best for last.
I drive thru the guts of EOG's operations all the time; they have been hammering that stuff down
there for years. There are stinkin' shale wells everywhere. Look at a TRRC GIS map for Karnes County.
Shale oil that declines at the rate of 73% the first 3 years of production cannot compete with
the rest of the world's conventional fields. Haven't we just learned that?
The horse is gone and over the hill; closing the barn door now by slashing CAPEX costs is a day
late. And several hundred billion dollars short. And when these shale companies have to come off
the drilling hamster wheel, and those steep declines on exiting wells really kick in, hold on to
your knickers, boys.
I read that CLR will return to activity if prices reach $45. At least that is the headline.
Assuming 200K gross barrels of oil from a CLR Bakken well in 60 months, 160K net with 20% royalty,
with a $7 discount to WTI, per CLR recent 10K, such a well will only gross $6 million dollars
in 60 months.
So after 60 months CLR will still be over $1 million short of reaching the cost of the well,
BEFORE, considering 10% severance tax, OPEX, G & A and interest. Also, none of the land acquisition,
permitting , seismic, etc is considered.
Why do the MSM ignore this. It seems so elementary to me.
Bakken LTO needs $80 WTI, minimum, to be a good investment. Just do my 5th grade math. Don't
need any exotic presentations to figure this out.
SS,
Don't pay attention to headline. They are just part of deception game. Shale production is adjusting,
US on shore is adjusting. Today I have briefly scanned that Russian paper is stating that Russian
big oil have a meeting today where among the topics are "freeze" (previously discussed with Saudis,
Qataris) and even some possible cuts. Pieces are coming together although it looks like at snail
pace from the perspective of someone like you that is caught in this bullshit politics. But it
is coming.
Ves, Don't pay attention to headline. They are just part of
deception game.
This is not typical business as usual and
a regular level of MSM deception with corrupt jornos bought by
powerful interests. This is something more then that. The level
of cheerleading of low oil prices is really deafening.
Elementary logic is ignored in most such articles. Which makes
them pure propaganda. which looks a lot like war propaganda to
me. Guided by the same principles:
1. Obscure one's economic interests;
2. Appear humanitarian in work and motivations;
3. Obscure history;
4. Demonize the enemy; and
5. Monopolize the flow of information.
and
These principles are abstracted from Jowett & O'Donnell.
•Avoid abstract ideas – appeal to the emotions.
•Constantly repeat just a few ideas. Use stereotyped phrases.
•Give only one side of the argument.
•Continuously criticize your opponents.
•Pick out one special "enemy" for special vilification.
Pieces are coming together although it looks like at snail
pace from the perspective of someone like you that is caught in
this bullshit politics. But it is coming.
I also hope so. But it looks like there are powerful forces
behind the current drop. And they will not give up easily.
Bakken LTO needs $80 WTI, minimum, to be a good investment. Just do my 5th grade math. Don't
need any exotic presentations to figure this out.
Exactly!
Bakken oil production is more like mining coal than it is drilling for oil ("Red Queen effect").
All company operating in this areas have crushing debt levels. Obtaining revolving credit line
when prices are below $80 might become very difficult as Bakken has the highest marginal cost
of production. So this slump will last longer for Bakken then for other plays.
Also "carpet bombing" drilling is new and might have some additional effects that we now can't
predict. I would give three years on restoring investor confidence.
"... They say it is because of the low price. They have increased oil production 10% per year in the last years, due to the horizontal wells, but for next year they foresee no production increase. I have seen profiles of their horizontal wells and within 12-18 months their production is 50 % less. ..."
"... Their water injection activity has caused a lot of propery damage in the area, but the government has turned a blind eye. ..."
Bankers Petroleum which operates the biggest on shore oil field in Europe, Patos-Marinza in Albania,
will rest 3 rigs out of 6 in 2015.
They say it is because of the low price. They have increased oil production 10% per year in
the last years, due to the horizontal wells, but for next year they foresee no production increase.
I have seen profiles of their horizontal wells and within 12-18 months their production is 50
% less.
Their water injection activity has caused a lot of propery damage in the area, but the government
has turned a blind eye. A whole village with uninhabitable houses and people having nowhere to
go. If they protest the police arrests them. Local people think Bankers is producing oil through undergroung blasts (could it be?). Maybe this slowdown will spare some houses.
Bankers is also good at manipulating balance sheets looking unprofitable for 5 years now, so
the state budget won't feel much of the slow down. No word of this slow down in the Albanian media.
They only pound thea good news.
"... Pickens said Saudi cannot produce more than 10 million billion barrels per day. Well someone else agrees with me. I wish he had went farther and said that there is no OPEC spare capacity. I am sure he knows that. ..."
"... Pickens may not have the capability of writing Of Fossil Fuels and Human Destiny and The Grand Illusion , but when it comes to that oil barrel, man – he knows very well whats coming! ..."
Pickens said Saudi cannot produce more than 10 million billion barrels per day. Well someone else
agrees with me. I wish he had went farther and said that there is no OPEC spare capacity. I am
sure he knows that.
Joe Kernan is a complete moron. He was mocking T.Boone, who was predicting higher prices all the
way from $30 to $140 in 2004-2008. At current growth rates, Saudi's will consume an additional
1 million barrels per day of their own consumption in 5 years. Ditto for Russia. Gonna be very
interesting.
That's precisely why he reacted with the lexicon and facial expression he did when his "old
buddy" Joe "challenged" his point of view and tried to portray him as a "same ol', same ol' "
charlatan!
Pickens may not have the capability of writing "Of Fossil Fuels and Human Destiny" and "The
Grand Illusion", but when it comes to that oil barrel, man – he knows very well what's coming!
And the imbecile Joe got it (or was told) at the end that you do not mess with T.Boone…so we
have to end on football and the "come again when in NYC…" bullshit.
"Well someone else agrees with me"
I would argue with some accuracy that a few more than "someone" do indeed agree with you Ron,
but your ultimate proof of vindication and sign that what you narrate about is close…very close,
stands with the fact that idiots akin to Joe Kernan, Ron Insana, etc. feel confident and knowledgeable
enough on mocking Matt Simmons…
-As Mr. Joseph Kennedy said: "…when the shoe shine boy gives you stock tips, cash out and stuff
the mattress…".
ExxonMobil Focuses on Business Fundamentals; Paced, Disciplined Investing
ExxonMobil anticipates capital spending of $23 billion in 2016, down 25 percent from 2015.
The company continues to selectively advance its investment portfolio, building upon attractive
longer-term opportunities.
Either the speed of electrons has slowed down, or Exxon is recycling old news. I first heard
it as breaking news on CNBC, live, not a replay. lol
Looked it up on Noodls, which took me to the Exxon page. Time stamped as Mar 2, 2016 – 08:11
a.m. EST.
So, max oil production when there has been falling demand causes
low prices which is good for consumers, what could go wrong?
If you're Syria you're the pipeline hub to enable either NATO or
Russian control of european gas supplies.
If you're Ukraine, well, everything has gone wrong, hasn't it?
Innocence of the masses VS effective propaganda...
If you're Yemen then your border is contiguous with that of a large
Saudi oil field, not to mention a competing brand of Islam.
If you're Iraq then, well, you've been totally f*d over since Bush
Sr., sorry about that.
If you're Libya and want to sell oil in gold Dinars, and your name
is Kadaffy (I know, but who cares how it's spelled?) then you should
have known better. Doesn't matter if you have a huge aquaifier and can
give away land and irrigate it, or provide free university education.
I guess I should be glad I'm just a simple consumer! Wait, I'm
paying for all this shiite!!!
Short term, the trade was to sell w/34.69 APR 16 as a stop. There
is still the trend, mojo to the downside, which has not yet broken.
The shot game is to hold feb high, and plunge to new lows, so March is
a thich red monthly bar that closes near the lows. I think the trigger
price is Feb highs, and it isn't too far away prev year sett, meaning
a break of feb = touching the prev yr sett, and going positive for the
year, which is an epic event, esp in this setting. Right now the
market is trapped inside of the 2/16/2016 shadow, w yday close
conspicuously settling (once again) inside that shadow @.75, with the
top of yday bar @.98, last trade 90.
the news is bad, but the news is bs. just a headline. the news is
only a story, the truth is somewhere else. so trading on old news
wears out and the paradigm shifts. pretty soon they talk about how the
world's population break 8 BB, so many ppl, so much demand, all that
stuff. then you stare at a chart that is in love with the upper right
hand corner of the chart, instead of the lower.
It's hard to see it, and believe me, impossible to feel it, esp
with all this short sniping and juking ower, threatening, etc, but,
and I get the velocity of money thing, I had not really taken that
fully into consideration, but nonetheless, the money supply flying
around out there is still 4x greater
today
that it was in
2009, where the prices were
higher
than they are now. On the
surface of it, that seems crazy to me.
So, theoretically, commods across the board are front running a
collapse in money supply (which has not happened yet) bcz, if I have
this right, the ponzi scheme of this money system requires fresh debt
to cover old % obligations, and those % obligations touch innumerable
amounts of debt instruments, govt, corp, down to mom and pop private.
As ZH hammers away on all the time, the question is, exactly
where
is the fresh money supply supposed to come from to cover?
If ZIRP failed for lack of takers, and one could argue that failure is
real because of the existence of NIRP, where the banks just go into
your acct and simply take
your
money to cover
their
obligations, and if NIRP is only a temporary bandaid (TM, haha)
solution, the argument goes that if there is not enough liquidity in
the system, these obligations
cannot
be covered, and as we
saw in 2008, when
that
happens, the par value of the bonds
pretty much hits zero, and when that happens,
then
the money
supply crashes, because as we know,
debt is money.
Assuming Putin is not (at least completely) right about the selling
politically motivated, with the hidden hand behind it the US Treasury,
trying to destroy Mother Russia (that has to at least be a factor),
what I would say that we are looking at, considering the extreme, mind
blowing divergence between oil prices and the stock market indices, is
at least the
possibility
the market has just
priced in
the coming money supply wipe out, the
worst case scenario.
So let's say the money supply crashes from today's levels to 2009,
that is a big drop, for sure, but oil
already played that
, to
the
extreme
of hitting $26 (!). That would definitely have an
impact on stock prices, but if oil
was
at $35 @2009 MS
levels, why would it be @10?
Of course, when the money supply crashes, moving away from the
current, seemingly impenatrable MS ceiling, this then leaves a lot of
room for fresh injections of money supply, to get the game started all
over again - but not after a lot of ppl get whatever they had in
equity totally wiped out.
But, under my analysis here, assuming that scenario, oil was way
out in front, so they wont be trading on that anymore because it
happened. That is old news, for real. And in that scenario, oil
production gets wiped out, but the demand (static as it generally is,
increasing only with a steady rise in population, in broad terms),
this would force oil prices much higher.
And what if the bet on money supply crash is wrong, and the central
banks pull a rabbit out of their hat? That is supportive of oil prices
as well.
Finally, setting aside all else, assuming our crazy world just
keeps on keeping on, and the fraud of headlines continues to mask the
truth that things are far better in the world than the headline
dictates, and that no new technology has come into play that makes oil
obsolete, the most basic and primitive analysis has one looking at
$26 v 0 and $26 v $150. You tell me, where is the risk?
Getting to new all time highs in a commod can take a very long
time, I grant you that. But no matter how I slice it, while sellers
might get some love down here for, what, $10, $15, they are starting
to play a game of market roulette, where instead of one bullet in the
chamber, there are like 3 or 4.
Thus, (150 - 25) / 2 = $62. (150 - 15) / 2 = $67. In other words,
the lower the prices go, the higher the mid point in the range between
old all time high, and last printed low. Some would argue the $150 oil
was an anomaly, but I say it has to be accounted for, and the
underlying factors that led to it are still in play, and not likely to
change for years to come. Even
if
there is an equity crash
back to 2009 lows, what does anybody thing the odds are that the fed
res system will be abolished and the hands that control the money
system will change?
If
that
happens, then the FRN becomes extinct, and then
perhaps we see a repricing across the board, where
everybody
gets a massive haircut. But that is a separate issue. Apples and
oranges, and a different risk discussion. Hence, in the present
context, I see oil back in the mid 60s, hard to say when, 2 years? Who
knows. But if the context doesn't change, I am far more focused on
that $150 than the $10, because if the context doesn't change, even
if
there is a MS crash, as oil is way out in front of it,
they can just rebuild the MS and put everybody right back where they
were in 2007, or even worse - meaning oil trades @ $200 p/bbl, back to
peak oil headlines, incessent demand, etc.
You cant see it now. 5 years? 7? Yeah, it wont look like this.
Leave it to the markets and the news and all the BS of the day
distract you from seeing a once in a lifetime opportunity. But, that
is what makes a market a market. Everybody has their own ideas, and
definitions of risk, and execute accordingly.
All this idiotism with drilling while having negative cash flow will eventually stop.
And unless supply of "free money" is somehow restored it can be resumed only when the price
go above approximately $80 per bbl. Because for non-crazy investors this is a real, not MSM fantasy
land break even point for shale producers if you calculate all the costs (and they are not static:
the higher oil price is, the higher the costs). OK, +- $10 depending on the area.
Think about it as "shale conundrum" or Catch 22 situation.
And about the value of EIA price "forecasts" of three and four (2020-2016=4) years ago ( STEO
Mar2012 and Mar 2013). Are they really worth electrons with which they are painted on the our
screens ?
Russia's crude and condensate production in February was 10,840 kb/d (preliminary estimate), up
2.1% year-on-year, and down 25 kb/d (0.2%) from January level.
Hedge funds and other money managers held a combined net long position in the three main crude oil
futures and options contracts amounting to 383 million barrels on Feb. 23.
The combined net long
position has increased in eight of the last 11 weeks from a recent low of 230 million barrels on
Dec. 8. (tmsnrt.rs/1XUWJih)
But the increase in hedge fund and other money manager net long positions has been concentrated
in Brent rather than WTI. (tmsnrt.rs/1XUWS5i)
The net long position in Brent futures and options traded on ICE Futures has jumped by more than
100 million barrels to 320 million barrels from 183 million barrels.
The net long position in WTI futures and options traded on ICE and the New York Mercantile Exchange
has risen less than 20 million barrels to 63 million barrels from 47 million barrels. (tmsnrt.rs/1XUWVy1)
Extreme pessimism about the near-term outlook for prices, which reached its height in December
and early January, seems to have dissipated a little.
There is more confidence that the long-awaited rebalancing of supply and demand is now underway in
earnest which could help stabilize stockpiles and prices later in 2016.
U.S. shale producers seem to be finally cracking under the strain from low prices, with more than 100 oil drilling rigs idled over the past month, and many producers now openly talking about producing less in 2016.
That interrupts the logic, and is not to be considered. It is not important that upstream companies
are out of bucks, and nobody will lend them any. Drilling will continue to be done with cash available
until which time, the coffers start filling. May take some time to put into completing those wells
that are only profitable at 80. Be quacking for quite a while. However, that interrupts the logic
of lower for longer, so it is not to be considered.
You don't have to be an economist or a CPA to figure out how difficult it will be for oil companies
to again be growing at this point. It is mostly going to be funded by internal cash flow. Let's
assume that EIA'S estimate of the average Eagle Ford's EUR to be 168,000 bbls, and somewhat meaningful.
So, maybe the average first year's production to be 75,000 bbls.
At 100 a barrel, they recover the cost of the capex, plus a little more. They can drill another
well with positive cash flow. Probably describes the average DUC. At 80 a barrel, they are in
negative cash flow. Probably, a profitable well, but negative cash flow.
They did not make back enough money to drill a new well the first year. Later, next year, but
not by the end of the year. So amount available for capex goes down.
At 40, they may, or may not recover the cost of the well. If the DUC is an average Eagle Ford
EUR, then it could sit for quite a while if lower for longer is the logic.
That is the main reason you won't see large scale ramp ups on production until it stays over
70 for a while. A large percentage of the area is average, or less than average.
Last week
we reported that in what has been Saudi Arabia's biggest victory to date
in its war against U.S. oil and gas producers, both Whiting Petroleum, which
is North Dakota's largest oil producer, and Continental Resources would indefinitely
suspend fracking operations for the foreseeable future. The reason was simple:
oil prices are too low to make incremental drilling and pumping profitable,
and instead most shale companies are now entering hibernation, limiting cash
outlays in the form of dividends and capex spending, in hopes of weathering
the crude oil storm, which has already gone on far longer than even the most
pessimistic mainstream pundits expected it would.
Which, of course, is the right response: as the saying goes the cure for
low oil prices is low oil prices, and as more shale companies halt drilling,
exploring and production, the 3 mmb/d oversupplied oil market will slowly return
to equilibrium.
There is logically a flipside to that as well: as those companies which have
recently mothballed operations either voluntarily or because they had to when
they went bankrupt when oil was at $30, return to market the previously oversupplied
market condition will promptly return as well, thereby pressuring oil lower
yet again.
The question is at what "breakeven" price does it make sense for US shale
companies to return. As
Reuters reports , less than a year ago major shale firms were saying
they needed oil above $60 a barrel to produce more ; however in just
one year this number has changed and quite drastically at that.
We hinted at this three weeks ago in an article which many readers had a
hostile reaction to: specifically we warned of "
Another Leg Lower In Oil Coming After Many Producers Found To Have Far Lower
Breakevens ." As we reported then, "what many thought would be the "breaking"
price point for virtually every shale play has just been lowered, and quite
dramatically at that. It also means that algos and traders who had reflexively
bought any dip below $30 on expectations this is close to the "sweet spot" and
where the Saudis would relent, will have to drop their support levels by as
much as a third."
Today
Reuters confirms that this assessment was stpo on with a report that some
shale companies say they will settle for far less in deciding whether to crank
up output after the worst oil price crash in a generation.
Among the companies which are prepared to flip the on switch at a moment's
notice are Continental Resources led by billionaire wildcatter Harold Hamm,
which said it is prepared to increase capital spending if U.S. crude
reaches the low- to mid-$40s range, allowing it to boost 2017 production by
more than 10 percent, chief financial official John Hart said last week
.
Then there is rival Whiting Petroleum which may have stopped fracking new
wells, added it but would " consider completing some of these wells"
if oil reached $40 to $45 a barrel, Chairman and CEO Jim Volker told analysts.
Less than a year ago, when the company was still in spending mode, Volker said
it might deploy more rigs if U.S. crude hit $70 ."
EOG Chairman Bill Thomas did not say what price would spur EOG to boost output
this year, but said it had a "premium inventory" of 3,200 well locations
that can yield returns of 30 percent or more with oil at $40.
Apache Corp , forecasts its output will drop by as much as 11 percent this
year, but said it would probably manage to match 2015 North American
production if oil averaged $45 this year.
The reason for the plunging breakeven price? The same one we suggested on
February 3: surging, rapid efficiency improvement which "have turned U.S. shale,
initially seen by rivals as a marginal, high cost sector, into a major player
- and a thorn in the side of big OPEC producers."
To be sure, while many had expected low oil prices to curb output, virtually
nobody had predicted that even a modest jump in oil ($40 is just $7 from here)
would lead to a major portion of US shale going back on line.
The threat of a shale rebound is "putting a cap on oil prices," said John
Kilduff, partner at Again Capital LLC. " If there's some bullish outlook
for demand or the economy, they will try to get ahead of the curve and increase
production even sooner."
Which in turn will force the Saudis to immediately retaliate, breach all
amusing "production freezes", and double down their efforts to crush shale.
In fact, some producers have already began hedging future production, with
prices for 2017 oil trading at near $45 a barrel, which could put a floor under
any future production cuts.
Another risk factor for all those hoping the modest rebound in oil will persist
is the record backlog of wells that have already been drilled but wait to get
fractured to keep oil trapped in shale rocks flowing. There were 945 such wells
in North Dakota compared to 585 in mid-2014, when prices peaked, according to
the latest available data from the Department of Mineral Resources. Their numbers
are growing as firms like Whiting keep drilling, but hold off with fracking.
Reuters' summary:
Their latest comments highlight the industry's remarkable resilience,
but also serve as a warning to rivals and traders: a retreat in
U.S. oil production that would help ease global oversupply and let prices
recover may prove shorter than some may have expected.
Our
observation three weeks ago was practically identical : since Saudi Arabia
had expected that its FX reserve outflow would last only temporarily using $40-50
breakevens, it will have to sell many more US reserves (either TSYs or stocks)
to fund the cash shortfall which will persist for far longer until oil catches
down to the lowest cost US producers.
What this means is that for the Saudis to declare victory they will have
to unleash a sharp downward oil spike that lasts long to put as many marginal
producers out of business as possible.
As we said: "In short: the oil price war is about to enter its far more vicious,
and far more lethal phase, and while it is unclear who ultimately wins, whether
it is Shale or the Saudis, the loser is clear: anyone who bought into bets of
an imminent oil bounce."
But the real punchline has nothing to do with breakeven prices and efficiency
and everything to do with balance sheets, because if and when the mass default
wave finally hits and hundreds of U.S. corporations undergo debt-for-equity
exchanges in which the bondholders end up with the equity keys, then the all-in
production costs (AIPCs) will be drastically cut even lower as there will be
no interest expense left to cover with operational cash flow proceeds.
As such, the stunning outcome may well be one in which U.S. shale turns Saudi's
"marginal producer" war on its head, and unleashes a massive oversupply spike,
one which slowly at first then very fast, leads to the Saudi exhaustion of its
FX reserves, until it is Saudi Arabia which itself is pushed out of the low-cost
production bracket and is instead forced to deal with far less palatable outcomes
such as social insurrection and revolution, as its already precarious welfare
state fights for survival in a world in which government oil revenues have trickled
to a halt.
What happens to the price of oil then is unclear, but what will need to happen
before we get to that point is very clear: oil will have to trade far, far lower
from its current price.
And even if it doesn't, we now have the oil price ceiling bogey: any time
a barrel of crude approaches $40, watch as the "marginal" producers do just
that, and resume production on very short notice.
Once a well is dug, they just keep pumping it. It costs money to shut
it down, better off to keep running until you can't breakeven at the daily
cost level which my guess is somewhere in the single digits for oil companies.
These "costs of production" also don't factor in that all of the O&G suppliers
cut their prices as oil prices decline so while it may have cost "$50" to
pump oil 2 years ago the cost is much lower because all the equipment suppliers
are struggling and cutting prices as well.
All through 2015 we've heard about how the storage was going to be gone
"soon". The reality if you look into it is that no one really knows how
much storage is available. Seems really stupid, I know, but no one ever
kept track of it in any single or consolidated database so everything is
run off of "estimates" and we all know how reliable those are. My guess
is that storage is likely a lot higher than these estimates make it because
there was so much money flowing in oil during the run up years that people
probably built a ton of it. It was covered on ZH once that no one knows
what the actual global (or even US) storage capacity is I think in like
2014 but then the stories converted over to just that we are running out.
We're still running on rumor from the Saudi's. I don't think it will
matter in a few months when the economic numbers can no longer be 'adjusted'
into a smiley face......
Investors are so starved for yield that even at $20 oil most of these
companies will be able to either issue equity and/or issue debt to rollover
any upcoming debt repayment obligations. Until the market freeze up this
party will keep going.
Goldman helps with both the selling of equities and debt. More selling
is good for Goldmen. Brakeing the companies in the process and rewarding
themselves, dont forget the bankruptcy management teams.
Wow, thank god. This is great news. Since the financial media cheerleaders
are always accurate and correct once this baby gets back above $40 I can
get out there again peddling High Yield Shale Bonds yielding a massive 4.99%
at par. The assumptions built in are quite reaosnable oil just needs to
hold above $40 in 2016 and then rocket above $100 in 2017 holding at least
at that level for twenty years to cap total capital losses at only 30%.
I'm really anticipating strong interest in these debt instruments.
"... Id say this crash will pretty well end much hope of conventional onshore in US regaining 2014 levels. Added to the inevitable future declines in GOM, US onshore LTO will have to carry the day. ..."
"... Capital investment was $401 million in 2015 Vs. 2016 capital investment plan of $50 million ..."
"... Approximately 30% of 2016 crude oil production hedged in excess of $50 per barrel ..."
"... I am not critical of CRC, just pointing out what they say their base decline is with no new wells. ..."
California Resources Corporation released earnings today. They disclosed they plan to neither
drill nor complete a well in 2016. They stated that they believe their base decline rate to be
10-15%. They produced 102K barrels in Q4 2015. That is their net. I think gross they produce about
20% of oil produced in California.
Interestingly, Denbury Resources, who has operations in different area, but like CRC, has primarily
secondary and tertiary recovery, but of different kinds (CO2 v steamflood being the major one)
is forecasting 10-15% reduction in production from 2015. Again, forecasting minimal to zero new
wells.
Of course, decline is different than shutting in production.
I'd say this crash will pretty well end much hope of conventional onshore in US regaining
2014 levels. Added to the inevitable future declines in GOM, US onshore LTO will have to carry
the day.
At current prices, CRC expects that available liquidity plus expected operating cash flows
will be sufficient to fund its capital program and 2016 commitments.
The Company recently received 100% approval from its bank group to amend its credit facilities
The amendment requires cash in excess of $150 million be applied to repay outstanding revolving
loans, reduces the revolving commitments to $1.6 billion and imposes certain other restrictions.
"Expect to see us(CRC) demonstrate financial discipline to maintain sufficient liquidity through
2016. We plan to continue building economically viable drilling inventory, while managing our
activity consistent with our principle of living within cash flow."
Capital investment was $401 million in 2015 Vs. 2016 capital investment plan of $50 million
Approximately 30% of 2016 crude oil production hedged in excess of $50 per barrel
Looks like Russian bear after being hit in the head and robbed at gun point starts slow awakening
from hibernation. The honchos of Russian oil companies are now officially onboard for the freeze
and some of them want more drastic measures. They have a discussion of "stabilization of Russian
economy" (which means stabilization of oil prices) with President Putin, which means that Putin
got his marching orders from oil oligarchs, some of which wants "quid pro quo" from the
government (not to increase taxes on oil despite budget deficit). Details are scarce. But previously
hapless head of Rosneft Igor Sechin lamented about the situation he drove his company into, being
completely unprepared to the oil price crush. May be he got promises of additional loans to keep
the company afoot.
Generally Russian performance in this crises leaves to me the impression of complete incompetence
on high level. Especially unimpressive is Alexander Novak – the Russian Minister of Energy. He
speaks like a typical neoliberal. This is when more centralized economy should score points and
they instead were taken for the ride and continued to buy the US Treasuries. Why not to buy Russia
oil for the strategic reserve instead, like China did ? I think Russia still does not have any
state strategic oil reserves (the only major country in such a position).
President Vladimir Putin and the heads of major Russian oil companies discussed implementation
of decisive measures to stabilize the Russian economy in view of increased volatility of world
markets.
As a start Russia is ready to join the group of countries within and outside OPEC, which approved
the proposal to freeze the level of production of oil in 2016 at January level. Such production
limits can be implemented by a joint agreement of key countries, that is already was put on table
on Feb 16, 2016 by Saudis, Russia, Qatar and Venezuela and now is at the stage of multilateral
discussion with other oil exporting countries. The final decision is expected somewhere in March
on a new meeting of Ministers of oil producing countries.
This meeting at the Kremlin was chaired by Vladimir Putin and was attended by all key representatives
of the Russian oil industry - the Chairman of the Board of "LUKOIL" Vagit Alekperov, the General
Director "Surgutneftegaz" Vladimir Bogdanov, the head of Board "Gazprom oil" Alexander Dyukov,
the President of the company "Bashneft" Alexander Korsik, the General Director of Zarubezhneft
Sergey Kudryashov, the head of "Tatneft" Nail Maganov, President of "Rosneft" Igor Sechin, the
head of the Independent oil and gas company Eduard Khudainatov.
In addition, the Russian minister of energy Alexander Novak and the head of the presidential
administration Sergei Ivanov, as well as aide to President Putin Andrei Belousov also participated
in this meeting.
This year Alexander Novak held a series of meetings with Ministers of oil-producing countries.
In February, the negotiations in the Qatari capital and it was proposed to fix the production
at the level of January. In January, Russia produced 46,006 million metric tons of oil with gas
condensate. This is 1.5% more than in January 2015. Average daily production amounted to 10.9
million barrels.
Before the meeting, when everybody was sitting at the table, Vladimir Putin held a short private
consultation with Alexander Novak. After that Putin opened the meeting with the following statement:
"As the Minister reported to me, some of you have more radical suggestions (for the countries
- exporters of oil. - Izvestia) for the stabilization of oil markets, but about this particular
measure (fixation of production at the level of January. - "The news") as I understand something
close to a consensus already exists.
The purpose of our meeting today is to hear from each of the heads of the companies represented
here personally the opinion of each of you on the subject of the discussion. How do you really
feel about the current situation and measures that need to be taken ?"
CEOs of major Russian companies remained silent while journalists were present. Only the General
Director "Tatneft" Nail Maganov and Chairman of the Board "Gazprom oil" Alexander Dyukov start
grinning, because these companies in January of this year recorded a growth of production relative
to January of last year (by 4.2% and 5.6% respectively, according to the Central Department of
Control of Fuel and Energy Complex).
After those introductory remarks journalists were asked to leave the meeting.
The meeting did not last long. After the meeting ended, Minister Alexander Novak in a press
conference said to journalists that all heads the Russian companies who were present supported
this international initiative. He stated that:
The implementation of this freeze should give a positive impulse on oil markets. It increases
the predictability of behaviors of key market participants, which should lead to the reduction
of volatility…
Today, the total surplus of world oil production is estimated to be around 1.5 million barrels
per day. If you freeze the level of production on the level of January, 2016 and the demand
increases by 1.3 million to 1.5 million barrels a day, the oversupply in the market will be
eliminated at the end of the year. And we already saw some signs of stabilization of the market
after this measure was announced.
Alexander Novak also noted that this freeze may not only reduce price volatility but also shorten
the period of depressed oil prices to the end of 2016, when in his opinion oil prices can return
to the $50-60 per barrel range. He noted that as of today 15 oil producing countries have publicly
declared his readiness to sign the agreement.
According to the Minister, they represent around 73% of world oil production. The exact format
of the agreement, in which the key is the method of monitoring of compliance, is yet to be determined.
The sighing of the freeze agreement can happen at another meeting of oil ministers in March.
According to Alexander Novak, even if Iran does not join the agreement, the market will still
stabilize, as Iran still has a very low level of production and can't increase it fast. Due to
this countries-signers of the agreement can make an exception for Iran and increase its ceiling
over the January 2016 level.
Freezing production at least will stop flooding the market with new volumes of oil in the delusionary
pursuit of "market share", commented on the event the analyst of FC "Discovery Broker" Andrei
Kochetkov. It will more be influenced by the financial strength of companies and countries as
well as the real costs of production from the depleting fields. On average, traditional oil wells
lose 3-5% of production volume each year, he said. Accordingly, if the flow of new investments
in the field slow down to a halt, the global market might lose another 3-4 million barrels per
day of the production at the end of the year. This drop even if less drastic as stated will increase
the pressure on oil prices said the expert.
There should not be any major problem for Russian companies with freezing the production of
oil on January, 2016 level said the head of the analytical company of the Small Letters Vitaly
Kryukov. We should not fear that this measure damage our fields, given that in Western Siberia
production continues to fall, he said.
That, of course, might lead to less drilling in some places but will not affect the commissioning
of new projects that were under construction. For example, LUKOIL is expected to launch new projects
this year in the Caspian sea, but at the same time they are quickly losing the volume of production
in Western Siberia.
The second topic discussed at the meeting with the President was the taxation of Russian oil
companies. The heads of the companies have asked the head of state in the medium term, not to
raise taxes and to keep the current system of taxation while the current turmoil with oil prices
exist. In his after the meeting interview Alexander Novak stated that Vladimir Putin is now aware
about the position of the heads of Russian oil companies on this subject, but this issue still
needs to be discussed inside the government.
The global economy seems to be tottering on the edge even with cheap
oil. If the price had stayed at $110 and these losses had been covered
by OECD consumers where would we be (or well will we be if the price
does recover eventually) – I guess even more debt until the bubble really
does pop.
"... Whether this will be enough to affect the world market is an open question, but four or five hundred thousand barrels a day taken off the market would be significant imo. ..."
There is a good chance some they will have to curtail production later
this year due to lack of credit to buy the necessary diluents, spare parts,
etc. Whether this will be enough to affect the world market is an open
question, but four or five hundred thousand barrels a day taken off the
market would be significant imo.
Filling up of oil storage early in the cycle is an indicator of oversupply.
But in the current late cycle of low oil prices [1.5 yrs already] it is a useless indicator of
future oil price movement, oil demand or supply. It just indicates the level of contango that
exists in oil futures market. See
Gaurav
comment on Mar 06, 2016
Notable quotes:
"... One interesting take from Art Berman presentation is that he ignores "Great condensate Con" (and grossly overplays Cushing "storage glut" MSM meme). He also thinks that without OPEC cut $30 oil price range will last for the whole 2016 ..."
"... And why are we still importing oil: lack of sufficient domestic AVAILABILITY…not production. The vast majority of oil going into Cushing IS NOT do to a lack of buyers as the import numbers indicate. It's largely do to speculators hoping to take advantage of f increases in future oil prices. The net effect is that these speculation OIL BUYERS are competing with the refiners for domestic production. ..."
"... And now compare the 88 mm bbl capacity to the PADD 3 (essentially Texas and LA. where the bulk of the refineries are) capacity of 260 mm bbls. Between the speculator purchases and the smaller number of refineries combined with the large volume of Canadian imports seeing Cushing filling up is no surprise. ..."
"... So again compare the 88 mm bbl capacity at Cushing to the total storage capacity at US refineries: 179 mm bbls. No: the volume of oil held at refineries is not part of the total TANK FARM capacity. So how much is the Cushing storage capacity compared to tank farms + refinery storage: 13%. ..."
Here is a short excerpt from this article, in which Berman basically argues that the price
of oil is controlled by the level of storage at Cushing. I agree at least to the extent than the
price correlates closely with storage at Cushing.
For oil prices to increase, Cushing inventories must fall. That means that both U.S.
tight oil production, chiefly from the Bakken play, and Canadian light oil production brought
by pipeline to Cushing must decline.
Bakken production was consistent in 2015 at about 1.2 million barrels per day. Canadian
oil imports to the U.S. decreased from April through July 2015 and may have contributed to
the fall in Cushing inventories that lead to a $15 per barrel increase in WTI prices. At the
same time, decreased production from the Eagle Ford and Permian basin tight oil plays would
free up storage in the Gulf Coast that might allow more oil to flow out of Cushing.
One interesting take from Art Berman presentation is that he ignores "Great condensate Con"
(and grossly overplays Cushing "storage glut" MSM meme). He also thinks that without OPEC cut
$30 oil price range will last for the whole 2016:
• Energy markets have been characterized by low oil prices and over-supply since mid-2014.
• Supply deficit before Jan 2014, supply surplus after
• Prices fell from 2011-2013 average of $111 per barrel to average of $52 in 2015.
• Without an OPEC cut, 2016 prices will probably be in the $30 per barrel range.
… … …
U.S. crude oil produc4on has declined about 570,000 bopd since the peak in April 2014,
about 60,000 bopd per month.
• EIA forecast is for a total decline of 1.4 mmbpd by September 2016 ( ~100,000 bopd per month)
before increasing again based on $43 per barrel WTI by year-end 2016 and $58 by year-end 2017.
• Price deck has WTI at $43 per barrel by December 2016 & $58 by December 2017.
• Forecast suggests that the oil market is sufficiently in balance now for prices to increase
but that production will not respond to price signals until later in 2016-very optimistic.
… … …
Little chance that oil prices will increase beyond the head-fakes and sentiment-driven price
cycles of 2015 and early 2016 until U.S. crude oil storage begins to decrease.
• Oil stocks are currently 152 million barrels above the 5-year average and 128 million barrels
above the 5-year maximum.
… … …
• Cushing and Gulf Coast storage make up almost 70% of U.S. working storage.
• These areas are currently at 84% of capacity. Cushing at 89%.
• As long as storage volumes remain above 80% of capacity, oil prices will be crushed.
• Until U.S. oil production declines substantially, storage will remain near capacity.
This article is a little on the long side, for those of us who are into sound bites, but folks
with more patience will find it illuminating, and maybe even find a little something in it to
improve their personal morale, if they are feeling really down about the future.
Here is a short excerpt from this article, in which Berman basically argues that the price
of oil is controlled by the level of storage at Cushing. I agree at least to the extent than
the price correlates closely with storage at Cushing.
… … …
That's what happens when good people get into bad company due to lack of employment opportunities
caused by shale oil price crush :-)
And to add to some of the good points made: Cushing contains only 20% of total US oil storage
capacity. Notice they don't mention the fill level of that total: last time I looked it was
about 65%. That means 35% of the 450+ MILLION BBL CAPACITY is still empty.
And why are we still importing oil: lack of sufficient domestic AVAILABILITY…not production.
The vast majority of oil going into Cushing IS NOT do to a lack of buyers as the import numbers
indicate. It's largely do to speculators hoping to take advantage of f increases in future
oil prices. The net effect is that these speculation OIL BUYERS are competing with the refiners
for domestic production.
Which, again, explains why we still import a huge volume of oil despite the constant and
foolish use of the word "glut". IOW if we are still importing oil how can there be a glut of
domestic oil: the US lacks sufficient oil production to satisfy the demand from the refineries
AND speculators.
rockman on Sat, 27th Feb 2016 9:39 am
A few more FACTS to offset the "OMG Cushing is filling up" hysteria. First, Cushing is in
PADD 2 as they point out. But it isn't the only tank farm in that midwest district: it only
holds 60% of that total capacity.
And now compare the 88 mm bbl capacity to the PADD 3 (essentially Texas and LA. where the
bulk of the refineries are) capacity of 260 mm bbls. Between the speculator purchases and the
smaller number of refineries combined with the large volume of Canadian imports seeing Cushing
filling up is no surprise.
And we're just talking about tank farm storage.
So again compare the 88 mm bbl capacity at Cushing to the total storage capacity at US refineries:
179 mm bbls. No: the volume of oil held at refineries is not part of the total TANK FARM capacity.
So how much is the Cushing storage capacity compared to tank farms + refinery storage: 13%.
Nice mocking of US energy independence propaganda.
Notable quotes:
"... Had Texas maintained production at 400,000,000 barrels per year, the price would have stabilized to a higher low. A 700,000,000 barrel per year drop in production would be steep. ..."
"... 400,000,000 barrels per year at 75 usd per barrel is 30,000,000,000 dollars. ..."
"... 1.161,024,209 times 25 dollars per barrel is 29,025,600,000 dollars. ..."
"... Just too much oil production in Texas by two times. Texas at a 1.3 million barrel per day production level might bring back 75 dollar oil. ..."
Texas goes from 399,315,095 barrels in one year of production in 2009 all
the way to 1,161,024,209 barrels in 2015.
Looks close to a tripling of production from 2009 to 2015. Gotta go for
the gusto.
Must be contributing to the 'glut', in other words, 'we have to refine
this oil into all of the diesel fuel we can and get it shipped to Europe
as fast as we can, that's where the money is'. Gotta follow the money, that's
where the money is. It's a no brainer.
Or some such verbiage.
Or, refinery 'glut'. The gasoline can be sold at a bargain price, those
crazy Europeans buy diesel at any price, they could care less about that
gasoline. har
Europeans pay through the nose for diesel fuel only to subsidize low
gasoline prices for US consumers! double har, so har again.
Had Texas maintained production at 400,000,000 barrels per year,
the price would have stabilized to a higher low. A 700,000,000 barrel per
year drop in production would be steep.
400,000,000 barrels per year at 75 usd per barrel is 30,000,000,000
dollars.
1.161,024,209 times 25 dollars per barrel is 29,025,600,000 dollars.
Just too much oil production in Texas by two times. Texas at a 1.3
million barrel per day production level might bring back 75 dollar oil.
For leading U.S. shale oil producers, $40 is the new $70.
Less than a year ago major shale firms were saying they needed oil above
$60 a barrel to produce more; now some say they will settle for far less
in deciding whether to crank up output after the worst oil price crash in
a generation.
Their latest comments highlight the industry's remarkable resilience, but
also serve as a warning to rivals and traders: a retreat in U.S. oil production
that would help ease global oversupply and let prices recover may prove
shorter than some may have expected.
Continental Resources is prepared to increase capital spending if U.S.
crude reaches the low- to mid-$40s range, allowing it to boost 2017 production
by more than 10 percent, chief financial official John Hart said last week.
Rival Whiting Petroleum, the biggest producer in North Dakota's Bakken
formation, will stop fracking new wells by the end of March, but would "consider
completing some of these wells" if oil reached $40 to $45 a barrel, Chairman
and CEO Jim Volker told analysts. Less than a year ago, when the company
was still in spending mode, Volker said it might deploy more rigs if U.S.
crude hit $70.
While the comments were couched with caution, they serve as a reminder
of how a dramatic decline in costs and rapid efficiency gains have turned
U.S. shale, initially seen by rivals as a marginal, high cost sector, into
a major player – and a thorn in the side of big OPEC producers.
Nimble shale drillers are now helping mitigate the nearly 70-percent slide
crude price rout by cutting back output, but may also limit any rally by
quickly turning up the spigots once prices start recovering from current
levels just above $30.
The threat of a shale rebound is "putting a cap on oil prices," said
John Kilduff, partner at Again Capital LLC. "If there's some bullish outlook
for demand or the economy, they will try to get ahead of the curve and increase
production even sooner."
Some producers have already began hedging future production, with prices
for 2017 oil trading at near $45 a barrel, which could put a floor under
any future production cuts.
While the worst oil downturn since the 1980s sounds the death knell for
scores of debt-laden shale producers, it has also hastened the decline in
costs of hydraulic fracturing and improvements of the still-developing technology.
For example, Hess Corp., which pumps one of every 15 barrels of North Dakota
crude, cut the cost of a new Bakken oil well by 28 percent last year.
What once helped fatten margins is now key to survival in what Saudi
Oil Minister Ali al-Naimi described last week as the "harsh" reality of
a global market in which the Organization of Oil Exporting Countries is
no longer willing to curb its supplies to bolster prices.
While Deloitte auditing and consulting warns that a third of U.S. oil
producers may face bankruptcy, leading shale producers say their ambitions
go beyond just outrunning domestic rivals.
"It's no longer enough to be the low cost producer in U.S. horizontal shale,"
Bill Thomas, chairman of EOG Resources Inc, said on Friday. "EOG's goal
is to be competitive, low-cost oil producer in the global market."
Thomas did not say what price would spur EOG to boost output this year,
but said it had a "premium inventory" of 3,200 well locations that can yield
returns of 30 percent or more with oil at $40.
Apache Corp, forecasts its output will drop by as much as 11 percent
this year, but said it would probably manage to match 2015 North American
production if oil averaged $45 this year.
One reason shale producers can be so fleet-footed is the record backlog
of wells that have already been drilled but wait to get fractured to keep
oil trapped in shale rocks flowing.
There were 945 such wells in North Dakota, birthplace of the U.S. shale
boom in December, compared to 585 in mid-2014, when prices peaked, according
to the latest available data from the Department of Mineral Resources. Their
numbers are growing as firms like Whiting keep drilling, but hold off with
fracking.
Some warn that fracking the uncompleted wells can offer only a short-term
supply boost and a sustained increase would require costly drilling of new
wells and therefore higher prices.
"It's going to take a move up to $55 before we see anyone plan new production,"
says Carl Larry, director of business development for oil and gas at Frost
& Sullivan.
To be sure, it is far from certain whether oil prices will even reach
$40 any time soon. Morgan Stanley and ANZ expect average prices in the low
$30s for the full year.
Some analysts also warn resuming drilling quickly may prove hard after firms
laid off thousands of workers and idled more than three-quarters of their
rigs since late 2014.
In fact, John Hess, chief executive of Hess Corp last week took issue with
labeling U.S. shale oil as a "swing producer." Hess told Reuters in an interview
that U.S. shale firms should be rather considered as "short-cycle" producers,
which might need up to a year to stop or restart production.
And even scarred veterans of past boom-bust oil cycles are not sure what
will happen once prices start to recover – during the last big upswing a
decade ago, shale oil did not even exist.
"We are a little concerned that this time there is one dynamic we've never
had previously," said Darrell Hollek, vice president of U.S. onshore at
Anadarko Petroleum Corp.
--------------
Some analysts also believe that drilling/completion activity in the U.S.
will rebound in the second half of the year, as oil prices reach $40-45.
See, for example, US rig count forecast by Raymond James (chart below).
BTW, their energy analyst expect WTI to reach $50 by the end of 2016.
AlexS. This talk is pure desparate talk, and nothing more.
A group of us have been analyzing the Statements of Future Cash Flows
in the 10K's recently released by some of the large shale players, including
EOG, CLR, WLL, PXD and CHK.
The assumptions made in the reduction of future production costs
are questionable. Here are the revisions from 12/31/14 to 12/31/15 for
these companies:
EOG
2014 $51.533 billion
2015 $32.061 billion
CLR
2014 $25.799 billion
2015 $10.869 billion
WLL
2014 $20.772 billion
2015 $12.344 billion
PXD
2014 $18.223 billion
2015 $11.475 billion
CHK
2014 $17.036 billion
2015 $7.391 billion
The only thing I have been unable to determine is whether any drilling
and completion costs are included by these companies in "future production
costs"
I would note all break out "future development costs" and all have
greatly reduced numbers from 2014 to 2015, which makes sense given large
budget cuts.
In any event, it is worth noting the future estimates of these companies
in the 10K and how radically they have changed from 12/31/14 to 12/31/15.
Further, it is noteworthy that if current oil and gas prices are
plugged into the 12/31/15 future cash inflows, there is little positive
to negative future net cash flows.
In summary, the claims are not backed up by the company SEC filings,
IMO. Also, the large long term debt incurred in prior years cannot be
ignored either, IMO.
Here is a repost of CLR's snake oil sale press release and calculations
for PDP reserve adds for CLR and what that implies about EUR's in the
Bakken. If correct, breakevens for the Bakken is much higher than $55.
Sorry, 850K. From CLR's Q4 press release:
"Given its plans to defer most Bakken completions in 2016, Continental
expects to increase its Bakken DUC inventory to approximately 195 gross
operated DUCs at year-end 2016. The year-end 2016 DUC inventory represents
a high-graded inventory with an average EUR per well of approximately
850,000 Boe. At year-end 2015, the Company's Bakken DUC inventory was
approximately 135 gross operated DUCs."
From an analyst named Frank, who posts on Yahoo. His calcs look right
to me.
"Look at the 10-k reserve and production data – proved developed
only of course.
In the Bakken
They added 180 net wells in 2015
They produced 38 mm BO and 47 mmcf ng or 46 mm boe
Reserves declined 15.5 mm BO and ng reserves increased by 16.2 mmcf
or 2.7 boe
Therefore reserves declined by 13 mm boe
So adds from new wells was 46-13 = 33 boe from 180 wells. That is 185k
boe per well. A little shy of 800k."
EUR is total expected production from a well during its lyfe cycle,
not annual production, especially as these wells were producing less
than a year in 2015.
I know. The EUR sabove are calculated from the change of PDP reserves
adjusted by a year's production, divided by wells completed. That should
give you the amount of reserves added per completed well.
"... In the USA we use crude for various purposes. Based on old data of 2007 we use close to half for passenger travel, and only
2% for on farm use, for example. Probably hasn't changed much. How much of the passenger travel is important to GDP, or is "productive"
vs "frivolous"? ..."
"... An even better question is how much of GDP itself is "productive" or "frivolous"? ..."
"... Households spent $306 billion on gasoline in 2015 which is ~1.7% of ~$18 trillion of GDP. If 2016 gasoline prices average $1.98
per gallon (EIA February STEO report), household spending on gasoline relative to total household spending will be the lowest in the
69 year history of the data set. ..."
"... Gasoline on its own it is pretty much useless unless you want just to start camp fire for marshmallows. If you want to include
the true cost of using gasoline in the household you have to include the cost of vehicles that have never been higher in the history,
you have to include the cost of insurance that is also marching higher every year. And let's not even go into ever increasing cost of
building and maintaining each mile of highway network. So you have to look at built in price inflation in today's monetary system to
realize the true costs. And anyway example that you provide for 2016 that "gasoline relative to total household spending will be the
lowest in the 69 year history" is anomaly. Do you understand why it is anomaly? It is anomaly because at that price nobody in oil industry
makes any profit. So you won't have this anomaly for very long. ..."
In the USA we use crude for various purposes. Based on old data of 2007 we use close to half for passenger travel, and only
2% for on farm use, for example. Probably hasn't changed much. How much of the passenger travel is important to GDP, or is "productive"
vs "frivolous"?
Households spent $306 billion on gasoline in 2015 which is ~1.7% of ~$18 trillion of GDP. If 2016 gasoline prices average
$1.98 per gallon (EIA February STEO report), household spending on gasoline relative to total household spending will be the lowest
in the 69 year history of the data set.
Gasoline on its own it is pretty much useless unless you want just to start camp fire for marshmallows. If you want to include
the true cost of using gasoline in the household you have to include the cost of vehicles that have never been higher in the history,
you have to include the cost of insurance that is also marching higher every year. And let's not even go into ever increasing
cost of building and maintaining each mile of highway network. So you have to look at built in price inflation in today's monetary
system to realize the true costs. And anyway example that you provide for 2016 that "gasoline relative to total household spending
will be the lowest in the 69 year history" is anomaly. Do you understand why it is anomaly? It is anomaly because at that price
nobody in oil industry makes any profit. So you won't have this anomaly for very long.
In 2014, by my calculations, 40% of total S&P 500 capital expenditures went to the energy sector.
The shale boom was the biggest thing going, and banks as well as high yield bond funds poured money
down the wells. With oil around $30 shale loses money, and banks are reporting
multi-billion dollar losses. . The high-yield energy sector as a whole now yields 15 percentage
points more than US Treasuries, which means dollar prices in the 70s and 80s. Depending on what lenders
think they can recover from busted shale borrowers, high-yield market prices imply an expected default
rate of 20%-25%. It gives a whole new meaning to the term "horizontal driller."
"... No mention of labor at all. As if they do not form any part of the equation. So, how many workers were suspended and how will that suspension impact the local economy. ..."
"... The local economy is already circling the drain and this is going to make things worse. ..."
"... I know a good number of people who have gone to Williston to work, since the wages are considerably better than the going rate in other parts of Montana, even if you have to live in a man camp [shudder]. Reductions in production means reduction in labor needed, which means that this slow-down will have economic consequences beyond just ND. Montana will be losing remittances from this as well. ..."
"... So, likely outcomes are higher unemployment and fewer resources for the state to confront that problem. ..."
"... While fracking is the poster-child for high-cost oil being whacked, a lot of other production with big fixed costs (which is basically anything other than the stick a straw in the ground and you get oil coming out sources) is also being hit hard. The North Sea is a good example of where they have to keep pumping because the decommissioning costs are immense so it is either lose a moderate amount of money on each barrel that you bring up or loose a huge amount money in a one-time hit by writing off production assets which were supposedly going to have an economic life of decades. ..."
"... Saudi Arabia (and, to a lesser extent, Russia) can stay irrational longer than the high cost producers can stay solvent though. In the end, theyll win. So maybe not so irrational after all. ..."
"... Yes, the key issue is the difference between average cost and marginal cost for production. North Sea Oil was a big money loser throughout the 1990s – they pretty much stopped exploration, but with sunk costs and a need to keep turnover, the big production rigs kept going despite making losses for well over a decade. My brother is an off-shore driller and at that time he and nearly all his colleagues ended up travelling from the stan to the Gulf of Mexico to try to earn some money. It wasnt just the loss of jobs – everyones wages were cut to the bone with no bonuses, so this has a knock-on effect right through the local economy. ..."
"... can stay irrational longer than the high cost producers can stay solvent though. In the end, theyll win. So maybe not so irrational after all. ..."
"... the bigger the debt you have, the more power you have over your creditors. ..."
"... Whiting has been the top producer in the Bakken, the most productive field outside of Texas…in addition, Continental Resources, the # 2 Bakken producer, took the same action…moreover, Chesapeake Energy, the 2nd largest US natural gas producer and the operator of more than half of Ohios wells, and has quit drilling here; in fact, it has stopped drilling new wells in both the Marcellus and Utica Shale basins altogether, having released its last two Ohio rigs and its last Pennsylvania rig before the end of 2015…the company is trying to downsize in lieu of bankruptcy, and is planning to sell off its wells and land in a last ditch effort to stay solvent… ..."
"... Chesapeake, with their back against the wall with bonds coming due and facing $1 billion in collateral calls, is going to focus on more well completion and less drilling…they also expect to sell assets worth between $500 million to $1 billion, and cut overall spending by 57%…so theyre in the unenviable position of producing the most gas they can with gas prices at 17 year lows, and trying to sell off their natural gas and oil assets when prices for both commodities are at multi-year lows.. ..."
"... David lays the whole scam bare. Basically, the Pirates taxes are paid through your rates, even taxes that might not need to be paid are collected. ..."
No mention of labor at all. As if they do not form any part of the equation. So, how many
workers were "suspended" and how will that suspension impact the local economy.
See Dayen's note at the beginning of the article. The local economy is already circling
the drain and this is going to make things worse.
I know a good number of people who have gone to Williston to work, since the wages are
considerably better than the going rate in other parts of Montana, even if you have to live in
a "man camp" [shudder]. Reductions in production means reduction in labor needed, which means
that this slow-down will have economic consequences beyond just ND. Montana will be losing "remittances"
from this as well.
More specifically, the affected economies will experience a decrease in demand at
businesses (since there are fewer wages to spend) and a reduction in tax-revenue by the local/state
governments due to lower income, corporate and sales taxes.
So, likely outcomes are higher unemployment and fewer resources for the state to confront
that problem. Double whammy.
Energy around the world is up the creek. China still has 1/3 of it's new nuclear reactors off-line
due to lack of demand on grid. These nuclear units were to help China reduce it's CO2 footprint,
but running all of them would result in even more coal related layoffs, as even more thermal plants
would have to go off line.
Yin said capacity cuts will lead to some layoffs in 2016 but said he was confident of keeping
employment stable this year despite downward pressure on the economy, Reuters reports.
No timeframe was given for the 1.8 million layoffs.
China aims to remove around 500 million tonnes of coal production capacity within the next
three to five years and halt approvals of all new projects.
While fracking is the poster-child for high-cost oil being whacked, a lot of other production
with big fixed costs (which is basically anything other than the "stick a straw in the ground
and you get oil coming out" sources) is also being hit hard. The North Sea is a good example of
where they have to keep pumping because the decommissioning costs are immense so it is either
lose a moderate amount of money on each barrel that you bring up or loose a huge amount money
in a one-time hit by writing off production assets which were supposedly going to have an economic
life of decades.
Saudi Arabia (and, to a lesser extent, Russia) can stay irrational longer than the high
cost producers can stay solvent though. In the end, they'll win. So maybe not so irrational after
all.
Yes, the key issue is the difference between average cost and marginal cost for production.
North Sea Oil was a big money loser throughout the 1990's – they pretty much stopped exploration,
but with sunk costs and a need to keep turnover, the big production rigs kept going despite making
losses for well over a decade. My brother is an off-shore driller and at that time he and nearly
all his colleagues ended up travelling from the 'stan to the Gulf of Mexico to try to earn some
money. It wasn't just the loss of jobs – everyones wages were cut to the bone with no bonuses,
so this has a knock-on effect right through the local economy.
Fracking is most vulnerable to low prices because of the constant need for capital infusions
to keep production up. A fracked gas well has about 18 months of full production, a fracked oil
well about 2 years. Many of the companies will also have a certain number of drilled but not fracked
wells (non-completed) as back-up. So its hard to tell how long frack production companies can
keep going, but its certainly not long. Oil sands and bitumen sands are significantly less capital
intensive (they are basically just open cast pits with lots of big trucks running around), so
they have more flexibility in ramping up and down production. Of course, Saudi oil is the cheapest
of all to produce – its pretty much just the cost of keeping the pumps going (although to prolong
the well life they also need capital investment in fracking and other techniques, but that type
of operation can be postponed. I suspect that nearly all off-shore, especially the pre-salts off
Brazil has been wiped out as a going concern – it will take years of sustained high prices to
convince investors to take the risks involved.
So yes, SA can stay irrational longer than most – although I suspect the Russians, with a more
diverse economy can stay longer than anyone had guessed. The frackers have lasted longer than
I think anyone in the industry thought they would – mostly I think because of a terror among the
financiers of what happens if they start collapsing – its the old story of the bigger the debt
you have, the more power you have over your creditors. But I think from other sources the process
has already begun of companies quietly doing debt for equity swaps which will keep the companies
going, although its unlikely we will see a major infusion of investment into fracking for a very
long time.
I mentioned earlier in the year the man I 'sort of knew' who lost his job on an offshore to
Brazil rig last fall. Brazil isn't the only 'marginal' field around. How many of these 'marginal'
fields were sold to the locals as the 'cure' for what economically ailed them? The political fallout
from these broken promises hasn't begun to arrive yet. Expect extra instability in some regions
that can least afford it.
As for knock on effects, an anecdote. This past weekend Phyllis and I cruised around our neck
of the woods visiting garage sales. We found some good stuff. One house, a three bedroom, two
bath brick home on two acres was having an 'inventory reduction sale.' Points to the couple for
humour. They were trying to sell this home because they couldn't afford the mortgage any more.
He had lost his offshore job last year and settled for something related that paid roughly half
of his previous compensation. "I'm now travelling down to the coast five days a week, (about 75
miles one way,) and we found an affordable place to do a lease purchase deal on near there. We
now have to figure out how much of a loss we can afford to take on this place. We've been here
twelve years." Comparable houses in their neigbhourhood are going, if they sell at all, for $150,000
to $200,000 USD. It was a nice area. I spotted fresh deer tracks on the edge of their back yard.
So, as the above will attest, the U.S. can stay irrational for quite a while also.
Whiting has been the top producer in the Bakken, the most productive field outside of Texas…in
addition, Continental Resources, the # 2 Bakken producer, took the same action…moreover, Chesapeake
Energy, the 2nd largest US natural gas producer and the operator of more than half of Ohio's wells,
and has quit drilling here; in fact, it has stopped drilling new wells in both the Marcellus and
Utica Shale basins altogether, having released its last two Ohio rigs and its last Pennsylvania
rig before the end of 2015…the company is trying to downsize in lieu of bankruptcy, and is planning
to sell off its wells and land in a last ditch effort to stay solvent…
in contrast to Whiting and Continental, who are deferring completions while they wait for higher
prices, Chesapeake, with their back against the wall with bonds coming due and facing $1 billion
in collateral calls, is going to focus on more well completion and less drilling…they also expect
to sell assets worth between $500 million to $1 billion, and cut overall spending by 57%…so they're
in the unenviable position of producing the most gas they can with gas prices at 17 year lows,
and trying to sell off their natural gas and oil assets when prices for both commodities are at
multi-year lows..
Top producer = bagholder of large stranded investment in some of the most expensive petro production
in the market.
Investment equivalent of revolver in mouth
Revolver for whom? A murder is made to look like suicide.
Here is an older explanation of MLP's, from
David Cay Johnston , but highly relevant now.
While you may not have heard about MLPs, readers of Barron's and other publications for
savvy investors have. In approving cover stories, Barron's and other investment journals tout
MLPs as a way for investors to earn returns of 8 percent or more each year while paying little
or no income tax.
In the shadows, business can use government to drill holes into consumer and producer
pockets through inflated prices. Now one industry has applied this to taxes. This column casts
a focused light on such activity to encourage disclosure, integrity, and fairness in taxation.
-– All that is needed to expand this tax shifting is a change in federal law - a change so
minor it does not even require a sentence to be added to section 7704 (d)(1)(E), a list of
industries that can be owned through publicly traded partnerships without being subject
to the corporate income tax . As one lawyer deeply involved in the pipeline case told
me: "The electric utilities would be master limited partnerships now except that when the law
was changed, the Edison Electric Institute was uncharacteristically asleep at the switch."
David lays the whole scam bare. Basically, the Pirate's taxes are paid through your rates,
even taxes that might not need to be paid are collected.
MLP's are managed by Pirate Equity and funded by Muppets, and the other day an
interesting link popped up.
. . .Take a midstream gathering asset. It costs $50 million to build and produces $15
million in annual DCF or a 30% return-not bad. At a 10% disposition yield, it is worth $150
million. Sell it to the MLP for $150 million and voila, you have a $100 million gain on sale.
The MLP borrows $150 million on the revolver at 5% and then has $7.5 million in incremental
DCF with no dilution. Talk about successful financial engineering. At the LP level, it looks
like the sponsor has done the LPs a favor by creating extra DCF and the press release can brag
that there has been NO DILUTION, only an increase in the distribution-which makes shareholders
happy-even if a good chunk of that goes back to the sponsor through the IDR.
Now look beneath the numbers a bit, the sponsor has taken all the real gains and the
MLP has taken all the risk. The sponsor got a $100 million gain on sale along with an increase
in the IDR. The MLP got an incremental $7.5 million of DCF with leakage through the IDR and
now has $150 million of additional debt. That's a very un-equal bargain. Meanwhile, in the
20 years that it takes to pay off the debt through DCF, the energy field has probably been
depleted to the point that the midstream asset is stranded and practically worthless. It's
Ponzi-finance at its apex. . .
It looks like a lot of pensions were herded into pipelines, with the Pirates getting all
the profit with pension funds taking the risk, and now gasping for money.
Break even cost remain slightly north of 60 dollars per bbl
Notable quotes:
"... We have decided to that we too need to reduce our future production costs by 60%. The electric cooperative said no problem. So did the chemical company, our workers comp carrier, liability insurance carrier. The steel manufacturers did too, so our tubing and rods dropped 60%. The down hole and injection pump service providers were ok with that. Hey Clueless, even our accountant said, "No problem! Since you need to compete with OPEC and Russia, we are knocking 60% off our bill! Now go beat those Saudi's and Russians in this oil price war! Show em who is boss!" ..."
I wonder what ShallowS thinks of EOG's new strategy? That is, to choose their very best of
the best projects, cut costs to the bone and hope that they can make a profit.
Good analogies are hard to come by, but I will throw one out. In 2009, at the depths of
the housing collapse, what if the CEO of Toll Brothers proposed: "We are going to select our
very best lots – the Crown Jewels in our inventory.
Then we are going to build some of our more modest houses on them, cutting costs to the
bone. We hope that we can then sell them for at least break even." Personally, if I owned the
stock, I would have sold immediately.
Clueless. You know what I think. And I do really like your Toll Brothers example.
What I think is more impressive than their current meme on $30 oil is how they cut their
estimate of future production costs from $52 billion at the end of 2014 to $32 billion at the
end of 2015, without a major proved reserve reduction.
But hey, Continental cut theirs from $26 billion to $11 billion. So no big deal.
We have decided to that we too need to reduce our future production costs by 60%. The electric
cooperative said no problem. So did the chemical company, our workers comp carrier, liability
insurance carrier. The steel manufacturers did too, so our tubing and rods dropped 60%. The
down hole and injection pump service providers were ok with that.
Hey Clueless, even our accountant said, "No problem! Since you need to compete with OPEC
and Russia, we are knocking 60% off our bill! Now go beat those Saudi's and Russians in this
oil price war! Show em who is boss!"
Seriously, we have seen some cost reductions, but nothing remotely near 40-60%. And, of
course, although we pay the most to the electric coop of anyone, they just don't seem too keen
on lowering rates for us.
One interesting take from Art Berman presentation is that he ignore "Great condensate Con" (and
grossly overplays Cushing "storage glut" MSM meme). He also thinks that without OPEC cut $30 oil
price range will last for the whole 2016.
• Energy markets have been characterized by low oil prices and over-supply since
mid-2014.
• Supply deficit before Jan 2014, supply surplus after
• Prices fell from 2011-2013 average of $111 per barrel to average of $52 in 2015.
• Without an OPEC cut, 2016 prices will probably be in the $30 per barrel range.
… … …
U.S. crude oil produc4on has declined about 570,000 bopd since the peak in April 2014,
about 60,000 bopd per month.
• EIA forecast is for a total decline of 1.4 mmbpd by September 2016 ( ~100,000 bopd per
month) before increasing again based on $43 per barrel WTI by year-end 2016 and $58 by
year-end 2017.
• Price deck has WTI at $43 per barrel by December 2016 & $58 by December 2017.
• Forecast suggests that the oil market is sufficiently in balance now for prices to increase
but
that production will not respond to price signals until later in 2016-very optimistic.
… … …
Little chance that oil prices will increase beyond the head-fakes and sentiment-driven price
cycles of
2015 and early 2016 until U.S. crude oil storage begins to decrease.
• Oil stocks are currently 152 million barrels above the 5-year average and 128 million barrels
above the
5-year maximum.
… … …
• Cushing and Gulf Coast storage make up almost 70% of U.S. working storage.
• These areas are currently at 84% of capacity. Cushing at 89%.
• As long as storage volumes remain above 80% of capacity, oil prices will be crushed.
• Until U.S. oil production declines substantially, storage will remain near capacity.
"... Seriously, we have seen some cost reductions, but nothing remotely near 40-60%. And, of course, although we pay the most to the electric coop of anyone, they just dont seem too keen on lowering rates for us. ..."
I wonder what ShallowS thinks of EOG's new strategy? That is, to choose their very best of the
best projects, cut costs to the bone and hope that they can make a profit.
Good analogies are hard to come by, but I will throw one out. In 2009, at the depths of the
housing collapse, what if the CEO of Toll Brothers proposed: "We are going to select our very
best lots – the Crown Jewels in our inventory.
Then we are going to build some of our more modest houses on them, cutting costs to the bone.
We hope that we can then sell them for at least break even." Personally, if I owned the stock,
I would have sold immediately.
Clueless. You know what I think. And I do really like your Toll Brothers example.
What I think is more impressive than their current meme on $30 oil is how they cut their estimate
of future production costs from $52 billion at the end of 2014 to $32 billion at the end of 2015,
without a major proved reserve reduction.
But hey, Continental cut theirs from $26 billion to $11 billion. So no big deal.
We have decided to that we too need to reduce our future production costs by 60%. The electric
cooperative said no problem. So did the chemical company, our workers comp carrier, liability
insurance carrier. The steel manufacturers did too, so our tubing and rods dropped 60%. The down
hole and injection pump service providers were ok with that.
Hey Clueless, even our accountant said, "No problem! Since you need to compete with OPEC and
Russia, we are knocking 60% off our bill! Now go beat those Saudi's and Russians in this oil price
war! Show em who is boss!"
Seriously, we have seen some cost reductions, but nothing remotely near 40-60%. And, of course,
although we pay the most to the electric coop of anyone, they just don't seem too keen on lowering
rates for us.
U.S. market is so oversupplied with oil that traders are experimenting with a new place
for storing excess crude
There are plenty to choose from: Thousands of railcars ordered up to transport oil now sit idle
because current ultralow crude prices have made shipping by train unprofitable.
The OPEC cartel needs to take action to stabilize the oil market because crude prices have fallen
to "totally unacceptable" levels, Nigerian President Muhammadu Buhari said on Sunday.
Nigeria, Africa's biggest oil producer which earns around 90 percent of its foreign exchange earnings
from crude oil exports, has been hit hard by the erosion of vital revenues caused by the global slump
in oil prices which has also hammered its currency.
"The current market situation in the oil industry is unsustainable and totally unacceptable,"
Buhari told Qatar's ruler during a meeting in Doha, his office said in a statement.
Speaking on the second day of his visit, Buhari highlighted the need for cooperation between OPEC
and non-OPEC producers.
"We must cooperate both within and outside our respective organizations to find a common ground
to stabilize the market," said Buhari, who also discussed ways to stabilize prices with Saudi Arabia's
King Salman in Riyadh last week.
On Thursday, Venezuela's oil minister said Qatar, Russia, and Saudi Arabia had agreed to a meeting
in mid-March as part of efforts to stabilize oil markets.
Buhari's spokesman, Femi Adesina, added that delegations from Nigeria and Qatar signed two bilateral
agreements to "boost economic cooperation" between the countries.
There was an agreement to avoid double taxation and tax evasion as well as another that would
pave the way for direct flights between major cities of both countries.
Nigeria should be worried. With a population of 173 Mil Nigeria is a huge African nation. Nigeria
just barely feeds many of its poor people. Climate change appears to not be a benefit to Nigeria
with increasing instances of drought. This country is flirting with failure if low oil prices
and drought continue. Oil has allowed this country to expand many times past what it should have.
Lagos metropolitan area is approximately 16Mil. This is a mega city in an overpopulated country.
If you think Nigeria can just fail and everyone will do fine without them think again. Some of
the best oil in the world comes from Nigeria. They are a significant producer at 2.5 mbd. They
are an important anchor to West Africa the world can ill afford to lose.
Rick Bronson on Sun, 28th Feb 2016 5:10 pm
If big oil can produce at $30 / barrel, they can survive, otherwise they close.
More than 1/2 the rigs were closed, that means Shale is not viable at $30 / barrel.
It has nothing to do with the leadership. Its the market economy.
But even at this low oil prices, electric vehicles are selling decently.
Garden-City Boy on Sun, 28th Feb 2016 5:49 pm
Oil is the only glue that holds the Nigerian patchwork together. The tanking oil price triggering
Nigeria's export earnings' nosedive is probably the best thing to happen to the Nigerian contrivance.
Nigerians and indeed the World should brace up for the inevitable and learn to come to terms
with what crystalizes from the precariously fragile mosaic.
All shale companies are underwater as for production prices and most are bleeding cash. As
of February 2016, ""Great Shale Oil Shutdown" started. After 18 month of dropping prices
most companies got the message and started shut down the production
Notable quotes:
"... So , unless prices go up, depletion is virtually guaranteed to take a bite out of annual production. We all seem to be in agreement this far. ..."
"... Running at a loss is one thing, bleeding cash at a loss is something else and far worse. ..."
"... Look up above. I mentioned three publicly traded companies whose combined BOE was 160K BOEPD who shut in production in Q4, before the latest $10+ dollar drop. It's here and will continue. ..."
With oil prices what they are now, not very much money is going to be spent on bringing any new
production to market, unless the project is already well underway, and most likely, not too far
from completion.
So , unless prices go up, depletion is virtually guaranteed to take a bite out of annual production.
We all seem to be in agreement this far.
Now supposing little or no new oil comes to market for the next few years, if and because the
price stays really low, Can anybody estimate HOW FAST the current production will go underwater?
If a company is SPENDING say forty bucks to produce a barrel, and getting thirty for it, the loss
will eventually FORCE that production to be shut in.
So – the question is, how many barrels will be shut in, and how soon, because those barrels
are losing money propositions on a day to day basis, cash in, cash out?
Running at a loss is one thing, bleeding cash at a loss is something else and far worse.
Looking at the oil price question from this point of view, I can see oil staying cheap for
quite some time if the overall world wide economy declines rather than at least holding steady.
OFM. Look up above. I mentioned three publicly traded companies whose combined BOE was 160K BOEPD
who shut in production in Q4, before the latest $10+ dollar drop. It's here and will continue.
"... Once this project is completed DECC will be able to better quantify system costs to inform policy decisions. Any future policy development, such as future renewable support, will be informed by the improved evidence base developed through this project . ..."
"... The additional costs of having variable generation on the system are low and for the most part renewable generators already pay these costs, said Renewable UKs director of policy, Dr Gordon Edge. If were going to talk about system costs, then we also need to talk about the undoubted economic benefits that wind generators also bring, he added. ..."
"... At a White House meeting between the CIAs director of plans, Frank Wisner, and John Foster Dulles, in September 1957, Eisenhower advised the agency, We should do everything possible to stress the holy war aspect, according to a memo recorded by his staff secretary, Gen. Andrew J. Goodpaster. ..."
"... When oil is selling for below its full life cycle production cost; when the industrys revenue has fallen by $2.3 trillion per year in the last two years; when the Saudis are borrowing money to pay their bills; when the nation with the largest petroleum resource on the planet cant afford toilet paper for its citizens; when hundreds of US producers are going out of business; when the world is using petroleum eight times faster than it is finding it; when the Etp Model said that this was going to happen years ago -– yep, I believe it. ..."
Nor, for that matter, of peak coal or gas. Fossil fuels, said to be on the path for an effective
demise in the rich world later this century, will actually continue to fulfil the major part of our
energy needs for the foreseeable future. So says the latest
BP Energy Outlook
.
... ... ...
...As oil prices dropped steeply in 2014, the once-dominant OPEC producers kept the taps open,
looking to maintain market share in the face of surging US competition, rather than cutting production
to force prices up. However, the forecasters were wrong in this case as well. Rather than decimating
the North American shale oil producers, the weaker ones went to the wall but many carried on pumping.
The costs of fracking (and re-fracking) and drilling multiple horizontal wells from a single well-head
had come down to a point at which losses were bearable, albeit further drilling was discouraged.
Breakeven cost for US oil in general is about $36 per barrel, although the average for shale is around
$58 (see
breakeven cost for top oil exporters
). The figure for Saudi Arabia, in contrast, is just $9.90.
Nevertheless, the consequences of continuing low oil prices are worse for Middle Eastern countries
and other 'cheap' oil producers because their economies are also heavily dependent on oil exports.
So, while a single industrial sector may take a hammering in the USA, Saudi Arabia needs about $105/barrel
to balance its budget (
Fiscal breakeven cost for the top oil-dependent economies
). For such countries, the economic
and social costs could be severe, while shale oil production can be scaled back but then quickly
revived when the market picks up.
On a more parochial note, plans in EU member states for continued expansion of renewable energy
were based on a projected reducing need for subsidies as conventional energy prices rose steadily.
Now, however, it begins to look as though subsidies will escalate for the foreseeable future. In
the UK, for example, the realities of photovoltaics having very limited potential at such a high
latitude and the building of more onshore wind farms meeting continued resistance from local communities
has made offshore wind an increasingly attractive proposition politically.
Politically attractive maybe, but hardly so economically. As last week's newsletter pointed out,
offshore wind farm operators are being offered energy prices of at least £115 per MWh, over £20 more
than the much-criticised strike price for electricity from the proposed Hinkley C nuclear plant (
(Guaranteed) power to the people
). Even these inflated prices, paid for by consumers, don't take account of the additional costs
of transmission, grid strengthening and conventional backup.
The result is a rethink of at least some aspects of the subsidy regime and a somewhat lukewarm
attitude to renewables in the UK (although Germany seemingly is set to push ahead with yet more wind
and solar, seemingly oblivious to the negative consequences of the policy instruments chosen: replacement
of clean and flexible gas by new lignite stations). The much-vaunted prospects of carbon capture
and storage (CCS), always just over the horizon and apparently destined to remain so, has had yet
another false start as funding for a demonstration project has been pulled.
Even the renewable energy industry itself if not united.
Power firm Drax urges biomass
subsidy rethink puts the case for biomass being a more cost-effective option than other renewables,
taking into account additional costs not normally included in the headline figures. The £105 per
MWh paid to Drax for energy generated mainly from imported American wood pellets is certainly higher
than the maximum of £82.50 paid for the latest onshore wind farms. However, an analysis conducted
for the energy generator by NERA Economic Consulting and Imperial College argues that the overall
cost to consumers of decarbonisation could be £2bn lower if biomass power stations were allowed to
bid for new renewable energy contracts.
The precise figures can be criticised, but the thrust of the argument is undeniable: the only
valid way of comparing competing technologies is to analyse the overall system cost. The Department
of Energy and Climate Change is said to be looking into the use of whole system costing, with work
due to finish shortly. According to energy minister Angela Leadsom, "Once this project is completed
DECC will be able to better quantify system costs to inform policy decisions. Any future policy development,
such as future renewable support, will be informed by the improved evidence base developed through
this project".
Let's hope so. The wind and solar industries will doubtless put up strong resistance, because
the higher-than-reported overall costs of their technologies is a secret they would rather was not
made public. We can expect to hear much more of this kind of thing: "The additional costs of
having variable generation on the system are low and for the most part renewable generators already
pay these costs," said Renewable UK's director of policy, Dr Gordon Edge. "If we're going to talk
about system costs, then we also need to talk about the undoubted economic benefits that wind generators
also bring," he added.
What those 'undoubted economic benefits may be to those other than the foreign-owned suppliers
of wind turbines and photovoltaic panels, we wait to find out.
The massive global debt bubble is the surest sign yet that we have reached peak oil. Without
growth in oil production, there can not be economic growth.
Debt was used to buy today's oil yesterday. Facilitated by cheap credit, we are currently producing
tomorrow's oil today. Tomorrow's oil, the last of the easy stuff, will have been depleted and
the debts will not only have not been paid but, will have gotten bigger.
Peak oil mates, peak oil. This is it. We are living it now. As I have stated previously, those
that deny peak oil do not understand it.
Plantagenet on Sat, 27th Feb 2016 8:48 pm
As long as global oil production continues to go up, we are not at peak oil.
We'll see a global peak in oil production sometime in the next 10 years, but we aren't quite
there yet.
CHEERS!
Harquebus on Sat, 27th Feb 2016 9:32 pm
Yeah but, oils ain't necessarily oils.
A lot of oil production is called oil but, it isn't sold on the oil market so, it isn't really
oil.
Truth Has A Liberal Bias on Sat, 27th Feb 2016 9:45 pm
Global oil production is down. July 2015 exceeds January 2016. And it will continue to decline
as we go forward.
Apneaman on Sat, 27th Feb 2016 9:53 pm
Yergin's a fuctard cheerleader and any prize can be bought. Pulitzer – Big fucking deal. Obama
has a Nobel and drone bombs babies and their mommas daily.
Apneaman on Sat, 27th Feb 2016 10:01 pm
Middle Eastern Wars Have ALWAYS Been about Oil
"Robert Kennedy Jr. notes:
For Americans to really understand what's going on, it's important to review some details about
this sordid but little-remembered history. During the 1950s, President Eisenhower and the Dulles
brothers - CIA Director Allen Dulles and Secretary of State John Foster Dulles - rebuffed Soviet
treaty proposals to leave the Middle East a neutral zone in the Cold War and let Arabs rule Arabia.
Instead, they mounted a clandestine war against Arab nationalism - which Allen Dulles equated
with communism - particularly when Arab self-rule threatened oil concessions.
They pumped secret
American military aid to tyrants in Saudi Arabia, Jordan, Iraq and Lebanon favoring puppets with
conservative Jihadist ideologies that they regarded as a reliable antidote to Soviet Marxism [and
those that possess a lot of oil].
At a White House meeting between the CIA's director of plans,
Frank Wisner, and John Foster Dulles, in September 1957, Eisenhower advised the agency, "We should
do everything possible to stress the 'holy war' aspect," according to a memo recorded by his staff
secretary, Gen. Andrew J. Goodpaster."
Rising debt might be a sign of approaching peak oil – excess energy is diminishing and therefore
unable to general excess capital production in society in order to pay interest and principal.
But in and of itself Debt is not definitive. Even if the return on energy were between 1 and
0 (costs more input than you get out), which would result in ginormous debts, but we could still
produce more total volume on a consistent basis, by the standard definition, no peakum oilum.
Now, its been at least six years that many have suggested we need to change the definition
of peak oil to mean: amount of Net Energy Available (from oil) to Society (nate hagens, et al).
And from that perspective, we've almost certainly reached peak net available energy or peak oil.
the question also about the different "liquids" going into the number is a solid question.
Will any of these questions make a difference to the MSM or doubters on this site? No.
rockman on Sat, 27th Feb 2016 10:53 pm
And again if folks keep allowing themselves to be baited into debates about PO dates and the
silly position that supply won't always meet demand (which it will thanks to the modulation effect
of pricing) then the reality of the complexity of the Peak Oil Dynamic will be ignored.
Just consider how few citizens don't understand that the current low oil prices are a result
of the diminishing capacity to develop meaningful new long term reserves.
shortonoil on Sun, 28th Feb 2016 7:07 am
"Breakeven cost for US oil in general is about $36 per barrel, although the average for
shale is around $58 (see breakeven cost for top oil exporters). The figure for Saudi Arabia, in
contrast, is just $9.90."
Crude stayed in the $100 range for almost four years. According to the quote above the industry
was making incredible profits during that period; so incredible that one would have to be an absolute
idiot to believe it? At $36 the profit margin on gross sales would have been 278%. On $58 it would
have been 172%, and on $9.90 it would have been 1010%.
That very easily explains how the Shale industry managed to accumulate over a $1 trillion in
debt to build annual sales of $360 billion. A 172% profit margin on gross sales will do that using
a combination of the New Math, and some very creative accounting. These guys are quoting EBITDA
numbers, not break even numbers. Of course, they think they have enough stupid, credulous readers
that they can get away with it.
Put it in print, and someone is dumb enough to believe it!
eugene on Sun, 28th Feb 2016 9:31 am
Another of the endless debates amongst people with little or no knowledge of the energy situation
but lots of opinions with each convinced their opinion is absolutely the correct one. I'd add
mine but I'm just an old man sitting in the woods with an "opinion" based on very limited knowledge.
One thing I do "know", oil is vital to our lifestyle and is a finite resource of which we have
extracted most of the cheap, easy stuff so will have to produce ever more expensive stuff. I like
the word "stuff" as it appears to me the definition of oil is changing according to the agenda
of the person speaking.
onlooker on Sun, 28th Feb 2016 11:21 am
"Just consider how few citizens don't understand that the current low oil prices are a result
of the diminishing capacity to develop meaningful new long term reserves." But some even here
say it is a glut. Hahaha. Funny isn't Rockman. Oh and for those who may not know Rockman is in
the Oil business he is not just some armchair pundit.
shortonoil on Sun, 28th Feb 2016 11:49 am
When the world is burning 32 Gb per year, and discovering 4Gb to replace the 32 it just used,
you apparently have a "glut". Is that the result of how you use your Facebook account? Maybe its
a Twitter brain thing?
onlooker on Sun, 28th Feb 2016 12:09 pm
Short thanks. Another person in the trenches. Not some denier, BAU cheerleader or shill. Because
they are the only ones harping on how Shale/Tar will bring about a revolution of new energy. Of
those 4Gb, I wonder now much of that per year we will even be able to bring to market. I think
depletion and the fizziling out of LTO will make in short term a mockery of the so called glut
and its advocates.
"The Cambridge Network is a commercial business networking organisation for business people
and academics[1][2] working in technology fields in the Cambridge area of the UK."
"Activities[edit] The organisation's mission is "We raise the game for business in Cambridge, and through that we
try to raise the game for economic growth in the UK."
Looker – I wish I didn't have to result to an worn anology but it works so perfectly: the blind
men trying to ID an elephant by each analyzing individual parts of the critter. PO (or more correctly
the POD…peak oil dynamic) is more than the date of global max oil production, storage volumes
at Cushing, KSA production levels, debt incurred by the US shale players, frac'ng costs, US oil
exports, a lot of dilbit made with Eagle Ford condensate, etc, etc, etc.
It's no different the
arguing that critter is a snake because only it's trunk has been analyzed. We see the same approach
here: PO isn't a factors because we see XXX or PO is the end of life as we know it because YYY
is happening.
Some don't like the POD because it's to inclusive. Which is the same as saying we shouldn't
study the entire anatomy of the elephant in order to ID it because that data is "too inclusive".
As I've stated before: the oil price spike which lead to the shale boom which led to increased
US oil production while cooling the global economy and leading to consumers who were unable/unwilling
to pay more then $40 per bbl which led to a drastic decline of shale rigs and a slew of oil companies
pushed to and over the brink of failure: collectively these events along with others indicate
to true nature of the PO dynamic.
At this point if one can't grasp the entire picture I doubt
they ever will.
IOW it's a f*cking elephant. LOL.
onlooker on Sun, 28th Feb 2016 2:58 pm
Thanks for the clear explanation of recent peak oil dynamics Rock. I being a layman have tried
to understand what is going on relative to PO and other matters affecting the planet as the least
we can do is know what the heck is really going on in the world we live. Now if they still don't
understand then they are dense or have an agenda.
shortonoil on Sun, 28th Feb 2016 3:17 pm
"Short thanks. Another person in the trenches."
When oil is selling for below its full life cycle production cost; when the industry's revenue
has fallen by $2.3 trillion per year in the last two years; when the Saudis are borrowing money
to pay their bills; when the nation with the largest petroleum resource on the planet can't afford
toilet paper for its citizens; when hundreds of US producers are going out of business; when the
world is using petroleum eight times faster than it is finding it; when the Etp Model said that
this was going to happen years ago -– yep, I believe it.
It's not that hard to get your head wrapped around, unless your head is made out of concrete.
Anonymous on Sun, 28th Feb 2016 3:37 pm
That was my point Ape
The word 'Cambridge' is intended to be associated with Cambridge University. Thus=Academic,
credible source.
And 'Science' of course, is pretty self explanatory. It is there to reinforce the 'Cambridge'
association.
Sort of doubling up on the implications that this source is a credible, rational, impartical
scientific org. (LOL). And not,(its hopeed) as you point out, basically, a high sounding cheerleader
for UK commercial energy corporations. And others I am sure…
makati1 on Sun, 28th Feb 2016 7:01 pm
Recent signs of oil's peak…
"Global Trade Is Collapsing--Chinese Exports To Brazil Down 60% In January Y/Y; All Containerized
Shipments To LatAm Down 50%" "Bond Vigilantes Push $258 Billion of Oil Debt Past Junk"
"Halliburton to cut 5,000 jobs in new round of layoffs" "Slashing Start for European Energy Sector"
"Apache Slashes 2016 Budget By More Than Half, Sees Lower Output" "World outside US and Canada doesn't produce more crude oil than in 2005"
"Shale Oil Architect Predicts Doom for Some Drillers Amid Slump" "UK Oil Industry At The "Edge Of A Chasm"
"Mansion sales and discount dining: oil rout hits Houston's rich" "Watch Five Years of Oil Drilling Collapse in Seconds"
And for chuckles: " Former Mexican President To Donald Trump: 'I'm Not Gonna Pay For That [Expletive] Wall,' Vicente
Fox Says" "Clinton Defends Ongoing Anarchy In Libya: We Are Still In Korea, We Are Still In Germany"
Art Berman thinks that the glut of oil of oil is glut of condensate and light oil. Banks basically
has given shale operator a pass in 2015. At one point analogy with subprime will became too evident
to hide it and then crash starts. Art Berman recommended to watch Big Short to see what is happening
on shale patch.
As I highlighted
on CNBC yesterday, Saudi's actions speak louder than their words; they
may be willing to entertain a production freeze if everyone else plays ball,
but in the meantime, they are continuing to flood the market, involved in a
political battle with Iran.
This is illustrated in the chart below. So far
in February, we are seeing Saudi crude oil flows into China up 30% versus
February last year, and some 67% higher than volumes seen last month,
kicking around record levels. On the flip-side, while we are hearing
repeated claims of production ramping up from Iranian sources, we are yet to
see this manifesting itself in vastly higher Iranian export activity.
On the economic data front we have had a number of inflation readings out
across the globe. Japan kicked things off, with inflation data coming in as
flat as a pancake at 0.0% YoY in January, edging down from +0.2% in the
month prior. German inflation was also as flat as a beaver's tail, at 0.0%
YoY for February, down from +0.5% in the prior month. We have also had
consumer confidence and business climate assessments out of the Eurozone:
both readings were downbeat.
Looks like Russian oil minister decided to play the role of a regular supply and demand jerk, may
be intentionally. Generally Russians unlike Chinese's behaved like idiots in this situation. Inread
of building state petroleum reserves like Chinese did and later selling oil later at reasonable prices
they continued to dump the oil on market helping Saudis to crash the price. Russia is still buying US
treasures instead as if oil is not as reliable as currency. Russia is the only major country that does
not have strategic oil reserves.
Alexander Novak mostly sounded like a regular member of the neoliberal cosmopolitan elite not as
a Russian oil minister who is interested in well-being of Russian citizens. As Soros aptly mentioned
such people have more in common with Wall Street financial oligarchs that with interests
of their own country.
Whether this was intentional of this is a his assumed position for Die Welt I do no know.
Notable quotes:
"... Given the pricing environment we expect in 2016 further reductions of 15-40%. Thus, this year 30 largest companies in the world can cut $200 billion from capex budgets . At the same time, we see that rise in in the price of the credit for oil producers in the US hinders their access to financial markets. ..."
"... On a global scale in the short term, these effects will be minimal. However, in the medium and long term they will be dramatic, because many of the cancelled projects were important for stability of oil supply from the point of view of growing global demand, have been postponed or frozen. So we can assumed that after 2020 a stable supply of oil is under threat. In this regard, Russia seeks to remain a stable supplier of oil globally. ..."
24.02.2016 | Die Welt/InoSMI
Russia is suffering from extremely low oil prices. Energy Minister Alexander Novak warned us
against the dramatic consequences of falling oil prices for the entire world. After the oversupply
of oil, according to him, a severe deficit is coming.
Die Welt: You have agreed with the oil Minister of Saudi Arabia on the limitation of oil
production. At first the market reacted to the results of your negotiations negativity and oil prices
continued to fall. What, in general, gives us this arrangement?
Alexander Novak: I Think our meeting with the colleagues from Saudi Arabia, Qatar and Venezuela
were very productive. The main result was a preliminary agreement on limiting oil production in 2016
at the level of January of this year. The final decision will be made when this initiative will join
most other oil producers. In our view, this approach would gradually reduce the oversupply and stabilize
prices at a level that will ensure the stability of the industry in the long term.
- Let's assume that others will agree with this. However, experts believe that price stabilization
is necessary not just freeze, and a reduction in oil production.
- Such proposals are periodically received. But we think that this may soon lead to an abrupt
artificial increase in prices. Because such a rise in prices entails the inflow of speculative
money into capital-intensive projects, for example, in the production of shale oil that, in turn,
will lead to rapid increase of oil production and as a result another round of oil prices fall. Of
crucial importance is the level of prices at which US shale oil is unprofitable. If the oil price
moved higher higher, we will again be faced with the effect of plummeting oil prices. That is why
we need mutual consultation in order better to access the current supply and demand situation.
- But the decline in prices over the last 18 months ago is already having a serious negative
impact on producers with higher costs.
- Yes, albeit slower than expected. This is a change from previous oil price cycles, when only
the oil exporting countries influenced the market by voluntarily reducing the production. But after
the invention of the technology for shale gas extraction in 2009, the situation has changed.
- So you agree with the International energy Agency, believes that in 2016, contrary to expectations,
oil prices stabilize?
- In general yes. Because when in mid-2014 oil prices began to decline, many thought that soon
shale oil will fall prey of it. However, this did not happen. We can see that the price at around
$100 per barrel was too high, but shale oil companies for more then a year managed to withstood the
falling oil prices and continue oil extraction is volumes comparable with the volume at peak.
Demand and supply grow equally, and the gap between them did not became smaller. That's why in 2016
everyone is adjusting their predictions about the end of low oil prices regime.
Limited access to funding by high cost producers and delay in implementation of capital intensive
projects will play a role in the alignment of supply and demand in the market and the volume of oil
production outside OPEC, primarily in North America, will be reduced. For example, in the US, the
number of drilling rigs already has declined by two-thirds.
- Not only in the United States. All the world's leading oil companies reduced their investment
programs by 10-35%. What reductions we can expect in 2016?
- Given the pricing environment we expect in 2016 further reductions of 15-40%. Thus, this
year 30 largest companies in the world can cut $200 billion from capex budgets . At the same time,
we see that rise in in the price of the credit for oil producers in the US hinders their access to
financial markets.
- What can be the consequences of reducing investments in the foreseeable future?
- On a global scale in the short term, these effects will be minimal. However, in the medium
and long term they will be dramatic, because many of the cancelled projects were important
for stability of oil supply from the point of view of growing global demand, have been postponed
or frozen. So we can assumed that after 2020 a stable supply of oil is under threat. In this regard,
Russia seeks to remain a stable supplier of oil globally.
- Can Russia to help stabilize prices, "selling" to OPEC and other major producers the
idea to reduce production?
- We haven't made exact calculations. For Russia, this is a difficult question due to the technological
aspects of oil extraction, the current state of the projects under construction and climatic conditions.
You can understand our situation from a simple fact: Russia has more than 170 thousand wells, and
to reduce their number very difficult. And in the middle East much less wells: Saudi Arabia produces
the same amount of oil as we do, with only 3500 wells. In addition, our oil companies are independent
joint-stock companies which are independently planning the level of their own production.
- The head of the second largest Russian oil company LUKOIL Vagit Alekperov said recently that
the Russian oil sector is most afraid that the government will change tax rules for him.
- I share the opinion of the head of the Lukoil concern. We needs a stable tax system. Oil prices,
along with the ruble and so fell and to this created for oil companies the problems of financing
of the oil extraction. If in addition we change the rules of taxation, the future would
become impossible to predict and the companies would be unable to plan their activities for more
then one year. We in the last two years had introduced some tax breaks which should encourage the
production at new fields in Eastern Siberia and the far East. Their effect is already noticeable:
in 2015, we got from those fields additional 60 million tons.
- And in the Arctic region?
- This region now is off-limit due to the costs. But the investments in the extraction of Okhotsk
and Caspian seas have risen because they are attractive from the point of view of taxation. In the
long run we are - regardless of the dynamics of oil prices - will have to change the tax system.
Together with the Ministry of Finance we will develop in the course of this year proposals.
- Russia, as you know, is struggling with declining production in current fields. If the investment
will be reduced, won't this mean that in 2017 the volume of oil production will fail?
- Much will depend on the situation with oil prices and the ruble exchange rate. All our major
companies confirm that they will be able to maintain production at the current fields at the current
level. However, at the current oil prices, investment in new projects will be reduced - at least
by 20-30%.
- In the medium to long term additional load on unconventional and expensive projects will
fall and Western sanctions. How noticeable the effect of them now?
- Impact on overall production is extremely small. In the last two years we have extracted from
these "difficult" fields were we do need western technology just 18 million tons, or around
3% of our total production. The growth of their share is a matter of the future.
- However, without the Western technologies to achieve it will be difficult.
- I expect the opposite effect. Since our companies cannot cooperate with the West in this
area, they had to do this work independently and to develop new technologies in Russia.
- Let me get this straight: in the next few years Russia can't eliminate technological handicap
with the West. This will not work.
At least, we achieve our goals. In three years we seriously upgraded the level of our current
technology. Professionals, scientific and practical basis of all that we have. Many companies are
working on it.
- As for the gas sector, the European Commission seeks to obtain access to all of the gas contracts.
What is that in your shows?
- It's hard for me to comment on it. We believe that commercial contracts are a matter between
the two companies.
- Are you concerned about the behaviour of the EU?
- European authorities want the contract on deliveries was coordinated by the European Commission.
However, many countries disagree. Much will depend on them.
- Differences between the EU and Gazprom have a long tradition. For a long time Gazprom attitude
to the EU's was aggressive and disrespectful. Now his tone was softer. How do you evaluate the bilateral
relations at the moment?
- We believe that Russia is a reliable supplier and that the relationship is beneficial to both
parties. Thus the entire current infrastructure was created. Now, however, we have to expand
it taking into account the fact that production in Europe will decrease and demand will increase.
But differences remain. Can we call the position of Europe a constructive policy ?
- Political aspects now take precedence over the economic aspect of natural gas and oil supplies.
So, for political reasons the project "South stream" was blocked . For political reasons, there
are attempts to prevent the expansion of Nord stream. It is obvious that the construction of the
first two lines of the "Nord stream" conformed to European legal norms. However, the attitude
to the two new branches is different. In addition, we see that in the new energy strategy of the
EU does n mention relations with Russia. How can this be considering the fact that we are the main
supplier of energy to EU? We hope, however, that pragmatism will prevail. We need to develop relations
based on mutual interests, guarantees and long-term prospects.
- I can assume that you are counting on the support of Germany to expand the "Nord stream".
- We presume that we are talking, primarily, about economic project. Major energy companies of
Europe are interested in him. Because this is a long term project. And we will compete with other
suppliers of natural and liquefied gas, which is the rate now.
"... Chinas output in 2016 will decline between 3 percent and 5 percent from last years record 4.3 million barrels a day, according to analysts from Nomura Holdings Inc. and Sanford C. Bernstein Co. That would be the first decline in seven years and the biggest drop in records going back to 1990. The country is the worlds fifth-largest producer and biggest consumer after the U.S. ..."
"... Fellow state-run energy giant China Petroleum Chemical, also known as Sinopec, said on Jan. 27 that oil and gas output in 2015 fell for the first time in 16 years as a slump in domestic crude production outweighed record volumes of natural gas ..."
"... While some Middle East suppliers can operate with oil at $25 a barrel, the break-even cost for Chinas Cnooc is closer to $41, according to Nomura Holdings Inc. analyst Gordon Kwan, who predicts the countrys domestic crude production will fall by 5 percent this year. ..."
"... The plateau, 2008 – 2014, was made possible by infill drilling. I suspect that the decline curve will be steeper than indicated in the above chart. ..."
• Domestic production forecast to fall first time since 2009
• Crude output may decline by as much as 5 percent: Nomura
China's output in 2016 will decline between 3 percent and 5 percent from last year's record
4.3 million barrels a day, according to analysts from Nomura Holdings Inc. and Sanford C. Bernstein
& Co. That would be the first decline in seven years and the biggest drop in records going back
to 1990. The country is the world's fifth-largest producer and biggest consumer after the U.S.
"We expect significant cuts in upstream production as the companies cut output at loss-making
fields," said Neil Beveridge, a Hong Kong-based analyst at Sanford C. Bernstein & Co. "Chinese
explorers need to take more radical action to cut operating costs and increase efficiency."
CNPC plans to maintain crude output near 2015 levels, Deputy General Manager Wang Dongjin was
quoted in a statement posted last month on the company's website. The country's biggest producer
has only a "limited amount" of money to invest this year and will spend on oil and gas projects
that improve efficiency or promote sales, Wang said.
Fellow state-run energy giant China Petroleum & Chemical, also known as Sinopec, said on
Jan. 27 that oil and gas output in 2015 fell for the first time in 16 years as a slump in domestic
crude production outweighed record volumes of natural gas.
Cnooc. Ltd., the country's biggest offshore crude explorer, said last month that output will
fall this year, the first time in more than a decade, as it accelerates spending cuts.
While some Middle East suppliers can operate with oil at $25 a barrel, the break-even cost
for China's Cnooc is closer to $41, according to Nomura Holdings Inc. analyst Gordon Kwan, who
predicts the country's domestic crude production will fall by 5 percent this year.
China announced last month fuel prices won't be cut in line with crude as long as it trades
below $40 a barrel. The National Development and Reform Commission said the floor is designed
in part to shield domestic oil producers from the global price collapse.
"The policy is designed to provide explorers room to breathe," said Laban Yu, head of Asia
oil and gas equities at Jefferies Group LLC in Hong Kong. "China cannot afford to shut down domestic
production no matter how cheap crude gets."
The articles I referred to above show a decline in actual Chinese production of 2.5 percent in
one month. China produces around 4 million bopd, so it is a top producer. Any producing area can
show a lot of variability from one month to another and production could rebound or have a small
decline next month, however 2.5 percent decline in a month is big.
As a comparison, If the EIA came out with actual USA production falling 2.5 percent in January
that would be a decline of around 230,000 barrels per day from December 2015. That's big!
On the other hand, Ron's historical production charts for China do show a lot of variation
from one month to next. I don't know anything about xinhuanet which ran this report, or the National
Development and Reform Commission which is supposedly reporting this information.
Click on 5 Yrs. Looks like relentless increase in Chinese oil production since mid 2014 when
price decline started and when oil was > $100. Apparently EIA data.
No reason this can't be so given they have their own central bank.
Nope, its an actual reported one month reduction of 2.5%. The data is in tons and I'm not sure
how it would convert but it would probably be a little over 100,000 bopd.
My point was that rate of decline in the US would be about 230,000 bopd in a month, so it is
a large percentage decline.
It is hard to say how free oil companies are in China to go their own way, as they see fit, when
it comes to production policy. The government exercises an enormous amount of power over Chinese
industry.
Now if I were a Chinese commie, in a high position, knowing my country has a huge stash of
dollars possibly subject to depreciation due to inflation, I would opt to buy oil, and hold on
to domestic oil in the ground inside the country.
It seems like a damned safe bet it will be worth a lot more in a few years than it is now,
and the interest China earns on dollars is trivial.
I was referring to Nomura's prediction of a 5% yearly fall in China's 2016 oil production. If
it comes to happen this should set back production to 2012-13 levels.
China's mature onshore oil fields are declining.
This includes Daqing, China's largest field, currently accounting for a fifth of the country's
output.
excerpts from an article:
"In late 2014, CNPC essentially threw in the towel on its workhorse field, Daqing, announcing
that it would allow the field to essentially enter a phase of managed decline over the next five
years. Under this new approach, the field's oil production will fall from 800,000 barrels per
day (kbd) in 2014 to 640 kbd by 2020: a 20 percent decrease.
Daqing's oil production has declined relentlessly, despite PetroChina's significant increase
in drilling activity in the field during recent years. This suggests a significant risk that production
could fall faster than planned. For reference, PetroChina drilled 1,975 development wells in 2002
when oil production averaged 1.079 million barrels per day, but was forced to boost this to 4,498
development wells in 2014, when oil output at Daqing averaged 792,000 barrels per day. In short,
the number of development wells drilled increased by nearly 250 percent while oil production fell
by roughly 27 percent."
China's second largest field is Shengli, operated by Sinopec (China Petroleum & Chemical Corp.).
Although Shengli is a mature field (discovered in 1961, developed since 1964), production there
remained relatively stable within a range between 510 and 540 kb/d for many years, thanks to intensive
drilling program.
While Shengli's output was plateauing, Sinopec's other fields in China have delivered impressive
growth, having doubled oil production from around 150 kb/d in 1999 to 310 kb/d in 2014 (see the
chart below).
The growth trend was reversed in 2015, when Sinopec's output in China declined by 4.7% – the
first decline since the company's IPO in 2000. Further decline is expected in 2016.
The quote below is from Bloomberg:
"Sinopec has been maintaining output in its aging oil fields by over-investing and this is
no longer possible in the current oil price environment," said Neil Beveridge, a Hong Kong-based
analyst at Sanford C. Bernstein, who estimates the company needs oil to stay above $50 a barrel
to break even. "We expect Sinopec's domestic oil production to drop 5 percent to 10 percent this
year as it shuts down aging high-cost oil fields."
"Sinopec Shengli Oilfield Co. [Sinopec's subsidiary – AlexS] will shut the Xiaoying, Yihezhuang,
Taoerhe and Qiaozhuang fields to save as much as 130 million yuan ($19.9 million) in operating
costs, the company said in a statement.
The four oilfields are among the least profitable among 70 run by Sinopec Shengli, according to
the statement.
Fu Chengyu, the former chairman of Sinopec, said last year that output at the unit was being cut
"proactively" because of low oil prices."
The speculation surrounding the possibility of an OPEC production cut have
not gone away, despite the comments from Saudi oil minister Ali al-Naimi earlier
this week. Venezuela's oil minister stoked the markets when he
said on Thursday that representatives from Russia, Saudi Arabia, Qatar,
and Venezuela would meet in mid-March to discuss cooperative efforts to stabilize
oil prices.
Oil prices shot up more than 1 percent on the news, but there isn't much
new here to trade on. These countries will move forward with the production
freeze, but that will likely have only a limited effect on the fundamentals
in the short-term. An actual production cut remains a remote possibility for
now.
"... And to add to some of the good points made: Cushing contains only 20% of total US oil storage capacity. Notice they don't mention the fill level of that total: last time I looked it was about 65%. That means 35% of the 450+ MILLION BBL CAPACITY is still empty. ..."
"... The vast majority of oil going into Cushing IS NOT do to a lack of buyers as the import numbers indicate. It's largely do to speculators hoping to take advantage of f increases in future oil prices. The net effect is that these speculation OIL BUYERS are competing with the refiners for domestic production. ..."
"... IOW if we are still importing oil how can there be a glut of domestic oil: the US lacks sufficient oil production to satisfy the demand from the refineries AND speculators. ..."
"... A few more FACTS to offset the "OMG Cushing is filling up" hysteria. First, Cushing is in PADD 2 as they point out. But it isn't the only tank farm in that midwest district: it only holds 60% of that total capacity. ..."
"... OMG: almost 13% of the capacity of storing oil in the US is getting close to being full…what are we going to do??? ..."
"... Maybe they'll just build more storage: since 2011 about 25 million bbl of new storage was added to Cushing and 57 mm bbls added in the Gulf Coast. IOW Cushing would have been completely filled years ago had not SPECULATING INVESTORS not paid for new storage. ..."
"... Agreed, the Cushing stuff is overplayed. It's the tail, not the dog anyways. ..."
"... From all evidences Cushing is flooded with light oils and condensate, waiting for more heavy oils to be blended with, or more orders from the plastics manufacturers. ..."
"... That is probably true because very light crude is only minimally useful to the refineries: ..."
"... It produces almost none of the more profitable end products, like diesel. It also only has a minimal impact on the economy because its energy content is much lower. ..."
"... Its lower energy content also impacts crude prices. The price of oil depends on the strength of the economy, and the strength of the economy depends on oil's ability to power it. Lower energy content oil does less powering, which results in less demand. ..."
"... The specific gravity of a fuel oil is a reflection of its heating value. The heating value is determined primarily by the carbon/hydrogen ratio; as the carbon/hydrogen ratio increases, the specific gravity will increase and the heating value will decrease. Section 3, Figure 3 will give some idea of the effect of the carbon/hydrogen ratio and the various hydrocarbon components on the heating value. The heating value is also decreased by the presence of sulfur. ..."
And to add to some of the good points made: Cushing contains only 20% of total US oil storage
capacity. Notice they don't mention the fill level of that total: last time I looked it was about
65%. That means 35% of the 450+ MILLION BBL CAPACITY is still empty.
And why are we still importing oil: lack of sufficient domestic AVAILABILITY…not production.
The vast majority of oil going into Cushing IS NOT do to a lack of buyers as the import numbers
indicate. It's largely do to speculators hoping to take advantage of f increases in future oil
prices. The net effect is that these speculation OIL BUYERS are competing with the refiners for
domestic production.
Which, again, explains why we still import a huge volume of oil despite the constant and foolish
use of the word "glut". IOW if we are still importing oil how can there be a glut of domestic
oil: the US lacks sufficient oil production to satisfy the demand from the refineries AND speculators.
rockman on Sat, 27th Feb 2016 9:39 am
A few more FACTS to offset the "OMG Cushing is filling up" hysteria. First, Cushing is
in PADD 2 as they point out. But it isn't the only tank farm in that midwest district: it only
holds 60% of that total capacity.
And now compare the 88 mm bbl capacity to the PADD 3 (essentially Texas and LA. where the bulk
of the refineries are) capacity of 260 mm bbls. Between the speculator purchases and the smaller
number of refineries combined with the large volume of Canadian imports seeing Cushing filling
up is no surprise.
And we're just talking about tank farm storage. So again compare the 88 mm bbl capacity at
Cushing to the total storage capacity at US refineries: 179 mm bbls. No: the volume of oil held
at refineries is not part of the total TANK FARM capacity. So how much is the Cushing storage
capacity compared to tank farms + refinery storage: 13%.
OMG: almost 13% of the capacity of storing oil in the US is getting close to being full…what
are we going to do???
Maybe they'll just build more storage: since 2011 about 25 million bbl of new storage was
added to Cushing and 57 mm bbls added in the Gulf Coast. IOW Cushing would have been completely
filled years ago had not SPECULATING INVESTORS not paid for new storage.
Nony on Sat, 27th Feb 2016 12:41 pm
Agreed, the Cushing stuff is overplayed. It's the tail, not the dog anyways.
Oil us up several dollars over the last couple weeks (26 to 33). And the contango has shrunk
(prompt/spot up more than 1 year out). Both of these are factors that argue we are not in a storage
crisis, that the glut is easing.
Note: 33 is still WAY less than 100. And the long term strip has dropped significantly also
So we have had a radical change in the market since JUL2014. But current indications (even just
the contango itself) argue that future oil prices will be higher than current, rather than lower.
Of course there is a probability spread of outcomes and the US EIA STEO price funnel diagram
shows that prices could be higher or lower over next few years. So future price drops are still
reasonably possible (above 5% likelihood), although not likely (below 50% chance).
farmlad on Sat, 27th Feb 2016 2:02 pm
From all evidences Cushing is flooded with light oils and condensate, waiting for more
heavy oils to be blended with, or more orders from the plastics manufacturers.
Apneaman on Sat, 27th Feb 2016 4:02 pm
Short sellers hitting energy at near-crisis levels
It produces almost none of the more profitable end products, like diesel. It also only
has a minimal impact on the economy because its energy content is much lower.
Its lower energy content also impacts crude prices. The price of oil depends on the strength
of the economy, and the strength of the economy depends on oil's ability to power it. Lower energy
content oil does less powering, which results in less demand.
IFuckYouOver on Sat, 27th Feb 2016 4:59 pm
Short of a chemical analysis of what is in there, we cannot interpret these data properly
The specific gravity of a fuel oil is a reflection of its heating value. The heating value
is determined primarily by the carbon/hydrogen ratio; as the carbon/hydrogen ratio increases,
the specific gravity will increase and the heating value will decrease. Section 3, Figure 3 will
give some idea of the effect of the carbon/hydrogen ratio and the various hydrocarbon components
on the heating value. The heating value is also decreased by the presence of sulfur.
The heat contained in a fuel, or its heating value (BTU/lb), is primarily affected by
changes in a specific (or API) gravity and its sulfur content in percent by weight.
As the gravity of the oil increases, the ratio of carbon to hydrogen increases, as well as
the sulfur content. The result is that there is less hydrogen with its high heating value available
per pound, and a consequent decrease in heat released during combustion. From a performance viewpoint,
this change in heat content is indicated by an increased brake specific fuel rate in pounds per
brake horsepower-hour and, to a very slight degree, by a decrease in overall engine efficiency,
as more fuel with a lower heat content must be burned for a fixed power output.
"... Despite all the talk of technology, etc, the real measure of any business is an accurate measure of its future cash flows, and then application of an appropriate discount rate to those future cash flows, minus the debt. ..."
"... EOG reported long term debt of $6.654 billion. Production fell from 2014 to 2015. Go to shale profile.com and look at their Bakken and Niobrara production drops. Soon Enno will have the Eagle Ford shale up, we can look at that to. ..."
"... In my opinion, EOG released this presser because at current oil and gas prices, their assets have no value, absent even more cuts to production and development costs, which to me seem improbable. Even more cuts probably don't get them to the ability to pay back debt, especially as the above cash flow calculations DO NOT include general and administrative expenses, nor debt interest expense. ..."
"... I really hope readers will take the time to read this post. EOG is about the best shale company out there IMO. Yet, their assets cannot produce future net cash flows over their expected lives, in aggregate, at current oil and gas prices, without even further cost cutting. Even another 25% of cost cuts doesn't get them close to servicing debt. ..."
"... Also, for the oil traders out there, knowing that EOG is likely a more effective cost producer out there than over half of worldwide production, why don't you explain to me the current futures strip? ..."
For EOG, $40 is becoming the new $70. This morning, the company discussed a new strategy
to make unconventional oil development in US plays like the Eagle Ford and the Permian Basin
competitive on a global scale at current oil prices. Specifically, EOG has identified a decade
of premium unconventional oil drilling inventory that will generate double digit returns at
$30 oil.
Backed into a corner by lower cost producers in a global price war, EOG essentially just
yelled a battle cry at OPEC on behalf of US shale, implying they will make unconventional oil
just as cost effective as OPEC barrels.
EOG Resources is light years ahead of its peers in shale science and acreage quality, and
its ambitions may not be repeatable industry-wide, although others will certainly try. EOG
is to shale what Saudi is to OPEC - uniquely advantaged relative to other peers/members.
Friday morning, EOG Resources CEO Bill Thomas launched a new "premium location" concept,
which is essentially next level high-grading (focusing on the core of the core). Thomas's plan
aspires to make shale work in the new oil price paradigm, and competitive in the new world
oil market.
I have not had time to read it all, but have fun. I am sure the comments will be worth a read.
Toolpush. I read that on Oilpro. It is a head scratcher, as I thought I read Bill Thomas had earlier
said they need $80 oil to have a good business. He is EOG's CEO.
Despite all the talk of
technology, etc, the real measure of any business is an accurate measure of its future cash flows,
and then application of an appropriate discount rate to those future cash flows, minus the debt.
EOG, like all other oil and gas producers, is required to disclose estimates of future cash
flows in their annual 10K reports. They employ an independent engineering firm for this purpose.
Here is what they disclosed effective 12/31/14
Future cash inflows:$146.950 billion.
Future production costs:$51.633 billion
Future development costs$20.495 billion
Future income taxes: $20.495 billion
Future net cash flows:$51.636 billion
Future net cash flows discounted to PV10:$27.923 billion
Here is what they disclosed effective 12/31/15
Future cash inflows:$68.720 billion
Future production costs:$32.061 billion
Future development costs:$15.786 billion
Future income taxes $4.616 billion
Future net cash flows $16.258 billion
Future net cash flows discounted to PV10: $9.621 billion
Now, here is what happens to EOG reported numbers as of 12/31/15 if we drop their cash inflows
by another 1/3, which is where prices are today:
Future cash inflows:$45.814 billion
Future production costs:$32.061 billion
Future development costs:$15.786 billion
Future net cash flows:-$2.032 billion.
EOG reported long term debt of $6.654 billion. Production fell from 2014 to 2015. Go to
shale profile.com and look at their Bakken and Niobrara production drops. Soon Enno will have
the Eagle Ford shale up, we can look at that to.
In my opinion, EOG released this presser because at current oil and gas prices, their assets
have no value, absent even more cuts to production and development costs, which to me seem improbable.
Even more cuts probably don't get them to the ability to pay back debt, especially as the above
cash flow calculations DO NOT include general and administrative expenses, nor debt interest expense.
I really hope readers will take the time to read this post. EOG is about the best shale
company out there IMO. Yet, their assets cannot produce future net cash flows over their expected
lives, in aggregate, at current oil and gas prices, without even further cost cutting. Even another
25% of cost cuts doesn't get them close to servicing debt.
I ask anyone to tell me what I am missing. If there are any business media out there, please
look this over and then report on it. Look at other major independents such as ConocoPhillips,
Anadarko, Marathon, Chesapeake, Occidental, etc. I am sure that, with the possible exception of
OXY, they are worse.
Also, for the oil traders out there, knowing that EOG is likely a more effective cost producer
out there than over half of worldwide production, why don't you explain to me the current futures
strip?
"... My understanding is that California oil production is characterized by a large number of shallow wells producing small amounts of oil each. Also, many of these advanced fields have been under water flood or steam flood for quite a while. ..."
"... If $30 oil lasts very long, I would think that the decline rate could be as high as 3 percent a month due to high shut-ins and abandonment. I think a somewhat higher price would slow the decline a lot, as you would see normal depletion but would not see wholesale abandonment. ..."
"... USA and international have other similar mature fields with large numbers of wells producing small amounts of oil each. If a number of these fields start seeing a high rate of shut-in and abandonment, there will be substantial declines. ..."
"... From what Ive seen, most production projections seem to be focused on the shale and offshore declines. I think we may see a higher than expected decline in these old fields. The Bakken has become the leading indicator of shale, and California may become the best indicator of how these post mature fields respond. ..."
"... We have shut in quite a bit. Some places around here are pretty bad. One little field I go by sometimes had only one well pumping out of over 20. They all were on in 2014 and prior. ..."
"... The first leg there were 16 producing and 14 idle. The second leg there were 21 producing and 41 idle. Some of the idle ones may be on timers, and I dont have a baseline to compare. Nevertheless, it seems like a lot of idle wells. This is in Kansas, lots of low volume wells. Also, significant differentials. Prices were down to $16 but have moved back to $22-23. ..."
"... Quote from CEO: The other operational point I will make surrounds work overs. We routinely repair our wells across our entire portfolio and based on todays price environment, if a well goes down, we may leave it off a little while because spending money on repair isnt economically justifiable. Accordingly we expect to lose some wells in 2016, predicting that number of wells is nearly impossible ..."
Shallow, I know you have been looking at info on conventional declines as well as shale. California
is the number 3 producing state. According to their weekly notice summaries, they haven;t issued
a drilling permit in the last 3 weeks, and only 41 in 2016. Permits to abandon are now at 246
in 2016. Baker Hughes has them down to 6 rigs. It will be interesting to see how their production
declines, although they are slow to report.
dclonghorn. I am sure CA will decline. California Resources Corporation (the OXY spinoff) is in dire straits. Breitburn is also in dire straits, they are a significant CA producer. They didn't answer questions
on their conference call. I really don't blame them, what is there to say?
Agreed, they will decline. How rapidly they decline is a big question to me. My understanding
is that California oil production is characterized by a large number of shallow wells producing
small amounts of oil each. Also, many of these advanced fields have been under water flood or
steam flood for quite a while.
If $30 oil lasts very long, I would think that the decline rate could be as high as 3 percent
a month due to high shut-ins and abandonment. I think a somewhat higher price would slow the decline
a lot, as you would see normal depletion but would not see wholesale abandonment.
USA and international have other similar mature fields with large numbers of wells producing
small amounts of oil each. If a number of these fields start seeing a high rate of shut-in and
abandonment, there will be substantial declines.
From what I've seen, most production projections seem to be focused on the shale and offshore
declines. I think we may see a higher than expected decline in these old fields. The Bakken has
become the leading indicator of shale, and California may become the best indicator of how these
post mature fields respond.
If I am not mistaken, Denbury, Legacy Reserves and Breitburn all reported in conference calls
they that have shut in not an insignificant amount of oil production.
We have shut in quite a bit. Some places around here are pretty bad. One little field I go
by sometimes had only one well pumping out of over 20. They all were on in 2014 and prior.
I did some deliveries yesterday. I've recently been counting producing and idle pumps. The first
leg there were 16 producing and 14 idle. The second leg there were 21 producing and 41 idle. Some
of the idle ones may be on timers, and I don't have a baseline to compare. Nevertheless, it seems
like a lot of idle wells. This is in Kansas, lots of low volume wells. Also, significant differentials.
Prices were down to $16 but have moved back to $22-23.
Denbury press release. 2015 production, 72,861 boepd, down 2% from 2014. Q4 shut in 1,700 boepd.
Forecast 2016 64-68K boepd.
Breitburn. 55.3K boepd in 2015. Guidance 46.5-54K boepd. Shut in 650 boepd Q4 2015.
Legacy Reserves. 2015 45,135 boepd. No 2016 guidance.
Quote from CEO: "The other operational point I will make surrounds work overs. We routinely repair our wells
across our entire portfolio and based on today's price environment, if a well goes down, we may
leave it off a little while because spending money on repair isn't economically justifiable. Accordingly
we expect to lose some wells in 2016, predicting that number of wells is nearly impossible"
Man, this stuff isn't good at all. I have nothing against these guys, they are in the same
boat as us, just have debt because they grew a lot prior to 2015.
"... Those bonds must be cumulative mustnt they – i.e. rolled over each year. Otherwise that is about $1.3 trillion total. At (say) 5,000,000 bpd for 7 years at as high as $100 per barrel the companies would only be getting $1.25 trillion total. Or am I missing something. ..."
"... ….Credit analysts at UBS say there are $1.2 trillion outstanding in loans to the U.S. oil industry! A third of this debt is owed by exploration and production companies. And UBS predicts the default rate on these loans could end up being in the low-teens….. ..."
"... I think $1.2 trillion is total debt owed by the US oil and gas industry, not just loans. 1/3 of $1.2 trillion = $400 billion owed by the E P companies. This includes bonds and bank loans. Bonds include junk bonds and investment grade bonds. So $260 billion in junk bonds is the right number. ..."
Those bonds must be cumulative mustn't they – i.e. rolled over each year. Otherwise that is about
$1.3 trillion total. At (say) 5,000,000 bpd for 7 years at as high as $100 per barrel the companies
would only be getting $1.25 trillion total. Or am I missing something.
I'm going to predict a lot of bankruptcies in late 2017 as oil prices start to rise because the
lender's will suddenly see a lot more money in taking over the resource base than by keeping the
bond's rolling over.
….Credit analysts at UBS say there are $1.2 trillion outstanding in loans to the U.S. oil industry!
A third of this debt is owed by exploration and production companies. And UBS predicts the default
rate on these loans could end up being in the low-teens…..
The oil industry also includes pipelines and infrastructure, refineries ……
In the above diagram it is also clearly stated:
The amount of bonds US energy companies below investment grade need to pay back each year….
So, it is clear that the total amount of debt maturing over the next 7 years stands at 1.2
trillion.
"Credit analysts at UBS say there are $1.2 trillion outstanding in loans to the U.S. oil industry!
A third of this debt is owed by exploration and production companies"
I think $1.2 trillion is total debt owed by the US oil and gas industry, not just loans.
1/3 of $1.2 trillion = $400 billion owed by the E&P companies.
This includes bonds and bank loans.
Bonds include junk bonds and investment grade bonds.
So $260 billion in junk bonds is the right number.
Besides, I have seen in various sources a similar number
Heinrich – I think I agree with Alex. The caption is wrong in the "per year" bit, but correct
in "below investment grade" – that is junk, which is not the total debt to the oil industry by
a long way (let's hope).
"... Credit analysts at UBS say there are $1.2 trillion outstanding in loans to the U.S. oil industry! A third of this debt is owed by exploration and production companies. And UBS predicts the default rate on these loans could end up being in the low-teens. ..."
"... Fitch, a credit rating agency, said actual defaults should have begun happening nine to 12 months after oil prices started to fall. ..."
Credit analysts at UBS say there are $1.2 trillion outstanding in loans to the U.S. oil industry!
A third of this debt is owed by exploration and production companies. And UBS predicts the default
rate on these loans could end up being in the low-teens.
The latest survey of bank loan officers by the Federal Reserve found there is a higher expectation
that shale firms will have trouble meeting the terms of the loans. The survey also found that banks
were cutting credit lines to energy companies and asking shale firms for more collateral.
Fitch, a credit rating agency, said actual defaults should have begun happening nine to 12
months after oil prices started to fall.
But, judging by the stock performances of most of the companies involved, everything is great.
Why has nothing happened yet?
The answer is hedges. Many shale oil firms hedged their production this year. Chesapeake Energy (CHK),
for example, will have $1.2 billion added to its cash flow this year thanks to hedges on its production. But this protection declines and even disappears entirely in 2016 for some companies, leaving
them wide open to finally be hurt by low oil and gas prices.
Plus, companies can't add any more hedges at this late date because, in most cases, it would be
too costly.
Maybe that's why companies
targeted by David Einhorn as vulnerable, such as EOG and Pioneer, are so anxious to increase
their production as soon as possible. They need to generate cash.
"... Einhorn called much of the industry "frack addicts" who were wasting money on wells that'll never pay off. He said some companies are currently getting a negative return on their invested capital. And that, in some cases, that was true even when oil was trading at $100 per barrel! ..."
"... Since 2006, the U.S. oil exploration and production industry has spent $80 billion more in capital than it made selling oil. Einhorn says companies were only kept alive by the constant inflows of capital from bankers (also known as loans) and investors alike. ..."
"... Moody's said its LSI (Liquidity Stress Index) for these companies more than doubled in March to 9.8% from 4.4%. But keep in mind, this Index hit 26% in March 2009 when oil prices plunged due to the financial crisis. ..."
In November 2007, the relatively unknown hedge fund manager David Einhorn raised major concerns about
the accounting at Lehman Brothers. It led him to bet against the company, and short the stock.
No one paid much attention… until Lehman Brothers collapsed. Einhorn's reputation was made, and his firm, Greenlight Capital, became one of
the hedge
funds to watch. Now, Einhorn has found another prominent target: the frackers,
U.S.-based oil exploration and production (E&P) companies.
Zeroing In
Einhorn called much of the industry "frack addicts" who were wasting money on wells that'll never
pay off. He said some companies are currently getting a negative return on their invested capital. And
that, in some cases, that was true even when oil was trading at $100 per barrel!
Einhorn added, "When someone doesn't want you to look at traditional (financial) metrics, it is
a good time to look at traditional metrics." By "someone," he means exploration and production companies.
Einhorn dislikes how these firms report their earnings through methods like EBITDAX, which means
earnings before interest, taxes, depreciation, amortization, and exploration expenses. He said this
measure "stands for earnings before a lot of stuff." In particular, Einhorn targeted five companies:
Pioneer Natural Resources (PXD),
EOG Resources (EOG),
Continental Resources (CLR),
Whiting Petroleum (WLL),
and Concho Resources (CXO). Pioneer seems to be his No. 1 target, since he dubbed it "the motherfracker." "A business that burns cash and doesn't grow isn't worth anything," said Einhorn about Pioneer.
Instead, Einhorn encouraged investors to focus on cash as a guide to the health of the industry.
Since 2006, the U.S. oil exploration and production industry has spent $80 billion more in capital
than it made selling oil. Einhorn says companies were only kept alive by the constant inflows of
capital from bankers (also known as loans) and investors alike.
David Einhorn is a well-known poker player. (He won $4.4 million at the 2012 World Series
of Poker tournament.) But is he bluffing here?
On the Money, Sort Of
There is no denying the massive cash burn of these E&P companies. Many of them have debt problems,
which I have spoken about
before.
Moody's said its LSI (Liquidity Stress Index) for these companies more than doubled in March to
9.8% from 4.4%. But keep in mind, this Index hit 26% in March 2009 when oil prices plunged due to
the financial crisis.
This year Chesapeake's
stock market valuation has
suffered phenomenally. A year ago it was around $20 billion. By mid-February this year, it was around
$1 billion, and had been trading at under $2 a share until Wednesday, having shed more than $18 per
share over last year.
This has sparked fears that Chesapeake
was facing bankruptcy, but those fears seem to have been allayed if the 23 percent share price
jump is any indication. But the company still has $500 million in debt that is coming due in March-and
this is where the asset sale to FourPoint comes in handy.
There has been much investor concern about whether Chesapeake would be able to cover its debts
with planned asset sales and bond repurchasing. The plan was to purchase $240 million of the 3.25
percent senior notes due in March at discount rates,
according to Bloomberg. The news agency also noted that Chesapeake had been buying up bonds that
mature next year for 45 percent less than their value. The markets responded positively, but not
all analysts agree.
"We still believe it is burdened by too much leverage and by legacy transportation agreements,
and that if the strip (prices) were to hold true, that the stock has no equity value,"
Doug Leggate, a Bank of America Merill Lynch analyst,
wrote on Wednesday.
"... By Irina Shav, a writer for the U.S.-based Divergente LLC consulting firm with over a decade of experience writing on the oil and gas industry. Originally published at OilPrice ..."
"... nearly 35 percent of pure-play E P companies listed worldwide, or about 175 companies, are in the high risk quadrant, Deloitte noted, adding that the situation is precarious for 50 of these companies due to negative equity or leverage ratio above 100. ..."
"... More than 80 percent of U.S. E P companies who filed for bankruptcy since July 2014 are still operating (Chapter 11) under the control of lenders or the supervision of bankruptcy judges, according to Deloitte. ..."
"... However, the majority of these Chapter 11 debt restructuring plans were approved by lenders in early 2015, when oil prices were $55-60/bbl. Since then, prices have fallen to $30/bbl, and hedges at favorable prices have largely expired, making it tough for existing Chapter 11 bankruptcy filers to meet lenders earlier stipulations and increasing the probability of US E P company bankruptcies surpassing the Great Recession levels in 2016. ..."
"... According to AlixPartners, these debts totaled $353 billion for U.S. and Canadian energy companies at end-2015. To compare, Deloitte puts the combined debt of those 175 bankruptcy-threatened companies at more than $150 billion, nearly half of the total for US and Canada. ..."
"... Then there are the banks, which used to have a soft spot for energy companies when oil was selling for over $100 a barrel. Now that it is hovering around $30, the soft spot is gone and lenders are trimming their energy investment portfolios. ..."
"... Cost for shale oil production $15 a barrel? Thats roughly the cost of pumping light sweet crude in Saudi Arabia, the lowest cost producer out there. Sounds like nonsense to me. ..."
"... Consolidation likely, but only after bankruptcy. Which banks are most at risk? ..."
"... Secondary indirect effects are also of concern. Related exposures of the TBTFs and large shadow banks to the oil and gas sector, including derivatives, are opaque. Couple these developments with volatile price fluctuations in major currencies, declining prices of many other commodities, and the interconnected nature of these systemically important financial institutions, and one hopes their risk management and internal controls are adequate. ..."
"... In the good old days the Texas Railroad Commission set world oil prices. Now its being done by players that are solely focused on their own self interests and players that are very short sighted. ..."
"... President Obama wants an oil tax, then give him one. Impose a windfall tax on imported oil at $60 a barrel. This will cause higher gasoline prices now, but will forestall much higher gasoline prices in the future. ..."
"... Some of this misery, is self inflicted along with the complicit of Fed encouraging animal spirits of wildcatters with cheap credit expansion since 09! Lot of mal-investments are made all over just like in China. Karma is getting back its bite! ..."
"... The U.S. shale boom was fueled by junk debt. Companies spent more on drilling than they earned selling oil and gas, plugging the difference with other peoples money. Drillers piled up a staggering $237 billion of borrowings at the end of September, according to data compiled on the 61 companies in the Bloomberg Intelligence index of North American independent oil and gas producers. U.S. crude production soared to its highest in more than three decades… ..."
"... actually the undesirable aspects of fracking have been IGNORED, until now when it may affect the wealthy and the banks…we utilize products and transportation that is heavy on petroleum because that make banks and oligarchs a lot of money, and theyll kill public transportation to get moar. ..."
"... trees dont grow to the sky. There is a maximum volume of humans that the planet will tolerate, and we seem to be fixated on finding out what that number is. ..."
By Irina Shav, a writer for the U.S.-based Divergente LLC consulting firm with over
a decade of experience writing on the oil and gas industry. Originally published at
OilPrice
More than one-third of public oil companies globally face bankruptcy, according to a new Deloitte
report that paints a fairly gloomy picture of the U.S. shale patch as it struggles to survive under
mountains of debt.
The Deloitte report -the first high-profile report on the current financial situation of global
oil and gas companies-surveyed 500 companies and found that 175 are facing "a combination of high
leverage and low debt service coverage ratios".
"[…] nearly 35 percent of pure-play E&P companies listed worldwide, or about 175 companies,
are in the high risk quadrant," Deloitte noted, adding that the situation is "precarious" for 50
of these companies due to negative equity or leverage ratio above 100.
"Stock prices of some of these has already dipped below $5, making them penny stocks. The probability
of these companies slipping into bankruptcy is high in 2016, unless oil prices recover sharply, a
large part of their debt is converted into equity, or big investors infuse liquidity into these companies."
Reports about the growing numbers of bankruptcies among U.S. shale producers
aren't new, but the Deloitte findings reinforce the picture.
"More than 80 percent of U.S. E&P companies who filed for bankruptcy since July 2014 are still
operating (Chapter 11) under the control of lenders or the supervision of bankruptcy judges," according
to Deloitte.
"However, the majority of these Chapter 11 debt restructuring plans were approved by lenders in
early 2015, when oil prices were $55-60/bbl. Since then, prices have fallen to $30/bbl, and hedges
at favorable prices have largely expired, making it tough for existing Chapter 11 bankruptcy filers
to meet lenders' earlier stipulations and increasing the probability of US E&P company bankruptcies
surpassing the Great Recession levels in 2016."
Shale producers amassed huge debts that they are now struggling to service in the oil price downturn.
According to AlixPartners, these
debts totaled $353 billion for U.S. and Canadian energy companies at end-2015. To compare, Deloitte
puts the combined debt of those 175 bankruptcy-threatened companies at more than $150 billion, nearly
half of the total for US and Canada.
That's a lot of debt that needs servicing or restructuring. Unfortunately, things in the industry
are so bad that the usual solutions don't work as effectively as they normally would. For starters,
demand for E&P assets is at best moderate. Then there are the banks, which used to have a soft spot
for energy companies when oil was selling for over $100 a barrel. Now that it is hovering around
$30, the soft spot is gone and lenders are trimming their energy investment portfolios.
Private equity firms are one alternative source of finance for the troubled industry players.
Deep capex cuts are another. The efficiency of both options, however, is questionable. Banks, the
IEA, and the IMF have warned that oil prices could reach $20. Iran is back on the international market
and planning to raise
production to pre-sanction levels (around 4 million bpd in 2011.). The world's number one and
two producers, Russia and Saudi Arabia, have made a deal to freeze output at current levels, but
these levels are record-highs for both countries, so a freeze is unlikely to take care of the glut
quickly enough. And it's not going to happen anyway.
All this spells doom for that unfortunate one-third of producers. There is one alternative to
bankruptcy-sector consolidation-although the problems with consolidation are similar to the problems
with asset sales. Few energy companies are in a position to make acquisitions right now.
What's left? Continuing the optimization of everyday operations. Operating efficiencies are constantly
being improved, mainly in the shale patch but also outside it. Costs for 95 percent of U.S. output
have fallen below $15 a barrel, says Deloitte. It seems all that is left for the troubled E&Ps is
to continue pumping and keep hoping the storm will eventually subside. Not a fascinating prospect,
by all means, but the most realistic one.
Cost for shale oil production $15 a barrel? That's roughly the cost of pumping light sweet
crude in Saudi Arabia, the lowest cost producer out there. Sounds like nonsense to me.
They are waiting for the big bailout after the election, just like the S&L crooks, but this
time without 600 of them going to jail and the rest taking the haircut of the century.
I'm wondering what the impact on these new nat gas terminals will be with a decimated fracking
industry. I got a laugh out of NBR last night, they said it was good news that less inventory
came into storage last month, um when the tank is full you can't put any more in there……
I agree
with you that oil won't go to zero, one of the industry analysts referenced the Deloitte report
and based on it called the bottom 18. Cheapest gas in sd 2.29, most expensive by airport 3.49!
Also, I don't see Iran not putting their oil on the market, they need the dough, too
Most likely. And because the drilling, fracking and exploring was debt financed the producers
have to keep pumping as long as the price is above their marginal cost because they have to make
those monthly payments. So all these debt financed drillers are going to flood the market trying
to stay solvent until they all go bust.
Since the fossil fuel industry are big backers of the Republicans, this should present an opening
to the Democrats to do something significant about global warming. If they actually gave a damn
and weren't in the tank themselves.
Secondary indirect effects are also of concern. Related exposures of the TBTFs and large shadow
banks to the oil and gas sector, including derivatives, are opaque. Couple these developments
with volatile price fluctuations in major currencies, declining prices of many other commodities,
and the interconnected nature of these systemically important financial institutions, and one
hopes their risk management and internal controls are adequate.
The $15 per barrel operating cost doesn't matter, even if it is true – the core analysis is
the decline curve for Shale is very steep – more than 90% decline after 40 months – by the time
the price recovers the active reserve assets remaining – no matter what the asset discount for
bankruptcy – leaves little for a prize. Once these wells are put on a pump the deeper the well
the more operating cost with low volumes to cover the cost.
The losses will be catastrophic to include the banks.
In 86′ oil went from $42 at the top to $9.60 / Bbl. at the bottom – the see thru buildings
from Tulsa to Houston lasted for a long time since there were no tenants for the space – even
the law firms went off the air --
The problem in this current situation is that we are a capitalistic country trying to function
in a cartel world. In the good old days the Texas Railroad Commission set world oil prices. Now
it's being done by players that are solely focused on their own self interests and players that
are very short sighted.
OPEC tripled the price of oil between 2000 and 2010. They then held the price level. The marginal
price for oil was low and the additional portion of the price was essentially a kicker for their
government revenues. The problem was they got too greedy and set the price too high (had they
set the world price at $85 instead of $100, we likely would have avoided the latest boom/bust
cycle).
The capitalistic market saw these high prices and realized that they could make money at the
prices that OPEC was charging the market. In other words, the marginal cost for new oil prospects
was less than the artificial press levels that OPEC was setting. The result was predictable, though
partly driven by technology and fracking.
Marginal players, like the oil sands and deep and remote large scale oil and gas projects were
put into motion. The oil shale players were also put into motion, and they added about 3 million
barrels of oil per day out of about 92 million bopd. Other players, like Iraq also increased their
production.
When OPEC started feeling squeezed, they threw the kitchen wrench in and tried to hurt all
the other players in the market. In economics, this behavior is often either referred to as "dumping"
or "predatory pricing".
So, our domestic oil and gas production industry, to include a lot of US manufacturing jobs,
is being directly attacked by foreign countries that are trying to hurt our U.S. industry so they
can jack world prices up to higher levels.
So, those of you that are reveling in the current tough circumstances of our oil and gas industry
at these price levels, please realize a few things.
(1) OPEC really wants prices back at the high levels they have enjoyed recently. These low prices
will not last.
(2) OPEC has already managed to disrupt the longer term pipeline of oil projects – meaning that
the future oil supply over the next five years will be less than it would have been – which will
likely have a negative impact on world GDP.
(3) Our oil industry has made great strides in lowering costs and making unconventional oil shale
projects more competitive.
(4) Our government has done very little to support our cause of maintaining U.S. oil production.
We currently produce about 9 million barrels a day (down from about 9.5 million bopd recently)
at a time when we consume 19 million bopd as a country. While these extra imports we're now being
asked to cough up are cheap now, they will not be so cheap when OPEC jacks world oil prices higher
again.
Here's how we can fight back. President Obama wants an oil tax, then give him one. Impose a
windfall tax on imported oil at $60 a barrel. This will cause higher gasoline prices now, but
will forestall much higher gasoline prices in the future. Domestic producers will immediately
get a $60 oil price for their output. This will stop the Saudi's and Russians from being able
to deliberately destroy an industry in our country and allow us to create some employment stability
for a home grown industrial sector. The additional production in the U.S. will also make it more
difficult for OPEC to screw us later when oil prices soar again.
Some of this misery, is self inflicted along with the complicit of Fed encouraging animal spirits
of 'wildcatters' with cheap credit expansion since '09! Lot of mal-investments are made all over
just like in China. Karma is getting back it's bite!
Debt-Fueled Boom
The U.S. shale boom was fueled by junk debt. Companies spent more on drilling than they earned
selling oil and gas, plugging the difference with other peoples' money. Drillers piled up a staggering
$237 billion of borrowings at the end of September, according to data compiled on the 61 companies
in the Bloomberg Intelligence index of North American independent oil and gas producers. U.S.
crude production soared to its highest in more than three decades…
to paraphrase B. Dylan; 'who don't we all throw stones'
Everybody doin their 2 minute hate… am I right ??…………we're all stuck in this energy quagmire,…and
yes, the undesirable effects of fracking are now being felt, but we all utilize products or transportation
that relies on petroleum, like it or not !! Getting away from that energy source basically means
living a much reduced lifestyle !! who's willing to give up even, say 50%, of their energy usage
to eliminate petroleum use completely, because wind and solar currently do not scale, if they
ever will !!
actually the undesirable aspects of fracking have been IGNORED, until now when it may affect
the wealthy and the banks…we utilize products and transportation that is heavy on petroleum because
that make banks and oligarchs a lot of money, and they'll kill public transportation to get moar.
I do not plan to have another car and the GFC reduced my consumption significantly, probably more
than 50% because my truck was a '56 GMC half ton, and rather than the ACA I just plan to go die
when the time comes, and live the best life I can until then.
trees don't grow to the sky. There is a maximum volume of humans that the planet will tolerate,
and we seem to be fixated on finding out what that number is.
…and not to be too much in your face sorry but it's probably easy to knock off 50% of petroleum
usage in the same way that I have for most people, and I agree petroleum serves a mighty purpose
in our situation as it is
Actions of the company in cutting drilling and capex contradict rozy projections
Notable quotes:
"... Specifically, EOG has identified a decade of premium unconventional oil drilling inventory that will generate double digit returns at $30 oil. ..."
"... EOG expects to complete approximately 270 net wells in 2016, compared to 470 net wells in 2015, with total company crude oil production expected to decline only 5 percent versus 2015. ..."
"... For 2 yrs in a row, EOG has now cut its capital budget by more than 40%. 2016 spending will be $2.4-$2.6bn, down 45% to 50% year-over-year. ..."
"... EOG wont be fooled again by a temporary oil price uptick like in spring-2015, so the company plans to wait on any activity increase until it is convinced any future increase in oil price is sustainable. ..."
For EOG, $40 is becoming the new $70. This morning, the company discussed a new strategy to make
unconventional oil development in US plays like the Eagle Ford and the Permian Basin competitive
on a global scale at current oil prices. Specifically, EOG has identified a decade of premium unconventional
oil drilling inventory that will generate double digit returns at $30 oil.
Backed into a corner
by lower cost producers in a global price war, EOG essentially just yelled a battle cry at OPEC on
behalf of US shale, implying they will make unconventional oil just as cost effective as OPEC barrels.
EOG Resources is light years ahead of its peers in shale science and acreage quality, and its
ambitions may not be repeatable industry-wide, although others will certainly try. EOG is to shale
what Saudi is to OPEC - uniquely advantaged relative to other peers/members.
... ... ...
EOG has identified more than 2 billion barrels of oil equivalent resource, and over a decade
of drilling inventory (3,200 wells) that can generate returns of 10% at $30 oil, 30%+ at $40 oil,
and 100%+ at $60 oil. The company is shifting into premium drilling mode, concentrating on the
core-of-the-core in top plays.
... ... ...
In addition to the new strategy, some key takeaways from EOG's 2016 plan:
EOG expects to complete approximately 270 net wells in 2016, compared to 470 net wells
in 2015, with total company crude oil production expected to decline only 5 percent versus 2015.
For 2 yrs in a row, EOG has now cut its capital budget by more than 40%. 2016 spending
will be $2.4-$2.6bn, down 45% to 50% year-over-year.
Non-premium inventory is still high quality. A large portion will be converted to premium
through technology over time. What can't be converted will be part of property sales or trades.
EOG is delaying the work schedule on some frac spreads from 7 to 5 days a week in order to
maintain more fleets so they will have the ability to ramp in the future.
EOG won't be fooled again by a temporary oil price uptick like in spring-2015, so the
company plans to wait on any activity increase until it is convinced any future increase in oil
price is sustainable.
"... Despite all the Chinese slowdown talk, China is importing commodities at a record pace (see below the chart for natgas imports, which increased by over 100% year over year). ..."
Despite all the Chinese slowdown talk, China is importing commodities at a record
pace (see below the chart for natgas imports, which increased by over 100% year over year).
Although 6 bcf/d (or 1 mill boe/d) of natural gas imports are much lower than the 7 mill b/d
oil imports, the impressive growth rate reveals there is much room for future growth for natgas
exports here.
The main question remains if the US can produce enough natgas at low costs. 9 bcf/d is nearly
15% of US production. The US is currently still a net importer of natgas.
Per Baker Hughes, there are 45 onshore rigs drilling vertical wells in the lower 48, 44 oil and
1 gas.
Conventional onshore lower 48 oil and gas is dying.
It would be very interesting to me if we knew where those wells were being drilled.
It would also be interesting to me to get some idea of how many conventional oil and gas wells
have been shut in in the USA.
Wonder why, in this era of big data, no one is trying to gather that? Or maybe they are, and
aren't sharing? Genscape comes to mind.
There are an ever growing number of wells shut down where we are. A big jump since 1/1/16.
I know Wood Mac says little shut in, but when was that and where did they look? I know we are
high cost, so maybe its just us?
I suppose US conventional is so small, 2 million or so, that a percentage of it being shut
in is no big deal?
"... In any event. the idea that oil and natural gas will stay below $50 and $2.50 does not appear to be possible in my view. without one of the following: (1) substantially increased worldwide oil production; (2) substantially decreased worldwide oil demand. ..."
"... I think Ron has shown that 1. will be very difficult, he would say impossible. ..."
There are still a few relevant 10K's to be release by E & P companies for 2015.
However, thought
I would share some aggregate numbers from some large US E & P's. Keep in mind that these companies
mostly have overseas operations, and I am finding that the numbers with regard to PV10 are much
better for those assets than for US assets.
Anadarko, ConocoPhillips, Occidental Petroleum, EOG, Marathon Oil and Chesapeake account for
over 4 million BOE.
Ending 12/31/2015, total long term debt for these companies was $70.338 billion dollars.
Ending 12/31/2015, standard measure PV10 for these companies was $67.205 billion dollars, using
WTI of $50.28 and HH of $2.58.
In looking at smaller companies, I am finding that the majority have lower standard measure
PV10 than long term debt, and the few that are higher are barely.
Thus, preliminarily, it appears that the present value of future cash flows for US non-integrated
public oil and gas companies, discounted to 10% is less, in aggregate, than aggregate long term
debt for these companies, at $50.28 WTI and $2.58 HH.
Finally, given we are significantly lower on both WTI, and HH at present, I will note a few
companies have disclosed PV10 at lower price points. It appears to me that PV10 drops by about
50% at $30 WTI and $1.75 HH.
One can argue that in this low interest rate environment, PV10 is too high, we should use a
lower discount rate, which would push the values higher. I can see merit in that argument. However,
given the distress in the debt markets, E & P debt requires a very high premium to US Treasuries
in most instances.
In any event. the idea that oil and natural gas will stay below $50 and $2.50 does not
appear to be possible in my view. without one of the following: (1) substantially increased
worldwide oil production; (2) substantially decreased worldwide oil demand.
I think Ron has shown that 1. will be very difficult, he would say impossible.
So far, since 2005, world oil demand has only fallen one time year over year. That was 2008-2009.
Oil and natural gas prices have overshot, IMO, but the market can stay irrational much longer
than most can stay solvent.
Perhaps Moody's is reading your posts carefully here at POB. Here is a link to a Bloomberg
article that discusses Credit down grades for Exxon, ChevronTexaco,Marathon and ConocoPhillips.
Some (albeit vague) support for a growing day-by-day "glut deniers" movement :-) . The newer
part of the the argument revolves on fixed ratio of gasoline to distillate in refining process.
Which supposedly caused a growth of distillate inventories due to weather induced low demand :
In the last year, U.S. refiners have been fairly successful in matching gasoline production
and stockpiles with demand. Gasoline production remains at the centre of their operational
planning.
Crude stocks have continued to increase, reflecting worldwide oversupply, though stockpiles
are rising somewhat more slowly than at the start of 2015.
But refiners lost control of distillate stocks in the second half of 2015 as freight
demand slowed and El Nino ensured a warmer than normal winter across the United States and
other parts of the northern hemisphere.
Winter heating demand across the United States has been around 17 percent below average,
according to the National Oceanic and Atmospheric Administration.
And by the end of 2015, the volume of freight being moved across the United States by road,
rail, pipeline, barge and air had fallen by more than 2 percent compared with the same period
at year earlier.
Over the last four weeks, U.S. implied distillate consumption has averaged just 3.5 million
barrels per day, which is 12 percent below the long-term average and 16 percent below the same
period in 2015.
The fact that refiners have lost control of distillate stocks should come as no surprise
because distillate is essentially a by-product of gasoline production.
Refineries have operated to maximise gasoline production but in the process created an enormous
and growing oversupply of distillate.
There is some limited flexibility in the refining system to switch from distillate production
to gasoline but it is typically only on the order of a few percentage points.
Massive overproduction of distillate has pushed gross refining margins for the fuel to the
lowest level since 2010.
But refining margins for gasoline have been much healthier, at least until recently,
which has encouraged refiners to continue maximising crude throughput.
As long as gasoline demand remains strong, refiners will continue to meet it, which is why
the outlook for U.S. gasoline consumption is so critical for the oil market in 2016.
It always surprises me, that when people talk about the year on year drop in diesel consumption,
nobody mentions the fact of 1000 less drilling rig working, plus the lower demand from less fraccing,
the transport of train loads of sand per well, etc.
I would have thought, the EROI boys would be all over it. As I feel this is where the theory
of EROI being very low for unconventional oil and gas, actually starts to show up in day to day
numbers.
It always surprises me, that when people talk about the year on year drop in diesel consumption,
nobody mentions the fact of 1000 less drilling rig working, plus the lower demand from less fraccing,
the transport of train loads of sand per well, etc.
A 1984 study estimated the EROEI of the different oil shale deposits to vary between 0.7–13.3:1.[21]
More recent studies estimates the EROEI of oil shales to be 1–2:1 or 2–16:1 – depending on
if self-energy is counted as a cost or internal energy is excluded and only purchased energy
is counted as input.[20][22] According to the World Energy Outlook 2010, the EROEI of ex-situ
processing is typically 4–5:1
So we need 4.2 gallon per bbl.
The EIA estimates in the Annual Energy Outlook 2015, that about 4.2 million barrels per day
of crude oil were produced directly from tight oil resources in the United States in 2014.
So we are talking about 0.4 Mb/day of diesel consumption. Which is respectable 10% out of 4
Mb/d total US distillates consumption. So 2% drop (which amount to 20% drop of diesel consumption
in oil patch) might be fully attributable to the lower activity of shale patch.
The hypothesis is that in order to satisfy the glowing demand for gasoline the US distillers
overproduce distillates which go into storage and create the impression of the glut.
Notable quotes:
"... But refiners lost control of distillate stocks in the second half of 2015 as freight demand slowed and El Nino ensured a warmer than normal winter across the United States and other parts of the northern hemisphere. ..."
"... Over the last four weeks, U.S. implied distillate consumption has averaged just 3.5 million barrels per day, which is 12 percent below the long-term average and 16 percent below the same period in 2015. ..."
"... But refining margins for gasoline have been much healthier, at least until recently, which has encouraged refiners to continue maximising crude throughput. ..."
"... It always surprises me, that when people talk about the year on year drop in diesel consumption, nobody mentions the fact of 1000 less drilling rig working, plus the lower demand from less fraccing, the transport of train loads of sand per well, etc. ..."
Some (albeit vague) support for a growing day-by-day "glut deniers" movement :-) . The newer
part of the argument revolves around the fixed ratio of gasoline to distillate in refining process.
Which supposedly caused a growth of distillate inventories due to the weather induced low demand
:
In the last year, U.S. refiners have been fairly successful in matching gasoline production
and stockpiles with demand. Gasoline production remains at the centre of their operational
planning.
Crude stocks have continued to increase, reflecting worldwide oversupply, though stockpiles
are rising somewhat more slowly than at the start of 2015.
But refiners lost control of distillate stocks in the second half of 2015 as freight
demand slowed and El Nino ensured a warmer than normal winter across the United States and
other parts of the northern hemisphere.
Winter heating demand across the United States has been around 17 percent below average,
according to the National Oceanic and Atmospheric Administration.
And by the end of 2015, the volume of freight being moved across the United States by road,
rail, pipeline, barge and air had fallen by more than 2 percent compared with the same period
at year earlier.
Over the last four weeks, U.S. implied distillate consumption has averaged just 3.5
million barrels per day, which is 12 percent below the long-term average and 16 percent below
the same period in 2015.
The fact that refiners have lost control of distillate stocks should come as no surprise
because distillate is essentially a by-product of gasoline production.
Refineries have operated to maximise gasoline production but in the process created an enormous
and growing oversupply of distillate.
There is some limited flexibility in the refining system to switch from distillate production
to gasoline but it is typically only on the order of a few percentage points.
Massive overproduction of distillate has pushed gross refining margins for the fuel to the
lowest level since 2010.
But refining margins for gasoline have been much healthier, at least until recently,
which has encouraged refiners to continue maximising crude throughput.
As long as gasoline demand remains strong, refiners will continue to meet it, which is why
the outlook for U.S. gasoline consumption is so critical for the oil market in 2016.
Toolpush, 02/25/2016 at 10:40 pm
Amatoori,
It always surprises me, that when people talk about the year on year drop in diesel consumption,
nobody mentions the fact of 1000 less drilling rig working, plus the lower demand from less
fraccing, the transport of train loads of sand per well, etc.
I would have thought, the EROI boys would be all over it. As I feel this is where the theory
of EROI being very low for unconventional oil and gas, actually starts to show up in day to
day numbers.
It always surprises me, that when people talk about the year on year drop in diesel consumption,
nobody mentions the fact of 1000 less drilling rig working, plus the lower demand from less
fraccing, the transport of train loads of sand per well, etc.
A 1984 study estimated the EROEI of the different oil shale deposits to vary between
0.7–13.3:1.[21] More recent studies estimates the EROEI of oil shales to be 1–2:1 or 2–16:1
– depending on if self-energy is counted as a cost or internal energy is excluded and only
purchased energy is counted as input.[20][22] According to the World Energy Outlook 2010,
the EROEI of ex-situ processing is typically 4–5:1
So we need 4.2 gallon per bbl.
The EIA estimates in the Annual Energy Outlook 2015, that about 4.2 million barrels per
day of crude oil were produced directly from tight oil resources in the United States in 2014.
So we are talking about 0.4 Mb/day of diesel consumption. Which is respectable 10% out of
4 Mb/d of the total US distillates consumption. So 2% drop (which amount to 20% drop of diesel consumption
in oil patch) might be fully attributable to the lower activity of shale patch.
"... My level of knowledge in the oil world is too low, but from what I have seen in this blog we might be seeing a loss of 1 to 1.5 mbpd in 2016, depending on how much Iran is able to increase production. ..."
"... I guess then between 1 and 2 mbpd defines the possible loss of oil production in 2016. Is this a reasonable estimate? ..."
"... If Oil prices remain low 2015 will be the peak. I doubt oil prices will remain low after 2018. ..."
"... Not just discovery shortages, but the oil industry will have a severally compromised development capacity. It could barely overcome decline rates for conventional oil over the past 10 years, the LTO got developed at a loss, and about 30 to 40% of the industry is currently being laid off or shut down. ..."
"... I would love to see your rational for this. Who will return to 2015 output levels or higher? Obviously not everyone because so many nations have already peaked and are in decline. So for production to return to 2015 levels, and higher since you are not predicting peak oil until a decade or so from now, who will increase their production to well above 2015 levels? We know this will have to happen, for your scenario to be correct, because post peak nations will continue to decline regardless of price. ..."
Yes, OFM, I also shared Ron's opinion by late 2014 that 2015 was going to
be the year of Peak Oil.
But this is now a fact. Summer of 2015 (July for C+C, August for all
liquids) is a peak oil for everybody for as long as production doesn't start
increasing again. Since nobody is predicting an increase in production for
2016, the most fundamental issue in the oil world right now is how fast
is production going to fall and for how long.
My level of knowledge in the oil world is too low, but from what
I have seen in this blog we might be seeing a loss of 1 to 1.5 mbpd in 2016,
depending on how much Iran is able to increase production.
On the other hand people usually talk about a level of annual depletion
of around 6%. That's about 4.5 mbpd for the entire world, so if only half
of the world depletes at those rates we are talking upwards of a fall of
2 mbpd.
I guess then between 1 and 2 mbpd defines the possible loss of oil
production in 2016. Is this a reasonable estimate?
Not just discovery shortages, but the oil industry will have a severally
compromised development capacity. It could barely overcome decline rates
for conventional oil over the past 10 years, the LTO got developed at a
loss, and about 30 to 40% of the industry is currently being laid off or
shut down. There is no way it will be able to ramp up to about 150% of the
capacity it had say in 2013 to overcome accelerating decline rates and add
production on what will be ever more complex new fields (i.e. small, heavy,
deep water etc.)
When the oil price rises we will return to 2015 output levels or higher
by 2022 to 2025.
I would love to see your rational for this. Who will return to 2015 output
levels or higher? Obviously not everyone because so many nations have already
peaked and are in decline. So for production to return to 2015 levels, and
higher since you are not predicting peak oil until a decade or so from now,
who will increase their production to well above 2015 levels? We know this
will have to happen, for your scenario to be correct, because post peak
nations will continue to decline regardless of price.
So who will it be Dennis? Where will all this new production come from?
"... As much as 15 percent of the face value of high-yield bonds owed by U.S. oil producers and service companies could go into default this year, according to BCA Research. ..."
"... Trouble could radiate outward if banks, their balance sheets weakened by defaults in the oil industry, cut back lending to other enterprises. Says Nicholas Sargen, chief economist at Fort Washington Investment Advisors: "There are some people beginning to worry that this thing could spread like the subprime crisis. People said then that it was too small to matter, and then you find out there are linkages you didn't know about." ..."
"... In any case, oil prices this low aren't likely to last long. The market for crude is driven increasingly by high-frequency, computer-based momentum trading. In July, the CME Group-formerly the Chicago Mercantile Exchange-ended the 167-year history of actual humans trading commodity futures in open pits in Chicago and New York. Computer trading has proved more efficient, but not always better. "There was a governing quality of human input that's been lost in the market, that sort of prevented this kind of lunacy," says Dan Dicker, a former oil trader on the Nymex and president of MercBloc, a wealth-management firm. "People could only move but so fast." ..."
"... At the moment, says Kopits of Princeton Energy Advisors, "there's a weird disconnect between any kind of long-term fundamentals and current market values." Fundamentals tend to win out in the long run. Supply will be curbed as drillers drop projects that are unprofitable at $30 a barrel. And demand will accelerate; people are already driving more miles, albeit in more fuel-efficient vehicles. (A 2015 Ford F-150 pickup gets 30 percent better gas mileage on the highway than the 2005 model.) Oil traders spent most of 2015 increasing their bets that oil prices would fall. Since mid-January they have slightly pared their short positions and bought more contracts that gain value when oil rises. ..."
The market turmoil is shaking up companies as far afield as St. Louis-based
Emerson Electric, headed since 2000 by Chief Executive Officer David Farr. Emerson
makes products ranging from oil-production instruments to closet organizers.
"The last 30 days have been what I would call the most unusual in my time at
Emerson. I've never seen a marketplace go so volatile," Farr told analysts on
Feb. 2.
ExxonMobil is facing a potential
credit downgrade for the first time since the Great Depression. ConocoPhillips
is
cutting its dividend for the first time in a quarter-century. Energy stocks
account for 6.6 percent of the S&P 500's market value. While that's only half
their share of five years ago, it's still big enough for them to drag down the
overall index on bad days.
In 2014 the energy industry accounted for nearly one-third of S&P 500 companies'
capital expenditures, according to data compiled by Bloomberg. At least $1 trillion
in spending is getting canceled, says Steven Kopits, president of Princeton
Energy Advisors. When energy companies cut back, pipe makers, truckers, railroads,
and businesses in other industries suffer.
Goldman Sachs puts the chance of a recession in the
next year at 18 percent
Then there's the financial sector. Oil drillers borrowed heavily to expand
production, and many can't make money at today's superlow prices. As much
as 15 percent of the face value of high-yield bonds owed by U.S. oil producers
and service companies could go into default this year, according to BCA Research.
"The major risk banks have isn't to their normal retail-oriented stuff,
it's to the oil space," says Andrew Brenner, head of international fixed income
at National Alliance Capital Markets in New York. Markets were rattled on Feb.
8 after the Debtwire news service reported that Chesapeake Energy, the No. 2
U.S. natural gas producer, had hired a law firm to restructure a $9.8 billion
debt load. The company issued a statement saying it has no plans to pursue bankruptcy.
Trouble could radiate outward if banks, their balance sheets weakened
by defaults in the oil industry, cut back lending to other enterprises. Says
Nicholas Sargen, chief economist at Fort Washington Investment Advisors: "There
are some people beginning to worry that this thing could spread like the subprime
crisis. People said then that it was too small to matter, and then you find
out there are linkages you didn't know about."
How long will oil and stocks continue their doomed embrace? No one knows
for sure, but there are signs that emotion has gotten the better of investors.
Once things calm down, the underlying strengths of the U.S. economy could start
to become clearer. At that point, stocks could start to rebound even if-or because!-the
global glut of crude keeps oil prices low.
... ... ...
Synchronized plunges this extreme in stocks and oil usually indicate that
investors are expecting a U.S. recession, which would kill corporate profits
and demand for crude. But
how likely is a recession over the next year or so? Not impossible, but
not probable.
The most important indicator of economic health is employment. The U.S. created
151,000 jobs in January, less than in previous months but more than enough to
absorb the normal flow of entrants into the labor force. The unemployment rate
dropped to 4.9 percent, which the Federal Reserve considers full employment.
Average hourly earnings rose 2.5 percent from the year before. That's a real
pay raise for American workers, since it's above the inflation rate, yet it's
not so high as to get the Fed worried about an incipient wage-price inflationary
spiral. Meanwhile, companies show no sign of retrenching on employment: In December
listed job openings were the highest as a share of all jobs, filled and unfilled,
since record keeping began in 2000, according to data released by the Bureau
of Labor Statistics on Feb. 9.
Cheap oil, supposedly an economic threat, has done one good thing for the
U.S. economy and stocks. It's kept the overall increase in consumer prices through
December to just 0.7 percent. That could help persuade the Fed to throttle back
its plans to raise rates. On Feb. 10, Fed Chair Janet Yellen suggested that
further rate hikes would depend on whether the market turmoil persists. "Monetary
policy is by no means on a preset course," she
told Congress. Low rates are good for both the economy and Wall Street,
because stocks become a more enticing alternative when rates are low.
The bears are right that cheap oil is damaging high-cost producers around
the world, and some of those are in the U.S.
... ... ...
...The
bad parts of the oil plunge are hitting now: the credit downgrades, the
defaults, the
investment cutbacks, the layoffs of roughnecks. They're making news and
rattling people's confidence. "We've taken the big hit upfront," says Chris
Varvares, co-founder of St. Louis-based Macroeconomic Advisers. Eventually,
the money freed up by cheap oil will leak into other parts of the economy. When
oil prices crashed in 1986 and gasoline suddenly got cheap, it didn't show up
in the consumption numbers for more than a year, says David Rosenberg, chief
economist at Gluskin Sheff.
In any case, oil prices this low aren't likely to last long. The market
for crude is driven increasingly by high-frequency, computer-based momentum
trading. In July, the CME Group-formerly the Chicago Mercantile Exchange-ended
the 167-year history of actual humans trading commodity futures in open pits
in Chicago and New York. Computer trading has proved more efficient, but not
always better. "There was a governing quality of human input that's been lost
in the market, that sort of prevented this kind of lunacy," says Dan Dicker,
a former oil trader on the Nymex and president of MercBloc, a wealth-management
firm. "People could only move but so fast."
At the moment, says Kopits of Princeton Energy Advisors, "there's a weird
disconnect between any kind of long-term fundamentals and current market values."
Fundamentals tend to win out in the long run. Supply will be curbed as drillers
drop projects that are unprofitable at $30 a barrel. And demand will accelerate;
people are already driving more miles, albeit in more fuel-efficient vehicles.
(A 2015 Ford F-150 pickup gets 30 percent
better gas mileage on the highway than the 2005 model.) Oil traders spent
most of 2015 increasing their bets that oil prices would fall. Since mid-January
they have slightly pared their short positions and bought more contracts that
gain value when oil rises.
Barry White began
Can't
Get Enough of Your Love, Babe by saying, "I've heard people say that
too much of anything is not good for you, baby." Cheap oil is kind of like that
for the stock market. But with any luck, their dysfunctional dynamic won't last
much longer.
"The balance sheets of shale producers are in disrepair," said Mr Hess"
and
"Opec launched a price war against US shale and other high-cost producers, including Canadian
oil sands and Brazilian deep-water oilfields, in November 2014 by not reducing output despite
a global oversupply. Since then, oil prices have plunged by more than half, hitting a 12-year
low of about $26 on February 11.
In a rare admission that the policy hasn't worked out as planned, Mr El-Badri said that Opec
didn't expect oil prices to drop this much when it decided to keep pumping near flat-out.
Opec's strategy began to shift last week, when the oil ministers of Saudi Arabia and Russia
agreed to freeze their output at the January level, provided other oil-rich countries joined.
Mr El-Badri said the new policy will be evaluated in three to four months before deciding whether
to take other steps.
"This is the first step to see what we can achieve," he said. "If this is successful, we will
take other steps in the future." He refused to explain what steps Opec could take."
Opec launched a price war against US shale and other high-cost producers, including Canadian
oil sands and Brazilian deep-water oilfields, in November 2014 by not reducing output despite
a global oversupply. Since then, oil prices have plunged by more than half, hitting a 12-year
low of about $26 on February 11.
This para is in the article, but is apparently not a quote of anyone but the reporter. It's
not attributed in the article.
The rest is much like it. Exact quotes scarce. Interpretation-without-portfolio not scarce.
Not surprising. It's IHS/CERA week. They pour it onto the reporters.
As many as 74 North American producers face significant difficulties in sustaining
debt, according to credit rating firm Moody's Investors Service. Shale explorers
from Texas to North Dakota will be "decimated" in coming months amid a wave
of restructurings and bankruptcies, said Mark Papa, the former EOG Resources
Inc. chief executive officer who helped create the shale industry more than
a decade ago. The survivors will be more conservative, Papa, who is now a partner
at private-equity firm Riverstone Holdings LLC, said during a panel discussion
on Tuesday.
In any case, oil prices this low aren't likely to last long. The market for crude is driven increasingly
by high-frequency, computer-based momentum trading. In July, the CME Group-formerly the Chicago Mercantile
Exchange-ended the 167-year history of actual humans trading commodity futures in open pits in Chicago
and New York. Computer trading has proved more efficient, but not always better. "There was a governing
quality of human input that's been lost in the market, that sort of prevented this kind of lunacy,"
says Dan Dicker, a former oil trader on the Nymex and president of MercBloc, a wealth-management
firm. "People could only move but so fast."
"... Since the start of 2015, U.S. refineries have been processing record amounts of crude to meet strong demand for gasoline as continued growth, rising employment and cheap fuel prices have encouraged increased driving. ..."
"... U.S. gasoline stockpiles are currently 11 percent higher than normal for the time of year but if they are adjusted for strong gasoline demand then the surplus shrinks to 7 percent. ..."
"... Distillate stockpiles are currently 24 percent higher than the long-term average but once adjusted for weak consumption they are 43 percent higher than normal for the time of year. ..."
"... Modern U.S. refineries process up to 600,000 barrels per day, 300-1200 times as much as the first batch-based plants, though a more typical refinery has capacity of around 100,000 to 200,000 bpd. ..."
"... With the shift to continuous processing and the prodigious growth in demand for gasoline as a road fuel, the oil industrys need to hold stocks of unrefined crude and refined products surged. ..."
"... At the end of 2013, with the oil market more less balanced, more than 1.05 billion barrels of crude and refined products were being stored at refineries, distributors and oilfields as well as in pipelines and on tank farms. ..."
According to the U.S. government, there are over 1.3 billion barrels of crude oil and refined products
in commercial storage around the United States, an increase of more than 300 million barrels in the
last two years.
There is a tendency to assume all these barrels of crude and products are "excess"
inventories, the result of overproduction, but most of them are held for operational reasons.
The best way to distinguish excess inventories from normal operational stocks is to adjust reported
inventories for time of year, consumption of crude by refineries, and consumption of products by
end customers.
Other things being equal, the more crude refineries process every day, the more crude they need
to hold on site, at tank farms or en route to the refinery in pipelines and on ships to keep their
distillation towers supplied.
And the more fuel supplied to customers, the more refined stock refineries, blenders and distributors
need to keep on hand to deal with seasonal swings, maintenance and unexpected disruptions in the
supply system.
Since the start of 2015, U.S. refineries have been processing record amounts of crude to meet
strong demand for gasoline as continued growth, rising employment and cheap fuel prices have encouraged
increased driving.
U.S. crude stockpiles are currently 47 percent higher than the average over the last 10 years
but if stocks are adjusted for the higher rate of processing the surplus falls to around 34 percent.
The reported surplus in crude stocks over the long-term average is around 162 million barrels
but if stocks are adjusted for higher processing the surplus falls to around 128 million barrels
(tmsnrt.rs/20WQt9F).
U.S. gasoline stockpiles are currently 11 percent higher than normal for the time of year but
if they are adjusted for strong gasoline demand then the surplus shrinks to 7 percent.
The reported surplus in gasoline stocks over the long-term average is 26 million barrels but adjusted
for higher demand falls to 17 million barrels (tmsnrt.rs/20WQzhl).
Crude and gasoline stocks are somewhat less excessive than the unadjusted data suggests because
refinery processing and gasoline consumption have been so strong.
But distillate demand has been much weaker than normal thanks to sluggish demand from the freight
sector and El Nino.
Distillate stocks are much higher than the raw numbers suggest, once they are adjusted for the
current weakness in demand.
Distillate stockpiles are currently 24 percent higher than the long-term average but once adjusted
for weak consumption they are 43 percent higher than normal for the time of year.
The reported surplus in distillate stocks over the long-term average is 31 million barrels but
adjusted for weak demand the surplus surges to 48 million barrels (tmsnrt.rs/20WQE4M).
At this time of year, U.S. gasoline stocks are normally around 26 days worth of consumption, and
they are currently a bit higher at 28 days.
Distillate stocks should be around 32 days worth of consumption but are currently at a massive
46 days worth of demand.
CONTINUOUS PROCESSING
Early U.S. oil refineries processed crude in batches, with each batch of oil loaded separately
into a still, where it was heated until the distillates were boiled off, condensed and collected
for sale.
Early refineries were really just simple distilleries: the equipment would be instantly recognisable
to anyone who has been on a tour of a whisky distillery ("A practical treatise on coal, petroleum
and other distilled oils", Gesner, 1865).
The first U.S. refineries established during the 1860s and 1870s processed up to 2,000 barrels
per day, though most were much smaller and produced less than 1,000 barrels per day ("Early and later
history of petroleum", Henry, 1873).
Refineries were geared to produce a middle distillate boiling around 300-600 degrees Fahrenheit
which was sold as kerosene or paraffin oil and used for illumination.
Gasoline, with its lower boiling point, was too volatile to be used safely as lamp fuel and was
mostly considered a nuisance and waste product.
U.S. oil refineries eventually switched from processing crude in discrete batches to feeding oil
into distillation towers and drawing off the fractions in a continuous process.
Modern U.S. refineries process up to 600,000 barrels per day, 300-1200 times as much as the first
batch-based plants, though a more typical refinery has capacity of around 100,000 to 200,000 bpd.
The objective has switched from producing kerosene for lighting to producing gasoline for use
as a transportation fuel.
In the first decades of the 20th century, electric lighting began to reduce demand for kerosene
while the massive expansion in car ownership stimulated consumption of gasoline.
From 1915-1920 onwards, refineries were increasingly geared to produce gasoline as the main product,
while middle distillates became a by-product.
With the shift to continuous processing and the prodigious growth in demand for gasoline as a
road fuel, the oil industry's need to hold stocks of unrefined crude and refined products surged.
To ensure an uninterrupted flow of oil from the wellhead to the refinery and the end customer,
stocks of crude and refined fuels are held at every stage along the supply chain.
Refineries hold substantial stocks of crude to ensure a continuous flow of carefully prepared
(de-watered and de-salted) as well as blended crude into their distillation towers.
The industry also needs substantial stocks of refined fuels, lubricants and petrochemicals to
ensure a continuous supply to distributors and end users.
Refineries hold crude and refined products to meet routine operational requirements as well as
to deal seasonal variations in demand, planned maintenance and unexpected disruptions.
The amount of oil involved is enormous.
At the end of 2013, with the oil market more less balanced, more than 1.05 billion barrels of
crude and refined products were being stored at refineries, distributors and oilfields as well as
in pipelines and on tank farms.
By February 2015, with the oil market clearly oversupplied, crude and refined products in storage
had climbed to more than 1.33 million barrels, according to the U.S. Energy Information Administration
("Weekly Petroleum Status Report", EIA, Feb. 24).
OPERATIONAL PLANNING
In the last year, U.S. refiners have been fairly successful in matching gasoline production and
stockpiles with demand. Gasoline production remains at the centre of their operational planning.
Crude stocks have continued to increase, reflecting worldwide oversupply, though stockpiles are
rising somewhat more slowly than at the start of 2015.
But refiners lost control of distillate stocks in the second half of 2015 as freight demand slowed
and El Nino ensured a warmer than normal winter across the United States and other parts of the northern
hemisphere.
Winter heating demand across the United States has been around 17 percent below average, according
to the National Oceanic and Atmospheric Administration.
And by the end of 2015, the volume of freight being moved across the United States by road, rail,
pipeline, barge and air had fallen by more than 2 percent compared with the same period at year earlier.
Over the last four weeks, U.S. implied distillate consumption has averaged just 3.5 million barrels
per day, which is 12 percent below the long-term average and 16 percent below the same period in
2015.
The fact that refiners have lost control of distillate stocks should come as no surprise because
distillate is essentially a by-product of gasoline production.
Refineries have operated to maximise gasoline production but in the process created an enormous
and growing oversupply of distillate.
There is some limited flexibility in the refining system to switch from distillate production
to gasoline but it is typically only on the order of a few percentage points.
Massive overproduction of distillate has pushed gross refining margins for the fuel to the lowest
level since 2010.
But refining margins for gasoline have been much healthier, at least until recently, which has
encouraged refiners to continue maximising crude throughput.
As long as gasoline demand remains strong, refiners will continue to meet it, which is why the
outlook for U.S. gasoline consumption is so critical for the oil market in 2016.
I think unrevealing of the weakest shale is coming. Peace agreement
in Syria is signed today and it is huge and there is no need to keep War
party (from all sides) shackled with low prices any longer by keeping shale
on life support.
I think in the next few weeks or months certain things will be iron out
in terms of actual cuts from the major producers. No doubt that US production
is already in decline and could be even more than what EIA numbers are showing,
and it will be incorporated as official "cut" by US. But Saudis and Russians
will cut too. The first sign was that "freeze" negotiation a week ago in
Doha and it was building block.
Yeah Niami is still cooing "No cuts" but he is just bargaining. Last
week I thought it would be by summer but it could happen earlier.
No orders were unfilled at $100 either. It depends on level of production
unless it is coupled with major producers start prancing around refineries
and offering discounts like Saudis did and then everybody follows offering
discount. And once ball start rolling you end up with price from 1990's.
"The balance sheets of shale producers are in disrepair," said
Mr Hess"
and
"Opec launched a price war against US shale and other high-cost producers,
including Canadian oil sands and Brazilian deep-water oilfields, in
November 2014 by not reducing output despite a global oversupply. Since
then, oil prices have plunged by more than half, hitting a 12-year low
of about $26 on February 11.
In a rare admission that the policy hasn't worked out as planned,
Mr El-Badri said that Opec didn't expect oil prices to drop this much
when it decided to keep pumping near flat-out.
Opec's strategy began to shift last week, when the oil ministers
of Saudi Arabia and Russia agreed to freeze their output at the January
level, provided other oil-rich countries joined. Mr El-Badri said the
new policy will be evaluated in three to four months before deciding
whether to take other steps.
"This is the first step to see what we can achieve," he said. "If
this is successful, we will take other steps in the future." He refused
to explain what steps Opec could take."
The world's most powerful oilman brought a harsh message to Houston for executives hoping for
a rescue from low prices: high-cost producers -- many of them sitting in the room -- need to
either "lower costs, borrow cash or liquidate."
For the thousands of executives attending the IHS CERAWeek conference, the message from Saudi
Arabia oil minister Ali al-Naimi means deeper spending cuts, laying off more roughnecks and
idling drilling rigs.
"It sounds harsh, and unfortunately it is, but it is the most efficient way to rebalance
markets," Naimi told the audience in Houston on Tuesday.
... ... ...
Naimi told the executives in Houston that Saudi Arabia believed that freezing oil production
-- as it just agreed with Russia -- would be enough to eventually balance the market. Over time,
high-cost producers will get out of the business, and rising demand will slowly eat up the
oversupply, he said. The International Energy Agency believes that means another two years of low
prices.
The freeze agreement isn't "cutting production. That is not going to happen," Naimi said.
Venezuela, Saudi Arabia, Russia and Qatar have discussed holding a meeting in mid-March for
OPEC and non-OPEC oil producers that support the production freeze, Venezuela Oil Minister
Eulogio Del Pino said on Twitter. All oil producers are being consulted to determine where and
when the meeting will be held, Del Pino said. Venezuela has been lobbying for producers to
support prices, with Del Pino circling the globe to drum support.
... ... ....
While Naimi insisted that Saudi Arabia wasn't at war with shale, or any other producer, he was
clear in his aim. "We are doing what every other industry representative in this room is doing,"
he told the audience. "Efficient markets will determine where on the cost curve the marginal
barrel resides."
"It's going to be really, really ugly to get through this valley," Papa said.
Note they are the first I have seen to report PV10 with hedges, which
moves PV10 to $2.3 billion.
I wish they would disclose PV10 at various price points too.
Probably more note worthy, SM Energy's Q4 2015 oil production was down
14% from Q4 2014.
Also, their netback, pre hedges, was just $6 per BOE. That means Q1 netback,
pre hedges will be negative in all likelihood. They don't have a lot hedged
in 2016 compared to 2015.
"The world's second-largest oilfield services provider said last month it
cut nearly 4,000 jobs in the final three months of 2015. With the latest layoffs,
the company will have let go of nearly 29,000 workers, or more than a quarter
of its headcount since staffing reached its peak in late 2014."
"... Although these reports are very interesting, they ignore in my opinion financial conditions – mainly the bond market – and oil prices as major drivers for oil production. Jean Laherrere is fully aware of this fact, yet does not provide oil production scenarios at different oil price and bond market conditions. ..."
"... So, if oil prices would fall below 20 USD per barrel for a long period I am pretty sure, oil production for Bakken and Eagle Ford would tend to zero within a short time and all above production scenarios would be irrelevant. ..."
"... Possibly the availability of cheap money through most of 2015 overrode any price signals and they just kept on drilling no matter how much losses they incurred. You talking about a maturity wall now – how would that have impacted production in the past, especially when in the beginning of the price fall producers were expecting prices to recover at any time and later were concentrating solely in staying alive for the next month and couldnt afford to look much further ahead. ..."
"... Bottom line, there is about 25-30 Gb of combined URR in the Bakken/Three Forks(10 Gb), Eagle Ford(8 Gb), and Permian (9 GB, LTO only), but $80 to $150/b oil prices will be needed for it to be profitable to produce. If oil prices never rise above $80/b the URR will be about half this estimate. ..."
Although these reports are very interesting, they ignore in my opinion financial conditions
– mainly the bond market – and oil prices as major drivers for oil production. Jean Laherrere
is fully aware of this fact, yet does not provide oil production scenarios at different oil price
and bond market conditions.
So, if oil prices would fall below 20 USD per barrel for a long period I am pretty sure, oil
production for Bakken and Eagle Ford would tend to zero within a short time and all above production
scenarios would be irrelevant.
If oil prices would recover, production will start again.
Yet it is in my view not possible to sustain horrendous losses for a long time. Somebody has
to pay the bill. It is already clear now that high US oil production supports the US dollar, yet
brings the bond market to its knees. The bond – and equity holders are paying currently the bill,
yet for how long?
Might be so. If the production continues to follow the Hughes predictions though, I'd say that
will cast a lot of doubts over how much impact short term price swings have had.
Possibly the
availability of cheap money through most of 2015 overrode any price signals and they just kept
on drilling no matter how much losses they incurred. You talking about a maturity wall now – how
would that have impacted production in the past, especially when in the beginning of the price
fall producers were expecting prices to recover at any time and later were concentrating solely
in staying alive for the next month and couldn't afford to look much further ahead.
With data currently available the main message I've got from this is that there is probably
a lot less oil in the Bakken and Eagle Ford than EIA are saying – at any price.
Laherrere's estimate is too low. Hughes has a good estimate for the Eagle Ford, but I think
he may have assumed the USGS Assessment for the Bakken in April 2013 was for the TRR, but it was
the undiscovered TRR, when proved reserves and cumulative production (in Dec 2012) are
added, the TRR increases to 10 Gb and if probable reserves are also added the TRR becomes 11.4
Gb.
If we only consider proved reserves plus cumulative production we come close to Hughes estimate
for the URR of the Bakken/Three Forks, for the North Dakota Bakken/Three Forks this is about 6.7Gb
at the end of 2014.
Bottom line, there is about 25-30 Gb of combined URR in the Bakken/Three Forks(10 Gb), Eagle
Ford(8 Gb), and Permian (9 GB, LTO only), but $80 to $150/b oil prices will be needed for it to
be profitable to produce. If oil prices never rise above $80/b the URR will be about half this
estimate.
"... Go back to 2007. The total amount of subprime and Alt-A loans was about US$1 trillion. The losses in that sector ticked well above 20%. There, you had a US$1 trillion market with $200 billion of losses. ..."
"... Here we're talking about a US$5 trillion market with US$1 trillion of losses from unpaid debt - not counting derivatives. ..."
"... Some other companies are going to be fine because they bought the derivatives. But then, the question is: Where did those derivatives go? Think back to the housing bust. We now know that a lot of the derivatives ended up at AIG. ..."
The drop in the
price of oil
from approximately $100 a barrel to the
$40–60 range roughly constitutes a 40% decline or more.
That's extreme.
That's only happened three times in the past 70 years.
Oil
and other
commodities
are
volatile, but don't think for one minute that this is a normal fluctuation.
It's not. This would be like an 8,000 point drop on the Dow.
When the
oil price
dropped it came as a shock. No one expected it, other than maybe a
handful of people who were plotting it behind the scenes.
When the price of oil goes from US$100 to US$60, which as I said is extreme,
people say, 'Now it's going to go to US$50, then it's going to go to US$40 and then,
soon after, to US$30.'
You can't rule anything out, but it does look as if oil is going to oscillate
around US$60. It will go above that and below, but it will gravitate towards US$60.
That's still a big deal and will cause a lot of damage.
... ... ...
Oil below US$60 is more than low enough to do an enormous amount of damage in
financial markets.
Losses are already all over the place. We're only starting to learn about them
right now.
But I guarantee there are major losers out there and they're going to start to
merge and crop up in unexpected places.
The first place losses will appear are in junk bonds. There are about US$5.4
trillion - that's
trillion
- of costs incurred in the last five years for
exploration drilling and infrastructure in the alternative energy sector.
When I say alternative I mean in the fracking sector.
A lot of it's in the Bakken and North Dakota but also in Texas and Pennsylvania.
That's a lot of money. It's been largely financed with corporate and bank debt.
When many oil producers went for loans, the industry's models showed oil prices
between US$80 and US$150.
US$80 is the low end for maybe the most efficient projects, and US$150 is of
course the high end.
But no oil company went out and borrowed money on the assumption that they could
make money at US$50 a barrel.
So suddenly, there's a bunch of debt out there that producers will not be able to
pay back with the money they make at US$50 a barrel. That means those debts will need
to be written off. How much? That's a little bit more speculative. I think maybe 50%
of it has to be written off. But let's be conservative and assume only 20% will be
written-off.
That's a trillion dollars of losses that have not been absorbed or been priced
into the market.
Go back to 2007. The total amount of subprime and Alt-A loans was about US$1
trillion. The losses in that sector ticked well above 20%. There, you had a US$1
trillion market with $200 billion of losses.
Here we're talking about a US$5 trillion market with US$1 trillion of losses
from unpaid debt - not counting derivatives.
This fiasco is bigger than the subprime crisis that took down the economy in
2007. I'm not saying we're going to have another panic of that magnitude tomorrow;
I'm just trying to make the point that the losses are already out there.
Even at US$60 per barrel the losses are significantly larger than the subprime
meltdown of 2007. We're looking at a disaster.
On top of those bad loans, there are derivatives
Some of these fracking companies are going to go bankrupt. That means you may have
equity losses on some of the companies if they didn't hedge. Then, many frackers
issued debt which is going to default. That debt, whether it's bank debt or junk bond
debt, is going to default.
Some other companies are going to be fine because they bought the derivatives.
But then, the question is: Where did those derivatives go? Think back to the housing
bust. We now know that a lot of the derivatives ended up at AIG.
AIG was a 100-year-old traditional insurance company who knew that they were
betting that house prices would not go down. Goldman Sachs and a lot of other
institutions were taking opposite bet. When house prices did go down, everyone turned
to AIG and said: 'Hey, pay me.'
But AIG of course couldn't pay and had to be bailed out by the US government to
the tune of over US$100 billion. That's the kind of thing we're looking at now. These
bets are all over the place, because nobody thought oil was going to go to US$60 or
lower.
The losses are going to start to roll in, but they'll come in slowly. I'm not
suggesting that tomorrow morning we're going to wake up and find the financial system
collapsed. This is just the beginning of a disaster. The first companies to be
hardest hit will be second tier or mid-tier drilling and exploration companies.
Don't worry about the big companies. Exxon Mobil is not going go bankrupt. But
the smaller, higher cost producers with lots of debt will. With oil in the US$45–55
per barrel range, those projects are no longer profitable and that debt will begin to
default in late 2015 or early 2016.
"... JPMorgan said it will increase its reserves for oil and gas loans by 60%
in Q1 . ..."
"... As you can see from the following slide, provisions will rise by $500 million
from $815 million the bank had set aside as of the end of last year. Metals and
mining reserves will also rise, by $100 million. ..."
"... As is apparent from the chart, Dimon's "fortress" balance sheet includes
some $19 billion in HY O&G exposure. We're anxious to see if the vaunted billionaire
will dismiss the enormous writedowns that are invariably coming in the next few
quarters as a "tempest in a teapot." ..."
"... Take the case of Gusher National Bank. Gusher was very aggressive in making
loans to oil and natural gas companies that had no problem repaying their loans
when energy prices were high. The loans spelled big profits for Gusher, and everyone
agreed that Gusher's executives were smart business people who really knew how to
make money. ..."
"... Then the economy slowed down, and the demand for energy fell. Factories
burned less oil and natural gas. Truck drivers, commuters, and vacationers drove
fewer miles and burned less fuel. As a result, energy prices dropped sharply, and
many energy companies fell behind on their loan payments. Some even stopped making
payments altogether. ..."
"... Months passed, oil prices remained low, and more energy companies fell
behind on their payments. Finally, Gusher lost so much money to bad loans that government
regulators had to step in and close the bank. Gusher had fallen victim to changing
economic conditions-falling energy prices and a high concentration of loans to energy
companies. ..."
"... I work in the oil patch. Everyone is running with skeleton crews and the
effect on the greater economy- real estate, retail, construction etc is devastating.
I think the banks are fucked. If they do the prudent thing and cut off funding they'll
still be fucked. Therefore they continue to loan money. One day the dam will break.
..."
Most importantly, we said, are these follow up questions:
"How long before the impairments and charges currently targeting smaller
firms finally shift to the bigger ones? And how underreserved is
JPM for that eventuality? "
Today, just over a month later, we got the answer ahead of JPM's investor
day, when JPMorgan said it will increase its reserves for
oil and gas loans by 60% in Q1 .
As you can see from the following slide, provisions will rise by $500
million from $815 million the bank had set aside as of the end of last year.
Metals and mining reserves will also rise, by $100 million.
Note also that the bank says it may be forced to provision another $1.5 billion
should crude prices stay at or near $25 for an extended period of time.
As is apparent from the chart, Dimon's "fortress" balance sheet includes
some $19 billion in HY O&G exposure. We're anxious to see if the vaunted billionaire
will dismiss the enormous writedowns that are invariably coming in the next
few quarters as a "tempest in a teapot."
Page 31 has a section called 'Why Do Banks Fail" and tells a story of
a bank that invested highly in oil and gas assets and got destroyed when
the prices of oil dropped.
Gusher National Bank Slips on Falling Oil Prices
Falling energy prices mean cheaper gasoline and lower home heating
bills. So, falling oil prices must be good, right?
Not for everyone! Take the case of Gusher National Bank. Gusher
was very aggressive in making loans to oil and natural gas companies
that had no problem repaying their loans when energy prices were high.
The loans spelled big profits for Gusher, and everyone agreed that Gusher's
executives were smart business people who really knew how to make money.
Then the economy slowed down, and the demand for energy fell.
Factories burned less oil and natural gas. Truck drivers, commuters,
and vacationers drove fewer miles and burned less fuel. As a result,
energy prices dropped sharply, and many energy companies fell behind
on their loan payments. Some even stopped making payments altogether.
Months passed, oil prices remained low, and more energy companies
fell behind on their payments. Finally, Gusher lost so much money to
bad loans that government regulators had to step in and close the bank.
Gusher had fallen victim to changing economic conditions-falling energy
prices and a high concentration of loans to energy companies.
Are we absolutely sure we can't just package these loans up, break them
into tranches, stamp them "AAA" and sell them off to "investors"? Oh, and
let's get some CDSs going on these things, too. I'm sure we can find some
insurance company somewhere who's willing to take on that risk while holding
zero reserves against it.
Yes, and they can get Jon Corzine to head the Fund. I know he is available
to build a bridge to acquiring the financial and governmental backing to
get this thing done...
That's what's nice about being a loan officer; bag your commissions on
house loans, O&G loans, etc no matter how risky they are. By the time they
fail you are long gone, usually promoted up the ladder based on all your
great loan creations.
Wait till those mortgages in energy cities start defaulting as the robust
recovery in oil ripples out. The banks/loan companies will get a double
whammy::
Real Estate Prices in Dallas, Denver and Houston Set For a Fall
I work in the oil patch. Everyone is running with skeleton crews
and the effect on the greater economy- real estate, retail, construction
etc is devastating. I think the banks are fucked. If they do the prudent
thing and cut off funding they'll still be fucked. Therefore they continue
to loan money. One day the dam will break.
Banks with energy exposure are doing the same thing China is doing on
a larger scale... Papering over bad loans with more loans and hoping for
a hail mary surge in oil prices before carcasses start hitting the floor.
Little Johnny owes $100,000 for his liberal arts degree. He also purchased
a new Jetta with a 7 year auto loan and has racked up $15,000 in credit
card debt while looking for a job, which he has no luck finding so far.
He is now several months behind on payments. Seems like a good idea to
lend Little Johnny another $50,000 to keep up on his payments, right..?
I mean he's gonna find a job eventually. What could go wrong..?
"... In less than a month, the U.S. oil bust could claim two of its biggest
victims yet. ..."
"... SandRidge is likely to file for bankruptcy, analysts at junk bond research
firm KDP Investment Advisors Inc. wrote in a report last week. ..."
"... Since the start of 2015, 48 North American oil and gas producers have gone
bankrupt with a total of $17.3 billion in debt, according to law firm Haynes and
Boone. The largest was Samson Resources Corp., which entered Chapter 11 in September
owing more than $4 billion. ..."
"... Others are probably coming. The number of U.S. companies that have the
highest risk of defaulting on their debt is nearing a peak not seen since the height
of the financial crisis, according to a report by Moodys Investors Service earlier
this month. The oil and gas sector took up the biggest share, accounting for 28
percent, or 74 borrowers. ..."
"... Most of the shale industrys debt is in the form of bonds, according to
data compiled for the Bloomberg Intelligence index. Of those $197 billion of securities,
$101 billion is junk-rated. ..."
"... We are at the very beginning of the next wave of energy defaults, said
Paul Halpern, chief investment officer at Versa Capital Management, which manages
about $1.5 billion of distressed debt. ..."
"... For U.S. global investment banks such as Bank of America Corp., Citigroup
Inc. and JPMorgan Chase, funded exposures to the oil and gas industry range from
1.5 percent to 5 percent and average 2.3 percent of total loans, according to Moodys.
The ratings company also underscored risks for banks in energy-exporting regions
from the Middle East and Russia to Africa and Latin America. ..."
"... Goldman Sachs Group Inc. said about 40 percent of its oil and gas loans
and lending commitments are to junk-rated firms. ..."
"... The total exposure jumps $1.9 billion counting derivatives and other receivables,
which were primarily to investment-grade firms, Goldman Sachs said. The banks market
exposure to oil and gas firms was negative $677 million compared with $805 million
a year earlier. ..."
"... Goldman Sachss total is less than of its biggest competitors. Citigroup
Inc.s funded and unfunded commitments amounted to $58 billion, analysts at Susquehanna
Financial Group LLP wrote in a note last week. Most of Wells Fargo Co.s $17 billion
in outstanding energy loans is for companies that arent investment grade, Chief
Financial Officer John Shrewsberry said last month. ..."
"... Credit analysts at UBS say there are $1.2 trillion outstanding in loans
to the U.S. oil industry! A third of this debt is owed by exploration and production
companies. ..."
"... The oil industry also includes pipelines and infrastructure, refineries
…… ..."
"... So, it is clear that the total amount of debt maturing over the next 7
years stands at 1.2 trillion. ..."
"... I think $1.2 trillion is total debt owed by the US oil and gas industry,
not just loans. 1/3 of $1.2 trillion = $400 billion owed by the E P companies. This
includes bonds and bank loans. Bonds include junk bonds and investment grade bonds.
So $260 billion in junk bonds is the right number. ..."
SandRidge, Energy XXI missed interest payments due Feb. 16
Face $7.6 billion default if interest isn't paid by mid-March
In less than a month, the U.S. oil bust could claim two of its biggest
victims yet.
Energy XXI Ltd. and SandRidge Energy Inc., oil and gas drillers with
a combined $7.6 billion of debt, didn't pay interest on their bonds last
week. They have until the middle of next month to either pay the interest,
work out a deal with their creditors or face a default that could tip them
into bankruptcy.
If the two companies fail in March, it would be the biggest cluster of oil
and gas defaults in a month since energy prices plunged in early 2015.
"We're just beginning to see how bad 2016 is going to be," said Becky Roof,
managing director for turnaround and restructuring with consulting firm
AlixPartners.
The U.S. shale boom was fueled by junk debt. Companies spent more on
drilling than they earned selling oil and gas, plugging the difference with
other peoples' money. Drillers piled up a staggering $237 billion of borrowings
at the end of September, according to data compiled on the 61 companies
in the Bloomberg Intelligence index of North American independent oil and
gas producers. Oil prices have now fallen more than 70 percent from a 2014
peak, and banks and bondholders are fighting for scraps. U.S. high yield
energy debt lost 24 percent last year, the biggest fall since 2008, according
to Bank of America Merrill Lynch U.S. High Yield Indexes.
Both Energy XXI and SandRidge could still reach an agreement with creditors
that will give them time to turn their businesses around. SandRidge said
last week that it missed a $21.7 million interest payment. The company owes
$4.2 billion, including a fully-drawn $500 million credit line. Energy XXI,
which owes $3.4 billion, said in a filing last week that it missed an $8.8
million interest payment.
David Kimmel, a spokesman for SandRidge, said it has the money to make
interest payments due in February, March and April. He wouldn't comment
on SandRidge's options if it doesn't make the interest payments by the end
of the grace period.
The companies' failing to pay interest on their bonds may be a way to
help motivate creditors to renegotiate debt, said Jason Wangler, an energy
analyst with Wunderlich Securities in Houston.
"It's a negotiating tool," Wangler said. "They say, 'I'm not going to
pay you. Now what are you going to do?'"
Energy XXI owes $150 million to banks including Royal Bank of Scotland
Group Plc, UBS Group AG and BNP Paribas SA, among others. SandRidge has
fully drawn its credit line with banks including Barclays Plc, Royal Bank
of Canada and Morgan Stanley, according to data compiled by Bloomberg.
SandRidge is likely to file for bankruptcy, analysts at junk bond
research firm KDP Investment Advisors Inc. wrote in a report last week.
S&P wrote in a separate report that Energy XXI is probably going to file.
Since the start of 2015, 48 North American oil and gas producers have
gone bankrupt with a total of $17.3 billion in debt, according to law firm
Haynes and Boone. The largest was Samson Resources Corp., which entered
Chapter 11 in September owing more than $4 billion.
Others are probably coming. The number of U.S. companies that have
the highest risk of defaulting on their debt is nearing a peak not seen
since the height of the financial crisis, according to a report by Moody's
Investors Service earlier this month. The oil and gas sector took up the
biggest share, accounting for 28 percent, or 74 borrowers.
Most of the shale industry's debt is in the form of bonds, according
to data compiled for the Bloomberg Intelligence index. Of those $197 billion
of securities, $101 billion is junk-rated.
Bond investors aren't likely to recover much money from oil and gas companies
that default. Standard & Poor's estimates, for example, that Energy XXI's
and SandRidge's unsecured noteholders will receive, at most, 10 cents on
the dollar.
Banks are setting aside more money to cover potential losses on souring
energy loans. S&P estimates that credit lines to these companies could be
cut by 30 percent by April, when banks conduct one of their twice-yearly
evaluations of their loans.
"We are at the very beginning of the next wave of energy defaults,"
said Paul Halpern, chief investment officer at Versa Capital Management,
which manages about $1.5 billion of distressed debt.
Revenue generated by U.S. investment banks through their capital markets
businesses may "suffer" if oil and commodity prices stay low and the global
economy slows further, Moody's Investors Service has warned.
While direct energy loan exposures for the largest U.S. banks look "manageable
relative to earnings" and most of their exposures are to investment-grade
borrowers, additional loss provisions will be necessary in some cases should
oil remain subdued for an extended period, the credit assessor said in a
report dated Feb. 24. Moody's also warned that "lower-for-longer" oil prices
presented a rising threat for lenders around the world.
JPMorgan Chase & Co. said this week its reserves for impaired energy
loans would increase by about $500 million in the first quarter and it would
have to add an additional $1.5 billion to the set-aside if oil prices held
at $25 a barrel for about 18 months. Wells Fargo & Co., the world's largest
bank by market value, said Wednesday in a filing soured energy loans climbed
49 percent in the last three months of 2015, while higher oil-and-gas provisions
at Royal Bank of Canada crimped quarterly earnings.
"Oil price volatility has contributed to increased market volatility,
which could help boost trading activity and returns," Moody's said. "However,
current weak sentiment in global equity and credit markets could work in
the opposite direction, reducing trading volumes and banks' related revenues."
For U.S. global investment banks such as Bank of America Corp., Citigroup
Inc. and JPMorgan Chase, funded exposures to the oil and gas industry range
from 1.5 percent to 5 percent and average 2.3 percent of total loans, according
to Moody's. The ratings company also underscored risks for banks in energy-exporting
regions from the Middle East and Russia to Africa and Latin America.
"Banks' direct and indirect exposures to the drop in oil prices pose
the potential for deterioration in asset quality, particularly in net oil-exporting
countries," Moody's said. "While direct exposures appear broadly manageable
from both a solvency and earnings perspective, low oil prices could still
test the credit profiles of banks across our global rated portfolio."
Goldman Sachs Group Inc. said about 40 percent of its oil and gas
loans and lending commitments are to junk-rated firms.
The figure, which counts both loans made and future promises to lend,
accounted for $4.2 billion of a total $10.6 billion as of the end of December,
the New York-based bank said Monday in its annual regulatory filing. Goldman
Sachs has $1.5 billion in loans to energy companies rated below investment
grade and $2.7 billion in unfunded commitments.
The total exposure jumps $1.9 billion counting derivatives and other
receivables, which were "primarily" to investment-grade firms, Goldman Sachs
said. The bank's market exposure to oil and gas firms was negative $677
million compared with $805 million a year earlier.
Goldman Sachs's total is less than of its biggest competitors. Citigroup
Inc.'s funded and unfunded commitments amounted to $58 billion, analysts
at Susquehanna Financial Group LLP wrote in a note last week. Most of Wells
Fargo & Co.'s $17 billion in outstanding energy loans is for companies that
aren't investment grade, Chief Financial Officer John Shrewsberry said last
month.
Those bonds must be cumulative mustn't they – i.e. rolled over each year.
Otherwise that is about $1.3 trillion total. At (say) 5,000,000 bpd for
7 years at as high as $100 per barrel the companies would only be getting
$1.25 trillion total. Or am I missing something.
I'm going to predict a lot of bankruptcies in late 2017 as oil prices start
to rise because the lender's will suddenly see a lot more money in taking
over the resource base than by keeping the bond's rolling over.
….Credit analysts at UBS say there are $1.2 trillion outstanding
in loans to the U.S. oil industry! A third of this debt is owed by exploration
and production companies. And UBS predicts the default rate on these
loans could end up being in the low-teens…..
The oil industry also includes pipelines and infrastructure, refineries
……
In the above diagram it is also clearly stated:
The amount of bonds US energy companies below investment grade need to
pay back each year….
So, it is clear that the total amount of debt maturing over the next
7 years stands at 1.2 trillion.
"Credit analysts at UBS say there are $1.2 trillion outstanding in
loans to the U.S. oil industry! A third of this debt is owed by exploration
and production companies"
I think $1.2 trillion is total debt owed by the US oil and gas industry,
not just loans. 1/3 of $1.2 trillion = $400 billion owed by the E&P companies.
This includes bonds and bank loans. Bonds include junk bonds and investment
grade bonds. So $260 billion in junk bonds is the right number.
Besides, I have seen in various sources a similar number
Heinrich – I think I agree with Alex. The caption is wrong in the "per year"
bit, but correct in "below investment grade" – that is junk, which is not
the total debt to the oil industry by a long way (let's hope).
Yes, has anyone noticed swimming pools filled with oil in their neighborhood?
I haven't.
Why would anyone let oil go on a tanker and leave port unless they were paid for it?
Answer: They wouldn't. They get paid for it because they had an order for it and filled
the order. Why would they cut output and refuse to fill customer orders?
So who placed an order for oil they weren't going to sell to someone else who would
then burn it? Answer: No one did. They had customers and the customers placed orders
for it because they needed to burn it, and then took possession of it and burned it.
Why contort thinking on this? It's simple and clear.
"Why would anyone let oil go on a tanker and leave port unless they were paid for
it? "
This is a common practice. The tankers leave ports and can several times change
directions as the owner/seller of oil is trying to find the best buyer.
Interesting. How about offloading? That ever happen without paying the producer?
Because if the theory proposed here is all the storage is in tankers, you're going
to have to find about a billion barrels sitting unpaid for - all whilst KSA says
they produce what they have orders for.
About 20 to 25 of the world's 650 supertankers, which can hold two million
barrels and are called very large crude carriers, are in use as floating
storage,
That's 2 X 25 = 50 million barrels. The alleged oversupply of 3 mbpd for
20 mos (since June 2014) is 20 X 30 X 3 = 1.8 billion barrels.
There was never 3 mb/d oversupply, not to say for 20 months.
The oversupply peaked at 2.2-2.4mb/d in 2Q15, according to various estimates
(see the chart below).
From IEA OMR, January 2016:
"A notional 1 billion barrels of oil was added to global inventories
over 2014 – 2015 and our latest supply and demand balances suggest builds
will persist with up to 285 mb expected to be added to stocks over the
course of 2016. Despite estimations of current space storage capacity
and the outlook for significant capacity expansions over 2016, this stock
build will likely put midstream infrastructure under pressure and could
see floating storage become profitable. "
The volume in floating storage is a small part of total global inventories.
It can belong to producers (particularly, the NOCs) or to large traders.
Oil stored in tankers may belong to:
1) oil producers, particularly the NOCs (national oil companies). For
example, Iran's ~40 million barrels of crude and condensate stored
in tankers belongs to the Iranian national oil company.
2) oil traders, who have bought that oil and are storing it in tankers
in a hope that they could sell it later at a higher price.
Can you please explain how in oversupplied Europe Iran suddenly
found customers for more then 0.3 Mb/d (Italy, Greece and France;
Spain is next).
You should see inventories rising by the same amount because
according to the "oil glut" theory this oil can't be consumed, don't
you ? And 0.3Mb/d is 9 Mb/month. Most large oil contracts are long
term and you can't break them without penalties.
Also in the USA no producer with reasonably good quality oil
("sweet" with reasonable API gravity) has any difficulties selling
any volume he can produce. Moreover buyers ask for additional volumes.
Note the word "selling", not putting in storage at his own expense.
Theoretically within "oil glut" framework there is no place for
this oil to go other then in storage. And storage costs now are
very high in Continental US so there should be reasonable attempts
to minimize losses due to large amount of stored oil, which should
limit "new" oil buying.
So it looks like "glut theory" (which is essentially an extension
of neoclassical supply/demand model) has some serious holes in it.
"... There were massive capex budget cuts announced at several shale drillers today. Some of them cutting to around 20 percent of 2015s budget. ..."
"... Hess CEO, cannot make money at $50, let alone $30, going to run 2 rigs so dont have to disband the drilling department. ..."
"... I am thinking the attitude now is, You got us, we are toast without prices more than doubling. We may be seeing the capitulation we should have seen this time last year. ..."
"... Shale is going to take a dive in 2016, it appears. I suspect the straight holes in the USA took a dive in 2015, and it will get worse in 2016. ..."
"... The oil business is more about finances than most appear to recognize. For the near term (like the next 2-3 years) the developments will very much be related to the strength (or lack of) the oil companies balance sheets (as in assets/equities). ..."
"... Point being, at $30 WTI, PV10 is maybe a little more than half long term debt? Now lets apply that statistic to the entire US LTO industry. I sure hope we have hit capitulation combined with resignation that plans for almost zero activity for 2016 must be stuck to in the USA, despite any price uptick, for survival purposes. ..."
There were massive capex budget cuts announced at several shale drillers today. Some of them cutting
to around 20 percent of 2015's budget. CHK is planning on running 4-7 rigs in 2016 vs an average
of 28 in 2015 and 64 in 2014. WLL is anticipating 2 rigs in Niobrara and 2 in Bakken, an 80% cut
in capex from 2015. QEP is reducing capex from 1007 million in 2015 to around 450 to 500 million
in 2016, they will have one rig running in Pinedale, Permian, and Bakken with a fourth rig somewhere
later in the year. OAS is cutting capex from 610 million in 2015 to around 400 million in 2016.
CLR is also cutting substantially as well as reporting a sequential decline in 4th Q 2015 production
from 3rd Q.
One further thing to note about Whiting, making my conventional (vertical) decline point.
North Ward Estes CO2 flood
1/15 9,976 bopd, 11,901 mcfpd.
12/15 8,508 bopd, 9,902 mcfpd.
Hess CEO, cannot make money at $50, let alone $30, going to run 2 rigs so don't have to disband
the drilling department.
I am thinking the attitude now is, "You got us, we are toast without prices more than doubling."
We may be seeing the capitulation we should have seen this time last year.
An interesting observation about CHK's drilling plans, is they intend to only have one rig
in the Marcellus/Utica area, normally considered the most productive and prospective area, while
they will have 3 drilling in the Haynesville, normally considered past its prime.
I have to wonder if the lack of pipelines in the NE and the continuing delays in the approval
process, compared to available pipeline capacity, and full HH price, has any bearing on their
decision to stay with the Haynesville?
"North Dakota oil producer Whiting Petroleum Corp said on Wednesday it will suspend all
fracking and spend 80 percent less this year, the biggest cutback to date by a major U.S. shale
company reacting to the plunge in crude prices." … "Denver-based Whiting said it will stop fracking and completing wells as of April 1. Most of
its $500 million budget will be spent to mothball drilling and fracking operations in the first
half of the year. After June, Whiting said it plans to spend only $160 million, mostly on maintenance."
As I recall, the reason for TX revisions is due to new leases, primarily, and some slow reporting
by small operators, secondarily? So looking at conventional 12/15 should be fairly accurate, or
at lest 10-11/15 should be?
I looked at a few of the big conventional producers in TX, including Sheridan, Citation, Legacy,
Breitburn.
All big down YOY. SACROC is down, but Yates surprised me, it is up. Also, looks like XTO and
Chevron kept their big leases up, wonder if they will in 2016.
Shale is going to take a dive in 2016, it appears. I suspect the "straight holes" in the
USA took a dive in 2015, and it will get worse in 2016.
I know I am seeing more and more idle wells each week. They just aren't being pulled,
work over rigs stacked.
I assume there will be a lag till prices begin to rise, especially if KSA keeps trash talking.
The oil business is more about finances than most appear to recognize. For the near term (like
the next 2-3 years) the developments will very much be related to the strength (or lack of) the
oil companies balance sheets (as in assets/equities).
Gotta give CLR credit for providing this information. I hope many do.
CLR long term debt $7.118 billion.
Point being, at $30 WTI, PV10 is maybe a little more than half long term debt? Now let's apply that statistic to the entire US
LTO industry. I sure hope we have hit capitulation combined with resignation that plans for almost zero activity
for 2016 must be stuck to in the USA, despite any price uptick, for survival purposes.
"... Iron ore's rally – up 11 per cent over the past week – may not have much further to go but the days of rock-bottom prices are probably over, say analysts. ..."
Getting back to the market, the reason why they tend to fool us most of the time is because we don't
listen to its message in an unemotional way. If you're a commodity bull, you probably think the bottom
is in and this rally represents the start of a new bull market.
Jesse Livermore never used the words bullish or bearish. He thought they came with too many emotional
connotations. It made it more difficult for him to change tack when the market told him he was wrong.
He simply looked at a market or stock and worked out whether the trend was up, down or going sideways.
This told him what to do in an unemotional way.
Livermore was a pro. He made millions and lived the high life. He also lost his millions and ended
up with a bullet in his head. Put there by himself. The market, and life, broke him at the age of
63.
So don't think the market is easy. It doesn't hand out freebies to anyone. You have to work hard
and think harder to tame the beast. And it doesn't make it any easier reading the mainstream business
press, who regularly quote 'analysts' who change their mind with each change in the direction of
the price.
For example, the ongoing rally in the
iron ore price is predictably changing opinions. From the Financial Review:
'Iron ore's rally – up 11 per cent over the past week – may not have much further to go
but the days of rock-bottom prices are probably over, say analysts.'
Why are the days of rock bottom prices 'probably' over? As far as I can tell, it's simply because
the price has moved sufficiently away from 'rock bottom' to give confidence that it won't return
to rock bottom.
Top analysis, huh?
But when the herd moves, it moves on emotion, not on cold hard analysis.
Don't get me wrong, this could well be the bottom. But you need to see more evidence before increasing
your bets.
On the positive side for the commodity complex, US inflation numbers out late last week were higher
than expected. Core consumer prices rose 2.2%, the highest rate since 2012. So much for deflation…
Also providing some added fuel for the rally is the near record short position in US stocks. This
means that a large amount of traders are betting on further prices falls. According to Zerohedge,
it's the largest bet against the market since July 2008.
The problem with large 'short' positions in the market is that any bit of good news can spark
a big short covering rally. Short sellers have to buy back their shares at some point. That's how
they close out their positions. So an increase in short sales actually represents a lot of future
buying power.
This recent rally then could well be short sellers buying back their positions.
The most recent four week running average data (through Mid-February), show that US net crude
oil imports increased year over year, from 6.8 million bpd in 2/15 to 7.4 million bpd in 2/16. And
US net crude oil imports, as a percentage of C+C inputs into refineries, rose year over year from
44% last year to 47% this year (four week running average data).
And links to articles from last year and this year that discuss refiners' unhappiness with "Synthetic
WTI" blends of heavy crude and condensate:
With US shale balancing of the verge of financial collapse this is a pure propaganda. This time
it is the US shale companies that are the weakest link and they will not last 2016 is oil prices stay
low. Wells can be reopened but shale well deteriorate so fast that it does not make much
sense. And you need money for drilling new wells. Who will finance this new shale boom after so many
players were burnt ?
Notable quotes:
"... Kuwait's struggles in the 1980s are instructive for anyone wondering whether producing countries can tinker their way out of trouble now. In the face of weak prices in the early years of the decade the OPEC production group introduced output cuts in an attempt to mop up oversupply. Kuwait slashed production from nearly 2 million barrels per day to about 600,000 bpd. The top producer Saudi Arabia made even costlier cuts. ..."
When Sheikh Ali Khalifa al-Sabah of Kuwait thinks about today's plunging oil prices, his mind drifts
back to the mid-1980s, when he was forced to sell some of his country's crude for as little as $5
a barrel.
As Kuwait's oil minister at the time, Sheikh Ali had to sell a cargo or two at that price
just to keep up cash flow to a country that depended upon oil revenues. "It wasn't because I wanted
to; it was because it was the market price," he recalls.
"We really had no alternative."
For oil industry players active during the 1980s bust, the current drop in prices carries echoes
of those desperate days. Interviews with some of those involved in that period reveal that while
there is little consensus on how long prices will stay depressed, experience suggests the current
market glut will not evaporate soon.
Representatives from all aspects of the energy industry will be mulling current low oil prices
and the supply glut this week during the IHS CERAWeek gathering in Houston.
Kuwait's struggles in the 1980s are instructive for anyone wondering whether producing countries
can tinker their way out of trouble now. In the face of weak prices in the early years of the decade
the OPEC production group introduced output cuts in an attempt to mop up oversupply. Kuwait slashed
production from nearly 2 million barrels per day to about 600,000 bpd. The top producer Saudi Arabia
made even costlier cuts.
Three factors dashed the plan: fellow OPEC members cheated on their own cuts; global thirst for
oil had dried up after price spikes in the 1970s pushed consumers to buy efficient cars; and new
supplies, particularly from non-OPEC Mexico, Norway, and Alaska threatened to squash gains from any
cuts.
By late 1986, Saudi Arabia and other OPEC members opened the taps again to regain market share,
and prices did not recover for 20 years.
The memory leaves Sheikh Ali, now 71, feeling grim about a price recovery this
time.
"Tomorrow if the price of oil goes down to $20 I would not be surprised," he said. "You don't
take excess oil away very quickly. It was true in the 1980s, now it's even worse."
... ... ...
Sheikh Ali estimated it will take seven to 10 years to emerge from the current slump. "The
idea that U.S. companies are going to collapse and therefore their production is going to zero is
daydreaming," he said. "Even the wells that have closed can easily re-open."
Saudi Arabia may no longer be the swing producer of global markets, but the United States is
now the world's "spring producer," Sheikh Ali said. Shale stands to put a long term damper on
global markets, because when oil prices rise even a little, North Dakota and Texas output can pop
back to market far easier than expensive deepwater or Alaskan production did decades ago, he
said.
Technology innovations keep pushing the cost of shale production lower. And the return of Iran's
oil exports after the lifting of sanctions also threatens to moderate prices.
The only problem with US exports is that the USA is net importer of oil. The USA definitely can
export condensate, as it does not has processing facilities for it, but that's about it. As for
"A prolonged period of low gas and oil prices will put heavy pressure on Russia" the USA shale producers
will go belly up first. Probably this year.
The same is true for natural gas. The USA remains a net exporter and shale production is dwindling
down quickly. Individual shipments does not change this picture.
Notable quotes:
"... The U.S. remains a net importer, but its demand for foreign oil has fallen by 32 percent since peaking in 2005. West Texas Intermediate crude traded at $33.34 a barrel at 8:51 a.m. on the New York Mercantile Exchange Tuesday, down 33 percent from a year earlier. ..."
"... "A prolonged period of low gas and oil prices will put heavy pressure on Russia in its relations with the West and of course low energy prices put tremendous strain on all exporters of hydrocarbons worldwide, on their government budgets," said Ted Michael, an analyst at Genscape Inc., an energy-market data and intelligence firm. ..."
"... Trafigura Group Pte Ltd. also sold West Texas Intermediate oil to a refinery in Israel, Ben Luckock, global head of crude oil at the commodity trader, said on Monday by e-mail. The 700,000-barrel cargo of U.S. benchmark crude will be delivered in March. ..."
"... Bloomberg has an article up by somebody saying that it is a "game changer" now that the US can ship oil all over the world to compete with OPEC. I would guess that the guy has never read anything by Jeffrey Brown. I think that he thinks that we are an Export Land in the model. ..."
"... There is so much ignorance out there that it is going to be a rude awakening when it happens. All these guys advising investors to sell everything related to fossil fuels because they are not making any money, but they think that they will make huge profits at $50 bbl. Except that when it does get to $50, it will plunge again because the huge flood of oil that will hit the market. What a joke. ..."
"... I think Bloomberg is mixing the export of condensate which is overproduced in the USA and does not fit the refineries tune up with the export of oil which might be a more challenging idea. ..."
"... It is unclear whether this is a "real" WTI or "artificial" WTI that the US refineries do not want. I think it is the latter. ..."
For the
Saudis and their OPEC cohorts, who collectively control 40 percent of the globe's oil supply, the
specter of U.S. crude landing at European and Asian refineries further weakens their grip on world
petroleum prices at a time they are already suffering from lower prices and stiffened competition.
With Russia also seeing its influence over European energy buyers lessened, the two crude superpowers
last week tentatively agreed to freeze oil output at near-record levels, the first such coordination
in a decade and a half.
... ... ...
Beyond corporations, the Dec. 18 lifting of the export ban by Congress and President Barack Obama
created geopolitical winners and losers, too. The U.S., awash in shale oil, has gained while powerful
exporters like Russia and Saudi Arabia, for whom oil represents not just profits but also power,
find themselves on the downswing.
The U.S. remains a net importer, but its demand for foreign oil has fallen by 32 percent since
peaking in 2005. West Texas Intermediate crude traded at $33.34 a barrel at 8:51 a.m. on the New
York Mercantile Exchange Tuesday, down 33 percent from a year earlier.
... ... ...
"A prolonged period of low gas and oil prices will put heavy pressure on Russia in its relations
with the West and of course low energy prices put tremendous strain on all exporters of hydrocarbons
worldwide, on their government budgets," said Ted Michael, an analyst at Genscape Inc., an energy-market
data and intelligence firm.
... ... ...
The Theo T was joined shortly after its trailblazing journey by a second ship out of Houston destined
for the Netherlands. How many tankers have sailed since won't be known until comprehensive data on
January's shipments is released by the U.S. Census Bureau in the coming weeks.
Trafigura Group Pte Ltd. also sold West Texas Intermediate oil to a refinery in Israel, Ben Luckock,
global head of crude oil at the commodity trader, said on Monday by e-mail. The 700,000-barrel cargo
of U.S. benchmark crude will be delivered in March.
What's already clear is that even with crude losing about 70 percent of its value since the middle
of 2014 amid a worldwide production glut and a slowdown in Chinese demand growth, buyers are happy
for the chance to diversify their sources of supply.
... ... ...
U.S. companies, led by Cheniere, have been spending billions of dollars on LNG export complexes where
the fuel is cooled to minus 256 degrees Fahrenheit (minus 160 Celsius) to shrink it to 1/600th its
volume so it can be shipped aboard ocean-going tankers. As a result, an international gas market
is emerging akin to the long-established one for the more readily transportable crude oil.
LNG
Exports
Houston-based Cheniere plans to begin LNG exports within weeks, after missing a January target
because of faulty wiring. The first tanker that will carry LNG from Cheniere's Sabine Pass terminal
in Louisiana has arrived. Asia Vision has moored at Sabine Pass, according to ship-tracking data
compiled by Bloomberg.
U.S. LNG cargoes, in combination with a bevy of new gas projects in Australia, will probably add
15 billion cubic feet of daily supply to global markets in the next few years, Genscape's Michael
said. That would be a 43 percent addition to the 35 billion currently bought and sold internationally.
Bloomberg has an
article up by somebody saying that it is a "game changer" now that the US can ship oil all
over the world to compete with OPEC. I would guess that the guy has never read anything by Jeffrey
Brown. I think that he thinks that we are an Export Land in the model. How can they not know
that, in effect, except for quality differences, we are just exporting oil that we imported from
Canada or some other place.
There is so much ignorance out there that it is going to be
a rude awakening when it happens. All these guys advising investors to sell everything related
to fossil fuels because they are not making any money, but they think that they will make huge
profits at $50 bbl. Except that when it does get to $50, it will plunge again because the huge
flood of oil that will hit the market. What a joke.
I think Bloomberg is mixing the export of condensate which is overproduced in the USA and does
not fit the refineries tune up with the export of oil which might be a more challenging idea.
Beyond corporations, the Dec. 18 lifting of the export ban by Congress and President Barack
Obama created geopolitical winners and losers, too. The U.S., awash in shale oil, has gained
while powerful exporters like Russia and Saudi Arabia, for whom oil represents not just profits
but also power, find themselves on the downswing.
The U.S. remains a net importer, but its demand for foreign oil has fallen by 32 percent
since peaking in 2005. West Texas Intermediate crude traded at $33.34 a barrel at 8:51 a.m.
on the New York Mercantile Exchange Tuesday, down 33 percent from a year earlier.
… … …
Trafigura Group Pte Ltd. also sold West Texas Intermediate oil to a refinery in Israel, Ben
Luckock, global head of crude oil at the commodity trader, said on Monday by e-mail. The 700,000-barrel
cargo of U.S. benchmark crude will be delivered in March.
What's already clear is that even with crude losing about 70 percent of its value since
the middle of 2014 amid a worldwide production glut and a slowdown in Chinese demand growth,
buyers are happy for the chance to diversify their sources of supply.
It is unclear whether this is a "real" WTI or "artificial" WTI that the US refineries do not
want. I think it is the latter.
The growth engine of Canada's energy industry is poised to shut off next decade, according to
the International Energy Agency.
Production gains from the oil sands in northern Alberta will slow dramatically or come to a halt
as crude prices remain low and costs too high for one of the world's most expensive sources of
oil, the agency forecast Monday in a report on the global medium-term crude market. Environmental
concerns, a lack of new oil pipelines and uncertainty about policy in Alberta are also causing
companies to slow development work, the report said.
... ... ...
The outlook for slowing oil-sands growth next decade comes as Canadian energy companies report
quarterly earnings results that display the full brunt of the market collapse. Narrowing refining
margins are no longer shielding producers such as Cenovus Energy Inc. from losses in their
upstream divisions. Companies are further lowering dividends, cutting jobs and setting aside
drilling rigs to contend with what Cenovus Chief Executive Officer Brian Ferguson earlier this
month called "hurricane-force" winds.
"... Opec's strategy began to shift last week, when the oil ministers of Saudi Arabia and Russia agreed to freeze their output at the January level, provided other oil-rich countries joined. Mr El-Badri said the new policy will be evaluated in three to four months before deciding whether to take other steps. ..."
"... "This is the first step to see what we can achieve," he said. "If this is successful, we will take other steps in the future." He refused to explain what steps Opec could take." ..."
"The balance sheets of shale producers are in disrepair," said Mr Hess"
and
"Opec launched a price war against US shale and other high-cost producers, including Canadian
oil sands and Brazilian deep-water oilfields, in November 2014 by not reducing output despite
a global oversupply. Since then, oil prices have plunged by more than half, hitting a 12-year
low of about $26 on February 11.
In a rare admission that the policy hasn't worked out as planned, Mr El-Badri said that Opec
didn't expect oil prices to drop this much when it decided to keep pumping near flat-out.
Opec's strategy began to shift last week, when the oil ministers of Saudi Arabia and Russia
agreed to freeze their output at the January level, provided other oil-rich countries joined.
Mr El-Badri said the new policy will be evaluated in three to four months before deciding whether
to take other steps.
"This is the first step to see what we can achieve," he said. "If this is successful, we will
take other steps in the future." He refused to explain what steps Opec could take."
"... Citing swaps data from the Depository Trust Clearing Corp., Reuters noted
that trading volume in over-the-counter oil swaps was more than five times higher
than the past three days combined. ..."
"... By the end of March, the U.S. shale industry will have a combined interest
bill due of $1.2 billion-some 50 percent of that owed by companies that have junk-rated
credit, according to Bloomberg . By the end of this year, $9.8 billion in interest
payments will come due for the shale industry. ..."
According to
Reuters, last Thursday, U.S. crude for December 2017 delivery fell more
than 2 percent to $43.47 per barrel, partly due to producer hedging. WTI for
2017 rose up to $43.55 per barrel, compared to January's record low of $37.38
per barrel.
Citing swaps data from the Depository Trust & Clearing Corp.,
Reuters noted that trading volume in over-the-counter oil swaps was more
than five times higher than the past three days combined.
The renewed hedging comes as shale interest payments are due in March, and
producers are under tough pressure to ensure they will be able to make good
on their debts.
By the end of March, the U.S. shale industry will have a combined interest
bill due of $1.2 billion-some 50 percent of that owed by companies that have
junk-rated credit,
according to Bloomberg. By the end of this year, $9.8 billion in interest
payments will come due for the shale industry.
Some have already missed their payments, including a $21.7 million interest
payment by
SandRidge Energy Inc., and an $8.8 million payment by Energy XXI Ltd. SandRidge
can apparently make the payment, but chose to make use of the 30-day grace period.
A total of 48 oil and gas producers have declared bankruptcy in North America
since January last year, leaving unpaid debts of some $17 billion,
according to HaynesBoone law firm.
As of the beginning of this year, we're looking at $325 billion in debt for
American's cash-flow negative producers,
according to ZeroHedge.
And banks are
getting a bit nervous because of all the pressure coming from investors
who aren't keen on the emerging default picture in the oil and gas industry-despite
the fact that most banks' overall portfolios only have 2-3 percent lending to
this sector. The KBW Bank Index has fallen 16.7 percent since the 1 January
2016.
According to the
Financial Times, America's 60 leading oil and gas companies have $200 billion
in debt-and counting.
Iran called a proposal by Saudi Arabia and Russia to freeze oil production
"ridiculous" as its seeks to boost its own output after years of sanctions constrained
sales.
The proposal by Saudi Arabia, Russia, Venezuela and Qatar for oil producers
to cap output at January levels puts "unrealistic demands" on Iran, Oil Minister
Bijan Namdar Zanganeh said Tuesday, according to the ministry's news agency
Shana.
"It is very ridiculous, they come up with the proposal on freezing oil production
and call for this freeze to take place in their 10 million barrels a day production
vis-a-vis Iran's 1 million barrels a day" planned production boost, he said.
"If Iran's crude oil production falls, it will be overtaken considerably by
the neighboring countries."
The three OPEC members and Russia are seeking to stop the 40 percent drop
in oil prices over the past year caused by a global crude glut. Iran is seeking
to boost output by 1 million barrels a day this year after international sanctions
on its oil industry were lifted last month.
"... If oil prices remain under $40/b for the remainder of 2016, we might see more significant decline in LTO output than 600 kb/d, my more optimistic forecasts for LTO were based on an assumption of an oil price recovery in 2016, which is looking less likely due to continued oversupply of oil. ..."
"... At some point a "Minsky moment" may occur in the LTO sector and as all the investors head for the exit at once, we might see a sharp drop in LTO output as companies go bankrupt and financial chaos ensues. ..."
"... The scenario of a 'Minsky' moment in the shale industry is exactly what I think is necessary to bring oil prices up again. Some call it capitulation. ..."
"... As the shale industry is still fighting to keep production up, the situation gets more tense and more painful by the day. ..."
I don't have access to the report is there a reference oil price scenario?
If oil prices remain under $40/b for the remainder of 2016, we might see more significant decline
in LTO output than 600 kb/d, my more optimistic forecasts for LTO were based on an assumption
of an oil price recovery in 2016, which is looking less likely due to continued oversupply of
oil.
At some point a "Minsky moment" may occur in the LTO sector and as all the investors head for
the exit at once, we might see a sharp drop in LTO output as companies go bankrupt and financial
chaos ensues. I don't think this is high probability, but don't think it highly unlikely either,
maybe a 1/3 chance that a major crisis in the LTO sector is in the cards.
The scenario of a 'Minsky' moment in the shale industry is exactly what I think is necessary
to bring oil prices up again. Some call it capitulation.
There are still many people invested hoping for a turnaround without capitulation. Yet this
will take a lot of time and will be painful. A sudden capitulation is much more likely and will
be at the end less painful.
As the shale industry is still fighting to keep production up, the situation gets more tense
and more painful by the day.
This interesting hypothesis about the elite split is not supported by the facts. It is unclear that
is this is true, why faction of elite which represent Big Oil can't get their own Presidential candidate.
Hillary is definitely a neocon. Same its true for Jeb! (he was a member of neocon think tank "Project
for New American century" and used Wolfowitz as a political advisor), Cruz and Rubio (both are probably
to the right of Jeb!).
Notable quotes:
"... This is power struggle between two opposite approaches between two camps. Elite is split along
the lines who has more to lose between two approaches: continuous world conflict or cohabitation and
gradual shifting of power to other parts of the world. Everything points that Bankers Big Oil are in
two opposite camps. Rest of us, including small medium oil, are just collateral damage in all of this.
..."
"... Do really believe that Bankers via their shale pet project just pumped 4.5 mbpd within just
6-7 years for reason of profit? There is no profit. Don't you see the blame game and the deflection
from the bankers that Saudis are "flooding" the oil market? ..."
"... Saudis are "flooding" oil as much Norwegians are "flooding" and that is – same as before. Do
you see that only shale are the "chosen one" and have a luxury of keeping the credit lines open while
Big Oil is forced cutting dividends for the first time in 100 years? Too many things are pointing to
this struggle that would make this just coincidence. ..."
I know where you are coming from but all I am trying to see through the fog of lies and
disinformation. This whole oil price crash is not about renewables , or how big our carbon foot
print is and if people should feel "not good enough" because of that.
This is power struggle between two opposite approaches between two camps. Elite is split
along the lines who has more to lose between two approaches: continuous world conflict or cohabitation
and gradual shifting of power to other parts of the world. Everything points that Bankers & Big
Oil are in two opposite camps. Rest of us, including small & medium oil, are just collateral damage
in all of this.
Do you really believe that these critical articles about Exxon are just suddenly appearing
after 100 years of pumping oil? Do really believe that Bankers via their shale pet project
just pumped 4.5 mbpd within just 6-7 years for reason of profit? There is no profit. Don't you
see the blame game and the deflection from the bankers that Saudis are "flooding" the oil market?
Saudis are "flooding" oil as much Norwegians are "flooding" and that is – same as before.
Do you see that only shale are the "chosen one" and have a luxury of keeping the credit lines
open while Big Oil is forced cutting dividends for the first time in 100 years? Too many things
are pointing to this struggle that would make this just coincidence.
This is power struggle between two opposite approaches between two camps. Elite is split along
the lines who has more to lose between two approaches: continuous world conflict or cohabitation
and gradual shifting of power to other parts of the world.
Very interesting hypothesis.
Thank you --
Now one question.
Was not Jeb! a representative of Bush clan and by extension Big Oil in the current
Presidential race ? If so, then please note that he is a typical neocon (former member of the Project for New American
Century; with Wolfowitz as a political advisor). Also it was an oil man Bush II who got us into Iraq.
Those facts make your hypothesis about Big Oil being against imperial adventures somewhat weaker.
"... The total exposure jumps $1.9 billion counting derivatives and other receivables,
which were primarily to investment-grade firms, Goldman Sachs said. ..."
Goldman Sachs Group Inc. (GS) said about 40 percent of its loans and lending
commitments to oil and gas companies are to junk-rated firms.
The figure, which counts both loans made and future promises to lend, accounted
for $4.2 billion of a total $10.6 billion as of the end of December, the New
York-based bank said Monday in its annual regulatory filing. Goldman Sachs has
$1.5 billion in loans to energy companies rated below investment grade and $2.7
billion in unfunded commitments.
The total exposure jumps $1.9 billion counting derivatives and other
receivables, which were "primarily" to investment-grade firms, Goldman Sachs
said.
Concerns about banks' energy loans have helped spur share declines for lenders
after the price of oil fell 42 percent in the past 12 months through Friday.
The Standard & Poor's 500 Financials Index slumped 13 percent in the same period.
Goldman Sachs's total is below some of its biggest competitors. Citigroup
Inc.'s (C) funded and unfunded commitments amounted to $58 billion, analysts
at Susquehanna Financial Group LLP wrote in a note last week. Most of Wells
Fargo & Co.'s (WFC) $17 billion in outstanding energy loans is for companies
that aren't investment grade, Chief Financial Officer John Shrewsberry last
month.
Of course, with PXD, long term debt of $3.2 billion = PV10 of $3.2 billion.
At $50 WTI.
They have a high percentage of 2016 oil hedged, but considerable amount
with three way collars.
Who wants to bet that the aggregate PV10 of all US based non integrated
E & P public companies is less than their aggregate long term debt at $50
WTI? And we are at $30 WTI.
Maybe I will try to add it up in about a month or so, once the 10K are
out.
If that is true, how many billions of market cap is purely a bet that
oil prices are headed well north of $50 before debt cannot be extended?
Can you explain to me if PXD, PV10 is =or< long term debt, why is not
PXD declared insolvent, and suspended from trading, as they would be technically
bankrupt.
Toolpush. Per their Q4 press release, it appears all categories PV 10 is
$3.2 billion. From another press release the same day (2/10/16), it appears
long term debt is $3.2 billion.
They are not insolvent if they can make debt and expense payments. They
have hedges, which definitely helps them. Keep in mind, however, PV10 was
calculated at $50 WTI and $2.65 HH.
Looked at Denbury, who has about 70K bopd, about half CO2 flood. Long
term debt $3.3 billion, PV10 at $50 WTI $2.3 billion.
PXD stock at $122. Denbury stock at $1.
I guess that is why they call it a casino, the stock market thing we
put our 401k's in and W wanted to invest SS money in. LOL.
I have been running some numbers at $30 WTI and $2 natural gas. Just
plugging in numbers, not specific to any company. Assuming $25 well head
oil and $1.50 wellhead gas. But I am including interest and G & A in addition
to OPEX, transport, P & A.
There really isn't any significant value, even with $8 OPEX, which is
really pretty low for oil weighted companies.
For a company with OPEX like Denbury, the assets are not, they are liabilities,
because they are cash flow negative now at those prices.
Note: I escalate OPEX at 3% per annum, which I have found is fairly common,
at least for five years or so. Shale has almost no PV10 when you do that
as it becomes CF negative in year 2-3 due to steep decline. I'm using 25%
decline in the shale reference, per PXD saying ceasing activity in EFS will
result in 25% decline in 2016, then tapering off 5% per year till getting
to 5% annual, then holding at 5%.
Texas Crude and condensate are basically holding flat, yet associate or
casing head gas is on the increase. An indication of a rising GOR, similar
to the Bakken.
Depending on which side of the fence you are sitting, It could be drilling
more gassy parts of the reservoir, or those damn chokes, that keep vibrating
open!
I'm curious what are low decline vertical waterflood properties selling
for in this environment? Aren't these in general better in a lower priced
environment (say $50ish) than the shale plays? I can't really figure out
why horizontal permian gets so much hype in this environment. I've found
2 permian players that seem to make money at 50 and below, RSP permian and
Callon Petroleum, but they are valued as if oil is +80 trading at over $100k
per flowing barrel. The lowest cost producers I've found are all vertical
producers and MLPs. MCEP is probably the lowest cost producer in the U.S.
and they do pure low decline waterfloods. They have quite a bit of debt
but even with that they're trading at $40k per flowing barrel including
all debt.
Kelly b. Right now, unhedged, 2/16 price looks to be $16-$26 depending on
location.
I sincerely doubt there are many secondary projects will all in costs
(excluding interest) under $20. Just look at MCEP.
How do you price assets that are barely making money, breaking even,
or losing money?
Likewise, re shale. PXD values PUD PV10 at about $350 million. It isn't
too economic. They are saying that, not me. Some 600,000 acres in the Permian
with PUD PV 10 of $350 million at $50 WTI.
The only value in lower 48 onshore is that prices rise substantially
in 2016. It is practically all an option at current levels. The PV10 values
tell us that.
What happens to GM, for example, if they can suddenly only sell new vehicles
for $5-15K?
One company you mention is Mid-Con. In 2014 PV10 was $664 million. But
look at costs. LOE $22.93, production taxes $5.56, G & A $12.58. LT debt
$205 million.
Granted, in Q3 2015 they had hammered costs down to $19.60 LOE, $.46
production taxes and $5.04 G & A. At $25 wellhead there is $0 PV.
Yes, Mid-Con is hedged. Only way they may survive. I'd say almost secondary
and tertiary projects are underwater at $30 WTI in lower 48, when G & A
is included.
Shale oil LOE is only low due to a high number of new wells. I think
5+ year old wells have LOE $15-$30 for the most part, with outliers of course.
In light of the recent declines, financial services firm Raymond James
& Associates Inc. further reduced its forecast US rig counts for 2016-18
in its most recent industry brief.
RJA now projects an average 2016 count of 500, down from the 620 the
firm projected just last month and down nearly half compared with the 2015
average. The new bottom is expected occur in April at 400 units, compared
with RJA's previous projection of 550 in June. [The most recent rig count
is 514 – AlexS].
A drilling rebound isn't seen until late 2016, the firm says, as many
E&P firms are likely to first focus on drawing down their uncompleted well
inventories and improving their balance sheets, while waiting for consistently
higher crude oil prices and a labor force recovery.
The count is forecast to end 2016 at 700 units, adding just 300 during
the second half.
… the lower activity this year should still lead to even more robust
growth in 2017-18," the firm said.
RJA expects the average count to jump 106% year-over-year in 2017 to
1,030, and rise 32% year-over-year to 1,358 in 2018.
"Despite the strong growth expected in 2017-18, we don't see the rig
count reaching the heights of 2014 levels again, as rig efficiencies continue
to advance at a solid clip," the firm added.
I think their forecast is based on the belief that the US government
will somehow (may be indirectly via OPEC June meeting) help to rotate the
existing debt in 2008 banks bail-out fashion.
"... A pretty typical story. The true cost of the extraordinarily low rates
and availability of cheap credit since 2008 is the misallocation of resources up
to and including emergence of a class of Ponzi borrowers (see below). In other words
stability of 2010-2014 in oil sector was highly destabilizing. ..."
"... These companies are outspending what they earn by a dollar more today than
they were a year ago during the first half of 2014. Anyone who believes that decreased
service costs and drilling efficiency will allow tight oil companies to make a profit
at $50-60 oil prices needs to think again." ..."
"... As soon as the use of Ponzi financing of operations became widespread the
bubble is ripe for popping. When for some reason the asset prices stop increasing
and start doing down, Ponzi borrowers go down with some time lag. ..."
"... That changes attitude of lenders dramatically and they start tightening
the conditions of borrowing and make it more difficult to roll over the debt even
if interests payments were paid on time. ..."
"... Dominoes start falling. That means that speculative borrowers follow Ponzi
borrowers as they can no longer refinance (roll over) the principal even if they
are able to cover interest payments. ..."
"... Collapse of the speculative borrowers can then bring down even hedge borrowers,
who are unable to find loans despite the apparent soundness of the underlying investments.
..."
"... I hope the government will provide some lifeline at least by allowing refinancing
of the loans so that the complete collapse of shale/tight oil bubble will be avoided.
..."
Look at Denbury Resources. They have shut in 2,300 barrels of
oil production per day. Their operating costs, plus severance taxes,
general and administrative expenses and interest are more than what
they can sell their current production for. And they have $3.3 billion
of debt. This is a 70,000 bopd company.
A pretty typical story. The true cost of the extraordinarily low
rates and availability of cheap credit since 2008 is the misallocation of
resources up to and including emergence of a class of Ponzi borrowers (see
below). In other words stability of 2010-2014 in oil sector was highly destabilizing.
"…For the first half of 2015, the tight oil-weighted E&P companies
that I follow spent about $2.20 in capital expenditures for every dollar
they earned from operations (Figure 5)… These companies are outspending
what they earn by a dollar more today than they were a year ago during
the first half of 2014. Anyone who believes that decreased service costs
and drilling efficiency will allow tight oil companies to make a profit
at $50-60 oil prices needs to think again."
Essentially he described what Minsky called "Ponzi borrowers". Following
Minsky the key mechanism that pushes a given sector towards a crisis is
the accumulation of Ponzi debt.
He identified three types of borrowers that contribute to the accumulation
of insolvent debt: hedge borrowers, speculative borrowers, and Ponzi
borrowers.
The "hedge borrower" can make debt payments (covering
interest and principal) from current cash flows from investments.
For the "speculative borrower", the cash flow from investments
can service the debt, i.e., cover only the interest due, but the
borrower must regularly roll over, or re-borrow, the principal.
The "Ponzi borrower" (named for Charles Ponzi, see also
Ponzi scheme) borrows based on the belief that the appreciation
of the value of the asset will be sufficient to refinance the debt
but could not make sufficient payments on interest or principal
with the cash flow from investments; only the appreciating asset
value can keep the Ponzi borrower afloat.
As soon as the use of Ponzi financing of operations became widespread
the bubble is ripe for popping. When for some reason the asset prices stop
increasing and start doing down, Ponzi borrowers go down with some time
lag.
That changes attitude of lenders dramatically and they start tightening
the conditions of borrowing and make it more difficult to roll over the
debt even if interests payments were paid on time.
Dominoes start falling. That means that speculative borrowers follow
Ponzi borrowers as they can no longer refinance (roll over) the principal
even if they are able to cover interest payments.
Collapse of the speculative borrowers can then bring down even hedge
borrowers, who are unable to find loans despite the apparent soundness of
the underlying investments.
I hope the government will provide some lifeline at least by allowing
refinancing of the loans so that the complete collapse of shale/tight oil
bubble will be avoided.
While MatlinPatterson's Portfolio Manager Michael Lipsky can't wait to enter
the distressed junk bond space, thanks to "$74 billion in debt trading at
under 25 cents on the dollar, and $205 billion trading at under 70 cents on
the dollar", he agrees with BofA's Michael Contopoulos
that it is still far too soon to buy. The question, according to Lipsky,
is what capital structure works in the aftermath of several recent "bombs" such
as Magnum Hunter which are trying to emerge from bankruptcy with negative EBITDA,
and as a result both secured debt and the DIP are getting equitized.
The punchline
of Lipsky's speech was that due to the persistent collapse of oil prices, the
bankruptcy process has been turned on its head: "we always assume that secured
lenders would roll into the bankruptcy become the DIP lenders, emerge from bankruptcy
as the new secured debt of the company. But they don't want to be there,
so you are buying the debt behind them and you could find yourself
in a situation where you could lose 100% of your money."
Which brings us to Lipsky's moment of zen: "all these derivatives
bets on oil, let's just own oil; and on the other side we are
actually short, focused more on the EM oil exposure."
Give and take between the Comptroller of the Currency and the
Fed generated stories of big banks being a bit more lenient rather than
swamping regional banks with failures. E&P companies had their
borrowing bases upheld, for now, but were told to generate additional liquidity
or have those bases cut in the spring.
What this means is that what we reported one month ago about the Dallas Fed
"advising" banks to "not to force energy bankruptcies", something which also
spilled over in the Fed advising banks to limit mark-to-market on energy exposure
and to use a generous strip pricing, was spot on.
Rumor Houston office of Dallas Fed met with banks,
told them not to force energy bankruptcies; demand asset sales instead
Now, thanks to Credit Suisse and Lipsky we have the full story: the
meetings between the Dallas Fed and the banks did indeed happen, however, as
we suspected, the Fed used a neat loophole.
Fast forward to 2:17 into the clip for the answer on what it was (which is
also the reason why banks don't want to be at the top of the capital structure
of energy companies any longer):
"The OCC is breathing down the neck of the large commercial banks
to limit their energy exposure."
Full clip below:
And there you have it: when the Fed responded that there was no truth to
our story with the curious explainer that "the Fed does not issue such guidance
to banks", even as it did everything else we disclosed, it was actually telling
the truth: because between Credit Suisse and MatlinPatterson we now know that
the explicit guidance actually came from the Office of the Currency Comtroller,
the regulator operating under the US Treasury umbrella which however is completely
useless without Fed input.
The OCC charters, regulates, and supervises all national banks and federal
savings associations as well as federal branches and agencies of foreign
banks. The OCC is an independent bureau of the U.S. Department of the Treasury.
So here is what happened: everything we said about the Dallas Fed meeting
with banks, going through bank loan books, and urging to limit bankruptcies,
demand asset sales, as well as suspend mark to market in explicit circumstances,
was true, however the explicit "guidance", precisely for FOIA
avoidance purposes, came not from the Fed but from the OCC.
Needless to say, we are immediately submitting a FOIA to the OCC next, demanding
to know whether it was the Office of the Comptroller of the Currencywhich was
the US government entity that advised US banks to do all those things which
we revealed back in mid-January, and which the Fed desperately tried to deny.
Finally, we are certainly looking forward to the Dallas Fed follow up response
to this post.
If 20-30 million bopd of non-US, non-OPEC, non Russian
production fell by as much as 10% from 12/14 to 12/15 and world demand increased 1.2 million
bopd we have 3.2-4.2 million bopd gap between supply and demand.
Notable quotes:
"... The states with higher 11/15 than 12/14 are OH, OK, NM and CO. From my review, these are the ones with the highest overall [low] API liquids of the shale plays, so API gravity has likely continued the upward climb for the entire US liquids production profile. ..."
"... I expect 12/15 for the non shale states to be lower than 11/15, thus steeping YOY decline. ..."
"... If non shale, non OPEC and non Russia world wide oil production follows the US non shale state pattern, OPEC and Russia would really need to ramp up, absent a decrease in YOY demand from 2015. Instead, they seem ready to at least cap, if not cut for the remainder of 2016. ..."
"... demand is expected to increase 1.2 million bopd from 2015. ..."
US less the shale states of PA, ND, OH, OK, NM, TX, CO, as well as less Alaska and GOM:
12/14: 1,597 bopd.
11/15: 1,425 bopd.
Data Per EIA.
Some thoughts:
The states with higher 11/15 than 12/14 are OH, OK, NM and CO. From my review, these are the
ones with the highest overall [low] API liquids of the shale plays, so API gravity has likely continued
the upward climb for the entire US liquids production profile.
Next, some of the non shale states actually went higher into the spring, so the decline is
steeper than what is shown.
I expect 12/15 for the non shale states to be lower than 11/15, thus steeping YOY decline.
I expect January through at least April, 2016 to continue to decline regardless of price as
Feb oil sales are not paid until late March and any sudden price swing would not be reflected
until at least May. In reality, given the carnage, it is unlikely any of these states would rebound
until 2017 given most will wait several months to see if price recovery is for real.
If $20s-$30s persists all year, there will be a steeper decline from 15 to 16 than from 14
to 15.
If non shale, non OPEC and non Russia world wide oil production follows the US non shale state
pattern, OPEC and Russia would really need to ramp up, absent a decrease in YOY demand from 2015.
Instead, they seem ready to at least cap, if not cut for the remainder of 2016. Further,
demand
is expected to increase 1.2 million bopd from 2015.
I suppose it is not realistic to think that 20-30 million bopd of non-US, non-OPEC, non Russian
production fell by as much as 10% from 12/14 to 12/15?
"... When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill done. ..."
"... The implication of Keynes comment, and therefore of the title that Strange appropriated, is that speculation and efficient investment - capital development - are inversely related. ..."
"... Economists, especially those who are comfortable wearing the blinders of neoclassical theory, tend to believe that the evolution of markets and institutions results mainly from the utility and profit seeking behavior of units . ..."
"... economic evolution leads to shifts in the balance of power between markets and [ oil producing - likbez] states. [ read OPEC - likbez] ..."
"... This insight helps explain how the Bretton Woods system broke down [and petrodollars emerged]. The chaos that Strange now finds in the international monetary regime is imputed to key decisions and nondecisions, mainly by the United States ..."
"... The term [ Minsky Moment ] was coined by Paul McCulley of PIMCO in 1998, to describe the 1998 Russian financial crisis, and was named after economist Dr. Hyman Minsky, who noted that bankers, traders, and other financiers periodically played the role of arsonists, setting the entire economy ablaze. Minsky opposed the deregulation that characterized the 1980s. ..."
While Marion King Hubbert was a revolutionary in oil industry, forecasting that American oil production
would peak surprisingly soon and decline steadily thereafter, Hyman Minsky was a similar revolutionary
in economics pointing out inherent instability of casino capitalism.
He advanced so called "Minsky
financial instability hypothesis" which postulates that the booms and busts are inevitable under
neoliberalism (aka "free market economy") due to the nature of financial system (
https://en.wikipedia.org/wiki/Hyman_Minsky
):
Minsky proposed theories linking financial market fragility, in the normal life cycle
of an economy, with speculative investment bubbles endogenous to financial markets. Minsky
claimed that in prosperous times, when corporate cash flow rises beyond what is needed to pay
off debt, a speculative euphoria develops, and soon thereafter debts exceed what borrowers
can pay off from their incoming revenues , which in turn produces a financial crisis. As
a result of such speculative borrowing bubbles, banks and lenders tighten credit availability,
even to companies that can afford loans , and the economy subsequently contracts.
This slow movement of the financial system from stability to fragility, followed by crisis,
is something for which Minsky is best known, and the phrase "Minsky moment" refers to this
aspect of Minsky's academic work .
What we experienced in July 2014 can probably be called "Minsky moment" for oil industry (although
it is not the exact meaning of the term).
The flavor of concerns that should have been central to Strange's volume was captured by
Keynes in a passage in The General Theory that is part of the currency of every economist:
Speculators may do no harm on a steady stream of enterprise. But the position is serious
when enterprise becomes a bubble on a whirlpool of speculation. When the capital development
of a country becomes a by-product of the activities of a casino, the job is likely to be
ill done.(p. 159)
The implication of Keynes' comment, and therefore of the title that Strange appropriated,
is that speculation and efficient investment - capital development - are inversely related.
It follows that a volume on Casino Capitalism needs to begin with a serious consideration
of the determinants of investment in capitalist economies with sophisticated and ever evolving
financial structures. Although in the beginning of the book some awareness of the relation
between speculation and efficient investment is evident, Strange does not examine closely how
the capital development of capitalist economies was affected by the financial evolution of
the past decades. What she does do is present in a discursive and somewhat journalistic fashion
the development of the international financial structure in recent years as well as a partial
review of some interpretations of the import of financial arrangements.
In spite of her approach the volume is useful. Economists, especially those who are
comfortable wearing the blinders of neoclassical theory, tend to believe that the evolution
of markets and institutions results mainly from the utility and profit seeking behavior of
units. To this Strange offers the useful antidote that "a monetary system cannot work effectively unless
there is a political authority . . ." , i.e., contracts need to be enforced. Therefore the
outcomes in both the short and the longer runs are the joint result of decisions by market
participants and authorities. Furthermore, economic evolution leads to shifts in the balance
of power between markets and [ oil producing - likbez]
states. [ read OPEC - likbez]
This insight helps explain how the Bretton Woods system broke down [and petrodollars emerged].
The "chaos" that Strange now finds in the international monetary regime is imputed to key decisions
and nondecisions, mainly by the United States, both early on in the postwar period and after
1971. Her main point is that domestic concerns dominated decisions in the United States both
when the United States acted and when it did not. As a result havoc was played with the
order [ including oil price - likbez ] needed for world
economic stability.
"Marvin[Hyman] Minsky was a similar revolutionary in economics pointing
out inherent instability of casino capitalism." ~ likbez
"The term [Minsky
Moment] was coined by Paul McCulley of PIMCO in 1998, to describe
the 1998 Russian financial crisis, and was named after economist Dr. Hyman Minsky,
who noted that bankers, traders, and other financiers periodically played the role of arsonists,
setting the entire economy ablaze. Minsky opposed the deregulation that characterized the
1980s." ~ Wikipedia
This is quite interesting
from the article: "French bank BNP Paribas last week confirmed it would halt funding oil and gas
companies with large capital requirements, particularly in the US."
"... It is estimated that ~250,000 people have lost their jobs in the industry
in the last 18 months. ..."
"... Ive mentioned this a few times...but in the 80s you SAW the economic crush
all around you. For those who do not live in our visit Houston, Im telling you....something
is very bizarre here that puzzles the shit out of me.....malls are packed, and you
dont see crush anywhere...I dont get it. ..."
One week ago,
when we commented on the latest weekly update from Credit Suisse's very
well hooked-in energy analyst James Wicklund, one particular phrase stuck out
when looking at the upcoming contraction of Oil and Gas liquidity: "while your
borrowing base might be upheld, there will be minimum liquidity requirements
before capital can be accessed. It is hitting the OFS sector as well. As
one banker put it, "we are looking to save ourselves now."
In his latest
note, Wicklund takes the gloom level up a notch and shows that for all the bank
posturing and attempts to preserve calm among the market, what is really happening
below the surface can be summarized with one word: panic, and not just for the
banks who are stuck holding on to energy exposure, or the energy companies who
are facing bankruptcy if oil doesn't rebound, but also for their (now former)
employees. Curious why average hourly earnings refuse to go up except for those
getting minimum wage boosts? Because according to CS "It is estimated
that ~250,000 people have lost their jobs in the industry in the last 18 months."
... ... ...
Wicklund concludes with some even more troubling observations
about the recent OPEC headline-induced volatility and the future price of oil:
Rolling On. What was originally a "surplus-induced" downturn is
now turning into a global credit downturn, with economic demand and GDP
continuing to decline. US corporate debt levels are close to all-time
highs as a share of GDP and global monetary policy has very few levers left
to pull. "Duration" has become the new buzzword, "survivability" appears
to be the key investment metric and any lights in the tunnel appear to
be dimming.
The Fix. Demand was going to be the bailout and specifically consumer
led demand, however, just about every economic report issued seems to
deny that possibility. It is easy to say that with demand growing and
capital starved supply waning, reaching balance and beginning growth is
inevitable. But it may not be as simple as that and the timing remains one
key question. And that key question is one that everyone has an opinion
on. Now, it appears that Saudi, Russia, Iraq and Iran MIGHT come to some
agreement to cap production growth at January levels, which was up more
than 280kbopd from December. The cap offers some positive, but it makes
any production CUTS less likely .
All this, as global demand across every industry continues to contract and
as central banks are now powerless to do virtually anything, means that the
true lows in the oil price are still ahead of us.
Latitude25
Let me guess. The banks are selling securitized energy loans to the muppet
pension funds for pennys on the dollar and soon to be totally worthless.
Central Bankster
If you try to inflate assets, it will cause
massive distortions in price (IE reinflating oil from$30 in 2009 to $110
a few years later) created a massive and misguided allocation of capital
into new oil production...
Antifaschistische
I've mentioned this a few times...but in the 80's you SAW the economic
crush all around you. For those who do not live in our visit Houston, I'm
telling you....something is very bizarre here that puzzles the shit out
of me.....malls are packed, and you don't see crush anywhere...I don't get
it.
...and I have NOTHING to gain from a crush, because I'll eventually get
swept out to sea also...but it's just crazy here with construction at a
non-stop pace. Everyday of my life is like economic doomsday prepping in
Houston.
Beatscape
Coming to a ticker tape near you: The 10(!) times upside Oil ETF, filled
with all these toxic energy loans and oil companies teetering into bankruptcy.
A fool and his money are soon parted.
VWAndy
Bingo they are searching for bagholders now. Too bad there are no bagholders
with pockets that deep.
Racer
As one banker put it, "we are looking to save ourselves now."
Total rubbish, the banks NEVER look to save themselves
buzzsaw99
There are reports of banks selling loans at cents on the dollar
to try and ensure their own survival...
smells like bullshit. which banks? which loans? how many cents on the
dollar? how does booking a major loss ever help a bank?
Bank_sters
Strangely, most articles I read are about how little exposure all the
big banks have. So who is holding the 2 trillion dollars of energy related
debt that has been created over the last 12 years?
abyssinian
All the banks are fine, Deutsche Bank's CEO said they are solid as a
rock and buying their bonds back, JP Morgan CEO just bought tons of company
stocks with his bonus and Tim Seymore Butt from CNBC said there is no recession,
everything is great and people just making noises. Everything is good!
ConanTheLibert... -> abyssinian
"Deutsche Bank's CEO said they are solid as a rock"
Like the corpse has turned solid as a rock?
Catullus
Talked to a consultant in CRE in Texas on Friday. Said he's never seen
it like this in 30 years in Houston. Dallas is ok for now. Credit is terrible.
Everyone asking for LOCs or AAs even for power contracts to the buildings.
Don't let a bank tell you this is energy only exposure. It extends to
CRE as well
Christophe2
LOCs = lines of credit :)
White Mountains
Old Man of the See - this is because if you open a successful profitable
store, tattoo shop, or whatever, the copycats see your success and so open
an identical business right across the street hoping to take your success.
Then, you get to compete on price which means both businesses circle
close to the toilet bowl as you fight tooth and nail for market share and
ever dwindling profits because there is always some dumbass willing to work
himself to death for slave wage returns or even loose money as he knocks
viable businesses out of business.
Amazon's business model is a non-profit loser much like this only on
a huge and very destructive scale.
And if the banks go under who loses? One more reason to believe the Fed
is lying when it denied they allegedly instructed banks to not force bankruptcies
on these companies. Prevent the bankruptcy and find a way to dump the fallout
on someone else to CYA and let someone lower on the food chain take the
hit. Isn't that how the hierarchical criminal ponzi scheme works?
Who do you think the Fed cares more about after themselves, if anyone?
A. Banks
B. Shareholders
C. 3rd Party Corporations that do business with either banks or the Fed
D. Employees of any Corporations
E. Some poor workers pension fund purchasing the new fraud scheme that will
be cooked up to hand these failures off to the muppets
F. None of the above. Central Banks are so megalomaniacal they only care
about themselves, their profits and interests above all else.
"... Following on from a sharp downward revision in its benchmark crude and natural gas price assumptions in January, S&P also lowered the ratings on 25 speculative-grade companies after reviewing 45. ..."
"... S&P on January 12 slashed its Brent and WTI crude price assumptions to $40/barrel each (from $55 and $50 respectively) and Henry Hub natural gas price assumption to $2.50/MMBtu (from $3). ..."
"... S&P flagged the "liquidity risks" faced by the smaller E&P companies, "particularly with respect to the April 2016 revolving credit facility bank borrowing base redeterminations." ..."
"... S&P expects the companies' borrowing bases will have shrunk by 20-30% at the next re-determination in April, as the cutback in drilling activity in 2015 has hobbled their reserves replacement. ..."
"... The US Energy Information Administration in its short-term market outlook released Feb 9 said it expects US production to fall to an average 8.69 million b/d this year from an average of 9.43 million b/d in 2015. And slip further to 8.46 million b/d in 2017. ..."
US E&P sector sucking wind: Is oil's equilibrium closer than we think?
How long does the world have to wait before all the surplus oil sloshing
around gets mopped up and prices find an equilibrium point that represents balanced
supply and demand? Would you believe it if someone said that might be just a
quarter and a bit away?
On the supply side, all bets are on shale to bail: there is no hope of output
cuts from OPEC, let alone a coordinated action with other major producers such
as Russia, amid a stubborn quest for market share.
If anything, most OPEC members are pumping full tilt and some such as Kuwait
and Iraq are eying a production boost this year. A sanctions-free Iran is preparing
to offload an additional 0.5-1.0 million b/d on an already oversupplied market,
though the pace of that return is highly uncertain.
The question then arises, how long before more US producers buckle under
and how sharp might the drop in output be?
Standard & Poors Ratings earlier this month downgraded big names in shale
including Chevron, Apache, EOG Resources, Devon, Hess, Marathon and Murphy.
Of the 20 "investment-grade" companies the agency reviewed, three were placed
on Creditwatch with negative implications, and the outlook on another three
revised to negative.
Until now, such actions had mostly affected the speculative-grade companies,
S&P noted.
Following on from a sharp downward revision in its benchmark crude and
natural gas price assumptions in January, S&P also lowered the ratings on 25
speculative-grade companies after reviewing 45.
S&P on January 12 slashed its Brent and WTI crude price assumptions to
$40/barrel each (from $55 and $50 respectively) and Henry Hub natural gas price
assumption to $2.50/MMBtu (from $3).
S&P flagged the "liquidity risks" faced by the smaller E&P companies,
"particularly with respect to the April 2016 revolving credit facility bank
borrowing base redeterminations."
A borrowing base is the maximum amount of money a bank will lend to an energy
company based on the value of its reserves at current market prices.
S&P expects the companies' borrowing bases will have shrunk by 20-30%
at the next re-determination in April, as the cutback in drilling activity in
2015 has hobbled their reserves replacement.
Also, more hedges will roll off this year, and the values on the futures
curve are below many bank borrowing base prices, S&P credit analysts noted.
As they hunker down, S&P expects many of the companies to continue lowering
capital spending and focus on efficiencies and drilling core properties. However,
the analysts say, "these actions, for the most part, are insufficient to stem
the meaningful deterioration expected in credit measures over the next few years."
The US Energy Information Administration in its short-term market outlook
released Feb 9 said it expects US production to fall to an average 8.69 million
b/d this year from an average of 9.43 million b/d in 2015. And slip further
to 8.46 million b/d in 2017.
But like any forecast, this year's figure could be revised down further.
Exactly a year ago, in its February 2015 report, the EIA had estimated 2016
US production at 9.52 million b/d. The agency has progressively whittled down
the figure since October last year.
Meanwhile, a total of 67 US oil and gas companies filed for bankruptcy in
2015, according to consultants Gavin/Solmonese, a whopping 379% spike on 2014,
CNN reported last week.
Might the other big shadow looming on the markets - Iran - turn out to be
a teddy bear?
Iranian businesses continued to be hobbled by the sanctions fallout. Some
US clearing banks have warned banks in Europe, Asia and the Middle East that
their US-based dollar accounts will face close scrutiny if they do business
with Iran.
This has prevented banking transactions with Iran starting up again despite
the removal of sanctions, the Financial Times said in this
report Feb 14.
Not surprisingly, expectations on the pace of Iran's incremental barrels
flowing into the market are taking a more conservative turn. As Platts reporter
Robert Perkins highlights in this
analysis published Feb 8, a 500,000 b/d immediate rise and 1 million b/d
within six months is seen as "wildly optimistic."
Platts calculations based on current market consensus point to a far sober
200,000 b/d rise in the first quarter, growing to 450,000 b/d by year-end.
Excluding Iranian supply, global oil balances are now seen returning to equilibrium
by the third quarter of 2016, according to implied market outlooks from the
International Energy Agency, the EIA and OPEC.
That brings us to the "dread discount" on oil because of the wider global
financial markets panic since the start of the year, triggered in large part
by fears over Chinese economic growth.
While impossible to quantify, could the discount evaporate if the global
economy performs much better than the doomsday scenarios currently preying on
nerves?
To paraphrase Mark Twain, it ain't what the oil markets don't know that will
get them into trouble. It's what they know for sure that just ain't so.
"... Following on from a sharp downward revision in its benchmark crude and natural gas price assumptions in January, S&P also lowered the ratings on 25 speculative-grade companies after reviewing 45. ..."
"... S&P on January 12 slashed its Brent and WTI crude price assumptions to $40/barrel each (from $55 and $50 respectively) and Henry Hub natural gas price assumption to $2.50/MMBtu (from $3). ..."
"... S&P flagged the "liquidity risks" faced by the smaller E&P companies, "particularly with respect to the April 2016 revolving credit facility bank borrowing base redeterminations." ..."
"... S&P expects the companies' borrowing bases will have shrunk by 20-30% at the next re-determination in April, as the cutback in drilling activity in 2015 has hobbled their reserves replacement. ..."
"... The US Energy Information Administration in its short-term market outlook released Feb 9 said it expects US production to fall to an average 8.69 million b/d this year from an average of 9.43 million b/d in 2015. And slip further to 8.46 million b/d in 2017. ..."
US E&P sector sucking wind: Is oil's equilibrium closer than we think?
How long does the world have to wait before all the surplus oil sloshing
around gets mopped up and prices find an equilibrium point that represents balanced
supply and demand? Would you believe it if someone said that might be just a
quarter and a bit away?
On the supply side, all bets are on shale to bail: there is no hope of output
cuts from OPEC, let alone a coordinated action with other major producers such
as Russia, amid a stubborn quest for market share.
If anything, most OPEC members are pumping full tilt and some such as Kuwait
and Iraq are eying a production boost this year. A sanctions-free Iran is preparing
to offload an additional 0.5-1.0 million b/d on an already oversupplied market,
though the pace of that return is highly uncertain.
The question then arises, how long before more US producers buckle under
and how sharp might the drop in output be?
Standard & Poors Ratings earlier this month downgraded big names in shale
including Chevron, Apache, EOG Resources, Devon, Hess, Marathon and Murphy.
Of the 20 "investment-grade" companies the agency reviewed, three were placed
on Creditwatch with negative implications, and the outlook on another three
revised to negative.
Until now, such actions had mostly affected the speculative-grade companies,
S&P noted.
Following on from a sharp downward revision in its benchmark crude and
natural gas price assumptions in January, S&P also lowered the ratings on 25
speculative-grade companies after reviewing 45.
S&P on January 12 slashed its Brent and WTI crude price assumptions to
$40/barrel each (from $55 and $50 respectively) and Henry Hub natural gas price
assumption to $2.50/MMBtu (from $3).
S&P flagged the "liquidity risks" faced by the smaller E&P companies,
"particularly with respect to the April 2016 revolving credit facility bank
borrowing base redeterminations."
A borrowing base is the maximum amount of money a bank will lend to an energy
company based on the value of its reserves at current market prices.
S&P expects the companies' borrowing bases will have shrunk by 20-30%
at the next re-determination in April, as the cutback in drilling activity in
2015 has hobbled their reserves replacement.
Also, more hedges will roll off this year, and the values on the futures
curve are below many bank borrowing base prices, S&P credit analysts noted.
As they hunker down, S&P expects many of the companies to continue lowering
capital spending and focus on efficiencies and drilling core properties. However,
the analysts say, "these actions, for the most part, are insufficient to stem
the meaningful deterioration expected in credit measures over the next few years."
The US Energy Information Administration in its short-term market outlook
released Feb 9 said it expects US production to fall to an average 8.69 million
b/d this year from an average of 9.43 million b/d in 2015. And slip further
to 8.46 million b/d in 2017.
But like any forecast, this year's figure could be revised down further.
Exactly a year ago, in its February 2015 report, the EIA had estimated 2016
US production at 9.52 million b/d. The agency has progressively whittled down
the figure since October last year.
Meanwhile, a total of 67 US oil and gas companies filed for bankruptcy in
2015, according to consultants Gavin/Solmonese, a whopping 379% spike on 2014,
CNN reported last week.
Might the other big shadow looming on the markets - Iran - turn out to be
a teddy bear?
Iranian businesses continued to be hobbled by the sanctions fallout. Some
US clearing banks have warned banks in Europe, Asia and the Middle East that
their US-based dollar accounts will face close scrutiny if they do business
with Iran.
This has prevented banking transactions with Iran starting up again despite
the removal of sanctions, the Financial Times said in this
report Feb 14.
Not surprisingly, expectations on the pace of Iran's incremental barrels
flowing into the market are taking a more conservative turn. As Platts reporter
Robert Perkins highlights in this
analysis published Feb 8, a 500,000 b/d immediate rise and 1 million b/d
within six months is seen as "wildly optimistic."
Platts calculations based on current market consensus point to a far sober
200,000 b/d rise in the first quarter, growing to 450,000 b/d by year-end.
Excluding Iranian supply, global oil balances are now seen returning to equilibrium
by the third quarter of 2016, according to implied market outlooks from the
International Energy Agency, the EIA and OPEC.
That brings us to the "dread discount" on oil because of the wider global
financial markets panic since the start of the year, triggered in large part
by fears over Chinese economic growth.
While impossible to quantify, could the discount evaporate if the global
economy performs much better than the doomsday scenarios currently preying on
nerves?
To paraphrase Mark Twain, it ain't what the oil markets don't know that will
get them into trouble. It's what they know for sure that just ain't so.
"... If additional oil were not supplied to the market, then the global surplus of oil would fall by at least 1.3 million barrels per day, Novak added. ..."
MOSCOW Consultations on a preliminary deal between leading oil producers to freeze output
should be concluded by March 1 after a group led by Russia and Saudi Arabia reached a common
position this week in Doha, Russia's energy minister said.
... ... ...
Novak said talks between Venezuela and Iran were still ongoing, and said consultations would
also be held with non-OPEC countries, including Mexico and Norway.
"I believe that they (Mexico and Norway) would take a constructive stance," he said.
If additional oil were not supplied to the market, then the global surplus of oil would fall
by at least 1.3 million barrels per day, Novak added.
... ... ...
Novak also said it was "discussed with colleagues" that an oil price of $50 per barrel would
suit consumers and exporters in the long term. He did not elaborate.
What's really behind falling
oil prices? Are there more conspiratorial forces at work here?
There are certainly some who believe so…
According to CNBC, Iranian President Hassan Rouhani told a cabinet meeting
back on Dec. 10, 2014, that the
oil price collapse was "politically motivated" and a "conspiracy against the interests of the
region, the Muslim people, and the Muslim world."
... ... ...
Echoing Rouhani's sentiment, Russian President Vladimir Putin said, "We all see the lowering of
the oil price. There's lots of talk about what's causing it. Could it be the agreement between the
U.S. and Saudi Arabia to punish Iran and affect the economies of Russia and Venezuela? It could."
... ... ...
Oil Conspiracy Theory No. 3: I'll Have Iranian Oil with a Side of Economic Prosperity, Please
On April 7, 2015, the Energy Information Administration released the following statement: "Oil
prices could tumble $15 a barrel next year if sanctions are lifted following a final nuclear deal
with Iran."
While Iran and other world powers reached a preliminary deal on April 2, 2015, further negotiations
are needed to complete an agreement by a June 30 deadline.
Bloomberg Financial reports that "Iran's full return to the oil market
risks delaying a recovery in prices, which have slumped by almost half since last year amid a supply
glut. Iran could boost output by at least 700,000 barrels a day by the end of 2016."
That's right, Iran itself is a potential whale of an oil exporter – it sits on at least 10% of
the world's reserves. But because of sanctions, the country lacked the foreign investment it needs
to actually get the darn oil out of the ground.
Until now.
The oil price conspiracy theory here is that the Iran nuclear deal was made simply to boost the
U.S. economy, while further damaging Russia's. After all, there are several reasons why a drop in
oil prices is great for the American economy: it encourages consumer spending, it improves the job
market and it provides businesses with more profits.
Oil Conspiracy Theory No. 4: Sneaky, Sneaky POTUS
One conspiracy theory suggests that U.S. President Barack Obama colluded with the Saudis to flood
the global market with oil to bring down the U.S. shale oil industry. Why would he want to do that?
Because the shale oil glut threatens the development of renewable energy and slows progress in
cutting U.S. greenhouse gas emissions. According to this theory, POTUS is using the oil glut to destroy
anti-environmental projects across the board within the U.S.
In an article published by Slate, "Senate Democrats narrowly defeated
the Keystone XL pipeline
[bill on Tues., Nov. 18, 2014] in part because President Obama was expected to veto it even if it
did pass. He likely feels more comfortable about that stance than he would if oil were priced at
more than $100 a barrel right now."
Furthermore, Saudi Arabia hates the American shale oil industry as well. Though King Riyadh is
an ally, relations with the country are fraught over this particular subject. So what better way
to kill two birds with one stone? Let's just keep our Saudi allies happy while covertly
destroying the purportedly environmentally unfriendly fracking industry from within. More oil, please!
"... A friend of mine who is a financial person predicted $20s oil in 2013. I told him he was nuts, explained to him costs. He said he could care less about costs, said price has to revert to historical norms. ..."
"... He now says oil will average below $35 for at least the next five years. I tell him that will bankrupt almost all US producers and many nations. He says doesnt matter, that stuff is not relevant, not even a part of the equation. ..."
"... I would say he is full of it except he predicted $20s. He says oil producers in no way determine oil prices, that prices are all determined by traders. He says traders do not care about anything concerning the upstream industry. ..."
"... I do not agree with him, but this is the way financial folks think. And they are the ones trading the oil futures. ..."
John S. I agree but many of the financial people do not.
A friend of mine who is a financial person predicted $20s oil in 2013. I told him he was
nuts, explained to him costs. He said he could care less about costs, said price has to revert
to historical norms.
He now says oil will average below $35 for at least the next five years. I tell him that
will bankrupt almost all US producers and many nations. He says doesn't matter, that stuff is
not relevant, not even a part of the equation.
I would say he is full of it except he predicted $20s. He says oil producers in no way
determine oil prices, that prices are all determined by traders. He says traders do not care about
anything concerning the upstream industry.
I do not agree with him, but this is the way financial folks think. And they are the ones
trading the oil futures.
Ron, you were in the financial industry. I assume you agree my friend is full of crap?
"How is it possible that monster wells in PA and OH can keep prices at a level where virtually
all gas in the US is being produced at a loss on an operating basis?" ~ Shallow Sand
-You continue to think and analyze the situation the old fashion way: supply-demand fundamentals.
That is why you are (continue to be…) puzzled!
-This time is different (as I explained "thusly" numerous times before).
The way things stand at the moment, price upstream means very little to price down stream…
"... And this, just in: ExxonMobils reserve-replacement ratio for 2015: 67%. First time in 22 years it hasnt been at least 100%. ..."
"... Usually when Exxon, cant be bother drill exploration wells, they go drilling on the corner of Wall and Broad St NY. Obviously the prognosis is not looking so good there as well! ..."
Usually when Exxon, can't be bother drill exploration wells, they go drilling on the corner
of Wall and Broad St NY. Obviously the prognosis is not looking so good there as well!
[Feb 20, 2016] Tech Talk - Oil Supply, Oil Prices and Saudi Arabi
Notable quotes:
"... Thus slight reductions in production from OPEC, and particularly the Kingdom of Saudi Arabia (KSA), can keep the world supply in balance with demand and more critically for them keep the price up at a level that they are comfortable with. Note that in relation to the overall volumes of oil being traded, they are not talking much adjustment in their overall volume (around 1% of the total 30 mbd) in order to sustain prices. The USA produces more, OPEC produces less – not much less because global demand is growing – and the price is sustained. ..."
"... This has virtually nothing to do with the speculators on Wall Street and the corrections they might impose, this is all about supplying a needed volume to meet a demand and controlling that supply to ensure that the price is sustained. ..."
"... As I have noted in the past, OPEC is sufficiently suspicious of the reported numbers from the countries themselves that they check from secondary sources, and provide both sets of numbers. ..."
"... One of the other caveats is that the internal demand in these countries is rising, and that lowers the amount that can be exported. This will in time require that OPEC produce more, just to sustain the amounts that they export. And the problem here is the biggest caveat of all. Because KSA cannot continue to produce ever-increasing amounts of oil. ..."
"... But these new fields, including Manifa and Safaniya produce a heavier crude that, for years, KSA struggled, usually in vain, to find a market for internationally. It is only now that it is building its own refineries to process the oil that it can find a global market for the product. ..."
"... Realistically, over a couple of years, I would suspect that the oil price line that I mentioned was rising at the beginning of the piece will continue to rise and we are just going to have to accommodate to it. ..."
From the time that The Oil Drum first began and through the years up to the Recession of 2008-9,
there was an increase in the price of oil, and that resumed following the initial period of the recession,
and in contrast to the price of natural gas, oil has recovered a lot of the price that it lost.
Figure 1. Comparable price of oil from 1946 (Inflation
data)
If one were to draw a straight line on that graph from the low point in 1999 though now, there
hasn't been a huge variation away from the slope of that line for long. That, of course, does not
stop folk from pointing to the very short, roughly flat bit at the end and saying that oil prices
are going to remain at that level, or are even
about to decline.
To address that final point first, I would suggest that those making such a foolish prediction
should go away and read the OPEC Monthly
Oil Market Reports. Remember that, for just a little while longer, oil is a fungible product.
OPEC make no secret of the fact that they continuously examine the global economy and make estimates
on how it is going to behave.
This month they note that the economies aren't doing quite as well as expected, and have revised
down global growth to 2.9%, though they expect next year to be better, and hold to their estimate
of a 3.5% growth rate.
But OPEC go beyond just making that prediction - they use it, and data that they have on consumption
and oil supplies around the world to estimate how much OPEC should produce each month to balance
supply against demand, so that the price will remain at a comfortable level for the OPEC economies.
And based on those numbers they tailor production.
This month, for example, they note that global oil demand is anticipated to grow by 0.8 mbd this
year (and by 1.04 mbd in 2014). They anticipate growth in production of around 1.0 mbd from the non-OPEC
nations, with projected increases from Canada, the United States, Brazil, the Sudans and Kazakhstan
contributing to an additional 1.1 mbd next year. From these numbers they can project that demand
for OPEC oil will be slightly down this year, at 29.9 mbd down 0.4 mbd on last year, with next year
seeing an additional fall of 0.3 mbd on average.
Figure 2. Projected oil demand for 2013 (OPEC
MOMR )
Thus slight reductions in production from OPEC, and particularly the Kingdom of Saudi Arabia (KSA),
can keep the world supply in balance with demand and more critically for them keep the price up at
a level that they are comfortable with. Note that in relation to the overall volumes of oil being
traded, they are not talking much adjustment in their overall volume (around 1% of the total 30 mbd)
in order to sustain prices. The USA produces more, OPEC produces less – not much less because global
demand is growing – and the price is sustained.
This has virtually nothing to do with the speculators on Wall Street and the corrections they
might impose, this is all about supplying a needed volume to meet a demand and controlling that supply
to ensure that the price is sustained.
There are a number of caveats to this simplified explanation, one being the short-term willingness
and ability of some producers to keep to their targets. One of the imponderables is the production
from Iraq. Although Iraq
has been given a waiver through 2014 on the need to limit their production, the increasing violence
has led to a drop in production,
back below 3 mbd.
Figure 3. OPEC production based on data from secondary sources (OPEC
MOMR)
As I have noted in the past, OPEC is sufficiently suspicious of the reported numbers from the
countries themselves that they check from secondary sources, and provide both sets of numbers.
Figure 4. OPEC production numbers from the originating countries. (OPEC
MOMR August 2013)
Note, for example, that Iran says that it is producing over 1 mbd more than other sources report,
and Venezuela is around 400 kbd light. The balancing act is largely the charge of KSA, since it produces
the largest amount and can adjust more readily to balance the need.
One of the other caveats is that the internal demand in these countries is rising, and that lowers
the amount that can be exported. This will in time require that OPEC produce more, just to sustain
the amounts that they export. And the problem here is the biggest caveat of all. Because KSA cannot
continue to produce ever-increasing amounts of oil.
Just exactly how much the country can produce is the subject of much debate, and has been at The
Oil Drum since its inception. But if I can now gently admonish those who think it can keep increasing
forever and that it has vast reserves that can flood the market at need. This fails to recognize
that the major fields on which the country has relied are no longer capable of their historic production
levels, and that over the time that TOD has been in existence, production has switched to the new
fields that KSA had promised it would, back in time.
But these new fields, including Manifa and Safaniya produce a heavier crude that, for years, KSA
struggled, usually in vain, to find a market for internationally. It is only now that it is building
its own refineries to process the oil that it can find a global market for the product. Yet those
refineries have only a limited capacity. If you can't ship, refine and market your product in the
form that the customer needs, it can't be sold, regardless of how much, instantaneously, you can
pump out of the ground. And so KSA is starting to look harder for other fields. They have increased
the number of rigs employed to 170 by the end of the year (in 2005 they had about
20 oil and 10 gas rigs operating), going beyond
the 160 estimated earlier, seeking both to raise production from existing fields, but also to find
new ones. This is almost double the number that Euan reported at the end of last year. That this
is being expedited is not good news! Because new fields will very likely be smaller, and more rapidly
exhausted, and may not have the quality of the oil produced from Ghawar and the other old faithfuls.
Realistically, over a couple of years, I would suspect that the oil price line that I mentioned
was rising at the beginning of the piece will continue to rise and we are just going to have to accommodate
to it.
I define the ECI (Export Capacity Index) ratio as the ratio of total petroleum liquids + other liquids
production to liquids consumption. So, production of 2.0 mbpd and consumption of 1.0 mbpd would result
in an ECI ratio of 2.0 (or they were consuming half of production). Mathematically of course, a declining
ECI ratio means that the net exporter is trending toward zero net oil exports (and an ECI ratio of
1.0).
Note that some countries with flat net exports, e.g., Russia, which had net exports of 7.2
mbpd in 2007 and in 2012 (EIA), showed declines in their ECI ratios. Russia's ECI Ratio fell from
3.7 in 2007 to 3.3 in 2012.
If we look at 2005 to 2012 data, as annual Brent prices increased from $55 to $112, only seven
countries showed increases in their ECI ratios--Canada, Colombia, Iraq, Libya, Kazakhstan, Azerbaijan
and Nigeria. If we look at the last three years of data, 2010 to 2012, as annual Brent prices were
respectively $80, $111 and $112, only four of these seven countries still showed increases in their
ECI ratios--Canada, Colombia, Iraq and Libya. The other three--Kazakhstan, Azerbaijan and Nigeria--showed
declining ECI ratios from 2010 to 2012. And of course, Libya comes with an asterisk, because of political
unrest.
So, only 4 of the (2005) Top 33 net oil exporters showed: (1) An increasing ECI Ratio from 2005
to 2012, and (2) Maintained an increasing ECI ratio from 2010 to 2012.
Incidentally, some other countries did show increases in their ECI ratios from 2010 to 2012, but
they remained below their 2005 levels, e.g., the UAE's ECI ratio increased from 4.6 in 2010 to 5.1
in 2012, but they remained well below their 2005 ECI ratio of 7.6, i.e., the UAE is (so far at least)
on an "Undulating Decline" in their ECI ratio. At the 2005 to 2012 rate of decline in the UAE's ECI
ratio, they were on track to approach zero net oil exports in less than 30 years.
The overall (2005) Top 33 net oil exporters' ECI ratio fell from 3.75 in 2005 to 3.26 in 2012
(EIA).
As I have noted before, the cyclical pattern of higher annual oil price highs and higher annual oil
price lows is very interesting, especially in regard to "Higher lows." Following are the last three
year over year declines in annual Brent crude oil prices (1998, 2001 and 2009), along with the rates
of change for 1998 to 2001 and for 2001 to 2009.
If Brent averages $108 in 2013, down from $112 in 2012, it would be a +14%/year rate of change
(since the 2009 price of $62), which would be between the +12%/year and the +20%/year rates of change.
Following is a chart of the GNE/CNI* ratio versus annual Brent crude oil prices for 2002 to 2011.
For 2012, Brent averaged $112, and EIA data show that the GNE/CNI ratio fell from 5.3 in 2011 to
5.0 in 2012.
*GNE = Combined net oil exports from (2005) Top 33 net oil exporters, BP + EIA data for graph,
total petroleum liquids CNI = Chindia's (China + India) Net Imports, BP data
Rupee woes: More trouble ahead as oil prices touch all time high
In a press release dated August 16, 2013, the Ministry of Petroleum and Natural Gas, talks
about the increasing under-recoveries on diesel. The under-recovery on diesel has gone up to Rs
10.22 per litre for the fifteen day period ending August 15, 2013. Before this, the under-recovery
was at Rs 9.29 per litre. This leads to a daily under-recovery of Rs 389 crore or Rs 11,670 crore
for the month. That's the under-recovery just on diesel. Other than this there are under-recoveries
on cooking gas as well as kerosene. The under-recoveries for the first quarter of 2013-2014 (i.e.
period between April 1, 2013 and June 30, 2013) stood at Rs 25,579 crore.
This is likely to go up during this quarter, given the depreciation of the rupee and the increasing
price of oil. Oil prices have been going up internationally because of the uncertainty that prevails
in Egypt. The "fear premium" is getting built into the price of oil.
....
Only very recently, the government started to increase the price of diesel, to reduce the under-recoveries.
But with the international price of oil going up and the rupee depreciating against the dollar,
even at higher prices, the under-recoveries on diesel haven't come down. The under-recovery on
diesel was at Rs 9.29 per litre in January. It is now at Rs 10.22, despite diesel prices going
up.
I have been running my own site for some time at
Bit Tooth Energy . It covers more than
just Peak Oil - there is a weekly column on the use of high pressure water (which I actually did
for a living once) and other OT matters - come on over, the water is fine!
The ability to generate cash flow has fallen substantially
Notable quotes:
"... Moodys says weakness in prices for crude oil and natural gas has caused a fundamental change in the energy industry, whose ability to generate cash flow has fallen substantially – a condition Moodys believes will persist for several years, so it is in the process of recalibrating the ratings of many energy companies to reflect the industry shift. ..."
"... More downgrades are sure to be on the way following last months move by the ratings agency in placing the credit ratings of 120 energy companies and 55 mining companies from around the world on review for possible downgrade. ..."
"... How is it possible that monster wells in PA and OH can keep prices at a level where virtually all gas in the US is being produced at a loss on an operating basis? ..."
"... I fault the business model for a high IP reserve quick declining production company that will be flipped in 3-5 years to a greater fool. I loath the Oklahoma companies and their business practices which have been adopted by many Texas companies and the bastardization of regulatory practices which have enabled the get rich quick pursuit of yield at any cost for all but a select few executives and investment advisors. ..."
"... Personally, I am overjoyed to see NG rig counts at a historic low. I think the train is about to run off the tracks. There is simply no possibility that 100 rigs can drill enough rock in a year to replace the reserves produced on an annual basis. And if annual production is not replaced each and every year then we are SELF LIQUIDATING! ..."
"... I am very suspicious of these so called monster wells in the Maecellus and Utica. I am willing to admit that some exist but am very doubtful that repeatable wells exist on the scale claimed by that the cheerleaders. ..."
"... Free money in my opinion caused the market distortion between natural gas and crude oil pricing. I think the historical price ratio might be restored so if gas is marketed for $2/mcf then oil will be priced around $20/bbl. If Heinrich is right about natural gas and the gas recovers to $6-8/mcf then maybe we will see oil priced at $60-80/bbl. ..."
"Moody's says it has downgraded a total of 28 energy companies since December, including another
eight yesterday.
Anadarko Petroleum (NYSE:APC), Continental Resources (NYSE:CLR), Hess (NYSE:HES), Murphy Oil
(NYSE:MUR), Southwestern Energy (NYSE:SWN) and Western Gas Partners (NYSE:WES) were cut to junk
levels.
National Fuel Gas (NYSE:NFG) and Noble Energy (NYSE:NBL) were lowered to Baa3, one notch above
junk.
Outlooks for Cimarex Energy (NYSE:XEC) and EQT Corp. (NYSE:EQT) were confirmed above junk without
downgrades, while EQT Midstream (NYSE:EQM) was affirmed in junk territory but not downgraded.
Moody's says weakness in prices for crude oil and natural gas has caused a fundamental change
in the energy industry, whose ability to generate cash flow has fallen substantially – a condition
Moody's believes will persist for "several years," so it is in the process of recalibrating the
ratings of many energy companies to reflect the industry shift.
More downgrades are sure to be on the way following last month's move by the ratings agency
in placing the credit ratings of 120 energy companies and 55 mining companies from around the
world on review for possible downgrade."
I know extremely little about natural gas production.
The rig count at 100 has never been so low.
How is it possible that monster wells in PA and OH can keep prices at a level where virtually
all gas in the US is being produced at a loss on an operating basis?
I know a little about natural gas production but over the last 8 years I have found that I
know very little about natural gas "markets". But I think we both agree that everything in this
business has been hugely distorted over the last 8 years or so.
I fault the business model for a "high IP reserve" quick declining production company that
will be flipped in 3-5 years to a greater fool. I loath the Oklahoma companies and their business
practices which have been adopted by many Texas companies and the bastardization of regulatory
practices which have enabled the "get rich quick" pursuit of yield at any cost for all but a select
few executives and investment advisors.
Personally, I am overjoyed to see NG rig counts at a historic low. I think the train is
about to run off the tracks. There is simply no possibility that 100 rigs can drill enough rock
in a year to replace the reserves produced on an annual basis. And if annual production is not
replaced each and every year then we are SELF LIQUIDATING!
I am very suspicious of these so called monster wells in the Maecellus and Utica. I am
willing to admit that some exist but am very doubtful that repeatable wells exist on the scale
claimed by that the cheerleaders.
Free money in my opinion caused the market distortion between natural gas and crude oil
pricing. I think the historical price ratio might be restored so if gas is marketed for $2/mcf
then oil will be priced around $20/bbl. If Heinrich is right about natural gas and the gas recovers
to $6-8/mcf then maybe we will see oil priced at $60-80/bbl.
So after my rant, let me just say that I personally see light at the end of the tunnel. I just
hope that I'm not standing on the wrong track and that that light is a train headed straight for
me.
"... I see this debt cliff as a yet another blowback of neoliberalism, which automatically generates bubble after bubble. Not that different in nature from dot-com bubble of subprime bubble. You see, all an effective CEO does is juicing shareholder value , often measured quarterly. So, with low or no profits, many chose to borrow money to increase shareholder value by carpet bombing fields with wells thereby increasing share price. Or they chose to juice dividends. Those easy money is what created and sustained shale boom. After all they used to have huge hopes for the future. ..."
"... Now Wall Street is keeping them by the balls as the level of debt does not allow to cut production which would rebalance the market. So this downtrend proved to be sticky. They need all the money they can make to service the debt or they are gone with the wind. In other words they are hostages of their own debt and financial companies which provide it and cant cut production without severe adverse effects. That actually include not only shale players but such conventional players as Rosneft. ..."
It is a foolish argument to think that financial manipulations or trading vehicles can change
the value of the underlying (a barrel of oil or a british pound) for more than a short timeframe,
if the the market for the underlying is a wide open high volume one.
So, to think that Soros caused the British Pound to fall is faulty thinking. He and his partners
just saw the writing on the wall earlier and more clearly than others, and had the balls to take
a big risk that they had the timeframe right. Regardless of his trades, that pound was way overvalued
relative to other currencies and the market would have worked it down just same (likely more slowly).
Today, the most over-valued big currency is the Chinese renimbi. I just don't have the sophistication
to put a big bet on it, or I would.
"It is a foolish argument to think that financial manipulations or trading vehicles can change
the value of the underlying (a barrel of oil or a british pound) for more than a short timeframe,
if the market for the underlying is a wide open high volume one."
I like your faith in the innocuous nature of neoliberal marketplace. As reflected in your statement
above. Yes we can. Keep the faith brother --
Another consideration is that there is no market as we used to understand it. Instead there
is a financial casino in which due to commodities modernization act the trend down can be fed
with dollars and acquire its own momentum like snow avalanche and crush everybody and everything
on its way. Amount of dollars that can participate is the amplifying the downtrend ("paper oil")
is much larger then the amount of ""real oil" so it a way it does not matter. Add HFT to the picture
(which really can drive the prices down as was confirmed by GS during Aleynikov trial) and you
have more or less complete image of the modern "marketplace" were most trades are executed by
robots not by people.
Still if "a short timeframe" is 18-36 month you are probably right. But it can be longer, especially
if you add some help from Saudis (predatory pricing). I doubt that this situation can last till
the end of 2017.
I see this debt cliff as a yet another blowback of neoliberalism, which automatically generates
bubble after bubble. Not that different in nature from dot-com bubble of subprime bubble. You
see, all an effective CEO does is juicing "shareholder value", often measured quarterly. So, with
low or no profits, many chose to borrow money to increase shareholder value by "carpet bombing"
fields with wells thereby increasing share price. Or they chose to juice dividends. Those easy
money is what created and sustained shale boom. After all they used to have huge hopes for the
future.
Now Wall Street is keeping them by the balls as the level of debt does not allow to cut
production which would rebalance the market. So this downtrend proved to be sticky. They need
all the money they can make to service the debt or they are gone with the wind. In other words
they are hostages of their own debt and financial companies which provide it and can't cut production
without severe adverse effects. That actually include not only shale players but such conventional
players as Rosneft.
In other words they are no longer independent players capable of making their own decisions.
Negative cash flow can do wonders with the management worrying about managing their own debt.
Which explains
"masters of the universe" mentality better then my post:
John S. I agree but many of the financial people do not.
A friend of mine who is a financial person predicted $20s oil in 2013. I told him he was
nuts, explained to him costs. He said he could care less about costs, said price has to revert
to historical norms.
He now says oil will average below $35 for at least the next five years. I tell him that
will bankrupt almost
all US producers and many nations. He says doesn't matter, that stuff is not relevant, not
even a part of the equation.
I would say he is full of it except he predicted $20s. He says oil producers in no way determine
oil prices, that prices are all determined by traders. He says traders do not care about anything
concerning the upstream industry.
I do not agree with him, but this is the way financial folks think. And they are the ones
trading the oil futures.
Ron, you were in the financial industry. I assume you agree my friend is full of crap?
"... Kellyb. Raw Energys articles on Seeking Alpha are among the best. ..."
"... As I have repeatedly indicated, 100%+ debt to PV10 means technically insolvent and 60-65% debt to PV10 should mean no ability to finance with banks. ..."
"... It is looking like a slow, painful death for the US industry. I have also continuously maintained the only savior will be a OPEC cut (or major supply disruption). ..."
Anyone with knowledge of the industry care to chime in on which companies are most likely to survive
this low price environment, based on things like low debt, strong cash flow, the best assets-
human and otherwise?
I think the major integrated companies will survive. I think Oxy will prosper. Oxy is one of the
largest producers in the Permian and a leader in Tertiary Recovery ( although that sucks right
now). It's just my opinion but all of the unconventional companies have a little red target on
their backs. Few of the Oklahoma based companies will survive in their present form.
That doesn't mean those are necessarily the best companies but the way the game is rigged bank
debt provides liquidity so the more of that available the longer they can last.
Kellyb. Raw Energy's articles on Seeking Alpha are among the best.
For all interested, note in the article the tables showing debt to PV10 (2014 SEC value) and
then debt to 50% of 2014 SEC PV10.
I am sure Raw Energy will update the tables when 2015 number are released.
As I have repeatedly indicated, 100%+ debt to PV10 means technically insolvent and 60-65% debt
to PV10 should mean no ability to finance with banks.
It is looking like a slow, painful death for the US industry. I have also continuously maintained
the only savior will be a OPEC cut (or major supply disruption).
Just look at the losses E&P is reporting for 2015 with $50 WTI.
The Center on Global Energy Policy hosted a presentation and discussion with
Steven Kopits, Managing Director, Douglas-Westwood, on the different approaches
to global oil market forecasting. Mr. Kopits' remarks focused on both supply and demand-based methodologies,
including how these models result in different assumptions and implications for oil supply (OPEC
and non-OPEC), total oil demand and oil price. He also reviewed other key drivers such as changes
in the transport sector and overall economic growth and discussed how these variables can further
impact oil demand and supply.
"... Iranian businesses continued to be hobbled by the sanctions fallout. Some
US clearing banks have warned banks in Europe, Asia and the Middle East that their
US-based dollar accounts will face close scrutiny if they do business with Iran.
This has prevented banking transactions with Iran starting up again despite the
removal of sanctions, the Financial Times said in this report Feb 14. ..."
"... Platts reporter Robert Perkins highlights in this analysis published Feb
8, a 500,000 b/d immediate rise and 1 million b/d within six months is seen as "wildly
optimistic." ..."
"... Platts calculations based on current market consensus point to a far sober
200,000 b/d rise in the first quarter, growing to 450,000 b/d by year-end. ..."
"... Excluding Iranian supply, global oil balances are now seen returning to
equilibrium by the third quarter of 2016, according to implied market outlooks from
the International Energy Agency, the EIA and OPEC. ..."
Might the other big shadow looming on the markets - Iran - turn out to be
a teddy bear?
Iranian businesses continued to be hobbled by the sanctions fallout.
Some US clearing banks have warned banks in Europe, Asia and the Middle East
that their US-based dollar accounts will face close scrutiny if they do business
with Iran. This has prevented banking transactions with Iran starting up again
despite the removal of sanctions, the Financial Times said in this
report Feb 14.
Not surprisingly, expectations on the pace of Iran's incremental barrels
flowing into the market are taking a more conservative turn. As Platts reporter
Robert Perkins highlights in this
analysis published Feb 8, a 500,000 b/d immediate rise and 1 million b/d
within six months is seen as "wildly optimistic."
Platts calculations based on current market consensus point to a far
sober 200,000 b/d rise in the first quarter, growing to 450,000 b/d by year-end.
Excluding Iranian supply, global oil balances are now seen returning
to equilibrium by the third quarter of 2016, according to implied market outlooks
from the International Energy Agency, the EIA and OPEC.
That brings us to the "dread discount" on oil because of the wider global
financial markets panic since the start of the year, triggered in large part
by fears over Chinese economic growth.
While impossible to quantify, could the discount evaporate if the global
economy performs much better than the doomsday scenarios currently preying on
nerves?
To paraphrase Mark Twain, it ain't what the oil markets don't know that will
get them into trouble. It's what they know for sure that just ain't so.
"... To wit, the industry propaganda machine convinced Wall St et al that it could produce virtually unlimited quantities of oil and profits at ever lower numbers: $80/bbl, then $60/bbl, then $40/bbl. ..."
"... Until this emperor is shown to have no clothes (and that will likely take a few years and a significant extended oil shortage), the oil price will rise very slowly. This is on top of the Saudi myth that they will also flood the market if there is too much fracked oil on the market. ..."
"... Stories drive the market, just like our lives, methinks. ..."
As a writer, it is very interesting to me how the myth-making of the fracking industry as it ramped
up is now coming to bite itself on the ass. To wit, the industry propaganda machine convinced
Wall St et al that it could produce virtually unlimited quantities of oil and profits at ever
lower numbers: $80/bbl, then $60/bbl, then $40/bbl.
Whether it is all true or not I am not one to say, although it does seem unlikely. But the
myth is out there, and has effectively put a ceiling on the price, because all the traders are
telling themselves that if oil goes up too high, all the frackers will ramp everything back up
again and then there will be another glut.
Until this emperor is shown to have no clothes (and that will likely take a few years and
a significant extended oil shortage), the oil price will rise very slowly. This is on top of the
Saudi myth that they will also flood the market if there is too much fracked oil on the market.
Stories drive the market, just like our lives, methinks.
Thanks a lot for your post. We need more critical thinkers like you. Mythology is an important
tool in human societies and a very powerful force. I agree with your point:
Until this emperor is shown to have no clothes (and that will likely take a few years
and a significant extended oil shortage), the oil price will rise very slowly
It resonates with my thinking.
The whole neoclassical supply-demand model for oil is highly questionable. I think oil should
be thought for civilization much like water is for plants. So increased supply of oil (up to a
limit) is beneficial to the economy growth and, if you wish, GDP growth (and please note that
GDP is a very questionable measure of economy growth).
IMHO excessive supply within several percent of total volume (let's say 3-5%) is seamlessly
absorbed, so for this range of excessive supply the whole idea of "oil glut" is open to review.
The illusion of glut can be created by exogenous factors like "Great Condensate Con" hypothesis
suggests or by action of particular countries (Watcher idea of predatory pricing used by Saudi
Arabia to decimate oil price for purely political motives) .
For example, none of oil producers in the USA other then those with high sulfur oil have any
difficulties selling all what they can produce and actually can sell more.
Iran magically found the possibility to supple Western Europe with at least 0.3 Mb/d of additional
oil despite all those fairy tales of "oil glut".
To me all those talks is just the game of market speculators to increase their profits via
creating an artificial trend from which they can extract their rent. And they control media (contrary
to Ron's thinking they do). As low oil price are beneficial to the US economy and geopolitical
interests, EIA (which is at least 50% a propaganda agency and only 50% statistical agency) is
on board. So they have a field day now. IEA is more or less a US lapdog too.
So the question now is not a balance (calculated on data with high error margin that agencies
provide) but a severe, undeniable shortage which can ruin the myth. The myth which obtained its
staying power due to constant repetition (brainwashing effect). It confines itself to a few points
and repeat them over and over." As Joseph Goebbels aptly noted
"It would not be impossible to prove with sufficient repetition and a psychological understanding
of the people concerned that a square is in fact a circle. They are mere words, and words can
be molded until they clothe ideas and disguise."
― Joseph Goebbels
"Stories drive the market, just like our lives, methinks."
I will go along with this generalization to a certain extent, because the human species really
does live by the narrative. Group think rules, to a substantial extent, in the lives of men.
But in the end, people buy as much oil, and as many services dependent on oil, as they want
and can afford.
I find it just about impossible to believe that the people running the nationalized oil companies
in the Middle East, or the oil companies in Russia, or Mexico, or China or Venezuela, believe
that traders can control the price of oil. Traders can BET on what they think the price of oil
will be, and they can thus exert great influence on oil companies that are independently owned
and operated, in terms of how much they will invest in future production.
But just because the futures market says REAL physical barrels will be available at a X per
barrel on a certain date is no assurance at all that such barrels WILL be available. Who ever
has the REAL barrels might be able to sell them for considerably more, or might have to sell them
for considerably less. The folks holding contracts for paper barrels will either win or lose.
Producers who have hedged will know how much they will get for their oil,guaranteed, after settling
up their wins or losses on their hedges. That will be the price at which they hedged, minus the
actual cost of hedging.
So far, other than arguing that the actions of Wall Street have a big or controlling influence
on the ENTIRE world economy, I have not seen any rational argument made concerning just how traders
can control the DEMAND FOR OIL. If the demand is there, it will be produced, if it can be produced
at a profit.
The low price expectation could vanish like fog in bright morning sun, just like the high
price expectation vanished.
Nor have I seen any rational argument to the effect that they can control the investment decisions
of Saudi Aramco, etc.
We simply don't know how fast production might drop off as depletion bites, and as BUSINESS
oriented oil companies shut in marginal production, and scale back upstream spending in the face
of low prices. We don't have any RELIABLE way to predict whether the world economy will have a
heart attack, or soldier on, for the next two or three years, maybe even perking up a little,
or soldier on , just gradually contracting a little.
I must assume that the people who run such oil companies as Saudi Aramco have superb access
to the actual DATA involving the geological situation, via their business muscle, and via industrial
spying operations. This data access would extend to just about the entire world, so far as the
data actually exists.
So they will have a pretty good idea how much oil can be produced at how much cost, and where,
barring new technological developments, which usually take a good while to be debugged and widely
adopted.
So -If the Saudis for example think oil will be worth eighty or ninety bucks again within the
next few years, a straight up business decision on their part would be to continue upstream investment.
Of course geopolitical power struggle considerations might trump the business decision, at least
temporarily.
If anybody at all has a TRULY RELIABLE crystal ball when it comes to predicting the behavior
of the economy, I have not yet heard who they are.
The futures market might be way off. Futures are a win / lose game.
So far I have never run across a convincing example of anybody being able to control the price
of any good or service, unless by means of either controlling demand for it, or controlling the
supply of it. Gasoline would get to be dirt cheap indeed if getting caught in possession of a
gallon of it meant paying a thousand dollar fine. This absurd example is merely intended to illustrate
that demand CAN be controlled, if the controlling agency has power enough.
Why should I believe that Wall Street can control demand for oil, specifically ?
Why should I believe that Wall Street can control the behavior of oil producers, especially
producers that are not in need of Wall Street money, or controlled by yankee regulatory departments
or agencies?
Why should I believe that Wall Street can control the behavior of oil producers, especially
producers that are not in need of Wall Street money, or controlled by Yankee regulatory departments
or agencies?
They do not control producers directly. Their control is indirect due to the fact that moneywise
physical oil now dwarf paper oil and futures contracts and options are allowed to settle in dollars
without any commodity changing hands. In other words oil became just another currency and its
price is driven up or down using all the dirty tricks of the currency games (See Soros attack
on British pound).
Typical USA volume is about one million contracts a day. One contract is 1000 barrels. So one
billion barrels of paper oil changes hands daily only in the USA. Add London and other European
exchanges and ratio of 1:200 of "real" to "paper" oil is not unrealistic.
Susan Strange was probably the first to analyze this new "casino capitalism" model for oil
boom and bust. Here is a relevant quote from her book (1997):
As with interest rates, the problem with oil prices is not so much that they have been
high, but rather that they have also been so unpredictable and so unstable. Again the instability
has engendered a new game in the great financial casino – oil futures.
This evolved in the following way. In the 1980s as OPEC's command over the oil market
weakened, with some producers desperate for foreign exchange ready to undercut the agreed
price with secret, under the-counter deals, more and more oil cargoes came to be traded
on what is rather misleadingly called the Rotterdam spot market .
But this is not a market in the ordinary sense in which buyers and sellers are identifiable
and prices known to everyone. It is just a network of about a hundred oil traders and brokers,
connected with each other by long distance intercontinental telephone and telex. Like other
brokers in grain or porkbellies or frozen orange-juice, they are often tempted to increase
their profits by talking the market price up or down.
As late as 1978, the spot market deals still accounted for only 5 per cent of all trade
in oil. They now account for 40 per cent or more.
Inevitably, because of the close connection between oil prices, generally denominated
in dollars, and the price of the dollar in foreign exchange markets, there has grown up
in London and New York a futures market in 'paper barrels' to match the forward and futures
markets in dollars and dollar assets.
These 'paper barrel' contracts can change hands as many as 50 times, and do not need
to be based on barrels of real oil. Futures contracts on the British Brent blend of North
Sea oil are thought to add up to as much as eight times the total annual output of the Brent
field (Hooper, 1985).
In short, while there is little doubt that the instability of exchange rates has helped
to destabilize the oil market, the oil market is now adding its own gambling game to all
the others.
The picture so far is one of an international financial system in which the gamblers
in the casino have got out of hand, almost beyond, it sometimes seems, the control of governments.
The question has occurred already to a good many people whether it is the governments
that have got weaker over the past 15 years, or whether it is a fortuitous coincidence of
economic forces that have combined to make the markets more powerful. It is an important
question, for the answer will dictate what has to be done to control, to moderate, or to
close down the great financial gambling game.
That question is linked with a second one: have all states weakened in relation to markets,
or only one, or perhaps just a few of the more important governments? Those who think that
all governments have weakened tend to find rather broad general explanations of how this
has come about. If they offer solutions they are apt to be of the most vague and general
kind. In contrast, those who think the explanation lies with the few, or even just with
the USA as the dominant power in the international financial system – as all the figures
show it to be – tend to be much more specific both in the explanations they put forward
and in the solutions they suggest.
I think in 1997 the term "neoliberalism" was not yet common and "casino capitalism" was
used as a substitute for depiction of essentially the same phenomenon. She "feels the pain"
but did not understand that it was a "quite coup" that installed neoliberalism as a dominant
social system all over the world, displacing both New Deal Capitalism and Socialism. Kind of
global coup detat of financial oligarchy. So governments were already captured and can't serve
as a countervailing force for gambling.
Quote above is cited from
Casino Capitalism Reprint Edition, by Susan Strange. Paperback: 224 pages. Publisher: Manchester
University Press; Reprint edition (October 16, 1997)http://www.amazon.com/gp/product/0719052351?keywords=Susan%20Strange%20Casino%20capitalism
In other words "paper oil" radically changed the game.
DUBAI, United Arab Emirates - The United Arab Emirates threw its support on Thursday behind a
plan by major oil producers to freeze output levels in an attempt to halt a slide in crude prices
that has pushed them to their lowest point in more than a decade.
Russia, Saudi Arabia, Qatar and Venezuela announced their willingness to cap output at last
month's levels at a surprise meeting in Qatar this week - but only if other major oil producers
join them. OPEC member Kuwait has since said it supports the proposal.
The support from the Emirates, a close Saudi ally, does not come as a major surprise but is still
significant. The seven-state federation is OPEC's third-largest oil producer.
Energy Minister Suhail Mohammed al-Mazrouei said in a statement to state news agency WAM that the
Emirates supports any proposal to freeze output through consensus with OPEC and Russia, which is
not part of the oil-producing bloc.
"We believe that freezing production levels by members of OPEC and Russia will have a positive
impact on balancing future demand based on the current oversupply," he said.
He was also quoted as saying he believes current conditions will prompt producing countries to
cap existing output, if not cut supply. The UAE, he said, "is always open for cooperation with
everyone in order to serve the higher interests of the producers and the balance of the market."
A day earlier, Iranian Oil Minister Bijan Namdar Zanganeh said after talks with counterparts from
Iraq, Venezuela and Qatar that his country "supports any measure to boost oil prices" but stopped
short of committing Iran to capping its own output. Iran has previously said it aims to boost
production above its roughly 2.9 million barrels a day now that sanctions related to its nuclear
program have been lifted.
"... Mining and exploration investment declined from $135 billion in 2014 to $87.7 billion in 2015, weighing down investment growth more than any other segment of nonresidential investment. ..."
Mining and exploration
investment declined 35% in 2015, the second largest year-over-year decline since the U.S.
Bureau of Economic Analysis (BEA) began reporting the series in 1948. Most mining and exploration
investment reflects petroleum exploration and development, but the category also includes natural
gas, coal, and other minerals.
Mining and exploration investment declined from $135 billion in 2014 to $87.7 billion in
2015, weighing down investment growth more than any other segment of nonresidential investment.
Total private fixed investment, of which mining and exploration is a small subset, grew 4% in
2015 to $2.7 trillion. Low
commodity prices remain a significant factor in U.S. firms' investment decisions.
"... There are over $1.8 trillion of US junk bonds outstanding. It's the lifeblood of over-indebted corporate America. When yields began to soar over a year ago, and liquidity began to dry up at the bottom of the scale, it was "contained." ..."
"... The average yield of CCC or lower-rated junk bonds hit the 20% mark a week ago. The last time yields had jumped to that level was on September 20, 2008, in the panic after the Lehman bankruptcy, as we pointed out . Today, that average yield is nearly 22%! ..."
"... Today the scenario is punctuated by defaults, debt restructurings with big haircuts, and bankruptcy filings. These risks had been there all along. But "consensual hallucination," as we've come to call the phenomenon, blinded investors, among them hedge funds, private equity firms, bond mutual funds for retail investors, and other honorable members of the "smart money." ..."
"... The M&A-related bond issue by Endurance International Group couldn't be syndicated and ended up on the balance sheets of the underwriters. ..."
"... The market was hit hard again this week amid solid volume trading as oil prices plunged anew. There was a meager attempt at stability on Wednesday, but some participants described it as similar to the calm at the eye of a hurricane. ..."
"... And retail investors are catching on. Over the past three sessions alone, they pulled $488 million out of the largest high-yield ETF, the iShares HYG, which on Thursday closed at 75.59, down 21% from its high in June 2014, and the lowest level since May 2009. ..."
"... All grades of junk bonds have been losing ground: the S&P High-Yield Index is down 3.9% year-to-date. But it's in the CCC-and-lower category where real bloodletting is occurring. ..."
"... It's not just energy. The category includes all kinds of companies, among them brick-and-mortar retailers and restaurants, hit hard by excessive debt, slack demand, consumer preference for online shopping, and other scourges. Unlike oil and gas drillers, these companies have no assets to sell. Standard & Poor's "believes these trends will accelerate in the coming year and lead to further retail defaults." ..."
"... All the Central Bank stimulus programs have been Neo-Keynesian, in line with the new economics. The money is pushed into the top of the economic pyramid, the banks, and according to the new economics it should trickle down. ..."
"... I see a storm brewing. A huge economic tsunami will occur when the financial sector collapses. The question is not if this will occur but when and how bad it will be. The severity is bound to be intense and long term as Congress is hidebound by ideological stances that are the origination of the Tsunami. The Fed has run out of strategies that actually have any positive effect. ..."
"... Not to diminish the concerns Wolf has expressed here or the related causal factors, but staff at the Atlanta Fed is forecasting sharply improving economic activity this quarter. ..."
"... But "consensual hallucination," as we've come to call the phenomenon, blinded investors, among them hedge funds, private equity firms, bond mutual funds for retail investors, and other honorable members of the "smart money." ..."
"... Please explain how "smart money" is losing on this "hallucination." Oh, maybe you mean the Private Equity LPs or the retail investors in the Mutual Funds, or the investors in the hedge funds. They aren't the smart money. The smart money is playing this game for all it is worth and is not losing out. ..."
Posted on
February 13, 2016 by
Yves
Smith By Wolf Richter, a San Francisco based executive, entrepreneur, start
up specialist, and author, with extensive international work experience. Originally
published at
Wolf Street
It's not contained.
There are over $1.8 trillion of US junk bonds outstanding. It's the lifeblood
of over-indebted corporate America. When yields began to soar over a year ago,
and liquidity began to dry up at the bottom of the scale, it was "contained."
Yet contagion has spread from energy, metals, and mining to other industries
and up the scale. According to UBS, about $1 trillion of these junk bonds are
now "stressed" or "distressed." And the entire corporate bond market, which
is far larger than the stock market, is getting antsy.
The average yield of CCC or lower-rated junk bonds hit the 20% mark a
week ago. The last time yields had jumped to that level was on September 20,
2008, in the panic after the Lehman bankruptcy,
as we pointed out . Today, that average yield is nearly 22%!
Today even the average yield spread between those bonds and US Treasuries
has breached the 20% mark. Last time this happened was on October 6, 2008, during
the post-Lehman panic:
At this cost of capital, companies can no longer borrow. Since they're cash-flow
negative, they'll run out of liquidity sooner or later. When that happens, defaults
jump, which blows out spreads even further, which is what happened during the
Financial Crisis. The market seizes. Financial chaos ensues.
It didn't help that Standard & Poor's just went on a "down-grade binge,"
as S&P Capital IQ LCD called it, hammering 25 energy companies deeper into junk,
11 of them into the "substantial-risk" category of CCC+ or below.
Back in the summer of 2014, during the peak of the wild credit bubble beautifully
conjured up by the Fed, companies in this category had no problems issuing new
debt in order to service existing debt, fill cash-flow holes, blow it on special
dividends to their private-equity owners, and what not. The average yield of
CCC or lower rated bonds at the time was around 8%.
Today the scenario is punctuated by defaults, debt restructurings with
big haircuts, and bankruptcy filings. These risks had been there all along.
But "consensual hallucination," as we've come to call the phenomenon, blinded
investors, among them hedge funds, private equity firms, bond mutual funds for
retail investors, and other honorable members of the "smart money."
But now that they've opened their eyes, they're running away. And so the
market for new issuance is grinding down.
"Another tough week," S&P Capital IQ LCD said on Thursday in its
HY Weekly . There was one small deal earlier this week: Manitowoc Cranes'
$260 million B+ rated second-lien notes that mature in 2021 sold at a yield
of 14%!
The M&A-related bond issue by Endurance International Group couldn't
be syndicated and ended up on the balance sheets of the underwriters. LeasePlan
has a $500 million deal on the calendar. If it goes today, it will bring the
total this week to a measly $760 million, down 90% from the four-year average
for the second week in February. According to S&P Capital IQ LCD, it would be
"the lowest amount of early-February issuance since the credit crisis in 2009."
In the secondary market, where the high-yield bonds are traded, it's equally
gloomy. S&P Capital IQ LCD:
The market was hit hard again this week amid solid volume trading
as oil prices plunged anew. There was a meager attempt at stability on Wednesday,
but some participants described it as similar to the calm at the eye of
a hurricane.
That proved true today, as markets fell further. There was red across
the board with losses in dollar terms ranging 1–5 points, depending on the
credit and sector. The huge U.S. Treasury market rally gave no technical
support, even as the yield on the 10-year note, for one, pierced 1.6%, a
4.5-year low.
And retail investors are catching on. Over the past three sessions alone,
they pulled $488 million out of the largest high-yield ETF, the iShares HYG,
which on Thursday closed at 75.59, down 21% from its high in June 2014, and
the lowest level since May 2009.
On a broader scale, investors
yanked $5.6 billion out of that asset class in January, the fourth month
in a row of outflows.
All grades of junk bonds have been losing ground: the S&P High-Yield
Index is down 3.9% year-to-date. But it's in the CCC-and-lower category where
real bloodletting is occurring.
This chart shows the return from interest payments and price changes of that
category. Since June 2014, the index has lost 28%. During the panic of the Financial
Crisis, it plunged 48%. But now the volume of junk bonds outstanding is twice
as large and the credit bubble is far bigger than it had been before the Financial
Crisis. So this might just be the beginning:
It's not just energy. The category includes all kinds of companies, among
them brick-and-mortar retailers and restaurants, hit hard by excessive debt,
slack demand, consumer preference for online shopping, and other scourges. Unlike
oil and gas drillers, these companies have no assets to sell. Standard & Poor's
"believes these trends will accelerate in the coming year and lead to further
retail defaults."
S&P now expects the overall default rate to reach 3.9% by the end of 2016.
But it may be the rosy scenario; last March, S&P still thought the default rate
at the end of 2016 would be 2.8%. Credits are deteriorating fast.
Among these CCC-rated retailers and restaurants are Claire's Stores, Logan's
Roadhouse, and the Bon-Ton Department Stores. Others, at B-, are just a downgrade
away, such as Toys "R" Us, 99 Cents Only Stores, or P.F. Chang's China Bistro.
Some are rated B, such as Men's Wearhouse and Neiman Marcus. If these companies
need money, it's going to get very expensive.
And contagion is spreading to high-grade bonds: issuance so far in February
plunged 90% to just $5 billion, from the same period a year ago. Year-to-date
issuance was inflated by one monster deal carried over from last year, the $46-billion
M&A-driven trade for Anheuser-Busch InBev, bringing the total to $126.5 billion,
still down 13%. S&P Capital IQ LCD:
Severe broad market volatility shuttered the investment-grade primary
market for a fifth consecutive session Thursday, as secondary-market spreads
continued to widen.
If policy makers wanted to understand the irrelevance of ZIRP or NIRP
in the world where real businesses and people live, they only have to read
this article.
And don't forget the risk that's posed by the sovereign debt issued by
the EU PIIGS:
Are The EU PIIGS About To Start Squealing?
As the migrant crisis in Europe worsens serious steps to address it are
being considered.
One proposal is for passports to be required in order to cross from one
EU country to another.
Would such a drastic move spell the beginning of the end for the Eurozone
as a viable entity?
And if so what will happen to the piles of sovereign debt that's been
issued by the economically vulnerable EU PIIGS, and to the investors who
have been pouring money into them at what appear to be ridiculously low
yields?
Bring in nonsense economics globally and let it destroy everything.
Today's nonsense economics:
1) Ignores the true nature of money and debt
Debt is just taking money from the future to spend today.
The loan/mortgage is taken out and spent; the repayments come in the
future.
Today's boom is tomorrow's penury and tomorrow is here.
One of the fundamental flaws in the economists' models is the way they
treat money, they do not understand the very nature of this most basic of
fundamentals.
They see it as a medium enabling trade that exists in steady state without
being created, destroyed or hoarded by the wealthy.
They see banks as intermediaries where the money of savers is leant out
to borrowers.
When you know how money is created and destroyed on bank balance sheets,
you can immediately see the problems of banks lending into asset bubbles
and how massive amounts of fictitious, asset bubble wealth can disappear
over-night.
When you take into account debt and compound interest, you quickly realise
how debt can over-whelm the system especially as debt accumulates with those
that can least afford it.
a) Those with excess capital invest it and collect interest, dividends
and rent.
b) Those with insufficient capital borrow money and pay interest and rent.
Add to this the fact that new money can only be created from new debt
and the picture gets worse again.
With this ignorance at the heart of today's economics, bankers worked
out how they could create more
and more debt whilst taking no responsibility for it. They invented securitisation
and complex financial instruments to package up their debt and sell it on
to other suckers (the heart of 2008).
2) Doesn't differentiate between "earned" and "unearned" wealth
Adam Smith:
"The Labour and time of the poor is in civilised countries sacrificed
to the maintaining of the rich in ease and luxury. The Landlord is maintained
in idleness and luxury by the labour of his tenants. The moneyed man is
supported by his extractions from the industrious merchant and the needy
who are obliged to support him in ease by a return for the use of his money.
But every savage has the full fruits of his own labours; there are no landlords,
no usurers and no tax gatherers."
Like most classical economists he differentiated between "earned" and
"unearned" wealth and noted how the wealthy maintained themselves in idleness
and luxury via "unearned", rentier income from their land and capital.
We can no longer see the difference between the productive side of the
economy and the unproductive, parasitic, rentier side.
The FIRE (finance, insurance and real estate) sectors now dominate the
UK economy and these are actually parasites on the real economy.
Constant rent seeking, parasitic activity from the financial sector.
Siphoning off the "earned" wealth of generation rent to provide "unearned"
income for those with more Capital, via BTL.
Housing booms across the world sucking purchasing power from the real
economy through high rents and mortgage payments.
Michael Hudson "Killing the Host"
3) Today's ideal is unregulated, trickledown Capitalism.
We had un-regulated, trickledown Capitalism in the UK in the 19th Century.
We know what it looks like.
1) Those at the top were very wealthy
2) Those lower down lived in grinding poverty, paid just enough to keep
them alive to work with as little time off as possible.
3) Slavery
4) Child Labour
Immense wealth at the top with nothing trickling down, just like today.
This is what Capitalism maximized for profit looks like.
Labour costs are reduced to the absolute minimum to maximise profit.
(The majority got a larger slice of the pie through organised Labour
movements.)
The beginnings of regulation to deal with the wealthy UK businessman
seeking to maximise profit, the abolition of slavery and child labour.
Where regulation is lax today?
Apple factories with suicide nets in China.
The modern business person chases around the world to find the poorest
nation with the laxest regulations so they can exploit these people in the
same way they used to exploit the citizens of their own nations two hundred
years ago.
Labour costs are reduced to the absolute minimum to maximise profit.
Capitalism in its natural state sucks everything up to the top.
Capitalism in its natural state doesn't create much demand.
There is more than one version of Capitalism, and today's version is
an upside down version of the one we had 40 years ago that produced the
lowest levels of inequality in history within the developed world.
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.
All the Central Bank stimulus programs have been Neo-Keynesian, in
line with the new economics. The money is pushed into the top of the economic
pyramid, the banks, and according to the new economics it should trickle
down.
What we have seen is that the money stays at the top inflating asset
bubbles in stocks, fine art, classic cars and top end property.
Businessmen believe in the new economics when it comes to keeping all
the rewards for themselves and shareholders.
Businessmen believe in the old economics when it come to investing and
won't invest until demand rises.
The new economics has taken us back to a disastrous past.
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
I see a storm brewing. A huge economic tsunami will occur when the
financial sector collapses. The question is not if this will occur but when
and how bad it will be. The severity is bound to be intense and long term
as Congress is hidebound by ideological stances that are the origination
of the Tsunami. The Fed has run out of strategies that actually have any
positive effect.
Not to diminish the concerns Wolf has expressed here or the related
causal factors, but staff at the Atlanta Fed is forecasting sharply improving
economic activity this quarter.
Although I only began tracking their work during the past year, I have
been impressed by the accuracy of their recent GDP forecasts:
But "consensual hallucination," as we've come to call the phenomenon,
blinded investors, among them hedge funds, private equity firms, bond
mutual funds for retail investors, and other honorable members of the
"smart money."
Please explain how "smart money" is losing on this "hallucination."
Oh, maybe you mean the Private Equity LPs or the retail investors in the
Mutual Funds, or the investors in the hedge funds. They aren't the smart
money. The smart money is playing this game for all it is worth and is not
losing out.
A while back (it had seemed like years to me but it was actually March 23,
2012--is it just me or did this last presidential election cycle actually stretch
time?) Joules Burn posted
From Qurayyah
to Khurais: Turning Water Into Oil which contains links to part one (9:47)
and two (13:06) of From Qurayyah to Khurais
The following are direct YouTube links to the same
My end of the wire bottom of the line DSL connection made loading those clips
downright painful but it was worth it. It is a very well done animation
and really fleshes out the process your linked article describes.
Zero hedge is a really crooked site when it comes to oil.
I had an account banned
there for continually pointing out the inconsistencies of their narrative on production and supply.
You'll notice they'll only use graphs when there's been an uptick in production. All the time last
year when production was falling they never once used a graph.
When production was still increasing they always used a combined rig count/production graph, the
moment production started to fall they pulled the production line from the graph. The moment production
plateaued and slightly increased, the production line reappeared.
There's some skilled propagandists there because most of the commenters lap it up, I doubt many
of them would realise production actually fell in the US in 2015, they probably still think it's
increasing. None of them would realise Saudi production has fallen either.
"... At the centre are the two designated heirs to the 271-year-old House of Saud, which has ruled Saudi Arabia since its emergence as a modern state. Crown Prince Mohammed bin Nayef, the kings 56-year-old nephew, is first in line to the throne but Deputy Crown Prince Mohammed bin Salman, believed to be about 30, is Salmans son and a rising power. ..."
"... Mohammed bin Nayef is interior minister while Mohammed bin Salman runs the defence ministry, and their growing rivalry is making itself felt, experts say. ..."
"... He points to the irresponsible Saudi-led intervention in Yemen and says the key Western ally has taken a more hard line tilt away from reforms. . . . ..."
"... In addition to being defence minister, Mohammed bin Salman heads the kingdoms main economic co-ordinating council as well as a body overseeing Saudi Aramco, the state oil company in the worlds biggest petroleum exporter. ..."
I have read, and heard, that many analysts are increasingly concerned that a 30 year old, Mohammed
bin Salman, is calling a lot of the shots in Saudi Arabia. And there have been widespread reports
that members of the royal family are increasingly unhappy about the current regime.
Two princes in Saudi Arabia battle for one throne (October, 2015)
A POWER struggle is emerging between Saudi Arabia's two most powerful princes, analysts
and diplomats say, as the secretive kingdom confronts some of its biggest challenges in years.
The Saudi-led military intervention in Yemen, falling oil prices and rising jihadist violence
are putting the country's leadership to the test, nine months after King Salman assumed the
throne following the death of King Abdullah. The kingdom's rulers have also faced criticism
for last month's hajj tragedy which, according to foreign officials, killed more than 2200
people in a stampede at the annual Muslim pilgrimage.
With concerns over the long-term health of 79-year-old Salman, jockeying for influence has
intensified, experts say.
At the centre are the two designated heirs to the 271-year-old House of Saud, which
has ruled Saudi Arabia since its emergence as a modern state. Crown Prince Mohammed bin Nayef,
the king's 56-year-old nephew, is first in line to the throne but Deputy Crown Prince Mohammed
bin Salman, believed to be about 30, is Salman's son and a rising power.
Mohammed bin Nayef is interior minister while Mohammed bin Salman runs the defence ministry,
and their growing rivalry is making itself felt, experts say.
"It's resulting in some disturbing policies abroad and internally," says Frederic Wehrey
of the Middle East Programme at the Carnegie Endowment for International Peace in Washington.
He points to the "irresponsible" Saudi-led intervention in Yemen and says the key Western
ally has taken a more "hard line tilt" away from reforms. . . .
In addition to being defence minister, Mohammed bin Salman heads the kingdom's main
economic co-ordinating council as well as a body overseeing Saudi Aramco, the state oil company
in the world's biggest petroleum exporter.
"Mohammed bin Salman is clearly amassing extraordinary power and influence very quickly.
This is bound to unsettle his rivals," Wehrey says.
The deputy crown prince "has this need to structure his position to become, at the moment
his father dies, irreplaceable" because he has no assurances of how Mohammed bin Nayef, as
king, would treat him, another foreign diplomat says.
Mohammed bin Salman, who has a close relationship with his father, has been "acting as if
he was the heir apparent, so this obviously creates tensions," Lacroix says.
ND Bakken December 2015 data are out. Production fell back to levels not seen since August/September
2014. Exactly what the Season Effect Model predicted 25 months ago (within a 0.64% error margin).
Links to an excerpt from "On Saudi Arabia" and to a NYT article on the young prince, Prince Mohammed
bin Salman, who seems to be calling the shots in Saudi Arabia:
To me the Saudi strategy looks like that they want to push everything to extreme as this
will turn the table in politics and also in the oil market more likely than a 'soft approach'.
Brilliant article. Thanks! Feudal states and the Mafia family type business don't differ much.
Many great examples throughout history. It'll b very interesting to watch KSA unwind and train
wreck.
What's unfolding is what Karen Elliott House described in her book "On Saudi Arabia."
What scares many royals and most ordinary Saudis is that the succession, which historically
has passed from brother to brother, soon will have to jump to a new generation of princes.
That could mean that only one branch of this family of some seven thousand princes will have
power, a prescription for potential conflict as thirty-four of the thirty-five surviving lines
of the founder's family could find themselves disenfranchised.
"... Understood one way, the Saudi king is CEO of a family business that converts oil into payoffs that buy political loyalty. They take two forms: cash handouts or commercial concessions for the increasingly numerous scions of the royal clan, and a modicum of public goods and employment opportunities for commoners. The coercive "stick" is supplied by brutal internal security services lavishly equipped with American equipment. ..."
"... With its political and business elites interwoven in a monopolistic network, quantities of unaccountable cash leaving the country for private investments and lavish purchases abroad, and state functions bent to serve these objectives, Saudi Arabia might be compared to such kleptocracies as Viktor Yanukovich's Ukraine. ..."
In fact, Saudi Arabia is no state at all. There are two ways to describe it: as a political
enterprise with a clever but ultimately unsustainable business model, or so corrupt as to
resemble in its functioning a vertically and horizontally integrated criminal organization.
Either way, it can't last. It's past time U.S. decision-makers began planning for the collapse of
the Saudi kingdom.
In recent conversations with military and other government personnel, we were startled at how
startled they seemed at this prospect. Here's the analysis they should be working through.
Understood one way, the Saudi king is CEO of a family business that converts oil into payoffs
that buy political loyalty. They take two forms: cash handouts or commercial concessions for the
increasingly numerous scions of the royal clan, and a modicum of public goods and employment
opportunities for commoners. The coercive "stick" is supplied by brutal internal security
services lavishly equipped with American equipment.
... ... ...
If the loyalty price index keeps rising, the monarchy could face political insolvency.
Looked at another way, the Saudi ruling elite is operating something like a sophisticated
criminal enterprise, when populations everywhere are making insistent demands for government
accountability. With its political and business elites interwoven in a monopolistic network,
quantities of unaccountable cash leaving the country for private investments and lavish purchases
abroad, and state functions bent to serve these objectives, Saudi Arabia might be compared to
such kleptocracies as Viktor Yanukovich's Ukraine.
For the moment, it is largely Saudi Arabia's Shiite minority that is voicing political
demands. But the highly educated Sunni majority, with unprecedented exposure to the outside
world, is unlikely to stay satisfied forever with a few favors doled out by geriatric rulers
impervious to their input. And then there are the "guest workers." Saudi officials, like those in
other Gulf states, seem to think they can exploit an infinite supply of indigents grateful to
work at whatever conditions. But citizens are now heavily outnumbered in their own countries by
laborers who may soon begin claiming rights.
For decades, Riyadh has eased pressure by exporting its dissenters-like Osama bin Laden-fomenting
extremism across the Muslim world. But that strategy can backfire: bin Laden's critique of Saudi
corruption has been taken up by others and resonates among many Arabs. And King Salman (who is
80, by the way) does not display the dexterity of his half-brother Abdullah. He's reached for
some of the familiar items in the autocrats' toolbox: executing dissidents, embarking on foreign
wars, and whipping up sectarian rivalries to discredit Saudi Shiite demands and boost nationalist
fervor. Each of these has grave risks.
There are a few ways things could go, as Salman's brittle grip on power begins cracking.
One is a factional struggle within the royal family, with the price of allegiance bid up beyond
anyone's ability to pay in cash. Another is foreign war. With Saudi Arabia and Iran already
confronting each other by proxy in Yemen and Syria, escalation is too easy. U.S. decision-makers
should bear that danger in mind as they keep pressing for regional solutions to regional
problems. A third scenario is insurrection - either a non-violent uprising or a jihadi
insurgency-a result all too predictable given episodes throughout the region in recent years.
The U.S. keeps getting caught flat-footed when purportedly solid countries came apart. At the
very least, and immediately, rigorous planning exercises should be executed, in which different
scenarios and different potential U.S. actions to reduce the codependence and mitigate the risks
can be tested. Most likely, and most dangerous, outcomes should be identified, and an energetic
red team should shoot holes in the automatic-pilot thinking that has guided Washington policy to
date.
"Hope is not a policy" is a hackneyed phrase. But choosing not to consider alternatives amounts
to the same thing
Brent crude futures trading at the Intercontinental Exchange (ICE) in London
surged over 7.5 percent after Iran declared its support for the oil output freeze.
Despite expressing its backing for the step, Tehran has not made any pledges
to curb to its own production.
After the initial rise, the positive market trend ended a few minutes later,
with the gain then dropping to around 6.2 percent.
WTI futures in New York also saw a reverse in earlier losses, gaining as
much as 6.3 percent, according to Bloomberg.
On Wednesday, Tehran expressed its support for the plan to freeze oil production
levels, which was put forward by Russia and Saudi Arabia a day earlier.
After meeting with energy ministers from other top crude oil producers, Iran's
Oil Minister Bijan Namdar Zanganeh said the country supported the measures that
aim to prevent a further drop in oil prices.
Iran backs the proposal, Iranian Shana news agency reported. However, the
minister did not specify whether Tehran would curb its own crude production.
Following the Moscow-Riyadh output agreement, Zanganeh met with his counterparts
from Iraq, Qatar and Venezuela in the Iranian capital. He assessed the meeting
as being positive, TASS news agency reported.
With three OPEC members – Qatar, Venezuela and Kuwait – already having said
they are ready to freeze output at January levels, and the UAE saying it's open
to cooperation, the fate of the initiative now mostly depends on Iran's participation.
The US is the dominant force in international banking. It is this position from which sanctions
are derived. Iran had to (and often did) find other ways to get paid for shipping oil than money
flow through international banking, which US and EU sanctions prohibited.
If you seek to oppose the US, you must not fight in a money arena. It's a disadvantageous battlefield.
The price of oil is determined by what? NYMEX traders? Or agreement between a refinery and
an oil exporter?
I would suggest it is the latter, which need not depend on NYMEX numbers at all.
If your goal is to destroy US shale, the last thing you would do is allow your weapon (price)
to be defined by your target (the US in general, which is where the NYMEX is). Nor would you allow
it to be defined by something as variable as free market forces. If you specify price to your
buyer, perhaps lower than his bid, you remove the marketplace from involvement in the battle.
The goal is victory. Not profit. How could you allow yourself to define victory in pieces of
paper printed by your enemy?
If your goal is to destroy US shale, the last thing you would do is allow your weapon (price)
to be defined by your target (the US in general, which is where the NYMEX is). Nor would you allow
it to be defined by something as variable as free market forces.
If your goal is to destroy US shale then the only way you can do that is to produce every barrel
of oil you possibly can. It would not be within your power to allow the price to be defined
by anyone or anything other than market forces. Of course every exporter negotiates a price with
his buyer. But that price must be within a reasonable amount of what the world oil price is at
the moment.
The price of oil is determined by supply and demand just like every commodity on the market.
Every day, there are thousands of oil buyers around the world. There are dozens of sellers,
many of them exporters. All the buyers are in competition with other buyers to get the lowest
possible price. All the sellers are in competition with other sellers to get the highest price
possible. And the price moves up and down with each trade, hourly or sometimes minute by minute.
To believe that even one of those dozens of exporters has the power to set the price oil, much
higher than everyone else is getting, is just silly. And likewise, to believe that a buyer can
get a much lower price than everyone else is getting, is just as silly.
They say that depletion never sleeps. Well, market forces never sleep either.
But that price must be within a reasonable amount of what the world oil price is at the moment.
Which is why it took the predator 18 mos to get it down to lethal levels. Just repeatedly be
willing to sell for a bit less than the bid and down it will go, because others will protect their
marketshare by matching your price (sound familiar?). Then you're no longer the only one offering
a low price.
All the sellers are in competition with other sellers to get the highest price possible.
Were this so there would exist no wiki for predatory pricing.
You aren't thinking about victory. If you seek victory, you don't fight in an arena where you
are disadvantaged. If you're the low cost producer of the lifeblood of civilization, you assert
that advantage and kill the enemy.
By your reasoning the price of oil should be close to zero, say $1/b.
Explain why that isn't the case, if "victory" is the sole objective.
Also predatory pricing is not an effective strategy especially in commodity markets where the
barriers to entry are low.
OPEC does not set the price of oil on World Markets, they simply influence it by their level
of output. In the case of the oil industry attempts at predatory pricing are not rational, it
is simply a strategy for losing money.
Which is why it took the predator 18 mos to get it down to lethal levels. Just repeatedly be
willing to sell for a bit less than the bid and down it will go, because others will protect their
market share by matching your price (sound familiar?). Then you're no longer the only one offering
a low price.
Oh good grief. I give up. You are a hopeless case.
I don't think Watcher expresses the situation very clearly, especially with words like 'predator'.
I don't see it as an apt analogy. I do however feel that the current price war/production war/phantom
production war is clearly an act of economic warfare by Saudi Arabia against their competitors.
It seems odd to me that a world oil production system that can't very accurately tell me how much
oil was produced today until months after the fact is going to start the day tomorrow by saying
'we are over supplied by 1.8 million barrels a day today' and then proceed to talk the price into
the gutter.
"... This year, global exploration-and-production investments will fall by $170 billion, or 20%, according to Rystad Energy. If international oil prices average $50 a barrel next year-a level many analysts said appears optimistic-investment could fall by one-fifth in 2016, the Oslo-based energy consulting firm estimates. ..."
"... That would be the first time the industry has registered two consecutive years of investment declines in 30 years, according to the International Energy Agency, a global industry monitor. . . . ..."
"... The stage is set for a supply crunch down the line, Mr. Mahesh said. Supply from existing fields will fall, while new projects wont come online to replace them. ..."
"... Barclays sees Brent reaching $85 a barrel by 2020, while others see the potential for an even steeper rise. ..."
"... You could see prices shooting up from $30 to $100 pretty quickly, said Iain Reid, head of European oil and gas at Macquarie bank. At some point the chickens will come home to roost. ..."
"... Based on the WSJ article, global upstream capex was about $1.5 Trillion in 2014 2015 combined. I dont know what the division was between crude oil and gas + associated liquids (condensate NGL), but its plausible that it took about a trillion dollars over a two year period, in order to keep our global crude oil production base approximately stable, at around 68 to 69 million bpd, versus an estimated 69 million bpd in 2005. ..."
"... If that was solely CAPEX it seems high – assuming 4 mmbpd per year is needed to be bought on line and $70 to $90,000 per bpd average development costs gives $560 to $720 billion. maybe up to $1 to $1.2 trillion with gas developments included. So maybe it includes exploration DRILLEX as well, or costs have gone up a bit (or decline is higher than Ive assumed). But I think it must include all oil and all natural gas, greenfield and brownfield. ..."
"... According to the most recent Barclays survey, the primary source of data on global upstream capex, total spending was $673.2bn in 2014; $520.5bn in 2015 and is projected at $444.4bn in 2016 ..."
With the world awash in crude*, the oil industry is contemplating a new problem the oversupply
could tee up: an oil shortage.
As the oil glut has sent prices to decade lows, plummeting investment by oil-producing countries
such as Venezuela and Russia and oil drillers such as Exxon Mobil Corp. and Royal Dutch Shell
PLC means fewer barrels will be produced.
That could leave the world in exactly the opposite situation as now: short of oil and willing
to pay more to get it.
This may herald the beginning of a cycle that other commodities, from gold to copper, find
more familiar-a cycle in which a glut leads to lower prices that lead to investment cuts, which
chokes supply and prompts the price gains that lead to renewed expansion and future gluts.
"A big gap is forming in oil-industry investment," Claudio Descalzi, chief executive of
Italian energy company Eni SpA, recently told reporters. "That will lead in two to three years
to an imbalance between supply and demand that will push prices higher."
This year, global exploration-and-production investments will fall by $170 billion,
or 20%, according to Rystad Energy. If international oil prices average $50 a barrel next year-a
level many analysts said appears optimistic-investment could fall by one-fifth in 2016, the
Oslo-based energy consulting firm estimates.
That would be the first time the industry has registered two consecutive years of investment
declines in 30 years, according to the International Energy Agency, a global industry monitor.
. . .
"The stage is set for a supply crunch down the line," Mr. Mahesh said. "Supply from
existing fields will fall, while new projects won't come online to replace them."
Barclays sees Brent reaching $85 a barrel by 2020, while others see the potential for
an even steeper rise.
"You could see prices shooting up from $30 to $100 pretty quickly," said Iain Reid,
head of European oil and gas at Macquarie bank. "At some point the chickens will come home
to roost."
*Awash in total liquids perhaps, but IMO not in actual crude oil
Based on the WSJ article, global upstream capex was about $1.5 Trillion in 2014 & 2015
combined. I don't know what the division was between crude oil and gas + associated liquids (condensate
& NGL), but it's plausible that it took about a trillion dollars over a two year period, in order
to keep our global crude oil production base approximately stable, at around 68 to 69 million
bpd, versus an estimated 69 million bpd in 2005.
If that was solely CAPEX it seems high – assuming 4 mmbpd per year is needed to be bought
on line and $70 to $90,000 per bpd average development costs gives $560 to $720 billion. maybe
up to $1 to $1.2 trillion with gas developments included. So maybe it includes exploration DRILLEX
as well, or costs have gone up a bit (or decline is higher than I've assumed). But I think it
must include all oil and all natural gas, greenfield and brownfield.
Either the current ongoing cuts, which for me go back to the cancellation of the Voyageur upgrader
in May 2013 with about $3 billion write off of sunk costs, are going to have a huge impact over
the next five years for oil. Maybe a bit longer for gas as the LNG projects are still coming on
line feeding an already large glut.
The cuts in exploration budget will impact as well, but given how little oil in large fields
has really been found since Johan Sverdrup in 2010, maybe it's not such a big deal (the lack of
discoveries with or without exploration will of course be a large impact).
This year, global exploration-and-production investments will fall by $170 billion, or 20%,
according to Rystad Energy. If international oil prices average $50 a barrel next year-a level
many analysts said appears optimistic-investment could fall by one-fifth in 2016, the Oslo-based
energy consulting firm estimates.
You're right. I was a little off with my math. They were projecting that 2015 + 2016 total
global capex (oil and gas + associated liquids) would be about $1.2 Trillion, not $1.5 Trillion.
So, then the question is the allocation between crude oil and gas reservoirs.
According to the most recent Barclays survey, the primary source of data on global upstream
capex, total spending was
$673.2bn in 2014; $520.5bn in 2015 and is projected at $444.4bn in 2016
"... KSA has cut production in 6 out of the last seven months. Cut might not be the right word though as I suspect it was not a choice. It was thrust upon them by geology. ..."
"... I feel they are producing every single barrel that they possibly can. Theyve got the peddle to that floor. No holding back. ..."
KSA has 'cut' production in 6 out of the last seven months. Cut might not be the right word
though as I suspect it was not a choice. It was thrust upon them by geology.
KSA will IMO face month after month of decreasing production. They managed a production
surge for a short while but that's all they had in them. They've shot their bolt. Iran probably
has some good increases coming but that's about it, and not all of that Iranian increase will
be exported.
The increase in Saudi oil production in the summer season was due to peak demand from the domestic
power generation for air conditioning.
As demand moderated in the past several months, KSA slightly reduced output levels, while crude
exports have actually increased.
KSA oil production and exports in 2015 – Jan. 2016
sources: JODI, OPEC
Do you believe that the slightly reduced production level of the last 6 of 7 months was optional?
I tend not to. I feel they are producing every single barrel that they possibly can. They've
got the peddle to that floor. No holding back.
How you can expand exports when Iran is very aggressively trying to get back into the market
with a very similar product at a very similar price. And somehow signed contracts for at least
0.3 Mb/d in Europe alone.
Does this mean that there is a huge deficit in the world for good quality oil or they simply
undercut competitors, including Iranians ?
OPEC member Kuwait projected a record budget deficit for the fiscal year starting April 1 on the
sliding price of oil, the finance ministry said on Thursday.
The shortfall
for the 2016-2017 fiscal year is estimated at 11.5 billion dinars ($38 billion) due to a sharp decline
in oil revenues, the ministry said on its Twitter account.
Spending was estimated at 18.9 billion dinars, just 1.6 percent lower than
in the current year, the ministry said.
Revenues were projected at 7.4 billion dinars, of which oil income is estimated
at $19.1 billion or just 78 percent of the public revenues.
In the past, income from oil contributed more than 94 percent of revenues
in the Gulf emirate, before the decline in crude prices.
Kuwait has projected a shortfall of $23 billion in the current fiscal year
which ends March 31, the first deficit after 16 years of surplus.
The Gulf state, which has a native population of just 1.3 million, has
built around $600 billion in fiscal reserves in those years.
"... The money crunch is hitting just as U.S. production is starting to decline. On Tuesday, the Energy Information Administration estimated that production is down 600,000 barrels per day since April; the agency expects production to fall at least that much again by the end of the year. Without a cash infusion, those declines will only accelerate. ..."
"... If production is falling, does that mean oil prices are going to go back up? Maybe. A popular argument in the oil patch is that the pullback in investment is sowing the seeds for the next surge in prices; oil companies won't be able to boost production quickly enough when it's needed, leading to higher prices. But even if that argument is right, it could take years for such a rebalancing to occur. And besides, as I've argued before, the conventional wisdom on oil is (almost) always wrong . ..."
Oil companies have survived low prices this long because banks and investors
were willing to lend them billions of dollars on the assumption that the price
plunge would be short-lived. But as experts become
increasingly convinced that prices will
stay low for years, Wall Street is turning off the money spigot. (It doesn't
help that the global economic slowdown is making banks more cautious, while
the Fed's decision to raise interest rates is making borrowing more expensive.)
The money crunch is hitting just as U.S. production is starting to decline.
On Tuesday, the Energy Information Administration
estimated that production is down 600,000 barrels per day since April; the
agency expects production to fall at least that much again by the end of the
year. Without a cash infusion, those declines will only accelerate.
If production is falling, does that mean oil prices are going to go back
up? Maybe. A
popular argument in the oil patch is that the pullback in investment is
sowing the seeds for the next surge in prices; oil companies won't be able to
boost production quickly enough when it's needed, leading to higher prices.
But even if that argument is right, it could take years for such a rebalancing
to occur. And besides, as I've argued before, the conventional wisdom on oil
is
(almost) always wrong.
"... At the beginning of 2014, the world was marveling in surprise as the US returned as a petroleum superpower, a role it had relinquished in the early 1970s. It was pumping so much oil and gas that experts foresaw a new American industrial renaissance, with trillions of dollars in investment and millions of new jobs. wo years later, faces are aghast as the same oil has instead unleashed world-class havoc: Just a month into the new year, the Dow Jones Industrial Average is down 5.5%. Japan's Nikkei has dropped 8%, and the Stoxx Europe 600 is 6.4% lower. ..."
"... that companies would put on hold $380 billion (and counting) in oil and natural gas field investment, and fire 250,000 industry workers around the world last year (including around 90,000 in the US). ..."
"... A lot of Americans bought houses based on confidence in the boom, and now can't make their payments -Texas has seen a 15% rise in foreclosures, and Oklahoma a whopping 36% increase, according to estimates from RealtyTrac. Morningstar, the rating agency, has put a third of some $340 million in mortgage-backed securities tied to North Dakota apartment buildings and other commercial properties on its watch list for possible default. ..."
At the beginning of 2014, the world was marveling in surprise as the
US returned as a petroleum superpower, a role it had relinquished in the early
1970s. It was pumping so much oil and gas that experts foresaw a new American
industrial renaissance, with trillions of dollars in investment and millions
of new jobs. wo years later, faces are aghast as the same oil has instead unleashed
world-class havoc: Just a month into the new year, the Dow Jones Industrial
Average is down 5.5%. Japan's Nikkei has dropped 8%, and the Stoxx Europe 600
is 6.4% lower. The blood on the floor even includes fuel-dependent industries
that logic suggests should be prospering,
such as airlines.
... ... ...
The analysts defend themselves by noting that they got this and that aspect
of oil's trajectory right, which is fair enough. But it seems all missed the
big picture: First, they failed to see that from 2011 to 2014, a surge in shale
oil production was going to become a big factor in global supplies; then, they
did not anticipate that the same oil would create the mayhem before us now.
In fact, in the case of the current turmoil, most forecast the precise opposite-economic
nirvana. Interviews with the main institutions that made the bad calls reveal
no crisis of confidence, and they are busy putting out analyses of the latest
developments.
... ... ...
Consumers have been big winners-gasoline prices have plummeted. That part
has happened. But analysts failed to anticipate that the Saudis would refuse
to cooperate with the shale gale, as it's been dubbed, and in fact would declare
war on it, even though Riyadh did precisely the same thing in the 1980s. The
analysts did not foretell that, if shale oil production rose as they projected,
it could drive down prices not only to the $80-a-barrel average that many forecast,
but much lower-so low, for so long (see chart below), that companies would
put on hold $380 billion (and counting) in oil and natural gas field investment,
and fire 250,000 industry workers around the world last year (including around
90,000 in the US).
... ... ...
Nor did they foresee that many of the companies themselves would be
at risk of bankruptcy (42
already filed as of last year). Of 155 US oil and gas companies studied
by Standard & Poor's, one third are rated B- or less, meaning they are a high
risk of default. These companies' debt is selling at just 56 cents on the dollar,
below even the level during the financial crash. As a measure of this vulnerability,
the 60 leading US independent oil and gas companies have accumulated
$200 billion in debt.
... ... ...
With the collapse in oil prices came the crash of employment in US cities
across Louisiana, North Dakota, and Texas, and in Canadian towns reliant on
the oil sands boom in Alberta. North Dakota has
lost an estimated 13,500 roughnecks and oil engineers, not to mention drivers,
restaurant cooks, barbers, and grocery store cashiers in service businesses
that sprouted up around them. The Canadian province of Alberta has
lost some 20,000 jobs, the most in any industry downturn since the early
1980s.
A lot of Americans bought houses based on confidence in the boom, and
now
can't make their payments-Texas has seen a 15% rise in foreclosures, and
Oklahoma a whopping 36% increase, according to
estimates from RealtyTrac. Morningstar, the rating agency, has
put a third of some $340 million in mortgage-backed securities tied to North
Dakota apartment buildings and other commercial properties on its watch list
for possible default.
But the echo has also been heard far from the US shale
patch. In the once-booming, toughly run petro-state of Azerbaijan, for instance,
people have
been in the streets to protest higher prices and lost jobs; the International
Monetary Fund, worried about Azerbaijan's possible collapse, is speaking with
government officials about a
$3 billion bailout.
Soup kitchens are
surfacing in Moscow, notwithstanding Russian president Vladimir Putin's
assertions that the country is coping fine, and that
things will improve
this year. African producers also have felt the pain. Like stock bourses around
the world, Nigeria's has tanked along with oil prices.
"... For decades, the royal family has used the kingdom's immense oil wealth to lavish benefits on its people, including free education and medical care, generous energy subsidies and well paid (and often undemanding) government jobs. No one paid taxes, and if political rights were not part of the equation, that was fine with most people. ..."
"... But the drop in oil prices to below $30 a barrel from more than $100 a barrel in June 2014 means that the old math no longer works. Low oil prices have knocked a chunk out of the government budget and now pose a threat to the unwritten social contract that has long underpinned life in the kingdom, the Arab world's largest economy and a key American ally. ..."
"... Like Norway, Saudi Arabia's oil money has created a generation of lazy bums who get paid a lot for doing little of importance. Lower oil prices is the only thing that'll force the Saudi population to work harder. ..."
"... Frugal. Having worked both in Norway and the middle east, I think it is unfair to put them in the same pot. There are more productive nations than Norway, but they do work much harder than the nationals of the oil-rich middle east countries. In addition, if one nation ever got the work-life balance right than it is them. ..."
"... I suppose they could try get jobs that displace the expats but it's not like they're gonna go be lumberjacks and farmers. Who the hell is hiring in KSA, Wendy's? ..."
"... As a kid I remember my dad once remarked 'never buy a house in a one resource town'. KSA is a one resource country! 30 million people with no detectable prospects whatsoever. The best any of then can do is get educated and flee. ..."
RIYADH, Saudi Arabia - In pressed white robes and clutching crisp
résumés, young Saudi men packed a massive hall at a university in the
capital city this month to wait in long lines to pitch themselves to
employers.
It was one of three jobs fairs in Riyadh in two weeks, and the high
attendance was fueled in part by fear among the younger generation of
what a future of cheap oil will mean in a country where oil is everything.
For decades, the royal family has used the kingdom's immense
oil wealth to lavish benefits on its people, including free education
and medical care, generous energy subsidies and well paid (and often
undemanding) government jobs. No one paid taxes, and if political rights
were not part of the equation, that was fine with most people.
But the drop in oil prices to below $30 a barrel from more than
$100 a barrel in June 2014 means that the old math no longer works.
Low oil prices have knocked a chunk out of the government budget and
now pose a threat to the unwritten social contract that has long underpinned
life in the kingdom, the Arab world's largest economy and a key American
ally.
Like Norway, Saudi Arabia's oil money has created a generation of lazy
bums who get paid a lot for doing little of importance. Lower oil prices
is the only thing that'll force the Saudi population to work harder.
Frugal. Having worked both in Norway and the middle east, I think it
is unfair to put them in the same pot. There are more productive nations
than Norway, but they do work much harder than the nationals of the oil-rich
middle east countries. In addition, if one nation ever got the work-life
balance right than it is them.
I suppose they could try get jobs that displace the expats but it's
not like they're gonna go be lumberjacks and farmers. Who the hell is hiring
in KSA, Wendy's?
As a kid I remember my dad once remarked 'never buy a house in a
one resource town'. KSA is a one resource country! 30 million people with
no detectable prospects whatsoever. The best any of then can do is get educated
and flee.
"... My comment: Anyway, Russia and Saudi Arabia were not expected to increase oil production this year ..."
"... Yes, but the markets don't know that Russia and Saudi Arabia cannot increase output. With this agreement they are trying to sustain oil prices or even increase them, one of the few things Saudi Arabia and Russia can agree on. ..."
"... As you can see this fake narrative of 1-2 Mb/d of "glut" is still in place. If this is not taking the price down I do not know what is. In this "fog of war" we should not blindly believe Western agencies reporting. It is even unclear what this agreement is about. ..."
"... In any case please understand the Western game to talk down oil prices down until recently included Saudis. Now they are out of this game. ..."
"... The fact output from Saudi Arabia and Russia – the world's two top producers and exporters – is near record highs also makes an agreement tricky since Iran is producing at least 1 million barrels per day below its capacity and pre-sanctions levels. ..."
"... Within the next 3 months all these trends will reverse. Seasonal demand will rise while production declines rise, and Iran's production stabilizes eliminating the new production bidding war. ..."
"... Why the hell do some people always believe that the media or agencies that track and sell data are always lying? ..."
"... A good point. Really, why some people distrust Western MSM and agencies ? Can it be for the same reasons they distrust bankers, IMF and World Bank ? ..."
"... If Congress and government are owned by banks according to senator Durbin ( "And the banks - hard to believe in a time when we're facing a banking crisis that many of the banks created - are still the most powerful lobby on Capitol Hill. And they frankly own the place." ) why do you think government agencies and major MSM are different ? ..."
"... The key point is that whenever possible we should try to compare different sources of data. That's the only way to reveal the real picture as none of us can verify the data provided by agencies and MSM. ..."
"... Plato has Socrates describe a gathering of people who have lived chained to the wall of a cave all of their lives, facing a blank wall. The people watch shadows projected on the wall from things passing in front of a fire behind them… The shadows are as close as the prisoners get to viewing reality. ..."
"... Still we can for major oil-related data to estimate the error margin and the direction of bias. Like I tried to estimate error margin for EIA data. Much depends whether you assume it to be 1% or 10%. If, for example, you think about particular source as 100% reliable that's fine, but 100% rating should be rare in this world and should never be awarded uncritically. Actually your posts for me are close. ..."
"... So non-US media, discussion forums that attract professionals like your blog, posts of professionals who try to present unbiased views like your posts, Jeffrey Brown posts, Art Berman posts (to name a few) and remnants of media still loyal to oil industry (your example of The Oil and Gas Journal ), not to Wall Street traders interests (Bloomberg) are especially important islands of sanity in this distorted, crazy, financial speculation dominated world. ..."
"... Did you ever hear about the "Great Condensate Con" hypothesis? This is an alternative to the "oil glut" hypothesis and I think it is more plausible. ..."
Nations agree to maintain output at Jan. 11 level, Naimi says
Ministers from Qatar, Venezuela also agreed to freeze"
Saudi Arabia and Russia, the world's two largest crude producers,
agreed to freeze output after talks in Qatar.
Freezing output at January levels will be "adequate" and the nation
still wants to meet the demand of its customers, Saudi Oil Minister
Ali Al-Naimi said in Doha after talks with Russian Energy Minster Alexander
Novak. Qatar and Venezuela also agreed to participated in the freeze,
Al-Naimi said.
"A freeze would not create an immediate U-turn but it creates a better
foundation for the price recovery in the second half," Olivier Jakob,
head of oil consultants Petromatrix GmBh, said in a note to clients
before the meeting concluded.
According the International Energy Agency, Saudi Arabia produced
10.2 million barrels a day in January, below the most recent peak of
10.5 million barrels a day set in June 2015. Russia produced nearly
10.9 million barrels a day in the same month, a post-Soviet record,
according to official data.
Qatar will lead monitoring of output freeze agreement, the nation's
Energy Minister Mohammad bin Saleh al-Sada said at a press briefing.
My comment: Anyway, Russia and Saudi Arabia were not expected to
increase oil production this year
Yes, but the markets don't know that Russia and Saudi Arabia cannot
increase output. With this agreement they are trying to sustain oil prices
or even increase them, one of the few things Saudi Arabia and Russia can
agree on.
"Yes, and they are successfully "talking up" oil prices over the
past 2 or 3 weeks"
What do you mean by "talking up"? Funny, but you sound like ZeroHedge.
The current prices are unsustainable and will go up talking or no talking.
Now the effect will be amplified by a short squeeze.
Those presstitutes from Reuters already proudly reported that Azerbaijan
will not join. As if it matters.
Look at the example of the current Western propaganda drivel:
Reuters reported that the meeting had echoes of a 2001 encounter
between OPEC and non-OPEC producers when Saudi Arabia pushed through
a global deal to curb output in which Russia agreed to participate.
But Moscow never properly followed through on its pledge to curb exports.
After 19 months of declines in oil prices, analyst are cautious,
however, of another short-lived bump higher based on jawboning from
producers. This is despite the fact that the impetus to agree on price-boosting
production cuts has been heightened by budgetary pain in both Russia
and Saudi Arabia.
"The noise around potential production cuts is hugely elevated;
if we don't see a cohesive response in a month or so, the speculators
will no doubt start to ramp up short positions again," IG's
chief market strategist, Chris Weston, said in a note.
And Phillips Futures cautioned, "if they allow prices move
up in the immediate term, prices would likely be remaining lower
for longer. This is because producers of oil at higher breakevens
could hedge off their exposure, resulting in strong production moving
forward. Thus, would mean that it would still be in the best interest
for oil producers, especially those who could still get by to continue
and wait it out, no matter how painful it may be."
The Tuesday price spike also masked complications in the oil industry
that have clouded the market.
One major issue is how much oil producers were actually pumping out,
UBS Wealth Management's commodities and FX strategist Wayne Gordon told
CNBC's "Street Signs."
"Some people believe that Saudi Arabia et al have been over-reporting
production and exports just so that when they go to the OPEC meeting
they can say 'Oh yeah, we cut around here and here'," he said.
The world was still swimming in 1-2 million extra barrels of oil
a day, he added.
UBS forecasts oil in the $20-$40-a-barrel range this year.
Also in focus is the fallout and snowball effect of the oil crash,
with banks now faced with decisions on what of their commodities assets
to write down, at a time when lenders are already under pressure from
the Bank of Japan's move into negative interest rates.
"On the Japanese banks side, clearly they've had to take a lot of
impairments…(over) commodities assets in the last five years… [then]
as you go into negative rates, all you're really doing is forcing banks
to take loans or lend money to higher risk propositions," Gordon warned.
As you can see this fake narrative of 1-2 Mb/d of "glut" is still
in place. If this is not taking the price down I do not know what is. In
this "fog of war" we should not blindly believe Western agencies reporting.
It is even unclear what this agreement is about.
In view of this event it looks like the recent visit of Qatar minister
to Moscow was crucial. I expect Iraq joining this agreement immediately.
In any case please understand the Western game to talk down oil prices
down until recently included Saudis. Now they are out of this game.
But Reuters still tries to play Iran card.
The fact output from Saudi Arabia and Russia – the world's two
top producers and exporters – is near record highs also makes an agreement
tricky since Iran is producing at least 1 million barrels per day below
its capacity and pre-sanctions levels.
In this "fog of war" we should not blindly believe Western agencies reporting.
It is even unclear what this agreement is about.
I can understand some political bias in what national oil companies are
reporting, or in some cases what government agencies themselves are reporting.
But I just flat do not believe that agencies like Platts, and other such
sources, are deliberately lying about what they believe a nation's oil production
really is. What reason would they have to lie? Fog of war? Shit, they are
not at war with anyone.
I do not believe that the news agencies, and agencies that track oil
production, around the world are engaged in some kind of giant conspiracy
to deceive the world into believing that either more or less oil is being
produced than it really is.
Why the hell do some people always believe that the media or agencies
that track and sell data are always lying? They don't have a dog in that
fight. Their first priority is to find out and accurately report what is
actually happening. It is in their interest to tell the truth, as near as
they can determine what the truth actually is. Because if they are caught
lying it could severely damage their reputation and deeply hurt their company
profits in the long run.
I don't believe they have an agenda, but follow normal human behavior in
following the crowd. The media coverage seems to be very one-sided at the
moment and at times poorly researched. It appears though as if the game
of the moment is to talk to "oil-price down". Headlines and world-events
that would have caused an immediate oil-spike in the last years is suddenly
seen as good opportunity to short oil. As a person working in the oil industry
this is extremely frustrating at times.
There is no spin or bias in the fact that refined product inventories
are at record highs leading to large discounts to remove winter blend
gasoline stocks.
There is no spin or bias in the fact that inventories are at record
highs. This data is tracked from multiple independent sources AND in
several different ways. There are data analytic companies that have
used satellite data to estimate storage tank usage by means of the shadow
they cast. Even this unique and statistically accurate way of measuring
changes in storage agrees that storage is well above historical highs.
There is no spin or bias in the fact that oversupply and price competition
between major producers has led the UAE to offer India free oil so long
as it stores it.
There is no spin or bias in the fact that oversupply is causing
bidding wars between major producers forcing the Saudis and others to
continuously lower prices to keep contracts.
It is glaringly obvious, from every single angle, that the world is oversupplied
at the moment. Current production declines aren't yet having an impact because
this time of year is a period of seasonally low demand. Add in Iran's need
to win contracts, and you get a temporary bidding war where every exporter
is desperately lowering prices to keep contracts. Once it gets really bad
you get things like the UAE deal with India.
Within the next 3 months all these trends will reverse. Seasonal
demand will rise while production declines rise, and Iran's production stabilizes
eliminating the new production bidding war.
Just because the market will re-balance strongly in 2016 does not mean
that it is currently in the process of re-balancing. Due to the confluence
of Iran competing for contracts, record high storage, and the seasonal lull
in demand canceling out any nascent production declines we're in the most
acute phase of oversupply relative to demand.
It doesn't matter where the market will be in 3 months. Oil produced
today needs to be bought by SOMEONE NOW. This is causing a massive bidding
war because there aren't enough buyers now that Iran entered and needed
to win contracts immediately.
No, it absolutely cannot be the same reason. Banks deal in money, news
agencies deal in news. Banks have a vested interest in secrecy, news
agencies have a vested interest in telling everything they know.
News agencies desperately want a reputation for telling the truth. Banks
desperately want a reputation for making money for their clients, investors
and stockholders. These people don't give a damn if banks lie or not as
long as they make money. Money is the only thing they care about.
Likbez, the fact that you see the same motives behind what news agencies
report and what banks do, tells me you really don't understand either.
If Congress and government are owned by banks according to senator
Durbin ( "And the banks - hard to believe in a time when we're facing a
banking crisis that many of the banks created - are still the most powerful
lobby on Capitol Hill. And they frankly own the place." ) why do you think
government agencies and major MSM are different ?
Oh for God's sake! Platts can create a banking crisis? Petroleum Intelligence
Weekly has a lobby? The Oil and Gas Journal has the same agenda as CitiBank?
The Oil and Gas Journal has the same agenda as CitiBank?
Thank you for attacking my viewpoint. That actually clarified my thinking.
Looks like our viewpoints are not that different. In my view we can (and
should) mentally rate each source information as for objectivity and bias
(for example your blog and posts vs ZeroHedge ).
The sources of information that have bias of opposite sign in comparison
with MSM are especially valuable. Even in MSM comment sections are much
more valuable then the articles published. Right now for me the most valuable
sources of information that help to reveal the bias are sources that question
the mainstream hypothesis of oil glut (and related spin about Saudis desire
to preserve market share), as well as those who were critical of shale oil
boom and are questioning EIA, IEA and friends statistics. Your mileage may
vary.
The key point is that whenever possible we should try to compare
different sources of data. That's the only way to reveal the real picture
as none of us can verify the data provided by agencies and MSM.
This is a classic situation called "Plato cave" "https://en.wikipedia.org/wiki/Allegory_of_the_Cave"
Plato has Socrates describe a gathering of people who have lived
chained to the wall of a cave all of their lives, facing a blank wall.
The people watch shadows projected on the wall from things passing in
front of a fire behind them… The shadows are as close as the prisoners
get to viewing reality.
Still we can for major oil-related data to estimate the error margin
and the direction of bias. Like I tried to estimate error margin for EIA
data. Much depends whether you assume it to be 1% or 10%. If, for example,
you think about particular source as 100% reliable that's fine, but 100%
rating should be rare in this world and should never be awarded uncritically.
Actually your posts for me are close.
So non-US media, discussion forums that attract professionals like
your blog, posts of professionals who try to present unbiased views like
your posts, Jeffrey Brown posts, Art Berman posts (to name a few) and remnants
of media still loyal to oil industry (your example of The Oil and Gas
Journal ), not to Wall Street traders interests (Bloomberg) are especially
important islands of sanity in this distorted, crazy, financial speculation
dominated world.
"sources that question the mainstream hypothesis of oil glut "
No one serious source (IEA, EIA, OPEC, Platts, Woodmac, Rystad, IHS,
energy ministries of exporting countries, oil companies, large oil traders,
etc.) questions the oversupply in the global oil market.
Right now for me the most valuable sources of information that help
to reveal the bias are sources that question the mainstream hypothesis
of oil glut
I think this is hilarious. The sources that you believe are those who
think there is no oil glut at all. The sources that believe the price of
oil has been driven from over $100 a barrel to $30 a barrel by…. some kind
of giant conspiracy.
Yeah right! Rolling in the floor laughing my ass off.
Perhaps you believe Watcher's theory. That it was all because some exporter,
Saudi I think, just kept selling at a slightly lower price until after many
months they had gotten the price down to thirty bucks a barrel.
Did you ever hear about "Great Condensate Con" hypothesis? This is
an alternative to "oil glut" hypothesis and I think it is more plausible.
Well no, it is not. While the Great Condensate Con is very real, it is
not an alternative to the oil glut. The oil glut simply deals with supply
and demand. If the supply of oil is greater than the demand for oil then
the price falls. It is as simple as that.
The increase in production by Iran and Saudi Arabia, that began in March
of 2015, was not condensate, it was crude oil. Much of the increase before
that date was condensate. But the decline in demand had nothing to do with
the Great Condensate Con. It was a decline in demand due to very high prices
and a definite decline in the world economy.
Bottom line, there is a definite oversupply of crude oil in the world
today. That is the reason we are seeing oil in the range of $30 a barrel,
and not any kind of conspiracy by anyone.
Hey! I am a peak oil advocate. I would love to say that there is a shortage
of oil in the world today as a result of crude oil peaking. But the very
obvious facts do not allow me to make such a claim. There is a glut of
oil today. That cannot be denied.
For Christ's sake, don't try to spin reality into some kind of conspiracy.
Accept reality as it is and go from there.
I have said all along that peak oil will be a time when more oil is produced
than any time in history of the world or ever will be produced in the future
of the world. And such a time will be far more likely to be perceived
as a time of an oil glut than as a time of an oil scarcity.
As usual I agree with Ron in terms of broad outlines. News agencies and
organizations as a whole or a group are more interested in the truth than
in spinning the truth, or ignoring it.
But there is no doubt at all in my mind that a lot of news organizations
spin the truth for some particular reason, emphasizing the news in such
a way as to support an agenda OTHER than getting the truth out.
WHY?
Because in this day and time, the OWNERSHIP of news organizations is
in the hands of people who have HUGE stakes in spinning the news to suit
themselves, in a lot of cases.
Business interests have bought control of news organizations as much
for the power gained thereby, as for legitimate investment purposes.
AND the organizations themselves, after a while, tend to become hotbeds
of partisan employment.
It's not that the truth doesn't matter, in terms of getting caught out
wholly in the wrong, but rather that the truth is judged expendable in terms
of certain events and issues, or at least , just something to be IGNORED.
I have no problem AT ALL with FOX NEWS when it comes to reporting earthquakes,
airplane crashes, and day to day local news. But I would be laughed out
of this forum if I said that Fox does a great job of reporting on environmental
issues. Fox does not, of course.
OTOH, FOX has actually started reporting in an even handed manner, at
least some of the time, about electrified personal automobiles.
I listen to NPR almost exclusively, whenever I turn on a radio, or else
a folk and bluegrass music station, if NPR is playing organ music.
But so far as I am personally concerned, I cannot ever REMEMBER hearing
anybody on NPR on a regular basis who sounds like a R partisan.
OTOH, I am confident I can identify the political orientation of everybody
talking on NPR, with ninety nine percent accuracy, just by reading an hour
or less of randomly selected black and white transcript of what they have
to say, word for word.
The OVERWHELMING majority are conventional stereotypical liberals, with
a few token conservative voices popping up once in a long while.
Tone of voice and choice of words can convey the message , quite as effectively
as the actual words spoken.
Note that I continue to listen to NPR.
I might listen to some other outfits, but there isn't any other programming
WORTH listening to. There is no comparable right wing radio. So called talk
radio is all about the lowest common denominator, and that denominator is
ignorance.
So if you want to hear anything that is based on knowledge and reason,
coming from the conservative pov, you are reduced to a few magazines, for
all intents and purposes.
Mac, of course news agencies like Fox News spin political news. Neither
they, nor any other news agencies would need to lie about Azerbaijan's oil
production numbers. Or China's oil production numbers. Or… well, I hope
you understand that.
To accuse Fox, or Platts, or whomever, of lying about
some Asian countries oil production, just smacks of stupid conspiracy theories.
Here we talk about peak oil and measure every uptick and downtick in production. On the other
hand oil is so abundant that they are now giving it away for free. India will get free oil from
UAE in return for offering storage.
Don't forget that of every four barrels of extra oil that we need over the next 25 years, only one
will be used to meet demand growth. Three others will just compensate for the decline of existing fields.
The number of vehicles in the world tin 2012 was over a billion (700 M cars, 300 m trucks and buses).
Notable quotes:
"... The question what will happen now with the oil prices in a short run still remains open. Iran has offered Europe a good discount to compete with Saudi Arabia depressing prices. According to National Iranian oil company , the discount on Iranian oil grades Iran Heavy (part of the OPEC basket) is $6.55 dollar while Saudi Arabia discount is $4.85 dollars per barrel. ..."
"... In this situation, in my opinion, the statement about the freezing of the production is from Saudi Arabia was just a tactical move, which hints on possible production cuts by OPEC later. A bluff if you wish. ..."
"... However, from now on the most natural trend for oil prices is up. And not due to any agreements, but due to depletion when production in most countries naturally goes down because of low capex. This is a more fundamental factor, but the agreement allow to win some time before this fundamental factor fully comes into play. ..."
"... The fact is that the oil the world economy still consumes more and more oil each year and now this trend was accelerated by low prices. As the result problems with meeting demand might arise as early ad the end of 2016 and inventories will start being depleted. ..."
"... After that we will enter a new uptrend , a new phase of higher prices of energy. But once scared twice shy and it is unlikely that oil prices will go up quickly. But I expect 2016 average in the range of $40-45 per barrel. This price range, I believe, will suit most conventional oil companies in the world. And especially Russian, which due to the devaluation of the national currency is largely compensated for falling prices of the oil on world markets... ..."
"... The key value of the Doha statement is that it implies that the restriction of volumes of production is possible, changing market expectation. Thats it. ..."
"... No one still can predict how much more time will be needed for coming to agreement to reduce oil production, and whether agreement will be reached at all, but it does change market expectations immediately. ..."
From my point of view, it is a signal that Saudi game in the oil dumping is close to the end,
from now on Riyadh is interested in raising energy prices. Another thing, again, that the Saudis
are ready to freeze and to reduce production only if Iran and Russian freeze or proportionately
reduce their production too.
"SP": How will other members of OPEN react on Doha announcement?
Other members will most probably support this decision. Already, a number of members of
OPEC with higher production costs, were in favor of restricting their production.
This is first of all Venezuela, partially United Arab Emirates, Bahrain, and Oman. And we must
understand that if for Saudi Arabia and Russia low oil prices created problems with balancing the
budgets, for Venezuela this is a real question of survival.
This alignment of interests have led to the situation with this joint statement and subsequent
reaction of the market which is currently unfolding before our eyes. One way to move another
step forward might be an emergency OPEC meeting, which could take place in early March, and on which
the proposal to freeze production by cartel members can be officially adopted.
"SP": will oil price go up from now on?
The market is essentially ready for the return of higher oil prices, therefore, it might respond
positively to this news. However, the oil market is very speculative, and responding primarily to
the expectations - the real figures of production do not play a primary role in forming the spot
price for oil.
And yet, to seriously move oil prices up, it is probably necessary to reduce the world production
by around 1.5 million barrels a day. No matter by what measures.
We also think that oil speculators might use this situation to switch the trend and try to earn
money on uptrend instead of downtrend. This is the opinion of the head of the analytical Department
of the Russian energy Security Fund Alexander Pasechnik. Even minimal 'warming" of oil market is
beneficial to the producers of "black gold", including Russia which now waist their national
treasure.
He suggested that the agreement in Doha was possible because it was impossible to wait longer
for some measures to stop speculative attacks on oil price. The possibility of creating an
artificial shortage of supply in the oil market were actively discussed for the last few months on
different levels, but no decision were made.
The question what will happen now with the oil prices "in a short run" still remains open.
Iran has offered Europe a good discount to compete with Saudi Arabia depressing prices. According
to "National Iranian oil company", the discount on Iranian oil grades Iran Heavy (part of the OPEC
basket) is $6.55 dollar while Saudi Arabia discount is $4.85 dollars per barrel.
In this situation, in my opinion, the statement about the freezing of the production is from
Saudi Arabia was just a tactical move, which hints on possible production cuts by OPEC later. A bluff
if you wish.
"SP": What are the risks for Russia, due to freeze of production at the current level?
In my opinion, there is no any significant risks. In any case we will be forced to reduce production
due to the increase of the fiscal burden on the oil industry, and the consequent reduction of investments
in the sector. Let me remind you that in 2016, the oil companies will pay 200 billion rubles of additional
taxes, and government intends to stick to this tax regime in 2017 and possibly in 2018. This means
that the coming drop of production in the Russian Federation is baked into the cake. Agreement with
Saudis for freeze production on January 2016 level does not change this reality.
On the other hand, we should not expect much from the agreements in Doha. Even if the position
the Quartet will be supported by all other members of OPEC, it does not guarantee that such
a "gentleman's agreement" will be respected by all members of the cartel.
However, from now on the most natural trend for oil prices is up. And not due to any agreements,
but due to depletion when production in most countries "naturally" goes down because of low
capex. This is a more fundamental factor, but the agreement allow to win some time before this
fundamental factor fully comes into play.
The fact is that the oil the world economy still consumes more and more oil each year and
now this trend was accelerated by low prices. As the result problems with meeting demand might arise
as early ad the end of 2016 and inventories will start being depleted.
After that we will enter a new "uptrend", a new phase of higher prices of energy. But
once scared twice shy and it is unlikely that oil prices will go up quickly. But I expect 2016 average
in the range of $40-45 per barrel. This price range, I believe, will suit most conventional oil companies
in the world. And especially Russian, which due to the devaluation of the national currency is largely
compensated for falling prices of the oil on world markets...
"The key value of the Doha statement is that it implies that the restriction of volumes
of production is possible, changing market expectation. That's it." This is how Director
of the Energy Institute Sergey Pravosudov thinks about the announcement. The key purpose of such
statements is to spook speculators pushing the oil price down, and not to push oil prices up.
No one still can predict how much more time will be needed for coming to agreement to reduce
oil production, and whether agreement will be reached at all, but it does change market expectations
immediately.
A while back (it had seemed
like years to me but it was actually March 23, 2012--is it just me or did this last presidential
election cycle actually stretch time?) Joules Burn posted
From Qurayyah to Khurais: Turning
Water Into Oil which contains links to part one (9:47) and two (13:06) of From Qurayyah
to Khurais
the following are direct YouTube links to the same
My end of the wire bottom of the line DSL connection made loading those clips downright painful
but it was worth it. It is a very well done animation and really fleshes out the process your
linked article describes.
"... Qatar's energy minister, Mohammad bin Saleh al-Sada, said the agreement would help stabilize the market. Saudi oil minister Ali Al-Naimi said the freeze was adequate for the market, adding the meeting was successful. He added he hoped producers inside and outside OPEC would adopt the proposal. ..."
"... The producers will meet with Iran and Iraq on Wednesday and may find significant reticence on the part of Iran to hold output steady. After years of sanctions, Iran plans to ramp up production in a bid to regain market share. ..."
Crude futures pared gains Tuesday following news that Qatar, Saudi Arabia, Russia and
Venezuela would lead an effort to freeze output at January levels, dashing hopes of a cut in
production.
The large producers met in Doha, Qatar, to discuss measures to tackle a supply glut that's
sent prices to 13-year-lows.
Qatar's energy minister, Mohammad bin Saleh al-Sada, said the agreement would help stabilize
the market. Saudi oil minister Ali Al-Naimi said the freeze was "adequate" for the market, adding
the meeting was successful. He added he hoped producers inside and outside OPEC would adopt the
proposal.
The producers will meet with Iran and Iraq on Wednesday and may find significant reticence on
the part of Iran to hold output steady. After years of sanctions, Iran plans to ramp up
production in a bid to regain market share.
... ... ...
Qatar is the current holder of the rotating OPEC presidency.
Earlier, news of the meeting news sparked hopes of an eventual deal on supply cuts, after
Saudi Arabia-led oil cartel OPEC previously persistently refused to lower its 30 million
barrel-a-day production ceiling in a strategy to squeeze out higher cost energy producers,
including U.S. shale companies.
Iran: Tehran is continuing its battle for market share with
the Saudis by cutting its price for heavy crude going to Mediterranean customers
by more than a recent Saudi cut. The selling price for Iranian Heavy crude is
now set at $6.40 below the Brent Weighted Average. For Northwest Europe and
South Africa the price is now $6.30 below the Brent Average as compared to $6.00
for Arab crude. This may only be the beginning of price wars between Iran and
the Gulf Arabs as Tehran battles to regain the market share it held before the
sanctions were imposed.
The postponement of a conference in London at which Tehran was to announce
its terms for foreign oil companies wanting to invest in developing Iranian
oil shows that there is considerable infighting within the Iranian ruling class.
Although the Iranians tried to blame the postponement on troubles getting visas
for all the Iranians who wanted to attend, the delay likely was forced by hardline
opponents of the Rouhani government who say the proposed agreements violate
Iran's constitution which decrees that none of Iran's oil reserves can be owned
for foreigners. Iran is seeking some $200 billion in foreign investment to increase
its production to 4-5 million b/d. Given the low oil prices, Iran is unlikely
to be capable of accumulating the capital to make major increases in its oil
production. Some believe the domestic political situation will become worse
after the elections when the hardliners make an effort to gain take more control
over the oil industry away from moderate President Rouhani and his government.
The lifting of the sanctions my not turn out to be as much of a boom for
Iran's economy as many Iranians had hoped. It is doubtful that in these tough
times for the oil industry many international oil companies will be interested
in deals in which they supply the money and take the risks while allowing the
Iranians all the control and most of the benefits from the projects.
In the meantime, Iran is demanding payment for its oil in euros rather than
dollars in order to stick it to Washington. The problems of insuring cargoes
of Iranian oil, however, seem to be easing. Washington will now allow non-US
persons to insure crude and oil products coming from or going to Iran.
"... "The global oil market is going through a correction and we have reached the bottom," he was quoted as saying by the official Kuwait news agency, who added that Rashidi had made his comments at a company event in London. ..."
"... Asked whether oil prices would ever reach the $100 per barrel level again, Rashidi said, "We can reach prices ranging between $60 and $80 but we need three years." ..."
Kuwait Petroleum International (KPI) said on Saturday oil prices could reach a range of $50 to
$60 a barrel by mid-2017, the official state news agency reported.
The agency quoted the company's top executive Bakheet al-Rashidi as saying prices could reach
the range of $60 to $80 a barrel in three years' time.
"The global oil market is going through a correction and we have reached the bottom," he was
quoted as saying by the official Kuwait news agency, who added that Rashidi had made his comments
at a company event in London.
Rashidi attributed the drop in oil prices to excess supply in the market and slow demand from
Asia, particularly China.
Asked whether oil prices would ever reach the $100 per barrel level again, Rashidi said, "We
can reach prices ranging between $60 and $80 but we need three years."
On Vietnam's Nghi Son refinery, Rashidi said it would start operations by the end of 2016.
"... The Norwegian statistics bureau says the economy shrank 1.2 percent in the last quarter of 2015, dragged down by poor performance in oil-based industries, while full-year growth at 1 percent was the lowest since 2009. ..."
"... Statistics Norway says the economy grew 0.1 percent in the fourth quarter, up from a flat performance in the previous quarter. The oil, gas and shipping sector contracted 5.6 percent compared with growth of 7.8 percent in the previous quarter. ..."
"... The agency said Tuesday that overall GDP last year was 1.6 percent, down from 2.2 percent in 2014. ..."
The Norwegian statistics bureau says the economy shrank
1.2 percent in the last quarter of 2015, dragged down by poor performance in
oil-based industries, while full-year growth at 1 percent was the lowest since
2009.
Statistics
Norway
says the economy grew 0.1 percent in the fourth quarter, up from a flat
performance in the previous quarter. The oil, gas and shipping sector contracted
5.6 percent compared with growth of 7.8 percent in the previous quarter.
Like other oil and gas producers, Norway was hit by low
crude prices, causing thousands of job losses and industry closures. Norway is the
largest fossil fuels producer in western Europe.
The agency said Tuesday that overall GDP last year was
1.6 percent, down from 2.2 percent in 2014.
I'm estimating that global crude oil production* was about 69 million bpd in 2005 and 68 million
bpd in 2014. I would assume around 69 million bpd for 2015. Global total liquids production was
85 million bpd in 2005 and apparently about 96 million bpd in 2015.
So, I estimate that actual global crude oil production, as a percentage of total liquids, fell
from about 81% in 2005 to about 72% in 2015.
In regard to the US, I estimate that actual crude oil as a percentage of total liquids fell
from about 57% in 2005 (4.7/8.3) to about 49% in 2015 (7.3/14.8).
If the collective or average energy content of "other liquids" IS only seventy percent of the
energy content per barrel of conventional crude oil, then ten million barrels of conventional
are worth about twelve and a half barrels of "other liquids".
If it turns out that conventional crude HAS hit it's ultimate upper limit, as indicated by
the plateau in production of it, for the last decade, even with the price skyrocketing, then each
MILLION new barrels of "other liquids" are will be worth be worth only seven tenths of a million
barrels of actual OIL.
Of course the impact will not be quite so bad , in terms of the energy of the total liquid
fuel supply, because the total supply already consists of about twenty eight percent "other "
according to JBB's estimate.
Something tells me net energy per capita per barrel of liquid fuel is in the rear view mirror
and receding from view at a steady clip, given the growth of population.
That might not matter as much, except at a moral and humanitarian level, as we think however,
because most of the poor people of the world are never going to own and drive automobiles.
But it is reasonable to assume that even the poorest parts of the world will see substantial
percentage point increases in oil consumption, so long as oil can be bought at any price, because
the less oil you use, the greater the utility of each barrel.
A gallon burnt in a heavy truck delivering food from country side to city is worth twenty or
thirty or even forty or fifty bucks, once the truck and the road are in existence, in comparison
to the alternative of hauling it with draft animals or human muscle power.
It could turn out that the world wide economy will go downhill FASTER than the available supply
of oil, even as high cost producers drop out. If NO new oil is brought into production, the supply
will decline at somewhere between four and eight percent annually, according to all the estimates
I have seen.
Personally I find it hard to imagine the world wide economy WILL go downhill FASTER than oil
supply,barring global level Black Swan events, so I am convinced the price of oil will go up.
This is not to say the economy can't go downhill faster than oil production in the SHORT
term . It might, and so the price of oil might stay low for some time yet, until depletion
takes it's toll.
Oil producers are stubborn bastards, and will give up no faster than they go broke. Some of
them can generate some cash for decades yet to come, even at thirty or forty bucks per barrel.
If they go broke,due to not being able to pay off loans, whoever buys their wells will buy them
cheap enough to continue to produce them.
I will personally gladly pay twenty bucks per gallon, so long as I can get diesel fuel, before
I even CONSIDER going back to horses and mules.
Ya feed a car or truck PER MILE you drive it, and a farm tractor PER HOUR you run it. Ya feed
draft animals three hundred sixty five days per year. NO CONTEST, unless you CANNOT buy diesel
and gasoline at any price.
[Feb 15, 2016] Looks like ZH is short on oil for some ti
As Russia's oil minister meets his Saudi Arabian counterpart in
Doha on Tuesday, the world's second-largest crude producer faces numerous
obstacles in cooperating on such a deal even if Putin decides it's in
the national interest. Reducing the flow of crude might damage Russia's
fields and pipelines, require expensive new storage tanks or simply
take too long.
In Siberia, Russia's main oil province, winter temperatures can
go below minus 40 degrees Celsius (minus 40 Fahrenheit). That's a challenge
for anyone thinking of turning off the taps.
The oil and gas that flows from wells always contains water, so
once pumping stops, pipes may freeze, Mikhail Pshenitsyn, who has worked
for more than 10 years in the Russian oil industry, said by e-mail.
The problem goes away in summer, but there's still the risk of a long-term
reduction in output because a halted reservoir can become polluted with
salts and residues, he said. Production from a shut-in well might never
be restored in full, Maxim Nechaev, director for Russia at consulting
firm IHS Inc., said by phone.
Blink. Someone from IHS says oil wells can be permanently damaged?
Might want to go thru the article. It's loaded with frown inducers.
Why would anyone "produce oil" aka extract it from the ground if they
don't have an order for it. There is verbage about Russia pumping it to
store it. Hell, it's already stored. Underground. Russia isn't going to
get tax revenue from oil flow that isn't sold. The sales revs are what pay
the taxes.
People are so desperate to sprint to the oversupply narrative that they
don't think it through.
Watcher,
That part of the text that was quoted from ZH is totally wrong (like most
of the MSM garbage) in way that it looks at the tomorrow's meeting. Russia
is not negotiating any cuts at all with SA in Doha or vice versa. The whole
meeting is about a possible attempt of negotiation only of oil production
freeze of additional production in retrospect of Iran return to the oil
market.
KSA has 'cut' production in 6 out of the last seven months. Cut might not
be the right word though as I suspect it was not a choice. It was thrust
upon them by geology. KSA will IMO face month after month of decreasing
production. They managed a production surge for a short while but that's
all they had in them. They've shot their bolt. Iran probably has some good
increases coming but that's about it, and not all of that Iranian increase
will be exported.
The increase in Saudi oil production
in the summer season was due to peak demand from the domestic power generation
for air conditioning.
As demand moderated in the past several months, KSA slightly reduced output
levels, while crude exports have actually increased.
KSA oil production and exports in 2015 – Jan. 2016
sources: JODI, OPEC
Do you believe that the slightly reduced production level of the last
6 of 7 months was optional? I tend not to. I feel they are producing every
single barrel that they possibly can. They've got the peddle to that floor.
No holding back.
Looks like some negotiations are happening behind closed doors between
Saudis and Russians (probably discussion over Iran return to the world oil
market) despite thick smoke of disinformation from Bloomberg presstitutes.
With French, Italian and Greek deals (and Spain deal in pipeline) it
might well be that accommodation of Iran is already started in full force.
The question is whether they are able to produce additional volumes of oil
above 0.3 Mb/d that is expected (and actually already contracted) and if
yes, when.
Iraq and a couple Persian Gulf monarchies are on board for the cuts.
Saudis need to pander to growing Wahhabi sentiments of its population. So
they probably are not in order to "punish" Iran and Russia. Also hardliners
are now in power. But as money evaporate from their coffers even hardliners
might soften their position. Eventually.
Still here is Bloomberg disinformation in full glory:
As Russia's oil minister meets his Saudi Arabian counterpart in Doha
on Tuesday, the world's second-largest crude producer faces numerous
obstacles in cooperating on such a deal even if Putin decides it's in
the national interest. Reducing the flow of crude might damage Russia's
fields and pipelines, require expensive new storage tanks or simply
take too long.
So far Russia's top oil official have offered mixed signals. Energy
Minister Alexander Novak has said he could consider reductions if other
producers joined in. Igor Sechin, chief executive officer of the
country's largest oil company Rosneft OJSC and a close Putin ally, said
last week in London that coordination would be difficult because no
major producer seems willing to pare output.
BTW looks like Bloomberg intentionally distorted the position of Sechin.
IMHO he is onboard about a one time cut around 1 Mb/d if it is implemented
as a proportional cut by all major oil producers. As Russians most probably
have a reasonably good intelligence about Persian Gulf countries they should
understand the situation with new projects and natural decline of wells
in Gulf which now will drive the world oil production dynamics.
"… the strategy of the prince Mohammed Bin Salman is to push Iran
to the fault in causing the tensions that can go up to a risk of open
warfare that would force the west to choose Saudi Arabia against Iran
…"
"… The Prince Mohammed bin Salman is now the most powerful man in
Saudi Arabia. It has exclusive access to his father, King Salman, and
effectivly he can rule the coutries inread of him. He is head of his
office, which means that nobody can contact or be received by the King
without going through the son …"
"… Saudi Arabia is extremely disturbed by the detente with Iran on
the international scene. We are witnessing more or less a reversal of
alliances, and of countries images in the eyes of the West. A short
time ago, Iran was demonized in the West. Today, it is accepted as a
normal partner. Iran, therefore, benefits from a relatively favorable
treatment, while at the same time when the Arab monarchies, particularly
Saudi Arabia, are seen as retrograde, unable to provide for reforms
and creating the flow of Islamic radicals… The nature of Hezbollah,
interference military and terrorists of Iran is currently forgotten.
…"
"… I think it will be very difficult to see any reapprochement with
Iran in the coming months as Saudi Arabia has two hardliners in the
young rising generation of leaders. The heir and the vice-inherit the
Kingdom share the same radical line toward Iran. …"
"… Moreover, Saudi Arabia pays very dear to his strategy of crushing
oil prices, which makes it less able to buy social peace than before.
Therefore, there is an internal demand of radicalism, because the discontent
rumbles in the parts of the Saudi population fueled by the effects of
the falling oil prices. …"
"… If one wanted to summaries, we could say that to buy a peace with
Islamist Wahhabi radicals, it is necessary to kill shia… besides, the
Saudis have a genuine complex of encirclement by the Shiite states.
They try to counter it by creating an opposite ark of Sunni radicals.
…"
"… even if this does not lead to open warfare, the tension between
Saudi Arabia and Iran is sustainable, if only because this new generation
of Saudis leaders is more combative. They differ from the former kings
who belonged to a generation that was distinguished rather by its search
for a compromise and some consensus. This is absolutely not the case
for those two heirs of the throne. …"
Interesting article on the RBN Energy website, about Cushing. Note that the author touches on
two key issues: (1) Insufficient heavy crude to offset the flood of condensate, thus making it
more difficult to create their "Synthetic WTI" blend and (2) Weak demand for the Synthetic WTI
blend itself.
The Reuters article from last year discusses the second point:
Many executives say that the crude oil blends being created in Cushing are often substandard
approximations of West Texas Intermediate (WTI), the longstanding U.S. benchmark familiar to,
and favored by, many refiners in the region.
Typical light-sweet WTI crude has an API gravity of about 38 to 40. Condensate, or super-light
crude that is abundant in most U.S. shale patches, ranges from 45 to 60 or higher. Western
Canadian Select, itself a blend, is about 20.
While the blends of these crudes may technically meet the API gravity ceiling of 42 at Cushing,
industry players say the mixes can be inconsistent in makeup and generate less income because
the most desirable stuff is often missing.
Link to my Oilpro.com article on crude versus condensate:
As I have previously stated, IMO the global total liquids oversupply is a house of cards, built
on an unstable foundation of actual global crude oil production* that requires vast amount of
capital every year, in order to keep global crude oil production from crashing.
Up the thread, I noted that a plausible estimate is that it may have taken about a trillion
dollars in 2014 and 2015 combined to keep global crude oil production around 68 to 69 million
bpd, versus my estimate of 69 million bpd in 2005.
I haven't seen this discussed, but my apologies if it is a duplicate. Paragon Offshore to file
Chapter 11 – is this the largest bankruptcy for offshore drillers so far?
"... If we believe that world has on average 2 Mb/d surplus for at least 18 month thats one super-large tanker full of oil/condensate a day. 30 tankers a month, 365 tankers a year (over 700 Mb a year). In other words for the total duration of oil glut period 1000 Mb or more - a billion barrels of oil - should now be stored somewhere on customer sites. ..."
"... Where on the globe such a huge oil inventory is located. And where you can store such amount physically. Not of the ground - storage costs way too much and data about ground shortage does not show such a huge built-up of inventories. Not in tankers - cost of storage is even more (~1% a month if we assume $30 per barrel average price) and number of tankers of such a size is very limited and they are very expensive. ..."
"... USA is the primary glut country , but glut oil somehow definitely did not landed here. ..."
"... It is interesting to me that those inventories shot up very quickly between 1/1/15 and 5/15 and then have bounced around for the most part since, although somewhat higher now than last spring. ..."
"... Going back an looking at EIA historical data, I dont see a very strong correlation between crude prices and US commercial inventories. ..."
"... I think traders make too big of a deal about US commercial inventories. I have never heard of any US oil producer being unable to sell crude oil from a lease because commercial crude inventories were too high. ..."
"... Our crude purchaser is not happy we have shut in some wells. They want all they can buy. Further, in our little corner of the world, two more crude buyers have entered drumming up business, which is somewhat helping our basis. This is after several years of the same purchasers, no entrants or exits from 2003-2014, suddenly there are two more chomping at the bit. ..."
"... the problem is real and quite different: the US elite is afraid to go full force into oil conservation mode and preferred to drop oil price instead, adopting Madame de Pompadour "Après nous le deluge" ("after us deluge") mentality… ..."
"... What Jeffrey Brown points out over and over is the so-called 'glut' is simply another finance industry -slash- media narrative, a pleasant lie that glosses over the fact that fuel supply is declining, that purchasing power is declining along with it and that no easy solutions to these declines exist. The only solution is stringent conservation… ..."
"... Another noble lie in best Leo Strauss style, so to speak. See http://peakoilbarrel.com/collapse-of-shale-gas-production-has-begun/#comment-558479 ..."
The last few years have been very interesting in that when prices were high we saw non OPEC
producers going as hard as they can to produce oil, and now that prices are low we're seeing
OPEC members going as hard as they can to produce oil. In the non OPEC group it was Canada
and USA with the big gains. In the OPEC group it's Saudi Arabia and Iraq. This gives us a rough
indication of whose got what in their hand. Perhaps what a competitive card player/gambler
might call 'a tell'.
A real "tell". Why they are increasing production if the world is already full of unused (and
already delivered somewhere) oil? Because they are still able to sell it despite "glut".
If we believe EIA and friends it is impossible to consume all this oil. So it's the customer
who pays and then is hoarding all this cheap oil.
But the problem is that the cost of private storage is pretty high those days, especially in
the USA and ordinary companies and refineries can get only losses out of such strategy: "…limited
crude oil storage facilities caused crude oil storage costs to rise to $0.90 per barrel on February
9, 2016-compared to $0.10 per barrel in August 2015. " (
https://marketrealist.com/2016/02/crude-oil-storage-costs-rose-9-times-us-crude-oil-tests-new-limits/
)
If we believe that world has on average 2 Mb/d surplus for at least 18 month that's one
super-large tanker full of oil/condensate a day. 30 tankers a month, 365 tankers a year (over
700 Mb a year). In other words for the total duration of oil glut period 1000 Mb or more - a billion
barrels of oil - should now be stored somewhere on customer sites.
Where on the globe such a huge oil inventory is located. And where you can store such amount
physically. Not of the ground - storage costs way too much and data about ground shortage does
not show such a huge built-up of inventories. Not in tankers - cost of storage is even more (~1%
a month if we assume $30 per barrel average price) and number of tankers of such a size is very
limited and they are very expensive.
USA is the primary "glut country", but "glut oil" somehow definitely did not landed here.
EIA does not see any increase in storage in the USA since March 2015:
Europe is the same. Only China remains - it did bought some oil for strategic reserves
"The IEA says that in the first quarter the gap between China's measure of demand and
supply stood at 650,000 barrels a day – equivalent to storing 58m barrels over the three-month
period."
OK. let's assume that china absorbs 0.5 Mb/d from this glut. So we still have 1.5Mb/day glut
left.
Where are those volumes? Does this make the hypothesis of 2 MB/d "oil glut" completely absurd?
That means that all this period of sharply dropping oil prices supply and demand of physical oil
were pretty finely balanced and Iraq and Saudis were recruited to avoid shortages of physical
oil, which would spoil the whole game. If this is true, then "oil glut" existed only in "paper
oil". In other words it was artificially created. Or I misunderstand something ?
BTW Russians now feel they were taken for a ride by "casino capitalism" sharks. Below are laments
of hapless Rosneft top honcho Igor Sechin:
Oil price forecast as an instrument for oil price manipulation. Edited Google translation.
Originally from http://izvestia.ru/news/603843
In his today's speech at International Petroleum Week in London 2016 the President of the
Russian oil giant "Rosneft" Igor Sechin said that panic forecasts are a part of a selfish game
of market participants who are engaged in the game of artificial suppression of oil prices.
According to Sechin, financial market players are ready to "test" any and all levels of
oil prices, informs "RIA Novosti". "I must admit that we underestimated the fact that financial
market participants do not know any restrictions in their greed and are ready to "test" any
oil price levels - $27 in January and now down to $10 per barrel as recently forecasted by
one of the major banks. But this is nothing but "an irresponsible game" designed to fleece
oil producers said Sechin.
In the morning on the London stock exchange the price of barrel of Brent crude fell $2.5
to $30,5 for barrel.
"If we believe that world has on average 2 Mb/d surplus for at least 18 month"
According
to the EIA, the surplus exceeded 2 mb/d only in 2Q15.
The average surplus for 2015 was 1.85 mb/d, for a total of 675 million barrels.
The accumulated surplus since the beginning of 2014 is 995 million barrels.
World oil stock change & balance (global liquids supply – global liquids consumption), mb/d
Source: EIA STEO February 2016
"EIA does not see any increase in storage in the USA since March 2015"
According to the EIA,
from March 2015 to January 2016, the U.S. commercial inventory increased by 125 million barrel.
Over the period 2014-2015, the OECD commercial inventories of crude oil and refined products
increased by 493 million barrels, including 277 mbbl in the U.S. and 216 mbbl in other OECD
countries.
In January 2016, total OECD commercial inventories amounted to 3066 million barrels, of
which the U.S. acounted for 1342 million barrels.
The U.S. Strategic Petroleum Reserve remained flat at around 695 million barrels.
So the OECD in-land storage absorbed about a half of total estimated global surplus over
the period 2014-2015.
The rest is the increase in commercial and strategic inventories in China, other oil-importing
non-OECD countries, oil exporting non-OECD countries, floating storage, and the so called "balancing
items".
OECD Commercial Inventory (million barrels)
Source: EIA STEO February 2016
BTW who you think made such a huge blunder paying quite a lot of money for useless stock
(for at least another two years) plus storage fees and why ? We need to know the names of our
heroes.
Even more interesting question is who paid for other 430 Mb ? With their set of financial
problems (which include Greece, and other Southern states) all money in Europe are needed to
bail out banks. Europeans now are scroogy as hell and they definitely are not inclined to buy
useless oil. They have reliable suppliers. Only Germany has some money but they don't do such
stupid things. They have a direct pipeline from Russia. French? This would be a good joke.
They barely found money for barter with Iranians 0.2Mb/d supplies (or less) in exchange of
Iran buying several Eurojets. GB? They have their own production which is suffering huge losses
and no money.
Something is fishy here. Looks like we have several agencies under one roof in EIA each
of which produces its own set of data. In humans such condition is a symptom of schizophrenia
In no way this is "Commercial inventory" for the USA.
Those figures from EIA include strategic reserve (which is around 695 Mb; nobody knows exactly
as caverns might be leaking).
Commercial crude inventories as of Feb 5,2016 are around 500 Mb. So we should have around 1200Mb
as of today with SPR. Why EIA reports higher numbers I do not know.
On November 13, 2001, President George W. Bush ordered the SPR to be filled to approximately
700 million barrels by continuing to use the royalty-in-kind program carried out jointly between
the Department of Energy and the Department of the Interior. The royalty-in-kind program applied
to oil owed to the U.S. government by producers who operate leases on the federally-owned Outer
Continental Shelf. The producers are required to provide from 12.5 percent to 16.7 percent
of the oil they produce to the U.S. government. Under the royalty-in-kind program, the government
could either acquire the oil itself or receive the equivalent dollar value. (Note: in September
2009, the Department of the Interior announced the cancellation of the royalty-in-kind program
but honored its commitments in existing contracts. The SPR's final cargo of December 25-27,
2009, was royalty-in-kind crude oil.)
Faced with the choice between changing one's mind and proving that there is no need to do so,
almost everyone gets busy on the proof. So I am not surprised at your reaction.
Let's begin from the very beginning.
1. There is a claim that there is a huge, unpalatable world oil glut around 2Mb/d or 60 Mb/month
or 700 MB/year, give or take 100 Mb. And that this glut caused sharp drop of oil prices due lack
of "price elasticity" - the theory taken from neoclassical economics bible.
2. Due to this we need to see a rapid increase of commercial oil inventories which somehow
currently in the USA are around 500 Mb and did not grow substantially from March-April 2015.
As the USA was the country that caused "oil glut", this effect should be pronounced in the
USA crude oil inventories (moreover there was an export ban on raw oil until recently).
3. If we assume that some idiot bought this oil and stored commercially that does not mean
that there are bigger idiots who refine this oil losing even more money. So refined products,
ethanol, etc which are included in EIA figure 1,337,939 ("Total Crude and refined products excluding
SPR") for Feb 05 (which you love so much) are of no interest here. We should use only "Crude oil
commercial inventories" which are, I would like to stress again, around 500Mb as of 02/05/2016.
And they were already 471.444 MB on Mar 28, 2015. Rising only around 29 Mb for 10 month period
or 2.9Mb/month or 0.09Mb/d. And God knows how much of this oil was bought for arbitrage.
4. So logically the "oil glut" should result in a rapid growth of commercial oil inventories.
Reading with interest your debate about US crude oil commercial crude oil stocks.
It is interesting to me that those inventories shot up very quickly between 1/1/15 and
5/15 and then have bounced around for the most part since, although somewhat higher now than last
spring.
Going back an looking at EIA historical data, I don't see a very strong correlation between
crude prices and US commercial inventories.
Further, shouldn't world inventories be much more important than US commercial? What countries
have SPR's? Couldn't a country or group of them strategically empty some from a large SPR and
store it in this US?
I think traders make too big of a deal about US commercial inventories. I have never heard
of any US oil producer being unable to sell crude oil from a lease because commercial crude inventories
were too high.
Our crude purchaser is not happy we have shut in some wells. They want all they can buy.
Further, in our little corner of the world, two more crude buyers have entered drumming up business,
which is somewhat helping our basis. This is after several years of the same purchasers, no entrants
or exits from 2003-2014, suddenly there are two more chomping at the bit.
Anecdotal I know, but I still question why have been so volatile. I understand clueless's musical
chair example. But come on, there isn't hardly anything that works at $10-25 oil. Do the traders
have info we don't re worldwide production and inventories?
US inventories 2011-2014 were generally higher than 1998-1999 I believe. When it comes to the
huge importance of US commercial crude inventory on the worldwide crude price, I am more clueless
than Clueless.
I still question why [oil price] have been so volatile.
So am I. And I also do not have an answer. But what I suspect is that "glut/deficit" model
of oil price volatility based on balance of supply and demand as reported by agencies like EIA
is not valid anymore.
"Casino capitalism" model looks to me more and more plausible: price of oil in short and medium
term now is detached from the volume of production and inventories and is determined purely via
"paper oil" bought and sold in financial casino. The "glut/deficit" model is still valid in a
long run, but "in a long run we are all dead" and there can be multi-year discrepancies between
behavior of prices and behavior of supply and demand.
In other words a sharp drop of oil prices now in possible with zero or minimal glut, or glut
in a different category of petroleum products - for example condensate (as "Great Condensate Con"
hypothesis suggests).
That's what I tried to demonstrate in my discussion with Alex - the dynamics of cruse inventories
in the USA from April 2015 to Jan 2016 does not support hypothesis of correlation of oil prices
with supply/demand dynamics. We saw a huge price drop with rather stagnant commercial crude oil
inventories in the USA.
Since late 1990th the volume of "paper oil" contracts far (by orders of magnitude) exceeds
volume of physical oil and tail is wagging the dog. Oil producers are now hostages of financial
casino, pawns, not an independent players like they were in "good old days" before deregulation
of financial industry (https://en.wikipedia.org/wiki/Commodity_Futures_Modernization_Act_of_2000
)
As I have occasionally opined, you are talking about Crude + Condensate (C+C) inventories.
As US C+C inventories increased by 100 million barrels from late 2014 to late 2015, US net
crude oil imports increased from 6.9 million bpd to 7.3 million bpd (four week running average
data for last four weeks of 2014 & 2015). Most people by now know what my explanation is, but
here is a link to a post on condensate versus crude that the folks at Oilpro.com asked me to put
together:
Jeffrey. I read your Oilpro article. I like that website. Has some good content.
I read a report from the American Oil Pipeline Association that crude oil pipeline mileage
in the US increased from 49K miles in 2004 to 61K miles in 2013. I haven't been able to find 2014
and 2015 mileage statistics.
I believe EIA includes crude in pipelines as storage.
Does anyone have information as to how much "crude oil storage" has been added by crude oil
pipelines since 2004?
Not yet. Or only in a sense "The road to hell is paved with good intentions".
The article is just fear mongering. But the problem is real and quite different: the US elite
is afraid to go full force into oil conservation mode and preferred to drop oil price instead,
adopting Madame de Pompadour "Après nous le deluge" ("after us deluge") mentality…
What Jeffrey Brown points out over and over is the so-called 'glut' is simply another finance
industry -slash- media narrative, a pleasant lie that glosses over the fact that fuel supply
is declining, that purchasing power is declining along with it and that no easy solutions to
these declines exist. The only solution is stringent conservation…
Repeating after Steve: "so-called 'glut' is simply another finance industry/media narrative".
"... I don't see how shale production, with it's rapid decline rate and high costs, can act as a cap on the price of oil. Wouldn't it be more likely that foreign producers with lower costs for production will keep a cap on the price of oil? ..."
"... I think oil price will remain somewhat volatile over the next decade since it is heavily tied to transport. ..."
"... However, in a way the oil industry people may be correct in the long run. Every time the price of fuels go up, society will make more permanent changes to reduce the use of those fuels. So the long term outlook for the oil industry is downhill. Short term, probably not. ..."
"... Rep. Jared Huffman (D-CA) introduced the Keep It in the Ground Act on Thursday. Under the bill, there would be no new leases for extraction of fossil fuels - such as coal, oil, and gas - on all federal lands. ..."
"... Don't worry, none of this "keep it in the ground" noise will last very long. When prices go back up, and when peak oil ceases to be called a theory, then the "keep it in the ground" folks will be looking for a hole in the ground to hide. ..."
...THE OIL INDUSTRY GOT TOGETHER AND AGREED THINGS MAY NEVER GET BETTER
"The thousands of attendees seeking reasons for optimism didn't find
them at the annual International Petroleum Week. Instead they were greeted
by a cacophony of voices from some of the largest oil producers, refiners
and traders delivering the same message: There are few reasons for optimism.
The world is awash with oil. The market is overwhelmingly bearish."
"Producers are bracing for a tough year. Prices will stay low for
up to a decade as Chinese economic growth slows and the U.S. shale industry
acts as a cap on any rally"
Doug,
I don't see how shale production, with it's rapid decline rate and
high costs, can act as a cap on the price of oil. Wouldn't it be more likely
that foreign producers with lower costs for production will keep a cap on
the price of oil?
I think oil price will remain somewhat volatile over the next decade
since it is heavily tied to transport. As that scenario changes, oil
production will be in natural descent anyway so alternatives and efficiency
might just be playing catch-up for quite a while.
However, in a way the oil industry people may be correct in the long
run. Every time the price of fuels go up, society will make more permanent
changes to reduce the use of those fuels. So the long term outlook for the
oil industry is downhill. Short term, probably not.
Struggling oil and gas companies are maxing out revolving credit lines
typically used to cover short-term funding gaps, raising fresh concerns
about banks' exposure to the decline in energy prices.
And yet the oil industry seems to think prices will stay low for the
next decade.
Just another indicator of economic downturn, CSCL has warned of loss.
"China Shipping Container Lines (CSCL) has issued a profit warning announcing
an expected loss of RMB 2.8 billion (USD 425 million) for the financial
year ending December 31st."
Rat's congressman proposes Stranded Assets International Bioreserve
Rep. Jared Huffman (D-CA) introduced the Keep It in the Ground Act
on Thursday. Under the bill, there would be no new leases for extraction
of fossil fuels - such as coal, oil, and gas - on all federal lands.
It would also stop new leases for offshore drilling in the Pacific and the
Gulf of Mexico and prohibit offshore drilling in the Atlantic and Arctic
Oceans.
Don't worry, none of this "keep it in the ground" noise will last very
long. When prices go back up, and when peak oil ceases to be called a theory,
then the "keep it in the ground" folks will be looking for a hole in the
ground to hide.
"... When I look at the world total liquids production chart, it looks like production dropped from about 96.7mmbls/d in summer 2015 to about 95.1mmbbls/d in January – a drop of roughly 1.5 mmbbls/d from peak. ..."
"... That's a decline of 1.51 million barrels per day from August to January. I am sure that is not exactly accurate because all the January numbers are not in yet but I would think that it is pretty close. I am not really shocked by those numbers. ..."
When I look at the world total liquids production chart,
it looks like production dropped from about 96.7mmbls/d in summer 2015 to about 95.1mmbbls/d in
January – a drop of roughly 1.5 mmbbls/d from peak. Do you think this is accurate? If not, how
accurate do you think those numbers are?
That's a decline of 1.51 million barrels per day from August to January. I am sure that is
not exactly accurate because all the January numbers are not in yet but I would think that it
is pretty close. I am not really shocked by those numbers.
I am not really shocked by their projection through the end of 2017 either. But I just flat
don't believe those numbers at all.
Iran is now directly competing with Saudi in Europe regarding oil sales. A Bloomberg report earlier
this week revealed some concrete data showing that Europe is a key battleground in the market share
struggle between Iran and Saudi. From that report: "The most competitive pricing compared with Saudi
Arabian supply in 21 months underscores its intention to win back market share." [emphasis my own]
Iran Heavy oil, one of the Islamic Republic's primary export grades, will cost $1.25 less than Saudi's
most similar crude in March, releases from Iran's NIOC and Saudi Aramco both show.
During sanctions, Iran supplied Turkey and continued publishing prices for Europe. Iran's most recent
discount will be the steepest against the Saudi grade since June 2014, Bloomberg reported. Iran is
also giving steeper discounts for Iran Heavy grade in Asia.
Iran is preparing to boost oil exports by 1 M/bpd this year, and is also getting ready to introduce
a new heavy grade as it adds production, Bloomberg reports.
Marketers with Iran's NIOC can go after more than 500,000 barrels of lost daily sales in Europe alone,
Bloomberg reports, now that sanctions, which limited Iran's oil sales to six buyers (China, India,
Japan, South Korea, Taiwan and Turkey), have ended.
How young, arrogant Saudi price took other OPEC members hostage...
Notable quotes:
"... I think Saudi Arabia pushed for a strategy that will go down as one of the greatest mistakes in OPEC's history. It was a decision, I might add, that 9 of the 13 OPEC members reportedly oppose. ..."
"... But I believe they failed to fully appreciate the risk in that strategy. If the higher cost producers slash costs in an attempt to survive (which they undoubtedly would), OPEC could suffer through a period of much lower prices. That is in fact what has happened. ..."
"... OPEC has claimed several times that their strategy is working because U.S. shale oil production is falling. But the only way the strategy actually works is for OPEC to get back to the cash flow levels they had prior to 2014. They are a very long way from achieving that. ..."
"... The one big thing they have going for them is that they still control 72% of the world's proved crude oil reserves - 1.2 trillion barrels. If they ultimately manage to sell those barrels and earn a few dollars more per barrel as a result of their current strategy, it could amount to trillions of dollars ..."
Some have argued that OPEC had no choice but to defend market share instead of cutting
production to balance the market, but I disagree. I think Saudi Arabia pushed for a strategy
that will go down as one of the greatest mistakes in OPEC's history. It was a decision, I might
add, that 9 of the 13 OPEC members reportedly oppose.
... ... ...
At the time of their decision, the global markets were probably oversupplied by 1-2 million
bpd. If OPEC had merely decided to remove 2 million bpd off the world markets - only 5.5% of the
group's combined 2014 production - the price drop could have easily been arrested and maintained
in the $75-$85/bbl range. That would have still given them 38.9% of the global crude oil market.
For that matter, a production quota cut of 13% could have removed from the market a volume
equivalent to all of the U.S. shale oil production added between 2008 and 2014. (Whether the
Saudis could have actually enforced those quotas is another matter).
Why didn't they opt for that course of action?
Don't get me wrong, I understand why they did what they did. I just don't think it was necessary.
They were obviously concerned that the shale oil boom would continue to expand, with production
not only continuing to grow in the U.S. but in other countries with shale oil resources. It was a
legitimate concern, but I think the shale oil boom in the U.S. would have peaked in a few years.
Further, I am not sure any other country will see the same level of success in shale drilling for
various reasons. Some will succeed, but I don't expect they will manage to add millions of
barrels per day of new oil production in just a few years.
It was going to be a gamble either way, but I think it would be more likely that a combination of
growing global demand and a shale boom that couldn't continue to expand at the rates seen from
2008 to 2014 would have ultimately shifted power back to them after perhaps a couple of rounds of
production cuts.
OPEC of course reasoned that it didn't make sense that they, the low cost producer, should cut
production which would prop up higher cost producers. After all, that does seem backwards.
But I believe they failed to fully appreciate the risk in that strategy. If the higher cost
producers slash costs in an attempt to survive (which they undoubtedly would), OPEC could suffer
through a period of much lower prices. That is in fact what has happened.
OPEC has claimed several times that their strategy is working because U.S. shale oil
production is falling. But the only way the strategy actually works is for OPEC to get back to
the cash flow levels they had prior to 2014. They are a very long way from achieving that.
Should OPEC go on to gain back market share, and should they manage to maintain higher margins as
a result, their strategy could pay off in the long run. The one big thing they have going for
them is that they still control 72% of the world's proved crude oil reserves - 1.2 trillion
barrels. If they ultimately manage to sell those barrels and earn a few dollars more per barrel
as a result of their current strategy, it could amount to trillions of dollars. (Note that
because proved reserves are a function of price and available technology, their reserves
estimates may plummet back to what can be produced economically at a price of $30/bbl. That will
nullify much of Venezuela's heavy oil reserves).
If OPEC's strategy does ultimately pay off, it will be many years before it does so. It will
require a huge recovery in the price of oil. It won't be easy for them to earn back the trillion
dollars in foregone revenue for 2015 and 2016. At this moment in time, it is hard to conclude
that it was anything other than a big, costly miscalculation on their part. I also expect that's
what the history books will eventually say.
That means that most of produced petroleum liquids produced in the USA are condensate.
Notable quotes:
"... Im estimating that global crude oil production* was about 69 million bpd in 2005 and 68 million bpd in 2014. I would assume around 69 million bpd for 2015. Global total liquids production was 85 million bpd in 2005 and apparently about 96 million bpd in 2015. ..."
"... I estimate that actual global crude oil production, as a percentage of total liquids, fell from about 81% in 2005 to about 72% in 2015. ..."
"... In regard to the US, I estimate that actual crude oil as a percentage of total liquids fell from about 57% in 2005 (4.7/8.3) to about 49% in 2015 (7.3/14.8). ..."
"... since most hydrocarbon liquids are close to the (CH2)n formula, the energy content/pound is fairly constant (roughly 17,000 BTU/lb). ..."
"... Please note that while the number of BTUs per unit of weight is equal for condensate and oil, the energy content per unit of volume (barrel) is not. It is approximately 12% lower for condensate (on average). So when you measure total production in volume units not weight units, and most of your production is condensate you inflate the amount of energy extracted. With 50/50 mix of oil and condensate the inflation is around 6%. That means that to get proper comparison with, for example, Europeans data where most production is Brent crude or heavier, you need to multiply US data with factor 0.96 or so to equalize the energy content. That also imply that any claim of world petroleum liquids production glut using volume comparison is unscientific. And any claim about oil glut which is less then 1% of total volume of petroleum liquids produced (around 1 Mb/d) is pure propaganda. ..."
"... What Jeffrey Brown points out over and over is the so-called glut is simply another finance industry -slash- media narrative, a pleasant lie that glosses over the fact that fuel supply is declining, that purchasing power is declining along with it and that no easy solutions to these declines exist. The only solution is stringent conservation… ..."
"... Repeating after Steve: so-called glut is simply another finance industry/media narrative . Or, if you wish, another noble lie in Leo Strauss style. See http://peakoilbarrel.com/collapse-of-shale-gas-production-has-begun/#comment-558479 ..."
"... Looks like the US elite is afraid to go full force into oil conservation mode and was unhappy with secular stagnation of the economy. It preferred to drop oil price to solve the problem of secular stagnation or at least to postpone the day of reckoning: yet another financial crash which is immanent under neoliberalism, but which might undermine their political power. ..."
"... Instead, Obama administration adopted Madame de Pompadour Après nous le deluge ( after us deluge ) mentality… ..."
"... Also the mix of refined products you get from the unit of weight of each type of oil is different and you can never get even close in the amount of aviation kerosene and diesel from condensate as from WTI or Brent. ..."
"... Diesel became used for a reason. Ditto jet fuel. Problems arose that were only solvable by changing to that fuel. There's a sort of overly glib presumption that energy content for condensate is only down and not zero, applied to . . . not a diesel engine but to the problem addressed by the diesel engine. ..."
"... Oil is found as a liquid phase fluid in the reservoir, while condensate is found in the gas phase in the reservoir under static conditions. "Some oil people" isn't the right description. Petroleum engineers consider the initial conditions and composition of the hydrocarbon system to define how it would behave under different development and operating schemes. These groupings you listed are a very sensible and technically sound system to describe system behavior as the reservoir is produced. ..."
"... For the non specialist the separation of the crudes by API will do. Use 45 degrees, it seems to do the job. And don't worry too much about the other details. As we can see, even petroleum engineers can get s bit lost in this area, which is mostly the purview of hard core reservoir engineers and process equipment designers. ..."
"... The important point was energy per unit mass is the same. In Nicolas view if we are concerned about energy just look at mass produced. I agree. ..."
"... At high pressures, as found in gas reservoirs, things don't work the same as at atmospheric pressure on the earth's surface. There is a phenomena known as retrograde condensation where as the pressure is reduced at constant temperature, liquid condenses out of the gas (.e. condensate). If the pressure is further reduced then it will start evaporating again (which is what we are used to seeing). ..."
"... If the gas is cooled at the same time (which happens naturally when gas is let down in pressure with no heat source present, or if it cools from the hotter reservoir to ambient conditions, say in a pipeline) then there is relatively more liquid formed. In the past condensate was sometimes called drip gas as it dripped out of pipelines from a combination of these effects. ..."
Hopefully somebody handy with a calculator will try to figure out roughly how much of total world
production consists of condensates, natural gas liquids biofuels, etc.
I'm estimating that global crude oil production* was about 69 million bpd in 2005 and 68 million
bpd in 2014. I would assume around 69 million bpd for 2015. Global total liquids production was
85 million bpd in 2005 and apparently about 96 million bpd in 2015.
So, I estimate that actual global crude oil production, as a percentage of total liquids,
fell from about 81% in 2005 to about 72% in 2015.
In regard to the US, I estimate that actual crude oil as a percentage of total liquids
fell from about 57% in 2005 (4.7/8.3) to about 49% in 2015 (7.3/14.8).
I was chatting with my Norway niece (Nicole/Nikki) this morning and, I recalled, you were
asking about the distinction between "oils" and their relative energy value. Remember, I'm 75
now and the grey cells are evaporating rapidly but we had a decent connection so this is (basically)
her comment: all errors mine.
She said that any distinction between oil and condensate is artificial and arbitrary. They're
both crude in that compositions are whatever came from the well with no processing other than
simple separation. Apparently some oil people simply use five classifications for reservoir fluids:
black oil, volatile oil, retrograde gas-condensate, wet gas, and dry gas. And, since most
hydrocarbon liquids are close to the (CH2)n formula, the energy content/pound is fairly constant
(roughly 17,000 BTU/lb).
Really heavy crudes can be difficult to refine because they're more likely to be contaminated
with sulfur and heavy metals that can poison refinery catalysts, they're hard to pump, they can
leave fouling on the process equipment, and they need more processing (cracking, reforming, alkylation)
to produce light fuels (gasoline, diesel, jet fuel). According to her, the bigger concern would
be the percentage of heavy industrial gunk which is useful only for big power plants, ships, and
industrial furnaces or even road asphalt.
When she got into C12+ hydrocarbons, aromatics, benzene rings, alkenes and branched isomers
I got bored and asked about her new boyfriend. Is that any use?
Please note that while the number of BTUs per unit of weight is equal for condensate and oil,
the energy content per unit of volume (barrel) is not. It is approximately 12% lower for condensate
(on average). So when you measure total production in volume units not weight units, and most
of your production is condensate you inflate the amount of energy extracted. With 50/50 mix of
oil and condensate the inflation is around 6%. That means that to get proper comparison with,
for example, Europeans data where most production is Brent crude or heavier, you need to multiply
US data with factor 0.96 or so to equalize the energy content. That also imply that any claim
of world petroleum liquids production glut using volume comparison is unscientific. And any claim
about "oil glut" which is less then 1% of total volume of petroleum liquids produced (around 1
Mb/d) is pure propaganda.
What Jeffrey Brown points out over and over is the so-called 'glut' is simply another finance
industry -slash- media narrative, a pleasant lie that glosses over the fact that fuel supply
is declining, that purchasing power is declining along with it and that no easy solutions to
these declines exist. The only solution is stringent conservation…
Looks like the US elite is afraid to go full force into oil conservation mode and was unhappy
with "secular stagnation" of the economy. It preferred to drop oil price to solve the problem
of "secular stagnation" or at least to postpone the day of reckoning: yet another financial crash
which is immanent under neoliberalism, but which might undermine their political power.
Instead, Obama administration adopted Madame de Pompadour "Après nous le deluge" ("after us
deluge") mentality…
Also the mix of refined products you get from the unit of weight of each type of oil is different
and you can never get even close in the amount of aviation kerosene and diesel from condensate
as from WTI or Brent.
See Jeffrey Brown's post about rejection of some blends by US refineries for details.
When she got into C12+ hydrocarbons, aromatics, benzene rings, alkenes and branched isomers
I got bored and asked about her new boyfriend. Is that any use?
Well, compared to colliding
black holes and gravitational waves, and E=MC^2, organic chemistry is pretty cut and dried…
Diesel became used for a reason. Ditto jet fuel. Problems arose
that were only solvable by changing to that fuel. There's a sort of overly glib presumption that
energy content for condensate is only down and not zero, applied to . . . not a diesel engine
but to the problem addressed by the diesel engine.
The volume/weight thing is a pretty big deal, too. Fuel tank capacity is not defined by weight.
Sorry, but Nicole is wrong. Oil is found as a liquid phase fluid in the reservoir, while condensate
is found in the gas phase in the reservoir under static conditions. "Some oil people" isn't the
right description. Petroleum engineers consider the initial conditions and composition of the
hydrocarbon system to define how it would behave under different development and operating schemes.
These groupings you listed are a very sensible and technically sound system to describe system
behavior as the reservoir is produced.
For the non specialist the separation of the crudes by API will do. Use 45 degrees, it seems
to do the job. And don't worry too much about the other details. As we can see, even petroleum
engineers can get s bit lost in this area, which is mostly the purview of hard core reservoir
engineers and process equipment designers.
Nicole responds: "With respect, the term black oil is particularly imprecise and context-dependent;
to a reservoir simulation engineer like me, that means the simplifying assumption that the fluid
can be characterized by only two components, one of which can exist in only one phase whose properties
we can characterize the other component dissolves in that phase; that phase is black as in "black
box", not color. Usually the non-partitioning phase is the heavy component (separator oil may
contain dissolved gas, but the gas phase contains no oil), but it works the other way, too (separator
gas can contain condensate vapor, but condensate can dissolve no gas). When it's applicable, the
black-oil assumption saves "lots" of computational effort."
It seems if we are interested in the amount of
liquid energy produced in terms of exajoules we would pay attention to the tonnes of liquids produced
and just convert to Exajoules.
So for oil consumption data in BP's Statistical Review of World energy we would focus on the
data by weight and use a conversion to Joules (or Exajoules).
One billion metric tonnes of oil equivalent are about 41.87 EJ.
Chart below with World Liquids consumption in Exajoules per year using BP Statistical Review
of World Energy 2015.
Nicole left for her bi-monthly platform tour so I'll say if you stick to weight when doing your
rough oil/condensate energy conversions your numbers will be OK. My Proviso: I'm NOT an oil guy.
Don't include NG though, which is mostly methane (22,000 BTU/lb) ????
You know far more than me, just from your conversations with Nicole, and I believe
you are also a geophysicist, and have worked in the industry. You may not be up to date on the
latest oilfield tech, but you are very knowledgeable nonetheless.
The "liquids" are biofuels, NGL, and C+C in my chart. Methane is not included.
Barrels, BTU's, mcf, CMO, enough dungpiles -- Save us. Remember
http://www.theoildrum.com/node/2320.
Real Energy, as in MT, Calories, EJ would be so clear.
Nicole is still wrong. She answered the point I made with a rather pedantic point which failed
to address my comment: the distinction between oil and condensate is whether they are found in
the liquid or gas phase in the reservoir. Condensate is found as a gas in the reservoir. The distinction
isn't artificial nor is it arbitrary. She has a bit to learn, probably because she's too much
into her specific experience. Comments in a blog have to teach the audience whenever possible.
Hers didn't.
I am a little puzzled over condensate. If it exists in the gas phase, in the reservoir with, presumably,
high pressure, how does it condense to liquid when extracted and the pressure is reduced? I would
have expected the reverse. Am I mis-understanding something, confused or just lost the thread?
At high pressures, as found in gas reservoirs, things don't work the same as at atmospheric pressure
on the earth's surface. There is a phenomena known as retrograde condensation where as the pressure
is reduced at constant temperature, liquid condenses out of the gas (.e. condensate). If the pressure
is further reduced then it will start evaporating again (which is what we are used to seeing).
If the gas is cooled at the same time (which happens naturally when gas is let down in pressure
with no heat source present, or if it cools from the hotter reservoir to ambient conditions, say
in a pipeline) then there is relatively more liquid formed. In the past condensate was sometimes
called drip gas as it dripped out of pipelines from a combination of these effects.
That was a pretty good explanation. Several years ago I had to explain the way this works to my
boss, and I resorted to explaining that a multi component system had molecules bouncing around,
and that at high pressure we saw the lighter molecules kicking the heavier ones into the gas phase
if they ever decided to settle down into a liquid. It worked.
"... Note that the global oil and gas industry spent trillions of dollars on global upstream capex after 2005, for 2006 to 2014 inclusive (on both oil and gas projects). But if it took trillions of dollars to keep us on a post-2005 "Undulating plateau" in actual global crude oil production, what happens to global crude oil production given the large and ongoing cutbacks in global upstream capex? ..."
"... My premise is that US (and perhaps global) refiners hit - late in 2014 - the upper limit of the volume of condensate that they could process if they wanted to maintain their distillate and heavier output. This resulted in a build in condensate inventories, reflected as a year over year build of 100 million barrels in US C+C inventories. ..."
"... Therefore, in my opinion the US and (and perhaps global) C+C inventory data are fundamentally flawed when it comes to actual crude oil inventory data. Note that according to Iranian sources, the bulk of their floating offshore storage consists of condensate, which they were permitted to export under the sanctions. In my opinion, this suggests that we may be seeing both a US and a global glut of condensate in storage. ..."
Global Condensate Versus Crude Oil Production Estimates
Global dry natural gas production rose from 270 BCF/day in 2005 to 335 BCF/day in 2014. In 2014,
combined US + OPEC gas production accounted for 41% of global gas production in 2014.
If the US + OPEC condensate production estimates per BCF of dry gas production are similar to
global values, it implies that global condensate production rose from about about 5 million bpd in
2005 to about 10 million bpd in 2014, an increase of about 5 million bpd. Note that global C+C production
increased from 74 million bpd in 2005 to 78 million bpd in 2014, an increase of 4 million bpd.
Of course, the foregoing implies that actual global crude oil production (45 API Gravity and lower
crude oil) declined from about 69 million bpd in 2005 to about 68 million bpd in 2014, as annual
Brent crude oil prices doubled from $55 in 2005 to $110 for 2011 to 2013 inclusive (remaining at
$99 in 2014).
Note that the global oil and gas industry spent trillions of dollars on global upstream capex
after 2005, for 2006 to 2014 inclusive (on both oil and gas projects). But if it took trillions of
dollars to keep us on a post-2005 "Undulating plateau" in actual global crude oil production, what
happens to global crude oil production given the large and ongoing cutbacks in global upstream capex?
What's Actually in Those Storage Tanks?
We have seen a large year over year increase in US and global Crude + Condensate (C+C) inventories.
For example, EIA data show that US C+C inventories increased by 100 million barrels from late 2014
to late 2015, and this inventory build has contributed significantly to the sharp decline in oil
prices.
The question is, what percentage of the increase in US and global C+C inventories consists of
condensate?
Four week running average data showed that US net crude oil imports for the last four weeks of
December increased from 6.9 million bpd in 2014 to 7.3 million bpd in 2015. Why would US refiners
continue to import large–and increasing–volumes of actual crude oil, if they didn't have to, even
as we saw a huge build in US C+C inventories? And again, what the EIA calls "Crude oil" is actually
C+C. And as noted above, based on the EIA analysis it appears that about 40% of US Lower 48 C+C production
in 2015 exceeded the maximum API Gravity for WTI crude oil, 42 API Gravity.
The most recent four week running average EIA data shows US net crude oil imports remained at
7.3 million bpd, with net total liquids imports at 5.5 million bpd, up 17% from the 2015 average
annual value of 4.7 million bpd.
I frequently cite a 2015 Reuters article that discussed case histories of refiners increasingly
rejecting blends of heavy crude and condensate that technically meet the upper limit for WTI crude
(42 API gravity), but that are deficient in distillates. Of course, what the refiners are rejecting
is the condensate component, i.e., they are in effect saying that "We don't want any more stinkin'
condensate." Following is an excerpt from the article:
In a pressing quest to secure the best possible crude, U.S. refiners are increasingly going
straight to the source.
Firms such as Marathon Petroleum Corp and Delek U.S. Holdings are buying up tanker trucks and
extending local pipeline networks in order to get more oil directly from the wellhead, seeking
to cut back on blended crude cocktails they say can leave a foul aftertaste. . . .
Many executives say that the crude oil blends being created in Cushing are often substandard
approximations of West Texas Intermediate (WTI), the longstanding U.S. benchmark familiar to,
and favored by, many refiners in the region.
Typical light-sweet WTI crude has an API gravity of about 38 to 40. Condensate, or super-light
crude that is abundant in most U.S. shale patches, ranges from 45 to 60 or higher. Western Canadian
Select, itself a blend, is about 20.
While the blends of these crudes may technically meet the API gravity ceiling of 42 at Cushing,
industry players say the mixes can be inconsistent in makeup and generate less income because
the most desirable stuff is often missing.
My premise is that US (and perhaps global) refiners hit - late in 2014 - the upper limit of the
volume of condensate that they could process if they wanted to maintain their distillate and heavier
output. This resulted in a build in condensate inventories, reflected as a year over year build of
100 million barrels in US C+C inventories.
Therefore, in my opinion the US and (and perhaps global) C+C inventory data are fundamentally
flawed when it comes to actual crude oil inventory data. Note that according to Iranian sources,
the bulk of their floating offshore storage consists of condensate, which they were permitted to
export under the sanctions. In my opinion, this suggests that we may be seeing both a US and a global
glut of condensate in storage.
In any case, here is the critical point: If it took trillions of dollars to keep us on a post-2005
"Undulating plateau" in actual global crude oil production, what happens to global crude oil production
given the large and ongoing cutbacks in global upstream capex?
When President Obama secretly authorized the Central Intelligence Agency to begin arming Syria's
embattled rebels in 2013, the spy agency knew it would have a willing partner to help pay for the
covert operation. It was the same partner the C.I.A. has relied on for decades for money and discretion
in far-off conflicts: the Kingdom of Saudi Arabia.
...
The support for the Syrian rebels is only the latest chapter in the decadeslong relationship between
the spy services of Saudi Arabia and the United States, an alliance that has endured through the
Iran-contra scandal, support for the mujahedeen against the Soviets in Afghanistan and proxy fights
in Africa. Sometimes, as in Syria, the two countries have worked in concert. In others, Saudi Arabia
has simply written checks underwriting American covert activities.
...
In addition to Saudi Arabia's vast oil reserves and role as the spiritual anchor of the Sunni Muslim
world, the long intelligence relationship helps explain why the United States has been reluctant
to openly criticize Saudi Arabia for its human rights abuses, its treatment of women and its support
for the extreme strain of Islam, Wahhabism, that has inspired many of the very terrorist groups the
United States is fighting. The Obama administration did not publicly condemn Saudi Arabia's public
beheading this month of a dissident Shiite cleric, Sheikh Nimr al-Nimr, who had challenged the royal
family.
...
American officials have not disclosed the amount of the Saudi contribution, which is by far the largest
from another nation to the program to arm the rebels against President Bashar al-Assad's military.
But estimates have put the total cost of the arming and training effort at several billion dollars.
...
When Mr. Obama signed off on arming the rebels in the spring of 2013, it was partly to try to gain
control of the apparent free-for-all in the region. The Qataris and the Saudis had been funneling
weapons into Syria for more than a year. The Qataris had even smuggled in shipments of Chinese-made
FN-6 shoulder-fired missiles over the border from Turkey.
...
By the summer of 2012, a freewheeling feel had taken hold along Turkey's border with Syria as the
gulf nations funneled cash and weapons to rebel groups - even some that American officials were concerned
had ties to radical groups like Al Qaeda.
...The C.I.A. was mostly on the sidelines during this period, authorized by the White House under
the Timber Sycamore training program to deliver nonlethal aid to the rebels but not weapons. In late
2012, according to two former senior American officials, David H. Petraeus, then the C.I.A. director,
delivered a stern lecture to intelligence officials of several gulf nations at a meeting near the
Dead Sea in Jordan. He chastised them for sending arms into Syria without coordinating with one another
or with C.I.A. officers in Jordan and Turkey.
...While the intelligence alliance is central to the Syria fight and has been important in the war
against Al Qaeda, a constant irritant in American-Saudi relations is just how much Saudi citizens
continue to support terrorist groups, analysts said.
"The more that the argument becomes, 'We need them as a counterterrorism partner,' the less persuasive
it is," said William McCants, a former State Department counterterrorism adviser and the author of
a book on the Islamic State. "If this is purely a conversation about counterterrorism cooperation,
and if the Saudis are a big part of the problem in creating terrorism in the first place, then how
persuasive of an argument is it?"
"... Submitted by Dalan McEndree via OilPrice.com, ..."
"... Or, alternatively, are they targeting specific global competitors and specific national markets? ..."
"... And, of course, what does the Saudi strategy beyond pumping crude portend for the Saudi approach to some OPEC members' calls for coordinated production cuts within OPEC and with Russia? ..."
"... Saudi Arabia's sustainable crude output capacity ..."
"... Rather than maintaining crude output at 2014's level in 2015, the Saudis steadily increased it after al-Naimi's announcement in Vienna as they brought idle capacity on line ..."
"... IEA monthly Oil Market Report ..."
"... exports peaked in 4Q 2015 at 7.01 million barrels per day ..."
"... The Saudis did not ship any of their incremental crude exports to the U.S.-in other words, they did not increase volumes exported to the U.S., did not directly seek to constrain U.S. output, and did not seek to increase U.S. market share. ..."
"... It is therefore not surprising that the Saudis moved aggressively in Europe in 4Q 2015-successfully courting traditional Russian customers in Northern Europe and Eastern Europe and drawing complaints from Rosneft. ..."
"... In this Saudi effort, the U.S. could be an ally. The U.S. became a net petroleum product exporter in 2012 (minus numbers in the table below indicate net exports), and net exports grew steadily through 2015. Growth continued in January, with net product exports averaging 1.802 million barrels per day, and, in the week ending February 5, 2.046 million. U.S. exports will lessen the financial attractiveness of investment in domestic refining capacity, both for governments and for foreign investors in their countries' oil industries (data from EIA). ..."
"... It may be that the Saudis will not change course until Russian output declines, Iraq's stagnates, Iran's output growth is stunted-and that receding output from weaker countries within and outside OPEC would not be enough. If this is case, the Saudis will see resilient U.S. production as increasing pressure on their competitors and bringing forward the day when they can contemplate moderating their output. ..."
"... NOTE: Nothing in the foregoing analysis should be understood as denying that the U.S. oil industry has suffered intensely or asserting that this strategy, if it is Saudi strategy, will succeed. ..."
"... NOTE: Nothing in the foregoing analysis should be understood as denying that …. IF IT IS Saudi strategy. ..."
Do the Saudis have an oil market strategy
beyond pumping crude to defend their market share? Are they indifferent to which countries' oil industries
survive? Or, alternatively, are they targeting specific global competitors and specific
national markets? Did they start with a particular strategy in November 2014 when Saudi
Petroleum and Mineral Resources Minister Ali al-Naimi announced the new market share policy at the
OPEC meeting in Vienna and are they sticking with it, or has their strategy evolved with the evolution
of the global markets since?
And, of course, what does the Saudi strategy beyond pumping crude portend for the Saudi approach
to some OPEC members' calls for coordinated production cuts within OPEC and with Russia?
Conventional Wisdom
Conventional wisdom has it that the Saudis are focused primarily on crushing the U.S.
shale industry. In this view, the Saudis blame the U.S. for the supply-demand imbalance
that began to make itself felt in 2014. U.S. production data seems to support this. Between 2009
and 2014, U.S. crude and NGLs output increased nearly 4 million barrels per day, while Saudi Arabia's
increased only 1.64 million barrels per day, Canada's 1.06 million, Iraq's 0.9 million, and Russia's
0.7 million (Saudi data doesn't include NGLs).
In addition, the Saudis, among many others, believed that U.S. shale would be the most vulnerable
to Saudi strategy, given relatively high production costs compared to Saudi production costs and
shale's rapid decline rates and the need therefore repeatedly to reinvest in new wells to maintain
output.
Yet, if the Saudis were focused on the U.S., their efforts have been unsuccessful, at least in
2015. As the table below shows, U.S. output growth in 2015 outstripped Saudi output growth and the
growth of output from other major producers in absolute terms. In addition, many observers also came
to believe that U.S. shale production will recover more quickly than production in traditional plays
once markets balance due to its unique accelerated production cycle and that this quick recovery
will limit price increases when markets balance.
Is the U.S. Really the Primary Target?
The above considerations imply the Saudis-if indeed they primarily were targeting U.S. shale-embarked
on a self-defeating campaign in November 2014 that could at best deliver a Pyrrhic victory and permanent
revenues losses in the US$ hundred billions.
Is the U.S. the primary target? U.S. import data (from the EIA) suggests the U.S. is not now the
Saudis' primary target, if it ever was. Like other producers, the Saudis operate within a set of
constraints. Domestic capacity is one. In its 2015 Medium Term Market Report (Oil), the IEA put
Saudi Arabia's sustainable crude output capacity at 12.34 million barrels per day in 2015
and at 12.42 million in 2016. Export capacity-output minus domestic demand-is another.
Rather than maintaining crude output at 2014's level in 2015, the Saudis steadily increased
it after al-Naimi's announcement in Vienna as they brought idle capacity on line (data from
the IEA monthly Oil Market Report):
This allowed them to increase average daily crude exports by 460,000 barrels in 2015 over 2014
average export levels-even as Saudi domestic demand increased-and exports peaked in 4Q 2015 at
7.01 million barrels per day (assuming the Saudis keep output at average 2H 2015 levels in 2016,
and domestic demand increased 400,000 barrels per day, as the IEA forecasts, the Saudis could export
nearly 7 million barrels per day on average in 2016):
The Saudis did not ship any of their incremental crude exports to the U.S.-in other words,
they did not increase volumes exported to the U.S., did not directly seek to constrain U.S. output,
and did not seek to increase U.S. market share. Based on EIA data, Saudi imports into the U.S.
declined from 1.191 million barrels per day in 2014 to 1.045 million in 2015-and have steadily declined
since peaking in 2012 at 1,396 million barrels per day. (OPEC's shipments also declined from 2014
to 2015, from 3.05 million barrels per day to 2.64 million, continuing the downward trend that started
in 2010). Canada, however, which has sent increasing volumes to the U.S. since 2009, increased exports
to the U.S. 306,000 barrels per day in 2015:
Also, the Saudi share of U.S. crude imports declined 1.9 percentage points in 2015 from 2014,
and has declined 2.6 percentage points since peaking at 16.9 percent in 2013; during the same two
periods, Canada's share increased 4.5 and 9.9 percentage points respectively (and has more than doubled
since 2009):
Other Markets
The Saudis presumably exported the incremental 606,000 barrels per day (460,000 from net increased
export capacity plus 146,000 diverted from the U.S.) to their focus markets. Since other countries'
import data generally is less current, complete, and available than U.S. data, where these barrels
ended up must be found indirectly, at least partially.
In its 2015 Medium Term Market Report (Oil), the IEA projected that the bulk of growth from 2015
to 2020 will come in China, Other Asia, the Middle East, and Africa, while demand will remain more
or less stagnant in OECD U.S. and OECD Europe:
The Saudis find themselves in a difficult battle for market share in China, the world's second
largest import market and the country in which the IEA expects absolute import volume will increase
the most through 2020-1.5 million barrels per day (it projects Other Asia demand to increase 2.0
million). The Saudis are China's leading crude supplier. However, their position is
under sustained attack from their major-and minor-global export competitors. For example,
through the first eleven months of 2015, imports from Saudi Arabia increased only 2.1 percent to
46.08 million metric tons, while imports from Russia increased 28 percent to 37.62 million, Oman
9.1 percent to 28.94 million, Iraq 10.3 percent to 28.82 million, Venezuela 20.7 percent to 14.77
million, Kuwait 42.6 percent to 12.68 million, and Brazil 102.1 percent to 12.07 million.
As a result of the competition, the Saudi share of China's imports has dropped from ~20 percent
since 2012 to ~15 percent in 2015, even as Chinese demand increased 16.7 percent, or 1.6 million
barrels per day, from 9.6 million in 2012 to 11.2 million in 2015. Moreover, the competition for
Chinese market share promises to intensify with the lifting of UN sanctions on Iran, which occupied
second place in Chinese imports pre-UN sanctions and has expressed determination to regain its prior
position (Iran's exports to China fell 2.1 percent to 24.36 million tons in the first eleven months
of 2015).
Moreover, several Saudi competitors enjoy substantial competitive advantages. Russia has
two. One is the East Siberia Pacific Ocean pipeline (ESPO) which directly connects Russia
to China-important because the Chinese are said to fear the U.S. Navy's ability to interdict ocean
supplies routes. Its capacity currently is 15 million metric tons per year (~300,000 barrels per
day) and capacity is expected to double by 2017, when a twin comes on stream. The second is the agreement
Rosneft, Russia's dominant producer, has with China National Petroleum Corporation to ship ~400 million
metric tons of crude over twenty-five years, and for which China has already made prepayments. Russia
shares a third with other suppliers. Saudis contracts contain destination restrictions and other
provisions that constrain their customers' ability to market the crude, whereas those of some other
suppliers do not.
Marketing flexibility will be particularly attractive to the
smaller Chinese refineries, which Chinese government has authorized to import 1 million-plus
barrels per day.
While they fight for market share in China, the Saudis also have to fight for market share in the
established, slow-growing or stagnant IEA-member markets (generally OECD member countries). Saudi
exports to these markets declined 310,000 barrels per day between 2012 and 2014, and 490,000 barrels
per day between 2012 and 2015's first three quarters. Only in Asia Oceania did Saudi export volumes
through 2015's first three quarters manage to equal 2012's export volumes. During the same period,
Iraq managed to increase its exports to Europe 340,000 barrels per day (data from IEA monthly Oil
Market Report).
It is therefore not surprising that the Saudis
moved aggressively in Europe in 4Q 2015-successfully courting traditional Russian customers in
Northern Europe and Eastern Europe and drawing complaints from Rosneft.
As with China, the competition will intensify with Iran's liberation from UN sanctions. For example,
Iran has promised to regain its pre-UN sanctions European market share-which implies an increase
in exports into the stagnant European market of 970,000 barrels per day (2011's 1.33 million barrels
per day minus 2015's 360,000 barrels per day).
Might the U.S. be an Ally?
Without unlimited crude export resources, the Saudis have had to choose in which global markets
to conduct their market share war, and therefore, implicitly, against which competitors to direct
their crude exports.
Why did the Saudis ignore the U.S. market?
First, U.S. crude does not represent a threat to the Saudis' other crude export markets.
Until late 2015, when the U.S. Congress passed, and President Obama signed, legislation lifting
the prohibition, U.S. producers, with limited exceptions, could not export crude. Even with the
prohibition lifted, it is unlikely the U.S. will become a significant competitor, given that the
U.S. is a net crude importer. Therefore, directing crude to the U.S. would not improve the Saudi
competitive position elsewhere.
Second, the U.S. oil industry is one of the least vulnerable (if not the least vulnerable)
to Saudi pressure-and therefore least likely and less quickly to crack. Low production
costs are a competitive advantage, but are not the only one and perhaps not the most important
one. Financing, technology, equipment, and skilled manpower availability is important, as are
political stability, physical security, a robust legal framework for extracting crude, attractive
economics, and access and ease of access to markets. The Saudis major export competitors-Russia,
Iran, and Iraq-are far weaker than the U.S. on all these areas, as are its minor export competitors,
including those within-Nigeria, Libya, Venezuela, and Angola-and outside OPEC-Brazil.
Third, in the U.S. market, the Saudis face tough, well-managed domestic competitors,
and a foreign competitor, Canada, that enjoys multiple advantages including proximity,
pipeline transport, and trade agreements, the Saudis do not enjoy.
Finally, the Saudis may be focused on gaining a sustainable long term advantage in
a different market than the global crude export market-the higher value added and therefore more
valuable petroleum product market. Saudi Aramco has set a target to double its global
(domestic and international) refining capacity to 10 million barrels per day by 2025. Depressed
revenues from crude will squeeze what governments have to spend on their oil industries and, presumably,
they will have to prioritize maintaining crude output over investments in refining.
In this Saudi effort, the U.S. could be an ally. The U.S. became a net petroleum product exporter
in 2012 (minus numbers in the table below indicate net exports), and net exports grew steadily through
2015. Growth continued in January, with net product exports averaging 1.802 million barrels per day,
and, in the week ending February 5, 2.046 million. U.S. exports will lessen the financial attractiveness
of investment in domestic refining capacity, both for governments and for foreign investors in their
countries' oil industries (data from EIA).
Saudi Intentions
The view that the Saudi market share strategy is focused on crushing the U.S. shale industry has
led market observers obsessively to await the EIA's weekly Wednesday petroleum status report and
Baker-Hughes weekly Friday U.S. rig count-and to react with dismay as U.S. rig count has dropped,
but production remained resilient.
In fact, they might be better served welcoming resilient U.S. production. It may be that the
Saudis will not change course until Russian output declines, Iraq's stagnates, Iran's output growth
is stunted-and that receding output from weaker countries within and outside OPEC would not be enough.
If this is case, the Saudis will see resilient U.S. production as increasing pressure on their competitors
and bringing forward the day when they can contemplate moderating their output.
NOTE: Nothing in the foregoing analysis should be understood as denying that the U.S. oil
industry has suffered intensely or asserting that this strategy, if it is Saudi strategy, will succeed.
Conventional wisdom has it that the Saudis are focused primarily on crushing the U.S.
shale industry.
Article LAST words: NOTE: Nothing in the foregoing analysis should be understood
as denying that …. IF IT IS Saudi strategy.
Does anyone with their head screwed on believe this Conventional Wisdom nonsense?
Let me give you three examples:
Isn't Saudi Arabia going into war? Where will the money come from? In a war, Saudi Arabia will
go broke before US shale.
Second: Saudi Arabia Per Capita Income:
Despite possessing the largest petroleum reserves in the world, per capita income dropped from
approximately $18,000 at the height of the oil boom (1981) to $7,000 in 2001, according to one
estimate.As of 2013, per capita income in Saudi was "a fraction of that of smaller
Persian Gulf neighbors", even less than petroleum-poor Bahrain.
The Saudi's remain committed to "helping" the US squeeze Russia at the expense of our own shale
industry, Canadian tar sands and bankrupting Venezuela and Brazil. When prices get low enough,
the Four Horseman of the Big Oil (Exxon, BP, Dutch Shell and ARAMCO) will swoop in and buy it
up, for a fraction of what it is worth.
It's just another power play to squeeze the smaller producers out of the market. When they are
finished, oil will go back up and they will make gazillions more. It's been used over and over
again for a hundred plus years.
Big fish eat small fish...same as it ever was.
Faeriedust
The Saudis are dealing with a domestic budget crisis created by the new king (and most especially
his Defense Minister son)'s attempts to impose regional hegemony in the Middle East. They are
attempting to move from the "soft power" of deep pockets to "hard power" of direct control over
formerly independent regions, in order to provide colonial positions and the opportunity for advancement
to their disaffected poor. It will not end well, and the complete collapse of the Kingdom is a
distinct possibility. But of course, they're not going to admit that anywhere it might see print.
"... Producers are also betting that oil prices will eventually recover. The latest Reuters poll of oil analysts forecasts the U.S. benchmark CLc1 will average $41 a barrel in 2016, a level where most Canadian oil sands projects can break even. [OILPOLL] ..."
"... Bankers say the need to bolster balance sheets and cover oil sands losses will boost the number of Canadian energy deals this year, particularly sales of pipelines, and storage and processing facilities. ..."
Faced with record low prices for heavy crude, Canadian energy companies are sacrificing other
parts of their business to keep higher-cost oil sands production going and safeguard the billions
already invested in these multi-decade projects.
Companies including Husky Energy Inc HSE.TO, MEG Energy Corp MEG.TO and Pengrowth Energy Corp
PGF.TO are selling assets or slowing light and conventional oil exploration and production, even
as they forge ahead with oil sands projects that are in many cases bleeding money on every
barrel.
... ... ...
Producers are also betting that oil prices will eventually recover. The latest Reuters
poll of oil analysts forecasts the U.S. benchmark CLc1 will average $41 a barrel in 2016, a level
where most Canadian oil sands projects can break even. [OILPOLL]
Bankers say the need to bolster balance sheets and cover oil sands losses will boost the
number of Canadian energy deals this year, particularly sales of pipelines, and storage and
processing facilities.
According to a recent TD Securities report, virtually no oil sands projects can cover
overall costs, including production, transportation, royalties, and sustaining capital, with U.S.
benchmark crude below $30 a barrel CLc1.
The benchmark heavy Canadian blend, Western Canada Select (WCS), now trades around $16.30 a
barrel, just a few dollars above record lows hit in January.
... ... ...
Bankers say that midstream assets - pipelines, storage and processing facilities - prove popular
with buyers such as pension funds and private equity firms, which favor investments with stable
cash flows that are relatively easy to value.
"They're to a certain extent the jewels in the crown. These companies would not be looking to
sell them if they could get away with not doing it," said Citi's Kernaghan.
"... Core estimates that the current production decline curve rate for U.S. production is approximately 7.8% net which will expand as 2016 progresses and could reach 10% net by the end of the year 2016. ..."
"... Core believes that the worldwide crude oil supply and demand markets will balance in the second half of 2016. ..."
"... U.S. unconventional production peaked at approximately 5.5 million barrels of oil per day in March of 2015, has since fallen by over 600,000 barrels a day owing to high decline curve rates associated with tight oil reservoirs (offset by unsustainable adds of 250,000 bopd (we had noticed the adjustments in the data stream). ..."
"... The sharp declines from U.S. land production will continue into 2016 and Core believes these decreases could reach 900,000 barrels a day by the year-end 2016. Lower levels of new wells and delayed production maintenance will exacerbate this 2016 fall in U.S. land production. ..."
"... the short gains from legacy deepwater Gulf of Mexico projects will not materialize in 2016 to offset the significant decreases in U.S. land production as they did in late 2015. ..."
"... Core estimates that the current production decline curve rate for U.S. production is approximately 7.8% net which will expand as 2016 progresses and could reach 10% net by the end of the year 2016. ..."
David Demshur, CEO of Core Labs had a lot to say in their earnings release of Jan. 28, 2016.
Regarding US oil production.
Core estimates that the current production decline curve rate for U.S. production is approximately
7.8% net which will expand as 2016 progresses and could reach 10% net by the end of the year 2016.
Regarding World oil production.
Core estimates that crude oil production decline curve has expanded to 3.1% net, up some 60
basis points from year earlier estimates. Applying the 3.1% net decline curve rate to the worldwide
crude oil production base of approximately 85 million barrels a day means that the planet will
need to produce approximately 2.6 million new barrels by this date next year to maintain current
worldwide production totals.
With the long-term worldwide spare capacity nearing zero, Core believes that worldwide producers
will not be able to offset the estimated 3.1% net production decline curve rate in 2016, leading
to falling global crude oil production by the second half of 2016.
Therefore, Core believes crude oil markets rationalize in the second half of 2016 and price
stability followed by price increases return to the energy complex. Remember, the immutable laws
of physics and thermodynamics mean that the crude oil production decline curve always wins and
that it never sleeps.
1) "Core believes that the worldwide crude oil supply and demand markets will balance in the
second half of 2016.",
2) "U.S. unconventional production peaked at approximately 5.5 million barrels of oil per day
in March of 2015, has since fallen by over 600,000 barrels a day owing to high decline curve rates
associated with tight oil reservoirs" (offset by unsustainable adds of 250,000 bopd (we had noticed
the adjustments in the data stream).
3) "The sharp declines from U.S. land production will continue into 2016 and Core believes
these decreases could reach 900,000 barrels a day by the year-end 2016. Lower levels of new wells
and delayed production maintenance will exacerbate this 2016 fall in U.S. land production."
4) "the short gains from legacy deepwater Gulf of Mexico projects will not materialize in 2016
to offset the significant decreases in U.S. land production as they did in late 2015."
5) "Core estimates that the current production decline curve rate for U.S. production is
approximately 7.8% net which will expand as 2016 progresses and could reach 10% net by the end
of the year 2016."
Trading giant
Vitol says it's already buying Iranian oil, several European oil companies
have already chartered tankers for Iranian crude. Total SA has reportedly signed
an agreement with Iran to buy 160,000 barrels per day effective from the 16th
of February.
Spanish refiner Compania Espanola de Petroleos has booked some provisional
Iranian crude cargoes to land in European ports,
according to Bloomberg, and
Glencore Plc trading house bought a cargo earlier this month.
But Lukoil's trading arm, Swiss-based Litasco, has cancelled its booking
of an Iranian cargo to Italy over insurance complications,
according to Reuters.
Japan is a step
ahead of other prospective importers of Iranian oil. In 2012, Japan's Parliament
approved government guarantees on insurance for Iranian crude oil cargoes, circumventing
European Union sanctions and allowing for the provision of up to $7.6 billion
in coverage for each Iranian crude oil tanker bound for Japan. But that
law expires on 31 March, so it may have to go back to parliament for approval
if the West hasn't sorted things out by then.
The London-based International Group of Protection & Indemnity Clubs, which
covers some 90 percent of global tonnage through reinsurance, is
reportedly in talks with Washington to figure a way out of the insurance
quagmire quickly, according to the Wall Street Journal.
"... A group of Russian Duma deputies proposed to prohibit for 5 years the sale of raw oil abroad and develop a strategy for the development of the economy of Russia in the direction of reducing the dependence on the fluctuations of world oil prices. ..."
A group of Russian Duma deputies proposed to prohibit for 5 years
the sale of raw oil abroad and develop a strategy for the development
of the economy of Russia in the direction of reducing the dependence
on the fluctuations of world oil prices.
A letter to the Minister of Economic Development Alexei Ulyukayev
was sent by deputies from the minority party "Fair Russia", informs
"RIA Novosti".
According to the parliamentarians, the biggest problem is that Russia
still sits on an oil needle. So state reforms are needed for the domestic
economy.
"Today we need to summon all the courage to declare the abolition
of the raw oil sales to world markets. We must start to turn out economy
in the direction of increasing the level of oil processing in domestic
petrochemical industry and lessening the priority of oil extraction
industries. Russia has repeatedly demonstrated that it can rise from
the ashes. The state needs reforms which reallocates currency reserves
to ensure this path of development of the domestic economy based on
the internal opportunities of economic development " says deputies'
request.
According to the parliamentarians, the immediate introduction of
such prohibition is impossible, because Russia has obligations to the
current trading partners.
Instead Deputies proposed to adopt a government program "Development
of the economy of the Russian Federation in the direction of reduction
of its dependence on raw oil sales".
"While we procrastinate and endure the slump of oil prices waiting
for the rise of oil prices, Russian economy deteriorates and Russian
state suffers too. Why do we recklessly waste our precious natural resources
depriving future generations? To be the world's gas fueling station
is not what Russia wants to be", they wrote.
"... Since his appointment, there has been a genuine effort in the field of PR. the goal is to create
for him an image of a politician of an international stature. He seeks to become the counterpart, if
not the equal of the great western powers. ..."
"... It is important to be opportunistic at this level and not to alienate the fringe wahhabi elements
of Saudi Arabia is of paramount importance. A little interaction with the West it OK, too much of interactions
with the West, this is detrimental to his image and his credibility. Therefore he tries to advance his
goal, while at the same time trying not to offend nobody. It is, after all, a dive of discovery in the
international political universe. ..."
"... Regardless of his background, he needs to prove that he matters, that he is a hardliner, that
he is a good minister of Defence, and that that he is anti-shiite, he is a man capable of confronting
Iran. At the same time, he needs to satisfy needs of Saudi population which is increasingly flocks to
jihadism. ..."
"... It is necessary to remove the ground under the feet of those who believe that the monarchy
has for too long been moderate, particularly during the reign of the former king Abdallah. It is this
desire to build his leadership, which leads to the direct confrontation with the shia, including such
political decisions as the execution of the leader of shiite Nimr al-Nimr, and the increased tension
with Iran. Finally, it also represents a reaction of the Saudi monarchy, which was disappointed by the
United States. He would like to stop normalization of Iranian-American relations, because in the event
of a confrontation with Iran, the Saudis would find themselves in a difficult position without 100%
US support. ..."
"... Prince Mohammed bin Salman tenure as the head of the armed forces can be characterized as a
failure. In Yemen, there has been a stalemate ..."
"... Moreover, where he was able to displaced the allies of Iran, the radicals from Al Qaeda and
DAESH took the control of those area. Iran became firmly positioned at the southern gateway to Saudi
Arabia. It is anything but a success. ..."
"... Nevertheless, he was applauded because he stood up and responded, tried to stop to Iran. He
responded to the Iran thereat, but has not managed to achieve his goals, which was expected of him.
However, in the eyes of the Saudis, a manly reaction that tha fact that has the the will to challenge
to the hegemony of Iran in the region was positive steps. ..."
"... In addition, Mohammed bin Salman has a revenge in mind: in 2009, the houthis crossed the Saudi
border, and despite the superiority of Saudis weaponry, the Saudi troops were able to repel that offence
only after 3 months of fighting which left 130 soldiers dead. ..."
"... It is perceived as dangerous because of the war, reckless and ineffective in Yemen as well
as its strategy of tension vis-à-vis Iran. Moreover, for the Germans, Iran is a huge market. They have
relied heavily on Iran in recent years, in the logical continuation of the long tradition of trade between
the two countries. Dont forget that it is a country that lives from exports, and that it is therefore
very important for the Germans to arrive at an agreement with Iran. Moreover, Germany is a country whose
strategy is intimately linked to that of the United States and totally dependent on NATO due to the
fact that it is forbidden to have an army of its own. Germany knows that if it was a direct confrontation
between Saudi Arabia and Iran, it would be required to be supportive of Saudi Arabia – regardless of
the efforts by Barack Obama to move closer to Iran. ..."
"... the strategy of the prince Mohammed Bin Salman is to push Iran to the fault in causing the
tensions that can go up to a risk of open warfare that would force the west to choose Saudi Arabia against
Iran ..."
"... The Prince Mohammed bin Salman is now the most powerful man in Saudi Arabia. It has exclusive
access to his father, King Salman, and effectivly he can rule the coutries inread of him. He is head
of his office, which means that nobody can contact or be received by the King without going through
the son ..."
"... Saudi Arabia is extremely disturbed by the detente with Iran on the international scene. We
are witnessing more or less a reversal of alliances, and of countries images in the eyes of the West.
A short time ago, Iran was demonized in the West. Today, it is accepted as a normal partner. Iran, therefore,
benefits from a relatively favorable treatment, while at the same time when the Arab monarchies, particularly
Saudi Arabia, are seen as retrograde, unable to provide for reforms and creating the flow of Islamic
radicals... The nature of Hezbollah, interference military and terrorists of Iran is currently forgotten.
..."
"... I think it will be very difficult to see any reapprochement with Iran in the coming months
as Saudi Arabia has two hardliners in the young rising generation of leaders. The heir and the vice-inherit
the Kingdom share the same radical line toward Iran. ..."
"... Moreover, Saudi Arabia pays very dear to his strategy of crushing oil prices, which makes it
less able to buy social peace than before. Therefore, there is an internal demand of radicalism, because
the discontent rumbles in the parts of the Saudi population fueled by the effects of the falling oil
prices. ..."
"... If one wanted to summaries, we could say that to buy a peace with Islamist Wahhabi radicals,
it is necessary to kill shia... besides, the Saudis have a genuine complex of encirclement by the Shiite
states. They try to counter it by creating an opposite ark of Sunni radicals. ..."
"... even if this does not lead to open warfare, the tension between Saudi Arabia and Iran is sustainable,
if only because this new generation of Saudis leaders is more combative. They differ from the former
kings who belonged to a generation that was distinguished rather by its search for a compromise and
some consensus. This is absolutely not the case for those two heirs of the throne. ..."
Atlantico : While today Saudi Arabia play the central role in the conflicts around the Middle
East which are worried the whole world. What do we know bout young chief of the armed forces of Saudi
Arabia ?
Antoine Basbous : His position is more precarious than the last year, and it looks like
he is trying to double cross his cousin crown prince.
He tries to use the advantage of the presence of his father on the throne to become a direct successor.
It is an assumption that is pretty crazy since theoretically, Mohammed bin Salman does
not belong to the chain of the succession because of his position in the family. In addition, it
is clearly lacking experience and legitimacy, compared to its brothers and cousins, but also to public
opinion.
He is someone of impulsive, short-tempered, as we already observed in the past. He behaves somewhat
like like his father when he was young. Previously, when he was less in the spotlight, he could afford
some mistakes. But since his appointment to the ministry of defense, he embodies the virile answer
of the kingdom to the set of challenges from Iran. Now, he certainly has placed contracts with firms
of communication that has allowed him to acquire the elements of language needed to smooth impression
about himself. They also help him to appear on major foreign media : recently, he appeared in the
journal The Economist. Since his appointment, there has been a genuine effort in the field of
PR. the goal is to create for him an image of a politician of an international stature. He seeks
to become the counterpart, if not the equal of the great western powers.
It is important to be opportunistic at this level and not to alienate the fringe wahhabi elements
of Saudi Arabia is of paramount importance. A little interaction with the West it OK, too much of
interactions with the West, this is detrimental to his image and his credibility. Therefore he tries
to advance his goal, while at the same time trying not to offend nobody. It is, after all, a dive
of discovery in the international political universe.
Inside, however, his authority comes from his status of the son to the King to whom his father
is listening a lot. In one year, it has greatly expanded its power. It controls not only the military,
budgets but also key sectors of the economy. It has separated the' ARAMCO (the biggest oil company
in the world) from the ministry of oil. This dramatically increases his economic power. In addition,
the minister of oil shall soon leave the position, and should be replaced by his half-brother. Mohammed
bin Salman leaves him a ministry deprived of any substance.
For his education, we know that he has studied the Law in Saudi Arabia, but has not, to my knowledge,
pursued follow-up studies in the West. Currently, he oversees the operations of the Coalition in
Yemen, together with his cousin prince Mohammed bin Nayef, the Interior minister and deputy crown
prince. So far, they are not in rivalry, on the contrary: as the minister of the Interior had no
sons, he might appoint Mohammed bin Salman to be a crown prince since their age gap is 21 years.
Moreover, the two men appear together on the front.
Alexander del Valle : Regardless of his background, he needs to prove that he matters,
that he is a hardliner, that he is a good minister of Defence, and that that he is anti-shiite, he
is a man capable of confronting Iran. At the same time, he needs to satisfy needs of Saudi population
which is increasingly flocks to jihadism. To consolidate its legitimacy, it is obliged to give
grain to grind to the islamists because a large part of the Saudi society is seduced by the dream
of Daech. It is also in a logic of competition with her uncle, who is the current heir of the thone,
as well as with the other princes. It is necessary to remove the ground under the feet of those
who believe that the monarchy has for too long been moderate, particularly during the reign of the
former king Abdallah. It is this desire to build his leadership, which leads to the direct confrontation
with the shia, including such political decisions as the execution of the leader of shiite Nimr al-Nimr,
and the increased tension with Iran. Finally, it also represents a reaction of the Saudi monarchy,
which was disappointed by the United States. He would like to stop normalization of Iranian-American
relations, because in the event of a confrontation with Iran, the Saudis would find themselves in
a difficult position without 100% US support.
Why his actions caused the concerns of the German intelligence services ? What assessment can
we make of year tenure at the head of the armed forces of Saudi Arabia ?
Antoine Basbous : It is important to understand the origins of this report. It is not excluded
that it comes from someone with an interest to harm the image of the Kingdom or of the Prince.
Prince Mohammed bin Salman tenure as the head of the armed forces can be characterized as a failure.
In Yemen, there has been a stalemate. The conflict began in April. We are in January. Nine months
later, despite the multiple bombardments, all of the money spent, the control of the Yemen government
from Ryad remains illusive... He has not managed to clean, to conquer and to install a protected
area. Moreover, where he was able to displaced the allies of Iran, the radicals from Al Qaeda
and DAESH took the control of those area. Iran became firmly positioned at the southern gateway to
Saudi Arabia. It is anything but a success.
Nevertheless, he was applauded because he stood up and responded, tried to stop to Iran. He
responded to the Iran thereat, but has not managed to achieve his goals, which was expected of him.
However, in the eyes of the Saudis, a "manly" reaction that tha fact that has the the will to challenge
to the hegemony of Iran in the region was positive steps. Iran has claimed control of four Arab
capitals. Hassan Rohani has announced the training of 200 000 militia in the five nations in their
neighborhood. A reaction of Saudi Arabia, in the light of these elements, is not unexpected or abnormal.
However, the latter has been slow to arrive and is not manifested in the most timely, the most intelligent
or the most effective.
However, this operation was his baptism of fire. Prior to the commencement thereof, the Prince
was suffering from a bad press. This conflict, it was his moment of truth so to speak. It should
be judged on its ability to generate a "surge" of military and diplomatic activities in the region,
so that Saudi Arabia free itself the control of the Us administration, and that the country acquires
a greater autonomy. The fact that Barack Obama has approved the nuclear deal with Iran has been perceived
as a lesson for the Turks and the Saudis. In addition, Mohammed bin Salman has a revenge in mind:
in 2009, the houthis crossed the Saudi border, and despite the superiority of Saudis weaponry, the
Saudi troops were able to repel that offence only after 3 months of fighting which left 130 soldiers
dead.
Alexander del Valle : It is perceived as dangerous because of the war, reckless and
ineffective in Yemen as well as its strategy of tension vis-à-vis Iran. Moreover, for the Germans,
Iran is a huge market. They have relied heavily on Iran in recent years, in the logical continuation
of the long tradition of trade between the two countries. Don't forget that it is a country that
lives from exports, and that it is therefore very important for the Germans to arrive at an agreement
with Iran. Moreover, Germany is a country whose strategy is intimately linked to that of the United
States and totally dependent on NATO due to the fact that it is forbidden to have an army of its
own. Germany knows that if it was a direct confrontation between Saudi Arabia and Iran, it would
be required to be supportive of Saudi Arabia – regardless of the efforts by Barack Obama to move
closer to Iran.
In fact, since the Covenant of Quincy, Saudi Arabia is bound by a close alliance with the United
States and through this with the western countries. Thus, the strategy of the prince Mohammed
Bin Salman is to push Iran to the fault in causing the tensions that can go up to a risk
of open warfare that would force the west to choose Saudi Arabia against Iran. This tactic is
based on the alliance of ultra-strategic-Pact of Quincy, which was renewed in 2006 by George W. Bush
and still valid today that fact that in any conflict, as soon as Saudi Arabia is struggling with
a rival in the region, the United States should support it. This looks like what Erdogan doing shoot
down a Russian plane. It was to prevent a warming of relations between the Russians and the Americans.
What are the limits of his influence in Saudi Arabia ? In what extent his role as the Minister
of Defence is decisive for his own future in the kingdom ?
Antoine Basbous :The Prince Mohammed bin Salman is now the most powerful man in Saudi
Arabia. It has exclusive access to his father, King Salman, and effectivly he can rule the coutries
inread of him. He is head of his office, which means that nobody can contact or be received by the
King without going through the son. He also can say to anyone inside as well as abroad, "This
is the will of the King". So he has phenomenal power, and does not suffer from the luch of desire
to exercise it. As to whether his role as Defence minister, is decisive for his own future, it is
obvious. If he succeeds in this position and it shows the virility of the military success, this
can strengthen its position. On the other hand, if this gets stuck into yeme war quadmire, if the
failures multiply, it is not excluded that this will ruin completely his chances of succeeding his
father. In a situation like this, He might well became a falling star. It is vital that he achive
a good results in the war on the ground, although in a majority of arab countries, the people is
not necessarily looking very attentively at the quality of governance.
What is the analysis of personality of this key figure and the balance sheet of his first year as
the Defense minister can say about the position of Saudi Arabia on the international scene in the
comong months ? What will be developments in the relations of Saudis and Iran ?
Antoine Basbous
:Saudi Arabia is extremely disturbed by the detente with Iran on the international scene.
We are witnessing more or less a reversal of alliances, and of countries images in the eyes of the
West. A short time ago, Iran was demonized in the West. Today, it is accepted as a normal partner.
Iran, therefore, benefits from a relatively favorable treatment, while at the same time when the
Arab monarchies, particularly Saudi Arabia, are seen as retrograde, unable to provide for reforms
and creating the flow of Islamic radicals... The nature of Hezbollah, interference military and terrorists
of Iran is currently forgotten.
Mohammed bin Salman is still an "emerging" politician, politician in the course of "on the job"
training. But despite of that he is exercising functions that are extremely strategic, and he must
demonstrate whether he can adapt to situations to which the country is facing.
Alexander del Valle : I think it will be very difficult to see any reapprochement with
Iran in the coming months as Saudi Arabia has two "hardliners" in the young rising generation of
leaders. The heir and the vice-inherit the Kingdom share the same radical line toward Iran.
Moreover, Saudi Arabia pays very dear to his strategy of crushing oil prices, which makes
it less able to buy social peace than before. Therefore, there is an internal demand of radicalism,
because the discontent rumbles in the parts of the Saudi population fueled by the effects of the
falling oil prices. An increase of sympathy for jihadism can be felt with those segments of
the population. So even if the prince Mohammed bin Salman and prince Mohammed ben Nayef – heir to
the throne and minister of the Interior - were moderate, they would be obliged to give pledges to
their people, who account for more of the "appeasers of Shiites". If one wanted to summaries,
we could say that to buy a peace with Islamist Wahhabi radicals, it is necessary to kill shia...
besides, the Saudis have a genuine complex of encirclement by the Shiite states. They try to counter
it by creating an opposite ark of Sunni radicals.
I thus do not see how there could be a rapprochement with Iran. Or it can be only via the pressure
of the United States, as was the case between Greece and Turkey in the past. Therefore, even
if this does not lead to open warfare, the tension between Saudi Arabia and Iran is sustainable,
if only because this new generation of Saudis leaders is more combative. They differ from the former
kings who belonged to a generation that was distinguished rather by its search for a compromise and
some consensus. This is absolutely not the case for those two heirs of the throne.
This is not an end of oil price slum, but we might well be close to inflection point.
Notable quotes:
"... Well here is the thing about what has happened with oil production and where is it going. A year ago I have said when we saw the first glimpse of production stall that for low oil prices the best cure is low oil prices. It took a year to confirm that and sometimes it is like watching the paint dry but numbers are finally confirming that. NA production is the first one to show decrease in oil production since oil crash started. ..."
"... Shale Play: Bakken is fallen 13% from December of 2014, EF was steeper, 28% from high March 2015. ..."
"... Oil Sand/Deep water: These high-cost, low-decline projects are all cancelled meaning that in their absence decline rates are going to increase. ..."
"... Russias producers had a silver lining of comparatively lower cost of production and currency exchange rate that helped them show a paper profit but hard to see how with $33 Brent there would be any significant increase in production in the near future. ..."
"... North Dakota Active Drilling Rig List at 40 including one stacking … 137 one year ago (-71%) ..."
Well here is the thing about what has happened with oil production and where is it going.
A year ago I have said when we saw the first glimpse of production stall that for low oil prices
the best cure is low oil prices. It took a year to confirm that and sometimes it is like watching
the paint dry but numbers are finally confirming that. NA production is the first one to show
decrease in oil production since oil crash started.
Shale Play: Bakken is fallen 13% from December of 2014, EF was steeper, 28% from high March
2015. Total production from the seven shale plays is down 10% since September 2014. With
the number of active rigs there is only one way for oil production to go in the near future and
it is down.
Oil Sand/Deep water: These high-cost, low-decline projects are all cancelled meaning that
in their absence decline rates are going to increase.
The rest of the world is little bit harder to determine since I don't follow very closely.
Except few general observations that North Sea production is between rock and hard place. High
cost production considering $30-33 Brent and high cost of decommissioning so take your poison
pill wisely. Russia's producers had a silver lining of comparatively lower cost of production
and currency exchange rate that helped them show a paper profit but hard to see how with $33 Brent
there would be any significant increase in production in the near future.
OPEC – well Opec got fragmented if not totally disintegrated in 2 blocks: Sunni and
Shiite + Latino block so any talk about OPEC speaking with one voice is misplaced. So as result
every OPEC member produces as much as they can in order to keep head above water.
Iran signed an agreement to supply crude oil with Hellenic Petroleum SA,
a Greek oil refinery, in what may be the Persian Gulf producer's first such
deal with a European company since the removal of international sanctions this
month.
Deliveries will begin immediately, Hellenic Petroleum said in an e-mailed
statement on Friday. The agreement also includes an adjustment for a financial
backlog owed to Iran's state oil company after sanctions imposed four years
ago, according to the statement. Iran's Deputy Oil Minister Amir Hossein Zamaninia
discussed potential energy co-operation with Greek Energy Minister Panos Skourletis
earlier on Friday in Athens.
The oil market is bracing itself for a ramp up in supplies from Iran amid
a global supply glut that pushed prices down to a 12-year low. Oil analysts
surveyed by Bloomberg anticipate the nation will ship 100,000 barrels a day
more crude within a month of sanctions ending, and four times that within half
a year. Iran says it will boost exports by 500,000 barrels a day right away.
Europe had been Iran's second-biggest oil customer before sanctions were
introduced, purchasing nearly 600,000 barrels a day from the Middle East nation
in 2011, according to the U.S. Energy Information Administration. Greece was
one of the biggest European importers, buying about 120,000 barrels a day in
2011, data from the International Energy Agency shows.
The return of Iranian oil could send prices even lower, as it fills in the
gap left by the decline in U.S. shale production, the IEA warned on Jan. 19.
Flows of Iranian crude to Europe may displace similar grades sold by Russia
and Iraq, which may in turn be diverted to the U.S., Citigroup Inc. predicts.
European oil companies such as Royal Dutch Shell Plc, Eni SpA and Total SA
have said they're interested in returning to Iran to develop its oil reserves,
which are the fourth-biggest in the world.
"... Deals signed just over a week ago when Iranian President Hassan Rouhani
met his French counterpart, Francois Hollande, in Paris included some 20 agreements
and a $25-billion accord under which Iran will purchase 73 long-haul and 45 medium-haul
Airbus passenger planes to update its ageing fleet. Carmaker Peugeot-which was forced
to pull out of Iran in 2012--also agreed to return to the Iranian market in a five-year
deal worth $436 million. ..."
"... In the reverse flow of the new deal, Total has agreed to buy between 150,000
and 200,000 barrels of Iranian crude a day, with company officials also noting that
Total would be looking at other opportunities as well in oil, gas, petrochemicals
and marketing. ..."
"... According to Iranian media , Total will start importing 160,000 barrels
per day in line with a contract that takes effect already on 16 February. ..."
"... Total will likely want back in on this project, and buying Iranian oil
surely helps. And Iran, likewise, is eagerly seeking out European markets, with
the Iranian Oil Ministry now saying that it's crude oil sales to Europe have exceeded
300,000 barrels per day , counting the Total deal. ..."
"... Iran has recently signed oil contracts not only with French Total, but
also with Russian Lukoil's trading arm, Litasco, and Spanish refiner Cepsa. The
Ministry says that Italian oil giant Eni is interested in buying 100,000 bpd from
Iran, and that such a contract will be discussed soon in Tehran. ..."
"... Iran is seeking to bill its new crude oil sales in euros in order to reduce
dependence on the U.S. dollar, the news agency reported, citing an anonymous NIOC
source. ..."
"... Washington is not going to appreciate this additional threat to the petro
dollar . This would add Iran to the growing list of countries that, over the past
few years, have begun to pose a challenge to the current system by forming pacts
to transact oil in local currencies. ..."
As Airbus and Peugeot finally return to post-sanctions Iran, the trade-off
is Iranian oil, with French Total SA taking the plunge in an agreement to buy
up to 200,000 barrels per day of Iranian crude--but the catch is that
sales will be in euros.
Deals signed just over a week ago when Iranian President Hassan Rouhani
met his French counterpart, Francois Hollande, in Paris included some
20 agreements and a $25-billion accord under which Iran will purchase 73
long-haul and 45 medium-haul Airbus passenger planes to update its ageing fleet.
Carmaker Peugeot-which was forced to pull out of Iran in 2012--also agreed to
return to the Iranian market in a five-year deal worth $436 million.
In the reverse flow of the new deal, Total has agreed to buy between
150,000 and 200,000 barrels of Iranian crude a day, with company officials also
noting that Total would be looking at other opportunities as well in oil, gas,
petrochemicals and marketing.
According to Iranian media, Total will start importing 160,000 barrels
per day in line with a contract that takes effect already on 16 February.
Total never really left Iran, though. While it
stopped all oil exploration and production activities there in 2010, making
it one of the last to withdraw, it still maintained an office there.
Since 1990, Total has been a key investor in Iranian energy, playing a role
in the development of Iran's Sirri A&E oil and South Pars gas projects. Sanctions
also halted its planned involvement in the LNG project linked to Iran's South
Pars Phase 11.
But Total's work in Iran hasn't been without its problems-even without sanctions.
In May 2013, Total agreed to pay
$398.2 million to settle U.S. criminal and civil allegations that it
paid bribes to win oil and gas contracts in Iran. U.S. authorities claimed
that between 1995 and 2004, Total paid about $60 million in bribes to an Iranian
government official to win lucrative development rights in three South Pars
project oil and gas fields. While French prosecutors had recommended that Total
and its then-CEO, Christophe de Margerie, be tried on these charges,
De Margerie's premature death in a Moscow plane crash put paid to that and
the case was discontinued.
At stake here is Iran's prized South Pars, which holds some 14 trillion cubic
meters of natural gas and 18 billion barrels of gas condensates. Or in other
words, 7.5 percent of the world's natural gas and half of Iran's total reserves.
And
Phase 11 of this project is what the supermajors are eyeing. Total was dismissed
from Phase 11 in 2009 and its portion of the project was awarded to China National
Petroleum Corporation (CNPC), which then pulled out in 2012 under the bite of
sanctions.
In September 2015, the National Iranian Oil Company (NIOC) transferred the
uncompleted portions of Phase 11 to Iranian companies.
Total will likely want back in on this project, and buying Iranian oil
surely helps.And Iran, likewise, is eagerly seeking out European markets, with
the Iranian Oil Ministry now saying that it's crude oil sales to Europe
have exceeded 300,000 barrels per day, counting the Total deal.
Iran has recently signed oil contracts not only with French Total, but
also with Russian Lukoil's trading arm, Litasco, and Spanish refiner Cepsa.
The Ministry says that Italian oil giant Eni is interested in
buying 100,000 bpd from Iran, and that such a contract will be discussed
soon in Tehran.
But there is a catch,
as reported by Reuters. Iran is seeking to bill its new crude oil sales
in euros in order to reduce dependence on the U.S. dollar, the news agency reported,
citing an anonymous NIOC source.
Washington is not going to appreciate this additional
threat to the petro dollar. This would add Iran to the growing list of countries
that, over the past few years, have begun to pose a
challenge to the current system by forming pacts to transact oil in local
currencies.
Three offshore workers died in a fire outbreak that struck an
offshore platform operated by the Mexican oil company Pemex
on Sunday.
According to Pemex, two deceased workers were
Pemex employees, one of which died in a hospital, while the
third worked for Cotemar. Nine workers, including the one who
died at the hospital, were injured in the incident.
The accident happened aboard the Abkatun A platform in the
Campeche Bay. According to Pemex, the fire is under control.
Pemex further said that there was no need to evacuate the
Abkatun A, as the fire was already isolated.
This is not the first time the Abkatun platform has been
involved in a fatal accident. In April 2015, at least four
workers died when a fire hit the platform, causing a
substantial damage.
What is more, the news of the latest accident comes only
two weeks after Pemex evacuated workers from its Zaap E
production platform in the Gulf of Mexico due to a fire
outbreak on Friday. No injuries were reported during the
incident.
"... Venezuelas oil minister Eulogio Del Pino, who was on a tour of oil producers to lobby for action to prop up prices, said his meeting with Naimi was productive. ..."
NEW YORK (Reuters) - Oil prices were down 2 percent on Monday
as supply overhang concerns grew after a Saudi-Venezuela meeting at the weekend showed few signs
of coordination to boost prices.
No tangible signs emerged from a meeting on Sunday between
Saudi Arabia's oil minister Ali al-Naimi and his Venezuelan counterpart that OPEC and non-OPEC suppliers
were ready to meet to discuss the price slump.
After a flurry of diplomacy over the last two weeks about
a possible production cut roiled oil markets, Sunday's meeting between cash-strapped Venezuela and
the kingpin of the Organization of the Petroleum Exporting Countries was seen as "make or break"
for a possible deal to boost prices that have slumped 70 percent since mid-2014.
Venezuela's oil minister Eulogio Del Pino, who was on a tour
of oil producers to lobby for action to prop up prices, said his meeting with Naimi was "productive."
"But does 'productive' mean less production? The market thinks
not, at least right now," said Phil Flynn, an analyst at Price Futures Group in Chicago.
Note that total product supplied for 2015, 19.5 million bpd, was up by a million bpd from 2012
and it was the highest since 2008 (also 19.5 million bpd).
Annual total liquids net imports were down year over year, from 2014 to 2015, but monthly total
liquids net imports were up from 4.5 million bpd in 12/14 to 5.1 million bpd in 12/15 (as we saw
a 100 million barrel increase in US C+C inventories).
US net crude oil imports rose from 6.9 million bpd at the end of 2014 (four week running average
data) to 7.3 million bpd at the end of 12/15.
Here's a link to the most recent four week running average Weekly Supply Data (ending 1/29/16):
Based on the four week running average weekly data (through end of January, 2016), total product
supplied was up to 19.7 million bpd, and the pattern of increasing net imports continued. Net
crude oil imports were up to 7.5 million bpd, and total liquids net imports were up to 5.7 million
bpd.
In other words, it would appear that the US is becoming increasingly dependent on imported
oil, especially imports of actual crude oil, as total product supplied last year was at a seven
year high.
As I have occasionally opined, I suspect that US refiners (and perhaps global refiners too)
in late 2014 hit the upper limit of how much additional condensate that they could process, if
they wanted to maintain their output of distillates and of heavier products.
And I suspect that much, if not all, of the build in US and global C+C inventories in 2015
consisted of condensate. Therefore, IMO, oil traders are acting on fundamentally flawed data when
it comes to the inventories of the product that actually corresponds to the price indexes, i.e.,
WTI and Brent crude oil.
"... while historically OPEC exercised a rational production strategy, as of the 2014 OPEC Thanksgiving
massacre, there is no more OPEC, as can be seen by the relentless attempts by roughly half the members
to call an OPEC meeting unsuccessfully, confirming what we said in late 2014 - OPEC no longer exists,
which means it is every oil producer for themselves. ..."
Whether it's $50 or $70 by the end of 2016 will largely be determined by the global economy, he added,
reiterating the same flawed thesis he used to justify his bullishness a year ago: "We're still building
inventories, and we will for the next several months. And then we'll start to draw," Pickens said.
"Once you start to draw, you're not going to start back building again. The draw will come here in
the next few months. It'll become pretty clear."
He was wrong then, and he will be wrong this time
again for the simple fact that while historically OPEC exercised a rational production strategy,
as of the 2014 OPEC Thanksgiving massacre, there is no more OPEC, as can be seen by the relentless
attempts by roughly half the members to call an OPEC meeting unsuccessfully, confirming what we said
in late 2014 - OPEC no longer exists, which means it is every oil producer for themselves.
Putting T Boone's forecasts in context, in a CNBC commentary in October, Pickens conceded his
prediction for $70 oil by the end of 2015 wasn't going to happen, because worldwide demand did not
go up as much as he thought and supply did not markedly go down. Oil closed the year at $37: his
prediction was off by 50%.
By Nick Cunningham is definitely short-sider. It is clear from the way he interprets
the data. For example 100 Mb/d the he sites does not include natural depletion which is more strong
source to diminishing volume when capex is cut to the bones. Also it is unclear what Wood Mackenzie
means by "cash negative' and how "break even" price was calculated. If it is just lifting price it should
be doubles to get more realistic estimate of break even". Without understand of components of
prices Wood Mackenzie uses this is pure propaganda.
Worldwide, oil companies delayed making decisions on 68 major projects in 2015, accounting for around
27 billion barrels of oil and equivalent natural gas spending. All told, the industry deferred spending
$380 billion last year, energy consultancy Wood Mackenzie
found in a
January report.
Notable quotes:
"... We expect significant cuts in upstream production as the companies cut output at loss-making fields, ..."
"... In the U.S., there are signs of adjustment as well, although very slowly. Continental Resources gutted its spending program for 2016, reducing capex by 66 percent. That will translate in a dip in production. ..."
"... Overall, the EIA expects U.S. production to fall by 700,000 barrels per day by the end of 2016 to 8.5 mb/d, or more than 1 mb/d below the 2015 peak. ..."
"... A new report from Wood Mackenzie finds that 3.4 mb/d of oil production is cash negative at todays prices, equivalent to about 3.5 percent of global production. But shutting down has its own costs, and could make restarting more difficult and expensive. For some oil fields, shutting down could cause permanent damage to reservoirs ..."
"... there are significant volumes underwater. Wood Mackenzie says that the 2.2 mb/d of expensive oil sands in Canada are in the red. Venezuela is also sitting on 230,000 barrels per day of heavy oil is being produced at a loss. Offshore in the North Sea is another high-cost area, and there is about 220,000 barrels per day of "cash negative" production there. Nevertheless, instead of shutting down, most companies producing at a loss – even at a loss! – will continue to produce, and divert their production into storage rather than suffer the costs of shutting down. ..."
"... That, of course, will mean that it will take much longer than expected for oil prices to rebound, which will only occur when demand rises and soaks up the excess supply and/or natural depletion saps global production. Maintenance or mechanical problems could knock some output offline as well. But the whole process will take still more time. ..."
"... Morgan Stanley cut its estimated oil price for 2016. The bank now expects oil prices to continue falling through the year instead of rebounding in the second half. The investment bank expects Brent to average $29 per barrel in the fourth quarter, rather than its previous estimate of $59 per barrel issued just last month. ..."
"We expect significant cuts in upstream production as the companies cut output at loss-making
fields," Neil Beveridge, an analyst at Sanford C. Bernstein & Co, told Bloomberg in an
interview. "Chinese explorers need to take more radical action to cut operating costs and increase
efficiency." China's Cnooc, one of its main oil producers, probably has a breakeven price near $41
per barrel. The company says that it will spend less and produce less in 2016.
In the U.S.,
there are signs of adjustment as well, although very slowly. Continental Resources
gutted its spending program for 2016, reducing capex by 66 percent. That will translate in a
dip in production. Output will fall steadily over the course of the year, and the company expects
to close out the fourth quarter with production of 180,000 to 190,000 barrels of oil equivalent per
day, which could be 10 to 15 percent below its 2015 average. Continental Resources might be
illustrative of the ravages of low oil prices, since it had much less of its output hedged at
higher prices over the past year after liquidating a lot of its hedged positions in 2014. As such,
many more companies could begin suffering the same misfortune of lower production as their hedges
roll off.
Overall, the EIA expects U.S. production to fall by 700,000 barrels per day by the end of
2016 to 8.5 mb/d, or more than 1 mb/d below the 2015 peak.
However, the oil markets are still suffering terribly because of the ongoing glut. Much of that
can be pinned on the fact that oil producers are reluctant to shut in production, even if they are
losing money on every barrel sold. A new report from Wood Mackenzie finds that 3.4 mb/d of oil
production is "cash negative" at today's prices, equivalent to about 3.5 percent of global production.
But shutting down has its own costs, and could make restarting more difficult and expensive. For
some oil fields, shutting down could cause permanent damage to reservoirs
... .... ...
That means many companies have every incentive to keep as much production online as possible, even
if it ends up being a net-loss. "Given the cost of restarting production, many producers will continue
to take the loss in the hope of a rebound in prices," Robert Plummer, VP of investment research at
Wood Mackenzie said, according to
Reuters. "Curtailed
budgets have slowed investment which will reduce future volumes, but there is little evidence of
production shut-ins for economic reasons."
Wood Mackenzie came up with a pretty shocking figure that will make the hearts of every oil bull
sink: only 100,000 barrels per day of global production – out of total global output of 96.1 mb/d
– has actually been shut in so far (output declining because of natural depletion is a separate thing.
This refers to production intentionally shut down because of economic reasons).
It is an unbelievable statistic, given today's prices, and it demonstrates the difficulty that
the oil markets will have in finding some sort of equilibrium.
Still, there are significant volumes underwater. Wood Mackenzie says that the 2.2 mb/d of
expensive oil sands in Canada are in the red. Venezuela is also sitting on 230,000 barrels per day
of heavy oil is being produced at a loss. Offshore in the North Sea is another high-cost area, and
there is about 220,000 barrels per day of "cash negative" production there. Nevertheless, instead
of shutting down, most companies producing at a loss – even at a loss! – will continue to produce,
and divert their production into storage rather than suffer the costs of shutting down.
That, of course, will mean that it will take much longer than expected for oil prices to rebound,
which will only occur when demand rises and soaks up the excess supply and/or natural depletion saps
global production. Maintenance or mechanical problems could knock some output offline as well. But
the whole process will take still more time.
In a dramatic move, Morgan Stanley
cut its estimated oil price for 2016. The bank now expects oil prices to continue falling through
the year instead of rebounding in the second half. The investment bank expects Brent to average $29
per barrel in the fourth quarter, rather than its previous estimate of $59 per barrel issued just
last month.
Then again, what if OPEC and Russia meet in February to coordinate production cuts? It still seems
unlikely, but unless that happens, oil prices may not stage a rally this year.
Pretty interesting interview Jan Stuart, despite that fact that it was on Bloomberg... he
conveniently ignore the destructive role of Wall Street in amplifying oil price move, but other then
that it was a good interview. Good point is that futures curve is even more wrong then
economists. But due to futures curve that exist now a lot of people will lose their jobs,
despite the fact that it predict that production of oil will continue at any price. It is
essentially predict that demand will not go up and oil will ever be produced at low costs. Both
those postulates are wrong and we already know that situation is not sustainable. Unless china
has hard landing demand will go up. Slow supply response in the very last month. When you look
back at 2015 its is clear people overspend by very significant amount which was very start or not so
smart, Some people though we are almost done with price slide. That are now for rude awakening.
that also means that at the end of the year or somewhere in 2017 price can well be higher then $65
"... It could be that KSA production is about to fall off a cliff, so to speak. It's hard to know what to think but given KSA's strange, and perhaps desperate, geopolitical and geoeconomics maneuvers as of late it seems likely that something is afoot. They've been playing a lot of silly little games the last 18 months or so. It causes me great suspicion. ..."
I found this old article when I was reminiscing and google searching some old stories about wikileaks
and KSA's overstated oil reserves. I believe the wikileaks cable mentioned KSA overstated oil
reserves by 300 billion barrels. I believe KSA is now owning to having less less than 300 billion
barrels in proven oil reserves these days.
It could be that KSA production is about to fall off a cliff, so to speak. It's hard to know
what to think but given KSA's strange, and perhaps desperate, geopolitical and geoeconomics maneuvers
as of late it seems likely that something is afoot. They've been playing a lot of silly little
games the last 18 months or so. It causes me great suspicion.
1. We are not going to produce oil for which
we have no orders. That verbiage was from them at $110/b.
Think carefully about that today, because it has to still be true.
2. We are not going to lose market share.
To whom? They have said they don't compete with shale. They don't. They don't produce light
oil. They don't sell to the same refineries. So how would they lose market share? By having a
producer of their weight/type oil undercut their price. They have to match a competitor price.
If Urals gets priced at $30/b then so must theirs, regardless of who asked for how much.
(Giving rise again to that sticky question of who is placing orders for oil they can't sell
or burn)
"... the global oil market is not a market like those for smartphones, automobiles or ladies purses. The global oil ( gas) market is a STRATEGIC one. Which goes on to say that the core states, such as first of all, North America, then NW Europe get to have the first and final say. ..."
"... This problem is compounded by the fact that high oil prices enable geo-strategic rivals such as Russia/Iran/Iraq/Venezuela to be more defiant than they would otherwise be. ..."
"... The oil rich countries that are directly controlled by the US co (the US Empire) also known as GCC, follow an oil production policy that largely suits the core states themselves, depending on the situation and their ability to affect the global market. ..."
"... As North America was a massive oil importer circa 2009 (Canada cannot be seen in isolation, but as appendix to the US) this increased oil production went a lot way in: a)boosting economic growth (North America has easily outpaced other advanced economies since the Lehman crisis) b) Minimize the US trade deficit and therefore: c) Boosting the value of the US dollar. ..."
"... Countries outside of the US, Canada (to a lesser extent UK, Norway ) that are major oil producers, need to accrue massive profits from their oil sales, since they universally divert most of those funds into financing the government, the military and social spending, while they must also keep some for re-investments into their oil sectors. US Canada are uber-happy if they can more or less break-even. ..."
Could this have been due to the special place US has in the hierarchy.
When camels are thirsty
they are chewing thistle to relieve their thirst, but the thistle is dry, so in fact their own
blood relieve their thirst.
Dogs chew old bones but there is nothing in them, but pieces of splited bone pierce their mouth
ceiling and fresh blood makes them think there is food in there.
This is what US has done f.ed the little economic moment it still had because is the forefront
of the empire, he is going for the fresh blood of shale.
As I have repeatedly stated on this blog, the global oil market is not a market like those
for smartphones, automobiles or ladies purses. The global oil (& gas) market is a STRATEGIC one.
Which goes on to say that the core states, such as first of all, North America, then NW Europe
get to have the first and final say.
The problem for the US, Canada, Norway and the UK (the only wealthy countries producing large
quantities of oil) is that their oil reserves are extremely marginal and can only be accessed
with high oil prices (in the long-run) This problem is compounded by the fact that high oil
prices enable geo-strategic rivals such as Russia/Iran/Iraq/Venezuela to be more defiant than
they would otherwise be.
The oil rich countries that are directly controlled by the US & co (the US Empire) also
known as GCC, follow an oil production policy that largely suits the core states themselves, depending
on the situation and their ability to affect the global market.
In my view, this is what preceded the recent oil market collapse:
NATO-GCC to Russia in 2011/12: "Give up Assad, or we'll fill our media with BS stories
about you. We will also 'encourage' our corporations to not invest in your country"
Russia to NATO-GCC: "You have been doing that for ages, who cares for even more propaganda.
Assad stays"
NATO-GCC to Russia in 2013/14: "Give up Assad, or we will turn Ukraine against you, there
will be serious trouble for you, as now we will make our economic warfare against you, official.
Moreover, our 'regime-change' efforts will intensify"
Russia replies to NATO-GCC: "Bring it on, Assad stays"
NATO-GCC to Russia in 2014: "We will pummel the oil price into oblivion*, we promise that
you will feel the strain, just give up on Assad or we will destroy you"
Russia replies to NATO-GCC: "I have seen worse. Assad stays"
*Notice that NATO-GCC did not use the oil-price weapon until one of two things happened:
a) Time-pressure on regime-changing-Syria became serious.
b) The shale and tar sands infrastructure had been already put in place under high oil prices.
But back to Ron's core (and largely correct) claim that the global oil production gains of
recent years have been a North American phenomenon (I would also add Iraq)
North America has been able to ramp-up production spectacularly in recent years because of
the following reasons:
a) It's capital rich. Instead of diverting all of that QE-enabled loans to the parasitic "housing
market" and lots of inane Silicon Valley start-ups (that fail 99 times of 100) it was wiser to
have some dough flow into the "shale oil & gas miracle" as well as Alberta's vast tar sands deposits.
Which made both economic as well as strategic sense.
b) As North America was a massive oil importer circa 2009 (Canada cannot be seen in isolation,
but as appendix to the US) this increased oil production went a lot way in: a)boosting economic
growth (North America has easily outpaced other advanced economies since the Lehman crisis) b)
Minimize the US trade deficit and therefore: c) Boosting the value of the US dollar.
As I have noted many times before on this blog, some (maybe several) countries around the world
have massive oil reserves that are far more prolific than those currently being exploited in North
America. But these countries, do not enjoy neither the political/military clout over the GCC,
nor remotely the financial capital to engage in such massive (and risky) investments.
Countries outside of the US, Canada (to a lesser extent UK, Norway ) that are major oil
producers, need to accrue massive profits from their oil sales, since they universally divert
most of those funds into financing the government, the military and social spending, while they
must also keep some for re-investments into their oil sectors. US & Canada are uber-happy if they
can more or less break-even.
But the peak-oil-environmental bias of many, does not allow them to see this.
Your strategic analyses are very interesting Stavros, and fit many of the things we all know are
true. However I have a problem with the "We will pummel the oil price into oblivion" part.
The available evidence is that the price of oil followed very closely the supply/demand ratio.
The chart below is from Dr. Ed's blog.
I am always skeptical of interpretations that are not supported by evidence. There are multiple
theories about who caused the oil price to go down and why. I rather stick with the data, it is
not a PO bias but quite the opposite. A supply/demand mismatch caused it and nobody wanted to
cut production unilaterally.
The oil rich countries that are directly controlled by the US & co (the US Empire) also
known as GCC, The oil rich countries that are directly controlled by the US & co (the US Empire)
also known as GCC, follow an oil production policy that largely suits the core states themselves,
depending on the situation and their ability to affect the global market.
That statement makes no sense whatsoever. Just who is/are "US & Co"? Would that be Obama? Or
perhaps the US Congress? Or perhaps the US Oil Companies? Then in the second half of that long
sentence, you completely contradict the first half of the sentence. You say: follow an oil
production policy that largely suits the core states themselves," Now which is it? Are they
controlled by US & co, or are do they pay no attention to whomever in the US that is doing the
controlling and follow a policy that simply suits themselves?
I would definitely agree with the second half of your sentence, the GCC states do exactly what
they damn well please. And I would definitely disagree with the first half of your sentence. They
would pay no attention to any US politician or businessman that might call them up and try to
tell them what to do.
But back to Ron's core (and largely correct) claim that the global oil production gains
of recent years have been a North American phenomenon (I would also add Iraq).
Well no, that's not what I said. Yes, recent oil production gains have been from US, Canada,
Iraq and Saudi Arabia. But what I said was:
The recent surge in world production that was brought about by high prices…
The recent gains in Iraq and Saudi Arabia were after the price already started to fall. Those
gains were not brought about by high prices. They were despite a steep decline in prices.
That statement makes no sense whatsoever. Just who is/are "US & Co"?
"US and Co" is essentially a codename for NATO. It is ruled by international financial elite
(Davos crowd) which BTW consider the USA (and, by extension, NATO) as an enforcer, a tool for
getting what they want, much like Bolsheviks considered Soviet Russia to be such a tool.
The last thing they are concerned is the well-being of American people.
LAGOS, Nigeria - The Nigerian National Petroleum Corp. says it lost 267 billion naira ($1.3
billion) in 2015, even as it tried to pump more oil to counter slashed world prices. The
corporation's monthly report posted at its website Thursday shows the biggest losses recorded at
its headquarters, by three refineries and a subsidiary that sources and distributes refined
products. ...
"... Some of you may recall the Economist Magazine cover story, published in early 1999, which predicted–because of advances in technology and productivity gains (sound familiar?)–that we were looking at an extended long term period with oil prices in the $5 to $10 range. ..."
"... In any case, here is an excerpt from the March, 1999 Economist Magazine cover story on oil prices: ..."
"... Here is a thought: $10 might actually be too optimistic. We may be heading for $5. Thanks to new technology and productivity gains, you might expect the price of oil, like that of most other commodities, to fall slowly over the years. Judging by the oil market in the pre-OPEC era, a "normal" market price might now be in the $5-10 range. Factor in the current slow growth of the world economy and the normal price drops to the bottom of that range. ..."
"... I think that I have made a strong case that the trillions of dollars spent on upstream global oil & gas capex since 2005 have only been sufficient to keep us on an undulating plateau in actual global crude oil production (45 API Gravity and lower crude oil), and because of the large and ongoing declines in global upstream capex, even the Wall Street Journal is expressing concerns about a future oil price spike, as supply falls. ..."
"... The Cornucopian Crowd, which is basically making the same argument as the Economist Magazine writer in 1999, is arguing that advances in technology have indefinitely postponed any kind of production peak to the distant future. ..."
"... In my opinion, the reality is that global crude oil production has probably effectively peaked, while global natural gas production and associated liquids (condensate and natural gas liquids) have so far continued to increase. ..."
"... Furthermore, I suspect that all, or virtually all, of the large build in US (and probably global) Crude + Condensate (C+C) inventories in 2015 consists of condensate, and therefore oil traders are trading on fundamentally flawed data when it comes to the inventories of the product that actually correspond to the index prices. ..."
"... In the case of WTI (light/sweet) crude oil contracts, the maximum API gravity is 42, and recent EIA data suggest that about 40% of US Lower 48 C+C production in 2015 exceeded the maximum API limit for WTI crude oil, i.e., 42 API Gravity. ..."
"... Last year, Reuters ran a story about US refiners increasingly rejecting "foul" blends of heavy crude and condensate that technically fell below the upper API limit for WTI crude oil, but that were deficient in distillate content. ..."
"... In my opinion, these two items, i.e., the estimate that about 40% of US Lower 48 C+C production exceeded the maximum API Gravity limit for WTI crude oil in 2015 and case histories of US refiners increasingly rejecting blends of heavy crude and condensate, go a long way toward explaining why US refiners increased their net oil imports (from 12/14 to 12/15) as we saw 100 million barrel build in US C+C inventories from late 2014 to late 2015. ..."
"... Furthermore, Iranian sources claim that the majority of their floating storage consists of condensate, which they were permitted to export under the sanctions. This of course suggests that we might be seeing both a US and a global oversupply of condensate–but not necessarily of actual crude oil (less than 45 API gravity crude oil). ..."
Of course, the big production decline will come from investments not made. However, as I have
once, or twice, or thrice noted, it seems very likely that despite trillions of dollars in upstream
(oil & gas) global capex since 2005, we have seen little or no increase in actual global crude
oil production (45 API and lower crude).
An except from a memo I'm preparing for some industry guys:
Perpetually Low Oil Prices Versus The Laws of Physics
Some of you may recall the Economist Magazine cover story, published in early 1999, which
predicted–because of advances in technology and productivity gains (sound familiar?)–that we
were looking at an extended long term period with oil prices in the $5 to $10 range.
While I suppose it's possible that this time the conventional wisdom is right, i.e., that
we are looking at perpetually low oil prices, my bet is that the laws of physics will prevail,
especially in regard to the high, and rising, rates of decline in existing US oil & gas production.
In any case, here is an excerpt from the March, 1999 Economist Magazine cover story on oil
prices:
Here is a thought: $10 might actually be too optimistic. We may be heading for $5. Thanks
to new technology and productivity gains, you might expect the price of oil, like that of
most other commodities, to fall slowly over the years. Judging by the oil market in the
pre-OPEC era, a "normal" market price might now be in the $5-10 range. Factor in the current
slow growth of the world economy and the normal price drops to the bottom of that range.
Enclosed is a chart* showing constant dollar monthly WTI Crude oil prices, in 2016 dollars.
Note that the March, 1999 Economist Magazine article corresponded pretty much to the all time
record low constant dollar oil price for the past 40 years.
I think that I have made a strong case that the trillions of dollars spent on upstream global
oil & gas capex since 2005 have only been sufficient to keep us on an undulating plateau in
actual global crude oil production (45 API Gravity and lower crude oil), and because of the
large and ongoing declines in global upstream capex, even the Wall Street Journal is expressing
concerns about a future oil price spike, as supply falls.
The Cornucopian Crowd, which is basically making the same argument as the Economist Magazine
writer in 1999, is arguing that advances in technology have indefinitely postponed any kind
of production peak to the distant future.
I think that the reality is much more prosaic.
In my opinion, the reality is that global crude oil production has probably effectively
peaked, while global natural gas production and associated liquids (condensate and natural
gas liquids) have so far continued to increase.
Furthermore, I suspect that all, or virtually all, of the large build in US (and probably
global) Crude + Condensate (C+C) inventories in 2015 consists of condensate, and therefore
oil traders are trading on fundamentally flawed data when it comes to the inventories of the
product that actually correspond to the index prices.
In the case of WTI (light/sweet) crude oil contracts, the maximum API gravity is 42, and
recent EIA data suggest that about 40% of US Lower 48 C+C production in 2015 exceeded the maximum
API limit for WTI crude oil, i.e., 42 API Gravity.
Last year, Reuters ran a story about US refiners increasingly rejecting "foul" blends of
heavy crude and condensate that technically fell below the upper API limit for WTI crude oil,
but that were deficient in distillate content.
In my opinion, these two items, i.e., the estimate that about 40% of US Lower 48 C+C production
exceeded the maximum API Gravity limit for WTI crude oil in 2015 and case histories of US refiners
increasingly rejecting blends of heavy crude and condensate, go a long way toward explaining
why US refiners increased their net oil imports (from 12/14 to 12/15) as we saw 100 million
barrel build in US C+C inventories from late 2014 to late 2015.
Furthermore, Iranian sources claim that the majority of their floating storage consists
of condensate, which they were permitted to export under the sanctions. This of course suggests
that we might be seeing both a US and a global oversupply of condensate–but not necessarily
of actual crude oil (less than 45 API gravity crude oil).
When glut of condensate is called glut of oil production that's one thing, but when the
situation is distorted and Broomberg published articles about how shale oil became cash position at
$35 per barrel is another. That's casino stooges propaganda.
Wood Mackenzie's latest global oil production analysis indicates that 3.4 MMbpd of production
is cash negative at a Brent oil price of $35. Since the dramatic drop in prices from late 2014,
there have been few halts in production-with around 100,000 bpd shut-in globally to date.
According to Wood Mackenzie, the areas with the largest volumes shut-in so far have been
Canada onshore and oil sands, conventional U.S. onshore projects and aging UK North Sea fields.
However, Wood Mackenzie cautions that the number of shut-ins is unlikely to increase at the
rate some might expect, as many producers hold out in the hope of a price rebound.
"Our latest 2016 production data indicates that with Brent crude oil prices at $35/bbl
3.4 MMbpd of oil production is cash negative, which equates to 3.5% of global supply," Stewart
Williams, V.P. of upstream research at Wood Mackenzie, explained.
Wood Mackenzie's study collates oil production data from over 10,000 fields and calculates
the cash operating costs-identifying the price at which the fields turn cash negative, and
the volume of oil production associated with this price level.
What is being affected, far more than current production, is profits. And profits determine
upstream investment in exploration and new drilling. This will affect production for several
years to come.
3.4 million barrels per day (b/d) of oil production is cash negative at a Brent oil price of
US$35, but the number of projects that have ceased production is minimal. With the oil price hitting
a record 12-year low recently, why aren't more producers turning off the taps? Using our Upstream
Data Tool and global team of analysts, we have created exclusive insight into economics of production.
Using our global database of over 10,000 oil producing fields –which account for total liquids
production of 79.7 million b/d – we have concluded that less than 0.1% of global production has
stopped. This represents around 100,000 b/d shut in so far globally; a very low number considering
the amount of producing wells that become uneconomic in this sustained low crude price.
What assets have stopped producing?
The areas hit the hardest have been Canada onshore and oil sands, aging UK North Sea fields
and conventional US onshore projects. Oil sand projects are suffering because of their high costs
and distance from the market place, while the North sea closures are mainly aged wells coming
to the end of their lifespan being sacrificed to wider project economics.
Conventional US onshore projects that have turned off the taps can be accounted for by ultra-low
output wells, or US "stripper" wells. This points to a lack of significant assets that have stopped
producing. Our analysis highlights that this is unlikely to increase at the rate some might expect.
Why are there not more production shut-ins?
Many companies will opt to take the loss, holding out for a rebound in prices. There is a cost
attached to restarting production that many will wish to avoid, offsetting the loss against capex
reductions in other areas. In other areas, the logistics of halting production is too complicated
and expensive to remain a viable option.
This still leaves the fact that 3.5% of 96.1 million b/d global supply is cash negative. Although
companies are cutting costs in other areas as our 2016 pre-FID insight highlights, this fall below
breakeven is not sustainable in the long term for many.
EDINBURGH/HOUSTON 5th February 2016 – Wood Mackenzie's latest global oil production analysis
indicates that 3.4 million barrels per day (b/d) of oil production is cash negative at a Brent
oil price of US$35. Since the dramatic drop in prices from late 2014, there have been few halts
in production – with around 100,000 b/d shut-in globally to date. According to Wood Mackenzie,
the areas with the largest volumes shut-in so far have been Canada onshore and oil sands, conventional
US onshore projects and aging UK North Sea fields. However, Wood Mackenzie cautions that the number
of shut-ins is unlikely to increase at the rate some might expect, as many producers hold out
in the hope of a price rebound.
Stewart Williams, Vice President of upstream research at Wood Mackenzie explains: "Our latest
2016 production data indicates that with Brent crude oil prices at US$35 per barrel ($/bbl), 3.4
million b/d of oil production is cash negative, which equates to 3.5% of global supply (96.1 million
b/d)."
Wood Mackenzie's latest study collates oil production data from over 10,000 fields and calculates
the cash operating costs – identifying the price at which the fields turn cash negative, and the
volume of oil production associated with this price level.
Mr Williams continues: "Since the drop in oil prices from late 2014, there have been relatively
few production shut-ins with less than 0.1% of global production halted so far – around 100,000
b/d globally."
So why aren't producers turning off the taps? Robert Plummer, Vice President of investment
research at Wood Mackenzie explains: "Being cash negative simply means that production costs are
higher than the price that the producer receives and does not necessarily mean that production
will be halted altogether. Curtailed budgets have slowed investment which will reduce future volumes,
but there is little evidence of production shut-ins for economic reasons.
"Given the cost of restarting production, many producers will continue to take the loss in
the hope of a rebound in prices. In terms of our current oil price forecast, we have recently
revised our annual average to $41 per barrel for Brent in 2016. The operator's first response
is usually to store production in the hope that the oil can be sold when the price recovers. For
others the decision to halt production is more complex and we expect that volumes are more likely
to be impacted where mechanical or maintenance issues arise and operators can't rationalise further
investment at current prices," Mr Plummer adds.
The areas hardest hit are Canada onshore and oil sands, conventional US Onshore projects and
some aging UK North Sea fields. Wood Mackenzie attributes the hit on Canadian production from
oil sands and conventional onshore to high costs and distance from market place. There have also
been production shut-in from US 'stripper' wells (onshore, ultra-low output wells) and in the
North Sea, where some operators have prematurely ceased production of aged fields.
Mr Plummer elaborates: "At a Brent oil price of US$35, Canada has 2.2 million b/d of production
which has a negative cash operating cost – predominantly from oil sands and small producing conventional
wells in Alberta and British Colombia. Venezuela is second with 230,000 b/d from its heavy oil
fields, followed by the UK with 220,000 b/d."
Mr Williams adds in closing: "In the past year we have seen a significant lowering of production
costs in the US, which has resulted in only 190,000 b/d being cash negative at a Brent price of
US$35. In fact, the biggest reductions have been from tight oil, the majority of which only becomes
cash negative at Brent prices well-below US$30/bbl."
It is clear that US shale industry now does not matter that much in this game anymore. Even if
we believe absurd extrapolation of breakeven cost that now are propagated by MSM and "Fuser law"
of breakeven price for LTO. "The Moor has done his duty, the Moor can go." (
http://canadafreepress.com/article/the-moors-can-go
). Revolutions tend to eat its own children.
What measures such counties will be able to take take outside of growing of own refining and
petrochemical sector is difficult to say, but I suspect that such measures will be taken by most
oil producing countries other then completely dysfunctional or in the state of civil war (Libya,
Iraq). Barter deals and direct swaps of currencies which avoid using dollars might became more
common. If I were Russia I would dump Western Europe market in favor of Asia and watch how they
would scramble to adjust using Saudis and Iran to compensate for those losses. Such a swap of
customers with Saudis and Iran might be a sufficient shock to change market dynamics. For example,
using "sanctions" as a justification ( by adopting the law that prohibit to sale of Russian oil
to countries that implemented sanctions against Russia ). It' a gamble but possible losses might
well be compensated by jump in global oil prices due to this shock therapy.
I suspect that the second half of this year and the next year probably will be much more interesting
and provide more surprises for linear extrapolation lovers then the second half of 2014 and 2015.
The current "glut theory" (aka "Great condensate con") is still promoted by EIA (aptly named
here "Energy Disinformation Agency"), IEA and thier friends in MSM by all means including tossing
biofuels in the mix and reporting "bloated" inventories". Until some "the last straw that broke
the camel back" moment arrives (aka "tipping point"
http://www.amazon.com/The-Tipping-Point-Little-Difference/dp/0316346624 ). At which moment
panic might start.
I doubt that in such a destabilized system we can avoid the tipping point.
One unexpected blowback of "Operation Oil Glut" is that deflation of "shale bubble" might well
take some "Internet economy" companies with it. LinkedIn today skids 40%, erases $10B in market
cap.
It is clear that US shale industry now does not matter that much in this game anymore. Even if
we believe absurd extrapolation of breakeven cost that now are propagated by MSM and "Fuser law"
of breakeven price for LTO. "The Moor has done his duty, the Moor can go." (
http://canadafreepress.com/article/the-moors-can-go
). Revolutions tend to eat its own children.
What measures such counties will be able to take take outside of growing of own refining and
petrochemical sector is difficult to say, but I suspect that such measures will be taken by most
oil producing countries other then completely dysfunctional or in the state of civil war (Libya,
Iraq). Barter deals and direct swaps of currencies which avoid using dollars might became more
common. If I were Russia I would dump Western Europe market in favor of Asia and watch how they
would scramble to adjust using Saudis and Iran to compensate for those losses. Such a swap of
customers with Saudis and Iran might be a sufficient shock to change market dynamics. For example,
using "sanctions" as a justification ( by adopting the law that prohibit to sale of Russian oil
to countries that implemented sanctions against Russia ). It' a gamble but possible losses might
well be compensated by jump in global oil prices due to this shock therapy.
I suspect that the second half of this year and the next year probably will be much more interesting
and provide more surprises for linear extrapolation lovers then the second half of 2014 and 2015.
The current "glut theory" (aka "Great condensate con") is still promoted by EIA (aptly named
here "Energy Disinformation Agency"), IEA and thier friends in MSM by all means including tossing
biofuels in the mix and reporting "bloated" inventories". Until some "the last straw that broke
the camel back" moment arrives (aka "tipping point"
http://www.amazon.com/The-Tipping-Point-Little-Difference/dp/0316346624 ). At which moment
panic might start.
I doubt that in such a destabilized system we can avoid the tipping point.
One unexpected blowback of "Operation Oil Glut" is that deflation of "shale bubble" might well
take some "Internet economy" companies with it. LinkedIn today skids 40%, erases $10B in market
cap.
Susan Strange was probably the first to analyze this new "casino capitalism" model for oil boom
and bust. Here is a relevant quote from her book (1997):
As with interest rates, the problem with oil prices is not so much that they have been high,
but rather that they have also been so unpredictable and so unstable. Again the instability
has engendered a new game in the great financial casino – oil futures.
This evolved in the following way. In the 1980s as OPEC's command over the oil market weakened,
with some producers desperate for foreign exchange ready to undercut the agreed price with
secret, under the-counter deals, more and more oil cargoes came to be traded on what is rather
misleadingly called the Rotterdam spot market.
But this is not a market in the ordinary sense in which buyers and sellers are identifiable
and prices known to everyone. It is just a network of about a hundred oil traders and brokers,
connected with each other by long distance intercontinental telephone and telex. Like other
brokers in grain or porkbellies or frozen orange-
juice, they are often tempted to increase their profits by talking the market price up or down.
As late as 1978, the spot market deals still accounted for only 5 per cent of all trade
in oil. They now account for 40 per cent or more.
Inevitably, because of the close connection between oil prices, generally denominated in
dollars, and the price of the dollar in foreign exchange markets, there has grown up in London
and New York a futures market in 'paper barrels' to match the forward and futures markets in
dollars and dollar assets.
These 'paper barrel' contracts can change hands as many as 50 times, and do not need to
be based on barrels of real oil. Futures contracts on the British Brent blend of North Sea
oil are thought to add up to as much as eight times the total annual output of the Brent field
(Hooper, 1985).
In short, while there is little doubt that the instability of exchange rates has helped
to destabilize the oil market, the oil market is now adding its own gambling game to all the
others.
The picture so far is one of an international financial system in which the gamblers in
the casino have got out of hand, almost beyond, it sometimes seems, the control of governments.
The question has occurred already to a good many people whether it is the governments that
have got weaker over the past 15 years, or whether it is a fortuitous coincidence of economic
forces that have combined to make the markets more powerful. It is an important question, for
the answer will dictate what has to be done to control, to moderate, or to close down the great
financial gambling game.
That question is linked with a second one: have all states weakened in relation to markets,
or only one, or perhaps just a few of the more important governments? Those who think that
all governments have weakened tend to find rather broad general explanations of how this has
come about. If they offer solutions they are apt to be of the most vague and general kind.
In contrast, those who think the explanation lies with the few, or even just with the USA as
the dominant power in the international financial system – as all the figures show it to be
– tend to be much more specific both in the explanations they put forward and in the solutions
they suggest.
I think in 1997 the term "neoliberalism" was not yet common and "casino capitalism" was used
as a substitute for depiction of essentially the same phenomenon. She "feels the pain" but did
not understand that it was a "quite coup" that installed neoliberalism as a dominant social system
all over the world, displacing both New Deal Capitalism and Socialism. Kind of global coup
detat of financial oligarchy. So governments were already captured and can't serve as a countervailing
force for gambling.
Quote above is cited from
Casino Capitalism Reprint Edition, by Susan Strange. Paperback: 224 pages. Publisher: Manchester
University Press; Reprint edition (October 16, 1997)http://www.amazon.com/gp/product/0719052351?keywords=Susan%20Strange%20Casino%20capitalism
I wonder who writes this stuff? "3.4 million b/d of oil production is cash negative, which equates
to 3.5% of global supply (96.1 million b/d)." Which I would instead identify as "more than twice
as much as the current oversupply."
And, a comedian could not do better than this: "Being cash
negative simply means that production costs are higher than the price that the producer receives."
WTF!! Tell every company that has ever filed for bankruptcy that you "simply" spent more money
than you received. [And, so you "simply" committed financial suicide. Nothing to see here, move
along.]
"Being cash negative simply means that production costs are higher than the price that the
producer receives and does not necessarily mean that production will be halted altogether. .."
"Given the cost of restarting production, many producers will continue to take the loss in the
hope of a rebound in prices."
Shutting and then restarting wells is not as easy as to turn off and again turn on the tap
in your bathroom. It may be costly and it can damage the reservoir. It many cases it is easier
and less costly to continue producing at loss for several months
"To abandon one of the North Sea's bigger platforms, and plug up to 30 wells, can cost more
than £700m. As a result, even at $30 a barrel, some operators may prefer to keep pumping."
The posted oil price here is around $16 bbl now. On a drive I took earlier this week, I counted
9 pump jacks that were idle, and 6 pumping. I know that some of the idle pumps may be on a timer
where they pump intermittently, but it seems likely to me that many of the wells have been shut-in.
There isn't a lot of production in this area, and whats here is mostly old conventional stripper
production.
The Woodmac report references $35 oil so we don't know exactly when it was prepared. With the
declines of January , and high differentials, many areas are now at $15 to $20 oil. At that price
a lot of these wells will be producing revenue of much less than cash costs. I would think that
operators would be forced into reducing their production if prices stay this low for a while.
But, if Woodmac says they aren't shutting in, maybe they are not.
Since the dramatic drop in prices from late 2014, there have been few halts in production-with
around 100,000 bpd shut-in globally to date.
Only 100,000 barrels per day has been shut
in so far. Yet according to the EIA, Non-OPEC C+C production peaked in December 2015 at 47,207
and as of October, stood at 46,444 bpd, a drop of 763,000 barrels per day.
Obviously, production growth has stopped and the decline has begun, regardless of Wood Mackenzie's
figures.
100 kb/d mentioned by Woodmac is production shut-in due to high oil prices. This does not include
the effects of natural declines, lower drilling activity and delayed projects.
The IEA says Non-OPEC production was up 1.3 million bpd in 2015 but will be down 0.7
million bpd in 2016. Below are their numbers. They do not include biofuels or process gain.
2014 51.8
2015 53.1
2016 52.4
The IEA has Non-OPEC liquids in December 2015 down about 650,000 bpd compared to December 2014
Well, production has followed price in the USA and Canada. But elsewhere everyone just seems
to be producing flat out regardless of the price. Just as the price was peaking in early 2011,
Non-OPEC production, less USA and Canada, began to decline. Production in this chart is only
through October.
The recent surge in world production that was brought about by high prices was a USA and
Canadian phenomenon only.
"Asiri's announcement came shortly after Russia said it suspects Turkey of planning a military
invasion of Syria. Ministry spokesman Maj. Gen. Igor Konashenkov said Thursday in a statement
that the Russian military has registered "a growing number of signs of hidden preparation of the
Turkish armed forces for active actions on the territory of Syria.""
Who has ongoing military operations in Syria?
1. Syria
2. ISIS
3. IRAN
4. NATO (US, EU)
5. TURKEY (NATO, but for a non-NATO agenda)
5. KSA?
All we need is China to join in, to make it an official global war ( contained inside of one
small third world nation for the moment)
In general, Russia, Iran and Assad are winning. They are about to wipe out the rebels holding
Aleppo. That would effectively eliminate anyone for the US to support.
It also would pretty
solidly assure that no GAZPROM challenging pipeline of Qatar gas to Europe is going to happen.
How the heck is Saudi going to get troops into Syria? No shared border there. Through Iraq? Can't
see that happening because Iraq is aligned with Iran. Through Israel? Bwahahahaahahahahaha! Through
Jordan? Eh, well I guess that might work. Reasonably short supply lines too.
Well, let's get
this party really rockin' and rollin'! C'mon everybody! Let's do the twist!
Saudi Arabia won't let the plunge in oil prices derail a regional agenda that includes waging
war in Yemen and funding allies in Syria and Egypt, Foreign Minister Adel al-Jubeir said in an
interview.
"Our foreign policy is based on national security interests," al-Jubeir said on Thursday at the
Ministry of Foreign Affairs headquarters in the kingdom's capital, Riyadh. "We will not let our
foreign policy be determined by the price of oil."
The bankruptcy of the corrupt, medieval, bigot, terrorist exporting regime of Saudi Arabia would
be one of the few positive things of continuing low oil prices.
Saudi troops are going to get their ass kicked so hard. It's going to be pathetic. Saudis are
soft. Their leadership is incompetent. Their army has never seen battle on any reasonable scale.
I don't know whether to laugh at the very idea of Saudi troops fighting in Syria or cry for the
poor buggers that are gonna be turned into buzzard feed.
"... The question is whether 56 year old Crown Prince Mohammed bin Nayef (King Salman's nephew) or 30 year old Deputy Crown Prince Mohammed bin Salman (King Salman's son), or someone else, will succeed King Salman. ..."
"... King Salman, the deputy crown prince has shifted into high gear as the kingdom's minister of defense, economic czar and ultimate boss of Aramco, the national oil company that bankrolls the kingdom. Not since the 1960s has a prince his age held such power. . . . ..."
"... Some of Mohammed bin Salman's uncles and cousins insist that the senior members of the family are organizing to meet with the king in the "near future" to ask him to restrain or remove his son. ..."
"... "Is he a prince? A businessman? Or a politician?" asks one of the king's octogenarian half brothers. "I don't know when this play will end. Government is not theater. King Salman needs to open his heart and his mind to his brothers." ..."
Karen Elliott House, author of "On Saudi Arabia," has an Op-Ed in the WSJ in regard to the question
of succession in Saudi Arabia.
The question is whether 56 year old Crown Prince Mohammed bin Nayef (King Salman's nephew)
or 30 year old Deputy Crown Prince Mohammed bin Salman (King Salman's son), or someone else, will
succeed King Salman. An excerpt from the Op-Ed, "Some of Mohammed bin Salman's uncles and cousins
insist that the senior members of the family are organizing to meet with the king in the "near
future" to ask him to restrain or remove his son."
Inside the Turmoil of Change in the House of Saud
As oil prices drop and external threats mount, a 30-year-old crown prince is suddenly ascendant.
Can an audacious young prince make his tradition-bound family bow to his will and force
his somnolent society to wake up? With the sweeping powers recently bestowed on 30-year-old
Saudi Deputy Crown Prince Mohammed bin Salman, the Saudi royal family, its 30 million subjects
and the outside world may soon find out.
For the past two decades Saudi Arabia's geriatric rulers have steered the kingdom at a glacial
pace as if it were an antique car. Given the wheel last year by his father, King Salman, the
deputy crown prince has shifted into high gear as the kingdom's minister of defense, economic
czar and ultimate boss of Aramco, the national oil company that bankrolls the kingdom. Not
since the 1960s has a prince his age held such power. . . .
Prince Mohammed bin Salman, a risk-taker, has rallied much of the country behind him by
acting decisively-without deferring to the U.S.-to sever diplomatic ties with Tehran and confront
Iranian meddling in Yemen and Syria, to pursue a new 34-nation Islamic coalition against terrorism,
and to meet a parade of world leaders, including Russia's Vladimir Putin and China's Xi Jinping,
to show Washington that Riyadh has options.
As a result, there is a palpable air of anticipation in the kingdom. A growing number of
Saudis believe that the deputy crown prince will leapfrog his older cousin, 56-year-old Crown
Prince Mohammed bin Nayef, to succeed the 80-year-old King Salman. To these Saudis, especially
the younger generations, the youthful prince, with his energy and activism, is a leader whose
time has come. Some 70% of Saudis are the deputy crown prince's age or younger. To others,
including many in the royal family, he is a whirlwind about to wreak havoc in the kingdom and
create more chaos in the region. . . .
Yet some in the royal family believe this king and his son are bent on excluding the
bulk of the 7,000-member family in favor of only one line. Since 1953, the throne has passed
from brother to brother largely by seniority among the 36 sons of the founder Abdulaziz ibn
Saud. Some of Mohammed bin Salman's uncles and cousins insist that the senior members of the
family are organizing to meet with the king in the "near future" to ask him to restrain or
remove his son.
"Is he a prince? A businessman? Or a politician?" asks one of the king's octogenarian half
brothers. "I don't know when this play will end. Government is not theater. King Salman needs
to open his heart and his mind to his brothers."
While in 2016 the supply-side response to low oil prices should be quite
significant in the U.S. LTO sector, it will be more limited outside U.S.
2. "All deep water developments will also lose money this year and
the exploration activity might grind to a halt as discrepancy between the
current price and the price of production is too extreme. That spells troubles
for future GOM production. "
A large number of new deep water projects were delayed in 2014-15, but
this will impact production levels several years from now. Existing deep
water production will continue as opex does not exceed $30-35. Most of the
projects at final stages of development will not be postponed and will start
production in time, like they did in 2015. One important exception may be
Brazil, where some project start-ups could be postponed by 1 or 2 years.
Also note, that outside Brazil, deepwater projects are operated by the oil
majors, which have much stronger balance sheets than the US E&Ps or Petrobras.
3."Carnage in Canadian oil sands."
Some projects were delayed, but oil sands production will slightly increase
this year, according to all forecasts.
5. "Several oil producing countries with higher costs or large budget
deficit in 2015 will be on the wedge of bankruptcy at the end of the year.
"
That does not mean that they will decrease oil production, the key source
of fiscal revenues.
6. "KSA will lose another hundred billions and might lose its current
credit rating."
KSA's foreign reserves decreased by some $100 bn last year, they might
lose another $100 billion in 2016, but they will still have more than $500
billion. And how declining FX reserves should impact oil production?
Russia's credit rating was lowered in 2014, but production continued to
increase in 2014 and 2015.
8. "Losses of investors might well black mark this area of investment
for the next three years. Energy funds and ETFs shrink as "naïve" investors
simply flee."
Again, you mention what might happen in the future. How this can impact
oil production volumes this year? And as soon as oil prices start to recover,
investors will return. We have seen this many times in the past.
In general, those who expect a quick supply-side response to lower oil
prices ignore the fact that lower prices and lower investments tend to have
a much delayed impact on production levels.
"... The media puts forth a continuous stream of completely unadulterated crap to its readership. Saudi Arabia is not going to spend $175 billion per year to put out of business producers that produce an entirely different product, and which sells to an entirely different market. LTO is as much like Saudi crude as Shetland Ponies are to an Arabian race horses. The similarities stop at horse. ..."
"... LTO is a very light hydrocarbon that is used as a diluent, and feed stock. Its API is 45. It is used to thin heavier hydrocarbons like Canadian bitumen to allow it to be transported by pipe. It is used as a feedstock to make hundreds of different products from paint to plastic pipe. ..."
"... Saudis light sweet crude has an API 45, and the heavier ones, API 40, deliver entirely different products as show in the graph below: ..."
"... Goldman Sachs is an unscrupulous pack of thieves who have no qualms about lying to their clients, or the public if it serves their purposes. They, and others in the shale financing business will continue to push the Saudi/ US LTO myth for as long as they can find investors that are credulous enough to believe them. ..."
"... Some see only what they want to see. Others see the whole forest. Bloomberg and Goldman are both habitual liars and thieves. Goldman says it and Bloomberg backs it up, as if either have any credibility left. ..."
"... Short has it correct. All you see in the US MSM is bullshit in ever higher and smellier piles. As we approach the end, the cries will be louder, shriller and continuous. Wait and see. ..."
"A deal is not only "highly unlikely," in the estimation of Goldman Sachs, but "self-defeating"
for the Saudis. By cutting production now and boosting prices, Saudi Arabia would effectively
bail out U.S. shale producers just as the Saudi strategy of keeping prices low to squeeze them
out of the market is beginning to work, Goldman's Jeff Currie argues."
The media puts forth a continuous stream of completely unadulterated crap to its readership.
Saudi Arabia is not going to spend $175 billion per year to put out of business producers that
produce an entirely different product, and which sells to an entirely different market. LTO is
as much like Saudi crude as Shetland Ponies are to an Arabian race horses. The similarities stop
at horse.
LTO is a very light hydrocarbon that is used as a diluent, and feed stock. Its API is >
45. It is used to thin heavier hydrocarbons like Canadian bitumen to allow it to be transported
by pipe. It is used as a feedstock to make hundreds of different products from paint to plastic
pipe.
Saudi's light sweet crude has an API 45, and the heavier ones, API < 40, deliver entirely
different products as show in the graph below:
Saudi's light sweet crude, and LTO are entirely different products that sell to entirely different
markets. Saudi's crude is no competition to LTO and LTO is no competition for Saudi's crude.
Goldman Sachs is an unscrupulous pack of thieves who have no qualms about lying to their
clients, or the public if it serves their purposes. They, and others in the shale financing business
will continue to push the Saudi/ US LTO myth for as long as they can find investors that are credulous
enough to believe them.
makati1 on Thu, 4th Feb 2016 7:59 pm
Some see only what they want to see. Others see the whole forest. Bloomberg and Goldman
are both habitual liars and thieves. Goldman says it and Bloomberg backs it up, as if either have
any credibility left.
Short has it correct. All you see in the US MSM is bullshit in ever higher and smellier
piles. As we approach the end, the cries will be louder, shriller and continuous. Wait and see.
"... Saudi Arabia won't let the plunge in oil prices derail a regional agenda that includes waging war in Yemen and funding allies in Syria and Egypt, Foreign Minister Adel al-Jubeir said in an interview. ..."
Saudi Arabia won't let the plunge in oil prices derail a regional agenda that includes waging
war in Yemen and funding allies in Syria and Egypt, Foreign Minister Adel al-Jubeir said in an
interview.
"Our foreign policy is based on national security interests," al-Jubeir said on Thursday at the
Ministry of Foreign Affairs headquarters in the kingdom's capital, Riyadh. "We will not let our
foreign policy be determined by the price of oil."
The bankruptcy of the corrupt, medieval, bigot, terrorist exporting regime of Saudi Arabia would
be one of the few positive things of continuing low oil prices.
The Middle Eastern OPEC countries that aren't already up in smoke are tinderboxes, and Saudi
Arabia's King Salman has just reached for the matches. His government ushered in the new year by
beheading a top Shia dissident cleric. It was a calculated goading by the Sunni monarchy,
triggering protests and the trashing of the Saudi embassy in Iran.
Those of us who remember the "Tanker War" in the '80s, when Iranian and Iraqi jets chased each
other's oil tankers up and down the Gulf firing missiles at them, know how things can escalate.
Kuwait found this out the following decade when Iraq accused it of slant drilling under the fence
and helping itself to Iraqi oil. Kuwait was invaded and all its oil wells were deliberately
torched.
All Gulf OPEC members have tense border disputes with at least one neighbor, so offshore
islands and oil platforms in the region bristle with radar and missiles. Iran regularly threatens
to close the Strait of Hormuz to shipping, as Sunni and Shia conflicts smolder on Saudi borders
to the north, east and south.
On these governments – and on the accuracy of Saudi gunners in shooting down incoming missiles
fired at oil installations by Iranian-backed rebels in Yemen – depend the fortunes of Albertan
drillers. Aside from the short-term economic weapon of cheap oil, the Saudi kingdom also has a
medium-term weapon in its economic arsenal – the sun. During peak seasonal power demand, as much
as 700,000 bpd of crude burn in Saudi power stations. Of its planned 41 gigawatts of solar power
capacity, the kingdom's only built small plants so far. But it only takes two years to build a
solar farm, releasing more oil for export. Even launching the first phase of this project would
impact oil prices.
The kingdom has another powerful motive to do this: money. The World Bank estimates Saudi
Arabia spends 10 percent of its GDP on energy subsidies, or about $80 billion a year. These are
subsidies that it is now having to cut, risking social unrest. Wars cost money. The IMF says the
kingdom's estimated $640 billion in foreign reserves will run out in five years at this rate. But
Riyadh thinks it has greater stamina than Iran and its ally Russia, whose oil dollars buy weapons
for Saudi enemies. The country warily eyes Iran's unleashing of 500,000 bpd onto a post-sanctions
market.
The Saudi kingdom needs lower oil prices now, to squeeze Iran's depleted coffers tighter and
faster, which it hopes will also strangle North American producers.
Washington, Riyadh, Tehran … no one mentions Ottawa, despite Canada being a top oil exporter.
Accessing only one market and having no effective national strategy to get our crude to tideline,
Canada can do little to influence global energy politics. To find out when the sun will once
again rise over the oil sands, face east – and look all the way to the Arabian Gulf.
Output from Russia, which vies with Saudi Arabia and the U.S. as the world's
top producer, may fall this year by as much as 150,000 barrels a day, or about
1.3 percent, according to analysts including Neil Beveridge, at Sanford C. Bernstein
& Co.
The country's production set a post-Soviet high in January as output of crude
and a light oil called condensate climbed 1.5 percent from a year earlier to
10.878 million barrels a day, according to the Energy Ministry's CDU-TEK unit.
"... We got wealthy, while Africa and the Middle East got poorer, due in part to the predations of our empire building of the previous century. But they acquired our weaponry, and began to emulate our methods of wholesale slaughter. Now much of the Middle East and swathes of Africa are economic basket cases. ..."
"... So the instinct for survival being what it is, they are looking hungrily at Europe, just as we Europeans looked hungrily at Africa in the 17/1800s. They see our prosperity, and want a piece of it. And so the invasion has begun. Poetic justice perhaps. ..."
"... We Europeans dont have wars any more -- we want to do the right thing . But now we realize we have limits -- and demand that our borders be shut. ..."
"... So do we revert to more traditional armed border guarding? And if we do-are we going to shoot at the boatloads of unarmed people crossing into Greece -- sink the boats and let a few drown to deter the others? ..."
"... This is just hypothesis –- but as the invasion continues, it will materialize in hard choices. Shut the door by all means –- but face up to what must happen next ..."
"... There is much comment on here about defending homesteads when the SHTF-well, as far as the Syrians heading for the plenty of Europe are concerned, the shit has already hit the fan. Theres nothing left for them to go back to. ..."
"... Things are a bit more homogenous now. You dont have to secure resources. You can destroy competing consumption instead. Actually much easier. ..."
When one tribe recognizes that another tribe has greater access to resources than they do, then
invasion and attempts at conquest are inevitable.
check back through history, virtually every conflict kicked off that way.
Shutting borders won't work unless you are prepared to back it up with force of arms.
Ask yourself that question, and consider your answer thoughtfully. Answer it when you've read
this. here in Europe we have been at war with one another from the time the Romans left, until
1945
Then we decided to get civilized and like each other-sort of.
That brought us a few decades of prosperity under the auspices of the EU. Which was formed
incidentally as a common market for coal and iron originally–to prevent us fighting over it again.
Like all such organizations it grew and grew–finding justification for its own expansion and
existence.
We got wealthy, while Africa and the Middle East got poorer, due in part to the predations
of our empire building of the previous century. But they acquired our weaponry, and began to emulate
our methods of wholesale slaughter. Now much of the Middle East and swathes of Africa are economic
basket cases.
So the instinct for survival being what it is, they are looking hungrily at Europe, just
as we Europeans looked hungrily at Africa in the 17/1800s. They see our prosperity, and want a
piece of it. And so the invasion has begun. Poetic justice perhaps.
And we Europeans, having become "civilized" offer a helping hand. Unfortunately that encourages
more and more, so now we have a million migrants a year demanding to be let in. Now we are faced
with a different form of conflict-so far a passive one. We Europeans don't have wars any more
-- we want to "do the right thing". But now we realize we have limits -- and demand that our borders
be shut.
We can't put up "CLOSED" signs, we can't physically police 000s of miles of land and sea access.
So now what? We cannot go on to 10m–20m, but they will keep coming unless stopped. The word is
out that we currently have no choice but to accept everyone.
So do we revert to more 'traditional' armed border guarding? And if we do-are we going
to shoot at the boatloads of unarmed people crossing into Greece -- sink the boats and let a few
drown to deter the others?
This is just hypothesis –- but as the invasion continues, it will materialize in hard choices.
Shut the door by all means –- but face up to what must happen next.
The refugees could easily head for the wealthy gulf states for refuge -– they don't, because
they are aware of the reception they'd get.
There is much comment on here about defending homesteads when the SHTF-well, as far as
the Syrians heading for the plenty of Europe are concerned, the shit has already hit the fan.
There's nothing left for them to go back to.
So this would appear to be a choice we are all going to have to make in the not too distant
future.
Right now, Europe can feed and house a million immigrants, but soon the European economic model
will collapse, nevertheless our guests will still demand to be fed and housed.
When it is is financially impossible to do that , when Europeans can't even feed themselves,
the adversaries in next European war will be clearly defined by desperation to survive.
When one tribe recognizes that another tribe has greater access to resources than they do,
then invasion and attempts at conquest are inevitable. Check back through history, virtually
every conflict kicked off that way.
Things are a bit more homogenous now. You don't have to secure resources. You can destroy
competing consumption instead. Actually much easier.
"... Tehran had a big week as President Rouhani stormed around Europe signing
oil contracts and spending Iran's windfall of newly freed up cash by making many
major purchases. In Italy, he signed deals including shipbuilding, steel, and energy
worth some $18 billion. In France, he bought 118 Airbus airliners for $24 billion,
made a $400 million car manufacturing deal with Peugeot, and signed a deal with
Total for 200,000 b/d of Iranian crude. This should help Rouhani in the upcoming
elections as a man who keeps his promises to revive the Iranian economy. ..."
Tehran had a big week as President Rouhani stormed around Europe signing
oil contracts and spending Iran's windfall of newly freed up cash by making
many major purchases. In Italy, he signed deals including shipbuilding, steel,
and energy worth some $18 billion. In France, he bought 118 Airbus airliners
for $24 billion, made a $400 million car manufacturing deal with Peugeot, and
signed a deal with Total for 200,000 b/d of Iranian crude. This should help
Rouhani in the upcoming elections as a man who keeps his promises to revive
the Iranian economy.
Beijing is making a major effort to improve its relations with Tehran. During
the sanctions, China continued to build a new $200 million steel mill for the
Iranians, circumventing the restrictions imposed by the US and Europe. Last
week a freight train set off on the 6,000 mile trip to Tehran from eastern China,
marking the first rail connection between the two countries along the new "silk
road." China is hoping that Iran will become a major gateway for selling its
products into the Middle East and will become a source of oil.
Based on tanker loading schedules, Tehran is due to increase its oil exports
in January and February by 20 percent over last year. Iran's exports look to
be about 1.5 million b/d in January and 1.4 million in February. This compares
with an average of 1.2 million b/d last year. Much of this oil was already stored
on tankers which provided storage for unsold crude during the sanctions. How
much oil was in storage has been debated, but a recent Reuters report puts the
amount at 40 million barrels– mostly condensate which has to be sold quickly
to free up Iran's tankers for regular crude deliveries. Many western shippers
still have concerns about doing business with Tehran as there are still numerous
sanctions in place which could lead to heavy penalties for doing business with
Iranians, especially if the Republican Guard is somehow involved.
"... it appears to me that the increase in take away capacity and adequate demand, is what was required in the NE to increase production. ..."
"... Yesterday's Northeast production estimate was revised up from 22.29 Bcf/d to 22.83 Bcf/d, making February 1 the new all-time high, surpassing the previous all-time high of 22.55 set just this past weekend. ..."
Not sure how this fits in to the theme of the guest post, but it appears to
me that the increase in take away capacity and adequate demand, is what was
required in the NE to increase production.
Yesterday's Northeast production estimate was revised up from 22.29
Bcf/d to 22.83 Bcf/d, making February 1 the new all-time high, surpassing
the previous all-time high of 22.55 set just this past weekend. This was
driven by an increase to yesterday's Appalachian-Ohio figure of 0.25 Bcf/d
and a 0.18 Bcf/d increase in the PA Northeast Dry.
This helped drive a 1.3 Bcf/d upward revision to yesterday's dry US production, bringing it to 73
Bcf/d, the highest it has been all year.
Production fell 0.4 Bcf/d today
with the Northeast and Texas accounting for the majority of this. US Demand
increased by 2.9 Bcf/d, with ResComm accounting for about 2.4 Bcf/d of this
driven by a 1 Bcf/d increase in the Southwest. Total powerburn climbed to
23.3 Bcf/d, as increases of 0.3 Bcf/d and 0.2 Bcf/d in the Southwest and
Southeast, respectively, offset modest declines in Texas, the Northeast, and
the Midcon Market.
Half of oil production from future developments is uneconomic at US$60/bbl Brent. These comprise
of conventional projects which have yet to receive final investment decision (pre-FID) and future
drilling in US onshore Lower 48 plays; which are critical for future oil supply.
By 2025, production from pre-FID projects and US Lower 48 future drilling could be nearly 15 million
b/d. Only 7.6 million b/d comes from projects which achieve commerciality at US$60/bbl, a likely
screening criteria.
Production from most future developments is required to fill the supply gap between declining
commercial fields and projected growth in demand.
Under our Macro Oils supply-demand outlook over 22 million b/d is needed from new developments
by 2025 to meet demand. We expect the pre-FID pipeline to contribute around half of this. However,
the number of deferred pre-FID projects is growing as the oil price remains low. Without significant
structural cost deflation, the majority of these projects, are at risk of further delay or a major
overhaul of development plans.
Prices need to support the development of the next tranche of supply. This breakeven analysis
provides support for an oil price floor in the longer term of above US$70/bbl.
Deepwater and ultra-deepwater projects sit high on the cost curve and are at greatest risk of
delay. Production from Angola, Nigeria, US Gulf of Mexico and Brazil is at risk due to weak project
economics. Over 80%, or around 16 billion barrels, of deepwater and ultra-deepwater reserves are
uneconomic at $60/bbl.
The economics are relatively robust within onshore, tight oil and shallow water projects. In fact
US Lower 48 is now the key low cost area and by 2025 contributes 70% of volumes produced under
$60/bbl.
Total global liquids supply in 2040: 136 mb/d,
or 133 mb/d excluding refinery processing gains.
or 129 mb/d ex. proc. gains and biofuels.
Note, that AEO 2015 was issued in early 2015 and apparently prepared in late 2014, when oil
prices were significantly higher.
The AEO 2015 projects Brent price at $71 in 2016 gradually rising to $141 (in $2013) by 2040.
I expect AEO 2016 global liquids supply projections to be lower than last year's issue.
Total global liquids supply in 2040: 121.7 mb/d,
or 118,8 mb/d excluding refinery processing gains.
or 114.5 mb/d ex. proc. gains and biofuels.
Note, that AEO 2015 was issued in early 2015 and apparently prepared in late 2014, when oil
prices were significantly higher.
The AEO 2015 projects Brent price at $71 in 2016 gradually rising to $141 (in $2013) by 2040.
I expect AEO 2016 global liquids supply projections to be lower than in last year's issue.
If they showed a chart with declining production would anyone use their services anymore?
Maybe that is why they are so "optimistic".
The "Yet to be found" and "Yet to be developed" looks suspicious since it is exactly the amount
needed to keep us on the same level as today for conventional production.
How can they predict we will find more oil 2040 than in 2025? Sounds fishy.
Sorry, I thought that was a WoodMac chart not an IEA chart.
Shows what I know.
Having worked for some consulting companies (not in oil), sales and billable hours trumps everything
(except anything that risks legal claims against the owners /partners personal assets).
Otherwise you will go out of business and not exist.
If WoodMac is predicting a better scenario than that chart Alex posted, it is sales commissions
and/or billable consultants.
Anyway…I should probably let the smart guys discuss…lol
Enhanced recovery don't seem to get much credit here.
Notice that the IEA don't have us reaching 80 mbd, C+C, until 2030, a point that the EIA says
we are at today. They, the IEA, has us at about 75 million barrels per day today. My guess is
that is about right.
The IEA has conventional oil + tight oil+oil sands + GTL and CTL at ~75 mb/d and NGLs at @
15 mb/d in 2014
Total (ex. biofuels and processing gains) ~ 90 mb
The EIA has conventional oil + tight oil+oil sands + GTL and CTL at ~79.4 mb/d and NGLs at
@ 9.5 mb/d in 2014
Total (ex. biofuels and processing gains) ~ 89 mb
The IEA has included all OPEC NGLs and condensate in global NGLs number.
The EIA apparently classifies large part of OPEC NGLs and condensate as condensate (part of global
conventional C+C).
(Total OPEC NGLs and condensate production in 2014 was 6.36mb/d)
Thanks for the clarification. Looks like about 4-5 Mb/d of condensate is produced in the World.
As long as this can be easily blended into liquid fuels (such as gasoline) at refineries, it makes
sense to call it "oil" as there is a wide range of stuff we are willing to call oil (such as bitumen).
We have been counting crude plus condensate for a long time, excluding C2, C3, and C4 makes
sense to me, but excluding C5 does not. Just one person's opinion.
the IEA is including only OPEC crude in global C+C numbers both in the monthly reports (OMR)
and WEO.
NGLs and total OPEC condensate is classified as NGLs.
For other countries, the IEA includes condensate in C+C.
The EIA somehow separates "OPEC NGLs" into NGLs and lease condensate. The later is included
in global C+C numbers.
The EIA puts US Lower 48 C+C production in excess of 45 API Gravity at about 2 million bpd in
2015 (so total US 45+ in 2015, inclusive of Alaska, was presumably a little in excess of 2 million
bpd), and OPEC 12 Implied Condensate* was 2.5 million bpd in 2014.
The US and OPEC 12 combined accounted for 53% of global C+C production in 2014.
In any case, as I have previously said, the issue of crude versus condensate quality is something
of a red herring.
My point is and has been is that the data strongly suggest that actual global crude oil production
(45 API Gravity and lower) has been on an undulating plateau since 2005, while global gas and
associated liquids, condensate and NGL, have so far continued to increase.
*EIA OPEC 12 C+C less OPEC 12 Crude Only, subject of course to usual caveats about data quality
Given that for the past five years oil discoveries have been getting steadily less (and I think
this year so far there may not have been any really new ones – only a some gas and one oil confirmation
find) and that reservoir growth has mostly been associated with large, conventional fields, of
which there are no more, the "yet to find" wedges in all these charts might be a bit optimistic.
Why does the "yet to be developed" wedge expand continuously? This implies that discoveries
we know about would be bought on line over the next 25 years and more and be able to compensate
for decline in previous (new) developments plus add more capacity (i.e. they'd be growing in development
size over time). It should surely look like a bulge with a taper to zero over time.
Presumably the NGL, oil sands and tight oil sections have their own components of development
required, maybe a larger proportion than for the conventional oil as well. There's a lot of development
money needs to be spent to fill the gaps, and pretty much from a standing start where we are at
the moment.
Why does the "yet to be developed" wedge expand continuously?
George, that is mostly OPEC "proven" but undeveloped reserves that the IEA assumes will be
brought on line as needed.
OPEC claims 1.2 trillion barrels of reserves. And about two thirds of that is "yet to be developed".
And it will forever remain "yet to be developed" because it does not exist.
I disagree with the 2 out of 3 barrels missing and the 400 Gb OPEC reserve estimate.
Jean Laherrere estimates OPEC 2P reserves in 2010 at about 500 Gb for C+C less extra heavy
(which leaves out Orinoco belt reserves in Venezuela) and that is a very conservative estimate.
Most astute observers realize the Orinoco reserves are overstated and indeed for these 220
Gb of claimed reserves, the 2 of 3 missing barrels may be apt.
For the C+C less extra heavy OPEC reserves in 2010, BP has 940 Gb. Based on Jean Laherrere's
estimate it would be roughly 1 out of 2 barrels are missing.
I agree OPEC overstates its reserves. I think that the 1 of 3 barrels is real graphic (which
is cute) overstates the "missing barrels" case.
I disagree with the 2 out of 3 barrels missing and the 400 Gb OPEC reserve estimate.
I don't. I think 400 Gb is likely an overestimate. That is, if
OPEC's estimate
of Non-OPEC reserves of 286.9 billion barrels is anywhere close to being correct. Not counting
bitumen or oil sands, OPEC does not have more reserves than Non-OPEC.
Every country in the world produces every barrel they possibly can. And the more oil they have
to produce the more oil they do produce…. on average that is. According to the EIA, Non-OPEC
produces 58% of the world' C+C and OPEC produces 42%. To assume that OPEC has three times the
proven reserves as Non-OPEC is truly absurd. How can anyone believe such shit?
Ron – that makes sense, thanks. If I was country or region with 800 billion barrels of undeveloped
reserves that's what I'd be talking up. I wouldn't be promoting tight gas and renewables to free
up oil for export; or pre-salt, deep sea exploration to find new reserves (which is what Saudi
and Kuwait have been doing), and we wouldn't be seeing , what looks like, peaks for most of the
OPEC members developing (if you assume a peak is at about 50% depletion they shouldn't be peaking
for a good few years yet if there are another 1.2 trillion barrels available).
For oil remaining now I think I'd go with Sadad al-Husseini from a few years ago (2010) who
indicated there are maybe only 1.2 to 1.5 trillion barrels left (found and unfound). Since then
we've produced about 150 billion and maybe 100 to 200 billion might not be there or can't be developed
(in Arctic and Deep Sea). So we may have only 850 to 1150 billion left now, which would put us
well past 50% URR (although maybe condensate and NGL may be higher and compensate somewhat).
"... If the 2016 OPEC basket oil price does average around $35/bbl it will be about $15/bbl lower than the $49.49/bbl average basket price in 2015, meaning that OPEC will lose yet another $130 billion in annual oil revenues if it maintains production at current levels. ..."
If the 2016 OPEC basket oil price does average around $35/bbl it will be about $15/bbl lower
than the $49.49/bbl average basket price in 2015, meaning that OPEC will lose yet another $130 billion
in annual oil revenues if it maintains production at current levels.
Can OPEC survive another hit like this? Well, those waiting for a prediction are going to
be disappointed because I'm not going to make one.
There are just too many unknowns. We'll just have to wait and see.
"... Were going on 2 yrs since the price decline began, what . . . about 20 months ago? Just how
long is that long run were supposed to be waiting for to see sharp production decline? ..."
MOSCOW, Feb 2 (Reuters) – Oil production in Russia hit a post-Soviet high in January, reaching
an average of 10.88 million barrels per day (bpd), preliminary data released by the Energy Ministry
showed on Tuesday.
------------
My comment:
At 7.3 barrels / ton ratio, production in January was 10,834 kb/d vs. 10,76o kb/d (revised) in
December 2015 and 10,613 in January 2015 (year-on-year increase of 2.1%)
Russian crude and condensate production (mb/d)
source: Russian Energy Ministry
Two new mid-sized fields came onstream, one in December and one in January
Several new field start-ups are expected for 2016, including a relatively large Filanovskogo project
in Northern Caspian.
The numbers in tons (as stated in Ministry's report and in b/d)
(sorry, the last column is January 2016)
People are going to have to wrap their minds around reality. Production doesn't have to fall
because of price - especially in locales with total government control.
We're going on 2 yrs since the price decline began, what . . . about 20 months ago? Just
how long is that long run we're supposed to be waiting for to see sharp production decline?
Estimates of decline are varied from none to 0.5Mb/d, but when it can start and how sharp it
will be is anybody guess.
I think it will not be sharp as Russian producers are partially isolated from oil price slump
by the currency depreciation and long term contracts that they typically use.
== quote ==
The economics of Russian production provide a glimpse of how painful current prices are. According
to ESAI Energy's analysis in the accompanying chart, when the Urals price is $30 per barrel,
a producer's net revenue after paying the crude export duty and Mineral Extraction tax is $17.
But since their costs are paid in rubles, the value of which has plummeted, lifting costs and
pipeline transport from West Siberia are roughly $8 per barrel.
These numbers indicate Russian producers can withstand prices as low as even $20 per barrel
without them having a significant impact on production in 2016. That said, oil companies like
Lukoil and Rosneft, which together account for 5.5 million b/d of Russian production, might
participate in production limits were the Putin regime to pursue them.
Foreign Minister Sergey Lavrov told reporters in the United Arab Emirates on Tuesday that
Moscow is "open for other forms of cooperation, if there is general interest in holding a meeting
between OPEC members and producer countries."
"... ExxonMobil asserts Growth comes mostly from non-conventional supply but actually shows declining conventional supply – even after including Deepwater production. ..."
"... Only increasing use of higher priced Nonconventional hydrocarbons shows some global growth – but much lower than historical growth. ..."
"... In terms of gallons of condensate per MCF of dry gas, it would be 0.8 gallons/MCF in 2005, rising to 1.2 gallons per MCF in 2014, if my math is correct. ..."
"... Condensate, like natural gas liquids, is a byproduct of natural gas production. The US and OPEC 12 countries accounted for 41% of global dry gas production in 2014. ..."
"... If US + OPEC 12 estimated condensate production numbers per BCF of dry gas production from 2005 to 2014 are approximately indicative of world trends, estimated global condensate production in 2005 would be 4.9 million bpd (rounded off to 5 million bpd), and estimated global condensate production in 2014 would be 9.7 million bpd (rounded off to 10 million bpd), an estimated increase of about 5 million bpd in global condensate production from 2005 to 2014. ..."
"... Note that the increase in global C+C production from 2005 to 2014 was 4 million bpd (74 to 78 million bpd, rounded off to the nearest one million bpd). ..."
"... The foregoing analysis would of course suggest that actual global crude oil production (45 API and lower gravity crude oil) was down slightly from 2005 to 2014, down from about 69 million bpd in 2005 to about 68 million bpd in 2014–as annual Brent crude oil prices doubled from $55 in 2005 to $110 for 2011 to 2013 inclusive, remaining at $99 in 2014. ..."
"... Based on the foregoing scenario, total global condensate production would have increased from about 4.9 million bpd in 2005 (call it 5 million bpd) to about 8.8 million bpd in 2014 (call it 9 million bpd), in implied increase of 4 million bpd, which would of course mean that rising condensate production accounted for virtually all of the 2005 to 2014 increase in global C+C production. ..."
"... As the amount of BTUs per unit of weight is probably close to constant that means that energy-wise condensate with API 60 contains approximately 12% less of energy then oil with API 40. ..."
"... In other words, mixing them in statistics inflates the total amount of energy produced. If uniform statistics is desirable they should be counted using factor 0.9. This recalculation will make peak oil phenomenon more visible in all graphs of world and countries production. ..."
"... That also mean that countries and agencies reporting production in metric tons are doing better job then countries reporting production in volume measures such as barrels. In other words EIA sucks :-) ..."
"... My principal point is that the available data strongly suggest that actual global crude oil production has been on an Undulating Plateau since 2005, while global natural gas production and associated liquids, condensate and NGL, have so far continued to increase. ..."
"... The second factor affecting the condensates/crude balance is the huge North Field, and the consequent expansion of natural gas output in the country. This has led to a surge in the production of condensates on the back of new wells and projects aimed at feeding Qatars liquefied natural gas and gas-to-liquids sectors. Indeed, if the QNB figure of 724,000 bpd of crude is compared with the BP figure of 1.995m bpd of total oil production – which includes crude oil, light oil (from condensates), oil sands and natural gas liquids – then condensates are likely responsible for over 1m bpd of Qatars oil production. ..."
"... with condensate production exceeding crude oil production in 2012, when it hit 900,000 bpd. . . . ..."
ExxonMobil released its 2016 Outlook for Energy: A View to 2040. Buried on page 62, its
Liquids Outlook by Type clearly shows conventional crude oil ("Crude + Condensate") peaked
about 2005. Global conventional oil ("Crude + Condensate") declines through 2040. ExxonMobil
asserts "Growth comes mostly from non-conventional supply" but actually shows declining conventional
supply – even after including "Deepwater" production.
Only increasing use of higher priced Nonconventional hydrocarbons shows some global
growth – but much lower than historical growth. Only by adding Bitumen (aka "Oil Sands"),"tight
oil", natural gas liquids (NGL), "other" and biofuels does ExxonMobil project about 20% total
growth over 25 years (from the current 93 million bbl/day to about 112 million bbl/day.)
I think ExxonMobil's estimate of future tight oil production is way overly optimistic. But
not nearly as overly optimistic as their estimate of "new conventional crude and condensate development".
Here's a somewhat different approach to my attempts, using available data, to differentiate between
actual crude oil, generally defined as 45 API Gravity and lower crude oil, from condensate, generally
defined as Crude + Condensate (C+C) with an API Gravity greater than 45.
Since condensate, like Natural Gas Liquids (NGL), is a byproduct of natural gas production,
it occurred to me that what is important is the estimated condensate yield per BCF of global dry
natural gas production.
US & OPEC 12 Condensate Production Estimates as Indicators of Global Condensate Production,
2005 to 2014
Natural Gas Data
US Natural Gas Production (BP):
2005: 50 BCF/day
2012: 71 BCF/day
OPEC 12 Natural Gas Production (BP):
2005: 42 BCF/day
2014: 68 BCF/day
US + OPEC 12 Natural Gas Production (BP):
2005: 92 BCF/day
2014: 139 BCFday
Global Natural Gas Production (BP):
2005: 270 BCF/day
2014: 335 BCF/day
Condensate Data & Estimates
Implied OPEC 12 Condensate Production
(EIA OPEC 12 C+C less OPEC Crude Only)
2005: 1.2 million bpd
2014: 2.4 million bpd
Estimated US Condensate Production (45+ API Gravity C+C Production)
2005: 0.5 million bpd
2014: 1.7 million bpd
(EIA puts US Lower 48 45+ API C+C production at 2 million bpd in 2015, and they estimated that
US 45+ API Gravity C+C production increased by about one million bpd from 2011 to 2014)
Implied OPEC 12 Condensate + Estimated US Condensate Production
2005: 1.7 million bpd
2014: 4.1 million bpd
OPEC 12 + US Condensate Estimates Per BCF of Dry Gas Production
2005: 18,000 barrels/BCF
2014: 29,000 barrels/BCF
(In terms of gallons of condensate per MCF of dry gas, it would be 0.8 gallons/MCF in 2005,
rising to 1.2 gallons per MCF in 2014, if my math is correct.)
Condensate, like natural gas liquids, is a byproduct of natural gas production. The US
and OPEC 12 countries accounted for 41% of global dry gas production in 2014.
If US + OPEC 12 estimated condensate production numbers per BCF of dry gas production from
2005 to 2014 are approximately indicative of world trends, estimated global condensate production
in 2005 would be 4.9 million bpd (rounded off to 5 million bpd), and estimated global condensate
production in 2014 would be 9.7 million bpd (rounded off to 10 million bpd), an estimated increase
of about 5 million bpd in global condensate production from 2005 to 2014.
Note that the increase in global C+C production from 2005 to 2014 was 4 million bpd (74
to 78 million bpd, rounded off to the nearest one million bpd).
The foregoing analysis would of course suggest that actual global crude oil production
(45 API and lower gravity crude oil) was down slightly from 2005 to 2014, down from about 69 million
bpd in 2005 to about 68 million bpd in 2014–as annual Brent crude oil prices doubled from $55
in 2005 to $110 for 2011 to 2013 inclusive, remaining at $99 in 2014.
Note that I am estimating that US + OPEC 12 condensate production increased by about 2.4 million
bpd from 2005 to 2014 (from 1.7 to 4.1 million bpd), with an estimated condensate yield of about
18,000 barrels per BCF of dry gas in 2005 and 29,000 barrels per BCF of dry gas in 2014 (note
that the condensate yield per BCF of wet gas would of course be lower).
In any case, if the condensate yield for non-US + non-OPEC gas was the 18,000 barrels per BCF
in 2005, but only rose to 24,000 barrels per BCF in 2014 (versus 29,000 barrels per BCF for US
+ OPEC), non-US + non-OPEC condensate production would have increased from about 3.2 million bpd
in 2005 to about 4.7 million bpd in 2014 (again, if my math is correct).
Based on the foregoing scenario, total global condensate production would have increased
from about 4.9 million bpd in 2005 (call it 5 million bpd) to about 8.8 million bpd in 2014 (call
it 9 million bpd), in implied increase of 4 million bpd, which would of course mean that rising
condensate production accounted for virtually all of the 2005 to 2014 increase in global C+C production.
In any case, note that the doubling in annual Brent crude oil prices from $55 in 2005
to $110 for 2011 to 2013 inclusive (remaining at $99 in 2014) provided an enormous incentive for
global oil and gas producers to increase their liquids production, wherever and however they could.
My principal point is that the available data strongly suggest that they weren't able to show
a material increase in actual global crude oil production (45 API and lower gravity crude oil)–despite
trillions of dollars spent post-2005 on global upstream oil and gas projects, Qater being a perfect
example.
Here is another argument supporting your position about distinguishing crude and condensate.
They really should be reported separately in oil production statistics.
Condensate energy content per unit of volume is less that oil as API gravity is an inverse
measure of a petroleum liquid's density relative to that of water.
In other words a barrel of, say, 60 API condensate (average of a typical 45-75 range) has less
energy (in BTU) than a barrel of 39.6 API oil (WTI). Using standard formula for number of barrels
in metric ton (API+131.5)/(141.5*0.159) we will get 8.5 barrels and 7.6 barrels per metric ton,
respectively.
As the amount of BTUs per unit of weight is probably close to constant that means that energy-wise
condensate with API 60 contains approximately 12% less of energy then oil with API 40.
In other words, mixing them in statistics inflates the total amount of energy produced. If
uniform statistics is desirable they should be counted using factor 0.9. This recalculation
will make peak oil phenomenon more visible in all graphs of world and countries production.
That also mean that countries and agencies reporting production in metric tons are
doing better job then countries reporting production in volume measures such as barrels. In
other words EIA sucks :-)
Here is an interesting article, I think that was published in 2015, on crude oil versus condensate
production in Qatar (of course, Qater is a member of OPEC). As I have previously discussed, the
crude oil versus condensate quality issue is not my principal point.
My principal point is that the available data strongly suggest that actual global crude
oil production has been on an "Undulating Plateau" since 2005, while global natural gas production
and associated liquids, condensate and NGL, have so far continued to increase.
Note that the OPEC 12 data that Ron compiled for me show that Qatar's reported crude oil production
fell from 0.8 million bpd in 2005 to 0.7 million bpd in 2014 (OPEC crude only data), while EIA
data show that Qatar's C+C production increased from 1.0 million bpd in 2005 to 1.5 million bpd
in 2014.
The global market is far more competitive these days, and 2014 saw a dramatic decline in
oil prices, which continued into 2015. In March 2015 Brent Crude was retailing at $57 per barrel.
Behind this is a global oversupply – Bloomberg reported that the UAE and Qatar estimated this
to be in the region of 2m barrels per day (bpd) in mid-January 2015. This is primarily the
result of surging US output, which was at a three-decade high. However, this output seems likely
to taper off, as falling prices make some of the fracking on which US production is based no
longer economically feasible. Furthermore, in 2014 Washington decided to allow exports of condensates
for the first time – oil exports having been banned since the 1970s oil crisis. Thus, the global
condensates market is also seeing a major supply surge, with press reports suggesting that
the US could add up to 1m bpd of these light oils to the export market during the next 10 years.
This is particularly relevant to Qatar, as condensates have come to represent a larger proportion
of the state's output than crude.
DEPLETION OF RESERVES: This has been for two main reasons. First, there is the depletion
of existing oilfields. Qatar Petroleum's (QP's) Dukhan field, the oldest, sent out its first
export cargo in 1939, although it remains one of the two largest fields in the country, along
with Maersk Oil's Al Shaheen. Qatar National Bank (QNB) figures show that total output has
declined continuously in recent years, from a peak of 845,000 bpd in 2007 to 733,000 bpd in
2010, 724,000 bpd in 2013 and 681,000 bpd in November 2014.
This is despite major investment in enhanced oil recovery (EOR). Some $6.6bn has been invested
in crude oil projects under Qatar's 2010-14 development plan, with much of this going into
EOR. At the same time, reports in local media state that Occidental is investing $3bn in water
injection to sustain production at the Idd Al Sharqi field, while ExxonMobil has made further
investments in Dukhan. Indeed, most of the investments currently ongoing in the oilfields are
of this kind, with the aim of maintaining and stabilising production.
"Our overall objective for the field is more to minimise production decline," Guillaume
Chalmin, the managing director and group representative of Total E&P Qatar, told OBG, referring
to his group's Al Khalij field. "This takes priority over increasing production."
. . . . CONDENSATES: The second factor affecting the condensates/crude balance is the
huge North Field, and the consequent expansion of natural gas output in the country. This has
led to a surge in the production of condensates on the back of new wells and projects aimed
at feeding Qatar's liquefied natural gas and gas-to-liquids sectors. Indeed, if the QNB figure
of 724,000 bpd of crude is compared with the BP figure of 1.995m bpd of total oil production
– which includes crude oil, light oil (from condensates), oil sands and natural gas liquids
– then condensates are likely responsible for over 1m bpd of Qatar's oil production. QNB
figures quoted by Business Quartermagazine in 2013 stated that while crude oil reserves were
an estimated 2.3bn barrels in 2011, condensate reserves were an estimated 22.3bn barrels,
with condensate production exceeding crude oil production in 2012, when it hit 900,000
bpd. . . .
HIGH-VALUE PRODUCTS: Condensates are hydrocarbons that exist in a gaseous state underground,
but which liquefy during the production process. They are thus a low-density mixture of hydrocarbons
and come from both oil wells, as associated gas, and from natural gas wells, where they exist
alongside raw natural gas and are known as non-associated or wet gas. Condensates can also
be produced from dry gas – natural gas that has no associated component – in gas processing
plants; this variety is known as plant condensate.
"... Hopefully after reading your comment, those who believe that the US is not an empire, shall have at least a bit clearer understanding of the fact(s) that: ..."
"... Japan, although de jure a developed democracy, is de facto the 51st state of the US and it is not its democracy and economic might that keeps China from sinking it, but indeed the 50000 US Military personal permanently staged in Okinawa ..."
"... It is not the South Korean peoples will that keeps the fat, ugly Kim (and the other fatter and uglier Kim-s before him) from turning Seoul into an ashtray within an hour, but indeed the 50000 US Military personal permanently staged there…. ..."
"... US does not spend more than the next 20 countries COMBINED in war/military just for the fun of it – but indeed to secure its unchallenged hegemony throughout the world. ..."
"... US does not maintain and pay for more than 200 military bases and installations (1/3 of them on a permanent status) throughout the globe just to enjoy the climate and eat sushi…, but indeed to influence affairs in EVERY corner of the globe. ..."
"... By directly and indirectly creating, fueling and influencing every (and I mean that literally: every and all!) war and conflict throughout the world since WWII gives a full and complete meaning to: ..."
"... Not only is the US an Empire, but it is an Empire that puts to shame all preceding ones ~ Stavros H ..."
"... Russia is at a massive disadvantage vis-a-vis NATO-GCC in anything other than nuclear capability: ..."
"…Our first objective is to prevent the re-emergence of a new rival, either on the territory of
the former Soviet Union or elsewhere, that poses a threat on the order of that posed formerly
by the Soviet Union. This is a dominant consideration underlying the new regional defense strategy
and requires that we endeavor to prevent any hostile power from dominating a region whose resources
would, under consolidated control, be sufficient to generate global power…" ~ 02/18/1992 Defense
Planning Guidance (aka: the Wolfowitz Doctrine). Authored by Under Secretary of Defense for Policy
Paul Wolfowitz and Scooter Libby.
Dear Stavros,
I have to say that your comment is a "must read" for the multitude of un-initiated commentators
who naively think the US is not an empire , or for those who have the 15 century understanding
of "Empire" and think that to be an empire the US must include more than Puerto Rico and the Virgin
Islands in/on its map…
The best and most synthetic comment (within the time/space limits of a blog akin to this) with
regard to history and geopolitics of the US Empire.
With the exception of a few outdated and "linear" thinking passages (i.e.: "…with Russia openly
defying the entire North-American-EU-Turkey-GCC-Israel complex despite a relative balance of forces
that is on paper nothing less than catastrophic (for Russia)…" – what Mr. Fermi did in Chicago
in 1942 and Mr. Oppenheimer et al, did in New Mexico in the Summer of 1945, reduce to irrelevancy
the amount and size of the adversaries of countries like Russia and the US when it comes to war…hint:
there will be no adversaries left and nothing to conquer afterwards!), I fully agree with your
assessment and comprehension of the "puzzle".
Hopefully after reading your comment, those who believe that the US is not an empire, shall have
at least a bit clearer understanding of the fact(s) that:
Japan, although de jure a developed democracy, is de facto the 51st state of the US and
it is not its democracy and economic might that keeps China from "sinking" it, but indeed the
>50000 US Military personal permanently staged in Okinawa (and GOD knows how many more "civilian"
personal). Young Chinese minds – whose most important history lesson taught in school to this
day is : "The rape of Nankin" know that very well!
It is not the South Korean people's will that keeps the fat, ugly Kim (and the other fatter
and uglier Kim-s before him) from turning Seoul into an ashtray within an hour, but indeed
the >50000 US Military personal permanently staged there….
US does not spend more than the next 20 countries COMBINED in war/military just for the
fun of it – but indeed to secure its unchallenged hegemony throughout the world.
US does not maintain and pay for more than 200 military bases and installations (1/3 of
them on a "permanent" status) throughout the globe just to enjoy the climate and eat sushi…,
but indeed to "influence" affairs in EVERY corner of the globe.
By directly and indirectly creating, fueling and influencing every (and I mean that literally:
every and all!) war and conflict throughout the world since WWII gives a full and complete
meaning to:
"Not only is the US an Empire, but it is an Empire that puts to shame all preceding ones"
~ Stavros H
I am impressed and will read you more attentively in the future.
Regarding my comment on Russia being "catastrophically" outgunned by the NATO-GCC-Israel complex
opposing her, allow me to attempt a clarification/elaboration.
Obviously, the existence of nuclear weapons (both tactical & strategic) and Russia's very own
formidable arsenal of such weapons almost certainly forestalls any hopes/plans that her enemies
may have had in launching some kind of 21st century Operation Barbarossa/Napoleonic invasion.
Notice that I say "almost" since at least a few western "security experts" believe that a surprise
decapitating "First Strike" could potentially neutralize Russia's nuclear deterrent and pave the
way for victory.
But, this being a 21st century Global Hybrid War, conventional/unconventional military assets
are not the only factor at play.
Russia is at a massive disadvantage vis-a-vis NATO-GCC in anything other than nuclear capability:
a) Conventional Air and Naval Forces. NATO's (read; US's) fleet roams the oceans. NATO's drone
fleet also handily exceeds Russia's in both quantity and quality.
b) Geostrategic reach. US-NATO boasts proxies and military bases bestriding most of the globe's
surface. NATO even has proxies on Russia's borders (a tremendous threat to Russia) That includes
the Baltic states (only minutes of flight between them and St. Petersburg) Georgia in the Caucasus,
as well most importantly and recently, Ukraine. Ukraine is now an open wound for Russia as well
as an existential threat.
c) Most importantly, NATO-GCC is immensely superior to Russia in economic terms. GDP, financial
assets, ability to issue currency, you name it. This allows NATO-GCC not only to buy more influence
around the global chessboard, but also to at least inflict short-term economic pain on Russia.
If Russia fails to cope, it will become much more than that.
d) "Soft Power". The "West" culturally dominates the world. And when I say culturally, I use
that term in its broadest sense. Not only films, music and fashion, but also in terms of language,
education, political and behavioral norms etc. Moreover, and this is quite crucial, NATO-GCC outguns
Russia in terms of propaganda outlets. Russia only boasts one state-funded TV network and a couple
websites and also has to rely on several "alternative media" websites in the West itself (which
it does not control or fund) but who are I think, its most prized asset in the "informational
war" sphere. People who feel disenfranchised in the West itself (mostly the far-left and the far-right)
have largely sided with Russia on this one. This is so for obvious reasons that I don't have to
go into right now.
On the other hand, NATO, possesses an entire global behemoth of propaganda factories, some
state funded, others partially so, others wholly private, but all of them with direct links to
western Intelligence Agencies, pushing a particular narrative in myriads of ways, at all times
adjusted to the targeted audience.
You must also add the so-called NGO's to the equation. In this arena, Russia owns little if
any assets. Her enemies on the other hand, again possess entire armies of "international agencies",
"charities", "watchdogs", "think-tanks" etc. All are designed to push the NATO agenda around the
globe, subverting any and all governments that step out of line. Their first and foremost target
is of course, you guessed it. These include: HRW, AI, SOHR, PHR and so on and so on ad infinitum.
Russia is of course scrambling to find asymmetrical ways to partially counter for this imbalance,
with some success, it has to said. It is in this vein that I made that claim.
No arguments what so ever! Fully agree, but just for the sake of discussion:
1- "Notice that I say "almost" since at least a few western "security experts" believe that
a surprise decapitating "First Strike" could potentially neutralize Russia's nuclear deterrent
and pave the way for victory." ~ Stavros
Those who say that (i.e: McCain, Graham etc) are first class morons!
Even if we had 90% success rate during that first strike would live them with 800+ high yield
heads which will assure there will be no winners.
Even if we had 99% destruction rate during the first strike (impossible even if we new where
they hide them…and I mean all 8000+ of war heads they possess.
They have more then all the others combined!) will still live them with 80+ deliverable high
yield heads – which still assures NO winners!
That is why smart people in the '60s and '70s called it MAD (mutually assured destruction).
2- "Conventional Air and Naval Forces. NATO's (read; US's) fleet roams the oceans. NATO's
drone fleet also handily exceeds Russia's in both quantity and quality."
Those are WWII technology which are successful against countries like Iran/Iraq/Vietnam/Granada/Libya/Argentina/Brasil
etc, etc.
But against Russia/China and the new generation hyper-sonic anti ship weaponry and EMP/electronic
jamming technology they are truly and utterly VERY expensive sitting ducks.
However the flip side of the steep Shale decline curves in a high drilling
environment is much flatter decline curves in a low drilling environment.
So once the initial drop is weathered Shale oil will produce much more steadily
albeit at a lower rate from existing wells. Add some drilling and completions
and the supply from Shale will chug along undramatically. Even if a number
or even all of the over-indebted players crash, their wells will still be
there, snapped up cheaply and still produce.
Still Shale has shot its bolt, done its worst, and the story of marginal
supply turns back to the Middle East, after all, while so many in the MSM
were banging on about the KSA or their arch rival Iran, it has been Iraq
that added the extra 1 mbps over last 18 months: 3.2 to 4.2 mbps mid 2014-2015.
Has this trajectory got more legs? If so it may happily replace Shales
flop till it flattens out, preventing any major price correction to get
the roustabouts rigging up again on baleful steppes of North Dakota.
How was the development in Iraq funded – my guess is various sources of
very low interest loans? All the new production has involved western, Chinese
or Russian oil companies which would have had low interest funds available
and the IMF has made some money available directly to the Iraq government.
Iraq and Kurdistan are going bust at the moment.
So it looks a lot like the shale plays: cheap money -> over investment
-> over production -> low prices -> pump harder to cover the losses -> bankruptcy
-> something far worse in Iraq than will be seen in ND and Texas I expect.
"…it has been Iraq that added the extra 1 mbps over last 18 months: 3.2
to 4.2 mbps mid 2014-2015. Has this trajectory got more legs? "
From IEA World Energy Outlook 2014:
"Iraq remains the largest source of global oil production growth over the
entire period to 2040, even though our outlook is progressively getting
closer to the "Delayed Case" examined in WEO-2012, in which institutional
and political obstacles were assumed to hold back upstream investment in
Iraq."
Projected C+C+NGL production in Iraq and Iran (mb/d)
source: IEA WEO-2014
The article is weak and one-sided, but some facts (or more correctly fuzzy estimates) are
interesting. While this is not an objective assessment of russian conditions, it is pretty good
assement of Western sentiments toward Russia as reflected in MSM.
Notable quotes:
"... in the key Soviet-era fields in western Siberia, the annual rate of depletion is averaging 8 percent to 11 percent, while new projects are being curtailed. ..."
"... According to the Telegraph [ article by Ambrose Evans-Pritchard ( 14 Jan 2016)], Transneft, the Russian crude and product pipeline monopoly, estimated that Russian crude exports could decrease in 2016 by some 460,000 barrels per day, based on producer applications for pipeline capacity. ..."
"... At the end of Q3, Rosneft's net debt stood at $24 billion. ..."
"... Rosneft likely cannot generate the cash to cover its investment, interest, and debt repayment obligations. ..."
Until recent weeks, the Russian government had some basis to
harbor hope that GDP, after contracting ~3.5 percent in 2015, would
return to growth within this two year window. As late as Q3 2015,
the IMF estimated that in 2016, GDP would grow, if only anemically
at below 1 percent.
Recent crude price action, however, has dashed such hopes and
instead has raised the prospect of a deeper and longer recession.
In a "stress" test it conducted in November, the Russian Central
Bank estimated that with Ural crude prices
below $40 per barrel between 2016-2018, the Russian economy
would contract five percent in 2016, inflation would run at 7-to-9
percent, and that these conditions "would also raise risks to
inflation and financial stability.
Central Bank efforts to stabilize the Ruble and contain
inflation are one reason the "stress" test results may prove
prescient. The plunge in crude prices is preventing the Central
Bank from easing monetary policy to stimulate the economy. Friday,
January 29, it announced that it would keep its benchmark interest
rate at 11 percent, to support the Ruble (which fell as low as
~R82.5/US$ last week before recovering to ~RUB75.5/US$ on January
29) and contain inflation. In its announcement, it noted that its
next move could be to raise rather than lower the benchmark rate,
were inflationary pressures to increase.
.... ... ...
The Russian government is also contemplating asset sales
(including part of its stake in Rosneft and in VTB, a major bank),
but such sales would provide one-time boosts to revenue and in any
case would take time to organize. Borrowing is a possibility, since
Russia's sovereign debt is low, but the Russian government can't
access U.S. and European capital markets, closed to it due to U.S.
and EU sanctions related to the conflict over Ukraine).
The Russian energy industry is also a target-and potentially a
lucrative one, given the structure of Russian taxes on the
industry. In 2015's first three quarters, for example, low crude
prices decreased the revenues the Russian government collected in
export customs duties from Rosneft, Russia's largest producer, by
RUB 520 billion (RUB 1058 billion to RUB 738 billion), while taxes
other than income taxes increased only RUB 80 billion, from RUB 919
billion to RUB 1009 billion).
It is therefore not surprising that in September, the Russian
Finance Ministry attempted to increase the mineral extraction tax.
Industry opposition and opposition from other Russian
ministries-citing the negative impact on investment and
output-forced it to back down (Venezuela is an example, admittedly
extreme, of what happens when government raids on industry revenues
to fund current operations squeezes investment). It proposed
instead to slow down the planned decrease in crude export duty rate
(from 42 percent to 36 percent. Also under consideration is a
windfall profits tax on Russian energy exporters benefitting from
the Ruble's depreciation.
Deteriorating Energy Industry Conditions
The situation of Russian energy producers is also difficult. The
Telegraph (UK) in early January quoted Russia's deputy finance
minister, Maxim Oreshkin, as telling TASS earlier this month that
low crude prices could lead to "hard and fast closures in coming
months." The article also said noted that in the key Soviet-era
fields in western Siberia, the annual rate of depletion is
averaging 8 percent to 11 percent, while new projects are being
curtailed.
According to the
Telegraph
[ article by Ambrose Evans-Pritchard ( 14 Jan 2016)], Transneft, the Russian crude and
product pipeline monopoly, estimated that Russian crude exports
could decrease in 2016 by some 460,000 barrels per day, based on
producer applications for pipeline capacity.
In an interview with TASS, the Russian news agency last week,
Lukoil Vice President Leonid Fedun commented that Lukoil
was unlikely to produce the one hundred million tons it
produced in 2015. He also said that it made more economic sense to
sell one barrel of oil for $50 than two barrels for $30.
Gazprom, Russia's natural gas giant, shows signs of stress. In
recent weeks, it has instituted a series of cuts in investments.
January 11, Reuters reported Gazprom cancelled one tender in
December and three tenders in January for work on the construction
of the Ukhta-Torzhok pipeline, a domestic key component of pipeline
system which will transport natural gas directly to Germany through
the Nord Stream II pipeline. According to Reuters, Gazprom Neft (of
which Gazprom is the majority shareholder) recently
terminated negotiations to acquire a 49 percent stake in
Vietnam's Binh Son Refining and Petrochemical, a subsidiary of
Vietnam's state-owned PetroVietnam.
A January 15
Reuters article quoted "sources close to Gazrpom" as saying
that Chinese economic problems and low energy prices have reduced
the volume of natural gas Gazprom expects to export to China via
the Power of Siberia pipeline-the project on which Gazprom has bet
its future-when it is completed. Given the already questionable
economics of the Power of Siberia project, reduced volumes will
intensify doubts about the project's financial viability and future
(Putin
Is Taking A Big Risk With China Gas Deals).
Overleveraged, Rosneft's Pain is Particularly Acute
The pain for Rosneft, the company which the Russian government
hoped would gain the size necessary to compete on equal terms with
Western oil majors, is particularly acute. As part of its effort to
gain scale, the company in 2013 took on massive debt-$40 billion
according to Reuters-to finance its acquisition of Russian
competitor TNK-BP for $55 billion.
To help pay down debt, Rosneft, also in 2013, concluded an
agreement with Chinese National Petroleum Corporation to supply 400
million metric tons of crude over twenty five years, under which
Rosneft was entitled to receive prepayment equal to 30 percent of
the contract's value (Rosneft received RUB 1027 billion in 2015
Q3).
At the end of Q3, Rosneft's net debt stood at $24 billion. Yet, Alexey Bulgakov, a fixed income analyst at Sberbank CIB
estimates that Rosneft may already have accessed the maximum amount
of cash it can under the deal, given the decline in price from
~$100-plus per barrel in 2013 to ~$30 per barrel now and the terms
of the agreement.
And, should crude prices remain at current levels, Rosneft
likely cannot generate the cash to cover its investment, interest,
and debt repayment obligations.
Russian government officials and energy producers argue that a
depreciating Ruble has attenuated the impact of lower crude prices,
since each US$ generates more Rubles, which is important given that
the bulk of their expenses are in Rubles. This, however, isn't the
only impact of a weak Ruble. It can also cause inflation, and this
has been the case in Russia.
Dalan McEndree has a BA in history, MA in European History, M.Phil. in Russian and Soviet
history, Soviet economics, and International economics, and MBA in finance and marketing. He also
studied at the East European Institute of Berlin's Free University and the U.S. Army Russian
Institute in Garmisch, Germany (now the George C. Marshall European Center for Security Studies).
His career has focused on the Soviet Union and Russia, and has included fifteen years in Russia
as a U.S. diplomat, in business, working both for international and Russian businesses, and in
consulting. He is also the author of several self-published Russia-focused murder mysteries, and
two satires.
That is an outstanding thread on a very high quality site.
If you did not view the video on Haliburton's CobraMax DM BHA that Lenny Masseras (sp?) embedded
in that thread, you may greatly appreciate checking it out.
I think that is the approach Haliburton is pushing for both frac'ing and refrac'ing.
The tsunami of expected bad news is starting. Freeport McMoran announced late last week that it
is immediately idling all 3 of its drillships in the Gulf of Mexico. The 3 are under leases that
extend into 2017 for amounts that average over $500,000 per day. They are recording a charge of
about $1.5 billion IIRC. If they continued to drill with them, they said that their spend would
be double that. So they are trying to conserve cash and also will be trying to negotiate amended
contracts. Today Ultra Petroleum was downgraded to junk as it appears that they will not be able
to meet a $62 million debt payment due in March. Restructuring ahead. Traded at $100 in 2008.
The good news might be that 60 days from now, everyone will realize that either the oil industry
is going away or that prices have to rise. By then, it should be obvious that production is going
to fall significantly.
Today, Michael Rothman [he used to be Merrill Lynch's chief oil analyst for many years dating
back to the at least the early 90's, and who is now on his own] said that after the winter is
over, it will be pretty obvious that supply and demand are in fairly close balance. His prediction
– back to $85 by year end. He always was a very analytical numbers guy. He also said that once
you start to see a draw in inventories, it will be a long time before they start building again.
Today, Pickens called the $26.10 as the bottom, with a double by year end.
In January, China had a record number of tankers under contract to fill storage. As you know,
they are building an oil reserve like the US has. That should be "permanent" storage for the foreseeable
future.
I think that Ron's call of an oil production peak for the 12 month period ending in October
2015 (?) should be good for at least four years, if not forever.
An excellent article-but as someone pointed out above, much of it we already know.
However, what this piece fails to point out are the political consequences of the crash in US
oil and gas production. This is going to be worse than the energy crash itself.
Citizens of the United States, along with just about everyone else in the industrialised world
are in denial mode right now. Everything is fine: gas pumps work and the lights are still on,
what's the problem?
There is an absolute certainty that the energy crisis, if it should manifest itself to any meaningful
degree, is merely a political problem that can be dealt with by voting the right leader into office.
Back in 2011, in the run up to the 2012 presidential election, I wrote the following, (you'll
have to take my word for it):
--–
1……It's not the 2012 election you have to worry about, it's 2016 or 2020.
While a lot of us laugh at this kind of loonytoon politics, millions of desperate people don't.
2……Now look ahead to 2016 or 2020. We've already seen whack-job candidates up for election
as president, luckily they were laughed out of court. In 4 or 8 years time when the economy has
really collapsed, some real godnuts will surface to offer 'solutions' and voters will be ready
to grasp at any form of insanity if it promises 'salvation' and restoration of 'the American Dream'.
----
My only error was that Trump isn't a godnut. He is however a fascist, which extreme religious
type mania requires one to be. He promises to make America "great again" without the slightest
idea of what made America great in the first place.
He, and the millions who believe his rantings, are convinced that we live in an economy supported
by endless cashflow that must of itself deliver endless prosperity. As this article makes clear,
(obvious to anyone willing to think) we live in an economy dependent on endless energy flow.
But very few do think, and the certainty persists that prosperity can be voted into office. It
won't work of course, and if by some insane twist of fate Trump got into office, his empty posturings
will sow the seeds of anarchy as the nation sinks deeper into the mire of energy depletion.
So by 2020, with Trump shown to be impotent, the next incumbent is likely to offer ever more
radical solutions, and the desperate millions will vote him into office as a repeated act of desperation.
The politics of 2020? Almost certainly a theocracy-nothing else will have worked by then. But
prayers will not refill the oilwells either and there will be less and less energy available to
hold the nation together. That makes break up inevitable, despite violent resistance to that breakup.
The cracks are already there along ethnic, religious and geographic lines. Add in the inequalities
of food and water production/distribution (entirely energy dependent) and you have the scenario
for secession into at least 5, maybe 6 separate nation states, during the coming century, or maybe
only a decade or two.
"... Saddam Hussein as the boogie man was a creation of media hype. He was a garden variety psycho-dictator who was completely ruthless in his attempts to hold onto power. But he was our boy. And on one was more shocked than he was when we turned on him. You say you are interested in keeping the oil flowing from Iraq? What was Saddam going to do with it? Drink it? The falling out between Saddam and the Bushes was a personal issue. ..."
"... Stemming from the first Gulf war. He thought that Bush I had his back because of his fight with Iran and the fact that the Kuwaitis were stealing Iraqi oil via horizontal drilling. Of course he was an idiot, but there is little doubt that this is what he thought. Given our support of his regime in their struggle with Iran he had every reason to consider us his ally. The fact that otherwise intelligent people buy into the revisionist history of this period still amazes me after all these years. ..."
"... For instance, the F-35 program alone might pay the extra cost of the oil. And why would a U.S. in a basically defensive posture require an F-35 (or least one that actually worked)? ..."
"... But we get most of our imports from Canada and Mexico. Besides, the exporters will continue to *sell*, just at a higher price. And if we could shave a few hundred billion off the security budget, it would probably be more than enough to offset. ..."
The "Empire" dissolved after the neocons got their war on in Iraq. This exposed the limits of
military power in the 21st century and although we spend more than every other nation on Earth
combined on conventional weaponry we demonstrated for all to see that this is insufficient to
impose your will on a recalcitrant population. A lesson that the right wing in this country has
yet to fully absorb.
"that this is insufficient to impose your will on a recalcitrant population. A lesson that
the right wing in this country has yet to fully absorb."
I would not be so sure and smug about that conclusion. The oil is still flowing, to anybody
with the wherewithal to pay for it.
Do you think it would be flowing freely if Saddam Hussein had been left in power? Do you think
it will flow freely if ISIS is allowed to come to undisputed power in two or three major oil exporting
countries?
There is no good evidence, so far as I can see, to indicate that Uncle Sam, along with a few
friends, will not send as many troops as necessary back to Sand Country to KEEP it flowing, if
necessary.
Those of us who are opposed to right wing type thinking and policies generally fail to recognize
what CAN be accomplished with military power.
It is true that we might have to go back to Iraq, etc, once in a while, but given the choice
of paying that price, and paying the price of doing without a world market in oil, freely traded.
HRC, or Bernie Sanders, or the Trump Chump, or whoever winds up in the White House, pay
the price, again, if necessary, and send the troops. The opposition will go along, as it has gone
along in the past.
Fighting an unpopular war is less of a political problem than dealing with a deep economic
depression, and the inability to import oil would certainly bring on a very deep depression very
quickly indeed. ( And for what it is worth, the msm know which side their bread is buttered on,
and that their existence is based mostly on advertising revenues. No bau, DAMNED LITTLE AD REVENUE!
)
The doves will make a lot of hay about five or ten thousand dead young Americans, but the truth
is we kill that many in automobile accidents alone, as fast or faster than we have gotten them
killed in combat in recent times.
We will finally quit mucking around in Sand Country when there is no longer enough oil left
there to make the mucking around profitable to us, or until oil becomes obsolete. I personally
think the oil will run out sooner than we will learn how to get by with out it.
I may come across as redneck warmonger, but that is not my intent. My intent is to be realistic.
I am a hard core advocate of building renewables , pedal to the metal, from here on out, in large
part to reduce the likelihood of more hot resource wars.
We can't prevent them all, but we can certainly reduce the number THAT MIGHT OTHERWISE HAPPEN.
Yes, such wars are ruinously expensive, but they are still a hell of a lot cheaper than
full blown economic depressions or outright economic collapse.
Saddam Hussein as the boogie man was a creation of media hype. He was a garden variety psycho-dictator
who was completely ruthless in his attempts to hold onto power. But he was our boy. And on one
was more shocked than he was when we turned on him. You say you are interested in keeping the
oil flowing from Iraq? What was Saddam going to do with it? Drink it? The falling out between
Saddam and the Bushes was a personal issue.
Stemming from the first Gulf war. He thought that Bush I had his back because of his fight
with Iran and the fact that the Kuwaitis were stealing Iraqi oil via horizontal drilling. Of course
he was an idiot, but there is little doubt that this is what he thought. Given our support of
his regime in their struggle with Iran he had every reason to consider us his ally. The fact that
otherwise intelligent people buy into the revisionist history of this period still amazes me after
all these years.
Cast your mind back to the early 80's when Iran was the devil that took our hostages and
plucky little Iraq was fighting the good fight against these heathens. I remember a 60 Minutes
segment with Leslie freakin Stahl in the trenches with Saddam damn near worshipping the fool.
Even after he invaded Kuwait Bush wasn't going to do a damn thing about it until Maggie Thatcher
shamed him into it by questioning his manhood. Christ the whole thing is just a sick joke.
But you're not running the numbers: What is your estimate of the additional cost to the U.S. if
there was less of an export market in petroleum?
… and …
How much do you think we could save by not trying to project military power around the globe?
For instance, the F-35 program alone might pay the extra cost of the oil. And why would
a U.S. in a basically defensive posture require an F-35 (or least one that actually worked)?
But we get most of our imports from Canada and Mexico. Besides, the exporters will continue
to *sell*, just at a higher price. And if we could shave a few hundred billion off the security
budget, it would probably be more than enough to offset.
Might not even hurt our balance of payments that much, considering how much money is spent
with foreign contractors in this age of "privatization"
SW, "A lesson that the right wing in this country has yet to fully absorb."
I do not think this process even started. May be with a new POTUS in 2017. And as for foreign
policy Dems are not that different from the right wing. Obama administration actions were from
the playbook of Bush II administration almost 100%. See also
"... The U.S. Empire is in serious trouble as the collapse of its domestic shale gas production has begun. This is just another nail in a series of nails that have been driven into the U.S. Empire coffin. ..."
"... Unfortunately, most investors don't pay attention to what is taking place in the U.S. Energy Industry. Without energy, the U.S. economy would grind to a halt. All the trillions of Dollars in financial assets mean nothing without oil, natural gas or coal. ..."
"... As I stated several times before, the financial industry is driving us over the cliff. ..."
The U.S. Empire is in serious trouble as the collapse of its domestic shale gas production has
begun. This is just another nail in a series of nails that have been driven into the U.S. Empire
coffin.
Unfortunately, most investors don't pay attention to what is taking place in the U.S. Energy
Industry. Without energy, the U.S. economy would grind to a halt. All the trillions of
Dollars in financial assets mean nothing without oil, natural gas or coal. Energy drives
the economy and finance steers it. As I stated several times before, the financial industry
is driving us over the cliff.
"... I would understand the US empire as an economic domination as reflected in the dollars role in the worlds economy. ..."
"... The only constant is that the empire has always been backed by military supremacy. ..."
"... As Colonel Bacevich noted the USA did not fundamentally change its foreign policy after the Cold War, and remains focused on an effort to expand its control and propagate neoliberalism all over the world, crushing any regime that offer resistance. ..."
"... As the only surviving superpower at the end of the Cold War, the U.S. should focus on world dominance according to former Under Secretary of Defense for Policy Paul Wolfowitz in 1991. His so called Wolfowitz doctrine was a blueprint for Iraq, Libya and Syria invasions and a set of neoliberal color revolutions accomplished by the USA since 1991. ..."
"... May be neoliberal hegemony is a better term then empire. The influential set of US politicians are called neoconservatives (that includes Jeb!, Hillary, Rubio and Cruz, but not Trump). Foreign policy of all administrations since Clinton was based on the recommendations of the Project for the New American Century https://en.wikipedia.org/wiki/Project_for_the_New_American_Century ..."
"... I oppose military interventions in foreign countries as a question of principle. I did oppose the second Gulf war, and I did oppose the intervention in Libya. My country participated in both in a supporting role. I guess my position has been vindicated by developments. ..."
"... Ron, the USA does have an oil policy. Its called The Carter Doctrine. I can think of only one reason why the USA cares about the Persian Gulf. Unless theres something other than oil behind the Carter Doctrine then Id say its an oil policy within foreign policy. ..."
"... Come on, Ron. The issue in the first Iraq war was Kuwait doing horizontal drilling under the border. Iraq felt that this was tantamount to stealing its oil ..."
I would understand the US empire as an economic domination as reflected in the dollar's role
in the world's economy.
From the Spanish empire that was all about land dominance to the British empire that was built
on commerce and the US empire on economic dominance, there has been an evolution of the empire
concept as the world changed. The only constant is that the empire has always been backed
by military supremacy.
It seems I did not explain myself. The dollar's role in the world economy is a reflection of the
US economic dominance, not its basis. Quite a few countries have had their currencies pegged to
the dollar or their economies directly dollarized.
Military dominance is not required to enforce the role of the dollar, but to command the respect
that makes it difficult to be challenged. US has used its military dominance to enforce its oil
policy through several oil wars and interventions.
"According to academics from the Universities of Portsmouth, Warwick and Essex, foreign intervention
in a civil war is 100 times more likely when the afflicted country has high oil reserves than
if it has none. The research is the first to confirm the role of oil as a dominant motivating
factor in conflict, suggesting hydrocarbons were a major reason for the military intervention
in Libya, by a coalition which included the UK, and the current US campaign against Isis in northern
Iraq."
US Oil policy has been to guarantee an adequate supply of oil from the Middle East at a stable
affordable price. That has always been the motivation behind interventions, and alliances policy
with the Middle East countries. All the rest is just lies for public consumption.
Javier says he is smart – "foreign intervention in a civil war is 100 times more likely when the
afflicted country has high oil reserves."
Right with respect to the US? Let's see – Korea in 1950; Vietnam in 1965; Nicaragua in 1980's;
all "civil wars" but, NO OIL. Grenada in 1980's – not a "civil war" and NO OIL.
Iraq/Kuwait – Not a "civil war." Iraq in 2003 – not a "civil war." Afghanistan 2002 – "maybe"
a civil war, but NO OIL.
Clueless, to have a clue about someone's position perhaps you should at least glance at the information
provided on which it is based.
From the third link (scientific article):
"The US for most of the period studied here provides an example at the high end of the
oil dependence spectrum (i.e., high reserves, high demand for oil). Consistent with this we
see recurrent US involvements in the civil wars and internal affairs of Angola from 1975 until
the end of the cold war. The US was the country with the highest demand for oil during this
period, and it was known from the 1970s that Angola had oil reserves. Oil in Angola was first
discovered in 1955, and many US corporations, like Chevron, have been operating in the oil-rich
Cabinda region for more than fifty years. The US has also intervened in a number of other countries
with proven large oil reserves, such as in Guatemala, Indonesia and the Philippines over the
period covered by our dataset (1945-1999)."
And no, I do not claim to be smart. That is something that it is either recognized by others
or it isn't. Instead of claiming to be smart you should start acting likewise.
As Colonel Bacevich noted the USA did not fundamentally change its foreign policy after
the Cold War, and remains focused on an effort to expand its control and propagate neoliberalism
all over the world, crushing any regime that offer resistance.
Skeptics of your position should read his book AMERICAN EMPIRE
As the only surviving superpower at the end of the Cold War, the U.S. should focus on world
dominance according to former Under Secretary of Defense for Policy Paul Wolfowitz in 1991. His
so called "Wolfowitz doctrine" was a blueprint for Iraq, Libya and Syria invasions and a set of
neoliberal color revolutions accomplished by the USA since 1991.
May be neoliberal hegemony is a better term then empire. The influential set of US
politicians are called neoconservatives (that includes Jeb!, Hillary, Rubio and Cruz, but not
Trump). Foreign policy of all administrations since Clinton was based on the recommendations of
the Project for the New American Century
https://en.wikipedia.org/wiki/Project_for_the_New_American_Century
Compared with traditionalist conservatism and libertarianism, which are non-interventionist,
neoconservatism emphasizes confrontation, and regime change in countries hostile to the interests
of the United States. It is extremely jingoistic creed. The unspoken assumptions of neocons ideology
have led the United States into a senseless, wasteful, and counter-productive posture of perpetual
war. It is a foreign policy equivalent to Al Capone idea that "You can get much farther with a
kind word and a gun than you can with a kind word alone". It is very close to the idea that "War
is a natural state, and peace is a utopian dream that induces softness, decadence and pacifism."
The problem here is that it's the person who promotes this creed can be shot. Of course neocons
are chickenhawks and prefer other people die for their misguided adventures.
John McGowan, professor of humanities at the University of North Carolina, states, after an
extensive review of neoconservative literature and theory, that neoconservatives are attempting
to build an American Empire, seen as successor to the British Empire, its goal being to perpetuate
a Pax Americana. As imperialism is largely considered unacceptable by the American media, neoconservatives
do not articulate their ideas and goals in a frank manner in public discourse but use "noble lie"
approach.
== quote ==
Frank neoconservatives like Robert Kaplan and Niall Ferguson recognize that they are proposing
imperialism as the alternative to liberal internationalism. Yet both Kaplan and Ferguson also
understand that imperialism runs so counter to American's liberal tradition that it must… remain
a foreign policy that dare not speak its name… While Ferguson, the Brit, laments that Americans
cannot just openly shoulder the white man's burden, Kaplan the American, tells us that "only
through stealth and anxious foresight" can the United States continue to pursue the "imperial
reality [that] already dominates our foreign policy", but must be disavowed in light of "our
anti-imperial traditions, and… the fact that imperialism is delegitimized in public discourse"…
The Bush administration, justifying all of its actions by an appeal to "national security",
has kept as many of those actions as it can secret and has scorned all limitations to executive
power by other branches of government or international law.
Clueless, you forgot Somalia, no oil. All those places shoots the hell out of that "100 times
more likely" bullshit.
US Oil policy has been to guarantee an adequate supply of oil from the Middle East
at a stable affordable price. That has always been the motivation behind interventions,
and alliances policy with the Middle East countries.
Yeah right. That's the reason we went to war with Iraq when they tried to confiscate Kuwait?
That being said, even if it was, just who the hell was the beneficiary of keeping Saddam from
invading Saudi Arabia and eventually taking over the entire Middle East oil supply?
Was it only the US? Or perhaps every importing nation on earth was just as much the beneficiary
as was the US. We footed the bill and sacrificed the lives but Germany, Spain, Brazil, Japan,
South Korea, and all of Europe got the benefit.
If the US has a policy of trying to stabilize the world, then all the rest of the civilized
world outside the Middle East is the beneficiary including your home country Javier. Or
perhaps you would rather we let Saddam have Kuwait… then Saudi Arabia, then then the UAE, then
Oman, then…..
You know, sometimes this "knock America" bullshit just starts to wear thin.
"All those places shoots the hell out of that "100 times more likely" bullshit."
If you are going to contradict a published scientific study you should do it on something
more than your opinion, don't you think? The article analyzes hundreds of civil wars between
1945-1999 for third party interventions. Military interventions are very expensive. Being a
country with significant oil reserves and oil exports makes a foreign military intervention
a lot more likely. Had Kuwait not have any oil I doubt a lot of countries would have bothered.
Regarding "knock America" I do not espouse any of that. I have not criticized US policy.
I just have stated what it is. I am a realist, but pardon me for not thinking that America's
main interest is to improve the world. Any country is primarily interested in defending its
interests and USA is no different. My country being in the same alliance both benefits and
pays a price, and stays in that alliance because it suits its interests.
If you are going to contradict a published scientific study you should do it on something
more than your opinion, don't you think?
I did, there were 5 civil wars listed that had nothing to do with oil. 100 to 1 would mean
there had to be 495 that did deal with oil.
The article analyzes hundreds of civil wars between 1945-1999 for third party interventions.
Welllllll, I have a problem here Javier. A quote from the article:
The report's starkest finding is that a third party is 100 times more likely to intervene
when the country at war is a big producer and exporter of oil than when it has no reserves.
That is pure bullshit. Of the top 28 countries, other than the US, all those that produce
more than half a million barrels per day, only two, Iraq and Libya, did the US have any interface
with.
But the article goes on to say:
The study, published in the Journal of Conflict Resolution, analysed 69 civil wars
between 1945 and 1999,
69 ain't hundreds Javier. And of all the countries in the world, only 29, counting the USA,
that produced more than half a million barrels per day. And only two had American intervention.
They are listed below along with the oil they produced in June 2015. The numbers are thousand
barrels per day.
10,240 Saudi Arabia
10,234 Russia
9,296 United States
4,409 China
4,325 Iraq
3,608 Canada
3,300 Iran
2,820 UAE
2,550 Kuwait
2,500 Venezuela
2,396 Brazil
2,283 Mexico
2,220 Nigeria
1,850 Angola
1,595 Norway
1,567 Kazakhstan
1,537 Qatar
1,370 Algeria
1,010 Colombia
993 Oman
880 United Kingdom
867 Azerbaijan
822 Indonesia
771 India
620 Malaysia
541 Ecuador
534 Argentina
511 Egypt
410 Libya
"In the 344 armed interventions in civil wars that took place from 1945 to 1999"
There can be military interventions from multiple countries in a single war as we have seen.
The data they have used is from other independent studies. Perhaps their study or their
model is wrong, but I don't see much reason to doubt their result. We all know about resource
wars, and oil is the main resource. I don't see that their result is controversial.
Our interest is your interest.
Mostly yes, but I oppose military interventions in foreign countries as a question of
principle. I did oppose the second Gulf war, and I did oppose the intervention in Libya. My
country participated in both in a supporting role. I guess my position has been vindicated
by developments.
Ron, the USA does have an oil policy. It's called The Carter Doctrine. I can think of only
one reason why the USA cares about the Persian Gulf. Unless there's something other than oil
behind the Carter Doctrine then I'd say it's an oil policy within foreign policy.
Come on, Ron. The issue in the first Iraq war was Kuwait doing horizontal drilling under
the border. Iraq felt that this was tantamount to stealing its oil
When Saddam complained to the Bush administration, he was told that the U.S. regarded
this as purely an inter-Arab affair. The fact that Bush immediately jumped on the invasion
as an excuse for war strongly suggests that Iraq was being "set up".
Or, Kuwait was being "set up" in order to agree to a big U.S. military presence. Either
interpretation suggests a conscious extension of "empire".
Low oil prices have led to $14 billion in losses for independent oil explorers last year.
Major US shale oil companies such as Hess, Continental Resources, and Noble Energy announced
major cutbacks in capital spending in the coming year. The cuts were steeper than analysts had
expected. Halliburton oil services company reported a 9 percent drop in revenue, year over year,
in the fourth quarter. The company reported a loss of $28 million in the fourth quarter as
compared to a $901 million profit in the last quarter of 2014.
... ... ....
China's economy and stock markets are still having troubles. A new inquiry into the National
Bureau of Statistics has again raised the issue of whether China's economic growth is anywhere
near the claimed 7 percent. Many outside observers are saying that 3-4 percent is more realistic
given that electricity consumption did not grow last year.
"... When the peak is reached, supply will either remain flat or decline regardless of the price of oil ..."
"... There will also be a demand response to high oil prices over the medium to long term (3 to 10 years), with higher oil prices (I am thinking $150/b or more in 2016$) ..."
There will certainly be responses on both the supply and the demand side.
When the peak is reached, supply will either remain flat or decline regardless of the price
of oil . The price of oil will affect mostly the rate of decline (high oil price will
reduce the decline rate ceteris paribus). There will also be a demand response to high oil
prices over the medium to long term (3 to 10 years), with higher oil prices (I am thinking $150/b
or more in 2016$) leading to better urban design, more public transportation, goods shipped
by rail, electrification of rail and water shipping, more plug-in hybrids and EVs in rural areas,
possibly excess renewable energy used to produce hydrogen to power fuel cell vehicles in rural
areas, along with the development of an HVDC grid.
These will be the types of responses to the cost of all fossil fuels rising as the peak in
energy output from all fossil fuels might be in 2027. The scenario below is based on medium scenarios
for oil (URR=510 Gtoe of C+C+NGL), coal (URR=510 Gtoe or 1050 Gt), and natural gas (URR=490 Gtoe
or 19,000 TCF).
The total URR is about 1500 Gtoe (billions of tonnes of oil equivalent) or 63,000 EJ (exajoules=1E18
J). This is about the same as Steve Mohr's medium (case 2) URR for all fossil fuels which was
61,000 EJ (1460 Gtoe). The scenario peaks in 2027 at 13.1 Gtoe/year and decline rates for all
energy from fossil fuels remain under 1.5% per year until 2056 and remain below 1.9% until 2100.
For comparison 2014 fossil fuel output was 11.5 Gtoe/year.
This scenario assumes demand for fossil fuels remains robust until 2070 and can be seen as
the maximum possible output given the URR assumptions. A major World recession and/or a relatively
fast transition to an increased use of wind, solar, geothermal, nuclear, and other types of non-fossil
fuel energy would reduce the output of fossil fuels relative to this scenario.
"... He explained that Iran will not be able to access much of its money that
has been locked up overseas due to sanctions because the money has already been
committed elsewhere. ..."
"... On Wednesday, Lew estimated that Iran's demand for domestic investment
surpasses $500 billion, and that it will cost between $100 billion and $200 billion
to restore production levels in its oil and gas sector. ..."
Why do Republicans put out the notion that the Iran deal was Obama's
idea and that Iran gets $150 billion. This is totally incorrect. It's a
deal from the 5 countries in the UN Security Council + Germany & the EU
and Iran. This from the Huffington Post:-
"WASHINGTON -- Iran will receive approximately $55 billion in sanctions
relief once the nuclear deal is implemented, said Treasury Secretary Jack
Lew -- a fraction of the $150 billion that critics of the agreement have
claimed will go to the country.
"There is a lot of discussion out there that Iran is going to somehow
get $150 billion as soon as sanctions are lifted. That is incorrect," said
Lew, speaking at a breakfast hosted by the Christian Science Monitor on
Wednesday. He explained that Iran will not be able to access much of
its money that has been locked up overseas due to sanctions because the
money has already been committed elsewhere.
Last week, Lew told a group of senators that over $20 billion of Iran's
frozen assets has already been committed to infrastructure projects with
China, and that Iran owes an additional "tens of billions" of dollars on
nonperforming loans to its energy and banking sectors.
On Wednesday, Lew estimated that Iran's demand for domestic investment
surpasses $500 billion, and that it will cost between $100 billion and $200
billion to restore production levels in its oil and gas sector.
"... Looks like about 4-5 Mb/d of condensate is produced in the World. As long as this can be easily blended into liquid fuels (such as gasoline) at refineries, it makes sense to call it "oil" as there is a wide range of stuff we are willing to call oil (such as bitumen). ..."
Total global liquids supply in 2040: 121.7 mb/d,
or 118,8 mb/d excluding refinery processing gains.
or 114.5 mb/d ex. proc. gains and biofuels.
Note, that AEO 2015 was issued in early 2015 and apparently prepared in late 2014, when
oil prices were significantly higher.
The AEO 2015 projects Brent price at $71 in 2016 gradually rising to $141 (in $2013) by
2040.
I expect AEO 2016 global liquids supply projections to be lower than in last year's issue.
Enhanced recovery don't seem to get much credit here.
;-)
Notice that the IEA don't have us reaching 80 mbd, C+C, until 2030, a point that the EIA says
we are at today. They, the IEA, has us at about 75 million barrels per day today. My guess
is that is about right.
The IEA has conventional oil + tight oil+oil sands + GTL and CTL at ~75 mb/d and
NGLs at @ 15 mb/d in 2014
Total (ex. biofuels and processing gains) ~ 90 mb
The EIA has conventional oil + tight oil+oil sands + GTL and CTL at ~79.4 mb/d and NGLs
at @ 9.5 mb/d in 2014
Total (ex. biofuels and processing gains) ~ 89 mb
The IEA has included all OPEC NGLs and condensate in global NGLs number.
The EIA apparently classifies large part of OPEC NGLs and condensate as condensate (part
of global conventional C+C).
(Total OPEC NGLs and condensate production in 2014 was 6.36mb/d)
Thanks for the clarification. Looks like about 4-5 Mb/d of condensate is
produced in the World. As long as this can be easily blended into liquid fuels (such
as gasoline) at refineries, it makes sense to call it "oil" as there is a wide range
of stuff we are willing to call oil (such as bitumen).
We have been counting crude plus condensate for a long time, excluding C2, C3, and
C4 makes sense to me, but excluding C5 does not. Just one person's opinion.
"... Thanks to a great post from John Kemp from Reuters we now know who is behind the magically higher imports starting in 2015 and that continues. This incremental 500,000 barrels per day of imports has been the primary reason for why the U.S. market remains imbalanced (although not nearly as much as what is portrayed in media). ..."
"... The motives for Saudi Arabia's oil market strategies today – whether for vengeance, ego, politics or irrationality – cannot be known for sure. But it surely was not economics, given the price drop in 2015. A 50 percent drop in price on 9 million barrels per day (mb/d) was not made up by a 500,000 bpd [exports] increase. ..."
"... I should also note that almost all of the Saudi production ramp up in 2015 went to fuel this surge. We should recall a U.S. State Department visit to Saudi Arabia in late summer 2014 when all of this started, as the dollar rose and Russia Ruble imploded. In light of the recent EPA methane crack down and tax levy on U.S. wells, one has to wonder how much of a coincidence all this is, as there is clearly a war on fossil energy as the global warming agenda ramps up. ..."
The so-called experts know this yet they continue to cloud the issue with ideologically based
biased spin.
Thanks to a great post from John Kemp from Reuters we now know who is behind the magically
higher imports starting in 2015 and that continues. This incremental 500,000 barrels per day of imports
has been the primary reason for why the U.S. market remains imbalanced (although not nearly as much
as what is portrayed in media).
The motives for
Saudi Arabia's oil market strategies today – whether for vengeance, ego, politics or irrationality
– cannot be known for sure. But it surely was not economics, given the price drop in 2015. A 50 percent
drop in price on 9 million barrels per day (mb/d) was not made up by a 500,000 bpd [exports] increase.
I should also note that almost all of the Saudi production ramp up in 2015 went to fuel this
surge. We should recall a U.S. State Department visit to Saudi Arabia in late summer 2014 when all
of this started, as the dollar rose and Russia Ruble imploded. In light of the recent EPA methane
crack down and tax levy on U.S. wells, one has to wonder how much of a coincidence all this is, as
there is clearly a war on fossil energy as the global warming agenda ramps up.
"... As regards the future, I agree that Russia is on a plateau, with potential +/- 1-2% annual fluctuations around 2014-2015 average levels. ..."
"... Is it possible that there is some political bias in those reports by the Russian Oil Minister? ..."
"... Not any more likely than political bias by the EIA or NEB, imo. I think EIA numbers for the US are pretty good, NEBs numbers for Canada are best and the Russian Energy Ministry numbers for Russia would be best. ..."
"Russia peaked in January at 10,246,000 bpd and in Octber was down 106,000 bpd to 10,140,000 bpd.
Russia appears to be on a plateau, likely before a slow decline that begins in 2016."
Oh yes, the EIA doesn't know exactly how much oil is produced in the U.S., but they surely
know better than the Russian Energy Ministry what are production volumes in Russia.
As regards the future, I agree that Russia is on a plateau, with potential +/- 1-2% annual fluctuations
around 2014-2015 average levels.
Alex, the EIA depends entirely on other sources for its Russian oil production reports. This is
very similar to OPEC's "Secondary Sources". The EIA and JODI, for the last three years or so,
are extremely close with their Russian production numbers. They both report numbers well below
what the Russian Oil Minister reports. And they both often report a monthly decline in production
when the official Russian numbers report an increase in production.
Is it possible that there is some political bias in those reports by the Russian Oil Minister?
Not any more likely than political bias by the EIA or NEB, imo. I think EIA numbers for the
US are pretty good, NEB's numbers for Canada are best and the Russian Energy Ministry numbers
for Russia would be best.
Dennis, I do appreciate your input but sometimes you just try way too hard to be fair.
;-) What motive
would the EIA or the NEB have for fudging the numbers? And which way would they fudge them if
they did?
A perfect example: If you go to OPEC's
MOMR
and check the production numbers for each OPEC nation, you will find two different sets
of numbers. One set will be from "Secondary Sources" and the other set will be from "Direct Communication".
The direct communication numbers, for several countries, is always off by several hundred barrels
per day. For others the two sets of numbers are relatively close. The difference is some have
a motive for fudging the numbers, others do not. And also, secondary sources, such as Platts and
others, is almost always more accurate than the numbers produced by direct communication with
the country itself.
Also Dennis, I must ask, and this is very important, does the EIA or NEB have a reputation
of producing propaganda? Does the Soviet Government have a reputation of producing propaganda?
Now I do fault the EIA in some of their numbers. But they do not fudge the numbers deliberately.
But due to budget restraints or lack of a good data source they sometimes just seem to insert
a number. But there is no malicious intent here. They don't have a good number so they just use
the last good number they had… again.
As to those Russian numbers. JODI, when they reduced Russia's numbers significantly a few years
ago, was highly criticized for doing so. (They just brought them into line with what the EIA was
already reporting.) They said they had several sources for those numbers and stood by them. Now
the JODI numbers and the EIA numbers still vary but not by any significant amount. Prior to that
adjustment JODI had been using Russia's direct communication numbers.
Bottom line, I trust the EIA's and JODI's "Secondary Sources" far more than I trust Russia's
"Direct Communication".
You may not have noticed, but the Soviet Union no longer exists.
;-)
AlexS is very sharp, if the Russian Energy ministry was fudging its numbers he would be aware.
I have no evidence that the Russian Energy ministry is fudging any numbers and to assume otherwise
is a mistake in my opinion.
I agree the OPEC numbers based on direct communication may be fudged, there is no auditing
of OPEC data.
The Russians report in metric tonnes rather than barrels or cubic meters so the output numbers
depend on the appropriate average density of the oil.
The difference between US and Russian data may be a matter of how C5 is reported, in the US
C5 produced in the field is counted with crude and C5 produced in a natural gas processing plant
is considered NGL.
This is a strange distinction unique to the United States. In Canada all pentanes and pentanes
plus are grouped together regardless of where they are produced, perhaps Russia does the same.
If so, it is the US EIA which is not accounting for C+C properly rather than the Russians,
so I am being both fair and logical if my guess is correct.
I don't know Russian so I cannot read the Russian Energy Ministry website. Perhaps AlexS can
comment on how pentanes( and C5+) from natural gas processing plants in Russia are reported. Are
they included in C+C output numbers (similar to the way Canada reports its data)?
Hi AlexS. It would be nice to have a link to the source of that data. Looking at the discrepancy
to other datasets I work with, I would guess it is not reporting exactly the same products. The
EIA C+C dataset is pretty restrictive (as it should be), for instance, it only includes fossil
products that are stable in liquid state at the surface.
The numbers are in tons per months. I am using 7.3 barrels/ton ratio to convert into b/d. Condensate is included, but not NGLs.
More detailed data by each company and by each subsidiary of large vertically integrated companies
is available in the CDU TEK (a Russian analogue of the EIA) website, but it's not free.
These detailed numbers are republished in a number of Russian oil&gas industry journals (also
not free). Detailed monthly and annual averages in kb/d are also published by Energy Intelligence (paid site)
http://www.energyintel.com/pages/login.aspx?fid=art&DocId=913740
But they are using 7.33 conversion ratio, so their numbers in kb/d are slightly higher than mine.
>
"... Note that US C+C inventories rose by 100 million barrels from late 2014 to late 2015. So, as we saw a 100 million barrel increase in US C+C inventories, US net total liquids were up by 13%, from 12/14 to 12/15? Almost makes one think that most, if not all, of the C+C build consists of something besides actual crude oil. ..."
"... This is yet another indirect confirmation of "Great Condensate Con" hypothesis. ..."
Based on foregoing, annual 2015 US net total liquids imports were still down in 2015, versus
2014, but US net total liquids imports rose from 4.5 million bpd in December, 2014 to 5.1 million
bpd in December, 2015.
Note that US C+C inventories rose by 100 million barrels from late 2014 to late 2015. So, as
we saw a 100 million barrel increase in US C+C inventories, US net total liquids were up by 13%,
from 12/14 to 12/15? Almost makes one think that most, if not all, of the C+C build consists of
something besides actual crude oil.
(As usual, there appear to be some discrepancies between the EIA Weekly Supply data and the
Annual Energy Review data in regard to total liquids net imports. In any case, the four week running
average data show that US net crude oil imports rose from 6.9 million bpd in December, 2014 to
7.3 million bpd in December, 2015. Net crude oil imports are not broken down separately in Annual
Energy Review.)
likbez, 01/29/2016 at 1:12 pm
This is yet another indirect confirmation of "Great Condensate Con" hypothesis.
By reducing oil prices, Saudi Arabia is waging a secret war against Russia and Iran, according to
political analyst Bassam Tahhan.
In
an
interview with RT , political analyst Bassam Tahhan said that Saudi Arabia and the other countries
of the Gulf Cooperation Council are trying to force down oil prices in order to harm Iran and a number
of other oil-producing countries, including Russia.
"A secret war is being waged by
Saudi Arabia and Gulf Cooperation Council states which are slashing oil prices so as to strangle
Iran, Russia, Algeria and Venezuela, as well as the entire 'anti-American' axis created by these
countries," Tahhan said.
He explained that all those countries had refused to adhere to Washington's demands with regard
to
Ukraine , Syria and
Yemen .
According to Tahhan, the oil spat between Riyadh and Tehran is unlikely to lead to a war, given
Iran's military potential and the sheer territory of the country.
What's more, he said, Saudi Arabia will fail to prod the UN or the West to issue a resolution
to condemn Iran and authorize invasion of the country.
Rather, Saudi Arabia itself may be attacked by Iran's allies, such as Yemen, a scenario that Tahhan
said may see Saudi oil fields destroyed and oil prices rise.
At the same time, he noted that
the United States is unlikely to say "no" to the war between Saudi Arabia and Iran, because Washington
could supply arms to both parties to the conflict.
Earlier this month, international business analyst
Ralph Winnie told Sputnik that Saudi Arabia has dropped its oil prices to try and wreck the Iranian
economy and keep Tehran's oil exports out of major European markets.
"The Saudis are looking to gain a competitive advantage: this is a response to the lifting of
Western economic sanctions on Iran , which allow the Iranians to reenter the global energy marketplace,"
he said.
His remarks came after the Saudi oil giant Aramco announced that it would cut oil prices for Europe,
apparently in preparation for Iran's resumption of oil exports to the region later this year.
He was echoed by Executive Intelligence Review senior editor
Jeff Steinberg , who said in a separate interview with Sputnik that by slashing their oil prices,
the Saudis were targeting US and Russian oil producers as well as the Iranian ones.
"... I feel KSA is waiting for non OPEC producers (Russia) to get on board with agreeing to production quotas. At the moment KSA is demonstrating just how volatile things can be for everybody in the oil production business. Once everyone is on board with quotas then some price stability can be more easily predicted. ..."
"... EIA expects global consumption of petroleum and other liquid fuels to grow by 1.4 million b/d in both 2016 and 2017. ..."
With consumption increasing and production decreasing I feel safe forecasting a price stabilization
or rise. Although Iran production will increase I don't think it'll be entirely exported. Some
will be consumed domestically to power manufacturing and agricultural production and exports.
Iraq is a wildcard. Maybe Iraqi increases will simply offset unconventional and LTO declines and
production will stay flat. The real wildcard is OPEC. The price will go up as soon as they have
a meeting and decide it does. I feel KSA is waiting for non OPEC producers (Russia) to get
on board with agreeing to production quotas. At the moment KSA is demonstrating just how volatile
things can be for everybody in the oil production business. Once everyone is on board with quotas
then some price stability can be more easily predicted.
EIA estimates global consumption of petroleum and other liquid fuels grew by 1.4 million b/d
in 2015, averaging 93.8 million b/d for the year. EIA expects global consumption of petroleum
and other liquid fuels to grow by 1.4 million b/d in both 2016 and 2017. Forecast real gross
domestic product (GDP) for the world weighted by oil consumption, which increased by an estimated
2.4% in 2015, rises by 2.7% in 2016 and by 3.2% in 2017.
Consumption of petroleum and other liquid fuels in countries outside the Organization for Economic
Cooperation and Development (OECD) increased by an estimated 0.8 million b/d in 2015, considerably
lower than the 1.4 million b/d increase in 2014 mainly because of the slowdown in Eurasia, which
saw a contraction in its consumption, and to a lesser degree because of China's slightly slower
demand growth. Non-OECD consumption growth is expected to be 1.1 million b/d in both 2016 and
2017, reflecting higher growth in the Middle East and Eurasia.
OECD petroleum and other liquid fuels consumption rose by 0.6 million b/d in 2015. OECD consumption
is expected to continue rising in both 2016 and 2017 by 0.3 and 0.4 million b/d, respectively,
driven by an increase in U.S. consumption. OECD Europe demand is also expected to increase through
the forecast period, albeit at a slower pace than the 0.3 million b/d increase in 2015. U.S. consumption
is forecast to increase by 0.2 and 0.3 million b/d in 2016 and 2017, respectively. Consumption
in Japan is forecast to decline by less than 0.1 million b/d in both 2016 and 2017.
Another oil market analyst, Dominic Haywood of Energy Aspects, predicts that such situation with
oil prices will remain in place at least for the next few months, "but should pick up into the second
half of 2016."
The reasons for the recovery at the end of 2016 will be "declines in non-OPEC production and continued
strong light ends [the more volatile products of petroleum refining] demand," Haywood said.
Nevertheless, there have been signs recently of OPEC's intentions to take some real steps.
On January 21, news of a possible OPEC extraordinary meeting in March emerged after remarks by
Nigerian Petroleum Resources Minister Emmanuel Ibe Kachikwu at the World Economic Forum in Davos.
The organization had previously agreed to hold a meeting in case prices fell below the $35 per barrel,
according to the minister.
"I think if Russia contributes and joins at least in the meetings, without necessarily joining
the OPEC , then they
will be motivated to take that initiative. As Russia has a big role to play… So there is a good opportunity
to make difference by joining OPEC discussions," Doshi said.
CHANCE TO SELL AS MUCH FOSSIL FUEL AS POSSIBLE
According to Doshi, major oil producers and exporters are also driven by the fear that oil will
not stay the main source of energy for long, which is particularly topical after the recent climate
change agreement achieved at the 21st UN Climate Change Conference (COP21) in Paris.
"There is now competition to take out as much as they can," he stressed.
"Right now in the Middle East many of our clients are thinking that may be fuel could be left
in the ground forever. We call it 'unburnable carbon.' Unburnable means that market cannot support
it. There is a fear that in 15-year time the world will stop using oil not because there is no oil,
but simply because there are better technologies," he explained.
FIGHTING FOR CLIENTS
Recent changes in the oil sector,
such as price fluctuations and appearance of the United States and Iran at the European oil market,
prompt players to behave more aggressively, the PwC expert believes.
"It is an aggressive market, even if publicly they talk nicely. Middle East players are negotiating
to sign term crude supply contracts with players in Poland, which are Russian customers. They are
offering good discounts, to take that market share where ever they can… Europe is the main market
for such a battle for share. So there is a bit of panic over volume," Doshi stressed.
In the first week of January, the United States sent its first two shipments of light crude oil
after the 40-year oil export ban was officially lifted in December. At the time the ban was lifted,
prices of West Texas Intermediate oil (WTI) nearly converged with Brent crude prices. That narrow
spread has remained through January.
Iran has also started signing contracts after sanctions were lifted, and the country's officials
say Tehran is ready to double its oil exports within three months.
"US oil does not impact supply-demand balances at the moment because the arbitrage to export US
to international markets is closed… Iranian oil will weigh on balances at a time where the world
does not need more sour crude or condensate," Haywood said.
For the time being, it remains to be seen whether OPEC cartel indeed convenes at an emergency
meeting in less than two months and manages to overcome geopolitical tensions and economic selfishness
to help recover many currencies and economies around the world.
Based on Pemex data, it looks like Mexico's total petroleum liquids production was 2.6
million bpd in 2015 (I had been guessing 2.4 to 2.5). Assuming flat consumption at 2.0 million
bpd, 2015 net exports were down to about 0.6 million bpd in 2015.
2014 total liquids + other liquids production was 2.8, with consumption of 2.0, so net exports
of 0.8 million bpd.
Year over year (2014 to 2015) exponential rates of decline in production and net exports would
be 7.4%/year and 29%/year respectively (assuming flat consumption).
2004 to 2015 exponential rates of decline in production and net exports would be 3.4%/year
and 10%/year respectively.
Based on the 2004 to 2015 (11 year) rate of decline in their ECI Ratio (ratio of production
to consumption), Mexico would approach zero net exports in about six years.
"... I do find this "Saudi Arabia flooding the market" narrative highly annoying when, according to the graph SA production doesn't appear to have varied as much as plus or minus a million barrels per day, while the US has increased production almost 6 mbpd and spent a small fortune doing it to boot. ..."
"... It is clear that LTO was a game-changer for the global oil market, but Saudi Arabian production undoubtedly contributed to the oil glut in 2015. That said, the US and Saudi production have been on decline since May and July 2015, respectively ..."
I do find this "Saudi Arabia flooding the market" narrative highly annoying when, according to
the graph SA production doesn't appear to have varied as much as plus or minus a million barrels
per day, while the US has increased production almost 6 mbpd and spent a small fortune doing it
to boot.
The US has increased oil production by 4.7 mb/d from 2008 average to April 2015.
Saudi Arabia has increased production by 950 kb/d between November 2014 (when OPEC decided not
to cut production) and June 2015.
It is clear that LTO was a game-changer for the global oil market, but Saudi Arabian production
undoubtedly contributed to the oil glut in 2015.
That said, the US and Saudi production have been on decline since May and July 2015, respectively
Oil sands operations have been steadily decreasing their costs, and they still have room for
further improvements.
But to be fair, the above example is only operating cost and doesn't look at capital expenditure.
For that let's look at Fort Hills – this is the major project currently under construction.
The capital costs, capacity and project life is all publicly available information via google.
I have to estimate some numbers, but I'll try to error on the conservative side.
Total estimated construction cost: $13.5 billion (wow that's a lot!)
Daily capacity: 180,000 barrels
Annual capacity: 60 million barrels (these plants run 24/7/365, but I rounded down by 5.7M to
account for down time)
Estimated life of the project: 50 years
Total barrels produced over it's life: ~ 3 Billion
Let's say that oil stays at $70 for the next 50 years just to keep things really simple.
Let's also say that their operating cost is $30 per barrel and stays there, although that's
probably a bit high.
That leaves $40 profit on every barrel produced (less any transportation costs, exchange rate,
etc.)
3 billion barrels x $40 profit = $120 B profit – $13.5 capex = $106.5 BILLION NET PROFIT on
this project.
And remember, this is assuming oil stays at only $70!
"The world economy will need seven million more barrels a day by 2020. Natural depletion on
existing fields implies a loss of a further 13 million barrels a day by then."
The current
price crisis has just made sure we do not get those extra 20 million barrels in 5 years. The shit
is going to hit the fan real soon. We will not make it to 2020 without a global crisis that will
make the Great Financial Crisis of 2008 look like a picnic. I just can't see any way renewable
energies can prevent it.
"... Iraq's Prime Minister, Haider al-Abadi, said in Davos that his country was selling its crude for US$22 a barrel, and half of this covered production costs. ..."
"... Right now, however, US frackers are in the eye of the storm. Some 45 listed shale companies are already insolvent or in talks with creditors. ..."
"... The buccaneering growth of the shale industry was driven by cheap and abundant credit. ..."
"... Many shale bonds are trading at distress level below 50c on the dollar. ..."
"... Banks are being careful not to push them into receivership but they themselves are under pressure. Regulators fear that the energy industry may be the next financial bomb to blow up on a systemic scale. ..."
"... The Fed and the US Federal Deposit Insurance Corporation have threatened to impose tougher rules on leverage and asset coverage for loans to fossil-fuel companies. ..."
"... The question is whether even US shale can ever be big enough to compensate for coming shortage of oil as global investment collapses. ..."
"... There has been a US$1.8 trillion reduction in spending planned for 2015 to 2020 compared to what was expected in 2014, said Yergin. ..."
"... The world economy will need seven million more barrels a day by 2020. Natural depletion on existing fields implies a loss of a further 13 million barrels a day by then. ..."
"Venezuela is beyond the precipice. It is completely broke," said Yergin.
Iraq's Prime Minister, Haider al-Abadi, said in Davos that his country was selling its
crude for US$22 a barrel, and half of this covered production costs.
"It's impossible to run the country, to be honest, to sustain the military, to sustain jobs,
to sustain the economy," he said.
It is understood that KKR, Warburg Pincus, and Apollo are all waiting on the sidelines,
looking for worthwhile US shale targets. Major oil companies such as ExxonMobil have vast sums in
reserve, and even Saudi Arabia's chemical giant SABIC is already nibbling at US shale assets
through joint ventures.
Yergin is the author of The Prize: The Epic Quest for Oil, Money and Power, and is widely
regarded as the guru of energy analysis.
He said shale companies had put up a much tougher fight than expected and were only now
succumbing to the violence of the oil price crash, 15 months after Saudi Arabia and the Gulf
states began to flood the global market to flush out rivals.
"Shale has proven much more resilient than people thought. They imagined that if prices fell
below US$70 a barrel, these drillers would go out of business. They didn't realise that shale is
mid-cost, and not high cost," he told the Daily Telegraph.
Right now, however, US frackers are in the eye of the storm. Some 45 listed shale
companies are already insolvent or in talks with creditors.
The fate of many more will be decided in coming months when about 300,000 barrels a day of
extra Iranian crude hit an already saturated market.
The buccaneering growth of the shale industry was driven by cheap and abundant credit.
The guillotine came down even before the US Federal Reserve raised interest rates in December,
leaving frackers struggling to roll over loans. Many shale bonds are trading at distress
level below 50c on the dollar.
Banks are being careful not to push them into receivership but they themselves are under
pressure. Regulators fear that the energy industry may be the next financial bomb to blow up on a
systemic scale.
The Fed and the US Federal Deposit Insurance Corporation have threatened to impose tougher
rules on leverage and asset coverage for loans to fossil-fuel companies.
Yet even if scores of US drillers go bust, the industry will live on, and a quantum leap in
technology has changed the cost structure irreversibly.
"US$60 is the new US$90. If the price of oil returns to a range between US$50 and US$60, this
will bring back a lot of production. The Permian Basin in West Texas may be the second-biggest
field in the world after Ghawar in Saudi Arabia," said Yergin.
Zhu Min, the deputy director of the International Monetary Fund, said US shale had entirely
changed the balance of power in the global oil market and there was little Opec could do. "Shale
has become the swing producer. Opec has clearly lost its monopoly power and can only set a bottom
for prices. "As soon as the price rises, shale will come back on and push it down again," he
said.
The question is whether even US shale can ever be big enough to compensate for coming
shortage of oil as global investment collapses.
"There has been a US$1.8 trillion reduction in spending planned for 2015 to 2020 compared to
what was expected in 2014," said Yergin.
Yet oil demand is still growing briskly. The world economy will need seven million more
barrels a day by 2020. Natural depletion on existing fields implies a loss of a further 13
million barrels a day by then.
Adding to the witches' brew, global spare capacity is at wafer-thin levels - perhaps as low as
1.5 million barrels a day - as the Saudis, Russians and others produce at full tilt.
Yergin said those hoping for a quick rescue from Opec were likely to be disappointed.
"He said shale companies had put up a much tougher fight than expected and were only now succumbing
to the violence of the oil price crash, 15 months after Saudi Arabia and the Gulf states began
to flood the global market to flush out rivals."
With regards to the above, this is BS. Saudi
Arabia didn't flood the market, the US did. Saudi Arabia just maintained production. So many media
commentators fail to understand this. Look at the data.
And Saudi net exports (total petroleum liquids + other liquids) fell from 9.5 million bpd in 2005
to 8.4 million bpd in 2014 (EIA data except for 2014 BP consumption data).
Are they dreaming or forgot to remove this line from previous projections?
Only 4 years are left till 2020. You need to compensate for all the USA imports and that means
that they forecast more then 8 Mb/d of oil production growth for the continent or more then 2
Mb/d per year. This and the next year should probably be written off as the necessary capex are
not here. So we have two years left.
That means 4 Mb/d growth is needed for 2018 and 2019. Even with prices over $100 per barrel
this is a difficult task. I wonder which countries in North America are capable to grow oil production
over 1 Mb/d ? Dramatic USA shale/tight production growth is probably in the past.
"... Given the availability of abundant oil and natural gas reserves in the Western Hemisphere and the potential future abundance of alternative energy systems, why should the Persian Gulf continue to qualify as a vital U.S. national security interest? ..."
Energy Security: Given the availability of abundant oil and natural
gas reserves in the Western Hemisphere and the potential future abundance of alternative energy systems,
why should the Persian Gulf continue to qualify as a vital U.S. national security interest?
Back
in 1980, two factors prompted President Jimmy Carter to announce that the United States viewed the
Persian Gulf as worth fighting for. The first was a growing U.S. dependence on foreign oil
and a belief that American consumers were guzzling gas at a rate that would rapidly deplete domestic
reserves. The second was a concern that, having just invaded Afghanistan, the Soviet Union
might next have an appetite for going after those giant gas stations in the Gulf, Iran, or even Saudi
Arabia.
Today we know that the Western Hemisphere contains more than
ample supplies of oil and natural gas to sustain the American way of life (while also
heating up the planet). As for the Soviet Union, it no longer exists - a decade spent chewing
on Afghanistan having produced a fatal case of indigestion.
No doubt ensuring U.S. energy security should remain a major priority. Yet in that regard,
protecting Canada, Mexico, and Venezuela is far more relevant to the nation's well-being than protecting
Saudi Arabia, Kuwait, and Iraq, while being far easier and cheaper to accomplish. So who will
be the first presidential candidate to call for abrogating the Carter Doctrine? Show of hands,
please?
"... At the moment KSA is demonstrating just how volatile things can be for everybody in the oil production business. Once everyone is on board with quotas then some price stability can be more easily predicted. ..."
With consumption increasing and production decreasing I feel safe forecasting a price stabilization
or rise. Although Iran production will increase I don't think it'll be entirely exported. Some
will be consumed domestically to power manufacturing and agricultural production and exports.
Iraq is a wildcard. Maybe Iraqi increases will simply offset unconventional and LTO declines and
production will stay flat.
The real wildcard is OPEC. The price will go up as soon as they have
a meeting and decide it does. I feel KSA is waiting for non OPEC producers (Russia) to get on
board with agreeing to production quotas.
At the moment KSA is demonstrating just how volatile
things can be for everybody in the oil production business. Once everyone is on board with quotas
then some price stability can be more easily predicted.
EIA estimates global consumption of petroleum and other liquid fuels grew by 1.4 million b/d
in 2015, averaging 93.8 million b/d for the year. EIA expects global consumption of petroleum
and other liquid fuels to grow by 1.4 million b/d in both 2016 and 2017. Forecast real gross domestic
product (GDP) for the world weighted by oil consumption, which increased by an estimated 2.4%
in 2015, rises by 2.7% in 2016 and by 3.2% in 2017.
Consumption of petroleum and other liquid fuels in countries outside the Organization for Economic
Cooperation and Development (OECD) increased by an estimated 0.8 million b/d in 2015, considerably
lower than the 1.4 million b/d increase in 2014 mainly because of the slowdown in Eurasia, which
saw a contraction in its consumption, and to a lesser degree because of China's slightly slower
demand growth. Non-OECD consumption growth is expected to be 1.1 million b/d in both 2016 and
2017, reflecting higher growth in the Middle East and Eurasia.
OECD petroleum and other liquid fuels consumption rose by 0.6 million b/d in 2015. OECD consumption
is expected to continue rising in both 2016 and 2017 by 0.3 and 0.4 million b/d, respectively,
driven by an increase in U.S. consumption. OECD Europe demand is also expected to increase through
the forecast period, albeit at a slower pace than the 0.3 million b/d increase in 2015. U.S. consumption
is forecast to increase by 0.2 and 0.3 million b/d in 2016 and 2017, respectively. Consumption
in Japan is forecast to decline by less than 0.1 million b/d in both 2016 and 2017.
"... A sharp drop in stripper-well output, currently estimated at a million barrels a day, or 11% of total U.S. production, would be nearly impossible to observe as it happens, but it could still shrink the glut that continues to weigh on prices, surprising the market, analysts say. ..."
"... In some states, including Illinois and New York, stripper wells account for all, or most, oil output. With oil prices still near six-year lows, stripper-well operators are facing new pressure to let damaged wells lie dormant, or even shut down production. ..."
"... If oil prices fall back below $40 a barrel and stay there, half of stripper-well production could be shut down, said David Pursell, managing director at Tudor, Pickering, Holt Co., a Houston investment bank. The U.S. oil benchmark on Friday lost 70 cents, or 1.5%, to close at $46.05 a barrel on the New York Mercantile Exchange. ..."
Steve Plants, vice president of Plants & Goodwin Inc. in Shinglehouse, Pa., still pumps crude oil
from wells drilled in the 1890s.
But with the price of crude below $50 a barrel, some of those low-producing wells, known as
stripper wells, don't turn a profit. Mr. Plants has permanently closed 10 wells, he says, and
plans to plug another 10 by the end of the year.
"We're losing money every day," said Mr. Plants, who operates about 200 wells in Pennsylvania and
New York. "If we were pumping wells every day, we might be pumping them once a week now," to save
on costs.
Mr. Plants, and thousands of individual operators like him, could turn out to be a key element in
ending the oil-price rout, rather than a large producing country like Saudi Arabia or a big
public company. A sharp drop in stripper-well output, currently estimated at a million
barrels a day, or 11% of total U.S. production, would be nearly impossible to observe as it
happens, but it could still shrink the glut that continues to weigh on prices, surprising the
market, analysts say.
While investors are closely watching public companies for signs of when crude production is
set to slow, many are ignoring the country's 400,000 stripper wells, most of which produce less
than five barrels a day. Stripper wells-so called because they "strip" the remaining oil out of
the ground-are mostly aging ones that continue to produce oil, but at much lower rates than when
they were drilled.
In some states, including Illinois and New York, stripper wells account for all, or most, oil
output. With oil prices still near six-year lows, stripper-well operators are facing new pressure
to let damaged wells lie dormant, or even shut down production.
If oil prices fall back below $40 a barrel and stay there, half of stripper-well production
could be shut down, said David Pursell, managing director at Tudor, Pickering, Holt & Co., a
Houston investment bank. The U.S. oil benchmark on Friday lost 70 cents, or 1.5%, to close at
$46.05 a barrel on the New York Mercantile Exchange.
"If you saw half-a-million barrels a day of stripper-well production come off line at the end of
the year," he said, "the market would tighten earlier in 2016."
From 2008 to 2014, the U.S. added nearly 5 million barrels per day (bpd) of oil production to the
market. This lessened the U.S. need for OPEC's oil, and by 2014 OPEC's share of global oil production
had fallen slightly to 41.2 percent in 2014.
Historically OPEC - and more specifically Saudi Arabia,
which is responsible for over 30 percent of the group's oil production - has functioned as the world's
swing producer for crude oil. If the world needed more oil production, OPEC could usually bring more
barrels online. If the world needed less, some could be idled. The group often stressed the need
for a stable oil price to ensure that global supply met global demand.
Because they were losing market share - but perhaps more importantly because they saw that trend
continuing - that strategy was abandoned at their November 2014 meeting. It was then that OPEC announced
they would defend market share that was being lost due to the rise of non-OPEC production, especially
from the United States. Some have argued that OPEC had no choice but to defend market share instead
of cutting production to balance the market, but I disagree. I think Saudi Arabia pushed for a strategy
that will go down as one of the greatest mistakes in OPEC's history. It was a decision, I might add,
that 9 of the 13 OPEC members reportedly oppose.
To review, crude oil had shown signs of being oversupplied in early 2014, and by summer prices
had started to soften. By the time of their November 2014 meeting, the price had dropped from about
$100/bbl in mid-summer to ~$75/bbl. In making their decision, I think OPEC believed that oil prices
could fall somewhat below $75/bbl for a short period of time, and that would be enough to bankrupt
a lot of the shale oil companies and allow OPEC to recapture market share. Instead, the shale oil
producers slashed costs, and while some producers have gone bankrupt - and other bankruptcies are
undoubtedly on the way - shale oil production has proven to be much more resilient than the Saudis
and OPEC expected. It is declining at a much slower rate than they anticipated.
After that November 2014 meeting the Saudis were committed, and they have reiterated their strategy
at 2 subsequent meetings. To change strategies now would be to admit they had been wrong. Following
that initial meeting and the 2 subsequent meetings, oil prices have dropped to lower and lower support
levels. As a result the annual difference in the price OPEC is getting today for their crude, and
the price they were getting prior to their November 2014 meeting is over $500 billion per year for
the group.
At the time of their decision, the global markets were probably oversupplied by 1-2 million
bpd. If OPEC had merely decided to remove 2 million bpd off the world markets - only 5.5 percent
of the group's combined 2014 production - the price drop could have easily been arrested and
maintained in the $75-$85/bbl range. That would have still given them 38.9 percent of the global
crude oil market. For that matter, a production quota cut of 13 percent could have removed from
the market a volume equivalent to all of the U.S. shale oil production added between 2008 and
2014. (Whether the Saudis could have actually enforced those quotas is another matter).
Russia's Federal Statistics Service says the country's economy contracted 3.7 percent last
year. This corresponds to the prediction from the Economic Development Ministry.
Unemployment in Russia grew to 7.4 percent last year or 4.2 million jobless.
Retail trade turnover fell by 10 percent compared to the previous year at 27.6 trillion rubles
(or $452.5 billion at 61 rubles per dollar, average exchange rate in 2015). Capital investment
decreased by 8.4 percent to $230 billion.
Car manufacturing and industrial production have also seen a decline. In 2015, Russia's
automobile production was down 27.7 percent. Industrial production contracted 3.4 percent from
2014.
Positive news came from the agricultural sector. Preliminary estimates for agricultural
production show an increase of 3 percent to $82 billion. This figure includes data for all
farmers - from households to large holdings.
Last week, the International Monetary Fund predicted a 3.7 percent contraction for the Russian
economy in 2015. The IMF also forecast Russia's GDP to drop this year from negative 0.6 percent
to negative one percent.
In its 2016 outlook, the Economic Development Ministry is forecasting a 0.8 percent GDP fall
revising its previous projection of 0.7 percent growth, according to business daily Vedomosti.
The main reason for the downgrade is collapsing oil prices that have fallen $6 per barrel this
year to $31 which is still a rebound from last week's 12-year low of $26. Brent crude was trading
at $31.1 per barrel at 2:00pm GMT on Monday, while US WTI oil stood at $31.27
Tom Brite
As Russia's inflation reached double-digits last year, Russians saw their real wages
decline by 9.5 percent compared to 2014, data published by the Rosstat state statistics
service showed Monday.
In December 2015, real wages of Russians dropped 10 percent when compared to the same month
in 2014, according to Rosstat data. The average monthly salary in Russia last year was
30,311 rubles ($381).
"... Yeah, distillate yield is the big deal. Gasoline doesnt move food. ..."
"... insofar as condensate is concerned, the biggest problem with too much condensate as a percentage of Crude + Condensate (C+C) refining feedstock is that condensate is deficient in distillate (jet fuel, heating oil, diesel, etc.) plus heavier components. ..."
"... we have been on an Undulating Plateau in actual global crude oil production (45 API and lower crude oil) since 2005, while global natural gas production and associated liquids, condensate and NGL, have (so far) continued to increase. ..."
"... I suspect that US (and perhaps global) refiners hit, in late 2014, the upper limit of how much condensate that they could process if they wanted to maintain their output of distillates and heavier products, which plausibly contributed to the 100 million barrel build in US C+C inventories, from late 2014 to late 2015, as US refiners increased their net crude oil imports from December, 2014 to December, 2015. ..."
"... EIA data indicate that about 40% of US Lower 48 C+C production in 2015 exceeded 42 API Gravity, which is the maximum upper limit for WTI crude oil. ..."
Of all the contributors on this site, you have highlighted the problems inherent in counting
condensates as crude. I am not a petroleum chemist so am not so familiar with the limitations
of condensates. Could you briefly tell me what you can and can not use condensates for? I get
that one can refine 30-45 WTI into gasoline and other useful fuels like jet fuel, but: Can you
drive on condensates? or am I correct in believing the condensates can only be turned into heating
fuels.
It is also harmful to modern engines due to its low octane rating ( about 30 to 50) and possible
presence of cancerogenius additives (benzene) and sulfur. Before 1930 it was used as an ICE fuel
in low RPM, low compression engines. Both Karl Benz engines, and early Wright brothers aircraft
engines used it. It has a distinctive smell when used as a fuel, which allows police to catch
people using condensate illegally.
The white gas sold today as a fuel for stoves is a condensate with the benzene and sulfur removed.
Adding ethanol improves the octane number (https://en.wikipedia.org/wiki/Octane_rating)
and makes it possible to drive regular cars on distillate. You need E85 mix for that.
My impression is that the drive to blend ethanol with gasoline (most of the gasoline now sold
in the United States contains some ethanol) and introduction of E10, E15, and E85 that happened
in the USA was at least partially dictated by the desire to blend condensate (as a substitute
for gasoline) with ethanol killing two birds with one stone. Moreover denaturized ethanol contains
at least 2% of condensate. All gasoline engine vehicles can use E10 so some amount of condensate
is present in US gasoline almost by definition.
E85 (used only in flexible-fuel vehicles (FFV) ) allows blending of considerable amount of
reprocessed condensate (probably 40-50%) with ethanol and still getting acceptable octane number.
E85 is an abbreviation for an ethanol fuel blend of 85% denatured ethanol fuel and 15% gasoline
or other hydrocarbons by volume, although the exact ratio of fuel ethanol to hydrocarbons can
vary considerably while still carrying the E85 label. The ethanol content is adjusted according
to the local climate to maximize engine performance. ASTM 5798 specifies the allowable fuel ethanol
content in E85 as ranging from 51% to 83%.
Condensate has a very low viscosity and often used to dilute highly viscous heavier oils that
cannot otherwise be efficiently transported via pipelines.
I'm actually not anywhere close to be a refining expert, and I think that Fernando can give you
more detailed answers, but insofar as condensate is concerned, the biggest problem with too
much condensate as a percentage of Crude + Condensate (C+C) refining feedstock is that condensate
is deficient in distillate (jet fuel, heating oil, diesel, etc.) plus heavier components.
However, the quality issue, in my opinion, is something of a Red Herring.
My principal point is not that the liquid partial substitutes for crude oil, i.e., condensate,
natural gas liquids (NGL) and biofuels, are deficient in quality compared to crude oil; my principal
point is that the available data, at least in my opinion, strongly suggest that we have been
on an "Undulating Plateau" in actual global crude oil production (45 API and lower crude oil)
since 2005, while global natural gas production and associated liquids, condensate and NGL, have
(so far) continued to increase.
The obvious question is that if it took trillions of dollars in post-2005 global upstream capex
(spent on oil & gas projects) to keep us on an undulating plateau in actual global crude oil production,
what happens to global crude oil production given the large, and ongoing, cutbacks in global upstream
capex?
But in regard to refinery yields, here is a chart of refinery yields by API Gravity. Note that
Cat Feed + Distillate Yield drops from about 55% at 39 API gravity (approximately the average
API value for Brent & WTI) to about 20% at 42 API Gravity (which is the maximum upper limit for
WTI crude oil).
Here's a link to, and an excerpt from, the source document for the chart:
The figure below illustrates the product yield for six typical types of crude oil processed
in Canada. It includes both light and heavy as well as sweet and sour crude oils. A very light
condensate* (42 API) and a synthetic crude oil are also included. The chart compares the different
output when each crude type is processed in a simple distillation refinery. The output is broken
down into five main product groups: gasoline, propane and butane (C3/C4), Cat feed (a partially
processed material that requires further refining to make usable products), distillate (which
includes diesel oil and furnace oil) and residual fuel (the heaviest and lowest-valued part
of the product output, used to make heavy fuel oil and asphalt).
As I have previously discussed, I suspect that US (and perhaps global) refiners hit, in
late 2014, the upper limit of how much condensate that they could process if they wanted to maintain
their output of distillates and heavier products, which plausibly contributed to the 100 million
barrel build in US C+C inventories, from late 2014 to late 2015, as US refiners increased their
net crude oil imports from December, 2014 to December, 2015.
*The more common dividing line between crude & condensate is 45 API Gravity, but EIA data
indicate that about 40% of US Lower 48 C+C production in 2015 exceeded 42 API Gravity, which is
the maximum upper limit for WTI crude oil.
"Iraq's oil ministry said on Monday that the country had record output in
December, with its fields in the central and southern regions producing
as much as 4.13 million barrels a day."
Iraq may further raise oil output this year, reaching levels as high
as 4 million barrels per day (bpd) from the country's south, a senior Iraqi
oil official, who asked not to be named, said on Monday.
Iraq has been producing from its southern fields around 3.7-3.8 million
bpd in recent months.
"... According to the IEA, 60% of Iran's initial 500,000 b/d of new exports
could be made up of Iranian Heavy, 30% of Iranian Light and the remainder consisting
of a new heavy grade called West of Karun, which is due to make its debut in the
second quarter. ..."
"... Fesharaki says the volume of condensate is somewhere between 30 and 50
million barrels whereas the volume of crude stored afloat is between 10 and 15 million
barrels. ..."
The IEA also highlights the marketing challenge and expects Iran not only to
be competitive in its pricing policy, but also to be open to crude-for-product
swaps and deferred payment terms.
In the meantime, the IEA believes Iran has
made considerable progress in readying its oil network and identifying prospective
buyers and reckons an additional 300,000 b/d of crude could be flowing by the
end of the March this year, although it does make the point that for now this
volume is speculative.
It estimates that Iran increased production by 40,000 b/d between November
and December to help fill storage tanks at the Kharg Island loading terminal
in preparation for the lifting of sanctions and expects Iranian oil flows to
rise towards pre-sanctions capacity of 3.6 million b/d within six months.
According to the IEA, 60% of Iran's initial 500,000 b/d of new exports
could be made up of Iranian Heavy, 30% of Iranian Light and the remainder consisting
of a new heavy grade called West of Karun, which is due to make its debut in
the second quarter.
... ... ...
Fereidun Fesharaki, chairman of consultancy Facts Global Energy, expects
a 300,000 b/d export boost by end-March and another 300,000 b/d by end-June.
Early volumes will head largely to Asia, where mechanisms for taking Iranian
crude are already in place, he says in a note, while operational and banking
issues will delay the European ramp-up to the second quarter.
... ... ...
Fesharaki says the volume of condensate is somewhere between 30 and 50
million barrels whereas the volume of crude stored afloat is between 10 and
15 million barrels. The bulk of the floating condensate is likely to go
to China, Japan and South Korea, he says.
Iran will need to free up its tanker fleet as soon as possible to deliver
crude but selling these condensate barrels, given their "specialized nature,"
could prove to be tough, the agency says. So, until substantial volumes of this
ultra-light oil can be sold, Iran will likely concentrate on selling crude from
Kharg Island.
"... Yeah, distillate yield is the big deal. Gasoline doesnt move food. ..."
"... insofar as condensate is concerned, the biggest problem with too much condensate as a percentage
of Crude + Condensate (C+C) refining feedstock is that condensate is deficient in distillate (jet fuel,
heating oil, diesel, etc.) plus heavier components. ..."
"... we have been on an Undulating Plateau in actual global crude oil production (45 API and lower
crude oil) since 2005, while global natural gas production and associated liquids, condensate and NGL,
have (so far) continued to increase. ..."
"... I suspect that US (and perhaps global) refiners hit, in late 2014, the upper limit of how much
condensate that they could process if they wanted to maintain their output of distillates and heavier
products, which plausibly contributed to the 100 million barrel build in US C+C inventories, from late
2014 to late 2015, as US refiners increased their net crude oil imports from December, 2014 to December,
2015. ..."
"... EIA data indicate that about 40% of US Lower 48 C+C production in 2015 exceeded 42 API Gravity,
which is the maximum upper limit for WTI crude oil. ..."
Of all the contributors on this site, you have highlighted the problems inherent in counting
condensates as crude. I am not a petroleum chemist so am not so familiar with the limitations
of condensates. Could you briefly tell me what you can and can not use condensates for? I get
that one can refine 30-45 WTI into gasoline and other useful fuels like jet fuel, but: Can you
drive on condensates? or am I correct in believing the condensates can only be turned into heating
fuels.
It is also harmful to modern engines due to its low octane rating ( about 30 to 50) and possible
presence of cancerogenius additives (benzene) and sulfur. Before 1930 it was used as an ICE fuel
in low RPM, low compression engines. Both Karl Benz engines, and early Wright brothers aircraft
engines used it. It has a distinctive smell when used as a fuel, which allows police to catch
people using condensate illegally.
The white gas sold today as a fuel for stoves is a condensate with the benzene and sulfur removed.
Adding ethanol improves the octane number (https://en.wikipedia.org/wiki/Octane_rating)
and makes it possible to drive regular cars on distillate. You need E85 mix for that.
My impression is that the drive to blend ethanol with gasoline (most of the gasoline now sold
in the United States contains some ethanol) and introduction of E10, E15, and E85 that happened
in the USA was at least partially dictated by the desire to blend condensate (as a substitute
for gasoline) with ethanol killing two birds with one stone. Moreover denaturized ethanol contains
at least 2% of condensate. All gasoline engine vehicles can use E10 so some amount of condensate
is present in US gasoline almost by definition.
E85 (used only in flexible-fuel vehicles (FFV) ) allows blending of considerable amount of
reprocessed condensate (probably 40-50%) with ethanol and still getting acceptable octane number.
E85 is an abbreviation for an ethanol fuel blend of 85% denatured ethanol fuel and 15% gasoline
or other hydrocarbons by volume, although the exact ratio of fuel ethanol to hydrocarbons can
vary considerably while still carrying the E85 label. The ethanol content is adjusted according
to the local climate to maximize engine performance. ASTM 5798 specifies the allowable fuel ethanol
content in E85 as ranging from 51% to 83%.
Condensate has a very low viscosity and often used to dilute highly viscous heavier oils that
cannot otherwise be efficiently transported via pipelines.
I'm actually not anywhere close to be a refining expert, and I think that Fernando can give you
more detailed answers, but insofar as condensate is concerned, the biggest problem with too
much condensate as a percentage of Crude + Condensate (C+C) refining feedstock is that condensate
is deficient in distillate (jet fuel, heating oil, diesel, etc.) plus heavier components.
However, the quality issue, in my opinion, is something of a Red Herring.
My principal point is not that the liquid partial substitutes for crude oil, i.e., condensate,
natural gas liquids (NGL) and biofuels, are deficient in quality compared to crude oil; my principal
point is that the available data, at least in my opinion, strongly suggest that we have been
on an "Undulating Plateau" in actual global crude oil production (45 API and lower crude oil)
since 2005, while global natural gas production and associated liquids, condensate and NGL, have
(so far) continued to increase.
The obvious question is that if it took trillions of dollars in post-2005 global upstream capex
(spent on oil & gas projects) to keep us on an undulating plateau in actual global crude oil production,
what happens to global crude oil production given the large, and ongoing, cutbacks in global upstream
capex?
But in regard to refinery yields, here is a chart of refinery yields by API Gravity. Note that
Cat Feed + Distillate Yield drops from about 55% at 39 API gravity (approximately the average
API value for Brent & WTI) to about 20% at 42 API Gravity (which is the maximum upper limit for
WTI crude oil).
Here's a link to, and an excerpt from, the source document for the chart:
The figure below illustrates the product yield for six typical types of crude oil processed
in Canada. It includes both light and heavy as well as sweet and sour crude oils. A very light
condensate* (42 API) and a synthetic crude oil are also included. The chart compares the different
output when each crude type is processed in a simple distillation refinery. The output is broken
down into five main product groups: gasoline, propane and butane (C3/C4), Cat feed (a partially
processed material that requires further refining to make usable products), distillate (which
includes diesel oil and furnace oil) and residual fuel (the heaviest and lowest-valued part
of the product output, used to make heavy fuel oil and asphalt).
As I have previously discussed, I suspect that US (and perhaps global) refiners hit, in
late 2014, the upper limit of how much condensate that they could process if they wanted to maintain
their output of distillates and heavier products, which plausibly contributed to the 100 million
barrel build in US C+C inventories, from late 2014 to late 2015, as US refiners increased their
net crude oil imports from December, 2014 to December, 2015.
*The more common dividing line between crude & condensate is 45 API Gravity, but EIA data
indicate that about 40% of US Lower 48 C+C production in 2015 exceeded 42 API Gravity, which is
the maximum upper limit for WTI crude oil.
"... US condensate production increased from 231 mb in 2011 (start of shale oil boom) to 326 mb in 2014 ..."
"... So IEAs estimate of 36 mb x 0.67 = 24 mb would be 7.4 % of 2014 US condensate production ..."
"... There are some reporting issues regarding Lease condensate, i.e., I suspect that a good deal of condensate production is reported as crude oil production. And in fact, the EIA refers to Crude + Condensate (C+C) as Crude oil. ..."
"... Im a little uncertain about the figures because your link takes you to a page, under the heading Natural Gas, titled Natural Gas Liquids Lease Condensate. To me, lease condensate means wellhead condensate and that is not associated with NGLs; condensate also comes out at the NGL-separation stage down the line. ..."
"... Most of the stored oil is condensate that contains a sulfur compound, which complicates sales because many refineries cant process it, said Victor Shum of IHS Inc. and Robin Mills at Dubai-based Manaar Energy Consulting. To market this large amount of oil within three months - the equivalent of about half a million barrels a day - Iran will have to resort to offering deep discounts, they said. ..."
"... Iran may need to spur sales of its sulfur-heavy condensate by offering discounts of at least 10 to 15 percent, Shum said. Its main condensate customer, Dragon Aromatics Zhangzhou Co. of China, stopped buying after a fire at its plant in April and an Iranian refinery designed to use it wont be ready until 2017, causing stockpiles to build, he said. ..."
"... If theyre already having difficulty shifting it, adding another half million barrels will be even more difficult, he said by phone. Theyll manage, but at what discount? ..."
He does not ask himself an important question, what all those tankers contain. Is this crude or
condensate? Or some refined products like heating oil too.
There are some reporting issues regarding "Lease condensate," i.e., I suspect that a good
deal of condensate production is reported as crude oil production. And in fact, the EIA refers
to Crude + Condensate (C+C) as "Crude oil."
A survey that the EIA did last year estimated that 22%, or about 2 million bpd, of US Lower
48 C+C production consists of condensate (45 API +). And about 40% of US Lower 48 C+C production
exceeded the maximum API Gravity for WTI crude oil (42 API Gravity).
I'm a little uncertain about the figures because your link takes you to a page, under the
heading Natural Gas, titled Natural Gas Liquids Lease Condensate. To me, "lease condensate" means
wellhead condensate and that is not associated with NGLs; condensate also comes out at the NGL-separation
stage down the line. If it is the latter that the chart refers to, then the figure is not
total production of condensate but only that recovered from the NGL stream.
"With no clear timeline for a restart at petrochemicals producer Dragon Aromatics, one of Tehran's
key condensate buyers, after its April fire, Iran hoped new buyers in South Korea, Japan as well
as in China would pick up the slack, traders said.
The CNOOC-Shell petrochemical plant in southeastern Guangdong province could also be a replacement
buyer for condensate, they said. The plant was forced to drop a regular supply pact in mid-2012
when the European Union put an embargo on trading Iranian oil."
"Iran may roil global oil markets with plans to sell about 45 million barrels of fuel stored
in tankers in the Persian Gulf within three months of the removal of sanctions on its economy,
according to analysts.
Most of the stored oil is condensate that contains a sulfur compound, which complicates
sales because many refineries can't process it, said Victor Shum of IHS Inc. and Robin Mills at
Dubai-based Manaar Energy Consulting. To market this large amount of oil within three months -
the equivalent of about half a million barrels a day - Iran will have to resort to offering deep
discounts, they said."
The condensate … is pumped from the offshore South Pars natural gas deposit.
Iran may need to spur sales of its sulfur-heavy condensate by offering discounts of at
least 10 to 15 percent, Shum said. Its main condensate customer, Dragon Aromatics Zhangzhou Co.
of China, stopped buying after a fire at its plant in April and an Iranian refinery designed to
use it won't be ready until 2017, causing stockpiles to build, he said.
"There will have to be a major impact on the market of selling that condensate," said Manaar
Energy's Mills, who worked for Royal Dutch Shell Plc on projects in Iran from 1998 to 2003.
"If they're already having difficulty shifting it, adding another half million barrels will
be even more difficult," he said by phone. "They'll manage, but at what discount?"
"... The exceptions are in OPEC, Russia, and other countries where strategic considerations control the pace. Thus the price will, in a rough fashion, be dictated by these large player strategic needs. And I suspect they will feel more comfortable with prices above $80 per barrel. I think they will try as much as possible to stifle competition from marginal producers such as the USA and Canada, but to accomplish this all they have to do is try to keep prices in that 80 to 100 range. ..."
Shallow, for what it's worth, many deep water, extra heavy oil, and marginal
conventional oil projects I reviewed over the last five years need $90 plus
per barrel to move forward. I reviewed these as a consultant, therefore I
can't discuss details.
My impression is that a lot of what's on the shelf waiting to be
developed requires high prices. The exceptions are in OPEC, Russia, and
other countries where strategic considerations control the pace. Thus the
price will, in a rough fashion, be dictated by these large player strategic
needs. And I suspect they will feel more comfortable with prices above $80
per barrel. I think they will try as much as possible to stifle competition
from marginal producers such as the USA and Canada, but to accomplish this
all they have to do is try to keep prices in that 80 to 100 range.
Rumailia estimated 17 billion barrels remaining proven and recoverable.
(BP targets output of 2.1 mbpd. 22 yrs of flow. 2.1 is up from 1.6 mbpd
now)
Majnoon estimated 13 billion barrels remaining proven and recoverable.
(Petronas and RDS have the contract and target 1.8 mbpd within 7 yrs (of
2009), interim target from 45K bpd in March 2010 to 175K bpd in 2012. Latest
RDS website bragging says now 210K bpd. They ain't gonna hit 1.8 mbpd this
year)
West Qurna estimated 43 billion barrels remaining proven and recoverable.
(Exxon RDS won the Phase 1 (9B in reserves) contract planning 0.27 mbpd
to 2.2 mbpd. 7 yrs from 2009. 480K bpd in 2013)
(Lukoil now owns 75% of the rights to WQ Phase II 13B remaining proven
and recoverable, planning for raising from 180K bpd in 2012 to 1.8 mbpd
by 2020).
Several other single digit billion barrel fields in Iraq.
Globally, we consumed about 270 GB of C+C in past 10 years, and as I have
occasionally opined, it seems likely that actual global crude oil production
has been on an "Undulating Plateau" since 2005.
"... for what it's worth, many deep water, extra heavy oil, and marginal conventional oil projects I reviewed over the last five years need $90 plus per barrel to move forward. I reviewed these as a consultant, therefore I can't discuss details. ..."
Shallow, for what it's worth, many deep water, extra heavy oil, and marginal conventional oil projects
I reviewed over the last five years need $90 plus per barrel to move forward. I reviewed these as
a consultant, therefore I can't discuss details.
My impression is that a lot of what's on the shelf waiting to be developed requires high prices.
The exceptions are in OPEC, Russia, and other countries where strategic considerations control the
pace. Thus the price will, in a rough fashion, be dictated by these large player strategic needs.
And I suspect they will feel more comfortable with prices above $80 per barrel. I think they will
try as much as possible to stifle competition from marginal producers such as the USA and Canada,
but to accomplish this all they have to do is try to keep prices in that 80 to 100 range.
"... I agree it will be shorter this time, somewhere between your guess (2017 process start to rise?) and mine (oil prices start to rise by third quarter of 2016). Definitely agree that nobody knows. ..."
"... I do not think oil supply will be adequate at $40 to $50 per barrel until 2020, US output would decrease by 2 Mb/d or more, Canada would also decrease by o,5 Mb/d and I doubt demand will not grow over the next 5 years, I doubt OPEC will be able to increase output enough to make up for declines in non-OPEC output at those prices. What are you assuming for World real GDP growth rates with oil prices remaining at that level? ..."
"... My guess is that production will be at least 5% less than average production in 2015 before we see WTI at $80. I would also guess is that the longer it takes for production to fall, the lower production will be when when prices finally start to rise. In other words a quick decrease in production would lead to higher prices sooner and at a higher production point. ..."
"... I dont think production has to fall that much, probably 1% would do it, demand will continue to grow so even flat output would eventually bring the market back into balance. I agree a quicker decline in output will bring prices back up more quickly. Our estimates of both supply and demand are not very good so it is all very much a black box. If most of the oil price forecasts are correct, I expect the supply forecasts will be too high and the demand forecasts may be too low, of course that will make the price forecasts too low as well. ..."
Comparing two long oil price cycles: 1970-1998 and 1999-…..
Are we in the beginning of a multi-year low oil price phase (like in 1986-1998)?
I think this time it will be much shorter, but who knows for sure ….
I agree it will be shorter this time, somewhere between your guess (2017 process start to rise?)
and mine (oil prices start to rise by third quarter of 2016). Definitely agree that nobody knows.
I'm guessing it'll be a minimum of 5 years because I think the Saudis have the ability to keep
prices down that long. And because I think their power to do so gets stronger every year as renewables
take market share. And because I think Iran's government is smart enough to hold off on really
heavy overseas sales until the price goes back up a bit - so rather than forcing prices down to
$10/bbl, they will keep prices at $30 or $40 for longer. So I'm betting 2020 or later.
I do not think oil supply will be adequate at $40 to $50 per barrel until 2020, US output would
decrease by 2 Mb/d or more, Canada would also decrease by o,5 Mb/d and I doubt demand will not
grow over the next 5 years, I doubt OPEC will be able to increase output enough to make up for
declines in non-OPEC output at those prices. What are you assuming for World real GDP growth rates
with oil prices remaining at that level?
We would need World real GDP to be under 1% per year
over the next 5 years to make your price forecast reasonable, in my opinion. So in a Petro scenario,
possibly we get $40 to $50/b or possibly $10/b would be more reasonable in Petro's view (which
is pretty nebulous) in 2020. I find such scenarios to be low probability (1% or less imo).
The question I have is what will production be when prices start to rise. Will production be
like today, 2% below today's production, 5% below today's production? What will production be the
next time we have WTI at $80?
My guess is that production will be at least 5% less than average production in 2015 before
we see WTI at $80. I would also guess is that the longer it takes for production to fall, the
lower production will be when when prices finally start to rise. In other words a quick decrease
in production would lead to higher prices sooner and at a higher production point.
I don't think production has to fall that much, probably 1% would do it, demand will continue
to grow so even flat output would eventually bring the market back into balance. I agree a quicker
decline in output will bring prices back up more quickly. Our estimates of both supply and demand
are not very good so it is all very much a black box. If most of the oil price forecasts are correct,
I expect the supply forecasts will be too high and the demand forecasts may be too low, of course
that will make the price forecasts too low as well.
WASHINGTON - When President Obama secretly authorized the Central Intelligence Agency to begin
arming Syria's embattled rebels in 2013, the spy agency knew it would have a willing partner to
help pay for the covert operation. It was the same partner the C.I.A. has relied on for decades
for money and discretion in far-off conflicts: the Kingdom of Saudi Arabia.
Since then, the C.I.A. and its Saudi counterpart have maintained an unusual arrangement for
the rebel-training mission, which the Americans have code-named Timber Sycamore. Under the deal,
current and former administration officials said, the Saudis contribute both weapons and large
sums of money, and the C.I.A takes the lead in training the rebels on AK-47 assault rifles and
tank-destroying missiles.
The support for the Syrian rebels is only the latest chapter in the decades long relationship
between the spy services of Saudi Arabia and the United States, an alliance that has endured
through the Iran-contra scandal, support for the mujahedeen against the Soviets in Afghanistan
and proxy fights in Africa. Sometimes, as in Syria, the two countries have worked in concert. In
others, Saudi Arabia has simply written checks underwriting American covert activities.
RIYADH, Saudi Arabia - Until about four months ago, Prince Mohammed bin Salman, 29, was just
another Saudi royal who dabbled in stocks and real estate.
... ... ...
The sweeping changes have thrust the young prince into power at a time when Saudi Arabia is
locked in a series of escalating conflicts aimed at defending its vision of the regional order
and holding back its chief rival, Iran. The kingdom is financially sustaining the rulers of Egypt
and Jordan and propping up the Sunni monarchy in neighboring Bahrain against a revolt by its
Shiite majority. It is also arming rebels in Syria against the Iranian-backed president, fighting
in the United States-led air campaign over Iraq and leading its own air assault on an
Iranian-backed faction in Yemen. And it is ramping up its military spending even as plunging oil
prices and growing domestic expenditures have reduced its financial reserves by $50 billion over
the last six months, to less than $700 billion.
... ... ...
... some Western diplomats, speaking on the condition of anonymity for fear of alienating the
prince and the king, say they are worried about the growing influence of the prince, with one
even calling him "rash" and "impulsive." And in interviews, at least two other princes in the
main line of the royal family made it clear that some older members of the clan have doubts as
well. Both questioned the costs and benefits of the Yemen campaign that Prince Mohammed has
spearheaded.
... ... ...
... scholars say the accumulation of so much responsibility in the hands of one branch of the
family - to say nothing of one young prince - breaks with a system of intrafamily power sharing
put in place at the founding of the modern Saudi state by King Abdul Aziz al Saud eight decades
ago. It ended decades of sometimes violent infighting and has helped preserve family unity ever
since.
... .... ....
He removed the state oil company from the oil ministry and put it under Prince Mohammed, who
was also handed control of a newly created economic policy council and the Defense Ministry.
(King Salman had been defense minister.) Prince Mohammed is also expected to take over the
National Guard from his cousin Prince Mutaib bin Abdullah, according to an aide to Prince Mutaib
and Western diplomats. The change would consolidate both forces under the Defense Ministry
but fundamentally alter the balance of power in the family.
Prince Mohammed's three older half brothers - sons of their father's first wife, Sultana Bint
Turki Al Sudairi, who died in 2011 - all have distinguished résumés and were once considered
contenders for top government roles.
Prince Sultan bin Salman al Saud, 58, a former colonel in the Saudi Air Force, is a former
astronaut who flew on the Space Shuttle Discovery in 1985 and now heads a tourism and antiquities
commission. Prince Abdulaziz bin Salman, believed to be about 55, is a deputy minister of oil who
has championed efforts to modernize the industry. Prince Faisal bin Salman, 44, holds a Ph.D. in
political science from Oxford, was a research fellow at Georgetown, founded one of Saudi Arabia's
largest investment firms, Jadwa, and serves as the governor of Medina.
Prince Mohammed, in contrast, holds a bachelor's degree in law from King Saud University in
Riyadh and has never studied outside the kingdom.
Prince Mohammed, however, is the firstborn son of the King Salman's third and most recent
wife, Fahda bint Falah bin Sultan, who worked hard to promote him as his father's successor,
according to Western diplomats who know the family, several family members and associates who
have worked for the family.
... ... ...
An official biography says vaguely that he was "self-employed" and "earned commercial
experience founding several businesses and investments." Businessmen in Riyadh say he was known
for his active trading in stocks and real estate.
"... There are well shut-ins and there will be more, but these are mostly wells with very low daily output, especially stripper wells in the U.S. ..."
"... Also note that shutting current oil production may prove more costly than producing at a loss due to high decommissioning costs and potential damage to the reservoirs. ..."
"... Investments also will not drop to zero levels even at $25-30, as there are a lot of projects at final stages of development, which will be completed with relatively modest additional investments and will be generating cash. ..."
"... http://www.cnbc.com/2015/01/12/ The article above suggests about 1.5 Mb/d of output becomes unprofitable at $40/b or less. http://www.reuters.com/article/us-oil-prices-kemp-idUSKCN0QI29320150814 The article above suggests also that under $40/b will be problematic for sustaining output. ..."
"... World liquids output will be lower than the EIA forecast for World liquids output. ..."
"... Today about 5 Mb/d of World output is from very flexible LTO projects which are pretty near the breaking point at under $30/b. If there is turmoil in the LTO plays due to lack of funding we could see a 20% drop in LTO output (1 Mb/d). ..."
"... possibly a 2 Mb/d reduction in output. ..."
"... This might be offset by a 600 kb/d increase in Iranian output, but we would be left with a 1.4 Mb/d decrease in World output. Possibly increases in the Gulf of Mexico and North Sea offset these declines partially and we are left with only a 500 kb/d decline in World output. ..."
"... In many cases the decision is made to keep producing at a loss because shutting in causes even bigger losses. What we do is avoid work overs, pump changes, or any expenses we can cut. In shoddy operations maintenance goes to hell. Some contractors are called in and told to share the pain or else. And all of this is dictated by price forecasts. Evidently producing at a loss cant go on forever. ..."
"... Thus say you think prices will stay at $25 for a year, but will increase to $50 in 2017, then you produce even if this generates a $5 loss. You do need to have the $5 to stay alive. I look at it as an investment in the future. And I bet thats the way most operators are looking at this current debacle. ..."
Euan, when we use empirical evidence from previous crashes we do need to factor in the real increase
in the cost to produce the marginal barrels. Since 1998 those marginal barrels are much more expensive.
I've also learned that oil prices don't necessarily drive all producers, they seem to be driven
by oil price forecasts. Thus the key is to see producers think that oil prices next month will
be below production cost enough to make shut in worthwhile (operators have fixed costs which don't
disappear simply because the wells were shut in).
But prices have dropped enough that shutting in for a couple of months may be worthwhile. Plus
we have Venezuela's looming problem. As long as Iran doesn't start tossing barrels into the market
we may see enough supply reductions over the next four weeks for the oil price to bottom out.
Maybe.
WTI down 7% today to $26.76. Dennis tried to make the cost of marginal barrel to me which in the
circumstances I just don't get. Its relevant when prices are rising and companies are evaluating
prospects and investments. I just don't see the relevance on the way down. Companies will sell
all they can for whatever they can get because xbbls*$20 is better than 0bbls*$20.
Oil is caught in an over-supply broad market crash vortex.
Eventually companies realize that when you are in a hole, the first rule is to stop digging.
In other words, cost matters because at a higher cost of production (say $50/b) you are losing
$25/b on every barrel you sell at $25/b. If the cost of production is $30/b, you are only losing
$5/b on each barrel produced.
The more money you lose, the less likely you are to invest more, this eventually reduces supply
due to depletion.
So yes, the cost of the marginal barrel matters. If it did not, oil would have a price of zero.
The cost of the marginal barrel is relevant only to the cost of new production. Operating costs
are the only limitation to production from existing wells. As Euan notes, oil produced at prices
above operating costs produces revenue. Shut in wells do not. This means that existing wells can
produce oil at prices far lower than those needed to justify drilling new wells. When the world
needs new oil wells, the price will rise enough to allow them to be drilled at a profit. That
price may be very high indeed.
Yes you are correct that producing wells might not get shut in, although some older wells may
not be profitable to maintain at low prices and will be shut in and producing oil fields decline
in output at an average rate of 6.5% per year if no new wells are drilled .
My point is this, very few new wells will be completed at very low oil prices and oil supply
will decrease. That is why cost matters, it affects investment in new wells.
As I said before, if the cost to produce oil is zero, then the price will be zero, otherwise
it will be a positive number which will approach the marginal cost in the long run.
The higher the cost of producing the marginal barrel, the more money one loses producing it
at any given price below the cost of production. The bigger the monetary loss the less likely
it is that more wells will be drilled.
You have a rather simplistic view on the interaction of prices, costs, investments and production.
At $35-40/bbl, the vast majority of the current global oil production remains profitable.
At $25-30/bbl, there are indeed fields in various parts of the world, where operating costs are
above those levels. But companies do not take decisions based on daily or weekly fluctuations
in oil prices.
Only after several months of oil price staying below $30/bbl operators may decide
to shut in non-economic wells. Despite headlines in the MSM with projection of $25, $20, $15 and
even $10 per barrel, none of institutions such as IEA, EIA and OPEC, investment banks, energy
consultancies and individual experts is projecting annual oil price below $30. The lowest existing
forecast is from J.P. Morgan at $31.5/bbl. The majority is in the range between $37 and $50.
Goldman
Sachs which was mentioned as forecasting $20 oil, is actually projecting $40 by mid-year as the
base case scenario. They say that under certain conditions prices may drop to $20, but only for
a short term. Ed Morse from Citigroup and Daniel Yergin from IHS have also recently said that
current prices are unsustainable and that there will be an upward correction in the second half
of the year. Not to $75, as you are or were projecting, but to $40-50, which would support all
of the current production.
There are well shut-ins and there will be more, but these are mostly wells with very low daily
output, especially stripper wells in the U.S. And that will not have significant impact on global
oil production. Also note that shutting current oil production may prove more costly than producing
at a loss due to high decommissioning costs and potential damage to the reservoirs.
Investments also will not drop to zero levels even at $25-30, as there are a lot of projects
at final stages of development, which will be completed with relatively modest additional investments
and will be generating cash.
As I have said earlier, it is important to take into account a significant cost deflation,
which lowers breakeven prices for new projects.
We have already seen this in the 80-s. In 1980 it was estimated that the most costly new projects,
such as the North Sea and Alaska, had breakeven costs at $25-30 ($70-85 in today's money). But
as prices started to decline from 1981 and dropped to $10-12 lows in summer of 1986 ($23-27 in
today's dollars), all of the new projects in the North Sea, Alaska, Canada, Mexico (Cantarel)
continued to increase output for at least 2-3 year more. This was largely due to declining costs.
Non-OPEC production started to decline only by the end of the 80-s, after several years of low
oil prices.
Non-OPEC production (mb/d) vs. oil price ($/bbl), 1970-1990
I believe that you may think that my argument is that no new wells will be drilled. It is not,
my point is that if Euan Mearns forecast for oil price is correct, oil investment is likely to
be lower.
Mearns oil price forecast is that Brent remains under $37/b until Dec 2016 with a bottom of
around $15/b and oil prices remaining under $20/b at mid year, he does not give an estimate for
an average oil price for the year, but it would be somewhere between $20/b and $37/b [maybe $29/b
(2014$) for 2016.]
Under the scenario above I would expect some wells might be temporarily abandoned because the
oil price might not cover OPEX, I would also expect that investment in new wells would be lower
than at higher oil prices, rather than zero .
Thank you for pointing out how simple minded I am.
:-)
(Although in fact I knew all that, and I agree that it is quite unlikely to be the case that
all investment in new wells will be discontinued.)
I think it equally unlikely that there will be no change in oil investment if oil prices
remain under $40/b for the first 6 months of 2016 (average oil price over those 6 months), but
I would never accuse you of such simplistic thinking.
;-)
On falling costs. Do you think the cost of the marginal barrel has fallen from about $70/b
in 2012 to $40/b in 2016 (nominal dollars)?
At one point I was estimating $75/b by years end, but I have been convinced that may be too
high. I think $50/b for an average 2016 oil price with a December level of about $65/b or higher
is reasonable, I think at average prices matching the EIA's short term outlook. World liquids output
will be lower than the EIA forecast for World liquids output.
Your powerful mind brilliantly covers a broad range of issues, many of which are too complicated
for me given my limited intellectual capabilities. But in some cases we have to consider so many
industry-specific details that a broader top down approach doesn't work properly.
You are the brilliant one, and I appreciate what you have taught me about the oil industry
which you understand far better than I.
The top down approach I use is intended to be a rough approximation, I do not have access to
enough data or the time to put together a detailed bottom up analysis of the oil industry.
Not sure how well it would work, because the EIA, IEA, and OPEC already do this and somehow
they seem to create oil supply out of nowhere to fill the oil demand they expect to see. So I
rely on a combination of Hubbert linearization and USGS estimates along with guidance from people
in the know like Fernando, Doug, Ron, Shallow sand, and AlexS to create scenarios using Webhubbletelescope's
oil shock model.
I agree 100% with your analysis, except I am a little more pessimistic about oil supply at
$40-50 per barrel than you are and believe oil prices may be a little higher than you do.
In the end you will probably be correct, I have consistently underestimated how resilient the
LTO output would be and oil supply keeps surprising me on the upside.
Perhaps the EIA's AEO 2015 with C+C output of 99 Mb/d, will even be correct, but my guess is
that will be about 25 Mb/d higher than actual C+C output in 2040, the peak will be 85 Mb/d at
most between 2020 and 2030 (probably closer to 2021 if it is that high and closer to 2030 if the
peak is only 81 Mb/d.)
Do you have an estimate of URR for C+C, I assume you believe 3400 Gb(including 600 Gb of extra
heavy oil) is too low?
Another difference between today and in the 1985 to 1990 period is that the non-OPEC output
increases were primarily coming from various mega projects which were ramping up at the time.
Today about 5 Mb/d of World output is from very flexible LTO projects which are pretty near the
breaking point at under $30/b. If there is turmoil in the LTO plays due to lack of funding we
could see a 20% drop in LTO output (1 Mb/d).
Along with decreased output elsewhere in the World
as higher cost output is reduced (maybe 500 kb/d from US stripper wells and 500 kb/d from other
high cost areas throughout the World) for possibly a 2 Mb/d reduction in output.
This might be offset by a 600 kb/d increase in Iranian output, but we would be left with a 1.4
Mb/d decrease in World output. Possibly increases in the Gulf of Mexico and North Sea offset these
declines partially and we are left with only a 500 kb/d decline in World output.
My guess is that this could happen at $50/b for an average 2016 oil price, but at $40/b it
does not happen and decline is 1 Mb/d.
"Operating costs are the only limitation to production from existing wells."
This is true when the need for current cash income is overwhelming and most oil companies are
in that position these days.
But suppose you are making only five bucks on a barrel, in net cash, at say thirty five bucks
a barrel.
If the price goes to forty, you DOUBLE your net cash income.
Anybody who can AFFORD to shut in production ought to be doing so, unless I am a complete dunce.
No industry can run in the hole forever, not even the oil industry.
Oil will go up again.
So, the question is, who has money enough in the bank to cut back now, so as to make a substantially
larger profit, later on?
The Saudi's, and maybe a couple of their good tight buddies come to mind. Is there anybody
else big enough to matter?
The Russians have an authoritarian government that will remain in power if the Putin regime
were to decide to cut production.
Euan, I went through this in the 1985-86 crash. We had dozens of field operations, each of them
was studied carefully, and I learned a lot seeing what we did, as well as the results.
As I wrote, behavior is dictated by what we see and forecast. An operator who knows opex breakdown
can segregate it into "fixed" and variable. Even fixed isn't that fixed as we expand the time
horizon. So the analysis should look at options such as contract term changes, salary cuts, dividends
suspensions, and tax cuts (that's fairly common in some countries, where the government will cut
taxes to help people stayed employed).
Thus when we look at say, the $22 opex in a faja field in Venezuela, we have to factor in what's
the actual cost reduction from shutting in, how fast can further cuts be made by cancelling contracts,
laying off people, etc.
In many cases the decision is made to keep producing at a loss because shutting in causes even
bigger losses. What we do is avoid work overs, pump changes, or any expenses we can cut. In shoddy
operations maintenance goes to hell. Some contractors are called in and told to share the pain
or else. And all of this is dictated by price forecasts. Evidently producing at a loss can't go
on forever.
Thus say you think prices will stay at $25 for a year, but will increase to $50 in 2017, then
you produce even if this generates a $5 loss. You do need to have the $5 to stay alive. I look
at it as an investment in the future. And I bet that's the way most operators are looking at this
current debacle.
"Companies will sell all they can for whatever they can get because xbbls*$20 is better than 0bbls*$20."
When you are broke, this makes sense. You eat the seed corn, and burn the furniture, last thing
before you freeze and starve to death in a mid winter famine.
But my neighbors keep hay in the barn, and beans in the silo, and beef cows in the pasture,
for sale next year, to the extent they can, when prices crash this year.
The ones who make it long term are the ones with a barn full of hay, beans in the silo, and
a pasture full of cows when prices go back up.
I have never sold a single load of logs in a down market, except a couple of times the trees
were in the way, preventing me from using that particular spot of ground as a building site.
Unfortunately, apples don't store well, which is a primary reason I have recently been switching
to cows, although mostly retired.
"... My premise is that US (and perhaps global) refiners hit, late in 2014, the upper limit of the
volume of condensate that they could process, if they wanted to maintain their distillate and heavier
output–resulting in a build in condensate inventories, reflected as a year over year build of 100 million
barrels in US C+C (Crude + Condensate) inventories. ..."
"... in my opinion the US and (and perhaps globally) C+C inventory data are fundamentally flawed,
when it comes to actual crude oil inventory data. ..."
"... Note that (in 2015) 22% of US Lower 48 C+C production consists of condensate (45+ API gravity)
and note that about 40% of US Lower 48 C+C production exceeds the maximum API gravity for WTI crude
oil (42 API). ..."
"... Crude plus Condensate Inventory build have been higher because mainly of Condensate as EIA
is no longer properly distinguishing the difference? ..."
"... If that 100 Million number is true, we might see $100 oil this year I think. ..."
"... BTW the last two weeks saw some massive builds in "Blending components for gasoline" while
the market went wild because it looked like actual products were building. ..."
My premise is that US (and perhaps global) refiners hit, late in 2014, the upper limit
of the volume of condensate that they could process, if they wanted to maintain their distillate
and heavier output–resulting in a build in condensate inventories, reflected as a year over
year build of 100 million barrels in US C+C (Crude + Condensate) inventories.
Therefore, in my opinion the US and (and perhaps globally) C+C inventory data are fundamentally
flawed, when it comes to actual crude oil inventory data. The most common dividing line
between actual crude oil and condensate is 45 API gravity, although the distillate yield drops
off considerably just going from 39 API to 42 API gravity crude, and the upper limit for WTI
crude oil is 42 API. . . .
Note that (in 2015) 22% of US Lower 48 C+C production consists of condensate (45+ API
gravity) and note that about 40% of US Lower 48 C+C production exceeds the maximum API gravity
for WTI crude oil (42 API).
Just so I understand what you are saying: Crude plus Condensate Inventory build
have been higher because mainly of Condensate as EIA is no longer properly distinguishing the
difference?
If that 100 Million number is true, we might see $100 oil this year I think.
BTW the last two weeks saw some massive builds in "Blending components for gasoline" while
the market went wild because it looked like actual products were building.
"... I think KSA knew they were going to peak soon so they maxed out the infill drilling and dropped the price for a year or so. Its s psychological game. In the future they might threaten to raise production to psyche the market, and maybe they will briefly, but I think this is KSAs last kick at the can and they know it. Theyll decline fast IMHO as the infill drilling has resulted in a longer plateau with a little burst up at the end but the decline rates will be steep. ..."
"... FYI the ruling clan does not think in terms of national interest. They think of their own personal/clan interest. Once theyve squeezed the land dry theyll retire to southern France and leave the mess behind. ..."
"... Interesting seasonal patterns in Saudi Arabias oil consumption. Demand usually surges during the summer as large quantities of crude and petroleum products are burnt to meet the increases in electricity consumption for air conditioning. ..."
"... Lower seasonal demand in the later part of the year allowed Saudi Arabia to increase exports of crude and refined products. It reached record-high volume of 8.9 mb/d in November. ..."
Saudi is pumping as much as it can, trying to drive the rest of em out of business. So they can
have their one last hay day, before the wells start drying up. They want to make the most of next
decade. BUT they didn't expect prices to fall THIS much. So it's a big game of chicken now.
I tend to agree. I think KSA knew they were going to peak soon so they maxed out the infill
drilling and dropped the price for a year or so. It's s psychological game. In the future they
might threaten to raise production to psyche the market, and maybe they will briefly, but I think
this is KSA's last kick at the can and they know it. They'll decline fast IMHO as the infill drilling
has resulted in a longer plateau with a little burst up at the end but the decline rates will
be steep.
FYI the ruling clan does not think in terms of 'national interest'. They think of their
own personal/clan interest. Once they've squeezed the land dry they'll retire to southern France
and leave the mess behind.
There was a study published last year predicting the OPEC peak in 2028. I haven't read the paper
but perhaps some one with academic access to petroleum engineering journals could have a glance
at it and critique it.
Interesting seasonal patterns in Saudi Arabia's oil consumption. Demand usually surges during
the summer as large quantities of crude and petroleum products are burnt to meet the increases
in electricity consumption for air conditioning.
Lower seasonal demand in the later part of the year allowed Saudi Arabia to increase exports
of crude and refined products. It reached record-high volume of 8.9 mb/d in November.
from Bloomberg:
Saudi Oil Exports at Seven-Month High as Refineries Return
Saudi Arabia, the world's largest crude exporter, shipped the most oil in seven months in
November in a sign that overseas refineries were getting prepared to put plants back on line
after seasonal maintenance.
Saudi shipments rose to 7.72 million barrels a day, the highest since April, from 7.364
million in October, according to data on the website of the Joint Organisations Data Initiative
based in Riyadh.
"This is exactly what they've been doing for the last year and a bit, whenever there is
demand for their crude they will export," Amrita Sen, chief oil market analyst at Energy Aspects
Ltd. in London, said by phone.
Refineries are usually taken off line for repairs in September and October. Refined products
exports from Saudi Arabia rose in November, to 1.18 million barrels a day from 1.09 million,
according to JODI.
Saudi Arabia crude oil and refined product exports (mb/d)
source: JODI
"... Besides having 2.5 times the population of Saudi, I am of the impression
that they have a much more western style economy. That is, they probably have a
decent manufacturing base in order to construct nuclear reactors, guided missiles,
ships, most of their own military weapons, roads, cars, etc. and to support a decent
sized army of their own. Are they heavy into wind, solar and battery power?? ..."
"... Clueless, if by the end of the year Iran is producing an extra nickel,
it wont offset the decline in fields being erased off the map at $65 per barrel.
..."
"... Today we have this oil price conflict that is shaping the future of OPEC
in 3-5 years. It is conflict for majority control of the cheapest exporting oil
within the OPEC. ..."
"... Iran with its young and fast growing population faces internal consumption
problem similar to what Malaysia have and might well stop to be the major oil exporter
in a couple of decades. ..."
"... OPEC to a certain extent is gone after Saudis decision to lift quote regime.
It remains some kind of umbrella organization, but it is no longer a cartel - they
are unable to act as a single unit in their own economic interests. ..."
"... My impression is Saudis are dumping their oil on the market due to some
non-economic considerations. Financially they are committing a suicide depleting
their foreign reserves and winning very little (if at all) in terms of market share
while their fields are aging fast. Essentially what they are doing is stealing oil
from future generations making the mere existence of the country problematic in
50 years or so. The diversification of their economy is very difficult to implement.
Politically they also alienated a lot of countries who might be able to help them.
Especially during the rule of a 30 years old deputy crown prince Mohammad bin Salman
..."
If by the end of this year Iran is producing 500,000 bbl/day more oil, I
am curious how much of that will be available for "net export?" By net,
I mean using Jeffrey's methods. That is, I believe that a lot of Iran's
current oil production is exported and then returned to them as refined
product.
I would note that Iran's population is currently over 80 million people,
about 10 million more than in 2005. I think that the least amount that anyone
has for use internally by Saudi Arabia is 3 million bbls/day, and that is
with a population of only 32 million. So, if Iran is going to invest the
$100+ billion, which was just released to them, on infrastructure projects,
I kind of have a gut feel that they might themselves use most of their own
production. But, I am puzzled even by current figures. I do not understand
how Iran can net export oil with current production of around 2.8 million
bbl/day.
Besides having 2.5 times the population of Saudi, I am of the impression
that they have a much more western style economy. That is, they probably
have a decent manufacturing base in order to construct nuclear reactors,
guided missiles, ships, most of their own military weapons, roads, cars,
etc. and to support a decent sized army of their own. Are they heavy into
wind, solar and battery power??
Clueless, if by the end of the year Iran is producing an extra nickel,
it won't offset the decline in fields being erased off the map at $65 per
barrel.
It is not about how much Iran can export now, but 3-5-7 years from now.
Today we have this oil price conflict that is shaping the future of
OPEC in 3-5 years. It is conflict for majority control of the cheapest exporting
oil within the OPEC.
Which group of countries have the majority control of that oil will have
a controlling oil policy within the OPEC and outside of OPEC.
Iran with its young and fast growing population faces internal consumption
problem similar to what Malaysia have and might well stop to be the major
oil exporter in a couple of decades.
So your statement "It is not about how much Iran can export now, but
3-5-7 years from now" should by slightly amended by the fact of growing
Iran internal consumption. Also it is unclear how much of their fields are
depleted and how effective will be investment into their oil infrastructure.
They will remain major gas producer, but whether they are capable to became
again a major oil producer is much less clear.
Why do you think that this is "conflict for majority control of the cheapest
exporting oil within the OPEC." OPEC to a certain extent is gone after
Saudis decision to lift quote regime. It remains some kind of umbrella organization,
but it is no longer a cartel - they are unable to act as a single unit in
their own economic interests.
I think that this conflict is exaggerated by Western MSM, who literally
push one country against the other trying to find and amplify any statements
to this effect. The main claim of Iran to Saudis was "we want our OPEC quota
back" to which Saudis responded by lifting the quota system effectively
disbanding the OPEC. Now Iran leadership is making statements which essentially
play into Saudis hands promising to flood the market with their oil (selling
it for peanuts; not a very wise policy). In other words they act as allies
(in self destruction).
My impression is Saudis are dumping their oil on the market due to
some non-economic considerations. Financially they are committing a suicide
depleting their foreign reserves and winning very little (if at all) in
terms of market share while their fields are aging fast. Essentially what
they are doing is stealing oil from future generations making the mere existence
of the country problematic in 50 years or so. The diversification of their
economy is very difficult to implement. Politically they also alienated
a lot of countries who might be able to help them. Especially during the
rule of a 30 years old deputy crown prince Mohammad bin Salman
Iran is quite a different story. They probably will continue to exist
even if they stop to be an oil exporter and became an oil importer. So for
them becoming a major oil exporter again is not a survival issue. It would
be nice, yes, and will increase standard of living in the country.
In the discussion thread following the original 2006 Oil Drum post, Sam Foucher ("Khebab")
and I had a number of discussions about Russian production, and after talking to Sam, I suggested
that some point after 2007 we should see a very sharp decline in production. Clearly I was wrong,
but on the other hand the post-2007 rate of increase in production slowed, versus 2002 to 2007,
and Russian net exports have been on an "Undulating plateau" since 2007.
Based on EIA data (total petroleum liquids + other liquids for production), Russian net exports
increased from 5.1 million bpd in 2002 to 7.0 million bpd in 2007. At this rate of increase, they
would have been at about 10 million bpd in 2013 (EIA 2014 consumption data not yet available,
but the EIA shows that Russian production increased by 0.1 million bpd from 2013 to 2014).
From 2007 to 2013 inclusive, Russian net exports have been within a range of 6.9 to 7.2 million
bpd with an average value of 7.1 million bpd, versus 7.0 million bpd in 2014, based on the most
recent EIA data.
And virtually flat Russian net exports, combined with the post-2005 decline in Norway's and
Saudi Arabia's net exports, contributed to the observed overall decline in (2005) Top Three net
exports from 2005 to 2013. As I discussed, at the time of my Oil Drum essay, the (then) Top Three
net exporters were showing a very strong combined increase in net exports.
Or let me put it this way. If either Saudi Arabia or Russia had maintained their previous rates
of increase in net exports, the combined (2005) Top Three net exports would have been up, not
down in 2013, relative to 2005.
"... In retrospect, I think that virtually everyone's oil price guesses have been wrong, including mine for a series of price doublings, with uncertain time periods in between. ..."
"... Having said that, we actually did see three approximate annual price doublings–from 1998 to 2000, from 2000 to 2005 and from 2005 to 2011/2013 (with some year over year declines along the way). ..."
"... Given an ongoing, and inevitable, decline in production in a net oil exporting country, unless they cut their internal consumption at the same rate as, or at a faster rate than, the rate of decline in production, it's a mathematical certainty that the net export decline rate will exceed the production decline rate and that the rate of decline in net exports will accelerate with time. ..."
Yeah, I guess I continue to have problems with an average oil price of $110 for 2011 to 2013 being
indicative of weak demand for exports. Funny how the (2005) Top 33 increased their net exports from
2002 to 2005 at about 6%/year, as annual Brent crude oil prices doubled, but then decided to cut
their exports from 2005 to 2013 as oil prices doubled again.
As I mentioned, your basic Fantasy Island belief seems to be that all production and net export
declines are voluntary.
Regarding my oil price prognostications, I believe that I what I generally said was that I thought
that we would see a series of oil price doublings, but because of demand fluctuations, the time periods
between doublings were very uncertain. In retrospect, I think that virtually everyone's oil price
guesses have been wrong, including mine for a series of price doublings, with uncertain time periods
in between.
Having said that, we actually did see three approximate annual price doublings–from 1998 to 2000,
from 2000 to 2005 and from 2005 to 2011/2013 (with some year over year declines along the way).
But I suspect that we are just boring everyone at this point. I know I'm getting bored with yet
another argument with a CC (Crazy Cornucopian).
In any case, to repeat my question: Are you arguing that the following is wrong?
Given an ongoing, and inevitable, decline in production in a net oil exporting country, unless
they cut their internal consumption at the same rate as, or at a faster rate than, the rate of
decline in production, it's a mathematical certainty that the net export decline rate will exceed
the production decline rate and that the rate of decline in net exports will accelerate with time.
Furthermore, if the rate of increase in consumption exceeds the rate of increase in production
in a net oil exporting country, net exports can decline, even as production increases.
I am not sure what they mean, but I suppose they include total Saudi C+C+NGL output, which
was 11.5 mb/d in 2014.
If they mean only crude oil, that's too much, in my view.
I agree the Saudis will not increase output by 2 Mb/d over the next 6 years, possibly 500
kb/d as you suggest seems more likely, which would bring crude output to about 10.6 Mb/d, if
your guess is correct.
"... However, at the start of the 2000s production from the North Sea began to decline and some of the fields in Saudi Arabia had also passed their production peaks. Oil production in the USA had begun to decline in the 1970s and continued to do so until the fracking boom. The supply of oil decreased and the price rose. The price passed $50 per barrel in 2004 and finally reached $147 per barrel in 2008. ..."
"... At the same time, the USA raised oil production dramatically by 4 Mb/d by 2014 through fracking. Fracking now played the same role that North Sea production had played during the 1990s ..."
"... Crude oil production that peaked at 70 Mb/d in 2007 was down at 66.6 Mb/d by 2014 and preliminary data suggests it was 65 Mb/d in 2015. This year it should decrease by 4%, i.e. 2.6 Mb/d. Production from fracking will decrease by up to 1 Mb/d. ..."
"... Production of natural gas liquids, currently in oversupply in the USA, is dependent on natural gas production and at the moment they believe that it will increase greatly. If that does not happen then that fraction of oil supply will also fall. ..."
"... To those who believe that we can forget Peak Oil I just want to repeat again that the bulk of the worlds oil production – conventional crude oil – has already passed its peak. Unconventional oil may also have reached its peak when fracking peaked in 2015. The next few years will reveal the truth. ..."
"... From 1999 it took 4 years to go from drowning in oil to the end of the Oil Age. ..."
But there is still another factor that caused the oil flood in 1999. That is the dramatic increase
in production from the North Sea. However, at the start of the 2000s production from the North
Sea began to decline and some of the fields in Saudi Arabia had also passed their production peaks.
Oil production in the USA had begun to decline in the 1970s and continued to do so until the fracking
boom. The supply of oil decreased and the price rose. The price passed $50 per barrel in 2004 and
finally reached $147 per barrel in 2008.
In the Autumn of 2014 global oil production was in a situation reminiscent of 1999. Saudi Arabia
had finished its massive investments to raise pressure in the Manifa oil field and some other fields,
and at the start of 2013 could now raise production by 1 Mb/d.
At the same time, the USA raised oil production dramatically by 4 Mb/d by 2014 through fracking.
Fracking now played the same role that North Sea production had played during the 1990s. In
its recently released report, the IEA now says that the world is once again drowning in oil. By lifting
the sanctions against Iran we will first see that they sell all the oil they have stored at sea on
old oil tankers. Then they will increase production. Thus Iran will increase the world's oil supply
further.
The question is, when will we see a decline in production like that we had at the beginning of
the 2000s? In the figure above you can see the scenario that the IEA presented in November 2015.
Crude oil production that peaked at 70 Mb/d in 2007 was down at 66.6 Mb/d by 2014 and preliminary
data suggests it was 65 Mb/d in 2015. This year it should decrease by 4%, i.e. 2.6 Mb/d. Production
from fracking will decrease by up to 1 Mb/d. What will compensate for this decline in production
from existing fields is that previously discovered fields will be put into production. However, we
know that the willingness to invest in oil production is currently decreasing along with the willingness
to fund exploration for new oil fields. The latter means that fewer fields will be put into production
in the longer term.
My conclusion is that the world will not be drowning in oil but that, like the oversupply in 1999,
it will take a few years before the market sees shortage. The question is what will happen to oil
demand. One consequence of the current oversupply can be that the shortage in the future will be
more severe since there is less investment in new supply. We have already seen that crude oil has
passed its production peak and the price of oil will be decisive for the moment in time when unconventional
oil peaks. Production of natural gas liquids, currently in oversupply in the USA, is dependent
on natural gas production and at the moment they believe that it will increase greatly. If that does
not happen then that fraction of oil supply will also fall.
To those who believe that we can forget Peak Oil I just want to repeat again that the bulk
of the worlds oil production – conventional crude oil – has already passed its peak. Unconventional
oil may also have reached its peak when fracking peaked in 2015. The next few years will reveal the
truth.
From 1999 it took 4 years to go from drowning in oil to the end of the Oil Age. The Norwegian
oil field Johan Sverdrup will be profitable if the price of oil is $40 per barrel. Oil that is planned
to come into full production in 2020 will presumably be very profitable if we see a similar development
to what we saw after 1999.
"... Im a big investor in solar and I was advocating that we have 20 countries where we could make solar profitable. It is not true today. At $30 a barrel, there is not a single one, Pouyanne said. ..."
Crude oil at below $30 per barrel has a negative impact on the profitability and investments in renewable
energies, Total's Chief Executive Officer Patrick Pouyanne, told a forum in Davos in Thursday.
Oil prices have fallen to multi-years lows in due to a persistent global supply surplus.
"Today at $30 a barrel, I'm sorry," Pouyanne said.
"I'm a big investor in solar and I was advocating that we have 20 countries where we could make
solar profitable. It is not true today. At $30 a barrel, there is not a single one," Pouyanne said.
"... On an individual well basis, ultimate recovery from North Dakota wells ranges from 500,000 to 900,000 bbl per well, compared to 100,000 to 400,000 bbl per well in the Elm Coulee Field of Montana. ..."
"... If the predictions prove to be accurate and are repeatable over a wide area, the Bakken would likely be the most prolific onshore oil play in the United States. ..."
On an individual well basis, ultimate recovery from North Dakota wells ranges from 500,000
to 900,000 bbl per well, compared to 100,000 to 400,000 bbl per well in the Elm Coulee Field of
Montana.
Improved hydraulic fracturing technology including more fracturing stages has become a
significant contributor to improved production.
In addition, the productive reservoir section on the North Dakota side of the Williston Basin
is thicker and more widely distributed, typical of an unconventional resource play. If the
predictions prove to be accurate and are repeatable over a wide area, the Bakken would likely be
the most prolific onshore oil play in the United States.
"... First of all, the GCC countries, take their orders from the USA. ..."
"... The GCC countries themselves, do not wish to produce and sell the bulk of their oil reserves cheaply. ..."
"... The oil rich countries that are on bad terms with the US/NATO, meaning Russia, Iran, Iraq, Kazakhstan, Venezuela and formerly Libya, have been/are/will be under pressure from the financial power centers of the West so as to minimize their own production. ..."
"... As a county importer of oil the USA generally is interested in lower oil prices. And it looks like the current administration does not mind sacrificing its own shale industry. Note the Obama administration did little to nothing to help shale players (may be some nod-wink to banks as for loans/bonds, but thats about it). ..."
"... Low oil prices also undercut two countries that does not want to march to the tune of Washington drummer: Iran and Russia. The latter is the real obsession of Obama administration as in Carthago delenda est (Carthage must be destroyed) . The level of hate of Russia in Obama administration is probably unprecedented for the post Cold War period, including strong personal antipathy of Obama toward Putin. ..."
"... d) This would have meant not only a great financial hole for the wealthy/dominant US/EU axis, but also extreme strategic weakness vis-a-vis their privileged allies at the GCC and even more crucially in relation to Iran, Iraq, Kazakhstan, Venezuela and worst of all, Russia. ..."
"... If the price of oil remains prohibitive for Western countries and oil majors in the coming years and no regime-change is inflicted upon Russia/Iran, the scenario I am describing above may very well play out to a considerable degree. ..."
"... The reason why the US/NATO is being so hostile against Russia, has nothing to do with emotions or antipathy towards Putin's personality. It's about geostrategy and leverage. While Russia is an economic lightweight, geostrategically is a potential lethal threat against the US superpower or even NATO in general. This is not so much about economic size, it's about leverage. If Russia is treated half-fairly in its interaction with the global economy, her economy will rapidly shift to rapid growth. Even so, a growing Russian economy will never approach the absolute size of the EU, US or Chinese economies. But as I said earlier, this is not about sheer economic size, but about leverage. A reasonably prosperous Russia would be impossible for any power, or even any combination of powers to pressurize. There would simply be no leverage. Russia has all the resources it needs, has all the nukes to deter all enemies, actual or potential and its smallish population (especially in relation to its colossal resource base) is actually an advantage in the 21st century. The revenue from resource sales could then be partially diverted to the military-industrial complex and maintain a state-of-the-art military branch. ..."
"... In a way, Russia (due to her unique geography) is the antithesis of countries such as Germany, Japan and Korea. The latter 3 were given all kinds of trade privileges and aid from the US in the post-war period, because due to the global presence of the US military and influence, they are all powerless strategically. They are all resource poor and geographically constrained, hence have little choice but to generally accept US imperatives, especially since they were given a good economic deal after 1945. The US (or other powers for that matter) cannot treat Russia in the same way, because Russia is neither geographically constrained, nor resource poor, in fact Russia is the exact opposite of that and therefore we have the current global situation. ..."
"... Feigning weakness and loss of control is the strategy du jour for US "informational warfare" It simply suits US interests best to pretend that they have lost their tight grip on some key Middle Eastern allies. This is so for several reasons: ..."
"... a) It puts an "imaginary" distance between the good Western democracies and the savage, head-chopping dictatorships of the GCC. The US gets to maintain control, the considerable financial perks (via weapons sales, Treasury sales, GCC investments in Western stock markets etc) while pretending to have little, if anything to do with it. ..."
"... b) It obscures US motives, tactics and strategy in the Middle East and beyond. If the world (especially the naive public North America and Europe) falls for the lie that the GCC states act on their own volition, then NATO's dirty work in the Middle East gets to keep plausible deniability. "Don't look at us, we are not the superpower of yesteryear, those Sheikhs are their own men now". ..."
"... The way to tell where the GCC owes its allegiance to, is (as always) to follow the money. Where do they buy weapons from? Where do they recycle their petrodollars in? To whom do they provide bases? Who are they fighting against? ..."
While I am not petroleum geologist or oil engineer, in my opinion, several OPEC countries have
been deliberately under-producing for many decades now. This may be so due to several different
reasons:
a) First of all, the GCC countries, take their orders from the USA. The USA does not
want its allies/subordinates of the GCC (KSA, UAE, Kuwait and Qatar) to be producing at maximum
capacity. First of all, that would have kept prices relatively lower during the period after 2000,
which will have meant that no shale or tar sands boom would have ever taken place in North America.
b) The GCC countries themselves, do not wish to produce and sell the bulk of their oil
reserves cheaply. They both have to defer to what Western powers demand, and also save oil
for the future. They rationally wish to spread their production over as many decades as possible.
c) The oil rich countries that are on bad terms with the US/NATO, meaning Russia, Iran,
Iraq, Kazakhstan, Venezuela and formerly Libya, have been/are/will be under pressure from the
financial power centers of the West so as to minimize their own production. The pressure
from the West against these countries ebbs and flows according to the tactical and strategic imperatives
at any given moment in time. For example, for many years, it was Iraq that was the main target
of the US & allies. Then it was Iran and now it's Russia.
If what I say above is correct, then it seems plausible to argue that both GCC and Russia/Iran/Iraq
etc have much more oil potential than Ron Patterson seems to believe.
The high oil price is one of the key factors in "secular stagnation" of Western (G7) economies.
So it's unclear to me why would the USA encourage high oil prices via limiting oil production
in any country, even in view of "shale boom" of 2010-2014.
As a county importer of oil the USA generally is interested in lower oil prices. And it
looks like the current administration does not mind sacrificing its own shale industry. Note the
Obama administration did little to nothing to help shale players (may be some nod-wink to banks
as for loans/bonds, but that's about it).
Low oil prices also undercut two countries that does not want to march to the tune of Washington
drummer: Iran and Russia. The latter is the real obsession of Obama administration as in Carthago
delenda est (Carthage must be destroyed) . The level of hate of Russia in Obama administration
is probably unprecedented for the post Cold War period, including strong personal antipathy of
Obama toward Putin.
The only negative is that the same policy helps China, which is probably the most important
threat to the USA world dominance and also decrease flow of "oil money" into US treasuries. But
China can be dealt with later, if Russia and Iran fall in line.
Stavros H, 01/21/2016 at 10:29 am
@likbez
Let us imagine that there is a roughly efficient global market for oil extraction. I claim, that
under such a scenario, the price of oil would have never risen to $100/bbl. This would have meant
several things:
a) Production in wealthy western countries would have been much lower during the entire post-2000
period, and especially the past 10 years or so, even more so, during the past 5 years. US shale,
Gulf of Mexico UDPW, Canadian tar sands, the North Sea would have either never produced a single
barrel of oil, or would have been producing at massively lower rates than they have/are currently
producing at.
b) Production in other relatively expensive areas, West Africa offshore, Latin America offshore,
where production is done by Western oil majors, would also have developed more modestly.
c) This deficit from currently producing marginal areas outlined above would have been covered
partly by the GCC (KSA, Kuwait, UAE) and partly by countries outside the US/NATO alliance system,
such as Russia, Iran, Iraq, Kazakhstan and Venezuela.
d) This would have meant not only a great financial hole for the wealthy/dominant US/EU axis,
but also extreme strategic weakness vis-a-vis their privileged allies at the GCC and even more
crucially in relation to Iran, Iraq, Kazakhstan, Venezuela and worst of all, Russia.
If the price of oil remains prohibitive for Western countries and oil majors in the coming
years and no regime-change is inflicted upon Russia/Iran, the scenario I am describing above may
very well play out to a considerable degree.
The reason why the US/NATO is being so hostile against Russia, has nothing to do with
emotions or antipathy towards Putin's personality. It's about geostrategy and leverage. While
Russia is an economic lightweight, geostrategically is a potential lethal threat against the US
superpower or even NATO in general. This is not so much about economic size, it's about leverage.
If Russia is treated half-fairly in its interaction with the global economy, her economy will
rapidly shift to rapid growth. Even so, a growing Russian economy will never approach the
absolute size of the EU, US or Chinese economies. But as I said earlier, this is not about sheer
economic size, but about leverage. A reasonably prosperous Russia would be impossible for any
power, or even any combination of powers to pressurize. There would simply be no leverage. Russia
has all the resources it needs, has all the nukes to deter all enemies, actual or potential and
its smallish population (especially in relation to its colossal resource base) is actually an
advantage in the 21st century. The revenue from resource sales could then be partially diverted
to the military-industrial complex and maintain a state-of-the-art military branch.
In a way, Russia (due to her unique geography) is the antithesis of countries such as
Germany, Japan and Korea. The latter 3 were given all kinds of trade privileges and aid from the
US in the post-war period, because due to the global presence of the US military and influence,
they are all powerless strategically. They are all resource poor and geographically constrained,
hence have little choice but to generally accept US imperatives, especially since they were given
a good economic deal after 1945. The US (or other powers for that matter) cannot treat Russia in
the same way, because Russia is neither geographically constrained, nor resource poor, in fact
Russia is the exact opposite of that and therefore we have the current global situation.
Ron Patterson, 01/20/2016 at 9:02 pm
a) First of all, the GCC countries, take their orders from the USA.
Is it possible that there still exist such ignorance among people who can actually read and
write.
Stavros H, 01/21/2016 at 9:42 am
That's amusing!
You seem to completely fall for MSM propaganda and the nonsensical narrative that they have been
pushing for several years now.
Feigning weakness and loss of control is the strategy du jour for US "informational warfare"
It simply suits US interests best to pretend that they have lost their tight grip on some key
Middle Eastern allies. This is so for several reasons:
a) It puts an "imaginary" distance between the good Western democracies and the savage,
head-chopping dictatorships of the GCC. The US gets to maintain control, the considerable
financial perks (via weapons sales, Treasury sales, GCC investments in Western stock markets etc)
while pretending to have little, if anything to do with it.
b) It obscures US motives, tactics and strategy in the Middle East and beyond. If the world
(especially the naive public North America and Europe) falls for the lie that the GCC states act
on their own volition, then NATO's dirty work in the Middle East gets to keep plausible
deniability. "Don't look at us, we are not the superpower of yesteryear, those Sheikhs are their
own men now".
The way to tell where the GCC owes its allegiance to, is (as always) to follow the money.
Where do they buy weapons from? Where do they recycle their petrodollars in? To whom do they
provide bases? Who are they fighting against?
Now, I am not saying that the US/NATO have 100% control over the GCC. No, imperial power does not
work that way. But, at the end of the day, it's clear who the boss is. GCC are simply some of the
US Empire's most privileged vassals.
Clueless, 01/21/2016 at 10:17 am
Ron, I think that we have a President and a former Secretary of State that believe that.
The two price rallies from March-to-June and from August-to-October were based largely on hope and
the price decline from June-to-August represented a return to the reality of supply and demand fundamentals.
The most recent price decline that began in October is a bit different. Here, confirmation bias
has replaced critical thinking about the oil market. The ruling paradigm is that prices are likely
to stay low for years or even for decades and evidence is easily found that favors and confirms this
bias. I believe that this paradigm is incorrect.
Despite troubling signals of structural weakness in the global economy, data suggests that the
oil market is stumbling toward balance. Although I have said that
prices must go lower in order to flush out the zombie producers, IEA's statement in the
January Oil Market Report
that the world could drown in over-supply is based more on sentiment and pessimism than on data.
Let's put this in context. 1.2 mmbpd is disappointing only compared with 1.7 mmpbd in 2015 but
that was the highest demand growth in 5 years. 2016 demand growth is more than the average for 2011
through 2013 when oil prices were more than $100 per barrel, and is one-third higher than in 2014
when the oil-price collapse began.
... ... ...
What conclusions might we reach from this? If we assume that supply remains flat and IEA's forecast
of a 1.2 mmbpd increase in demand is reasonable, the supply surplus should fall to approximately
350,000 bpd. That does not include the wild card of Iranian production.
"... Maybe that's the 50:50 ratio of production and imports. The US is now at 57:43. That is not "almost energy independent" ..."
"... Note that in Obama's 2016 SOUA the term "energy independence" is no longer used but the objective to develop "clean energy sources" is mentioned. The statement that imports of foreign oil were cut by "almost 60%" (from its peak) is correct. ..."
"... Contrary to general belief, and mis-information by the media the US is far away from being "energy independent" in terms of crude oil imports. ..."
"... It is not clear why the media are spreading confusing, incorrect or even wrong facts on oil supplies. ..."
"... And where is the responsibility of the media? Oil is not about entertainment but the lifeblood of our economy. And last not least, biased or ignorant reporting leads to wrong decisions to build new oil-dependent infrastructure. ..."
Aljazeera's Inside Story mentions a tipping point but doesn't specify of what. Maybe that's
the 50:50 ratio of production and imports. The US is now at 57:43. That is not "almost energy
independent"
ABC TV's claim that the US is "virtually self-sufficient in oil" is also incorrect. And the
reference to Saudi Arabia's role forgets that exports matter.
On the other hand, Obama's speech writers are closer to the facts. Note that in Obama's 2016
SOUA the term "energy independence" is no longer used but the objective to develop "clean energy
sources" is mentioned. The statement that imports of foreign oil were cut by "almost 60%" (from
its peak) is correct.
Conclusion
Contrary to general belief, and mis-information by the media the US is far away from being
"energy independent" in terms of crude oil imports. Maybe some may find the above analysis
statistical hair-splitting but the narrative of US energy independence has shaped public opinion
to such an extent that prudence has given way to complacency. There is a danger that wrong
geo-strategic views are formed, especially in the context of evolving and worsening conflicts in
the Middle East.
It is not clear why the media are spreading confusing, incorrect or even wrong facts on oil
supplies. Is it lack of time to check statistics, is it parroting of what others have
repeated many times, or is there a deliberate attempt to embellish things. Perhaps just wishful
thinking? And where is the responsibility of the media? Oil is not about entertainment but
the lifeblood of our economy. And last not least, biased or ignorant reporting leads to wrong
decisions to build new oil-dependent infrastructure.
"... Saudi Arabia says $30 oil is 'irrational'. Comments from Khalid al-Falih, chairman of state oil company Saudi Aramco: The market has overshot on the low side and it is inevitable that it will start turning up" ..."
"... Saudi is pumping as much as it can, trying to drive the rest of em out of business. So they can have their one last hay day, before the wells start drying up. They want to make the most of next decade. BUT they didn't expect prices to fall THIS much. So it's a big game of chicken now. ..."
"... I think KSA knew they were going to peak soon so they maxed out the infill drilling and dropped the price for a year or so. It's s psychological game. ..."
"... FYI the ruling clan does not think in terms of 'national interest'. They think of their own personal/clan interest. Once they've squeezed the land dry they'll retire to southern France and leave the mess behind. ..."
ICYMI – Saudi Arabia says $30 oil is 'irrational'. Comments from Khalid al-Falih, chairman of
state oil company Saudi Aramco: "The market has overshot on the low side and it is inevitable that
it will start turning up"
He predicts higher prices by the end of the year, Also reiterated
that Saudi Arabia would not cut supply unilaterally, nor would they make way for rival producers
Saudi Arabia has said it would consider production cuts if other Opec members participated and if
the cartel was joined by the largest producers outside the group, such as Russia.
Saudi is pumping as much as it can, trying to drive the rest of em out of business. So they can
have their one last hay day, before the wells start drying up. They want to make the most of next
decade. BUT they didn't expect prices to fall THIS much. So it's a big game of chicken now.
I tend to agree. I think KSA knew they were going to peak soon so they maxed out the infill drilling
and dropped the price for a year or so. It's s psychological game.
In the future they might threaten
to raise production to psyche the market, and maybe they will briefly, but I think this is KSA's
last kick at the can and they know it. They'll decline fast IMHO as the infill drilling has resulted
in a longer plateau with a little burst up at the end but the decline rates will be steep.
FYI
the ruling clan does not think in terms of 'national interest'. They think of their own personal/clan
interest. Once they've squeezed the land dry they'll retire to southern France and leave the mess
behind.
"... I saw that you were on Bloomberg in December, and you said that you thought oil would go to the low $30s per barrel, which was a good call at the time, before OPEC would sort of relent. Do you see any chance that OPEC can actually coordinate any production cuts? ..."
"... it seems now is that they are really fracturing OPEC, and in some ways almost undermining their own members. ..."
"... So countries like Venezuela or Nigeria...do you actually see them shutting in production? ..."
"... And finally, the answer to the question that everyone wants to know: where do you see oil prices going this year? ..."
"... Now I think it is about a range. It's about where are oil prices going to stay in the next year and probably the next couple of years, at least with this pace of economic growth and oil production. ..."
"... I'd say between $35 and $55 right now. And I think to narrow that down I'd probably say that $45 to $48 is going to be an average price for the year. And I do think that there is definitely more risk to the upside than there is to the downside at this point. ..."
Oilprice.com:I saw that you were on Bloomberg in December, and you said that
you thought oil would go to the low $30s per barrel, which was a good call at the time, before OPEC
would sort of relent. Do you see any chance that OPEC can actually coordinate any production cuts?
Carl Larry: No, you know, at this point I think that there is something to consider...that
OPEC up until now most people had thought that the Saudis and the rest of OPEC were really pushing
hard to slowdown or stop altogether shale production in the U.S. But what it seems now is that they
are really fracturing OPEC, and in some ways almost undermining their own members.
So with oil prices down here and with production staying so high, it becomes a point where it's
unsustainable for countries like a Nigeria or a Venezuela to continue on. I mean, other countries
within OPEC are still struggling with these oil prices, including Saudi Arabia. But you can see that
going forward that the more that the pressure stays on those countries that are outside of the Middle
East, it's possible that they are the ones that are going to have to blink first. They are the ones
that are going to have to cut back production.
OP:So countries like Venezuela or Nigeria...do you actually see them shutting
in production?
CL: Yeah, I think so. I think that it's possible. It's a theory, but it's possible
that when Shell pulled out of the U.S. Arctic a few months ago, they said that they wanted to cut
costs. But I think that they were just shifting some of the budget that was there to uphold and maintain
production in areas like West Africa, like Nigeria.
... ... ...
OP:And finally, the answer to the question
that everyone wants to know: where do you see oil prices going this
year?
CL: Well, I think the funny thing is
that in past years we have all had a price target, where we all
forecasted. Now I think it is about a range. It's about where are
oil prices going to stay in the next year and probably the next
couple of years, at least with this pace of economic growth and oil
production.
So, I'd say between $35 and $55 right now. And I think to narrow
that down I'd probably say that $45 to $48 is going to be an
average price for the year. And I do think that there is definitely
more risk to the upside than there is to the downside at this
point.
There's something I don't understand about SA protecting its market share at the expense of price.
According to an IEA item written a few days ago (https://www.iea.org/oilmarketreport/omrpublic/),
global supply will exceed production by 1 million barrels in 2016.
So, all SA needs to do is reduce production by 1 million bpd to send prices shooting back up and
stop the rapid depletion of their financial reserves. What do they care about protecting a mere
1 million bpd in market share?
As stated above, OPEC has gone well past its peak and it would
only be a matter of a 2 or 3 short years before SA would again regain that market share. Let's
not forget also that there has been massive underinvestment from the big exploration companies
for the last few years which is guaranteed to have a knock-on impact in the near future – again
guaranteeing that SA will regain its market share in the medium to short term.
Something is afoot, particularly when now they also want to get western interests investing in
their oil refining industry.
If this was a poker game I'd say there's a major bluff being played here.
Protection of the market share is just a smoke screen for dumping or "undercutting". They essentially
give a discount for their oil for each region from Brent price effectively putting price tag on
each barrel. This way they drive price down even without exporting any more barrels. You can get
much farther with a kind word and a gun than you can with a kind word alone.
Actually their
exports are close to flat y-o-y ( 2013 7.36; 2014 7.11; 2015 7.4).
The price plunge represents a huge fiscal headache for the Saudi royal family (they can balance
the budget only at $90 or higher) so why they are doing this is an open question. They are depleting
their foreign currency reserves really fast to the tune of $100 billions a year.
In light of the jobs report, Edward sat down to talk with Warren Mosler, president of Valance
Inc. Warren gives us his take on what's going on with wages in the US and if policymakers believe
a robust economic recovery is possible without real wage growth. Warren also weighs in on the important
subject of oil; he sees the Saudis acting as the swing producer of oil, using spread pricing to engineer
a market crash that hurts producers of crude with high costs and too much debt.
He also tells us why he thinks the Saudis have moved to spread pricing that effectively turns them
into price takers and whether geopolitics is a big factor in this. Warren weighs in on what is happening
with credit expansion and demand in the US economy.
The ever-declining U.S. oil rig count should really start to take a bite out of the oversupply
problem this year, KLR Group's John Gerdes said Thursday, predicting depressed crude prices could
soon begin to move sharply higher.
Gerdes sees West Texas Intermediate crude hitting $47 per barrel in 2016, basically a 50 percent
increase from current levels of about $31. Looking out to 2018, he sees prices at $80 to $85 per
barrel.
"What this industry will need is more of an $80 to $80-plus environment to drive some modest
degree of return. And the mechanisms for that are being set in motion with these lower levels of
activity to suggest the supply adjustments should progress," Gerdes told CNBC's "Squawk Box."
... ... ...
"What this industry will need is more of an $80 to $80-plus environment to drive some modest
degree of return. And the mechanisms for that are being set in motion with these lower levels of
activity to suggest the supply adjustments should progress," Gerdes told CNBC's "Squawk
Box."
... ... ...
"The U.S. industry is effectively uneconomic at sub-$60 [per barrel] and we're sitting at
$30," he said.
"... We think oil is going to go higher in the second half of the year because, even with Iran gradually increasing output, we expect the first signs of the rebalancing in the oil market, ..."
"... Following two, two and a half years of pretty much nonstop stock build, we think that well be balanced in the second half which will provide a change of tone in the market and provide some uplift, ..."
"... I think the key driver is a steady and significant decline in U.S. production and thats really going to be the key to the market outlook. ..."
"... Even with his long-term bullish outlook, however, he said that the pressure could continue in the coming days. With sanctions lifted, I would characterize it as a wait-and-see game as Iran strives to regain market share. ..."
The International Energy Agency renewed concerns about a global
oil glut after it said crude oversupply should continue through the end of 2016. The announcement
follows the lifting of U.S. sanctions on Iran over the weekend, which experts project will add more
crude to the market. Oil prices fell more than 3 percent Tuesday, settling at their lowest level
since September 2003.
Despite the overwhelmingly bearish picture for the
energy space, one expert maintains his
view that we will see oil back above $40 by the end of the year.
"We think oil is going to go higher in the second half of the year because, even with Iran gradually
increasing output, we expect the first signs of the rebalancing in the oil market," Mike Wittner
said Tuesday on CNBC's "Futures Now."
Crude oil has been in a precipitous decline for the last two years as supply and demand continue
to drag the market lower. WTI crude is down 70 percent since January 2013.
"Following two, two and a half years of pretty much nonstop stock build, we think that we'll be balanced
in the second half which will provide a change of tone in the market and provide some uplift," said Wittner, managing director and global head of oil research at Societe Generale.
"I think the key
driver is a steady and significant decline in U.S. production and that's really going to be the key
to the market outlook."
Even with his long-term bullish outlook, however, he said that the pressure could continue in
the coming days. "With sanctions lifted, I would characterize it as a wait-and-see game as Iran strives
to regain market share."
Wittner expects oil to steadily trade above $40 by the second half of this year, more than 35
percent higher than its current price of under $29 a barrel.
"... I think most predictors are assuming that if oil hits 40 by mid year, then the producers will be drilling madly. Get a grip. Where is the money going to come from? ..."
"... US production is going over the cliff, that has, at least a year, before they can get a response out of the accelerator pedal. ..."
"... How can OPEC say in the report that Inventories declined in November and then imply that demand is two million barrels per day less than supply? ..."
Good info, Ron. Like you, I think the 380k drop in the US is not only too optimistic, as the EIA
is predicting 500k. I actually think that both are way too optimistic. The sharp drop now, is
hitting producers at a time when they are counting pennies towards new wells. I think most
predictors are assuming that if oil hits 40 by mid year, then the producers will be drilling madly.
Get a grip. Where is the money going to come from?
US production is going over the cliff, that has, at least a year, before they can get a
response out of the accelerator pedal.
Sweeping the old eyeball across the columns of Ron's Table 5.7 above from the 2014 column at $110/b
to now, y'all do realize this should not be happening? Those numbers are pretty flat, with a few
mild declines and a few mild rises.
That's 73ish% cut in price and no signif impact on production.
"... The national currency declined by 2 percent to 79.1 rubles to the dollar in Moscow, its lowest trading level since December 2014. ..."
"... Russia is running a budget deficit of 3 percent of GDP this year, and the government is looking to cut 10 percent from the federal budget, which was drafted with oil prices of $50 a barrel in mind. ..."
"... The government has recently downgraded its economy forecast for this year, from 0.7 percent growth to a 0.8 percent decline. ..."
MOSCOW - The Russian ruble, battered by weak oil prices, on Monday fell to an all-time low against
the euro and dropped to its lowest level in more than a year against the dollar.
The Central Bank set the official exchange rate at over 85 rubles to the euro on Monday. The
national currency declined by 2 percent to 79.1 rubles to the dollar in Moscow, its lowest trading
level since December 2014.
Oil, the mainstay of the Russian economy, recently plummeted to under $30 a barrel, a 13-year
low. The ruble is also under pressure from economic sanctions that the West imposed on Russia for
its involvement in the Ukraine crisis.
Russia is running a budget deficit of 3 percent of GDP this year, and the government is looking
to cut 10 percent from the federal budget, which was drafted with oil prices of $50 a barrel in mind.
All Russian ministries are expected to present their proposed cuts by the end of the month with
a view to cutting 500 billion rubles ($6.3 billion) in government expenses, Finance Minister Anton
Siluanov said.
Prime Minister Dmitry Medvedev, in televised comments on Monday, said that the government finds
the price of oil "difficult to predict" and that Russia should use this moment to diversify its economy
away from oil since it "has got a chance now to do it as quickly as possible."
The government has recently downgraded its economy forecast for this year, from 0.7 percent
growth to a 0.8 percent decline.
Deputy Prime Minister Arkady Dvorkovich told Russian news agencies in Hong Kong that the government
and monetary officials are discussing ways to spur growth and hoping GDP will be flat this year compared
with 2015.
So this is "glut" not Saudis discounting their oil ;-). "Trust but verify" ;-) if you see
such MSM coverage. .
Notable quotes:
"... U.S. oil futures crashed below $27 dollars a barrel on Wednesday for the first time since 2003, caught in a broad slump across world financial markets as traders worried that a huge oversupply in oil was coinciding with an economic slowdown, especially in China. ..."
"... In early Thursday trading, oil prices stabilized, with front-month West Texas Intermediate (WTI) crude futures (CLc1) trading at $28.70 per barrel at 0021 GMT (1921 EDT). ..."
SINGAPORE (Reuters) - U.S. crude oil prices stabilized in early Asian trade on Thursday after
hitting fresh 2003 lows the session before, but analysts said a persistent global glut would keep
pressuring markets.
U.S. oil futures crashed below $27 dollars a barrel on Wednesday for the first time since
2003, caught in a broad slump across world financial markets as traders worried that a huge
oversupply in oil was coinciding with an economic slowdown, especially in China.
In early Thursday trading, oil prices stabilized, with front-month West Texas Intermediate (WTI)
crude futures (CLc1) trading at $28.70 per barrel at 0021 GMT (1921 EDT).
That was over $2 above its last close, although traders said that the jump was misleading due to
the roll-over of front-month contracts overnight.
Yet broader market sentiment remained bearish as producers around the world pump 1-2 million
barrels of crude every day in excess of demand, creating a huge storage overhang.
"We believe prices are likely to come under more pressure after the release of EIA inventory
data," ANZ bank said on Thursday.
The U.S. Energy Information Administration is due to publish official storage data later in the
day.
Nexen's Long Lake oil sands facility had an explosion at a compressor last Friday. One man was
killed others injured. This 50,000 bopd project has been shut down for an indefinite time.
"... The current situation with oil prices only indirectly connected with oversupply of oil on world markets that is discussed to such length by AlexS, who is kind of obsessed with finding the balance of supply and demand in some future point by analyzing supply and demand data from available sources (which are probably pretty fuzzy). That's an important part of the story but this not the whole story. ..."
"... The third factor are economic pressures of "secular stagnation" in which all G7 economies found themselves with high oil prices (but not only because of high oil prices; other factors are involved too). This is perfect (albeit temporary) solution for this problem. That's why MSM are supporting glut theory like crazy. They know who butter their bread. ..."
"... Destabilization of financial system with "naked" commodity trading, derivatives and HFT also plays a role. It well can be the Saudis started this mess hoping to bring prices to say $60-$70 level and then it went out of control due to those mechanisms. ..."
My guess is that the data charted will be different than the reality as it unfolds. However, who
among us will have a clue about those differences. The relevant point that Carl makes though is
that it may take YEARS before these spending cuts will be seen in the production numbers.
"Of course, these spending cuts will reduce production. The next question is when"
Market
behavior is about future, not present. So this news increases the possibility of the short squeeze
of reckless speculators (and HFT computers) in futures. I sometimes wonder who is shorting oil
at below $50 level.
The current situation with oil prices only indirectly connected with oversupply of oil on world
markets that is discussed to such length by AlexS, who is kind of obsessed with finding the balance
of supply and demand in some future point by analyzing supply and demand data from available sources
(which are probably pretty fuzzy). That's an important part of the story but this not the whole
story.
There are other important factors and first of all Saudis dumping of oil. Such behavior would
move market quickly down even with zero oversupply. That's important to understand.
The second important factor is incorrect accounting for oil reserves (absence of separation
of oil and condensate) which might be deliberate. Which create wrong signal to traders, who in
turn are subject to crowd psychology. In other words this facilitates artificial panic (with significant role played by MSM, remember all those crazy stories that we can run out of storage). My impression
is that the "glut" and excessive volumes in storage are mainly about condensate, not so much for
"real" oil.
The third factor are economic pressures of "secular stagnation" in which all G7 economies found
themselves with high oil prices (but not only because of high oil prices; other factors are involved
too). This is perfect (albeit temporary) solution for this problem. That's why MSM are supporting
glut theory like crazy. They know who butter their bread.
Destabilization of financial system with "naked" commodity trading, derivatives and HFT also
plays a role. It well can be the Saudis started this mess hoping to bring prices to say $60-$70
level and then it went out of control due to those mechanisms.
And of cause geopolitical factors can't be discounted as well. Especially plausible are "Economic
war with Russia" theories as this is an official policy of Obama administration. In any case,
explanation of Saudis behavior by pure desire to preserve market share is very unconvincing.
So oversupply might well be not even the most important factor in all this mess.
"... Poor article, not too much logic. I recall whilst working in Saudi Arabia in the mid 1980's when oil dropped to around $25. We sacked about 15% of staff overnight and curtailed capital projects. At the time Saudi Aramco's zero based budget level was $15 and a reported cost of about $1 to get it out of the ground. We had been experimenting with solar panels from about 1983 so none of this new. ..."
"... What happened in two years to make an alternative energy source that was then not competitive with oil of gas powered plants - when the cots of both oil and gas was so much higher - so competitive now? ..."
"... The Saudis could use their enormous and uninhabitable deserts for the world's best, and possibly safest way, to store nuclear waste. ..."
"... @mattwookey - the internet is something of a smorgasbord of competing claims, almost none of which can be held to task by the viewer. All news now is chacun a son gout and I hope I spelled that correctly. ..."
Since 2000, energy demand among the Middle Eastern oil producers
has grown at 5% a year, outstripping China and India. Saudi Arabia, the world's biggest oil
exporter, is now the seventh largest consumer of fossil fuels, according to
a report from Irena published on Wednesday.
Mod Mark -> newschats4 20 Jan 2016 13:40
The Saudis could use their enormous and uninhabitable deserts for the world's best,
and possibly safest way, to store nuclear waste.
Lets skip that one. When Gen 4 nukes arrive, that "nuclear waste" can be sold as fuel.
In the US, storing the partial used fuel using the dry cask system is working quite well.
Rinkaiso 20 Jan 2016 13:00
Poor article, not too much logic. I recall whilst working in Saudi Arabia in the mid
1980's when oil dropped to around $25. We sacked about 15% of staff overnight and curtailed
capital projects. At the time Saudi Aramco's zero based budget level was $15 and a reported
cost of about $1 to get it out of the ground. We had been experimenting with solar panels from
about 1983 so none of this new.
newschats4 20 Jan 2016 12:56
Not two years ago I visited the site of about 15 wind turbines in Washington, NH that was
also holding a fundraising event for the station. I was not permitted to attend the event
because I wasn't invited. What happened in two years to make an alternative energy source
that was then not competitive with oil of gas powered plants - when the cots of both oil and
gas was so much higher - so competitive now?
BTW - The Saudis could use their enormous and uninhabitable deserts for the world's best,
and possibly safest way, to store nuclear waste. Those deserts were considered, and still
are, inhospitable to human life in Lawrence of Arabia's day and a quick look at Google earth
doesn't contradict that statement. But nuclear was a power source that, in it's infancy no one
considered had any problems. I recall Scientific American books my father had in the late
1950s that discussed it and all they saw was nuclear power's enormous advantage over the use
of coal. They loved figures like one pound of enriched uranium was the equivalent of a mile
long coal train (I'm can't quite recall the number of cars). They didn't once discuss the
problem of waste disposal.
@mattwookey - the internet is something of a smorgasbord of competing claims, almost none
of which can be held to task by the viewer. All news now is "chacun a son gout" and I hope I
spelled that correctly.
But perhaps you don't like living in a customized digital hallucination any more than I do?
What's the point of having a human memory anymore?
"... With oil falling below $30 a barrel and domestic drillers expected to face a $100 billion cash shortfall this year, its almost certain that capital market investors wont engineer a second bailout of the U.S. shale industry, especially after last years ill-fated multibillion-dollar bet that crude prices would recover and bolster the oil companies offering cheap new shares. ..."
"... You have a massive amount of fear in the market, said Sean Wheeler, a partner at the law firm Latham Watkins in Houston. Investors, he said, arent willing to park their cash in oil companies while crude prices are volatile. No one wants to catch the falling knife. ..."
"... But, if capital markets are open to the healthiest drillers even now, falling U.S. shale production may have a backstop that many havent anticipated. Goldman Sachs has warned that crude prices will have to drop to $20 a barrel to curb production from large, relatively healthy independent oil producers that pump about 85 percent of the nations crude. ..."
"... So far, the petroleum industry has scrapped about $380 billion in new projects around the world and has delayed 2.9 million barrels of new crude production, according to Wood Mackenzie. But, the Permian is still pumping greater volumes of crude despite a 19-month oil-price downturn, while oil fields in South Texas and North Dakota have forfeited hundreds of thousands of oil barrels a day. ..."
"... IHS estimates that for the most prolific Permian wells, production has climbed 40 percent in the past year. ..."
"... The region needs $45 to $55 oil to spur normal drilling activity. Production in the Permian, Gallagher said, is likely to begin sinking within the next three months - punctuating the end of the U.S. oil boom. ..."
For the troubled U.S. oil industry, Wall Street is closed.
Nearly.
Yet, three domestic drillers - Pioneer Natural Resources, Diamondback Energy and Parsley Energy
- raised $1.8 billion selling shares to investors in recent weeks.
In a business based on gambling millions of dollars on holes in the ground, the trio had a lucky
streak with the rocks in the Permian Basin, a region in West Texas that oil companies and investors
believe will be the most prolific in coming years.
"There's decades' worth of drilling," said Joey Hall, executive vice president of Permian operations
at Irving-based Pioneer. "The wells continue to get cheaper. You're able to get more bang for your
buck."
The three successful stock offerings represented a rare break in a lull of activity between public
capital markets and the industry that once amassed hundreds of billions from investors to spur a
nationwide energy surge.
With oil falling below $30 a barrel and domestic drillers expected to face a $100 billion
cash shortfall this year, it's almost certain that capital market investors won't engineer a second
bailout of the U.S. shale industry, especially after last year's ill-fated multibillion-dollar bet
that crude prices would recover and bolster the oil companies offering cheap new shares.
"You have a massive amount of fear in the market," said Sean Wheeler, a partner at the law
firm Latham & Watkins in Houston. Investors, he said, aren't willing to park their cash in oil companies
while crude prices are volatile. "No one wants to catch the falling knife."
Investors are still attracted to the Permian, however, because it has been active for decades.
It has a concentration of oil field services companies and pipeline operators that have much more
energy infrastructure in place than in the typical remote shale play, keeping costs lower there,
said Matt Metts, a partner at law firm Sidley Austin in Houston.
Eagerly watching
But, if capital markets are open to the healthiest drillers even now, falling U.S. shale production
may have a backstop that many haven't anticipated. Goldman Sachs has warned that crude prices will
have to drop to $20 a barrel to curb production from large, relatively healthy independent oil producers
that pump about 85 percent of the nation's crude.
Traders around the world are watching the U.S. crude inventory and its oil production for signs
that the global oil glut could ease, which would lift oil prices and fortunes for many in Houston's
oil hub. More oil would only delay a recovery expected later this year.
So far, the petroleum industry has scrapped about $380 billion in new projects around the
world and has delayed 2.9 million barrels of new crude production, according to Wood Mackenzie. But,
the Permian is still pumping greater volumes of crude despite a 19-month oil-price downturn, while
oil fields in South Texas and North Dakota have forfeited hundreds of thousands of oil barrels a
day.
Put together, the Permian's oil formations are 4,000 feet thick and hold more crude than any other
region in the nation. Drillers say they're still finding better rocks and new areas where it's easier
to pump crude. The region's best-performing wells - about 20 percent of the total - are profitable
even with crude prices in the low $30-a-barrel range, according to research firm IHS.
"The Eagle Ford and the Bakken are a little more stagnant and stable, but we're still seeing improvements
with all the plays in the Permian," said Jerry Eumont, managing director of upstream research at
IHS. "The economics continue to improve."
New life for an old field
... ... ...
Gallagher said if the industry hadn't made the shift to more advanced drilling technologies, the
Permian wouldn't be able to operate with crude prices under $50 a barrel. Even now, the lofty 50
percent returns that came with $100 oil have vanished.
But in the past year, engineers have been able to vastly improve the economics of their new horizontal
wells, figuring out where to drill to get the most oil possible and shortening the time it takes
to get many oil-drilling processes finished. IHS estimates that for the most prolific Permian
wells, production has climbed 40 percent in the past year.
The Permian has more than 185,000 wells, but only about 10 percent of them were drilled horizontally,
and with hundreds of thousands of potential drilling locations, that could grow and dramatically
increase the region's output capacity. Still, crude production in the Permian can't grow forever
with oil prices languishing around $30 a barrel.
U.S. benchmark West Texas Intermediate crude - the grade typically drawn from Permian wells -
ended Friday trading at $29.42, down $1.78.
The region needs $45 to $55 oil to spur normal drilling activity. Production in the Permian,
Gallagher said, is likely to begin sinking within the next three months - punctuating the end of
the U.S. oil boom.
Parsley's Gallagher tapped capital markets three times last year, but the executive said even
now it's difficult to raise cash. Investors are picking "winners and losers" based on their health
and position, and there are few winners.
"... My guess is that the surplus of condensate and blended dumbell crudes has been stacking up in storage tanks, especially in the US, cutting the amount of working storage available to purchasers. Lack of storage increases the sensitivity of the market price to supply/demand imbalance magnitude. If a purchaser of oil has plenty of cheap storage, they might purchase oil they cant use today at a slight discount and save it for future use. If they have no storage they wont buy it at all, no matter how low the price. ..."
"... I never could understand why NGLs are included in oil production in the EIA stats ..."
"... only 13% of NGLs can be blended with gasoline (the pentane). ..."
"... the available data strongly suggest that we have been on an Undulating Plateau in actual global crude oil production since 2005, while global natural gas production and associated liquids, condensate natural gas liquids, have so far continued to increase. ..."
"... Again, what the EIA calls Crude oil is actually Crude + Condensate (C+C), and based on EIA data 22% of Lower 48 C+C production in 2015 exceeded 45 API gravity and about 40% of US Lower 48 C+C production exceeded the maximum API limit for WTI crude (42 API Gravity). ..."
My guess is that the surplus of condensate and blended "dumbell crudes" has been stacking
up in storage tanks, especially in the US, cutting the amount of working storage available to
purchasers. Lack of storage increases the sensitivity of the market price to supply/demand imbalance
magnitude. If a purchaser of oil has plenty of cheap storage, they might purchase oil they can't
use today at a slight discount and save it for future use. If they have no storage they won't
buy it at all, no matter how low the price.
Kurt, are you saying that the apparent oil glut is mostly NGL's and not oil? Also, are NGL's
what make it appear that oil storage is full? I never could understand why NGL's are included
in oil production in the EIA stats, since only 13% of NGL's can be blended with gasoline
(the pentane).
The rest is ethane, butane, propane, and isobutane -- mainly useful for petrochemicals, plastics,
and heating (propane).
I think all the endless electric car nonsense is effective at distracting people from the heavy-duty
transportation that really matters. Virtually everything in our homes, everything in our stores,
got there on a truck. Prior to that, 90 percent of those items were transported on a ship and/or
a train, which all run on finite oil. If trucks, trains, and ships stopped running, our global
economy and way of life would stop too.
First, I find myself hitting your site regularly since so many people refer to your work. So,
thanks for the great work you are doing.
As for condensates and NGLs, terminology in this case is the enemy of clarity. For a good treatment
of this problem
How the changing definition of oil has deceived both policymakers and the public . NGLs generally
refer to both natural gas plant liquids and lease condensate which originate from two different
sources, i.e. gas wells vs. oil wells. And, yes, part of the storage issue is the storage of lease
condensate since it is often, as indicated, mixed with crude oil. Natural gas plant liquids come
from natural gas processing plants and so are not typically stored in combination with crude oil
(though in gasoline refining, butane is usually mixed in with gasoline).
Yes, propane and butane, are used for transportation fuels. But their supply is limited by
the amount of natural gas demand. No one withdraws natural gas from wells solely for the propane
or butane it contains. There are practical limits to how many propane-powered vehicles we can
have.
Now, if we didn't make certain chemicals from natural gas plant liquids, we would be making
them from oil, and so in an indirect way this keeps more oil in the liquid fuels market rather
than the petrochemical market. But I think the substitution effect here is exaggerated by those
saying we should consider all liquids as part of the oil supply. As I said in the piece, the marketplace
certainly makes distinctions between these products.
I think you are right about truck freight being crucial to our current way of living. I remember
an exchange with an Italian reader who explained that while European passenger rail is far superior
to that of the United States, one reason for this is often not understood. Much of the freight
in the United States moves by rail at some point and so our tracks are filled with freight trains
that delay passenger travel. In Europe 80 percent of the freight moves by truck. The rails are
not so burdened with freight and so passenger trains move with fewer delays and at higher speeds.
But in both places truck freight remains crucial. Best of luck with your new book.
Condensate is basically natural gasoline, and it is a byproduct of natural gas production.
However, the issue of relative quality, between crude and condensate, is a little bit of a red
herring.
The CC's (Cornucopian Crowd) argue that there is no sign of any kind of peak in sight. I would
argue that this assertion is manifestly false when it comes to actual crude oil production (45
API and lower crude oil). In my opinion, the available data strongly suggest that we have
been on an "Undulating Plateau" in actual global crude oil production since 2005, while global
natural gas production and associated liquids, condensate & natural gas liquids, have so far continued
to increase.
Again, what the EIA calls "Crude oil" is actually Crude + Condensate (C+C), and based on
EIA data 22% of Lower 48 C+C production in 2015 exceeded 45 API gravity and about 40% of US Lower
48 C+C production exceeded the maximum API limit for WTI crude (42 API Gravity).
"... The EIA (U.S. Energy Information Administration) reported that the US gasoline inventory rose by 8.4 MMbbls to 240.4 MMbbls for the week ending January 8, 2016. This rise was less than the rise of 10.6 MMbbls during the week ending January 1, 2016. Similarly, the US distillate inventory rose by 6.1 MMbbls to 165.6 MMbbls for the week ending January 8, 2016. ..."
The EIA (U.S. Energy Information Administration) reported that the US gasoline inventory rose
by 8.4 MMbbls to 240.4 MMbbls for the week ending January 8, 2016. This rise was less than the rise
of 10.6 MMbbls during the week ending January 1, 2016. Similarly, the US distillate inventory rose
by 6.1 MMbbls to 165.6 MMbbls for the week ending January 8, 2016.
EIA's gasoline and distillate inventories by region
The EIA added that of the five major US storage hubs, the Gulf Coast, the Midwest, and the East
Coast recorded the highest gasoline inventories for the week ending January 8, 2016. To learn more
about the US storage hubs, read the previous part of this series. Gasoline inventories in these regions
came in at 82.6 MMbbls, 57.6 MMbbls, and 62.9 MMbbls, respectively.
Similarly, distillate inventories were highest in the Gulf Coast, the Midwest, and the East Coast
regions. The US distillate inventories were 48.1 MMbbls, 33.3 MMbbls, and 64.9 MMbbls, respectively,
in these three regions.
EIA's gasoline and distillate inventory estimates and impact
Reuters' surveys estimated that the US gasoline inventory would rise by 2.7 MMbbls and the US
distillate inventory would rise by 2 MMbbls for the week ending January 8, 2016. The greater-than-expected
rise in refined products inventories weighed on crude oil prices. Lower crude oil prices benefit
US refiners like Phillips 66 (PSX), Western Refining (WNR), Alon USA Partners (ALDW), and Northern
Tier Energy (NTI). On the other hand, higher refined products inventories put pressure on refiners.
The refined products inventories rose due to the fall in retail demand this winter season. Read about
refinery demand in the fifth part of this series.
The fall in retail and refinery demand also affects crude oil prices and oil producers like Chevron
(CVX), Whiting Petroleum (WLL), and Continental Resources (CLR). ETFs like the ProShares UltraShort
Bloomberg Crude Oil ETF (SCO), the Vanguard Energy ETF (VDE), and the First Trust Energy AlphaDEX
Fund (FXN) are also affected by the ups and down in the oil market.
Read why US crude oil production is crucial for the global crude oil market in the next part of
this series.
[Jan 20, 2016] The US dollar survived the collapse of Bretton Woods because its use in crude oil transactions made it the king of reserve currencies
Notable quotes:
"... In 1973, the U.S. made a pact with the Saudi King to conduct all crude oil trades in U.S. dollars-in return for U.S. protection of its oil fields. Because of the global hunger for crude, the demand for U.S. dollars experienced a similar, sustained hunger. ..."
"... If the dollar obstructs your path to victory, then you must find another path. It is not in the nature of mankind to acquiesce to perpetual subordination. ..."
"The US dollar survived the collapse of Bretton Woods in the '70s because its use in crude
oil transactions made it the king of reserve currencies, but can it survive a collapse of petro
dollars? Can the world survive the catastrophic geopolitical consequences that would follow?"
"In 1973, the U.S. made a pact with the Saudi King to conduct all crude oil trades in U.S.
dollars-in return for U.S. protection of its oil fields. Because of the global hunger for crude,
the demand for U.S. dollars experienced a similar, sustained hunger."
These things will not occur for economically favorable reasons. They occur because someone seeks
non economic dominance/victory.
If the US dollar is a source of US dominance, then US enemies have no reason to participate
in such a thing. They can insist on some other method of payment while explicitly removing their
currency (or that method) specifically from currency or goods exchange markets that would attempt
to link them to the dollar.
It's common sense. If the dollar obstructs your path to victory, then you must find another
path. It is not in the nature of mankind to acquiesce to perpetual subordination.
"... According to Bukar, extracting a barrel of oil in Nigeria costs between $24 and $25 on average but sometimes will cost more. "For some fields, the production cost is well above $25, maybe $28," he said. "For some fields it is well below $20 and $25. Many of the older fields … have got high production costs." ..."
"... The low oil price also threatens to delay several deep-water projects planned off Nigeria's coast, long a mainstay of Nigerian production. Adeola Elliott, the CEO of Petrosystem Nigeria Ltd, said, "What [international oil companies] have done now is to just keep maintaining the facility they have now and producing what they [are] producing now. There is no more new investment." ..."
"The unit technical cost of many of our producers is not far from $30 per barrel," said Bukar,
the project director for the Uquo gas field development, a joint venture project by Frontier Oil
Limited and Seven Energy. "So many companies are in trouble."
According to Bukar, extracting a barrel of oil in Nigeria costs between $24 and $25 on average
but sometimes will cost more. "For some fields, the production cost is well above $25, maybe $28,"
he said. "For some fields it is well below $20 and $25. Many of the older fields … have got high
production costs."
The low oil price also threatens to delay several deep-water projects planned off Nigeria's coast,
long a mainstay of Nigerian production. Adeola Elliott, the CEO of Petrosystem Nigeria Ltd, said,
"What [international oil companies] have done now is to just keep maintaining the facility they have
now and producing what they [are] producing now. There is no more new investment."
Nigeria is the leading producer of oil in Africa, and relies on its oil for most of its revenues
from exports and its national budget. In the past several years its average production has ranged
between 1.9 million barrels of oil per day and 2.3 million barrels per day.
"... that would be a decrease in output of 1.3 Mb/d from North America alone, all of non-OPEC output is about 47 Mb/d for 2015, if that output fell by only 5% we would see a 2.35 Mb/d drop in C+C output, possibly Iran will increase by 500 kb/d, which would leave World output 1.85 Mb/d lower on the assumption that oil prices remain under $30/b. ..."
Although we do not formally forecast OPEC oil production, in a scenario whereby Iran adds
600 kb/d to the market by mid-year and other members maintain current output, global oil supply
could exceed demand by 1.5 mb/d in the first half of 2016. While the pace of stock building eases
in the second half of the year as supply from non-OPEC producers falls, unless something changes,
the oil market could drown in over-supply. So the answer to our question is an emphatic yes. It
could go lower.
I just don't see how oil supply remains as high as the IEA forecasts with oil prices between
$15 and $25/b, at these prices the OPEX of much of North American oil production is not covered
and a lot of production may be shut in where possible. North American C+C output was about 13
Mb/d in the 2nd quarter of 2015, let's assume the full year average for 2015 is close to this
level and that in 2016 output falls by 10% if oil prices remain under $30/b for the first 2 quarters
of 2016, that would be a decrease in output of 1.3 Mb/d from North America alone, all of non-OPEC
output is about 47 Mb/d for 2015, if that output fell by only 5% we would see a 2.35 Mb/d drop
in C+C output, possibly Iran will increase by 500 kb/d, which would leave World output 1.85 Mb/d
lower on the assumption that oil prices remain under $30/b.
Eventually the drop in output will draw down inventories by 675 Mb over 365 days and I imagine
oil prices would recover.
So prices may go lower, but they will not remain low for long.
The idea that Iran can add 600 kb/d midyear is also extremely optimistic, probably 50% overoptimistic.
In any case increase will be by-and-large in condensate, not oil.
Reality is catching up with the Iran-Oil-Export-Boom-Apocalypse.
January 14 Bloomberg released the results of a survey of twelve analysts and economists,
including from UBS and Saxo Bank A/S, on their estimates of the increase in Iranian crude output
over the next year. Their median estimate was 100,000 barrels/day in the first month, 400,000
barrels in six months, and 680,000 within a year.
One Norwegian analyst, Per Magnus from Nysveen, Rystad Energy AS, citing the need to add
production equipment, put the increase at just 150,000 within 6 months, and 250,000 in a year.
OPEC January report came out yesterday – based on secondary sources pretty well all the OPEC countries
production is down m-o-m. To me that looks like everybody has been producing flat out and there
is no spare capacity (and also, based on the recent decline rates, that none of them has as much
oil as they claim). For non-OPEC they expect 2 mmbpd new production this year based on projects
coming on-line which were sanctioned during the high price period, but overall expect production
to be down, mostly due to North America decline. I expect there will be a new post that shows
it more clearly with the historical charts.
Kazakhstan and China announce cut in production in 2016, not much but will cut 50-100 kb/d if
i see good. Non-opec supply drop will be greater than what IEA and EIA said, 800 kb/d-1 mb/d down.
Also, i think, demand will be greater. IEA badly miss projections for demand growth for 2015 in
December 2014. IEA said, 1.2 mb/d demand growth i will put that number in 1.4-1.5 mb/d.
"... One Norwegian analyst, Per Magnus from Nysveen, Rystad Energy AS, citing
the need to add production equipment, put the increase at just 150,000 within 6
months, and 250,000 in a year. ..."
"... Wall Street Journal ..."
"... Iranian officials are studying barter deals involving European goods, investment
in foreign refineries, and switching the benchmark to price Irans petroleum, hoping
it will lock customers into special relationships. ..."
"... it may take nine months before Iran signs its first new oil-export deals
(Iran has contracts in place with some countries, including China and India). ..."
"... Financing may prove difficult, as U.S. terrorism-related sanctions remain
in place and major international banks, some of which paid US$ billions in fines
for violating sanctions, ..."
Reality is catching up with the Iran-Oil-Export-Boom-Apocalypse.
January 14 Bloombergreleased the results of a survey of twelve analysts and economists,
including from UBS and Saxo Bank A/S, on their estimates of the increase in
Iranian crude output over the next year. Their median estimate was 100,000 barrels/day
in the first month, 400,000 barrels in six months, and 680,000 within a year.
One Norwegian analyst, Per Magnus from Nysveen, Rystad Energy AS, citing
the need to add production equipment, put the increase at just 150,000 within
6 months, and 250,000 in a year.
In addition, Iran is realizing the difficulty it will experience in attempting
to market its incremental output without negatively impacting pricing. The
Wall Street Journal
reported January 15 that Iranian officials are "studying barter deals
involving European goods, investment in foreign refineries, and switching the
benchmark to price Iran's petroleum," hoping it will "lock customers into special
relationships."
Another Wall Street Journal
article details additional hurdles. It quotes Rokneddin Javadi, chief of
the state-owned National Iranian Oil Co., as saying that it may take nine
months before Iran signs its first new oil-export deals (Iran has contracts
in place with some countries, including China and India).
Financing may prove difficult, as U.S. terrorism-related sanctions remain
in place and major international banks, some of which paid US$ billions in fines
for violating sanctions, may be reluctant to risk another round of fines.
Low crude prices are also a disincentive for foreign oil companies.
... ... ...
In Iraq, increasing output from 2015's ~4.3 mb/d peak-perhaps even maintaining
output at these levels-could prove difficult. Low crude prices and the cost
of fighting the Islamic State forced Iraq's oil ministry in September to warn
the foreign energy companies operating in its southern oil fields-including
Lukoil, BP, ENI, and Shell-that reimbursement funding for their work would be
cut.
Some companies' representative worried this would eliminate investment in
new production and limit spending to maintenance at best. In addition, completion
of the Common Seawater Supply Facility project, which is required to increase
production from the southern oil fields, has been pushed back to 2020. Without
it, according to Michael Cohen, Barclays head of energy commodities research,
production from these oilfields could decrease 10 percent annually.
... ... ...
In its December
Oil
Market Report, the IEA estimated that global demand will increase 1.2 mb/d
in 2016 to 95.8 mb/d, with China and Other Asia supplying two thirds of the
increase (0.8 mb/d).
The Supply-Demand Balance
Assuming demand at 95.8 mb/d, Russian exports falling 460,000 barrels/day,
U.S. output 500,000 barrels/day from 2015's peak, Iraq output 300,000 barrels/day
from its 2015 peak, and a wash for all other countries, crude demand would outpace
supply by ~160,000 barrels/day-before accounting for potential changes in Iranian
and Saudi production:
In its
Monthly Oil Market Report, issued Monday, OPEC said demand for
its crude averaged 29.9 million barrels per day in 2015, while the
group was producing an average of 31.85 million barrels per day
throughout the year.
This excessive production came despite
declines in output during the year by several leading OPEC members.
Saudi Arabia production dropped by 58,000 barrels per day to 10.1
million barrels per day by December 2015; Iraq's output was down
31,000 barrels per day to 4.3 million barrels per day; Kuwait's
drilling produced 23,000 fewer barrels per day, down to 2.7 million
barrels per day; and Nigerian production dropped by 77,000 barrels
per day to 1.8 million barrels per day.
Still, the oil glut persisted because such production decreases,
particularly in Saudi Arabia and Iraq, didn't balance with an even
lower demand from OPEC's customers. Saudi Arabia designed the
low-price strategy aimed at making oil production too costly
for competitors in North America and Russia, and has refused to
make more significant output cuts unless other producers agree to
do the same.
The 104-page OPEC report finds that there will be greater demand
for the group's oil in 2016, with customers consuming an average of
31.65 million barrels a day throughout the year because the market
will be "supply-driven" as competitors, beset by low prices,
continue to cut back severely on capital expenditures ranging from
exploration to new drilling.
"It will also be the year when the rebalancing process starts,"
the report said. "After seven straight years of phenomenal non-OPEC
supply growth, often greater than 2 [million barrels per day], 2016
is set to see output decline as the effects of deep capex cuts [by
non-OPEC producers] start to feed through."
Until a balance is restored between supply and demand, though,
Saudi Arabia is willing to endure the current low price of oil,
even as its own budget, heavily reliant on energy revenues, faces a
deficit of $98 billion, or 15 percent of gross domestic
product, for fiscal 2016.
Opec Monthly report.
One line from the report.
OECD commercial oil stocks fell in November to stand at 2,966 mb.
How are we oversupplied by 2-3 Million barrels per day when stocks fell in
November?
"... Lease condensate consists of very light hydrocarbons which condense from gaseous into liquid
form when they leave the high pressure of oil reservoirs and exit through the top of an oil well. This
condensate is less dense than oil and can interfere with optimal refining if too much is mixed with
actual crude oil. ..."
"... Refiners are already complaining that so-called blended crudes contain too much lease condensate,
and they are seeking out better crudes straight from the wellhead. Brown has dubbed all of this the
great condensate con. ..."
"... what the EIA calls crude oil is actually crude plus lease condensate. ..."
"... the United States isnt producing quite as much actual crude oil as the raw numbers would lead
us to believe. This EIA chart breaking down the API gravity of U.S. crude production supports this view.
..."
"... Exactly how much of Americas and the worlds presumed crude oil production is actually condensate
remains a mystery. The data just arent sufficient to separate condensate production from crude oil in
most instances. ..."
"... Here it is worth mentioning that when oil companies talk about the price of oil, they are referring
to the price quoted on popular futures exchanges -- prices which reflect only the price of crude oil
itself. The exchanges do not allow other products such as condensates to be mixed with the oil that
is delivered to holders of exchange contracts. ..."
"... Which leads to a simple rule coined by Brown: If what youre selling cannot be sold on the world
market as crude oil, then its not crude oil. ..."
"... If Brown is right, we have all been victims of the great condensate con which has lulled the
world into a sense of complacency with regard to actual oil supplies--supplies he believes have been
barely growing or stagnant since 2005. ..."
"... Oil traders are acting on fundamentally flawed data, Brown told me by phone. ..."
"... it took trillions of dollars of investment from 2005 through today just to maintain what he
believes is almost flat production in oil. ..."
My favorite Texas oilman is at it again. In a recent email he's pointing out to everyone who will
listen that the supposed oversupply of crude oil isn't quite what it seems. Yes, there is a large
overhang of excess oil in the market. But how much of that oversupply is honest-to-god oil and how
much is so-called lease
condensate which gets carelessly lumped in with crude oil? And, why is this important to understanding
the true state of world oil supplies?
In order to answer these questions we need to get some preliminaries out of the way.
Lease condensate consists of very light hydrocarbons which condense from gaseous into liquid
form when they leave the high pressure of oil reservoirs and exit through the top of an oil well.
This condensate is less dense than oil and can interfere with optimal refining if too much is mixed
with actual crude oil. The oil industry's own engineers classify oil as hydrocarbons having
an API gravity of less than 45--the higher the number, the lower the density and the "lighter" the
substance. Lease condensate is
defined
as hydrocarbons having an API gravity between 45 and 70. (For a good discussion about condensates
and their place in the marketplace, read
"Neither Fish nor Fowl – Condensates Muscle in on NGL and Crude Markets.")
Refiners are already
complaining that so-called "blended crudes" contain too much lease condensate, and they are seeking
out better crudes straight from the wellhead. Brown has dubbed all of this the great condensate con.
Brown points out that U.S. net crude oil imports for December 2015 grew from the previous December,
according to the
U.S. Energy Information Administration (EIA), the statistical arm of the U.S. Department of Energy.
U.S. statistics for crude oil imports include condensate, but don't break out condensate separately.
Brown believes that with America already awash in condensate, almost all of those imports must have
been crude oil proper.
Brown asks, "Why would refiners continue to import large--and increasing--volumes of actual crude
oil, if they didn't have to--even as we saw a huge build in [U.S.] C+C [crude oil plus condensate]
inventories?"
Part of the answer is that U.S. production of crude oil
has been declining since mid-2015. But another part of the answer is that what the EIA calls
crude oil is actually crude plus lease condensate. With huge new amounts of lease condensate
coming from America's condensate-rich tight oil fields -- the ones tapped by hydraulic fracturing
or fracking -- the United States isn't producing quite as much actual crude oil as the raw numbers
would lead us to believe.
This EIA chart
breaking down the API gravity of U.S. crude production supports this view.
Exactly how much of America's and the world's presumed crude oil production is actually condensate
remains a mystery. The data just aren't sufficient to separate condensate production from crude oil
in most instances.
Brown explains: "My premise is that U.S. (and probably global) refiners hit in late 2014
the upper limit of the volume of condensate that they could process" and still maintain the product
mix they want to produce. That would imply that condensate inventories have been building faster
than crude inventories and that the condensate is looking for an outlet.
That outlet has been in blended crudes, that is heavier crude oil that is blended with condensates
to make it lighter and therefore something that fits the definition of light crude. Light crude is
generally easier to refine and thus more valuable.
The trouble is, the blends lack the characteristics of nonblended crudes of comparable density
(that is, the same API gravity), and refiners are discovering to their chagrin that the mix of products
they can get out of blended crudes isn't what they expect.
So, now we can try to answer our questions. Brown believes that worldwide production of condensate
"accounts for virtually all of the post-2005 increase in C+C [crude plus condensate] production."
What this implies is that
almost all of the 4 million-barrel-per-day increase in world "oil" production from 2005 through
2014 may actually be lease condensate. And that would mean crude oil production proper has been nearly
flat during this period -- a conjecture supported by record and near record
average
daily prices for crude oil from 2011 through 2014. Only when demand softened in late 2014 did
prices begin to drop.
Here it is worth mentioning that when oil companies talk about the price of oil, they are
referring to the price quoted on popular futures exchanges -- prices which reflect only the price
of crude oil itself. The exchanges do not allow other products such as condensates to be mixed with
the oil that is delivered to holders of exchange contracts.
But when oil companies (and governments) talk about oil supply, they include all sorts of things
that cannot be sold as oil on the world market including biofuels, refinery gains and natural gas
plant liquids as well as lease condensate. Which leads to a
simple rule coined by Brown: If what you're selling cannot be sold on the world market as crude
oil, then it's not crude oil.
The glut that developed in 2015 may ultimately be tied to some increases in actual, honest-to-god
crude oil production. The accepted story from 2005 through 2014 has been that crude oil production
has been growing, albeit at a significantly slower rate than the previous nine-year period--15.7
percent from 1996 through 2005 versus 5.4 percent from 2005 through 2014 according to the EIA.
If Brown is right, we have all been victims of the great condensate con which has lulled the
world into a sense of complacency with regard to actual oil supplies--supplies he believes have been
barely growing or stagnant since 2005.
"Oil traders are acting on fundamentally flawed data," Brown told me by phone. Often
a contrarian, Brown added: "The time to invest is when there's blood in the streets. And, there's
blood in the streets."
He explained: "Who of us in January of 2014 believed that prices would be below $30 in January
of 2016? If the conventional wisdom was wrong in 2014, maybe it's similarly wrong in 2016" that prices
will remain low for a long time.
Brown points out that it took trillions of dollars of investment from 2005 through today just
to maintain what he believes is almost flat production in oil. With oil companies slashing exploration
budgets in the face of low oil prices and production declining at an estimated
4.5 and 6.7 percent per year for existing wells worldwide, a recovery in oil demand might push
oil prices much higher very quickly.
That possibility is being obscured by the supposed rise in crude oil production in recent years
that may just turn out to be an artifact of the great condensate con.
"... Supreme Leader Ali Khameini has said Iran isn't ready to make big deals with U.S. oil companies. ..."
"... The current market turmoil has created a once in a generation opportunity for savvy energy investors. Whilst the mainstream media prints scare stories of oil prices falling through the floor smart investors are setting up their next winning oil plays. ..."
As the lifting of sanctions neared, it appeared that Iran, about to be re-integrated into the world
economy, was
tilting
toward closer relations with Russia, not with the United States. For example, until Saturday
Iran showed no inclination to release the American prisoners it was holding, and Supreme Leader Ali Khameini has said Iran isn't ready to make big deals with U.S. oil companies.
Meanwhile, Iran's
ties to Russia seemed to be warming. First, President Vladimir Putin was a special guest at the Nov.
23 Tehran summit of gas-exporting countries. Moscow has also been considering extending two loans
to the Iranian government worth a total of $7 billion, and Russia will equip Iran with modern air-defense
systems, according to country's financial daily, Kommersant.
Finally, Iran Shipbuilding & Offshore Industries Complex Co. (ISOICO) has reached a tentative
deal with the Russian shipyard Krasnye Barrikady, or Red Barricades, to cooperate in the construction
of oil rigs and share technology.
The current market turmoil has created a once in a generation opportunity for savvy energy investors.
Whilst the mainstream media prints scare stories of oil prices falling through the floor smart investors
are setting up their next winning oil plays.
If all these deals with Russia come to pass, Tehran and Moscow likely will fast become economic
and political allies, while the United States, and especially its large corporations, appear to be
left out of Iran's economic rebirth. Further, critics of the nuclear deal with Iran said that to
engage Tehran rather than fight it would merely make Iran twice the threat it already is to an unstable
Middle East.
Throughout the Vienna negotiations, the Obama administration argued exactly the opposite, that
to engage Iran was the best way to soften, if not eliminate, its hostility to the West, just as President
Richard Nixon's overtures to China in 1972 turned Beijing from a communist adversary into what President
George W. Bush once described as a "strategic competitor."
Saudi Oil Minister Ali al-Naimi said crude prices will rise and foresees that market forces
and cooperation among producing nations will lead in time to renewed stability.
... ... ...
OPEC forecast a steeper decline this year in supplies from outside the group as lower prices
affect producers in the U.S. and Canada. Non-OPEC output will drop by 660,000 barrels a day, the
group said Monday in its monthly market report...
OPEC is oversupplying markets by some 600,000 barrels a day, according to the report. This is
"the year when the re-balancing process starts," it said. The report made no reference to the
lifting of sanctions on Iran's oil exports.
"... I would use $17 billion as outstandings for energy loans. And for securities, I would use, call it, $2.5 billion which is the sum of AFS securities and non-marketable securities. ..."
"... We're focused on the whole thing. Half of those customers - half of those balances represent E&P companies, upstream companies. A quarter of them represent oilfield services companies, and a quarter of them represent pipelines and storage and other midstream activity. And it excludes what I would describe as investment grade sort of diversified larger cap companies where we don't view the credit exposure as quite the same. ..."
"... <Q - Mike L. Mayo> ..."
"... To summarize: $17 billion in oil and energy exposure, which has a $1.2 billion, or 7%, loss reserve assigned to it already, and which is made up "mostly" of junk bonds. ..."
First: how big is Wells' loan loss allowance for energy:
We've considered the challenges within the energy sector and our allowance
process throughout 2015 and approximately $1.2 billion of the allowance
was allocated to our oil and gas portfolio. It's important to note that
the entire allowance is available to absorb credit losses inherent in the
total loan portfolio.
Then, from the Q&A, how much is Wells' total loan exposure, its fixed income
and equity exposure toward energy:
I would use $17 billion as outstandings for energy loans. And for
securities, I would use, call it, $2.5 billion which is the sum of AFS securities
and non-marketable securities.
In other words, a 7% loan loss reserve toward energy, perhaps the highest
on all of Wall Street.
Then, here is the breakdown by services:
We're focused on the whole thing. Half of those customers - half
of those balances represent E&P companies, upstream companies. A quarter
of them represent oilfield services companies, and a quarter of them represent
pipelines and storage and other midstream activity. And it excludes what
I would describe as investment grade sort of diversified larger cap companies
where we don't view the credit exposure as quite the same.
But the punchline in the problem category was the following exchange with
Mike Mayo:
<Q - Mike L. Mayo>: What percent of the $17 billion is not investment
grade?
<A - John R. Shrewsberry>: I would say most of it. Most of it.
<Q - Mike L. Mayo>: So most of the $17 billion is non-investment
grade.
<A - John R. Shrewsberry>: Correct.
To summarize: $17 billion in oil and energy exposure, which has a $1.2
billion, or 7%, loss reserve assigned to it already, and which is made up "mostly"
of junk bonds.
"... Tempted by big returns, shale companies have borrowed more than $200 billion in bonds and loans, from Wall Street and London, to cover development and projects that may not even come to fruition. Oil producers' debt since 2010 has increased more than 55 percent, and revenues have slowed, rising only 36 percent from September 2014, compared to 2010, according to the Wall Street Journal. ..."
"... On Sunday, the first shale company filed for bankruptcy. WBH Energy LP, a private Texas-based drilling group, filed for bankruptcy after saying that their lender was no longer willing to advance money. The company estimates their debt between $10-50 million. There are hundreds more in the US alone. ..."
"... Analysts believe North American shale needs to sell at $60-100 per barrel to break even on the billions of debt accrued by the energy companies. Indebted companies, fearing bankruptcy, may therefore be forced to keep selling oil, even at a loss. ..."
"... Energy companies that can afford it will cut production, but this will prove more difficult for smaller companies with larger debt hanging over their balance sheets. ..."
"... "It begins in one place like fracking in North Dakota or Texas, but it very quickly engulfs the rest of the world. In that way, its very similar to what happened in 2008… when billions of dollars were lent to people to buy homes they couldn't pay off," economist Richard Wolff told RT. ..."
"... The industry expanded rapidly, as the method proved capable of extracting oil and gas faster and easier than before, albeit with a certain environmental cost. Fracking can increase seismic activity, as well as penetrate water systems. Many states in the US have followed European nations in banning the oil extraction method. ..."
Plummeting Brent oil prices are putting pressure on North American shale,
which has sunk hundreds of billions of dollars into investment, and could soon
come crashing down.
Tempted by big returns, shale companies have borrowed more than $200
billion in bonds and loans, from Wall Street and London, to cover development
and projects that may not even come to fruition. Oil producers' debt since 2010
has increased more than 55 percent, and revenues have slowed, rising only 36
percent from September 2014, compared to 2010, according to the Wall Street
Journal.
Fracking, the process of hydraulic fracturing and horizontal drilling on
land is much more expensive than the average water-based oilrig. However, over
the past years, it has become relatively cheap and fast. Energy companies, eager
to get in on the riches of the American oil boom, have been borrowing money
faster than they have been earning it.
On Sunday, the first shale company filed for bankruptcy. WBH Energy LP,
a private Texas-based drilling group, filed for bankruptcy after saying that
their lender was no longer willing to advance money. The company estimates their
debt between $10-50 million. There are hundreds more in the US alone.
Analysts believe North American shale needs to sell at $60-100 per barrel
to break even on the billions of debt accrued by the energy companies. Indebted
companies, fearing bankruptcy, may therefore be forced to keep selling oil,
even at a loss.
One way to avoid going bust is to merge, which is what many companies already
have on the negotiation bloc.
"We've already seen Baker Hughes and Halliburton agree to merger, and
these were two titans that used to compete head to head," Ed Hirs, managing
director independent oil and gas company Hillhouse Resources, told RT. "They've
decided they can't survive separately, they need to combine," Hirs said.
The Texas-based driller believes that lower prices and major mergers will
hinder progress in the industry.
"We will see a loss of tech. innovation and a loss of competition in the
oil service business," Hirs said.
Energy companies that can afford it will cut production, but this will
prove more difficult for smaller companies with larger debt hanging over their
balance sheets.
Oil prices lost more than 50 percent in 2014, and have already dropped 10
percent in 2015. Futures dramatically dipped when the Organization of Petroleum
Exporting Countries decided not to curb production at their November meeting.
Some experts believe the decision not to cut production, which would have
alleviated oil prices, was a direct strategic move by the cartel to reduce the
profitability of North American oil fields, from Alberta to Oklahoma. In the
past five years, the US has moved from being one of the world's biggest oil
customers to the largest producer, even overtaking Saudi Arabia.
Bubble burst?
This 'bubble' of debt could come crashing down on oil companies, as the housing
bubble did on the sub-prime mortgage industry in 2008, which sparked a crisis
in global financial markets.
"It begins in one place like fracking in North Dakota or Texas, but it
very quickly engulfs the rest of the world. In that way, its very similar to
what happened in 2008… when billions of dollars were lent to people to buy homes
they couldn't pay off," economist Richard Wolff told RT.
The industry expanded rapidly, as the method proved capable of extracting
oil and gas faster and easier than before, albeit with a certain environmental
cost. Fracking can increase seismic activity, as well as penetrate water systems.
Many states in the US have
followed
European nations in banning the oil extraction method.
"... I said it before and I say it again: the Saudi's don't give a fricking damn about US fracking, it's Iran they're after. These "royals" are a nasty bunch, they won't stop at nothing and they couldn't care less about whatever consequences for whoever, them "royal" selves included. ..."
"... And don't forget that production in Ghawar Field is declining 13% a year, even with the most aggressive techniques in the world to bring oil to the surface (nitrogen/water combination). ..."
Its Aramco. They dont have to post any results, they are the blood in a
pool of sharks. Think about Syria, who is going to run that mess, theres
only one group capable, the house of Saud. Thats the deal with the Americans,
access to Aramco for most of Syria, the jihadi's will accept Saudi control
as long as Abu Bakr is gone, we or the yanks will see to that. Think about
it.
Saudis may be "playing a long game" - unfortunately they only have a short
time left! It remains to be seen how the new ISIS inheritors will move the
oil out.
I visited some Aramco facilities in the 1990s. The company retains much
of its American heritage - eg. pool tables in the staff lounges. I would
agree with the idea that it is well run. Its sheer size makes it something
of a state within a state. It has its own airline and does business all
over the world.
There is a phrase apparently along the lines of "God is great but not
as great as Aramco", indicating perhaps that when it comes to it, the geology/economy
trumps theology in the Kingdom.
Its revenues - which are massive, as it easily has the lowest cost of
production of any producer - largely shore up the Saudi state. But hence
the Saudi nervousness about attempts to tackle global warming by reducing
dependence on fossil fuels.
It will be interesting to see just how much of the stock is unloaded.
I am guessing no more than 25%. The prospectus will make interesting reading
and might put the Saudi's off. I mean is there enough money in the capital
markets to devote say $2.5tr to a company which is always, ALWAYS, going
to be controlled by a state. I'd say that's a figure based on today's oil
price. Put the price back to $100 and a 25% slice might be worth $10tr.
one to buy for the dividend though...
Saudi Aramco was previously named 'Aramco'. Aramco stands for Arabian American
Oil Company. U.S. interests (event the buts and bolts were U.S. standard
size), acceptance of decapitation, corrupt governance, and petrodollars.
What else do you need to know? How much the arms industry earns?
And how many refugees they have created through Western/Saudi greed?
arusenior
"a supply glut that Saudi Arabia and fellow Opec members have refused
to address in their determination to drive US fracking rivals out of business"
I said it before and I say it again: the Saudi's don't give a fricking
damn about US fracking, it's Iran they're after. These "royals" are a nasty
bunch, they won't stop at nothing and they couldn't care less about whatever
consequences for whoever, them "royal" selves included.
hashtagthat -> Markets_Observer
They might still be able to produce oil at a profit but that is not the
issue for the Saudis. They need circa $106 a bbl to balance the budget.
I can fill my tank up cheaply but if my wages don't cover my mortgage
I'm gonna burn through my savings ultimately.
Wow - when you put it like that, it's hard not to be persuaded by your well-informed
arguments and incisive analysis! And after all, what do I know - I just
read Wikipedia:
Volatile weather conditions in Europe's North Sea have made drilling
particularly hazardous, claiming many lives (see Oil platform). The
conditions also make extraction a costly process; by the 1980s, costs
for developing new methods and technologies to make the process both
efficient and safe, far exceeded NASA's budget to land a man on the
moon.
I mean, obviously you're right on one level, that if everyone was paid less,
then production costs would fall. But you don't have to buy an oil rig to
drill in Saudi; you don't have to haul it out into the middle of a very
rough sea; you don't have to fly every single ounce of kit out to the rig
by helicopter or on a supply boat, both vulnerable to the endless bad weather
out there; you don't have to use divers; and so on.
TettyBlaBla -> redwhine
Don't forget that Aramco was originally a Standard Oil (of California)
venture.
Look into the history of Standard Oil and how it was forced to break
into multiple separate corporations by the US government, one of these was
Standard Oil of California. It operated as Chevron in the US for a number
of years, acquired Union Oil of California (Union 76/Unocal) and is now
Exxon/Mobil, having acquired Mobil Oil (which used to use Pegasus as its
logo). It has learned well from its founder, Rockefeller and his minions.
Same can be said of AT&T and Verizon, spawn of the US government mandated
breakup of Ma Bell.
smed54235
and the rapid transformation of Saudi Arabia from desert kingdom
to modern nation state
Modern nation state. That's a laugh. They've barely left the Middle Ages.
semyorka
"My grandfather rode a camel, my father rode a camel, I drive
a Mercedes, my son drives a Land Rover, his son will drive a Land Rover,
but his son will ride a camel."
Custodian of the Two Holy Mosques is going to have to worry about some
more earthly blow back from all that Takfiri Jihadism when they cannot pay
the bills.
The price of oil will rebound, but in the medium term they are likely
to begin to see steadily lower production and the world will begin to decarbonise.
ARAMCO does not look like a safe bet.
Eugenios
The cost of fracked oil is too high for it to be the target of this Saudi-engineered
glut. Quite obviously the target is Russia, and the Saudis are in league
with Britain, the US, and so forth in the move.
It is also possible that some of the Finance Capitalist imbeciles think
that lowering the price of oil will lead to an economic recovery. As a matter
of fact the high price of oil was a decisive element in the crash of 2008.
Consider the following prices for Brent crude, so:
January 2002 $19 per barrel
August 2008 $147 per barrel
That does not mean, however, that as oil prices decline the economies
involved will pick up again.
The only sure bet to benefit from low oil prices is China.
Noiseformind
Saudi Aramco is actually only possible in KSA, since it has a wasteland
with no environmental control. Any international company (other than a Chinese
one) will have a lot of issues operating with Saudi Aramco and keep up with
keeping Jubail such a wasteland. Check Google Maps to see how that trillion
dollars valuation is produced.
And don't forget that production in Ghawar Field is declining 13%
a year, even with the most aggressive techniques in the world to bring oil
to the surface (nitrogen/water combination).
So any valuation is subjected to a 13% devaluation every year. And if
the Saud monarchs even show a little flinching in gripping that oil they
will see many other tribes (yes, KSA is just a mix of semi-nomadic tribes
with Bugatti Veyrons) coming to grasp the power.
There are over 1600 "princes" in KSA. That position means they have over
10 million dollars coming from the King directly, plus other rents from
foreign companies that lease their "wasta". If they loose that power in
Saudi Aramco they will rebel very easily.
d1st1ngu1shed -> objectinspace
So do I get this right? The Saudis don't like the Turks. The Turks don't
like the Iranians. The Iranians do like the Russians mainly because the
Russians don't get on with the Turks. The Germans do get on with the Turks.
The US interferes with everybody, (for their own good, and because the Brits
and the French aren't any good at anything any more, except holidays in
Dubai)
Everybody else takes care.
I haven't forgotten anything have I? Syria Ooooo! Them.
Usedhankerchief
The sale of Aramco doesn't mean that much. Rumours of over-stated reserves
are one thing, production problems at Gharwar another. The problem for the
buyers of the shares is that the Saudi state is becoming dysfunctional,
and the assets are in Shia areas, so there will be a huge write-down because
of those risks. Its the worst possible time to sell, so they must really
have problems.
PSmd -> SirWillis
Well, a lot of work done by foreign people there, unemployed youth, the
public sector employs 60% of the Saudi population, they're masking what
unemployment might really be. Indeed, running 22% deficit, trying to find
a way to get prices back up, quite a balancing trick.
MacCosham -> redwhine
1. Fracking companies weren't making a profit at $100 oil, let alone
$50.
2. Fracking technology has existed for the past 30 years.
Let's face it, the main innovation that created the fracking boom was
7 years of 0% interest rates.
Exaggerated forecasts are a contrarian signal. It will be oil glut all over until suddenly
there is an oil shortage.
Notable quotes:
"... the extended slump for oil is setting up the world for a situation in which a supply fails to meet demand in the not-so-distant future. The Wood Mackenzie report shines a spotlight on this phenomenon, which is becoming increasingly likely. ..."
"... the industry is shelving nearly 3 mb/d in future output because of conditions today. Lasting financial damage will lead to a shortfall in investment, a slowdown in spending that could outlast the oil bust. As the years pass and that production fails to come online, demand could start to outstrip supply, potentially leading to a price spike. ..."
All told, industry cuts will translate into at least 2.9 million barrels of oil production per
day (mb/d) that will not come online until at least sometime next decade.
... ... ...
Energy analysts are falling over each other with new estimates for where the price of oil will bottom
out. Goldman Sachs was one of the first to call for $20 oil last year, but now everyone is
jumping on the bandwagon. Morgan Stanley says $20 oil is possible, with much of the blame put
on the strength of the dollar. Standard Chartered, not to be outdone, says oil could
fall to
$10 per barrel.
RBS issued perhaps the most
panic-inducing warning
of them all, mostly because it applied to the broader state of the global economy: "sell everything
except high quality bonds," because the world is facing a "fairly cataclysmic year ahead."
The
consensus suddenly seems to be that oil will remain in the $30s, or even lower, for much of the
year, despite the incessant optimism from some oil executives.
But the extended slump for oil is setting up the world for a situation in which a supply
fails to meet demand in the not-so-distant future. The Wood Mackenzie report shines a spotlight
on this phenomenon, which is becoming increasingly likely.
The world is oversupplied right
now, by some 1 mb/d. But the industry is shelving nearly 3 mb/d in future output because of
conditions today. Lasting financial damage will lead to a shortfall in investment, a slowdown in
spending that could outlast the oil bust. As the years pass and that production fails to come
online, demand could start to outstrip supply, potentially leading to a price spike.
"... Its great news for the people of Iran, business in Europe, not so great
for Israel and my country, Canada. Oil is going to be $30 a barrel forever now.
Our previous very stupid government put all our eggs in one basket, oil at $100
a barrel. ..."
"... Dear Moshe, You are not giving billions to Iran, It is Iranians money that
was for frozen by US banks . ..."
"... Most of the middle eastern countries such as Iraq, Syria, Jordan, Saudi
Arabia, UAE, Libya and lebanon are tribes with flags. The exception is Iran which
has a long and establised sense of nationhood. It will never be a failed state.
..."
"... Iran is about to get their frozen assets back as part of the deal... lets
hope they put that $100 billion to some good use... Welfare, housing, hospitals
and education should all benefit... Unfortunately with so much trouble on their
doorstep, theyll probably but new fighter planes and lots of guns from the new American
buddies... ..."
"... Why do you think that US, UK, Israel, Saudi wants stability in Mid East
region ? All evidence suggests otherwise from regime change in Syria to Libya .from
emergence of Isis to Saudi demanding that US bombs Iran to state of oblivion. I
am very happy about the agreement, however, i am very cynical about tricky Americans
to uphold their part of bargain. ..."
"... If you dislike Iran maybe you must hate Saudi Arabia, a dubious country
we gave been allies with for years. Personally, I find Iran to be far more reasonable
than Saudi Arabia.. Perhaps you should open your eyes. ..."
"... They cant delay this. What they will do, is introduce different kinds of
US only sanctions, for other reasons (to appease their AIPAC donors). ..."
"... In addition to that, i should say that there is a perception fueled by
conservatives that all the bad stuff has been done by Iranians, but if I were an
Iranian citizen, it would be pretty hard to forget that the US supported Saddam
Hussein financially and militarily (with aid) during an eight-year, very bloody
Iran-Iraq war that left hundreds of thousand Iranians dead or wounded (and, incidentally,
thats when the US downed an Iranian airliner). ..."
"... Very true. How many Saudi terrorists are there, and how many Iranian ones?
Islamic terror is exported is large quantities by our friends in Saudi-Arabia, just
second to oil. ..."
"... Already Iran is looking at using barter with Europe exchanging oil for
various goods. ..."
"... Anyway, not to engage in moral relativism but my country, the USA, has
some human rights blemishes we need to recognize as well. Having President Obama
say we tortured some folks doesnt help.. The dismissive tone is not conducive to
addressing the situation. ..."
"... Germany had a great military, a modern industrialized society, and a history
of invading other countries. Iran, not. ..."
"... Note to Republicans: Peacemaking is a good thing. Carpet bombing is a bad
thing. ..."
"... Sounds like the Iranians are gradually emerging from xenophobic theocracy.
..."
"... Hopefully Iranians can build on this and continue to demand better relations
with the west. Surly, they have had their differences with the west but they shouldnt
let religious fundamentalists use Irans past history to create hate and pessimistic
attitude towards west ..."
"... And would you also observe that most of these people would likely still
be alive today if it werent for civilized Western nations bombing thier country,
disbanding their army and institutions and throwing their country into chaos? ..."
"... But a country that goes to war for nothing more than greed sending hundreds
of thousands to their deaths including their own sons and daughters ... would you
visit there ... oops you live in the UK? ..."
"... There were no sanctions against Israel, which has nuclear weapons. Saudi
Arabia is an Islamic fundamentalist state which sponsors terrorism. It is all hypocrisy.
..."
"... Vinculture: A disaster in the making thanks to 0bamas incompetence and
naivety. A disaster for Israels aggressive foreign policy, maybe. And a disaster
for the House of Saud. ..."
"... If the deal sticks on the US side, expect to see Iran make a number of
subtle shifts in a pro-US direction over the next few years. It will be a reflection
of the outcome of internal struggles within the Iranian clergy. The Supreme Leader
gave Rouhani the chance to prove that negotiations and concessions could get acceptable
results. The success of the negotiations will give Rouhanis faction greater clout
for similar actions until such time as either they stuff it up good and proper,
or somone crazy gets elected as US President. ..."
"... The USA has modified its attitude to Syria from Assad must go! to OK, he
can hang around for a while , simply because Syria, with Russian, Iranian and Hezbollah
assistance, is gaining the upper hand. Hence the willingness for the USA to negotiate.
We rarely hear the words regime change in Syria from our politicians any more. So
it is with Iran. Apart from Iranian involvement in Syria, Iran has managed to outlast
the sanctions regimes and has had to ratchet up its own development of medicines,
weaponry etc in anticipation of a possible Israeli or US attack. As a country of
some 80 million people, they wouldnt be a pushover in the military sense. And at
what cost? It doesnt bear thinking about. ..."
"... I dont believe for one second Iran will be able to bring that much oil
online so quickly. The issues which have come about through years of barely no maintenance,
cant just be reversed in a matter of months. Time will tell. But the mainstream
media has been pushing this for a long time to further suppress oil prices. ..."
"... Meanwhile the US and Britain are directing and supplying the bombs killing
innocent people in Yemen, none of which gets coverage in the press. It is a sad
bad world we live in these days. Iran is probably less of a threat than Saudi Arabia
which funds extremists who are so close to Isis and the likes yet do we care. It
seems not. ..."
"... If only we had strong leadership like W Bush neh? Hed have strongly Decidered
his way to victory just like the gleaming success next-door. Pass the bong. ..."
"... If we put aside sheer hypocrisy (always an important feature of foreign
policy!) then I think the usual argument is that, unlike we rational Westerners,
the Iranians are crazy religious maniacs who cant be trusted with a bomb. In reality,
though obviously the Iranian regime is a religiously-based one, they have shown
themselves to be quite pragmatic and cautious over the past 2 decades at least.
Which isnt to say the regime is benign, by any means, just that their foreign policy
is based on rational self-interest (or their perception thereof) - just like any
other country. ..."
"... Another reason given is Irans supposed support for terror organisaitons.
Putting aside the fact that defining what is a terror organisaiton is largely a
matter of ones political views, its hard to see what this has to do with the nuclear
issue specifically. Unless we buy the notion - straight from a 5th rate James Bond
knock-off - that Iran could give its (non-existent) nukes to a terrorist, as though
a nuclear bomb was equivalent to an AK-47. ..."
"... I dont back any country with Nukes, but I do back the balance off power,
if Iran is overthrown with Syria, it would be dangerous times for the rest off us.
It would be safer for Israel too disarm, followed by Pakistan, North Korea then
East + West Bilaterally, simutaniously. ..."
"... Iran isnt Nazi Germany, if you want to pursue that analogy then its closer
to Francos Spain and we got on well if occasionally frostily with them for 39 years
without having a war with them ..."
"... After a progressive Persian govt renationalized and booted British Petroleum
out of the country suffered a coup détat instigated with US aid in 1953. ..."
"... After the revolution we armed Saddam Hussein to start a war and killed
millions of Iranians. ..."
"... If I were Iranian Id be double wary now of USs intentions. It seems that
the working method of the West nowadays is to feign a warming of relations to draw
yourself closer before a fatal stab. Remember Libya? And I recall Syria having a
nice warm up period before the gates of hell opened. Take care, Iran. ..."
"... It looks to me that the west has to either start Armageddon to take Iran
out or start to build bridges. ..."
"... Iran has always denied seeking an atomic weapon, saying its activities
are only for peaceful purposes, such as power generation and medical research. The
annual reports of the CIA/Mossad/German BND and the IAEA supported this fact consistently
since 2004. It was only the despicable US/Israeli geopolitics enabled by their propaganda
arm the mainstream media that maintained the charade of a clandestine nuclear weapon
programme. ..."
"... there remains a lack of clarity with regards to the US. - as ever you never
know what the US is going to do, and I suspect the US itself does not know given
it dysfunctional political system. ..."
"... The far right in Israel, not for everyone. Saudi and far right wing Israel
have a symbiotic relationship. Saudi can push its agenda of Wahhabism that secures
its brutal regime and far right Israel profits from the bitter fruits of Saudi,
as it means that Israel is seen as the anti-muslim anchor of the West in the region.
Sadly, the political intervention of the US has been based around protecting and
supporting this symbiotic relationship with money, troops and bombs. ..."
"... Obama has already issued an order(today) lifting sanctions on the sale
of passenger airliners to Iran. Boeing Airbus are in intense competition as Iran
plans to purchase 500 airliners in the next 10 years worth billions of dollars.
..."
"... given that the Iranian government is still highly suspicious of the Brits
(for very good reason) I very much doubt theyll want to spend this much-needed cash
on overpriced pads in Blighty. ..."
"... George W Bush said he got his orders from God, and they were amazingly
similar to the ones he got from Big Oil. We know the results. ..."
"... It i amazing how western oriented news organization by default report the
talking point of the western regimes reflexively. Unlike the news bureaus in the
soviet era, they dont need minders and censors, those are just built in or plugged
in by interviews. ..."
"... He can do what he likes, the US have given Israel a free pass, human rights
abuses, extrajudicial killings, threats to Israeli Arabs, hidden nuclear weapons,
all have to be ignored while their neighbours are subjected to endless scrutiny.
While this continues the Middle East will never be at peace. Palestinians are humans
too. ..."
"... Lifting of Iran sanctions is a good day for the world Yet these gangsters
who control the finance industry(US/UK), and who can and do, impose sanctions at
will, are free, without sanction, to wage war against whoever they so choose with
impunity. Something is not quite right here, or are we too stupid, too compliant
to see it? ..."
"... Ok - so you're anti nuclear weapons. Fair enough, you're free view. For
me, much more importantly is the opportunity for trade. The Iranians are well educated
and still have a historical connection with our country. ..."
"... The sanctions are another kind of war. The tradesmen will win at the end
..."
"... When sanctions started, they were nowhere near as harsh. European countries
- as well as China and India - had long been growing tired of the extremely strict
sanctions imposed mostly by the Americans. ..."
"... All the nuclear nations should have banded together with Iran to help Iran
with their desire for peaceful nuclear power by helping Iran with expertise and
funding to develop Thorium reactors. ..."
"... British foreign policy is a selective and hypocrital joke. ..."
"... Yes, unfortunately neither the UK or the US think long-term, when selling
advanced weapons to the Saudis (or giving them to Israel). That may well come back
to bite them, when the House of Saud falls, as it must. ..."
"... Amazed this has gone through. The worlds biggest and most dangerous children,
Israel and Saudi Arabia, will NOT be pleased. These two are behind so much of the
worlds problems, far moreso than their parent the USA. ..."
"... where are Israels nukes pointing, out of interest? ..."
"... Welcome to the world community Iran. Not a perfect nation but which is.
No point demonizing people nations, it does more harm than good. ..."
"... Remind me, which country is currently levelling Yemen one building at a
time? Oh yes, a Sunni nation Saudi Arabia. ..."
"... Anything that stops the Saudis playing the big I am is fine by me. Theyve
already cut off their own nose over oil prices to stop US fracking and their economy
is suffering, lets hope Iran can keep it low when it doesnt suit Saudi Arabia. ..."
"... Good, let the US who started all this nonsense feel themselves for a while
what it is like to be outside trade with Iran. I bet it will not last long if companies
realize they are still not allowed to do business because of their own extortion
over the many years while the EU does commence trading. ..."
"... I really do hope you have an insurance policy Iran, I wouldnt trust these
liars as far as .. and Id advise using some of whats rightly coming your way to
insulate against future western blackmail. ..."
"... The US specializes in lack of clarity. Remember the two boats that Iran
detained the other day? The US initially said that they had a mechanical failure
and drifted into Iranian territorial waters. That version of events has become non-operative,
and now the US is saying that the boats were fully operational, but one of the sailors
accidentally punched the wrong GPS coordinates in. And then, of course, they failed
to notice that they were getting awfully close to that island where Iran maintained
a base. ..."
It's great news for the people of Iran, business in Europe, not so great
for Israel and my country, Canada. Oil is going to be $30 a barrel forever
now. Our previous very stupid government put all our eggs in one basket,
oil at $100 a barrel.
Israel was on the verge of nuking Iran. Ironically they stand to benefit
from this, doing business with Iran. Reports from Iran were mostly that
they were very western. They are Persian, not Arab, and if you look at historical
maps, that line in the sand has existed for thousands of years. It's a good
day. Iran is not North Korea, and it was the US supporting the Shah and
his solid gold toilet that caused this problem in the first place. Back
in 1978, it was obvious what was going to happen.
Dear Moshe, You are not giving billions to Iran, It is Iranians money
that was for frozen by US banks . Your religion says, Thy shall not
lie and I believe it is in ten commandment, so why are you doing it ?
Most of the middle eastern countries such as Iraq, Syria, Jordan, Saudi
Arabia, UAE, Libya and lebanon are tribes with flags. The exception is Iran
which has a long and establised sense of nationhood. It will never be a
failed state.
A fatwa cannot be 'lifted' because it is the personal opinion of a cleric,
and the cleric involved - Ayatollah Khomeini - has been dead for 25 years.
However, 17 years ago the Iranian government said it was no longer pursuing
the fatwa and would not reward anyone for killing Rushdie. Which kind of
amounts to the same thing.
"There is no doubt that if today's weak western leaders had been
the ones having to deal with Hitler, in place of Winston Churchill,
the Third Reich would be ruling the world today."
For heaven's sake.... If the UK had remained neutral - how would that
have prevented the Red Army from defeating the Nazis? It would have made
the process slightly slower - that's all
Stalin had started to turn the tide against the Nazis even before the
US was involved in WW2 (Battle for Moscow) - and the Brits did little up
to then to help
him. The US did in fact help Stalin before it entered the war - by helping
with war materiel (Lend Lease included the Russians).
The Brits helped too, with the Murmansk convoys - but these only began
in August 1941. British strategic bombing of Germany had also hardy started
by then.
No wonder Stalin pressed for "a second front now"...
With a neutral Britain, the Russians would have got to Cuxhaven and Bremen.
As it was, the Russians got to Wismar (and only stopped due to British artillery
being in position to oppose them - Rossokovski's orders were to advance
to Lübeck..).
Well when it comes to the Iran v Saudi battle of religious fascist dogma
then I'm leaning towards Iran as the lesser of the evils... Iran is
about to get their frozen assets back as part of the deal... let's hope
they put that $100 billion to some good use... Welfare, housing, hospitals
and education should all benefit... Unfortunately with so much trouble on
their doorstep, they'll probably but new fighter planes and lots of guns
from the new American buddies...
Why do you think that US, UK, Israel, Saudi wants stability in Mid East
region ? All evidence suggests otherwise from regime change in Syria to
Libya .from emergence of Isis to Saudi demanding that US bombs Iran to state
of oblivion. I am very happy about the agreement, however, i am very cynical
about tricky Americans to uphold their part of bargain.
Hope for the best but i see Saudi and Israeli are heavily engaged in
sabotaging the agreement.
If you dislike Iran maybe you must hate Saudi Arabia, a dubious country
we gave been allies with for years. Personally, I find Iran to be far more
reasonable than Saudi Arabia.. Perhaps you should open your eyes.
i saw female protestors get beaten at occupy. i see fleeing unarmed guys
shot by cops. maybe the west isn't too pure either? in any case, going to
war over faked wmds doesn't work out well.
They can't delay this. What they will do, is introduce different kinds
of US only sanctions, for other reasons (to appease their AIPAC donors).
The terms of the nuclear deal are such, that they can't punish other countries
for trading with Iran, when the UN and EU lift their sanctions, probably
later today.
Iran can simply refrain from doing any business with the US.
In addition to that, i should say that there is a perception fueled
by conservatives that all the bad stuff has been done by Iranians, but if
I were an Iranian citizen, it would be pretty hard to forget that the US
supported Saddam Hussein financially and militarily (with aid) during an
eight-year, very bloody Iran-Iraq war that left hundreds of thousand Iranians
dead or wounded (and, incidentally, that's when the US downed an Iranian
airliner).
And the years of useless sanctions that only alienated Iranians. Let's
not forget that the Soviet Union, for example, did not fall at the peak
of the Cold War. It fell when the contacts with the West increased. It won't
be that we open the contacts today and tomorrow Iran is a nice Western democracy,
but judging from the splendid success of the 50+ years of US embargo of
Cuba, I would rather engage Iran than isolate it.
"It proved that we can solve important problems through diplomacy,
not threats and pressure, and thus today is definitely an important
day," [Zarif] said.
Is this guy Zarif in receipt of a backhander from Seamus Milne?
Very true. How many Saudi terrorists are there, and how many Iranian
ones? Islamic terror is exported is large quantities by our "friends" in
Saudi-Arabia, just second to oil.
No it won't. When Iran comes in from the cold, even the conservatives won't
want to go back there. They also want a prosperous future for their people.
BBC reporting that there has been a delay in the announcement of the end
of the sanctions - apparently they were expecting a statement 4 hours ago.
However, it's just been announced that 4 American-Iranian prisoners held
in Iran are to be released. Hopefully, that has resolved the 'hitch' that
has been holding up the announcement.
Unfortunately for Iran she is getting her freedom to sell oil on the open
markets right at a time when the oil market is in complete free fall.
Already Iran is looking at using barter with Europe exchanging oil for
various goods.
There will never be true freedom and prosperity for Iran until
they rid themselves from the awful theocracy that has ruined their society
and lives for the past 40 years.
So you think isolation, crippling sanctions and threat of war is better
for achieving peace in the Middle East? Do you have anything constructive
to say at all?
They were already there months ago, together with French politicians and
other businessmen, including the owners of a large chain of hotels. This
is about their 3rd or 4th visit. All embassies, apart from those of the
US and Canada, have reopened (most never closed in spite of sanctions).
The only way we can improve human rights is to first increase our ties between
nations. Gone are the days when you can isolate a country and demand they
improve human rights and expect it to work.
Anyway, not to engage in moral relativism but my country, the USA,
has some human rights blemishes we need to recognize as well. Having President
Obama say "we tortured some folks" doesn't help.. The dismissive tone is
not conducive to addressing the situation.
Iran is a major player in the region, and an unstable Iran means an unstable
Middle East. The sanctions relief will stabilize Iran's economy. An Iran
that is no longer threatened by war and regime change can start to play
a positive role in solving the region's many conflicts. At least that's
the theory, I hope Iran and the West seize this unique moment.
Sure, stick with your close ally and Daesh/IS supporter Saudi Arabia, who
the IMF think will probably become insolvent within 5-years. When that happens,
they'll no longer be able to afford all those advanced weapons and other
toys you keep selling them, which they then use to kill civilians in Yemen.
"But this post is about Iran, which had no business in Iraq or Afghanistan
either" --- Which part about Iran trying to make things difficult in Iraq
for the illegal US occupation forces in those countries, because Iran may
have been a possible target for a future US invasion don't you understand...??
The idea was to make a US occupation fail in Iraq to save their own country...And
it worked.
Fantastic news for the good citizens of Iran. Perhaps the day will come
when Iranians, Europeans, and Americans are flying freely back and forth
visiting each others countries without the horrendous bureaucracy, no fly
lists and such.....
Even if there is one, why to go to Tehran while our MSM will not fail to
provide us with a " Best of ", especially if Charlie Hebdo enters the festival
But this post is about Iran, which had no business in Iraq or
Afghanistan either.
Actually, they weren't in either country. But in any case, surely you'll
agree that Iran, which share borders and has a lot of cultural links with
the above mentioned countries, had a hell of a lot mroe right to be there
than countries on the other side of the world?Particularly as they could
be seen as defensive actions by Iran.
And I agree - let the worthless dump of a region stew in its own
squalor.
That's some hatred for hundreds of millions of people. It was really
terrible of them to force the civilsed west to bomb and invade them, and
create untenable nation states.
whose problems you blame entirely on the west -
No I don't. But I also don't adopt the idiotic stance of wailing over
British occupation soldiers rather than asking what the hell Britain was
doing invading a coutnry on the other side of the world.
ether than Gulf states or indeed Iran.
I guess your hatred prevents you from becoming informed. If you had,
you'd be aware that Iran has taken in huge numbers of Iraqi and Afghani
refugees.
As for the borders, don't they do multiculturalism in the Middle
East then?
You really haven't got a clue, have you? Maybe Iran should re-arrange
Europe's borders to suit itself? You'd be happy with that, no?
The fact that the Israelis and Republicans are keeping quiet is pretty strong
evidence that they have a tiny spark of realization that Obama and Kerry
were in the right. Not that they will ever ever admit it. Note to Republicans:
Peacemaking is a good thing. Carpet bombing is a bad thing.
Sounds like the Iranians are gradually emerging from xenophobic theocracy.
Hopefully other countries can also seek the path of moderation and
wisdom. Israel is among those with plenty of room for improvement. The USA
has the task of avoiding a lurch in the wrong direction in the next election.
It is hard to find much good news around the world these days.
But this post is about Iran, which had no business in Iraq or Afghanistan
either. And I agree - let the worthless dump of a region stew in its own
squalor. Strange isn't it how people from that region - whose problems you
blame entirely on the west - still choose to come to the west en mass, rather
than Gulf states or indeed Iran.
As for the borders, don't they do multiculturalism in the Middle East
then?
A great day. hopefully Iran's influence will finally break out from under
the malign shadow of Saudi Arabia which has held the western world in thrall
for so long
Hopefully Iranians can build on this and continue to demand better relations
with the west. Surly, they have had their differences with the west but
they shouldn't let religious fundamentalists use Iran's past history to
create hate and pessimistic attitude towards west.
As Iranians say: "There is much hope in hopelessness; for at the end
of the dark night, there is light."
I didn't support the invasion of Iraq, for the simple reason that
that region is a failure and a dead loss and should be left to its own
devices.
Yeah, but it never is left to its own devices, is it? The 'troops' you
weep over were part of an illegal occupation force, and therefore their
deaths were legitimate. The west has been bombing, invading and propping
up despots in the Middle EAst (often in countries whose borders were drawn
in London or Paris) for decades. So maybe think for a minute what Western
'civilisation' looks like to people in the Middle East.
I would observe though that far more Iraqi Muslims were killed
by other Iraqi Muslims than by western troops, over the usual ridiculous
sectarian nonsense.
And would you also observe that most of these people would likely
still be alive today if it weren't for civilized Western nations bombing
thier country, disbanding their army and institutions and throwing their
country into chaos?
Good! And may I say finally. This can only be a good thing in the long run,
regardless of any bumps that await them because there will be bumps, considering
certain parties are not too happy about this. But this can only be beneficial
to the country, its people and the world. That there're so many educated
people there is going to be so helpful in the future. Slowly removing the
fear will slowly remove the most important tool in the arsenal used by the
theocracy to govern and changes will occur. It won't be quick, a year or
two but it will happen while the stability should remain.
But a country that goes to war for nothing more than greed sending hundreds
of thousands to their deaths including their own sons and daughters ...
would you visit there ... oops you live in the UK?
Between the PRC and Pakistan, NK has the bomb. It's not clear
exactly how to apportion credit.
Not clear, when you just invent 'facts'. China was against the NK bomb,
and I doubt Pakistan - which btw also borders Iran - had anything to do
with it. Really daft argument.
I can't think why anyone with full grasp of the facts
Says the person who hasn't produced a single fact.
other than those heavily invested in Obama and for his legacy
to not be seen as a lame duck president who's accomplished sfa.
Please. I couldn't give a toss about Obama. I'm not a fan of his at all
(though likely for very differnet reasons than you) but credit where it's
due. Why do Yanks think everyone cares about their infantile politics? In
any case, this deal goes well beyond Yankistan. Enjoy it.
There were no sanctions against Israel, which has nuclear weapons. Saudi
Arabia is an Islamic fundamentalist state which sponsors terrorism. It is
all hypocrisy.
Vinculture: "A disaster in the making thanks to 0bama's incompetence
and naivety." A disaster for Israel's aggressive foreign policy, maybe.
And a disaster for the House of Saud.
If the deal sticks on the US side, expect to see Iran make a number
of subtle shifts in a pro-US direction over the next few years. It will
be a reflection of the outcome of internal struggles within the Iranian
clergy. The Supreme Leader gave Rouhani the chance to prove that negotiations
and concessions could get acceptable results. The success of the negotiations
will give Rouhani's faction greater clout for similar actions until such
time as either they stuff it up good and proper, or somone crazy gets elected
as US President.
This is more of an example of realpolitik coming from the USA (for
a change), despite whatever the nutters in Congress or the military may
say about it.
The USA has modified its attitude to Syria from "Assad must go!"
to "OK, he can hang around for a while", simply because Syria, with Russian,
Iranian and Hezbollah assistance, is gaining the upper hand. Hence the willingness
for the USA to negotiate. We rarely hear the words "regime change in Syria"
from our politicians any more. So it is with Iran. Apart from Iranian involvement
in Syria, Iran has managed to outlast the sanctions regimes and has had
to ratchet up its own development of medicines, weaponry etc in anticipation
of a possible Israeli or US attack. As a country of some 80 million people,
they wouldn't be a pushover in the military sense. And at what cost? It
doesn't bear thinking about.
On the other side of the coin, the US and others are now seeing the Saudi
regime for what it is and given a choice between the KSA and Iran, they've
now decided to plump with the latter - at least for the time being.
I don't believe for one second Iran will be able to bring that much
oil online so quickly. The issues which have come about through years of
barely no maintenance, can't just be reversed in a matter of months. Time
will tell. But the mainstream media has been pushing this for a long time
to further suppress oil prices.
Meanwhile the US and Britain are directing and supplying the bombs killing
innocent people in Yemen, none of which gets coverage in the press. It is
a sad bad world we live in these days. Iran is probably less of a threat
than Saudi Arabia which funds extremists who are so close to Isis and the
likes yet do we care. It seems not.
If only we had strong leadership like W Bush neh? He'd have strongly
Decidered his way to victory just like the gleaming success next-door. Pass
the bong.
I may have the state wrong but please don't tell me you think the USA is
a bastion of tolerance! Gays are beaten up, blacks are shot, muslims are
attacked. America is home to some of the world's best fed bigots.
Go read the IAEA reports over the years, they are the worlds experts that
know exactly what is required for civilian nuclear energy and what is used
for nuclear weapons = they know. What has been agreed is for Iran to curtail
their weapon development and export certain products to Russia and possibly
USA as part of the deal. Of course if you do not want to dig into the technical
details of years of IEAE reports you can chack out what is said on Facebook
and blogsville!
Honestly, I'm starting to almost feel sorry for the failed sanctioneers,
so pathetic are their arguments.
If North Korea, the world's most isolated country - which struggles to
feed its own people - could build a bomb, do you seriously think Iran couldn't?
And if they were determined to do so, why did they join the NPT in the first
place? And why didn't they later leave, something they were free to do at
any time? Then there's the fact that the world's foremost experts have said
that Iran is not pursuing a bomb, and has not done so for many years (if
it ever did).
But... what am I doing trying to discuss facts with you? You're obviously
way more comfortable with some bizarre scenario straight from Bibi's cartoon.
Best we leave you to it, and the rest of the world can get on with business.
Please let's try and be positive about this. Iran has been a pariah state
for far too long and I applaud Obama for extending the arm of friendship
to them during his presidency.
Obviously there are many aspects of the current Iranian regime that we
in the West don't like, but I would rather be taking small steps with them
diplomatically to try and improve the situation than have a hostile stand
off.
Also Iran is not more moderate or understanding with respect to
some American dingys going near a beach in the middle of the Persian
Golf!
That sounds nasty. I hope Rory McIlroy wasn't hurt.
Joking aside, it's been established that the Americans did indeed enter
Iranian waters, probably intentionally. And what you cutely describe as
a 'beach' was actually home to an important Iranian military facility. And
the 'dinghys' were well-equipped military vessels (shame the GPS was faulty
though.....) How do you think the Yanks would have reacted had Iranian vessels
'drifted' just off the shore of a US military facility? By treating them
well and releasing them, complete with 'dingys', the next day? I doubt it,
but we'll never know, as unlike the US, Iran doesn't tend to send its 'dingys'
11,500km away from their own territory.
But you seem to have missed the wider point here. Which is that Iran
is not on trial. There are considerable grievances on both sides (objectively,
the Iranian case against the US and 'west' is much more substantial than
the reverse), but these matters were deliberately left off the table in
these negotiations, which were aimed at solving the (non) issue of Iran's
nuclear programme. The other grievances can hopefully be worked out at a
later stage.
For now, however, let's celebrate what is without doubt the greatest
triumph of diplomacy in recent years.
A red letter day for Mohammad Javad Zarif, Iran's Revolutionary Guard, and
their mission to achieve a nuclear weapons capacity, where what's holding
them back most is lack of access to Western technology, currently blocked
under sanctions. They have already demonstrated to their own satisfaction,
and everyone else's, they can withdraw from the NPT, and run down to a fissile
mass of U235 in a matter of months. What they're missing is a bomb design.
There is no doubt that if today's weak western leaders had been the ones
having to deal with Hitler, in place of Winston Churchill, the Third Reich
would be ruling the world today.
The day will come when people will look back and ask what on earth were
people like Obama and John kerry thinking when they did this terrible deal
with Iran.
If only people were "informed" on the inner workings off it all politically/economically.
I am 100% For the American constitution and see the political corruption,
the US is being used, like many other nations, against each other.
"Your" troops were an illegal occupation force, and therefore legitimate
targets.
Besides, given that the thinking at the time was along the lines of ''Real
men go to Tehran'' and that coupled with Shrub's idiotic 'axis' speech,
then who could blame the Iranians for wanting to slow down the 'progress'
of an invading army who might well have had them in their sights too?
Oh, and what do you have to say on the West's support for Iraq in a war
which killed hundreds of thoussands of Iranians, many of them civilians?
Or the shooting down of an Iranian civilian jet, killing all 280 passengers
on board?
Good news indeed. For along time western trust in Saudis oil and money cost
the Middle East a massive fortune. I hope the world see how peaceful Iranians
are an those extremist in Iran are literally the minority. Today I feel
proud because diplomacy solved a very complicated issue which I wouldn't
see it coming. Thank you mr Zarif...
Win-Win
I just wanted to explore this idea of why any argument against
Iran, or anyone for that matter, having such weapons, irrespective of
whether they plan to or not, isn't applied to the debate about whether
or not we should get rid of our (UK) own.
If we put aside sheer hypocrisy (always an important feature of foreign
policy!) then I think the usual argument is that, unlike we rational Westerners,
the Iranians are crazy religious maniacs who can't be trusted with a bomb.
In reality, though obviously the Iranian regime is a religiously-based one,
they have shown themselves to be quite pragmatic and cautious over the past
2 decades at least. Which isn't to say the regime is benign, by any means,
just that their foreign policy is based on rational self-interest (or their
perception thereof) - just like any other country.
Another reason given is Iran's supposed 'support for terror organisaitons'.
Putting aside the fact that defining what is a 'terror organisaiton' is
largely a matter of one's political views, it's hard to see what this has
to do with the nuclear issue specifically. Unless we buy the notion - straight
from a 5th rate James Bond knock-off - that Iran could 'give' its (non-existent)
nukes to a 'terrorist', as though a nuclear bomb was equivalent to an AK-47.
So, having disposed of those 'arguments', I think we're back to hypocrisy
as the motivator.
If these coups continue, there will be no-one left to overthrow politically/economically,
once the political safety-net is gone and there is no more political buffer
zones, potentially those on the outskirts left opposing this, would backed
into a war.
I don't back any country with Nukes, but I do back the balance off
power, if Iran is overthrown with Syria, it would be dangerous times for
the rest off us. It would be "safer" for Israel too disarm, followed by
Pakistan, North Korea then East + West Bilaterally, simutaniously.
All under the helm off a Strong-Moral UN. A Free, Regional agreement.
Iran isn't Nazi Germany, if you want to pursue that analogy then its
closer to Franco's Spain and we got on well if occasionally frostily with
them for 39 years without having a war with them
Can anyone take the risk of allowing Iran to even play around with this
stuff in anyway shape or form ? The west started this fight years ago and
has
1. Up to 1953 robbed Iran of its oil.
2. After a progressive Persian govt renationalized and booted British
Petroleum out of the country suffered a coup d'état instigated with US aid
in 1953.
3. 1953 to 1979 Suffered a tyrannical US/UK regime under the Shah of Iran
which led to the Islamic Revolution , ie we radicalized them.
4. After the revolution we armed Saddam Hussein to start a war and killed
millions of Iranians.
5. Sanctions for the last 10 years.
If I were Iranian I'd be double wary now of US's intentions. It seems
that the working method of the "West" nowadays is to feign a warming of
relations to draw yourself closer before a fatal stab. Remember Libya? And
I recall Syria having a nice "warm up period" before the gates of hell opened.
Take care, Iran.
4th or 5th largest proven/unproven reserves on the planet. I'm delighted
sanctions are freeing up in Iran, but I can't be alone in thinking that
the USA were going to find some devil in the detail for it not to go ahead,
to be delayed. Still highly suspicious of USA motives here, but for now
rejoice Iranian people. :-)
The annula reports of the CIA/Mossad/German BND and the IAEA supported
this fact consitently since 2004. It was only the despicable US/Israeli
geopolitics enabled by their propaganda arm the mainstream media
I have always wondered on the conflicts off interest in this, doesn't
the Security services support the political agenda for the most part? Have
seen it over the last 100 years, on reading about it, maybe not entirely
but compartmentalized they seemingly do.
I know in Syria, the Pentagon is apparently completely split, some feeding
information around to Assad, while another faction supports the overthrow.
Difficult to discern what is true/false but much of it does play-out/check-out
logically.
However, what is with the conflict of interest in this case? I guess
one is suppressing religion on 1 side, yet supporting the end of times theme
on the other. Perhaps that is where the Military end this support on a Nuclear
scale.
I agree but China and Russia are a thorn in its side. The Russians are doing
arms deals with Iran. Also a CIA led coup 1953 style is unlikely to work
against a non liberal progressive govt. Iraq is in no position to be used
to attack it.
Before the deal all the sabre rattling was hollow. No amount of bombing
was going to stop an underground nuclear programme. Sanctions weren't working,
Iran diversified its economy.
It looks to me that the west has to either start Armageddon to take
Iran out or start to build bridges.
I don't think it is capable of succeeding now with either policy. This
is very bad news for the future security of Israel. All thought it should
be safe for 50 or so more years.
Iran has always denied seeking an atomic weapon, saying its activities
are only for peaceful purposes, such as power generation and medical research.
The annual reports of the CIA/Mossad/German BND and the IAEA supported this
fact consistently since 2004. It was only the despicable US/Israeli geopolitics
enabled by their propaganda arm the mainstream media that maintained the
charade of a clandestine nuclear weapon programme.
Maybe it is that the US cold warriors are finally dying out. When the wall
came down USSR dismantled its cold war power structure because they were
the losers. US cold war professionals were the winners and saw no reason
to fade themselves out - hence the often baffling aggressive and enemy-seeking
US foreign policy in the post cold war period.
The problem is that times have changed now and the US has managed to
rile others far enough to start their own mini-cold wars against US, particularly
Russia which does have its valid reasons to feel it's been cheated and played
for patsy.
President Obama did irritate me in his State of the Union Address
when he started bragging about how big and powerful the U.S. military
was and how much tax payer money was spent on it. In fact it pissed
me off when he said those things. It was the last thing I expected to
hear coming out of his mouth.
So you weren't watching what he was actually doing over the past seven
years?
According to the Bureau of Investigative Journalism, the George W.
Bush administration ordered 50 drone attacks while the government of current
US President Barack Obama has already launched around 500 such strikes.
Obama primarily ordered assassination strikes in Pakistan, Yemen, Somalia
and Afghanistan.
The United States says the CIA-run drone strikes essentially kill
militants, although casualty figures show that civilians are often the victims
of the non-UN-sanctioned attacks.
I'm an American who just got back from a 10 day visit to Iran. Iranians
are among the nicest people on Earth. It is safe to visit. I had no issues
when I was there. The only thing you should be worried about is safely crossing
the busy streets, not terrorism or kidnapping. Don't believe the media fear
machine.
Israel are a clever country to arm, the entire middle east hates
them yet Israel clearly dominate their neighbours in any conflict. An
ally we Europeans need with how the middle east is going
And Iran, unlike the Gulf sheikhdoms, is a real country with educated
people. With sufficient investment and freedom to trade, Iran should easily
be able to develop an economy which is not entirely dependent on oil - or
gas, of which Iran has some of the largest deposits in the world. I'm not
sure the same could be said for the petrostates on the other side of the
Gulf.
" there remains a lack of clarity with regards to the US." - as ever
you never know what the US is going to do, and I suspect the US itself does
not know given it dysfunctional political system. Any system that could
even contemplate the likes of Donald Trump for the office of President cannot
be fit for purpose.
Except that Iran will secretly make a nuclear bomb anyway.
USA and the rest of the world have been duped.
In the end ordinary Iranians who just wanted peace will not get it . Will
not get it while they live under a mediaeval dictatorship that is
"Lifting of Iran sanctions is 'a good day for the world'"
Unless you are Venezuela, Russia, etc and dependent on oil prices.
In many ways, not much has improved for Iran either, they can sell oil but
at a very low price.
This is a good day as it allows freedom off the Market... Next moves shows
the world-stage who is motivated by Orwellian-double-speak (crying wolf)
or those who indeed are the aggressors....
It would be interesting if it wasn't morally evil and destructive. It
is a chess board.
Ho ho ho. This is a ceasefire. The whole project for the Middle East revolves
around it's Palestiniasation , ie leave it in tatters with no state or economic
infrastructure, eg Palestine, Lebanon, Iraq , Syria , Libya . All have suffered
through foreign intervention largely US sanctioned. For the last 40 years
since the west financed and armed Saddam Hussein to fight and destroy the
state of Iran after it deposed the Shah this has been policy. This ideal
I s like an unfinished course of anti-biotics , ultimately if you leave
Iran standing it will always be a power base which can fill the vacuum in
all these failed states.
There is no going back from the damage done...Iran has to be the West's
next horizon if there is never going to be a nuclear Islamic state this
century.
May a dead man say a few words to you, general, for your enlightenment?
You will never rule the world... because you are doomed. All of you who
demoralized and corrupted a nation are doomed. Tonight you will take the
first step along a dark road from which there is no turning back. You will
have to go on and on, from one madness to another, leaving behind you a
wilderness of misery and hatred. And still, you will have to go on... because
you will find no horizon... see no dawn... until at last you are lost and
destroyed. You are doomed, captain of murderers. And one day, sooner or
later, you will remember my words...
The far right in Israel, not for everyone. Saudi and far right wing
Israel have a symbiotic relationship. Saudi can push it's agenda of Wahhabism
that secures it's brutal regime and far right Israel profits from the bitter
fruits of Saudi, as it means that Israel is seen as the anti-muslim anchor
of the West in the region. Sadly, the political intervention of the US has
been based around protecting and supporting this symbiotic relationship
with money, troops and bombs.
Depends on the use off the word terrorist, if you mean fabricated terrorism
for aggression, to forward political goals/Land/Economic reasons, or if
you mean terrorism in defence of a Nation or a civilisation being oppressed....
It is based on perception, or rather delibrate ignorance. It is terrorism
if it is at the expense off another mans freedom.
It boils down to morality aswell, but since the various factions, possibly
even media are doing a good job too blur those lines, it makes it easier
for people who do not think for themselves, to be either delibrately obtuse/Ignorant.
One man's freedom fighter is another man's terrorist
Obama has already issued an order(today) lifting sanctions on the sale
of passenger airliners to Iran. Boeing & Airbus are in intense competition
as Iran plans to purchase 500 airliners in the next 10 years worth billions
of dollars.
I'll take it with a pinch of salt given the lack of corroboration.
There are many confirmed stories of injustice from inside Iran but I
can see why you picked this one. True or not, it certainly makes a sensational
headline.
I suspect they were hoping that once Iran had 'complied', sanctions would
be dropped and everyone could get back to business.
They then, rather belatedly realised that for the Yanks, Bibi and the
Gulf sheikhdoms, sanctions weren't a means to an end. They were the
end. Happily, only one of the above three players really counts, and they
finally saw sense.
Th key point is that it is not only about the US and the EU. India, China
and Russia will also see both great opportunities both to export and in
general to develop trade. India has already talked about building a pipeline
to Chah Bahar.
100billion of unfrozen assets - how much is going to find its
way into London property making prices even more ridiculous.
Almost none, I expect. Iran is a country of about 80 million people,
with an economy which has been severely held back through years - even decades
- of sanctions. In that context, 100 billion isn't actually that much, and
I expect the Iranians will find no shortage of ways to use it at home. And
given that the Iranian government is still highly suspicious of the
Brits (for very good reason) I very much doubt they'll want to spend this
much-needed cash on overpriced pads in Blighty.
Apologies, I thought you were talking about Iran's extra income financing
its armed forces, or its fuller influence now sanctions will be soon lifted.
The 'now' in your comment lead me to believe you were commenting on the
recent events discussed in the article, how mistaken I surely am to think
you were being relevant.
It i amazing how western oriented news organization by default report
the talking point of the western regimes reflexively. Unlike the news bureaus
in the soviet era, they don't need minders and censors, those are just built
in or plugged in by interviews.
100billion of unfrozen assets - how much is going to find its way into London
property making prices even more ridiculous.
Unless we look at channel islands type restrictions for property market
in se england our youth will only own property with inheritance and even
then when the IHT threshold is well over a million if you project forward
six years. (price doubles every six years).
Good point, EU countries UK aside, very never comfortable with the position
the west took with regard to Iran. How as the big boss in Washington decided
what the policy was they had little choice.
Ha, ha, ha! US allies are never sanctioned, no matter how many International
Laws they break, they ignore UN resolutions against them no matter how cruel
and inhuman their actions. Where are the sanctions against US? Oh, can't
be sanctioned can it...
He can do what he likes, the US have given Israel a free pass, human
rights abuses, extrajudicial killings, threats to Israeli Arabs, 'hidden'
nuclear weapons, all have to be ignored while their neighbours are subjected
to endless scrutiny. While this continues the Middle East will never be
at peace. Palestinians are humans too.
Or those that funded the creation of Israel? in 1917 - Balflour declaration,
and what is currently going on today in Israel, still by dictionary definition,
genocide.
The hardliners in Iran "Delvapassan", most of whom work for hostile foreign
intelligence services, are also in trouble. In fact the arch spy, Naghdi
of Basij whose members stormed the Saudi embassy in return for petrodollars,
now says it was the monarchists who stormed the Saudi embassy. A ridiculous
claim as most people in Iran know that monarchists could not even organize
a birthday party.
It's scary to say the least and one wonders if it can even be brought back
from the brink if someone like Bernie Sanders was to be elected. President
Obama did irritate me in his State of the Union Address when he started
bragging about how big and powerful the U.S. military was and how much tax
payer money was spent on it. In fact it pissed me off when he said those
things. It was the last thing I expected to hear coming out of his mouth.
He sounded like a republican braggart. It really annoyed me. I do believe,
to his discredit, that he was trying to appease the Repulicans.
"Whoever though it was a good idea to become closely allied to the barbaric
sheikhs of Arabia whose petrodollars are fueling wahhabi barbarism, is a
complete idiot."......President Roosevelt
Really interesting article. Thanks for linking - I love Glenn Greenwald's
site.
I also loved this quote:
"A sailor may have punched the wrong coordinates into the GPS
and they wound up off course."
So what could be interpreted as an act of war is down to some dunderhead
'punching the wrong coordinates'? 4realz? And of course the fact that the
Yanks basically lied and did indeed intentionally violate Iranian territory
will not be covered by the media. And like I said before, where are all
those posters who accused several of us of being 'bots' because GPS imagery
would of course show the Yanks were in international waters and the Iranians
were fibbing, as always?
Surely this is the end of Saudi Arabia if they continue to keep the oil
prices low, bringing the rest of the market down with it, at the expense
of their own economy (& Nation) & ours. With this Iran will likely be able
to sustain an economical war with less reliance on oil as the Saudis.
No sympathy for them or their terrorist support. Still waiting on economic/weapon
sanctions and condemnation off them (and anyone else involved) by the UN
etc
This is good news, and it has to be hoped that the Iranian economy can now
start to grow. No doubt, the Saudi and Israel won't like it, but that's
though, if either of these two countries had professional leaders, then
their childish, spiteful and lying screams against Iran, would never exist.
Forrest also said ongoing human rights and terrorism related sanctions
in the US would have an effect. "Whilst the EU piece of the puzzle is clear,
as it has already published relevant legislation amending existing sanctions
measures to pave the way for early EU termination, there remains a lack
of clarity with regards to the US."
Arr .... the reason possibly is that the US knows it has already pissed
off Saudi and Israel, so won't push the boat out to far, thereby exasperating
an unnecessary situation further.
Lifting of Iran sanctions is 'a good day for the world' Yet these gangsters
who control the finance industry(US/UK), and who can and do, impose sanctions
at will, are free, without sanction, to wage war against whoever they so
choose with impunity. Something is not quite right here, or are we too stupid,
too compliant to see it?
If the US, Russia, Germany, France, Britain, Japan, and the EU say this
agreement is watertight, you can safely believe that it is. Except of course,
if you are smarter and better informed than all their diplomats and technical
experts. Are you?
Ok - so you're anti nuclear weapons. Fair enough, you're free view.
For me, much more importantly is the opportunity for trade. The Iranians
are well educated and still have a historical connection with our country.
I am a manufacturer of made in UK retail product and will see this as
a great opportunity to help build relationships and support the growth of
our sustainable employment in the UK.
If this technology is so promising, why didn't any the other nuclear nations
offer themselves "a testing bed for the much safer Thorium reactor solution"?
Iran isn't the world's guinea pig.
When sanctions started, they were nowhere near as harsh. European countries
- as well as China and India - had long been growing tired of the extremely
strict sanctions imposed mostly by the Americans. Though Kerry gets
a lot of the credit for the deal going through, according to some reports,
his European allies told him that they were going to stop abiding by the
sanctions whether he and Bibi liked it or not. So he could either accept
that reality or keep fighting the cartoon fight. Thankfully, he and his
boss chose the sensible option.
All the nuclear nations should have banded together with Iran to help
Iran with their desire for peaceful nuclear power by helping Iran with expertise
and funding to develop Thorium reactors. That would put the kibosh
on Iran's nuclear weapons program and work as a testing bed for the much
safer Thorium reactor
solution .
Unfortunately, those cooler heads, will be leaving the administration at
the end of this year, when there are elections in the US. After that anything
can happen.
It's been a rare pleasure to have diplomatic adults, not warmongers,
in both the White House and the State Department, for the past 8 years.
Europeans already had business interests at the time the sanctions started,
ten years ago. And yet they supported the sanctions. I don't see why it
should be different now.
Actually, it's never been that difficult for most European tourists to visit
Iran. Getting the visa can be a bit of a pain, but most people who apply
succeed in getting it quickly enough. And once you're in the country, you
can travel pretty much whereever you like. There has been a requirement
for British travellers to travel with an official guide, but I expect that
will be dropped very quickly.
Yes, unfortunately neither the UK or the US think long-term, when selling
advanced weapons to the Saudis (or giving them to Israel). That may well
come back to bite them, when the House of Saud falls, as it must.
Amazed this has gone through. The world's biggest and most dangerous
children, Israel and Saudi Arabia, will NOT be pleased. These two are behind
so much of the world's problems, far moreso than their parent the USA.
Yes I get that Laguerre, I don't think that's what they are doing either,
but that's not really the point I was trying to make. Considering that,
there are plenty of people around the world that think Iran does want nuclear
weapons, in spite of Iran's protestations to the contrary, I'm guessing
that there must be a ready argument for them not having such weapons. I'd
be interested to know what that argument is and why it doesn't apply to
us.
Welcome to the world community Iran. Not a perfect nation but which
is. No point demonizing people & nations, it does more harm than good.
They have said their Nuclear use for Civilian purposes and so it has
proved. Now how about those nations with Nuclear weapons and armed to the
teeth with getting rid some of them. Hypocrisy of nuclear issue like most
things around the world is stunning.
The Saudis are having to use Columbian mercenaries to supplement their usual
Pakistani rank and file "soldiers" in Yemen. No Saudis are ready to sacrifice
their lives to further their own royal families ambitions. This is an incredible
weakness but typical of a petrodollar state where all loyalties are based
on money. If Saudi Arabia were attacked by even a small but determined force
(such as ISIS) it would collapse like a house of cards.
The US has the largest prison population in the world. It also practices
torture at home and abroad. It carries out executions at home and extra
judicial (terror) killings abroad often using drones to do so. Compared
to any of this, Iran is just a beginner.
America is the best defended slum in the western world. A few facts: Huge
disparities of wealth and poverty, a rigid class system, massive unsustainable
military spending around the world, a weak education system that depends
on educated migrants to take skilled jobs, a declining manufacturing sector
due to dumb free trade deals that built up Chinese economic power. I could
go on indefinitely......but if America falls it will collapse from within
through its own internal contradictions - probably in typical American style
involving hubris, narcissism, blame shifting and of course lots of violence.
Real change must come from below and not from the Americans or Europeans
or Israeli lobby or sheikhdoms, or MEK or any other Iranian exile group,
but the Iranian masses themselves. History has shown this to be true time
and time again. Reforms were introduced in Germany, England, France, the
United States, etc. only because of pressure from below, from the organized
sections of the working classes and their trade union representatives and
not from 'enlightened governments' or 'generous employers'. The road to
reform is paved with struggle and defeats and victories.
German Chancellor Bismarck, the first statesman to introduce reforms
as a way to put down socialist agitation and mass disgruntlement, wrote
in 1889: "we must vigorously intervene for the betterment of the low
of the workmen. "
German Emperor William II cautioned in 1890: "For the maintenance
of peace between employers and workers…Such an institution will facilitate
the free and peaceful expression of their wishes and their grievances,
and furnish officials a regular means for keeping informed of the labor
situation and of continuing in contact with the workers"
In 1906, a French cabinet member cautioned: "we believe that it
is time to study seriously the means of preventing the return of conflicts
between capital and labor"
If you want to support the Iranians in their struggle, support the labour
movement there. Everything that is good about North America and Europe,
or rather, the things that make life tolerable there including a decent
standard of living, paid holidays, adequate working conditions, unemployment
insurance, pensions, etc. was struggled for and won by workers and trade
unions.
It's all true. The U.S. Military program is over bloated and needs a severe
diet. Billions of dollars wasted. Criticize the U.S. military all you like.
I do all the time. ;)
Did you know that the U.S. military is second in federal expenditures
only to social security? It is the second most expensive program in the
United States! This is wrong.
So when some apologist says "well the military only makes up 17 percent
of the budget," (which has been said to me on many occasions) tell them
they are full of it.
When will the civilized world see sanctions on US, UK and Saudi Arabia
for dropping bombs on the Yemenis?
After the UK(Cameron) gifted a seat on the Human rights council to the
Saudis?..
Anyone would think it was a thoroughly corrupt rigged game .. wouldn't they.
The west makes it up as they go along .. and you argue the toss at your
peril.
Ha, ha, ha. Priceless. Yes, no one has ever(as far as I'm aware) put forward
a reason why anyone would want to invade the UK. Why would they ..
it certainly wouldn't be for the benefits many here would have us believe.
Iran however?. yes, what a tasty treat, they have significantly more
to nick in terms of raw materials and other good stuff than we do .. Iran
would make a far better(and now easier) target. Oh.. Bibi, despite his protestations
to the contrary, must be rubbing his hands with glee, and now with the revelation
that US and UK personnel are ensconced(secretly) with the Saudi's .. If
I were an Iranian, I'd see myself surrounded by enemies. Would I give up
the potential to make a bomb?..
Hmm. Whatever the inducements were, they're certainly not enough to see
off a willful new US president with a finger on the trigger, especially
as almost all have voiced the desire to bomb.
But he said while all nuclear-related sanctions on Iran will be
lifted, other sanctions such as those related to human rights and terrorism
will remain in place
Sanctions on Iran were illegal and the people of Iran were punished for
the nukes they never wanted to build. When will the civilized world see
sanctions on US, UK and Saudi Arabia for dropping bombs on the Yemenis?
I hear you on this. I heard that the American cost of the new F35 fighter
jet program is enough to buy every homeless American a $600,000 house. I'm
not criticizing the USA military program or anything just highlighting the
simple cost for America to help it's own poor. Especially in today world
were money created out of thin air. Even now that i have wrote this how
much QE did the Fed do but couldn't house the homeless.
But he said while all nuclear-related sanctions on Iran will be lifted,
other sanctions such as those related to human rights and terrorism
will remain in place, most notably in the US, meaning that companies
would still have to comply with those restrictions.
Meanwhile the Telegraph is calling for an alliance with al Qaeda in Syria,
saying:
The reality that comes with the prolonging war might now mean that
it is time to think of widening who we support – and by working with
groups who would fight IS first over Assad, or indeed al-Qaida's Syrian
branch Al Nusra, but who might not necessarily have the moderate qualities
we would ideally like to support militarily in Syria, lest they too
enact the depravity of beheadings, torture and rape which the conflict
has seen too much of already.
That's before we get to Yemen, where the areas the UK has helped 'liberate'
from AQ's fiercest foe, has been taken over by ISIS.
What's that Netanyahu? I can't hear you. I still can't hear you. Yeah, maybe
you should set your dumb ass down and take a break for the rest of your
miserable life from your anti-Obama/anti-Iran rhetoric. You are already
soaking the American taxpayer for 3 billion a year, and now you are asking
for 4.2 to 4.5 billion a year for the next ten years. It disgusts me how
American tax payer money gets thrown around the world while people here
at home are in the streets starving. How does that work, Netanyahu? You
tell me, how does that work, you miserable fool.
Yes, but as we've seen previously under Bush Jnr, how long does it take
to start an illegal war and who will stop the US in an illegal war? .. it
certainly won't be us in the UK .. inexplicably we seem to love whatever
the US does be it legal or absolutely illegal.
I'm pleased sanctions are being lifted, but until we discuss as adults
the Palestinian/Israeli issue plus Israels nuclear arsenal - which quite
ludicrously seems immune even from being acknowledged, then tensions will
remain. We can't keep ignoring this issue and the injustices in Palestine
in the blaise fashion with which we apply sanctions to others. The west's
current hypocrisy stinks.
This is what I heard on the news earlier in the night. I heard that the
two navy boats did indeed purposely take a short cut through Iranian waters.
Then the Iranian guard took pursuit. Then, the Harry Truman aircraft carrier
group launched search helicopters into the area which did not help things
at all and only escalated things. Finally, the Iranians took the crew.
The U.S. lies all the time. They constantly lie and then the U.S. politicians
come calling for nothing short of a nuclear strike! They are insane. I can
say this much. Any country has the right to board and take a vessel if it
enters their waters, and that includes the stupid, arrogant U.S. This country
really needs to back their shit down and take a look at what they are doing
in the world. They have become very full of themselves and it stinks to
high heaven. It smells like shit.
A great privilege to witness such a rare occasion when common sense and
rationality prevail! Well done all the parties involved! Thanks for "giving
peace a chance"
PS. Wondering how Republicans (especially Tom Cotton), Bibi, king Salman,
n the rest of premium members of warmonger club are feeling now!
.
Anything that stops the Saudi's playing the big I am is fine by me.
They've already cut off their own nose over oil prices to stop US fracking
and their economy is suffering, lets hope Iran can keep it low when it doesn't
suit Saudi Arabia.
The one worry is ISIS getting a foothold if the Saudi government goes
tits up and getting their hands on some real shiny weapons.
"Whilst the EU piece of the puzzle is clear, as it has already published
relevant legislation amending existing sanctions measures to pave the way
for early EU termination, there remains a lack of clarity with regards to
the US."
Good, let the US who started all this nonsense feel themselves for
a while what it is like to be outside trade with Iran. I bet it will not
last long if companies realize they are still not allowed to do business
because of their own extortion over the many years while the EU does commence
trading.
That British troops are involved in Saudi's dirty war - and it seems very
dirty indeed, is nothing short of scandalous. Questions should be being
asked surely?..
But it's somewhat academic isn't it?.. Whichever sweetheart with the exception
of Bernie Sanders, who happens to con their way into the US hot seat, they've
all taken against Tehran in a big way haven't they. Almost all of them have
promised at some stage in their self-serving careers to bomb Iran back to
the stone age, even the occasionally economical with the truth Hilary Clinton
who tries so very hard to convince she's actually a human being has an issue
in that regard.
I really do hope you have an insurance policy Iran, I wouldn't trust
these liars as far as .. and I'd advise using some of what's rightly coming
your way to insulate against future western blackmail.
I'd buy a bloody big bomb .. but keep it quiet, you never know who's
listening .. Ha, yes we do!
Sanctions should never have been imposed. They are a form of collective
punishment that has stopped medicines coming into Iran and punished small
businesses. I know from experience. I had salmonella in Iran when I was
two, and medicines that would have been free under the NHS were so expensive
in Iran due to sanctions that my father had to sell his Mercedes Benz (not
sure he's ever quite forgiven me for that). Meanwhile, Israel's nuclear
arsenal goes unmentioned and unpunished, and we have British troops sitting
in the Saudi war rooms. British foreign policy is a selective and hypocrital
joke.
Well played to all those on both sides responsible for the recent progress,
though I am more than slightly concerned that the next US president will
see things rather differently. Let me also say that Louise Mensch's recent
tweets have been nothing short of disgusting and wholly inflammatory, exactly
the kind of rhetoric that the world community should be shunning.
I'm pleased that whoever it was in the US military command who tried to
use the sailors to provoke a clash with Iran and scupper the end of sanctions
did not succeed. There should be a full enquiry and the traitor exposed
and charged. Let's hope Seymour Hersh gets on the case as soon as possible!
The US specializes in lack of clarity. Remember the two boats that Iran
detained the other day? The US initially said that they had a mechanical
failure and drifted into Iranian territorial waters. That version of events
has become non-operative, and now the US is saying that the boats were fully
operational, but one of the sailors accidentally punched the wrong GPS coordinates
in. And then, of course, they failed to notice that they were getting awfully
close to that island where Iran maintained a base.
Fortunately, we didn't have Cruz in the White House, threatening to nuke
Iran for detaining American sailors for trespassing, even though it's clear
they were question, fed, fueled up and sent on their way. The Iranians,
at least, were civilized, albeit involuntary hosts.
"... There's too much politics in sanctions - it's almost an Obama doctrine
- sanctions rather than anything else kind of thing, so there was always a political
impetus to show they were successful - which was particularly easy to do if successful
had no definition. ..."
Never been a believer that Iran was all that constricted by it all.
There's too much politics in sanctions - it's almost an Obama doctrine -
sanctions rather than anything else kind of thing, so there was always a
political impetus to show they were successful - which was particularly
easy to do if successful had no definition.
Lotsa talk about Iran
exporting condensate in big quantities all during the sanction period. That
was income and condensate then may have brought in more money than crude
would now.
Article yesterday saying Iran was going to reprice whatever they export
- something other than currency. Ominous precedent.
Obama not only uses sanctions for anybody who does not agree with his administration
policies, his administration and he personally also is complicit with this
bonanza of unlimited financing for shale patch:
=== quote ===
Senator Barack Obama: "I mean we send a billion dollars every day to foreign
nations because of our addiction to foreign oil, and in the bargain we drive
up our gas prices because of high demand, so it's hitting you in the pocket
book. " (Senator Barack Obama, Remarks At A Campaign Event At The University
Of Alabama, Birmingham, AL, 1/26/08)
This is Guardian article written just before imposition
of sanctions in 2012.
Notable quotes:
"... Pure colonial greed - Neo Cons get back in your boxes and stop lusting
after Iranian oil. Morally and financially bankrupt Western countries need to keep
out of other peoples affairs. ..."
The top destination for Iran's crude oil exports in the six months between
January and June 2011 was China, totaling 22% of Iran's crude oil exports. Japan
and India also make up a big proportion, taking 14% and 13% respectively of
the total exports of Iran. The European Union imports 18% of Iran's total exports
with Italy and Spain taking the largest amounts.
Sri Lanka and Turkey are the most dependent on Iran's crude exports with
it accounting for 100% and 51% of total crude imported, respectively. South
Africa also takes 25% of its total crude from Iran.
'The top destination for Iran's crude oil exports in the six months
between January and June 2011 was China, totalling 22% of Iran's crude
oil exports. Japan and India also make up a big proportion, taking 14%
and 13% respectively'
- I think even any common or garden moron can see the game plan here..
Time to plant the seeds of democracy...again
firstnamejames - The world should give thanks that you aren't in a position
of power!
Diplomacy and sanctions are time consuming? Not half as time consuming
as 'kicking ass' George Bush style. The Wikipedia entry for the War in Afghanistan
is dated (2001-Present)….. that's what you call quick, decisive action!
What was required post-911 was for the US to have a long, hard think
about its foreign policy, but instead they lived gloriously to stereotype
and played right into Bin Laden's hands.
Bali 02... Madrid 04... London 05... that's the price you pay for 'quick,
resolute' action.
We nuke Iran and the consequences will be life altering - not just for
the Iranian people either.
This report is wrong, like most of the scaremongering on this issue, Iran
did not threaten to close the strait of Hormuz in retaliation for the oil
embargo, they threatened it in retaliation for a strike on their entirely
legal nuclear facilities, the Western medias attempt to gin up a war with
Iran are both foolish and pathetic...
Pure colonial greed - Neo Cons get back in your boxes and stop lusting
after Iranian oil. Morally and financially bankrupt Western countries need
to keep out of other people's affairs.
The hypocrisy of the West is breath taking - attack Iraq over war crimes
vs the Iranians, non-existent WMD in Iraq just as in Iran now, swap sides
in Libya by funding militias led by so-called Al Qaeda men and the bleat
on about UN resolutions when the elephant in the room (Israel) continues
to abuse Palestine people and then continue to sell arms to other dictators
around the world.
Well I suppose anyday now there will be a nuclear test in Iran and that
will be that. Iran will be welcomed to the nuclear club with India and Pakistan
and North Korea.
I guess Russia or China would probably lend Iran a small nuke for the
undergrond test.....
That will be adios to the Israeli aggression in the region.
I might note that proven reserves are NOT the same as recoverable reserves,
the distinction is a quite huge difference. Also Saudi Arabian numbers are
only guesses as the true numbers are a closely guarded state secret. It
should also be noted that the north of Iran is on the Caspian Sea and any
regional conflict would impact those nations and their gas and oil development
too. Of course the Kurdish oil in Northern Iraq would also be at risk and
I doubt the Iraq government would care one jot if it came under fire. The
Strait of Hormuz isn't the only oil that would be effected should this all
blow up.
American oil producers are in retreat; companies have decommissioned more than 60 percent of
their rigs in the last year or so. Since peaking at 9.7 million barrels a day early last year,
domestic oil production has fallen by more than half a million barrels. Rosneft, Lukoil and
Western companies are also dropping big projects in Russia.
Some analysts also say that the concerns about slowing demand in emerging markets, a byproduct of
the economic weakness, are overblown. China and India, for example, are working hard to build up
enormous strategic reserves, which adds to the demand.
RBC Capital Markets, a division of Royal Bank of Canada, estimates that China's needs will
continue to grow as it places an additional 65 million to 70 million barrels in its reserves this
year. India began amassing a strategic reserve only last year, and it has a goal of storing
roughly 330 million barrels over the next several years.
As the author admits that at least six state (add PA to the list) in the USA now are
pushed into recession due to shale bubble bust.
Notable quotes:
"... An estimated 250,000 oil workers have lost their jobs , and manufacturing of drilling and production equipment has fallen sharply. ..."
"... In the United States, Alaska, North Dakota, Texas, Oklahoma and Louisiana are facing economic challenges. ..."
"... Even some oil executives are quietly noting that the Saudis want to hurt Russia and Iran, and so does the United States - motivation enough for the two oil-producing nations to force down prices. ..."
"... Oil production is not declining fast enough in the United States and other countries, though that could begin to change this year. ..."
"... The consulting firm IHS recently studied 66 companies and found that in the first quarter of the year alone they had to write down nearly $29 billion in the value of their assets, easily exceeding the total for the full year of 2014. The sale of cheapened assets from one company to another has already begun here in the Eagle Ford, and more consolidation is expected. ..."
"... Swift Worldwide Resources, an oil industry recruiter based in Houston, estimates that worldwide oil field layoffs have reached more than 176,000. ..."
"... There are huge benefits to the country as a whole in keeping that oil in the ground. The most immediate and obvious benefit is that in an energy crisis, oil in domestic ground is better than money in a domestic bank -- oil supply and jobs when someone elsewhere tries to squeeze the U.S. by cutting off supplies. ..."
"... Fracking has too many unpredictable environmental downsides. Supporting world markets that transfer billions of dollars for oil to Wahhabist Saudi Arabia ( perhaps Iran later, etc..) is not the solution either. ..."
"... When you gamble you can lose. No sympathy for the oil companies who have been making record profits. Our government needs to figure out how to get us back to a country that makes things. ..."
"... My home town of Williamsport, PA experienced the same boom and bust. Energy related jobs provided better than decent living wages foreseen to exist into future lifetimes. ..."
"... Companies leave town when price isn't right, but the communities will be dealing with the environmental consequences for decades to come. ..."
"... As you can see, I live in Dallas. And looking around its downtown/uptown area, what you see is an incredible boom built in big part on business tangentially tied to oil, and tangentially may be an overstatement. ..."
In the United States, Alaska, North Dakota, Texas, Oklahoma and Louisiana are facing
economic challenges.
Chevron,
Royal Dutch Shell and
BP have all announced cuts to their payrolls to save cash, and they are in far better shape
than many smaller independent oil and gas producers that are slashing dividends and selling
assets as they report net losses. Other companies have slashed their dividends.
About
40 companies in North America have gone into bankruptcy protection.
... ... ...
There are a number of conspiracy theories floating around. Even some oil executives are
quietly noting that the Saudis want to hurt Russia and Iran, and so does the United States -
motivation enough for the two oil-producing nations to force down prices. Dropping oil
prices in the 1980s did help bring down the Soviet Union, after all.
But there is no evidence to support the conspiracy theories, and Saudi Arabia and the United
States rarely coordinate smoothly.
... ... ...
Oil production is not declining fast enough in the United States and other countries, though
that could begin to change this year.
Demand for fuels is recovering in some countries, and that could help crude prices recover in
the next year or two. There is now little or no spare production capacity to give the market a
cushion in case of another crisis in a crucial oil-producing country.
... ... ....
The consulting firm IHS recently studied 66 companies and found that in the first quarter
of the year alone they had to write down nearly $29 billion in the value of their assets, easily
exceeding the total for the full year of 2014. The sale of cheapened assets from one company to
another has already begun here in the Eagle Ford, and more consolidation is expected.
Swift Worldwide Resources, an oil industry recruiter based in Houston, estimates that
worldwide oil field layoffs have reached more than 176,000.
Linda is a trusted commenter Oklahoma August 14, 2015
In the forty years I've lived in Oklahoma, I've seen the oil boom and bust over and over.
And they never learn. When the boom happened in the 80s, small county hospitals had to build
new wings because the oil fields are dangerous. Workers went out and bought Harleys and
expensive pickup trucks. And then it all crashed.
Hospitals closed wings after spending millions to build them, trucks and motorcycles were
repossessed. I guess we needed the hospitals--you can't let oil field workers die from lack of
care--but really, it was like nobody planned ahead.
So few saved their money for hard times ahead. And I saw it happen again with fracking.
There must be 20 RV parks between were I live and the town where I shop. Everybody rushed to
put in the plumbing and electricity for RV parks.
And now they sit totally empty. There's no tourism here so summer campers won't fill them.
Just another case of people thinking the boom would last forever. The fracking crews are long
gone (they didn't hire locals, just brought in crews) but the damage to the earth stays
behind.
OldGuyWhoKnowsStuff Hogwarts August 14, 2015
The only real threat, which the news story accurately depicts, is to the easy money.
There are huge benefits to the country as a whole in keeping that oil in the ground. The most
immediate and obvious benefit is that in an energy crisis, oil in domestic ground is better
than money in a domestic bank -- oil supply and jobs when someone elsewhere tries to squeeze
the U.S. by cutting off supplies.
The longer-term and bigger benefit is that maybe we'll get around to not needing it, or at
least that Texas oil will displace some of the more environmentally unsound Canadian tar sands
oil.
Also, the U.S., and especially the Texas plains, have a far greater abundance of affordable
energy right now in all that sunlight.
Collin DC August 14, 2015
My home town of Williamsport, PA experienced the same boom and bust. Energy related jobs
provided better than decent living wages foreseen to exist into future lifetimes. These
careers were available to able bodied workers with less than a high school or college
education.
Companies leave town when price isn't right, but the communities will be dealing with the
environmental consequences for decades to come.
TheUnsaid The Internet August 14, 2015
A major national government effort to wean ourselves off of fossil fuel (at least for
transportation) is long past due.
Fracking has too many unpredictable environmental downsides. Supporting world markets that
transfer billions of dollars for oil to Wahhabist Saudi Arabia (& perhaps Iran later, etc..)
is not the solution either.
The "Market" will not and cannot auto-magically solve long term strategic/environmental
problems.
The "Market" did not win WW2; it did not win the Space Race; it did not build the Panama
Canal.
bb berkeley August 14, 2015
When you gamble you can lose. No sympathy for the oil companies who have been making
record profits. Our government needs to figure out how to get us back to a country that makes
things. NAFTA and the new Pacific Pack has sent our jobs out of the country. Any
politician, regardless of party, who supported these so called treaties should not be re
elected.
Collin DC August 14, 2015
My home town of Williamsport, PA experienced the same boom and bust. Energy related
jobs provided better than decent living wages foreseen to exist into future lifetimes.
These careers were available to able bodied workers with less than a high school or college
education.
Companies leave town when price isn't right, but the communities will be dealing with the
environmental consequences for decades to come.
schbrg dallas, texas August 14, 2015
As you can see, I live in Dallas. And looking around its downtown/uptown area, what you
see is an incredible boom built in big part on business tangentially tied to oil, and
"tangentially" may be an overstatement.
Commerce and industry mix in Texas has changed significantly in the last few decades, with
significant numbers of its population not tied to the oil industry. Houston will be hurting
more than Dallas.
But the ones hurt the most are the individual workers, many of whom would have minimum wage
jobs, if even that.
... Norway has declared that its oil industry has entered a "crisis."
"[The] industry is in a crisis now, we can't deny that," Bente Nyland,
director general of the Norwegian Petroleum Directorate,
told Bloomberg who reminds us that "Norway depends on oil and gas for about one-fifth of its
economic output and nationwide, the petroleum industry has cut almost 30,000 jobs."
"... This is three or four months ahead of what the market was thinking last
year, so it just adds fuel to the fire, ..."
"... "Lower oil prices have been a sentiment leader for the recent market selloff
and will again be in focus with Iranian sanctions expected to be lifted next week,"
..."
"... "How fast Iran can put oil back on the market will now be a key issue for
oil markets, with many skeptical that it will be able to do this nearly as fast
as it has forecast," ..."
"... It is the wrong time for Iran to be returning to the oil market, both for
the market and (probably) also for Iran. It would have been so much more ideal for
Iran to return to the oil scene if prices were soaring at $100, ..."
The Brent and WTI crude benchmarks slid below $30 per barrel on Friday, as investors
worry about Iran's earlier than expected return to the oil market. International
sanctions on Tehran may be lifted Monday, allowing the fifth-biggest member
of OPEC to boost oil exports. "This is three or four months ahead of what
the market was thinking last year, so it just adds fuel to the fire," Mitsubishi
Corp oil risk manager Tony Nunan
told Reuters.
"Lower oil prices have been a sentiment leader for the
recent market selloff and will again be in focus with Iranian sanctions expected
to be lifted next week," Ric Spooner, a chief analyst at CMC Markets, said
in a note on Friday, quoted by
Bloomberg.
"How fast Iran can put oil back on the market will now be a key issue
for oil markets, with many skeptical that it will be able to do this nearly
as fast as it has forecast," he added.
Iranian and US officials have confirmed that the central vessel of Iran's
Arak heavy water reactor has been filled with concrete following the removal
of its core, bringing Iran closer to meeting the requirements for having international
sanctions lifted.
Iranian oil would add to the glut that has made prices collapse since the
middle of 2014.
"It is the wrong time for Iran to be returning to the oil market, both
for the market and (probably) also for Iran. It would have been so much more
ideal for Iran to return to the oil scene if prices were soaring at $100,"
Phillip Futures said in a note, quoted by
Reuters.
"... Iran has resisted calls from rival Saudi Arabia to hold back on production
in the face of faltering global energy demand. The rift between the two Middle East
powers has paralysed Opec - the world's oil cartel - which has abandoned formal
production targets for the first time in its history. ..."
"... Falling oil prices are expected to push down global inflation by 1pc in
2016 according to estimates from J.P. Morgan. ..."
Iran has resisted calls from rival Saudi Arabia to hold back on production
in the face of faltering global energy demand. The rift between the two Middle
East powers has paralysed Opec - the world's oil cartel - which has abandoned
formal production targets for the first time in its history.
European Union and US authorities are expected to formally lift a decade
of sanctions - which include embargoes on Iranian oil in Europe - this weekend.
... ... ...
Falling oil prices are expected to push down global inflation by 1pc
in 2016 according to estimates from J.P. Morgan.
"... This oil decline is a genius move by the US foreign policy. ..."
"... That being said, this part of the strategy engineered to hurt Russia can only last another six months or so. Stripper wells shutting down in mass would be a permanent loss of production and cannot be be allowed. Its better to keep the Fracking oil in the ground now where it can act as a second "strategic petroleum reserve" to keep OPEC from getting too greedy. ..."
"... The Saudis really screwed up. Had they let oil stay over 100 the Emperor would have been truly naked in a few years. This way the threat of a renewed fracking push keeps things tame for a while. ..."
This oil decline is a genius move by the US foreign policy. Had oil stayed over 100 the Fracking
fools would have pumped the things dry and the Baaken and Eagle Ford would be looking like the
Barnett in a few years.
That being said, this part of the strategy engineered to hurt Russia can
only last another six months or so. Stripper wells shutting down in mass would be a permanent
loss of production and cannot be be allowed. Its better to keep the Fracking oil in the ground
now where it can act as a second "strategic petroleum reserve" to keep OPEC from getting too greedy.
The Saudis really screwed up. Had they let oil stay over 100 the Emperor would have been truly
naked in a few years. This way the threat of a renewed fracking push keeps things tame for a while.
"... Iran is on track to ship 1.10 million barrels a day in January, a 20 per-cent
rise on December, according to Reuters reports. ..."
"... When completion of the deal is announced, the oil markets could see an
immediate knee-jerk reaction to the downside said Societe Generale in a note on
Wednesday. ..."
"... However Jason Gammel, equities analyst at Jefferies told CNBC that a meaningful
further drop is unlikely, even allowing for the added Iranian supply. ..."
"... We are starting to reach the stage where we start to cause interruptions
to the physical supply of oil, so I do think the price needs to come up from where
it is, said Gammel on Thursday. ..."
Iran is on track to ship 1.10 million barrels a day in January, a 20
per-cent rise on December, according to Reuters reports.
"When completion of the deal is announced, the oil markets could see
an immediate knee-jerk reaction to the downside" said Societe Generale in a
note on Wednesday.
The Tehran government said Wednesday that the International Atomic Energy Agency
(IAEA) was set to confirm the country has met its obligations to ensure a lifting
of sanctions by Friday.
"The IAEA will issue its final report on Friday to confirm Iran has met its
commitments under the JCPOA (Joint Comprehensive Plan of Action)," Deputy Foreign
Minister Abbas Araqchi said Wednesday according to a number of media reports.
... ... ...
Iran has the fourth-largest oil reserves in the world and the International
Energy Agency believes it could add as much as half a million barrels per day
to exports as soon as sanctions are lifted.
In an already oversupplied market this could help push down an already plummeting
oil price.
... ... ...
However Jason Gammel, equities analyst at Jefferies told CNBC that a meaningful
further drop is unlikely, even allowing for the added Iranian supply.
"We are starting to reach the stage where we start to cause interruptions
to the physical supply of oil, so I do think the price needs to come up from
where it is," said Gammel on Thursday.
[Jan 15, 2016] MSM drum the Iran oil flood but maybe Iran has no spare capacity
at the momen
International sanctions on Iran may be lifted Monday, allowing
for a boost in oil shipments from the fifth-biggest member of the Organization
of Petroleum Exporting Countries. Iran is trying to regain lost market
share and doesn't intend to pressure prices with an export increase
once sanctions are removed, officials from its petroleum ministry and
national oil company said this month.
Or maybe Iran has no spare capacity at the moment.
"... Russian companies plan to pump for export via the Transneft system 6.4%f (of 215.8
million tones total) tons less oil than the last year. ..."
"... According to the Director of the Small Letters research company Vitaly Kryukov, the possible reduction of oil exports indicates that companies will reduce production. Senior analyst of Aton Alexander Kornilov agreed that at current low oil prices, record oil production achieved in 2015 will not happen again in the near future . ..."
"... A strong decline is observed in West Siberia (the main oil producing region of Russia), said Vitaly Kryukov. The main oil producing asset of Rosneft, Yuganskneftegaz, has reduced production by 3.3% to 62.4 million tons, LUKOIL - Western Siberia - by 6,1 % to 41 million tones. ..."
Russian companies plan to pump for export via the Transneft system 6.4%f (of 215.8
million tones total) tons less oil than the last year.
The companies plans to reduce exports in 2016 surprised experts. Director, Moscow oil
& gas center EY Denis Borisov said that there are no obvious prerequisites for a drop in production
of black gold in Russia yet. "It's hard to say what caused such a drop in export", - quote "Vedomosti"
the words of Borisov.
Deputy energy Minister Kirill Molodtsov noted that these figures are based on preliminary applications,
which are compiled according to conservative projections and may change during thef the year.
The low
preliminary requests by companies might be explained by the principle "pump or pay": if the declared
volume of oil is not pumped, they will have to pay a fine.
According to the Director of the "Small Letters" research company Vitaly Kryukov, the possible reduction of oil
exports indicates that companies will reduce production. Senior analyst of "Aton" Alexander Kornilov
agreed that at current low oil prices, record oil production achieved in 2015 will not
happen again in the near future .
A strong decline is observed in West Siberia (the main oil producing region of Russia), said Vitaly Kryukov.
The
main oil producing asset of Rosneft, Yuganskneftegaz, has reduced production by 3.3% to 62.4 million
tons, "LUKOIL - Western Siberia" - by 6,1 % to 41 million tones.
"... Experts say the fall in Russian exports could nonetheless indicate a fall in production. "With current low oil prices, 2015's record high oil production will not be continued in the near future," said analyst Aleksandr Kornilov. ..."
"... Russia's willingness to cut oil production could also be a signal to Saudi Arabia. Moscow could be testing to see if OPEC can agree to do the same in order to stabilize sliding crude prices. At this point, Riyadh has been unwilling to cut output despite pleas from other OPEC members. ..."
"... Any thoughts on how long Gulf OPEC members will hold out? ..."
"... Our companies say now that production volume in 2016 will be kept at last-year level, ..."
"... I think we're in a situation where at some point we're going to see prices rising and production continuing to fall, which will push prices even higher as talk of a future shortage starts up. ..."
"... China was up 10% yr over yr for December and India fuel consumption rose 8.3% yr over yr. ..."
"... when oil again spikes due to low investment, OPEC and Russian economies will rebound greatly. ..."
"... Too bad there is so much volatility in all markets. ..."
State-owned oil transportation monopoly Transneft says Russian oil companies have applied
for 215 million tons of crude exports in 2016. This is 6.4 percent less than last year, business
daily Vedomosti reports.
In 2015, the situation was the opposite for Transneft, which accounts for almost 90 percent of
Russian oil shipments. The company transported seven percent more oil than in 2014.
"It's hard to say what caused the drop in export applications. There is no evident reason for
oil production to fall in Russia," EY's (Ernst & Young) Moscow oil and gas director Denis Borisov
told Vedomosti….
Experts say the fall in Russian exports could nonetheless indicate a fall in production.
"With current low oil prices, 2015's record high oil production will not be continued in the near
future," said analyst Aleksandr Kornilov.
The fight for Europe could intensify even more, once sanctions against Iran are lifted and
the country resumes oil exports. Europe is a key market for Tehran, and if it cuts prices Russian
companies could lose more market share.
Russia's willingness to cut oil production could also be a signal to Saudi Arabia. Moscow
could be testing to see if OPEC can agree to do the same in order to stabilize sliding crude prices.
At this point, Riyadh has been unwilling to cut output despite pleas from other OPEC members.
I am not predicting anything. But I when Russian officials say something to the effect:
No we will not increase production in 2016 but intend to keep product at the same level as 2105….,
I believe that says enough right there.
Russia plans to repeat last year's oil production record in 2016
- minister
MOSCOW, January 14. /TASS/. Russian oil producers plan to repeat the last-year production
record in 2016, Energy Minister Alexander Novak said on Thursday on the sidelines of 2016
Gaidar Forum. "Our companies say now that production volume in 2016 will be kept at
last-year level," the minister said. Russian oil companies produced record-breaking
534 mln tonnes of oil in 2015, up 1.4% year-on-year, according to data of the Central Dispatching
Department of Fuel and Energy Complex.
Based on daily production numbers for the first half of January from CDU TEK, it seems
that this month will see another post-Soviet record oil production in Russia.
The article is misleading. Given the current tensions between Iran and Saudi Arabia the
likelyhood of any OPEC agreement on output cuts is very low. How can Russia discuss output
cuts with OPEC, if there is no accord within this organization.
I have no idea really but my theory is Saudi wanted to see U.S. production and investment
come down enough, which it certainly has, and cuts were put on hold the last meeting to
get Russia onboard. I remembered you saying a few months back that every time in the past
OPEC had always cut xx amount of time into a crash. I think it makes sense, Brents currently
at 28.58; the OPEC basket is at $25. A 1 mmbpd cut would probably get us to 45, maybe 50.
At $50 I don't see shale ramping up enough to increase production.
I think we're in a situation where at some point we're going to see prices rising and production
continuing to fall, which will push prices even higher as talk of a future shortage starts
up. That's assuming demand doesn't fall, but thus far China and India consumption have been
increasing significantly. China was up 10% yr over yr for December and India fuel consumption
rose 8.3% yr over yr.
shallow sand, 01/14/2016 at 11:10 pm
AlexS,
I have been surprised by the lack of US demand growth, given I have seen gasoline for sale
as low as $1.49 US. Maybe that will change when spring hits.
As I have said many times, we are part of a very small minority in the US that want higher
oil prices. My view is the oil war between OPEC, Russia and shale hurts all and helps
none. But, of those three I suppose OPEC is damaged most, followed by Russia and then US. US
economy is going to take a hit, but likely least of the three.
However, when oil again spikes due to low investment, OPEC and Russian economies will
rebound greatly.
Too bad there is so much volatility in all markets. But also too bad there is so
much hostility between governments.
"... Our mission now questions how much the Saudis can now substantively influence the crude markets over the long term. Clearly they can drive prices up, but we question whether they any longer have the power to drive prices down for a prolonged period. ..."
"... The following year, Mining Weekly ran a story which suggested the overestimation of The Kingdoms reserves might go as high as 70% . They meant all of OPEC, but Saudi reserves would have to be overstated by more than 40% to make that true. Business Insider suggests that it is elementary the Saudis are fibbing about their reserves – but it also says oil may have peaked in 2005 and production might start to fall in the next year or two . That was in 2011. ..."
"... For how long are they going to allow their OPEC allies to continue pumping at maximum capacity into a glutted market? It is an obvious radical departure from the former careful balance of supply and demand, which was supposed to be a clever plan to make Russia collapse. What if it makes America collapse instead? ..."
"... Hundreds of billions of dollars were invested in the oil fracking effort. alternative energy projects and other technologies that banked on high energy costs. The incurred debt would take many years or decades to pay off. However, a relatively short term drop in oil prices can drive the debt holders out of business. Massive loan defaults and hundreds of thousands of good-paying jobs will be lost. The ensuing drag on the economy can exceed the benefits of lower oil prices, at least in the short term. ..."
"... Up and down energy prices are likely more harmful than steady high prices on long term economic development. If oil prices were to remain low for, say, 5 years, then the net economic gain can become significant. Dont bank on that being the case. ..."
"... The American tight oil boom was almost entirely financed by junk bonds and only made financial sense at oil prices a lot higher than they are now. There is going to be a lot of pain as those bonds get defaulted on and the companies that issued them go bankrupt. However, the big question is what kinds and amounts of derivatives were leveraged on those bonds, and who is going to blow up when those bonds blow. ..."
"... Unless the USA withdraws its sponsorship of The Kingdom, and lets Saudi Arabia collapse from its internal problems. God knows America has learned a lot about the regime-change game considering all the practice its gotten. ..."
I can't promise anything like a simple explanation but the most thought provoking take I've seen
is from hedge-fund manager and father of MMT, Warren Mosler. It's summarized quite well here (though
FFS don't surmise from that that Agora is a fount of wisdom. It's not: a pump and dump stock kiting
scheme with kick ass copywriters.) Regardless, I have a lot of time for Mosler. He has very rewarding
unconventional views:
That is a very interesting explanation. But there is a great big hole in it, reasoning-wise,
and that is, why does the USA continue to put up with this? Two of its oil companies are among
the ten most profitable entities in the world, and they can't be happy with the Saudis' largess.
You could see the USA letting it go on for as long as it possibly can, considering it makes the
U.S. dollar stronger for consumers, if and only if the core of very rich and very powerful people
who run the United States were happy with a situation in which corporate profits were halved,
but the people were giddy because their dollar buys more pots and pans and vacations and gasoline
and picnic baskets. Are they happy with that situation, do you think? Are the two biggest energy
companies in the USA – Exxon-Mobil and Chevron – happy with an economy in which the big boys take
home a lot less, but the rubes are in clover? And not even that the rubes make more, because they
don't – it just buys more.
Call me a cynic, but I can't see them being happy with that. In fact, I can't see America's
corporate hurt, after they went to all the trouble of declaring that a corporation is legally
a person and can therefore contribute an unlimited amount to political campaigns, being happy
with a situation in which oil costs around what it did in the 1960's. Especially when that situation
could end at any time, and they do not have any control over when that time is. They were probably
okay with it while they thought it was going to destroy Russia, but it's not – not before the
United States is itself destroyed. And long before either of those countries cries "Uncle!!" there
is going to be a wave of poverty and bankruptcies such as the world has never seen.
We'll see. But back in 2011 there was fear – you'll love this – that Saudi Arabia was not going
to be able to keep a lid on prices at $100.00 a barrel,
according to Wikileaks . They based this on an alleged overestimation of Saudi reserves by
about 40%, that overstating having been introduced deliberately to spur foreign investment. Here's
my favourite quote, I love this one;
"Our mission now questions how much the Saudis can now substantively influence the crude
markets over the long term. Clearly they can drive prices up, but we question whether they
any longer have the power to drive prices down for a prolonged period."
Well, I guess that one was answered, wasn't it?
The following year, Mining Weekly ran a story which suggested the overestimation of The Kingdom's
reserves
might go as high as 70% . They meant all of OPEC, but Saudi reserves would have to be overstated
by more than 40% to make that true. Business Insider
suggests
that it is elementary the Saudis are fibbing about their reserves – but it also says oil may
have peaked in 2005 and 'production might start to fall in the next year or two". That was in
2011.
What's that going to mean to the American economy? Three of the
ten most profitable companies in the world are oil companies, and of them two – Exxon-Mobil
and Chevron – are American. Chevron's profits in 2014 were $33.6 Billion, and even that was a
drop of 40% over fiscal year 2012/13. For how long can the American economy sustain that kind
of hit?
For how long are they going to allow their OPEC allies to continue pumping at maximum
capacity into a glutted market? It is an obvious radical departure from the former careful balance
of supply and demand, which was supposed to be a clever plan to make Russia collapse. What if
it makes America collapse instead? Of the vaunted most profitable companies,
the remaining American star is Appple . Are people going to want an Apple watch or a new Smartphone
if the economy starts to falter?
I would say the low oil price benefits the American economy since it is a net oil importer. Their
economy eats a lot of oil. In fact the USA is still the biggest net importer of oil in the world
even with their "shale revolution".
Yes, that's true on the consumption side, so low prices are a boon to homeowners and consumers
in general. But what is it doing to corporate profits? Exxon and Chevron are used to turning a
profit on oil sales in America, too.
Gasoline is finally starting to fall at the pump, down more than 12 cents over the past couple
of weeks here.
Karl, its not that simple. Hundreds of billions of dollars were invested in the oil fracking effort.
alternative energy projects and other technologies that banked on high energy costs. The incurred
debt would take many years or decades to pay off. However, a relatively short term drop in oil
prices can drive the debt holders out of business. Massive loan defaults and hundreds of thousands
of good-paying jobs will be lost. The ensuing drag on the economy can exceed the benefits of lower
oil prices, at least in the short term.
Up and down energy prices are likely more harmful than
steady high prices on long term economic development. If oil prices were to remain low for, say, 5 years, then the net economic gain can become significant.
Don't bank on that being the case.
The American tight oil boom was almost entirely financed by junk bonds and only made financial
sense at oil prices a lot higher than they are now. There is going to be a lot of pain as those
bonds get defaulted on and the companies that issued them go bankrupt. However, the big question
is what kinds and amounts of derivatives were leveraged on those bonds, and who is going to blow
up when those bonds blow.
My personal take is this is going to be a very, very bad year. There are no bright spots that
I can see anywhere in the world. It is going to get very ugly out there, and the US is no exception.
Unless the USA withdraws its sponsorship of The Kingdom, and lets Saudi Arabia collapse from its
internal problems. God knows America has learned a lot about the regime-change game considering
all the practice it's gotten.
"... • 2.9 MMbpd of liquids production deferred to early next decade, up from 2 MMbpd ..."
"... Average breakeven of delayed greenfield projects is $62/boe. ..."
"... 2.9mmbpd for $380 billion seems low to me – should be more like 5 mmbpd – so maybe the $170 billion "delayed spend" is the more relevant figure. ..."
...New Wood Mackenzie study indicates 68 major oil and gas projects deferred, highlights are
as below (note the numbers probably don't include impacts from recent announcements of further
cuts from PetroBras).
• $380 billion of total project capex deferred (real terms), from the 68 projects
• Of the $380 billion capex, delayed spend from the 68 projects from 2016 to 2020 totals $170
billion
• Deepwater hit the hardest: more than half of new project deferrals up from 17 to 29; 62% of
total reserves; and 56% of total capex • 2.9 MMbpd of liquids production deferred to early next decade, up from 2 MMbpd
• Oil most impacted: deferred liquid volumes up 44%, versus 24% for gas
• Average breakeven of delayed greenfield projects is $62/boe.
2.9mmbpd for $380 billion seems low to me – should be more like 5 mmbpd – so maybe the $170
billion "delayed spend" is the more relevant figure.
You have mentioned sanctions. In my view, this was a foolish decision and a harmful one. I have
said that our turnover with Germany amounted to $83–85 billion, and thousands of jobs were created
in Germany as a result of this cooperation. And what are the restrictions that we are facing? This
is not the worst thing we are going through, but it is harmful for our economy anyway, since it affects
our access to international financial markets.
As to the worst harm inflicted by today's situation, first of all on our economy, it is the harm
caused by the falling prices on our traditional export goods. However, both the former and the latter
have their positive aspects. When oil prices are high, it is very difficult for us to resist spending
oil revenues to cover current expenses. I believe that our non-oil and gas deficit had risen to a
very dangerous level. So now we are forced to lower it. And this is healthy…
Question: For the budget deficit?
Vladimir Putin: We divide it. There is the total deficit and then there are non-oil and
gas revenues. There are revenues from oil and gas, and we divide all the rest as well.
The total deficit is quite small. But when you subtract the non-oil and gas deficit, then you
see that the oil and gas deficit is too large. In order to reduce it, such countries as Norway, for
example, put a significant proportion of non-oil and gas revenues into the reserve. It is very difficult,
I repeat, to resist spending oil and gas revenues to cover current expenses. It is the reduction
of these expenses that improves the economy. That is the first point.
Second point. You can buy anything with petrodollars. High oil revenues discourage development,
especially in the high technology sectors. We are witnessing a decrease in GDP by 3.8 percent, in
industrial production by 3.3 percent and an increase in inflation, which has reached 12.7 percent.
This is a lot, but we still have a surplus in foreign trade, and the total exports of goods with
high added value have grown significantly for the first time in years. That is an expressly positive
trend in the economy.
The reserves are still at a high level, and the Central Bank has about 340 billion in gold and
foreign currency reserves. If I am not mistaken, they amount to over 300. There are also two reserve
funds of the Government of the Russian Federation, each of which amounts to $70 to $80 billion. One
of them holds $70 billion, the other – $80 billion. We believe that we will be steadily moving towards
stabilisation and economic growth. We have adopted a whole range of programmes, including those aimed
at import replacement, which means investing in high technologies.
Petroleo Brasileiro SA, as Brazil's state-controlled oil producer is formally known, slashed
its business plan for the five years through 2019 to $98.4 billion, the latest adjustment to the
original $130 billion announced last year, it said Tuesday in a filing. The Rio de
Janeiro-based company reduced its 2020 target for Brazilian oil production by 3.6 percent to 2.7
million barrels a day.
... ... ...
The world's most-indebted oil company said it plans to invest $20 billion in 2016, up slightly
from its most recent estimate of $19 billion. Petrobras still plans to divest $14.4 billion this
year to help fund its spending plan. The company expects Brent crude prices to average $45 a
barrel this year, down from its previous estimate of $55 a barrel.
"... "I can't think of too many investors who predicted that oil would be trading at current levels, so a continuing slump in crude adds to investor nervousness, leading to a spike in volatility," ..."
"... crude at $35 a barrel would cause Russia's gross domestic product to decline by as much as 3 percent in 2016, its central bank said in December. ..."
"I can't think of too many investors who predicted that oil would be trading at current
levels, so a continuing slump in crude adds to investor nervousness, leading to a spike in
volatility," Pavel Laberko, who helps manage $150 million in emerging-market assets at Union
Bancaire Privee in London, said by phone on Wednesday. "There is a lot of uncertainty as to where
oil is going to go from current levels, and this uncertainty is not doing much to decrease price
swings."
... ... ...
...crude at $35 a barrel would cause Russia's gross domestic product to decline by as much
as 3 percent in 2016, its central bank
said in December.
... ... ...
The ruble advanced 0.5 percent to 76.65 against the dollar at 3:18 p.m. in New York, narrowing
its retreat this year to 4 percent, among the biggest drops among emerging-market currencies. The
Market Vectors Russia ETF slid 0.7 percent to $13.10. The dollar-denominated RTS Index fell 0.2
percent in Moscow, while futures contracts on the index retreated 0.7 percent to 68,530 in U.S.
hours.
"... As to US onshore conventional, that production has been tanking since 12/14. Down about 200K bopd 12/14-6/15. That is a big drop considering it went from 2.6 million to 2.4 million. (This is ex-Alaska). ..."
"... I suspect if these prices continue, US onshore conventional falls below 2 million bopd in 2016. ..."
I wonder how many are going to stack after finishing the current well?
The Director's cut should be coming out any day. Wonder what Mr. Helms will have to say?
As to US onshore conventional, that production has been tanking since 12/14. Down about 200K
bopd 12/14-6/15. That is a big drop considering it went from 2.6 million to 2.4 million. (This
is ex-Alaska).
I suspect if these prices continue, US onshore conventional falls below 2 million bopd in 2016.
... If anything, the Saudis have
actually
increased
their output.
Many reasons have been given for the Saudis' resistance to production
cutbacks, including a desire to
punish
Iran and Russia for their support of the Assad regime in Syria.
In the view of many industry analysts, the Saudis see themselves as better
positioned than their rivals for weathering a long-term price decline
because of their lower costs of production and their large cushion of
foreign reserves. The most likely explanation, though, and the one advanced
by the Saudis themselves is that they are seeking to maintain a price
environment in which U.S. shale producers and other tough-oil operators will
be driven out of the market. "There is no doubt about it, the price fall of
the last several months has deterred investors away from expensive oil
including U.S. shale, deep offshore, and heavy oils," a top Saudi official
told
the
Financial Times
last spring.
Despite the Saudis' best efforts, the larger U.S. producers have, for the
most part, adjusted to the low-price environment, cutting costs and shedding
unprofitable operations, even as many smaller firms have filed for
bankruptcy. As a result, U.S. crude production, at about
9.2 million barrels
per day, is actually slightly higher than it was a
year ago.
In other words, even at $33 a barrel, production continues to outpace
global demand and there seems little likelihood of prices rising soon,
especially since, among other things, both Iraq and Iran continue to
increase their output. With the Islamic State slowly losing ground in Iraq
and most major oil fields still in government hands, that country's
production is expected to continue its stellar growth. In fact, some
analysts
project
that its output could triple during the coming decade from the
present three million barrels per day level to as much as nine million
barrels.
For years, Iranian production has been
hobbled
by sanctions imposed by Washington and the European Union
(E.U.), impeding both export transactions and the acquisition of advanced
Western drilling technology. Now, thanks to its nuclear deal with
Washington, those sanctions are being lifted, allowing it both to reenter
the oil market and import needed technology. According to the U.S. Energy
Information Administration, Iranian output
could rise
by as much as 600,000 barrels per day in 2016 and by more in
the years to follow.
Only three developments could conceivably alter the present low-price
environment for oil: a Middle Eastern war that took out one or more of the
major energy suppliers; a Saudi decision to constrain production in order to
boost prices; or an unexpected global surge in demand.
The prospect of a new war between, say, Iran and Saudi Arabia -- two
powers at each other's throats at this very moment -- can never be ruled
out, though neither side is believed to have the capacity or inclination to
undertake such a risky move. A Saudi decision to constrain production is
somewhat more likely sooner or later, given the precipitous decline in
government revenues. However, the Saudis have
repeatedly affirmed
their determination to avoid such a move, as it
would largely benefit the very producers -- namely shale operators in the
U.S. -- they seek to eliminate.
The likelihood of a sudden spike in demand appears
unlikely indeed. Not only is economic activity still slowing in China and
many other parts of the world, but there's an extra wrinkle that should
worry the Saudis at least as much as all that shale oil coming out of North
America: oil itself is beginning to lose some of its appeal.
While newly affluent consumers in China and India continue to buy
oil-powered automobiles -- albeit not at the breakneck pace once predicted
-- a growing number of consumers in the older industrial nations are
exhibiting a preference for hybrid and all-electric cars, or for alternative
means of transportation. Moreover, with concern over climate change growing
globally, increasing numbers of young urban dwellers are choosing to subsist
without cars altogether, relying instead on bikes and public transit. In
addition, the use of renewable energy sources -- sun, wind, and water power
-- is
on the rise
and will only grow more rapidly in this century.
These trends have prompted some analysts to predict that global oil
demand will soon peak and then be followed by a period of declining
consumption. Amy Myers Jaffe, director of the energy and sustainability
program at the University of California, Davis, suggests that growing
urbanization combined with technological breakthroughs in renewables will
dramatically reduce future demand for oil. "Increasingly, cities around the
world are seeking smarter designs for transport systems as well as penalties
and restrictions on car ownership. Already in the West, trendsetting
millennials are urbanizing, eliminating the need for commuting and interest
in individual car ownership," she
wrote
in the
Wall Street Journal
last year.
The Changing World Power Equation
Many countries that get a significant share of their funds from oil and
natural gas exports and that gained enormous influence as petroleum
exporters are already experiencing a
significant erosion
in prominence. Their leaders, once bolstered by
high oil revenues, which meant money to spread around and buy popularity
domestically, are falling into disfavor.
Nigeria's government, for example, traditionally
obtains
75% of its revenues from such sales; Russia's,
50%
; and Venezuela's,
40%
. With oil now at a third of the price of 18 months ago, state
revenues in all three have plummeted, putting a crimp in their ability
to undertake ambitious domestic and foreign initiatives.
In Nigeria, diminished government spending combined with rampant
corruption discredited the government of President Goodluck Jonathan and
helped fuel a vicious insurgency by Boko Haram, prompting Nigerian voters to
abandon him in the most recent election and
install
a former military ruler, Muhammadu Buhari, in his place. Since
taking office, Buhari has pledged to crack down on corruption, crush Boko
Haram, and -- in a telling sign of the times --
diversify
the economy, lessening its reliance on oil.
Venezuela has experienced a similar political shock thanks to depressed
oil prices. When prices were high, President Hugo Chávez took revenues from
the state-owned oil company,
Petróleos de Venezuela S.A.
, and used them to build housing and provide
other benefits for the country's poor and working classes, winning vast
popular support for his United Socialist Party. He also sought regional
support by offering
oil subsidies
to friendly countries like Cuba, Nicaragua, and Bolivia.
After he died in March 2013, his chosen successor, Nicolas Maduro, sought to
perpetuate this strategy, but oil
didn't cooperate
and, not surprisingly, public support for him and for
Chávez's party began to collapse. On December 6th, the center-right
opposition swept to electoral victory, taking a
majority
of the seats in the National Assembly. It now seeks to
dismantle Chávez's "Bolivarian Revolution," though Maduro's supporters have
pledged
firm resistance to any such moves.
The situation in Russia remains somewhat more fluid. President Vladimir
Putin continues to enjoy widespread popular support and, from Ukraine to
Syria, he has indeed been moving ambitiously on the international front.
Still, falling oil prices combined with economic sanctions imposed by the
E.U. and the U.S. have begun to cause some expressions of dissatisfaction,
including a recent
protest
by long-distance truckers over increased highway tolls. Russia's
economy is expected to
contract
in a significant way in 2016, undermining the living standards
of ordinary Russians and possibly sparking further anti-government
protests. In fact, some analysts believe that Putin took the risky step of
intervening in the Syrian conflict partly to deflect public attention from
deteriorating economic conditions at home. He may also have done so to
create a situation in which Russian help in achieving a negotiated
resolution to the bitter, increasingly internationalized Syrian civil war
could be
traded
for the lifting of sanctions over Ukraine. If so, this is a very
dangerous game
, and no one -- least of all Putin -- can be certain of
the outcome.
Saudi Arabia, the world's leading oil exporter, has been similarly
buffeted, but appears -- for the time being, anyway -- to be in a somewhat
better
position
to weather the shock. When oil prices were high, the Saudis
socked away a massive trove of foreign reserves, estimated at three-quarters
of a trillion dollars. Now that prices have fallen, they are drawing on
those reserves to sustain generous social spending meant to stave off unrest
in the kingdom and to finance their ambitious intervention in Yemen's civil
war, which is already beginning to look like a Saudi Vietnam. Still, those
reserves have fallen by some $90 billion since last year and the government
is already announcing cutbacks in public spending, leading some observers to
question
how long the royal family can continue to buy off the
discontent of the country's growing populace. Even if the Saudis were to
reverse course and limit the kingdom's oil production to drive the price of
oil back up, it's unlikely that their oil income would rise high enough to
sustain all of their present lavish spending priorities.
Other major oil-producing countries also face the prospect of political
turmoil, including
Algeria
and
Angola
. The leaders of both countries had achieved the usual deceptive
degree of stability in energy producing countries through the usual
oil-financed government largesse. That is now coming to an end, which means
that both countries could face internal challenges.
And keep in mind that the tremors from the oil pricequake have
undoubtedly yet to reach their full magnitude. Prices will, of course, rise
someday. That's inevitable, given the way investors are pulling the plug on
energy projects globally. Still, on a planet heading for a green energy
revolution, there's no assurance that they will ever reach the $100-plus
levels that were once taken for granted. Whatever happens to oil and the
countries that produce it, the global political order that once rested on
oil's soaring price is doomed. While this may mean hardship for some,
especially the citizens of export-dependent states like Russia and
Venezuela, it could help smooth the transition to a world powered by
renewable forms of energy.
Michael T. Klare, a
TomDispatch
regular
, is a professor of peace and world
security studies at Hampshire College and the author, most recently, of
The Race for What's Left
. A documentary movie version of his book
Blood and Oil
is available from the Media Education Foundation
.
Follow him on Twitter at @mklare1.
"... Not sure about Russia, but the Middle East knows if they go all out and produce as much as they can they will just drive the oil price lower and reduce their profits. ..."
"... Lately OPEC seems to have forgotten this, but they must have other motives besides profits. If they were concerned about profits they would cut production as they have almost always done in the past (except when Saudi Arabia decides to punish other OPEC members (or the Soviet Union) by flooding the market and driving down the oil price. ..."
"... If the Saudi aim was to drive the high cost producers out of business, I think it has taken longer than they expected, now that they have chosen this road they may stubbornly stick to it until high cost producers go belly up and supply from non-OPEC decreases to the point that oil prices rise. ..."
"... This will be a valuable lesson to the rest of the World, that always assumed they could produce as much as they wanted and OPEC would cut back to keep oil prices high. ..."
"... The chart AlexS posted is a snapshot of current costs, it could be that these costs have increased as expensive projects have been started, but the chart is median cost rather than marginal cost. There may be some expensive fields in Russia and several OPEC countries that have come on line recently, but there are also older less expensive fields producing which brings the median cost lower for many countries. ..."
"... As regards Russia, most of the current upstream capex is also in lower-cost brownfield developments in Western Siberia and Volga-Urals regions. This includes infill drilling, development of satellite fields, previously undeveloped zones or deeper horizons of the old producing fields (such as Samotlor). There are also a number of new fields in these old regions. They are much smaller, but unit costs are not too high, as the necessary infrastructure, including roads and pipeline, is already in place. ..."
"... Costs in newly developed regions, such as Eastern Siberia, Timan Pechora, far north of Western Siberia (Yamal peninsula), Northern Caspian (shallow water fields), Far East (Sakhalin), are higher, sometimes much higher. But not prohibitively high even at current prices, as the key infrastructure, such as large pipelines (Eastern Siberia–Pacific Ocean oil pipeline), terminals ( Varandey on the Barents Sea), roads, etc. was already built during the years of high oil prices. ..."
"... Important to note that average unit costs in Russia were much lower than global average even before 2014, but they have significantly declined in dollar terms due to the depreciation of the ruble (see the chart below). ..."
"... Low oil prices have however significantly delayed high cost offshore Arctic and tight oil projects. ..."
"... The only producing offshore Arctic project is Prirazlomnoye oil field on the Pechora Sea shelf (developed by Gazpromneft). Rosneft has postponed further drilling in the Kara Sea and is now only exploring new blocks using 2D seismic. ..."
Rystad Energy recently released estimates for the total, all-in production cost for one barrel
of oil across major oil-producing countries.
According to Rystad, "this chart was compiled using data from more than 15,000 oil fields across
20 nations. The production costs were calculated by including a mix of capital expenditures and
operational expenditures. Capital expenditures included the costs involved with building oil facilities,
pipelines and new wells. Operational expenditures included the costs of lifting oil out of the
ground, paying employee salaries and general administrative duties."
Note that these numbers apparently do not include interest payments and taxes.
Furthermore, these are full-cycle costs rather than breakeven price, as Internal rate of return
(IRR) is not included.
Also note that these are median costs, which does not represent the whole picture, as there
are significant differences in production costs within each country.
In any case, the chart shows that at today's price of $31/barrel (Brent and WTI), most of oil
from the already producing fields can still be extracted profitably. There are, however, notable
exceptions, including U.S. stripper wells, several deepwater projects (incl. Brazil), some fields
in the North Sea, etc.
As regards new projects, they are already unprofitable in a number of countries, including the
U.S., Canada, U.K., Norway, Brazil, and West Africa.
Median Total Cost of Oil Production per Barrel
Source: Rystad Energy
I was wondering about these low full cycle costs in the Middle East & Russia.
During several years of high oil prices, why weren't more high-cost projects started in these
area's, like what happened in the US & Canada? If the costs are really as low as indicated in
your above chart, couldn't they have earned much more by starting slightly higher cost projects?
Is it that except these low-cost fields, there are not that many, even higher-cost, projects available?
Or is there less of a capitalistic spirit/access to financial markets?
To me it would make sense if everywhere around the world costs have increased to a much higher
level, given several years of high oil prices, reflecting the incentives to try to bring us much
oil to the market as long as costs are (significantly) lower than the price.
Effective oil price for Russian oil companies was always the same, around $30 per barrel. Everything
above was taxed. Some fields, especially in Eastern Siberia, were exempted from the tax, but there
aren't that many of them.
Enno: " reflecting the incentives to try to bring us much oil to the market as long as costs are
(significantly) lower than the price."
There are no incentives to bring as much oil to the market in the environment of high prices,
same as there are no incentives to bring less oil to the market in the low price environment like
today.
Not sure about Russia, but the Middle East knows if they go all out and produce as much as
they can they will just drive the oil price lower and reduce their profits.
Lately OPEC seems to have forgotten this, but they must have other motives besides profits.
If they were concerned about profits they would cut production as they have almost always done
in the past (except when Saudi Arabia decides to punish other OPEC members (or the Soviet Union)
by flooding the market and driving down the oil price.
If the Saudi aim was to drive the high cost producers out of business, I think it has taken
longer than they expected, now that they have chosen this road they may stubbornly stick to it
until high cost producers go belly up and supply from non-OPEC decreases to the point that oil
prices rise.
This will be a valuable lesson to the rest of the World, that always assumed they could produce
as much as they wanted and OPEC would cut back to keep oil prices high.
In the future non-OPEC producers will not be so sure that this is the case and may be a little
more careful about expanding output too quickly.
On re-reading you comment above, I think I see better what you are asking.
The chart AlexS posted is a snapshot of current costs, it could be that these costs have increased
as expensive projects have been started, but the chart is median cost rather than marginal cost.
There may be some expensive fields in Russia and several OPEC countries that have come on line
recently, but there are also older less expensive fields producing which brings the median cost
lower for many countries.
I guess average unit costs in the Middle East have risen at least twice over the past 10-15
years, reflecting input cost inflation in the global oil industry. But costs are still very low
as:
1) Most of the capex is in brownfields (infill drilling, water floods, etc.)
2) Most of the fields that start production now were actually discovered several decades ago,
so exploration costs are close to zero. These fields are located onshore and a few of them in
shallow waters. Geology is generally favorable. There is no ice, no winter cold, and high temperatures
are not a problem. The necessary infrastructure is already in place. The fields are huge, with
very high production per well and low decline rates. Therefore, average development costs are
also very low.
As regards Russia, most of the current upstream capex is also in lower-cost brownfield developments
in Western Siberia and Volga-Urals regions. This includes infill drilling, development of satellite
fields, previously undeveloped zones or deeper horizons of the old producing fields (such as Samotlor).
There are also a number of new fields in these old regions. They are much smaller, but unit costs
are not too high, as the necessary infrastructure, including roads and pipeline, is already in
place.
Costs in newly developed regions, such as Eastern Siberia, Timan Pechora, far north of Western
Siberia (Yamal peninsula), Northern Caspian (shallow water fields), Far East (Sakhalin), are higher,
sometimes much higher. But not prohibitively high even at current prices, as the key infrastructure,
such as large pipelines (Eastern Siberia–Pacific Ocean oil pipeline), terminals ( Varandey on
the Barents Sea), roads, etc. was already built during the years of high oil prices.
There are
a number of new projects at later stages of development, which will not be postponed or delayed
and are scheduled to begin production in 2016-18.
Important to note that average unit costs in Russia were much lower than global average even
before 2014, but they have significantly declined in dollar terms due to the depreciation of the
ruble (see the chart below).
The tax component of the costs was also significantly lowered thanks
to the Russia oil tax system.
Low oil prices have however significantly delayed high cost offshore Arctic and tight oil projects.
There is a significant dollar-denominated component in capex (imported equipment, services and
technologies), which is exacerbated by the effect of the sanctions.
The only producing offshore
Arctic project is Prirazlomnoye oil field on the Pechora Sea shelf (developed by Gazpromneft).
Rosneft has postponed further drilling in the Kara Sea and is now only exploring new blocks using
2D seismic.
Gazpromneft, Lukoil and others are still working on pilot projects in the Bazhenov
shale, but commercial development will not start before next decade.
Comparative lifting costs: Russian oils vs. global majors
2) Most of the fields that start production now were actually discovered several decades ago,
so exploration costs are close to zero.
Well that was true a few years ago, especially for Saudi Arabia. But I just don't believe that
is the case anymore. Perhaps there are some very small fields that didn't seem worth developing
back then. But I don't think there are any large, long ago discovered fields, that are still undeveloped.
In December, the EIA predicted a decline of 116,000 barrels per day for shale
oil
production
at the key US oilfields.
The projected decline will not affect two regions out of seven, namely Permian and
Utica. The largest decline is expected in the Eagle Ford field in Texas, where oil
production is likely to decrease by 72,000 barrels per day.
Projected decline at Bakken and Niobrara oil fields are due to stand at 24,000 and
23,000 barrels per day, respectively.
"... Eagle Ford crude oil production declines 30% year over year and will fall below 1 mill bbl/d by spring 2016 and by late summer 2016, production will be likely around 0.5 mill bbl/d. ..."
January EIA Drilling Report came out and confirms the steep decline of US shale production (see
below chart).
Eagle Ford crude oil production declines 30% year over year and will fall below
1 mill bbl/d by spring 2016 and by late summer 2016, production will be likely around 0.5 mill
bbl/d.
As legacy declines are still very steep in Eagle Ford and Bakken, shale oil production
is on track to be around 2 mill bbl/d lower by fall 2016.
This will finally pave the way
for a price recovery during the end of 2016.
"... Oilprice.com looked beyond the headlines for the reason behind the oil price drop, and found that the explanation, while difficult to prove, may revolve around control of oil and gas in the Middle East and the weakening of Russia, Iran and Syria by flooding the market with cheap oil. ..."
"... in 1990, when the Saudis sent prices plummeting as a way of taking out Russia, which was seen as a threat to their oil supremacy. In 1998, they succeeded. When the oil price was halved from $25 to $12, Russia defaulted on its debt. ..."
"... Adding credence to this theory, Iranian President Hassan Rouhani told a Cabinet meeting earlier this month that the fall in oil prices was "politically motivated" and a "conspiracy against the interests of the region, the Muslim people and the Muslim world." ..."
The oil price drop that has dominated the headlines in recent weeks has been framed almost exclusively
in terms of oil market economics, with most media outlets blaming Saudi Arabia, through its OPEC
Trojan horse, for driving down the price, thus causing serious damage to the world's major oil exporters
– most notably Russia.
While the market explanation is partially true, it is simplistic, and fails
to address key geopolitical pressure points in the Middle East.
Oilprice.com
looked beyond the headlines for
the reason behind the oil price drop, and found that the explanation, while difficult to prove, may
revolve around control of oil and gas in the Middle East and the weakening of Russia, Iran and Syria
by flooding the market with cheap oil.
The oil weapon
We don't have to look too far back in history to see Saudi Arabia, the world's largest oil exporter
and producer, using the oil price to achieve its foreign policy objectives. In 1973, Egyptian President
Anwar Sadat convinced Saudi King Faisal to cut production and raise prices, then to go as far as
embargoing oil exports, all with the goal of punishing the United States for supporting Israel against
the Arab states. It worked. The "oil price shock" quadrupled prices.
It happened again in 1986, when Saudi Arabia-led OPEC allowed prices to drop precipitously, and
then
in 1990, when the Saudis sent prices plummeting as a way of taking out Russia, which was seen
as a threat to their oil supremacy. In 1998, they succeeded. When the oil price was halved from $25
to $12, Russia defaulted on its debt.
The Saudis and other OPEC members have, of course, used the oil price for the obverse effect,
that is, suppressing production to keep prices artificially high and member states swimming in "petrodollars".
In 2008, oil peaked at $147 a barrel.
Turning to the current price drop, the Saudis and OPEC have a vested interest in taking out higher-cost
competitors, such as US shale oil producers, who will certainly be hurt by the lower price. Even
before the price drop, the Saudis were selling their oil to China at a discount. OPEC's refusal on
Nov. 27 to cut production seemed like the baldest evidence yet that the oil price drop was really
an oil price war between Saudi Arabia and the US.
However, analysis shows the reasoning is complex, and may go beyond simply taking down the price
to gain back lost marketshare.
"What is the reason for the United States and some U.S. allies wanting to drive down the price
of oil?" Venezuelan President Nicolas Maduro asked rhetorically in October. "To harm Russia."
Many believe the oil price plunge is the result of deliberate and well-planned collusion on the
part of the United States and Saudi Arabia to punish Russia and Iran for supporting the murderous
Assad regime in Syria.
Punishing Assad and friends
Proponents of this theory point to a Sept. 11 meeting between US Secretary of State John Kerry
and Saudi King Abdullah at his palace on the Red Sea. According to
an article
in the Wall Street Journal, it was during that meeting that a deal was hammered out
between Kerry and Abdullah. In it, the Saudis would support Syrian airstrikes against Islamic State
(ISIS), in exchange for Washington backing the Saudis in toppling Assad.
If in fact a deal was struck, it would make sense, considering the long-simmering rivalry between
Saudi Arabia and its chief rival in the region: Iran. By opposing Syria, Abdullah grabs the opportunity
to strike a blow against Iran, which he sees as a powerful regional rival due to its nuclear ambitions,
its support for militant groups Hamas and Hezbollah, and its alliance with Syria, which it provides
with weapons and funding. The two nations are also divided by religion, with the majority of Saudis
following the Sunni version of Islam, and most Iranians considering themselves Shi'ites.
"The conflict is now a full-blown proxy war between Iran and Saudi Arabia, which is playing out
across the region," Reuters
reported
on Dec. 15. "Both sides increasingly see their rivalry as a winner-take-all conflict:
if the Shi'ite Hezbollah gains an upper hand in Lebanon, then the Sunnis of Lebanon-and by extension,
their Saudi patrons-lose a round to Iran. If a Shi'ite-led government solidifies its control of Iraq,
then Iran will have won another round."
The Saudis know the Iranians are vulnerable on the oil price. Experts say the country needs $140
a barrel oil to balance its budget; at sub-$60 prices, the Saudis succeed in pressuring Iran's supreme
leader, Ayatollah Ali Khamanei, possibly containing its nuclear ambitions and making the country
more pliable to the West, which has the power to reduce or lift sanctions if Iran cooperates.
Adding credence to this theory, Iranian President Hassan Rouhani told a Cabinet meeting earlier
this month that the fall in oil prices was "politically motivated" and a "conspiracy against the
interests of the region, the Muslim people and the Muslim world."
"... The United States' longtime ally is losing its iron-fisted grip over both its people and the region. This fact, coupled with Saudi Arabia's staggering arsenal and unprincipled ruling ideology, makes the kingdom incredibly dangerous–arguably more so than infamous Axis of Evil member Iran. . . . ..."
"... However, Mohammed bin Salman is widely regarded as impulsive and woefully inexperienced. The failure of Saudi policy against the Iranian-supported Houthi rebellion in Yemen lies at his feet. It is hardly a coincidence that on the same day Riyadh executed Sheik Al-Nimr, it unilaterally withdrew from a fragile ceasefire in Yemen. Western allies and regional acolytes alike nervously consider whether Saudi Arabia will be vulnerable to more campaigns of folly or even a palace coup, depending on who next ascends the leadership hierarchy. ..."
Saudi Arabia's decision to execute Shia cleric Sheikh Nimr Al-Nimr was designed to provoke
Iran into an expansion of military engagement. That's an unsettling strategy–but true nonetheless.
The initial reaction to the kingdom's decision was relatively minor-a few Molotov cocktails
were lobbed at its embassy in Tehran. But a chain reaction of diplomatic fallout has unfolded
over the past few days. Saudi Arabia severed all diplomatic relations with Iran; oil allies
Bahrain, Sudan and Djibouti quickly followed suit. Perhaps more surprisingly, other Gulf Cooperation
Council (GCC) allies like Kuwait, Qatar and the United Arab Emirates opted for the less drastic
measure of recalling their ambassadors.
Each act of incitement, however, including Saudi Arabia's allegedly deliberate targeting
of the Iranian embassy in Sana'a, Yemen, is further indication of Riyadh's desperation to demonize
Tehran in the court of world opinion. It is an exercise in futility, and one that casts doubt
over the kingdom's own stability and sensibility.
The United States' longtime ally is losing
its iron-fisted grip over both its people and the region. This fact, coupled with Saudi Arabia's
staggering arsenal and unprincipled ruling ideology, makes the kingdom incredibly dangerous–arguably
more so than infamous Axis of Evil member Iran. . . .
A paradigm shift of leadership beckons as King Salman, the son of the kingdom's founder,
Abdulaziz Al-Saud, looks to incorporate a next generation of Saudi royalty. The king's nephew,
Mohammed bin Nayef, is the crown prince and presumptive heir to the throne. But it is Salman's
own son, Mohammed, deputy crown prince and the world's youngest defense minister at age 30,
who is seen as the country's eminence grise and successor to his father's title.
However, Mohammed bin Salman is widely regarded as impulsive and woefully inexperienced.
The failure of Saudi policy against the Iranian-supported Houthi rebellion in Yemen lies at
his feet. It is hardly a coincidence that on the same day Riyadh executed Sheik Al-Nimr, it
unilaterally withdrew from a fragile ceasefire in Yemen. Western allies and regional acolytes
alike nervously consider whether Saudi Arabia will be vulnerable to more campaigns of folly
or even a palace coup, depending on who next ascends the leadership hierarchy.
"... Nor is there much chance of prices rebounding. If they started to, Venezuela, which breaks
even at $7 a barrel, would expand production; at $10, the Gulf of Mexico would join in; at $11, the
North Sea, and so on (see map). This will limit any price increase in the unlikely event that OPEC rises
from the dead. Even in the North Sea, the bare-bottom operating costs have fallen to $4 a barrel. For
the lifetime of such fields firms will continue to crank out oil, even though they are not recouping
the sunk costs of exploration and financing. And basket-cases such as Russia and Nigeria are so hopelessly
dependent on oil that they may go on producing for some time whatever the price. ..."
GOP presidential front-runner Donald Trump said late Monday that the Iran nuclear deal made Tehran
a global power that now threatens Saudi Arabia's existence.
"We made a power out of Iran," the
outspoken billionaire told host Bill O'Reilly on Fox News's "The O'Reilly Factor."
"They are looking to go into Saudi Arabia," Trump continued. "They want the oil, they want the money,
[and] they want a lot of other things.
"That's phase one - to go into Saudi Arabia and, frankly,
the Saudis don't survive without us. And the question is, at what point do we get involved and how
much will Saudi Arabia pay us to save them? That's ultimately what's going to happen."
Trump argued that his presidency would back Saudi Arabia in any regional conflict that emerges
in the Middle East.
"Well, I would want to help Saudi Arabia," he said. "I would want to protect Saudi Arabia. But
Saudi Arabia is going to have to help us economically. They were making, before the oil went down
... they were making $1 billion a day."
Trump additionally charged that aiding Saudi interests is essential, given the possibility Iran
eventually acquires nuclear weapons.
"You know that Iran is going to have a nuclear weapon very soon," he told O'Reilly. "The ink isn't
even dry, and they have already violated the deal and a lot of people are calling for sanctions."
At least five massive oil storage tanks have caught fire in two oil terminals in Libya after
attacks by Takfiri Daesh terrorists.
The attacks originally ignited fires at the key terminals
in Sidra and Ras Lanouf, located between the city of Sirte – which is controlled by Daesh – and the
eastern city of Benghazi.
Ali al-Hassi, a spokesman for the Petroleum Facilities Guards, said on Wednesday that the fires
have now spread to the storage tanks.
Officials said each of the oil tanks is estimated to be storing 420,000 to 460,000 barrels of
oil.
"... From October 2010 through 2015, the U.S. has approved sales of $111.3 billion of arms to Saudi Arabia, including $29 billion for 84 F-15 warplanes-more than three times the arms sales approved to the U.S.'s second-biggest customer, South Korea. ..."
"... Iran can balance its budget with crude at $70 a barrel, while the Saudis need $95. Ominously, the IMF predicts that if the Saudis don't lower spending, and if oil stays at $50 a barrel, they'll burn through their foreign currency reserves by 2020. ..."
For all the talk of abandonment, Saudi Arabia remains by far the U.S.'s top weapons customer.
Sales have ramped up significantly under Obama, says William Hartung, director of the Arms &
Security Project at the Center for International Policy.
From October 2010 through 2015, the
U.S. has approved sales of $111.3 billion of arms to Saudi Arabia, including $29 billion for 84
F-15 warplanes-more than three times the arms sales approved to the U.S.'s second-biggest
customer, South Korea.
A lot of that firepower is being used in Yemen. The 10-month bombing campaign against the
Iran-backed Shia rebels, the Houthis, has been sloppy. The UN estimates that 2,600 Yemen
civilians were killed from March to October, including 1,600 in Saudi-led airstrikes. To pay for
the war, the Saudis have been dipping into shrinking foreign currency reserves. "The only thing
it accomplished is to create a major humanitarian crisis," Hartung says. The air campaign has
been led by the king's 30-year-old son, Mohammad bin Salman, the youngest defense minister in the
world. "They should be worried about ISIS, but instead they're spending all their blood and
treasure in Yemen as some kind of anti-Iranian measure," Hartung says. "And it's a disaster."
... ... ...
According to International Monetary Fund estimates,
Iran can balance its budget with crude
at $70 a barrel, while the Saudis need $95. Ominously, the IMF predicts that if the Saudis don't
lower spending, and if oil stays at $50 a barrel, they'll burn through their foreign currency
reserves by 2020.
Being a wartime king is expensive.
"... It knows that low oil prices also squeeze Iran's ally Russia, and yes, they whack North American high-cost producers too. That's three birds with one barrel. ..."
...The world looked to OPEC (read Saudi
Arabia, as OPEC stopped functioning as an effective cartel long ago) to prop
them up. But the kingdom's busy. The Sunni monarchy is busy fighting proxy wars
with its rival, the Shia theocracy of Iran, to be the regional power. To the
south, it's shooting down incoming missiles aimed at its oil plants fired by
Iranian-backed militants in Yemen, whom the Saudi air force is also bombing. To
the north, Sunni insurgents are battling Iranian-supported governments in Syria
and Iraq. To the east, Saudi tanks have crushed a still-simmering Shia uprising
Bahrain. And wars require oil money – lots of it.
The kingdom believes it can
dive deeper and for longer into the turbulent seas of oil markets than rival
producers.
It knows that low oil prices also squeeze Iran's ally Russia, and
yes, they whack North American high-cost producers too. That's three birds with
one barrel.
...But it's also hurting. Riyadh is slashing spending,
cutting price subsidies on fuel, water and power, and hiking taxes – and
risking social unrest. Saudi Arabia's estimated $640-billion foreign reserves
look like a comfortable cushion, until compared against the kingdom's social
spending hand-outs of more than a whopping $100 billion, pledged dramatically
in 2011 when the Arab Spring revolutions spread across the region.
...But Iran is hurting more. Tehran's foreign reserves dropped long
ago, triggering rationing, riots and price hikes on food and fuel.
Saudi security forces keep a nervous eye on their own dissident Shias who
are the majority in the kingdom's main oil-producing province, which lies on
the shore of the Persian Gulf.
... ... ...
The execution triggered outrage in the seething "Shia crescent" that runs
round the Gulf coast from Iran to Bahrain, taking in major oil fields and
export infrastructure.
... ... ...
... "Former cartel" would be
a better description. The definition of a cartel is not an organization of
competing producers that control prices by a few reducing production together
while others secretly increase it, and that rarely agree on anything. Today,
survival and ending the flow of oil dollars to your enemies' armories are at
the top of Middle Eastern agendas.
The Iranians fell into the Saudi trap. Geopolitically this is classic "divide and conquer"
strategy in action. Somehow remins me shooting Russian jet, after which Russi self-impose on
itself additional sactions by braking economic cooperation with Turkey. Of couse Endogan
played duplicipus game and betrayed Russins, but still this is another episode of 'devide and
conquer" starategy.
Notable quotes:
"... The rentier kingdom relies heavily on the government's welfare policies, besides its religious appeal, to drum up public support. The late King Abdullah's response to Arab Spring protests is an example of this. When people elsewhere rose up against dictatorships, he announced a special economic package of $70 billion (much of this money was allocated to build 5,00,000 houses to address housing shortage) to quell discontent at home. Additionally, the state injected $4 billion into healthcare. King Salman does not enjoy the luxury of using oil revenues to save his crown due to the economic crisis. Another option the royals have to buttress their position is to resort to extreme majoritarianism. ..."
"... Even when pre-revolutionary Iran and Saudi Arabia were the two pillars of the U.S.'s West Asia policy, Riyadh and Tehran were regional rivals. The latest phase of this cold war begins with the U.S.-led Iraq invasion. When Saddam Hussein was toppled and a Shia-dominated government emerged in Baghdad, Iran was the happiest regional power. Hussein had been a staunch enemy of Tehran. Saudi Arabia was alarmed by the changing political equations in Iraq, and had supported Sunni militancy to prevent the Shias consolidating power in the post-Saddam set-up. This was one reason that Iraq broke apart later. But the Americans had assured full support to the Gulf monarchies and kept pressure on Iran over the nuclear sanctions. When the Barack Obama administration changed its approach towards Iran, engaging with the Islamic Republic through serious negotiations, the Saudis were upset. Though Riyadh publicly accepted the nuclear deal, it was expectedly concerned about Iran's reintegration with the global economy. That would not only flood the market with cheap oil from Iran, sending oil prices down further, but also help Tehran rise as a legitimate regional power. ..."
"... This Saudi frustration was evident in its Yemen war. Riyadh started bombing Yemen in March, when the nuclear talks were in the final stages. ..."
"... Iran should have exercised restraint in the wake of Sheikh Nimr's execution. It could have used the global anger against mass beheadings in Saudi Arabia to its benefit, particularly at a time it's rebuilding its position in the region. But lack of a cohesive vision, and maybe the high-handedness of the hardliners, led Iran to overreact to the executions. ..."
"... Iran has gained nothing but international condemnation from attacking foreign missions in its land. ..."
"... US/Obama/Republican/Democrat (any name we call them) are no fool. They just would like to maintain a balance of power between the two major sects for their own benefits - control over oil trade. It is not about the numbers here. Whenever one side dominates, they intervene to create a balance. ..."
"... One natural victim of these rising tensions will be the Syria peace plan ..."
"... Unless Saudi-Iran tensions are contained , there won't be an effective strategy to fight the Islamic State, which is a Sunni-Wahhabi extremist group; the war in Yemen will go on, endangering many more lives; and Iraq's efforts to stabilise itself could be challenged. The Saudis look determined to play a long-term game of sectarian geopolitics to maximise its interests. If the Iranians continue to respond in the same token, West Asia would remain turbulent for many more ..."
"... The rise of ISIL and the back-door support to ISIL from the GCC because they are anti-Shia, is clear to everyone. In short, the Saudis have lost favor with the west and their petrodollars are shrinking due to low oil price. ..."
"... Equally the Saudis cannot behave like they are some kind of 'Demi-Gods' with a license to flout normal rules and regulations. Their Human Rights record is terrible, they allow no other religions except Islam in their country, have harsh Sharia laws, Women's rights are non-existent, they support many terror networks around the World. Unfortunately the West turns a blind eye to all these misdemeanors from Saudi Arabia as the Saudis buy billions of dollars worth of military equipment from them. ..."
"... Until Oil price was high US supported Saudi now they are indirectly supporting Iran ? US always benefit by creating instability. ..."
"... US can be rightly accused of creating instability but Western Asian countries are equally gullible to fall into this trap and sensitize everything with respect to Islam. ..."
"... Iranian hardliners held their breath for a long time during nuke-talks. It might not be possible to micro-manage this influential group every time. Besides this step might save the Al Saud dynasty another day, but how it serves KSA's strategic interests is yet to be seen. No countries except those directly controlled by KSA supported the execution, although they criticised Iran. KSA have no exit from this tip of events. ..."
"... the hints that the Riyadh-plan to ratchet up tensions in the region go beyond vintage tiff or screwing up economics of faraway shale. It is by extension, to my mind, a classic scheme-of-the-art of the eternal Empire over the MENA region, that feeds itself with petrodollars and the military industrial complex. ..."
"... Saudis fought the ottomans by terror and guerilla war, which they preached world over, be it against Soviet occupation of Afganistan, post Saddam Hussaien Iraq government, Wahhabi doctrine education in Madrassas world wide. Their Wahhabi doctrine is the bible for Talibans, ISIL, destruction of Sufi Islam. They are the fountain head for hardline ISLAM ..."
"... there is a strong clannish bonding among the various tribes, a delicate balance that has been assiduously built over two centuries which no ruler would like to disturb. ..."
"... The Saudi government executed the Shia cleric calling him a 'takfir', a usual Islamist practice to justify elimination. There could be several reasons for the execution, but, there are four prominent ones that have not got enough attention. Firstly, the Sunni wahhabi ruling family of al Saud is able to cling on to power only through coercion, bribery and loyalty of clerics going back to the treaty between ibn Wahhab and the Diriyah King bin Saud in the 18th century. ..."
"... The AQ terrorists executed now were caught then, a decade back. The executions, after ten long years, is strange in a country where they are always swift. With its strong backing of the IS, KSA is sending as much a message to the US Iran as it is to its own citizens and the IS. ..."
"... The Iranians fell into the Saudi trap. Sectarianism will remain the bench mark of Mid East politics as desired by the Saudis but this time thanks to hardline Iranian reaction. ..."
Why did Riyadh do this if they knew the consequences would be deadly? A logical
explanation is that it's part of a well-thought-out strategy to whip up
tensions so that the Al-Saud ruling family could tighten its grip on power at
home and embolden its position in the region by amassing the support of the
Sunni regimes. Whether the royals agree or not, Saudi Arabia is facing a major
crisis.
Oil prices are plummeting, endangering the kingdom's economy
. In 2015, it
ran a deficit of $97.9 billion, and has announced plans to shrink its budget
for the current year by $86 billion. This is likely to impact the government's
public spending, and could trigger resentment.
The rentier kingdom relies
heavily on the government's welfare policies, besides its religious appeal, to
drum up public support. The late King Abdullah's response to Arab Spring
protests is an example of this. When people elsewhere rose up against
dictatorships, he announced a special economic package of $70 billion (much of
this money was allocated to build 5,00,000 houses to address housing shortage)
to quell discontent at home. Additionally, the state injected $4 billion into
healthcare. King Salman does not enjoy the luxury of using oil revenues to save
his crown due to the economic crisis. Another option the royals have to
buttress their position is to resort to extreme majoritarianism.
At least four, including Sheikh Nimr, among the 47 executed on
January 2 were political prisoners. By putting them to death, the royal family
has sent a clear message to political dissidents at home. At the same time, the
execution of the country's most prominent Shia cleric would bolster the
regime's Wahhabi credentials among the hardliners. This is a tactic dictators
have often used in history. They go back to extremism or sectarianism to
bolster their hard-line constituency to tide over the economic and social
difficulties. The real aim of the monarchy is to close down every window of
dissidence; if that can't be done through economic development and welfarism,
do it by other means.
Tensions between Iran and Saudi Arabia go back decades
.
Even when
pre-revolutionary Iran and Saudi Arabia were the two pillars of the U.S.'s West
Asia policy, Riyadh and Tehran were regional rivals. The latest phase of this
cold war begins with the U.S.-led Iraq invasion. When Saddam Hussein was
toppled and a Shia-dominated government emerged in Baghdad, Iran was the
happiest regional power. Hussein had been a staunch enemy of Tehran. Saudi
Arabia was alarmed by the changing political equations in Iraq, and had
supported Sunni militancy to prevent the Shias consolidating power in the
post-Saddam set-up. This was one reason that Iraq broke apart later. But the
Americans had assured full support to the Gulf monarchies and kept pressure on
Iran over the nuclear sanctions. When the Barack Obama administration changed
its approach towards Iran, engaging with the Islamic Republic through serious
negotiations, the Saudis were upset. Though Riyadh publicly accepted the
nuclear deal, it was expectedly concerned about Iran's reintegration with the
global economy. That would not only flood the market with cheap oil from Iran,
sending oil prices down further, but also help Tehran rise as a legitimate
regional power.
This Saudi frustration was evident in its Yemen war. Riyadh
started bombing Yemen in March, when the nuclear talks were in the final
stages.
But after nine months, the Saudis are far from meeting their goals -
defeating the Shia Houthi rebels Riyadh calls lackeys of Tehran. On the other
side, despite rhetoric from both sides, the U.S. and Iran have expanded
cooperation from the nuclear deal to Iraq and Iran. In Iraq, American warplanes
provided air cover when the Iraq army and Iran-trained Shia militias fought
Islamic State fighters. As regards Syria, the U.S. agreed to let Iran join the
peace talks, ending years of opposition. Against this background, the Saudis
wanted to escalate tensions with Iran, and further complicate Iran's
re-accommodation in West Asian geopolitical and economic mainstream.
The royals know that the best way is to whip up sectarian tensions.
Iran should have exercised restraint in the wake of Sheikh
Nimr's execution. It could have used the global anger against mass beheadings
in Saudi Arabia to its benefit, particularly at a time it's rebuilding its
position in the region. But lack of a cohesive vision, and maybe the
high-handedness of the hardliners, led Iran to overreact to the executions.
The
attacks on the Saudi embassy in Tehran and the consulate in Mashhad shifted the
world's attention from the executions to Iran's hooliganism, providing Riyadh
an opportunity to extend the bilateral tensions into a diplomatic crisis. This
is exactly what the Saudis wanted. After Saudi Arabia, Bahrain, a Shia-majority
nation ruled by a Sunni monarchy, and Sudan, a Sunni-majority country ruled by
an alleged war criminal who's moving increasingly closer to the Gulf monarchs,
have cut diplomatic ties with Iran. The United Arab Emirates, another Saudi
ally, has withdrawn its envoy from Tehran.
Iran has gained nothing but international condemnation from
attacking foreign missions in its land.
It's yet to recover completely from the
siege of the U.S. embassy in 1979 by hard-line students. In 2011, students
attacked the British embassy in Tehran, forcing London to withdraw its mission.
Full diplomatic ties between the two nations were restored only recently, after
the nuclear agreement. The latest attack may have far-reaching consequences.
It's also possible that hard-line sections within the Iranian establishment,
who are already upset with the moderates over the nuclear deal, might have used
the opportunity to embarrass President Hassan Rouhani. It's also worth noting
that the President has condemned the attack, but not the Supreme Leader Ali
Khamenei, who warned the Saudis of "divine revenge". Whatever led to the attack
has compromised Iran's position in the region.
boopathy
Not really in almost all these points.
US/Obama/Republican/Democrat (any name we call
them) are no fool. They just would like to maintain a balance of power between the two major
sects for their own benefits - control over oil trade. It is not about the numbers here. Whenever
one side dominates, they intervene to create a balance.
We have seen that in sanctions on
Iran (when Iran tried to rise above religious divide), Iraq invasion (suppress sunni domination),
lifting sanctions on Iran (to keep Saudi in check, when Saudi didn't agree to US demand to limit
oil supply to create demand and sustain newly started/quickly depleting US oil production
facilities) and so on to continue in future. We might think that Saudi dominates the region but
ultimate control is with US. They 'll try to maintain this as long as there is oil. Once the oil
is done (may be in another 40 years) they'll leave everything to rot.
What next
One natural victim of these rising tensions will be the Syria peace plan
.
President Bashar al-Assad's regime and a coalition of rebels are supposed to
begin peace talks this month, according to a road map agreed in the UN Security
Council a few weeks ago. Iranian and Saudi cooperation is a must for peace in
Syria, where the ongoing civil war has killed more than 2,50,000 people. The
Saudis back anti-regime rebels and extremists in Syria, while the Iranians
support the Assad government.
Worse, it's not just Syria.
Unless Saudi-Iran tensions are contained
, there won't be an effective
strategy to fight the Islamic State, which is a Sunni-Wahhabi extremist group;
the war in Yemen will go on, endangering many more lives; and Iraq's efforts to
stabilise itself could be challenged. The Saudis look determined to play a
long-term game of sectarian geopolitics to maximise its interests. If the
Iranians continue to respond in the same token, West Asia would remain
turbulent for many more
Sridhar
This brinkmanship from the Saudis cannot be explained easily. In my view, this is a
culmination of several months of anger and desperation because nothing has gone their way!
Loud and clear voices in the US and around the world are blaming extremist Sunni Wahabism for
what ails the Muslim world and this has been funded entirely by the Saudis.
The rise of ISIL and the back-door support to ISIL from the GCC because they are anti-Shia,
is clear to everyone. In short, the Saudis have lost favor with the west and their
petrodollars are shrinking due to low oil price.
Add to this, the fact that the flavor of the month is Rouhani and Iran. The Saudis expected
the attack on Yemen to mobilize support and this did not happen even from friendly Sunni
regimes. Now, Syria is likely to deal from a position of strength because of Russian support
and again the Saudis will be marginalized. Hence, like all bad losers, the Saudis want to make
maximum noise by dumb acts
Vipul
Equally the Saudis cannot behave like they are some kind of
'Demi-Gods' with a license to flout normal rules and regulations. Their
Human Rights record is terrible, they allow no other religions except Islam
in their country, have harsh Sharia laws, Women's rights are non-existent,
they support many terror networks around the World. Unfortunately the West
turns a blind eye to all these misdemeanors from Saudi Arabia as the Saudis
buy billions of dollars worth of military equipment from them.
Ziavudeen
Noting strange about the author. He just showed his
incapability by vomiting the western media statements. Who is benefiting by
causing instability in Middle east region , Middle east or western world?
Until Oil price was high US supported Saudi now they are indirectly
supporting Iran ? US always benefit by creating instability.
Now on top of it they are having fear of fast spreading Islam...
... ... ...
RaviKiran
You cant shift the blame squarely on western media. Saudi
Arabia and Iran have done nothing to improve the image of Islam worldwide.
US can be rightly accused of creating instability but Western Asian
countries are equally gullible to fall into this trap and sensitize
everything with respect to Islam.
Secondly you have no idea about hinduism or
the Varna class. So please refrain from commenting on other religions. Get
your own house in order first.
Subhranil Roy
Iranian hardliners held their breath for a long time during
nuke-talks. It might not be possible to micro-manage this influential group
every time. Besides this step might save the Al Saud dynasty another day,
but how it serves KSA's strategic interests is yet to be seen. No countries
except those directly controlled by KSA supported the execution, although
they criticised Iran. KSA have no exit from this tip of events.
Rajan Mahadevan
Under the last caption of "What next" of above article, lie
the hints that the Riyadh-plan to ratchet up tensions in the region go beyond
vintage tiff or screwing up economics of faraway shale. It is by extension,
to my mind, a classic scheme-of-the-art of the eternal "Empire" over the
MENA region, that feeds itself with petrodollars and the military industrial
complex.
Little wonder then, if the victim remains the Syrian peace plan as
war machines drag on, and worse, if the make-believe 'Islamic State'
continues its nasty business as usual. To be sure, the 'IS' might even gain
grounds for its much-publicised and feared caliphate in Af-Pak territories (
horrors ) and even abroad in Africa or Europe. Meanwhile, a determined Iran
is still playing upon its logical strategies of realpolitik for economic
survival, keeping fingers crossed on the Western sanctions. These are
expected to clear sometime soon, hopefully by month's end. Desperate waiting
games .......
Balasubramanian
Saudis fought the ottomans by terror and guerilla war, which
they preached world over, be it against Soviet occupation of Afganistan,
post Saddam Hussaien Iraq government, Wahhabi doctrine education in
Madrassas world wide. Their Wahhabi doctrine is the bible for Talibans, ISIL,
destruction of Sufi Islam. They are the fountain head for hardline ISLAM
K SHESHU
Iran might have fluttered the advantage of mobilising world
public opinion against Saudi royal family and the repression unleashed by
that country by reacting too much too soon. Still, if Iran does not take
hasty steps, there is a chance of anti-Saudi camp developing as a formidable
force with Russian support.
Subramanyam
(Part 2 of 2) Secondly,
there is a strong clannish bonding
among the various tribes, a delicate balance that has been assiduously built
over two centuries which no ruler would like to disturb.
That was the reason
why the dead were probably carefully chosen from among a large group of AQ
terrorists languishing in jail, to represent the 12 regions of the Kingdom.
In order to further soften the blow, they also decided to execute some Shi'a
so that a semblance of impartiality can be restored. Thirdly, of course, the
salafi Kingdom has always tried to find ways and means to treat its Shi'a
minority as third class citizens and the decision to execute the AQ
terrorists offered an opportunity to eliminate an influential cleric who has
been calling for 'wilayat-al-fiqh' in the Kingdom, the Iranian model of rule
by clerics. Fourthly, the Interior minister Crown Prince bin Nayef may be
trying to assert himself against the impetuous Defence Minister and King
Salman's son Prince Muhammad.
Subramanyam
(Part 1 of 2)
The Saudi government executed the Shia cleric
calling him a 'takfir', a usual Islamist practice to justify elimination.
There could be several reasons for the execution, but, there are four
prominent ones that have not got enough attention. Firstly, the Sunni
wahhabi ruling family of al Saud is able to cling on to power only through
coercion, bribery and loyalty of clerics going back to the treaty between
ibn Wahhab and the Diriyah King bin Saud in the 18th century.
This was
shaken up by Osama bin Laden after Iraq occupied Kuwait and Al Qaeda became
stronger. There was a period between 2002 and 2005 when the Kingdom was
wracked by AQ terror as it became the sworn enemy of the Royalty.
The AQ
terrorists executed now were caught then, a decade back. The executions,
after ten long years, is strange in a country where they are always swift.
With its strong backing of the IS, KSA is sending as much a message to the
US & Iran as it is to its own citizens and the IS.
SHOUKATH ALI
As usual Stanly has hit the nail!
The Iranians fell into the Saudi trap.
Sectarianism will remain the bench mark of Mid East politics as desired by the
Saudis but this time thanks to hardline Iranian reaction.
Ditching the dollar, Iran and India have agreed to settle all outstanding
crude oil dues in rupees in preparation to future trade in their national
currencies. The dollar dues - $6.5 billion equaling 55 per cent of oil payment
- would be deposited in National Iranian Oil Co account with Indian banks.
Before the sharp drop in oil prices, most LTO and shale gas producers were profitable, but only
a few of them were cash-positive is a sense that they had profits in the profit & loss account, but
their capex exceeded cashflow from operating activities. Now prices are $25 for oil and $1.75 for
gas. So even though well costs are way down, the wells wont payout. Mass extinction of
shale/tight oil players is expected if low prices stay for 2016. Huge damage to US oil
exploration and production infrastructure is also in cards. I don't think cash flow negative
oil companies are drilling to hold a lease. They are drilling because they would be
officially bankrupt if they stop. As long they are drilling extend and pretend game can continue for
a little longer. If banks are realistic, almost all LTO is insolvent and should not qualify for any
more debt. Given that none have significant cash, this should spell trouble.
When we see an oil and gas price recovery, and presumably an attempt to increase drilling and
completion efforts, one wonders how many service companies will still be in business, when E&P
companies start calling about drilling and completing new wells.
It seems to be an article of faith among most analysts that US oil & gas companies can increase
production on a very short notice, but I think that a point that almost all analysts are missing
is that the US rig count number in 2014 was the result of about a 10 year plus increase in US
Lower 48 service company infrastructure and personnel.
That service company infrastructure and personnel base, which took 10 years or more year to
build up, is fading away now, literally on a daily basis. And of course, as many people have pointed
out, it's going to be much, much more difficult for tight/shale players to get debt financing
going forward.
Also, the annual volumetric loss of production from existing wells, due to depletion, increases
as total production increases and we have also seen an increase in the annual volumetric loss
of production due to the huge increase in the underlying decline rate from existing wells. Let's
assume existing US wells lost 0.25 million bpd of C+C production in 2008 (5% of 5 million bpd).
At a 15% annual loss from a production base of 9.1 million bpd, the industry would have to put
on line about 1.4 million bpd of new C+C production every year, just to offset declines from existing
wells.
US drilling rig fleet is sufficient to support a significant increase in drilling activity. While
a number of older rigs were scrapped, most of the rigs are idled and ready to restart the work.
And, in general, drilling rig fleet is now much more efficient than 5-7 years ago.
Getting debt
financing should indeed be a big problem for shale players.
While debt levels are generally manageable, debt ratios are not too high, and most of the debt
is maturing beyond 2020, shale players need large amounts of new financing just to keep flat production.
Although banks have refinanced most of US E&Ps' credit facilities in 2015, they did not provide
new loans.
There was a lot of new bonds and equity issues in 1Q-2Q15, but this source of funding started
to dry up in the second half of the year as investors understood that low oil prices are likely
to stay for longer.
My guess is that even when oil prices start to recover, both shale players and their lenders will
be much more cautious than in the years of the shale boom.
LTO output is likely to recover, but its growth rates will be relatively modest (a few hundred
kb/d per year, rather than 1 mb/d on average in 2012-14).
And by the end of this decade we will likely see the effects of declining productivity in the
sweet spots.
We shall see. But a lot of equipment is rusting away and literally degrading on a daily basis,
inclusive of everything from drilling rigs to frac units to workover rigs. On the personnel side,
many people that have been laid off won't come back, and many older workers have retired, or are
retiring or passing away, or have become unable to work. In regard to field work, many of those
that do come back will have to be retrained and pass drug tests.
"US drilling rig fleet is sufficient to support a significant increase in drilling activity. While
a number of older rigs were scrapped, most of the rigs are idled and ready to restart the work.
And, in general, drilling rig fleet is now much more efficient than 5-7 years ago."
Totally
agree. Having gone through several "cycles" the mechanical part of any business is never a significant
constraint on a rebound. Any "restraint" is related almost entirely to financing with a small
component attributable to availability of skilled labor - which never lasts long. Even state of
the art offshore rigs can be assembled fairly quickly.
US Rotary Rig Count (oil & gas) Versus WTI Crude Oil Price Chart
Note that it took about five
years to go from around 1,000 rigs to around 2,000 rigs, circa 2003 to 2008, and it looks like
the rotary rig count, except for the 2009 "V" shaped oil and rig count crash, has been around
1,800 to 2,000, until the recent oil price decline, which is much more extended than the 2008
oil price decline (which bottomed out in December, 2008).
In any case, note that even during the "V" shaped decline in 2009 it looks like it took about
two years to get back to around 2,000 rigs, from a low of less than 1,000 rigs.
As noted above, a lot of rigs that were in dry gas plays, like the Barnett, moved to oil and
liquids rich plays, starting in 2008. As also noted above, a reasonable estimate is that the US
oil industry had to put on line about 0.25 million bpd of new C+C production in 2008, just to
offset declines from exiting wells, whereas they probably now have to put on line somewhere around
1.4 million bpd of new C+C production per year, just to offset declines from existing wells.
In any case, my guess is that, for all the reasons discussed above, even given a rising oil
price environment, the increase in the rig count will look more like the 2003 to 2008 rig count
increase, rather than the 2009 to 2011 rig count increase.
In October 2015, the World Bank lowered its 2016 forecast for crude oil prices
from $57 a barrel to $52 a barrel, due in part to expectations that Iranian oil
exports would rise once international sanctions were lifted.
"Crude oil oversupply is still in play; however the deficit between demand
and supply is getting smaller," said Daniel Ang, an investment analyst at Phillip
Futures, in a note on Wednesday. "Possible changes to global supply should come
from the U.S. and Iran."
Iranian oil exports are widely expected to increase in 2016 as Western sanctions
against the country for its alleged nuclear weapons program are likely to be
lifted.
Still, a senior Iranian oil official said the country could moderate oil
output and exports once the sanctions are lifted to avoid putting prices under
further pressure.
"We don't want to start a sort of a price war," Mohsen Qamsari, director
general for international affairs of the National Iranian Oil Company (NIOC),
told Reuters in an interview.
"We will be more subtle in our approach and may gradually increase output,"
Qamsari said. "I have to say that there is no room to push prices down any further,
given the level where they are."
"... ...On Tuesday, Aramco said it was deepening the discount for its light crude by $0.60 a barrel to Northwest Europe and by $0.20 a barrel in the Mediterranean for February delivery. ..."
"The Saudis are preparing for Iran's return," said Mohamed Sadegh Memarian, who recently retired
as the head of petroleum market analysis at Iran's oil ministry, as they sharply cut the prices they
charge for crude oil in Europe (to the biggest discount since Feb 2009). The move that will likely
undercut Iran happens as sectarian tensions escalate between the rival Middle Eastern nations. As
WSJ reports, the Saudi move appears to pave the way for a competition over European oil markets later
this year when Iran is expected to increase its exports after the expected end of western sanctions
over its nuclear program.
... ... ...
...On Tuesday, Aramco said it was deepening the discount for its light crude by $0.60 a barrel
to Northwest Europe and by $0.20 a barrel in the Mediterranean for February delivery.
...The European Union is set to lift an embargo on Tehran as soon as next month.
"... it expected production for all of 2015 to be between 7% and 8% higher. ..."
"... the industry-wide focus on improving production efficiency coupled with investments of more
than £50bn over the last four years to bring new fields on stream across the last 12 months is paying
off and yielding a better result." ..."
"... Oil producers such as Shell, Centrica and BP have slashed investment and announced thousands
of job cuts to adapt to crude priced below $40 a barrel amid slowing demand and a glut of oil. Many
new fields in the North Sea were commissioned when oil was trading at more than $100 a barrel and, Michie
said, there would be more job losses this year. ..."
Government statistics for the first 10 months of 2015 show oil and gas produced on the UK continental
shelf up 8.6% from a year earlier, the industry body Oil & Gas UK said. It added that, based on that
number, it expected production for all of 2015 to be between 7% and 8% higher.
... ... ...
Deirdre Michie, Oil & Gas UK's chief executive, said: "In February 2015 we predicted a marginal
increase in production for 2015, but the industry-wide focus on improving production efficiency
coupled with investments of more than £50bn over the last four years to bring new fields on stream
across the last 12 months is paying off and yielding a better result."
Oil producers such as Shell, Centrica and BP have slashed investment and announced thousands
of job cuts to adapt to crude priced below $40 a barrel amid slowing demand and a glut of oil. Many
new fields in the North Sea were commissioned when oil was trading at more than $100 a barrel and,
Michie said, there would be more job losses this year.
"The fact is that the value of our product has more than halved," she said. "Times are really
tough for this industry and for the people working in it. We will continue to see job losses as we
move into 2016 and we must be thoughtful and supportive of our colleagues and their families who
are being made redundant or who are at risk of being made redundant."
"... I also am astonished no bond holders are demanding that this activity stop, given it is their
(partial) bond principal that is being burned in this unprofitable activity, and further, if the funds
used are a prior lien to them, they are falling further behind in recovery in the event of BK. ..."
"... I see onshore conventional collapsing all around the US, one just has to do a little research
and see the lack of vertical wells being drilled and completed, plus the Baker Hughes rig count which
shows under 100 vertical rigs turning. This, of course, is due to conventional operators using their
own money, and/or borrowing from banks who follow the reserve lending rules I cite above. ..."
"... If EIA is correct, US onshore conventional is falling off a cliff. ..."
"... Anecdotally, we are experiencing our steepest percentage decline ever from 2014 to 2015, and
2016 is not looking so hot either. ..."
"... a simpler analysis by me results in about a $76/b breakeven using very similar assumptions
and an $8 million dollar well cost with a 10% annual real discount rate. ..."
I have been beating the PDP PV10 drum ad nauseam, drawing just a little interest. My point
being that banks (prior to the shale boom) would not loan money on reserves to a company in excess
of around 60-65% of said company's PDP PV10, using the bank's engineering and price deck. Furthermore,
banks paid attention to all other company debt, not just whether they had the first lien. Loaning
additional funds to a company whose bonds are trading at 10-30% of par seems worthy of OCC inquiry.
It appears to me that almost all public E & P in the LTO/tight gas business will have more
than 65% long term debt to PDP PV10 as of 12/31/15. I understand the SEC price deck is different
than a bank's, but given SEC WTI is $49 for 2015, it seems 2015 SEC may be too high compared to
what a bank should be using for its 2016-2017 price deck.
Would like to read any comments you have on this. I continue to be astonished at how many rigs
are still running given almost none of the E & P are currently creditworthy.
I also am astonished no bond holders are demanding that this activity stop, given it is
their (partial) bond principal that is being burned in this unprofitable activity, and further,
if the funds used are a prior lien to them, they are falling further behind in recovery in the
event of BK.
As I have stated, we are conventional stripper operators, and have not seen things this bleak,
even in 1998-99 and 2008-09. 1986 was before my time, however, I have spoken to older operators
and read enough to satisfy myself this bust is comparable, and will be worse if sub $40 WTI persists.
I see onshore conventional collapsing all around the US, one just has to do a little research
and see the lack of vertical wells being drilled and completed, plus the Baker Hughes rig count
which shows under 100 vertical rigs turning. This, of course, is due to conventional operators
using their own money, and/or borrowing from banks who follow the reserve lending rules I cite
above.
Take a look at where the EIA has the following states in October: CA, IL, KS, UT, LA and MS.
These states have limited LTO. If EIA is correct, US onshore conventional is falling off a
cliff.
Anecdotally, we are experiencing our steepest percentage decline ever from 2014 to 2015,
and 2016 is not looking so hot either.
Glad to see another conventional onshore person post here.
Hi Gwalke,
The post looks very solid to me, most of the analysis uses the data from all wells from 2007
to 2015 that have at least 12 months of output data, a simpler analysis by me results in about
a $76/b breakeven using very similar assumptions and an $8 million dollar well cost with a 10%
annual real discount rate.
It is a good observation that we do not know if 2014 wells will have a similar well profile to
the older wells from 2007 to 2013, we also have no data beyond 7 years with the highly fracked
Bakken/Three Forks wells, the decline beyond that point is likely to be exponential rather than
hyperbolic at about a 9 to 12% annual decline rate, we can only guess at the future well profile
(beyond 7 to 8 years.) Rune Likvern has often reminded me of this fact.
"... The shia cleric was calling for a rebellion to attain equality for all citizens, freedom for all citizens, and democracy for all citizens. Iran has that but we all agree that the religious Mullahs have been harsh but have steered greatly to the side of the secular movement since the 80s. ..."
"... The state of women in Iran is way better than the moving cloths of Saudi Arabia. ..."
"... This is obviously a provocation. What we arent sure about is if this was a deliberate provocation or if the Saudis just didnt give a damn. ..."
"... Rubbish! The Saudis only manage to control the country through a combination of brutal suppression, free spending and making sure that only those tribes loyal to the Saud family are recruited for the National Guard which is more powerful than the army. ..."
"... Typical Grauniads false equivalence aimed at watering down Saudi Arabias barbarism and, in the process, justifying our allegiance to this aberration. ..."
"... Its interesting that, together with that other sacred cow in ME of a different religion persuasion, there are hardly any threads where one can comment on the subject - except for vapid, disingenuous articles like this one; the massacres in Bahrain are as if they never existed; Raif Badawis plight has been swept under the rug. Iran , on the other hand, is forever portrayed as the villain even though has been the object of Western-sponsored coup, sabotages and invasions for the last 60+ years. ..."
"... The strange thing here is that Saudi is the driving force behind the current low oil prices. Most of OPEC wants to reduce production, whereas Saudi insists on trying to squeeze out higher cost producers (most notably in the US and Canada). ..."
"... I say strange but this is more than likely a function of why western governments consider Saudi Arabia to be an ally. ..."
"... This is like a Daily Mirror article except with slightly more developed language. ..."
"... Hopefully 2016 will see the thousands of drug addicted princes that make up the house of frauds (saud) hanging from lampposts. At the very least therell be a lot less money being spent on British bombs. Makes me cringe to think that this country is the UKs most important ally in the Middle East. ..."
"... Its 2016 and Saudi Arabia executes people for witchcraft! ..."
"... The real Guardian view... support the Saudis, lick the arses of the US warmongers, blame the Russians for everything, ignore the Islamist terrorists. No wonder 80% of British people believe that all UK journalists are liars and no surprise that their lying media is in terminal decline. WE now have the web to make our own minds up. ..."
"... As far as I am aware Iran has not been gifting the world with madrassahs, hate-preachers and Wahabbism/Salafism. The only people who seem to suffer from their religious delusions and extremism are the Iranian people themselves. ..."
"... But the KSA has spread misery and hatred worldwide. And far too many Muslims have stood by and watched it happen. ..."
"... Careful with condemnations, after all Saudi is a friendly murderous regime unlike other murderous regimes and besides they are happy to fill the american arms manufacturers coffers. ..."
"... So was there any evidence presented that Sheikh Nimr al-Nimr was anot active terrorist or not? At the end of the day if there was conclusive evidence that he was involved in planning acts if violence, then although I disagree with capital punishment, by the laws of the land, he was treated the same way as other insurgents. ..."
"... Weasel words from the Graun. Fuck those barbaric Saudi autocrats and their elitist supporters over here. As for Iran they are part of the coalition actually FIGHTING the Islamic terrorists in Syria. Wake up Graun with your NATO lies. ..."
"... Watching the Guardian, always so loyal in its support of Saudi objectives, squirming as it is forced into some kind of comment on this execution has been a delightful pleasure. Indeed, how careful you have been. Could you have found a less critical word than unjust to describe this? ..."
"... The comparison between Iran and KSA here is rather superficial and dwells on some similarities but does not highlight the vast differences. Whereas there are elections for a parliament and a president and some form of democracy in Iran there is only very tyrannical autocratic monarchy in KSA, Whereas Iran has been the subject of demonisation by the west, the KSA has had lavish support in all ways by the west. ..."
"... Why crippling sanctions were imposed on Iran, not Saudi Arabia? Stop the slaughter in Yemen. ..."
Did the author of this piece of selective unbalanced diatribe deliberately avoid regularly
mentioning the Sunni arm of the religion which dominates life politically and socially and demographically
in Saudi Arabia ?
Only mentioning the Sunnis twice and on both occasions in relation to the Iranian state whilst
at the the same time peppering the article with references to the Shia faction is hardly balanced
or objective and appears to deliberately skew the article in such a way as to leave the reader
with the impression that Shia Islam is the main protagonist here.
I suppose I used to expect better from the Guardian, sadly no more.
DrKropotkin
, 3 Jan 2016 18:06
An article filled with many statements like this:
"Both Iran and Saudi Arabia are wasting their resources on aggressive foreign policies
which have little chance of ultimate success"
I don't know how anyone can compare what Iran is doing in Syria (at the invitation of the government
and fighting ISIS) with the barbaric assault currently being waged on Yemen (not to mention the
Saudi role in funding Jihadi's everywhere). On a day when Saudi Arabia kills 47 people the Guardian
reminds us not to forget about Iran.
Why are they coming in the cross-hairs here, because they condemned the execution? Iran has
only spoken of retaliation, they haven't actually done anything yet (it's going to come from God
apparently). The embassy attack in Tehran was done by an outraged people and condemned by the
Prime Minister.
Saif Eje
, 3 Jan 2016 18:01
That's one funny article! Is this an attempt to whitewash what's black on the outside and the
inside? Comparing Iran and Saudi and come out with a conclusion of how closely similar they are?
I guess pocketing some Riyals is much more worthy than integrity for some.
The shi'a cleric was calling for a rebellion to attain equality for all citizens, freedom
for all citizens, and democracy for all citizens. Iran has that but we all agree that the religious
Mullahs have been harsh but have steered greatly to the side of the secular movement since the
80s.
The state of women in Iran is way better than the moving cloths of Saudi Arabia.
I'm
greatly disappointed, or so I'd like to pretend in the hope that our frustrations do something
to your online paper. We all know the drill though I'm afraid... ignore and move on as money has
longer lasting echos.
Shankman Samir Afz.
, 3 Jan 2016 18:01
They know public support for the KSA is in freefall, so they're trying to stay on the sidelines
as much as possible (other than the requisite calls for both sides to keep calm).
Support for the KSA is becoming politically 'toxic'. Politicians perceived as too cozy with
or supportive of the KSA are increasingly being perceived a sellouts or hypocrites at best.
CanadaChuck
, 3 Jan 2016 18:00
This is obviously a provocation. What we aren't sure about is if this was a deliberate
provocation or if the Saudis just didn't give a damn.
Perhaps they tire of the proxy war in Syria and would prefer to go head to head with Iran.
Perhaps they think the US and UK will help them out. Where this 'Guardian view' falls down is
using words like 'unjust' towards sovereign countries that have different values.
The Guardian has their view of justice which would be the view of progressive 'Western' nations
and various UN bodies. It may be surprising to some that other countries have different values
and will not be thinking like Europeans anytime soon.
For instance, countries with over 1/2 of the global population do not accept the authority
of the UN Human Rights group in Geneva. There are no human rights investigations in these countries
even though 'Western' standards are not lived up to. Three of these countries can and regularly
do veto any action by this group. There is much talk in Geneva about Syria, N. Korea and Israel.
Any action is automatically vetoed.
Similarly with the misnamed ICC in The Hague. Countries with over 1/2 of the global population
do not accept the jurisdiction of this court and didn't ratify it. Much the same with European
projects like the Landmines Treaty or the proposal for a Right to Protect Protocol.
Possibly there are many in Europe who do not know that their concepts of justice and values
are not universally accepted, as of yet.
PhilPharLap
, 3 Jan 2016 17:59
I'm having a bit of trouble with this sentence too:
"The parallels between the Saudi kingdom and the Islamic republic are in some ways very
close. Both are influenced by a sense of Islamic mission,"
It is the all too common use of the word "mission" to mean imperialist aggression, terrorism,
and religious violence - a connotation it acquired during the invasions that accompanied the building
of empires. The concept of mission was originally to "send" people offering a new faith - not
inquisitors to torture and kill
It is the ugliness of imperialist intent that distorted the meaning of what was originally
seen as a peaceful action, and that hid its violence behind peaceful missions
London2012 -> BabylonianSheDevil03
, 3 Jan 2016 17:58
Rubbish! The Saudis only manage to control the country through a combination of brutal
suppression, free spending and making sure that only those tribes loyal to the Saud family are
recruited for the National Guard which is more powerful than the army.
DrKropotkin -> thrmaruf
, 3 Jan 2016 17:57
"ISIS is a Natural Results of these two Islamists barbaric systems." not a very informed comment.
Iran is fighting ISIS, while the Saudis give them money and weapons.
There is a lot to criticise Iran for, but please try to get it right.
Hanwell123 -> duqu_2
, 3 Jan 2016 17:51
It's the story they're all running because they - WE - are Allies and Members of the Coalition
dedicated to the War against Assad. We HAVE to back them! It's v much like that in all wars apparently
- the First Casualty?
It is cringing seeing them go overboard though, like implying Iran is some sort of equal combatant
in the Yemen when even the casual reader knows that's 100% bullshit (a WW2 expression I think?).
PhilPharLap -> trueblueozzy
, 3 Jan 2016 17:41
question for "inthelightoffacts"
isn't forcing women into a ridiculous dress code a form of violence?
isn't forcing children into marriage - violence?
isn't the implementation of honour codes that include murder as a punishment - violence?
isn't it terrorism to murder a person who as a matter of religious conscience chooses to leave
a faith imposed on them by their family and their culture?
isn't it violence to deny girls and adult women the right to education - the right to move around
without a male companion - the right to drive a car?
Start there and work your way on from there
truly - just asking
majamer
, 3 Jan 2016 17:36
Have you ever wondered why we've never heard of Sunni Iranian clerics doing the same thing
as Sheikh Al-Nimr? Because they are already melting in acid tubs in the Iranian intelligence agencies'
basements. If you don't believe that, try to criticize Khamenei in Tehran's streets and see what
happens to you. The really biased is parotting for the larger Western agenda: hiring Iran as the
regional stick holder. Khamenei reminds the Saudis of the divine vengeance while he's been killing
Syrian and Iraqi Sunnis from kids to elderly for years.
curiouswes -> Foracivilizedworld
, 3 Jan 2016 17:33
Saudi Arabia is not a country... it is a Family controlled business... and the business
is oil...
So the people there, have no say. They don't hold phony elections and try to fool people into
believing that they actually have a choice when a de facto government actually runs things from
behind the scenes. Is that what you mean?
Oboy1963
, 3 Jan 2016 17:26
I think this article missed out or glossed over some important differences between Iran and
Saudi Arabia.
Iran is actually a country, in the sense that we understand it. A government elected by
the people. Saudi Arabia, is NOT a country it is a big chunk of desert with a big load of oil,
and therefor e money and influence, ruled by a murderous clan that claim to be "Kings"
Iran has had a large dose of US interference in its internal affairs going back to the
Shah. this along with the threats, sanctions and vilification by " the west" has demonized
Iran via the "free press"
Saudi Arabia has had nothing but ass kissing , arms and technical sales along with the necessary
served up as "Our ally" by "the west "
No matter what Iran does "the west" criticizes, second guesses and condemns it, based mainly
on an ingrown deep hate from the US for not being allowed to subjugate them, and the loss of
face they suffered in the Embassy affair. No matter what Saudi Arabia does "the west" does
nothing, says nothing or fully supports it.
Iran, after decades of "the west" and its "free press" demonizing it just can not win a
trick, no matter what it does due to this long term bias build up.
Saudi Arabia on the other hand is according to our leaders the Kingdom of light and INCOME.
"the west" = The US and its vassal states.
"free press" = What we laughingly refer to as our open, honest source of factual information.
Metreemewall
, 3 Jan 2016 17:22
"The parallels between the Saudi kingdom and the Islamic republic are in some ways very
close. Both are influenced by a sense of Islamic mission, a sense which has encouraged them
in ambitions well beyond their means. Both are quick to violence, abroad and at home, where
there is little to choose between them, for instance, in the high rate of public executions."
Typical Grauniad's false equivalence aimed at watering down Saudi Arabia's barbarism and,
in the process, justifying our "allegiance" to this aberration.
It's interesting that, together with that other "sacred cow" in ME of a different religion
persuasion, there are hardly any threads where one can comment on the subject - except for vapid,
disingenuous articles like this one; the massacres in Bahrain are as if they never existed; Raif
Badawi's plight has been swept under the rug. Iran , on the other hand, is forever portrayed as
the villain even though has been the object of Western-sponsored coup, sabotages and invasions
for the last 60+ years.
So, my suggestion is simple, before wanting us to "Become a supporter for just £5 per month",
how about ensuring that we REALLY get quality, independent journalism?
spybaz -> Dicko23
, 3 Jan 2016 17:22
Yeah, but there's no insta-cash with your proposal. Oil and arms money is obtainable way more
quickly. The world now exists under a Corporatocracy. This requires that a profit to be shown
every 3 months. If you (a company or a govt) cannot do that, the shareholders are sad and you
are deemed to be failing. Killing people for oil, with arms sourced from the UK, USA (& Russia
too), is the most lucrative business to be in.
The UK, USA (& Russia) are guilty of this murderous money making scheme to the extreme. Yet,
the citizens of these countries keep on voting for them (well, I'm not sure about govts are truly
elected in Russia).
Fuego999
, 3 Jan 2016 17:15
The only good thing to come out of Trump's candidacy may be to scare the living day lights
out of the House of Saud. Once the mood turns against them in the West, which it hasn't so far
(ignorance and lack of interest being two reasons), there's no telling what will happen on the
Peninsula.
MrHumbug
, 3 Jan 2016 17:07
Realpolitik analysis of the situation.
Nations who are not US are making money. US isn't. Therefore "Iran must go." We can't have
exceptional nation loose control of who gets to eat and who doesn't.
I read this article before the news broke on KSA severing diplomatic ties with Iran. However,
my first reaction was "Surely, US will find some reason to "bomb the country back to the stone
age." How prescient of me. Just as with Syria, someone in the world must be the "or else" example
or US's global racket will loose its teeth. If only they stuck to the "bad guy" and "hellhole"
role alloted to them by the New World Order...
NotFobbedOff -> tickleme
, 3 Jan 2016 17:03
The strange thing here is that Saudi is the driving force behind the current low oil prices.
Most of OPEC wants to reduce production, whereas Saudi insists on trying to squeeze out higher
cost producers (most notably in the US and Canada).
I say strange but this is more than likely a function of why western governments consider
Saudi Arabia to be an ally.
PubGeezer
, 3 Jan 2016 16:38
"The execution of Sheikh Nimr al-Nimr could deepen the confrontation between Iran and Saudi
Arabia "
No shit. Thanks for the advice, Guardian.
This is like a Daily Mirror article except with slightly more developed language.
tickleme
, 3 Jan 2016 16:32
The Saudis are having to increase taxes to deal with the $100billion deficit the collapse in
the oil price has caused.
Let's see how much the citizens of Saudi Arabia like being squeezed before they revolt. The
oil price is going nowhere for the foreseeable future and those Saudi reserves will be spent within
a couple of years. The country is totally dependent on oil with zero economic diversification.
Hopefully 2016 will see the thousands of drug addicted princes that make up the house of
frauds (saud) hanging from lampposts. At the very least there'll be a lot less money being spent
on British bombs. Makes me cringe to think that this country is the UK's most important ally in
the Middle East.
It's 2016 and Saudi Arabia executes people for witchcraft!
danubemonster -> Spillage93
, 3 Jan 2016 16:25
There is a major differences between Iran and Saudi Arabia. Iran is a sophisticated country,
where the hold of religion is slowly cracking. Once the theocracy goes, Iran will be an embryo
Poland or Czech Republic. Saudi Arabia, by contrast, is going nowhere fast, and once the oil goes,
it'll probably revert to a primitive, Medieval state - unless it can have a secular revolution,
which strikes me as being unlikely.
ProfJonathanRawlings
, 3 Jan 2016 16:21
The real Guardian view... support the Saudis, lick the arses of the US warmongers, blame
the Russians for everything, ignore the Islamist terrorists. No wonder 80% of British people believe
that all UK journalists are liars and no surprise that their lying media is in terminal decline.
WE now have the web to make our own minds up.
Hairan Road -> Pareshan Gali
, 3 Jan 2016 16:20
Its the hypocrisy of western media who is siding with Iran because Sunni Muslim are more enemy
to west than shia. Irani muslim are considered most non practicing. It was in 1980 that 67 irani
siege the grand mosque of Makkah. It was an act of aggression from Iran no one condemn that. Now,
ita saudi right to execute anyone going against its govt.
Like U. S wants custody of Edward snowden. Europe or Iran has no right to interfere in other
countries internal matters. They are trying to perpetuate as this execution was linked to shia
sunni difference. The cleric was inciting violent comments against the govt. he cursed openly
the ex crown prince who died that he may be eaten by worms.
So if he was non violent cleric who gave voice to shia then why did he passed these comments.
He was receiving aid from Iran to fuel protest against saudi govt. There is o barbarism I think
pog boy David Cameron needs to be dispatched to cameroon in africa
moretsu
, 3 Jan 2016 16:17
The parallels between the Saudi kingdom and the Islamic republic are in some ways very
close. Both are influenced by a sense of Islamic mission,
As far as I am aware Iran has not been gifting the world with madrassahs, hate-preachers
and Wahabbism/Salafism. The only people who seem to suffer from their religious delusions and
extremism are the Iranian people themselves.
But the KSA has spread misery and hatred worldwide. And far too many Muslims have stood
by and watched it happen.
TRIALNERROR
, 3 Jan 2016 16:16
Khamenei added: "This oppressed cleric did not encourage people to join an armed movement,
nor did he engage in secret plotting, and he only voiced public criticism ... based on religious
fervour." !!!
So it was OK for Sheikh Namr to criticize government but it wasn't OK for someone like Mir
Hossein to do so! Practically nauseating in its hypocrisy
Ted Pawlowski
, 3 Jan 2016 16:08
Careful with condemnations, after all Saudi is a friendly murderous regime unlike other
murderous regimes and besides they are happy to fill the american arms manufacturers coffers.
John Smith 3 Jan 2016 16:06
So was there any evidence presented that Sheikh Nimr al-Nimr was anot active terrorist
or not? At the end of the day if there was conclusive evidence that he was involved in planning
acts if violence, then although I disagree with capital punishment, by the laws of the land, he
was treated the same way as other insurgents.
However if he was just expressing exasperation, or disagreement with the regime, and saying
that things needed to change for the greater good of Saudi Arabia, then sod diplomacy, there needs
to be a case drawn up in the International Criminal Court, and just for once the message sent
out that just because someone disagrees with a point of view, doesn't give you the excuse to kill
them, it's unacceptable in the 21st century and not the behaviour expected of a modern state where
the leaders have benefited from the best in Western education, and have seen first hand how opposed
political parties can work together to create advanced, generally prosperous nation states.
ProfJonathanRawlings
, 3 Jan 2016 16:04
Weasel words from the Graun. Fuck those barbaric Saudi autocrats and their elitist supporters
over here. As for Iran they are part of the coalition actually FIGHTING the Islamic terrorists
in Syria. Wake up Graun with your NATO lies.
Prometheon
, 3 Jan 2016 16:03
Watching the Guardian, always so loyal in its support of Saudi objectives, squirming as
it is forced into some kind of comment on this execution has been a delightful pleasure. Indeed,
how careful you have been. Could you have found a less critical word than "unjust" to describe
this?
Nobody reading this editorial would get the slightest hint that we are talking about Saudi
Arabia, a brutal medieval theocracy and the world's main sponsor of terrorism worldwide.
SHA2014
, 3 Jan 2016 15:09
The comparison between Iran and KSA here is rather superficial and dwells on some similarities
but does not highlight the vast differences. Whereas there are elections for a parliament and
a president and some form of democracy in Iran there is only very tyrannical autocratic monarchy
in KSA, Whereas Iran has been the subject of demonisation by the west, the KSA has had lavish
support in all ways by the west.
Whereas Iran is more liberal with regards to women and minorities, KSA isn't. Iran is also
more diverse economically than the desert kingdom which depends mainly on oil. It is therefore
strange that this assessment does not address this or even mention any democratic aspirations
for KSA. It is in these situations that objective critical journalism, holding our politicians
to account on their lack of concern about the behaviour of a close ally that one yearns for in
the so-called free press in the West.
Foracivilizedworld
, 3 Jan 2016 14:59
Why crippling sanctions were imposed on Iran, not Saudi Arabia? Stop the slaughter in Yemen.
The statements at the weekend by (Iranian oil officials) that Iran would
only increase production at the level of the market can absorb seems to be a
shift in rhetoric."
Iran plans to raise output by half a million to 1 million barrels per day
(bpd) post lifting of sanctions, although Iranian officials said they did not
plan to flood the market with its crude if there was no demand for it.
Iran's oil exports have fallen to around 1 million bpd, down from a peak
pre-sanctions peak of almost 3 million bpd in 2011.
"Can we wait and not produce after lifting the sanctions? Who can accept
it in Iran," oil minister Bijan Zanganeh told CNN in an exclusive interview
on Tuesday. "Do you believe that ... our country will accept not to produce,
to secure the market for others? It's not fair."
Iran has the fourth biggest oil reserves in the world and is pumping about
2.8 million barrels a day, according to experts.
Analysts expect the OPEC producer to add between 600,000 and one million
barrels to output once sanctions are lifted, but Zanganeh is much more bullish.
"... According to the minister, Iran is not for selling oil at low prices. However,
even if prices drop below $30 per barrel the country will increase oil output and
export volumes until sanctions are lifted. ..."
According to the minister, Iran is not for selling oil at low prices. However,
even if prices drop below $30 per barrel the country will increase oil output
and export volumes until sanctions are lifted.
He underscored that Iran has the right to increase production and sell oil
abroad.
This should be a warning sign for the countries which have taken Iran's market
share in the global oil market since sanctions were imposed, he added.
He pointed out that after sanctions are fully lifted Iran will be ready to
increase oil output up to 500,000 barrels a day in the short perspective, in
addition to the current oil reserves. In 2016, production will be increased
twofold, to one million barrels a day.
...The expert said that OPEC countries compete with each other and other
nations. "The decline in oil prices was caused by OPEC countries' decision not
to cut production last year. A year after, OPEC countries said they were not
ready to cut output to keep the prices at $110-120. The point is that OPEC countries
compete with each other over the oil prices," Takin said.
Iran is trying to regain its lost share of global crude sales and has no
intention of harming the oil market with its planned increase in production
once sanctions are lifted from its economy, Oil Minister Bijan Namdar Zanganeh
said.
... ... ...
United Nations nuclear monitors in December
ended their 12-year probe of Iran's research into atomic-weapon technologies,
moving the country a major step closer to relief from sanctions. Iranian oil
companies and banks may be able to return to international markets by mid-January,
based on the pace at which the nation is disabling nuclear infrastructure.
As part of its efforts to increase production, the country will probably
award Chinese companies development rights for the second phase of the North
Azadegan oil field in southwestern Iran, Zanganeh said. Under an accord, the
Chinese will have to submit a proposal to the Iranian oil ministry for examination
and approval, he said, without identifying any companies. Iran pumped 2.7 million
barrels a day of oil in December, data compiled by Bloomberg show.
The amount of additional Iranian crude reaching foreign buyers will depend
on conditions in an oil market oversupplied by 2.5 million to 3 million barrels
a day, the Iranian Oil Ministry's Shana news agency reported on Saturday, citing
Mohsen Ghamsari, the head of international affairs at state-run National Iranian
Oil Co.
Oil output in Russia, one of the world's largest producers, hit a post-Soviet high last month
and in 2015 as small- and medium-sized energy companies cranked up the pumps despite falling crude
prices, Energy Ministry data showed on Saturday.
The rise shows producers are taking advantage of lower costs due to rouble devaluation and
signals Moscow's resolve not to give in to producer group OPEC's request to curb oil output to
support prices.
But the rise will contribute to a global oil supply glut and exert continued downward pressure
on oil prices which hit an 11-year low near $36 per barrel last month, having fallen almost 70
percent in the past 18 months.
For the whole of 2015, Russian oil and gas condensate output rose to more than 534 million
tonnes, or 10.73 million barrels per day (bpd) from 10.58 million bpd in 2014.
In December, Russian oil output rose to 10.83 million bpd from 10.78 million bpd in November.
In tonnes, oil output was 45.782 million last month versus 44.115 million in November.
The increase in production defied many expectations of a fall in Russian oil output which has
been on a steady rise since 1998 apart from a small decline in 2008.
The Energy Ministry had expected output to fall to 525 million tonnes in 2015 due to the exhaustion
of mature oilfields in Western Siberia, which account for over a half of the country's total oil
production.
But medium-sized producers, such as Bashneft, cranked up production. And Gazprom, the world's
top natural gas producer, increased production of oil, mainly gas condensate, by 5.3 percent for
the year.
However, oil output at Russia's leading producers declined. Production at Rosneft edged down
by 0.9 percent, while output at Lukoil's Russian assets fell by 1.1 percent last year.
According to a Reuters poll, Russian oil production in 2016 is expected to rise to a new post-Soviet
yearly average high of 10.78 million bpd despite price falls as new fields come online and producers
enjoy lower costs due to rouble devaluation.
-----------------
Note: using 7.3 (rather than 7.33) barrels/ton ratio, C+C output in December was 10.78 mb/d
AlexS. Interesting that Russian production was falling in the first half of 2014, when oil prices
were very high, and then began rising once the price began to fall.
The highest output yet came last month, with oil prices the lowest since early 2004.
Is all Russian oil profitable on an operating basis at current prices? I suspect many conventional
water floods and CO2 floods in the US are not. Doesnt Russia have quite a bit of similar mature
production? Is the ruble devaluation keeping this production above water? I suspect the cost of
labor in the US is much higher than in Russia, I do think we have discussed this aspect before.
As I have stated before, I believe that US conventional onshore oil production is falling fast,
the number of vertical production wells being drilled is likely the lowest in modern times (post
1970).
It is interesting to me that Russian conventional onshore oil production is so much more resilient
than US, given the similarities. Or maybe the production is not so similar?
I appreciate all of the oil information you provide. Any detail you are able to give on Russian
production is very much appreciated by me, and I suspect many other persons here.
"... Nevertheless, Saturdays execution has only resulted in the further deterioration of relations
which were already less than cordial. In several of the regions ongoing conflicts, Tehran and Riyadh
are on opposite sides of the barricades. ..."
"... In Syria, Iran has offered the secular government of Bashar al-Assad, embattled by over five
years of war, political, economic and military assistance against a coalition of Saudi, Turkish and
Qatari-funded jihadist groups, including the Muslim Brotherhood, the al-Nusra Front and Daesh (ISIL/ISIS).
..."
"... in Yemen, Saudi Arabia has formed a military coalition to try to crush the Shia tribesmen known
as the Houthis, who overthrew the government of Saudi-backed president Abd Rabbuh Mansur Hadi last year.
..."
"... the Saudi dynasty has also grown fearful of Shiites living in Saudi Arabia itself. ..."
"... Vladimir Ahmedov, a senior researcher at the Institute of Asian Studies of the Russian Academy
of Sciences, called the emerging situation somewhat frightening. According to the academic, the conflict
in the Middle East threatens to gain a new, religious dimension, openly becoming a war between Sunnis
and Shiites. ..."
"... Living in the 21st century, we have been thrown back into the Middle Ages, when the main factor
of wars was religion, rather than geopolitical considerations and the capture of territory. This, Ahmedov
warned, reduces the possibility of coming to an agreement in the most acute conflicts in the region.
..."
"... the clerics killing portends positive negative consequences, with the regional sectarian conflict
threatening to to Russias borders, to the neighboring states of Russias underbelly in Central Asia.
..."
On Sunday, Iranian Supreme Leader Ayatollah Ali Khamenei warned that "divine vengeance will befall
Saudi politicians" for "the unjustly spilled blood" of prominent Shia cleric Nimr al-Nimr, executed
by the Saudis on Saturday.
Considered a terrorist by Saudi authorities for his criticism of the government, calls for free
elections and demands that authorities respect Saudi Shias' rights, al-Nimr's execution sparked outrage
and an escalation of diplomatic tensions across the Middle East, but
only a cautious criticism from Riyadh's allies in Washington and Brussels.
The cleric was killed along with 46 others in the country's largest mass execution in decades,
sparking anger and violent protests in Shia areas of Saudi Arabia, as well as Bahrain, Indian-controlled
Kashmir, Pakistan, and Iran, where protesters
stormed the Saudi Embassy in the Iranian capital and
attempted to set the building on fire.
Trying to prevent the explosive situation from escalating out of control, Iranian President Hassan
Rouhani vowed to bring to justice those responsible for Saturday's attack. "The Iranian people should
not allow [al-Nimr's death] to become an excuse for rogue individuals and groups to commit illegal
acts and damage Iran's image," Rouhani said.
Speaking to his EU counterpart on Sunday, Iranian Foreign Minister Javad Zarif said that Iranian
authorities had
taken steps "to defuse the tensions and protect the Saudi diplomats."
Nevertheless, Saturday's execution has only resulted in the further deterioration of relations
which were already less than cordial. In several of the region's ongoing conflicts, Tehran and Riyadh
are on opposite sides of the barricades.
In Syria, Iran has offered the secular government of Bashar al-Assad, embattled by over five
years of war, political, economic and military assistance against a coalition of Saudi, Turkish and
Qatari-funded jihadist groups, including the Muslim Brotherhood, the al-Nusra Front and Daesh (ISIL/ISIS).
Furthermore, in Yemen, Saudi Arabia has formed a military coalition to try to crush the Shia
tribesmen known as the Houthis, who overthrew the government of Saudi-backed president Abd Rabbuh
Mansur Hadi last year. Accusing the coreligionists of being a proxy for Iran (claims which both
the Houthis and Tehran have denied), Riyadh launched a military campaign, including a naval blockade,
prompting criticism that the intervention has caused a '
humanitarian
catastrophe '.
At the same time that it has struggled with real and imaginary Iranian threats abroad, the
Saudi dynasty has also grown fearful of Shiites living in Saudi Arabia itself.
Commenting on the escalating conflict for Russia's
Gazeta.ru
, Vladimir Ahmedov, a senior researcher at the Institute of Asian Studies of the Russian Academy
of Sciences, called the emerging situation "somewhat frightening." According to the academic, the
conflict in the Middle East threatens to gain a new, religious dimension, openly becoming a war between
Sunnis and Shiites.
"Living in the 21st century, we have been thrown back into the Middle Ages, when the main
factor of wars was religion," rather than geopolitical considerations and the capture of territory.
"This," Ahmedov warned, "reduces the possibility of coming to an agreement in the most acute conflicts
in the region."
"In Yemen, Saudi Arabia has announced that it has decided to resume hostilities. It will be just
as difficult to come to an agreement on Syria, where that Saudis will begin coordinating with Turkey,
in my view."
As far as Russia is concerned, the analyst warned that the cleric's killing portends positive
negative consequences, with the regional sectarian conflict threatening to to Russia's borders, "to
the neighboring states of Russia's underbelly in Central Asia." Ultimately, the analyst suggests,
"I have no optimistic forecasts on this situation being resolved in the near future. Still, we can
only place our hopes in the true authorities of the Muslim world."
"In the first phase, Iran will raise exports by 500,000 barrels a day
within a week after the removal of international sanctions, he said Sunday.
The country will add another 500,000 barrels a day in a second phase within
six months after the curbs end, Zanganeh said. "
Bloomberg (like most other US MSM) consistently use fear mongering about
Iran oil that soon will flood the market. And provide only selective quotes
from Iran officials and no facts about their industry and fields. Which
reminds me Baghdad "We will push those crooks, those mercenaries back into
the swamp" Bob. If this is so easy then why they gave up their share on
china oil market to Saudis?
Bloomberg (like most other US MSM) consistently use fear mongering about
Iran oil that soon will flood the market.
Oh get real here. Bloomberg, (like most US MSM), just wants to report
the fucking news. The idea that Bloomberg is part of a giant conspiracy
theory, in cahoots with the government, or whomever, is just goddamn stupid.
Comparing even with the British coverage the statement "Bloomberg, (like
most US MSM), just wants to report the f**king news." is very weak.
In foreign events coverage they want to propagate a certain agenda and
are very disciplined in pursuing this goal. That does not exclude that sometimes
they report important news with minor distortions. But to assume that they
"just wants to report the f**king news" is extremely naïve if we are taking
about foreign events.
Remember all those fancy dances pretending to be news about Iran sanctions.
Truth is the first victim of war. Unfortunately this war for world dominance
now became a permanent business for the USA. And Iran is considered by US
establishment as an enemy.
I would recommend to read AMERICAN EMPIRE by Andrew J. BACEVICH
Harvard University Press, 2002 – 302 pages
In a challenging, provocative book, Andrew Bacevich reconsiders the
assumptions and purposes governing the exercise of American global power.
Examining the presidencies of George H. W. Bush and Bill Clinton–as
well as George W. Bush's first year in office–he demolishes the view
that the United States has failed to devise a replacement for containment
as a basis for foreign policy. He finds instead that successive post-Cold
War administrations have adhered to a well-defined "strategy of openness."
Motivated by the imperative of economic expansionism, that strategy
aims to foster an open and integrated international order, thereby perpetuating
the undisputed primacy of the world's sole remaining superpower. Moreover,
openness is not a new strategy, but has been an abiding preoccupation
of policymakers as far back as Woodrow Wilson.
Although based on expectations that eliminating barriers to the movement
of trade, capital, and ideas nurtures not only affluence but also democracy,
the aggressive pursuit of openness has met considerable resistance.
To overcome that resistance, U.S. policymakers have with increasing
frequency resorted to force, and military power has emerged as never
before as the preferred instrument of American statecraft, resulting
in the progressive militarization of U.S. foreign policy.
Neither indictment nor celebration, American Empire sees the drive
for openness for what it is–a breathtakingly ambitious project aimed
at erecting a global imperium. Large questions remain about that project's
feasibility and about the human, financial, and moral costs that it
will entail. By penetrating the illusions obscuring the reality of U.S.
policy, this book marks an essential first step toward finding the answers.
From FT article it looks like the same minister is saying quite opposite
things. It looks like Iran does not want to play the role of trump card
that will allow to keep oil prices low for another year or two - the implied
message of Bloomberg article, which implicitly supports those who want to
drive the oil market lower (which, of course, includes GS)
== start of the quote ===
"Some of the Opec members believe it is better to go along with this
level of production," Iran's oil minister Bijan Zanganeh said after
the meeting of ministers in Vienna on Friday, in a thinly-veiled dig
at Saudi Arabia. "I didn't have any other expectation."
Mr Zanganeh has been among ministers calling for action to stem the
drop in oil prices that have this week collapsed to near seven-year
lows. His requests, like those from Venezuela and others, have been
rebuffed by the group's de facto leader and largest producer.
The kingdom's veteran oil minister Ali Al Naimi and his inner circle
have made clear that Saudi Arabia will not cut its output without participation
from Opec rivals Iran and Iraq, as well as non-Opec countries such as
Russia. Until this time, it would continue to defend its market share
and sell as much of its oil as it can.
Pressure to limit production as Iran rebuilds its oil industry after
years under sanctions has not gone down well in the country, which is
targeting output growth of 1m barrels a day after restrictions are lifted.
In a countermove, Mr Zanganeh has said countries that have accelerated
output over the past year - Saudi Arabia has increased its production
to above 10m barrels a day in 2015 - should pull back to make room for
Iran's production.
== end of the quote ===
So I stand by my point that there is a bias in Bloomberg coverage, who
very selectively quotes Mr Zanganeh to push the agenda they favor, while
in reality Iran is pushing for cutting production by OPEC to raise the price
to $80 level, which they consider fair, not selling its oil at the cost
futures markets now dictate like Saudis do. That's a big difference.
"... My guess is that onshore US conventional dropped from 2.6 million 1/15 to around 2.1-2.2 million
12/15, and it will go below 2 million before the middle of 2016. ..."
SS, separating the onshore production from the G of M provide a better understanding of what is
happening in the US. Using the latest October PSM data, one can see the steady decline in onshore
production from May to October, 303 kb/d. However, from June to September, Gulf production increased
by 251 kb/d. October saw a drop of 80 kb/d from September. Would this be the result of a platform
shutting down for maintenance?
I think that many, myself included, thought that the LTO was not dropping off as fast as expected.
However, I also suspect that onshore conventional has dropped more in percentage terms than
onshore horizontal.
My guess is that onshore US conventional dropped from 2.6 million 1/15 to around 2.1-2.2
million 12/15, and it will go below 2 million before the middle of 2016.
As they moved in to arrest Sheikh Nimr, the Saudis were well aware that this was a case that would
cause ructions.
Here was a prominent, outspoken cleric who articulated the feelings of those in the country's
Shia minority who feel marginalised and discriminated against. This was a figure active on the sensitive
Sunni-Shia sectarian fault line that creates tension in the Kingdom and far beyond.
As the Shia power in the region, Iran takes huge interest in the affairs of Shia minorities in
the Middle East. And it was inevitable that Tehran and Riyadh would clash over the treatment of Sheikh
Nimr.
The Iranians had warned that the death sentence handed to him should not be carried out. But one
of the principal concerns of the Saudis is what they see as the growing influence of Iran in places
like Syria, Iraq and elsewhere. So perhaps it is not so surprising that they were not going to be
swayed by Iranian pressure in this most sensitive case in their own backyard.
The international rights group Reprieve called the executions "appalling", saying at least four
of those killed, including Sheikh Nimr, were put to death for offences related to political protest.
Protests broke out in early 2011 in the oil-rich Eastern Province in the wake of the Arab Spring.
Sheikh Nimr's arrest in the following year, during which he was shot, triggered days of protests
in which three people were killed.
... ... ...
Prominent Iraqi Shia cleric Moqtada al-Sadr called for "angry demonstrations in front of Saudi
sites and interests", but said protests should be peaceful.
Lebanon's Shia council called the execution a "grave mistake" while the Hezbollah militant group
said it was an "assassination".
Police in Bahrain, which has seen tensions between the majority Shia population and its Sunni
rulers, fired tear gas on protesters angry at the execution.
Saudi authorities deny discriminating against Shia Muslims and blame Iran for stirring up discontent.
Saudi Arabia carried out more than 150 executions last year, the highest figure recorded by human
rights groups for 20 years.
"... The Saudis have been making use of tertiary recovery methods for decades. Lately they have been driving infill wells with laterals along the top of the Ghawar formation to capture the dregs that water flooding leaves behind (they treat seawater). ..."
"... Capitalism requires surplus value to extract from. Peak oil along with peak everything else has made it so there is no longer any surplus value anymore at least in the real economy where imo any real value resides. Capitalisms extraction now comes at the expense of someone else or as I call it Cannibalistic Capitalism. ..."
"... Its Hood Robin Economics. Rob from the Poor to Give to the Rich. ..."
Yeah. Busy man. In the winter Apollo also rode on the back of a swan to the land of the Hyperboreans
where he engaged in HFT and front running to shore up his account.
BTW: to read articles in WSJ or Financial Times, simply copy and paste the article headline
onto the search window and the complete article will come up.
"prolonged period of low prices is "also unsustainable, as it will induce large investment
cuts and reduce the resilience of the oil industry, undermining the future security of supply
and setting the scene for another sharp price rise," the prince said in the remarks"
Then pulls out the paint sprayer: "The size of the world's middle class will expand from 1.8
billion to 3.2 billion in 2020, and to 4.9 billion in 2030, with the bulk of this expansion occurring
in Asia, he said".
That's nice precision. Not 4.8 or 5.0 but 4.9. The very same middle class that is now disappearing.
And that 2020 target is just 5 (soon to be 4) years away. I guess setting the target of 2016 was
just a little too much to be trustworthy.
Keepin it hummin. The last car I'll ever need. And it's never been better. Long weekend rides
for the price of 3 beers. And of course it's morally wrong to drive to see my friends. But someone's
gotta keep the oil prices up, right?
At least this time they recognize that there are several factors that need to be overcome:
" The success of the drilling, the ability to find the water needed in the desert to make it
work, Saudi co-operation with the global energy companies who have the expertise, the Saudi cost
per barrel to produce shale energy and the global price of oil."
The Saudis have been making use of tertiary recovery methods for decades. Lately they
have been driving infill wells with laterals along the top of the Ghawar formation to capture
the dregs that water flooding leaves behind (they treat seawater).
PP – I have come to the conclusion that the fed can only follow on with what is happening at
the time. If things are not looking so cheery they grudgingly lower rates to encourage borrowing
and ramp things up. As soon as things are ramped up they happily crank up rates and rake in the
profits of exuberance. Both of these are lagging actions. Their claim that they make these rate
changes to balance out the economy is pure BS.
Capitalism requires "surplus value" to extract from. Peak oil along with peak everything
else has made it so there is no longer any surplus value anymore at least in the real economy
where imo any real value resides. Capitalisms extraction now comes at the expense of someone else
or as I call it Cannibalistic Capitalism.
"... Concerning Iran, where is the 500K+ barrels of oil per day coming from?
Drilled but uncompleted wells? Wells that have been completed, but are shut in?
New wells that need to be drilled and completed? Oil in storage? A combination?
..."
Concerning Iran, where is the 500K+ barrels of oil per day coming
from? Drilled but uncompleted wells? Wells that have been completed, but
are shut in? New wells that need to be drilled and completed? Oil in storage?
A combination?
Next, I just read an article which argues India is where China was in
2004 with regard to oil consumption. So, if India ramps up the way China
did, and all these long term projects are shelved, where does that put things?
African production and consumption gets little attention. For 1.2 billion
people and growing, will Africa be the next India, and then next China,
on in terms of oil consumption? Is there still a lot of oil to be discovered
in Africa that will offset this?
"Concerning Iran, where is the 500K+ barrels of oil per day coming from?"
…? ….?….?
I suspect it won't take much for Iran to ramp up production. We are talking
one of the lowest cost and simplest places in the world to produce. This
is not about fracking shale or deep sea. In addition and probably most important.
Iran once produced over 6 an a half barrels per day. About twice current
production. Which tells me the infrastructure from field to market is in
place. The Iranians are also getting lead time currently to prepare to go
to market. I expect the oil to be ready to flow when the sanctions come
off.
But what is the reason for them to hurry with the current oil prices ? They
do not have the problem that Russians or the USA have of multiple oil companies
doing stupid things to survive and please investors (Rosneft with Sechin
as a head is the primary example here; they were really caught without pants
by the current slump). They are more like Saudis with the state company
that is a monopoly. So they can wait.
And to whom they can sell oil? Saudis shut for them the opportunity to
return to the market without losing revenue by refusing to shrink their
share, the share they obtained due to sanctions. . To try to cut Russians
and Saudis in China? This is dangerous as it can antagonize Russia. Or try
to get into overcrowded European market to decimate Norway? I am not sure
EU will allow that.
The only way to sell more oil now is to engage in Saudi self-destructive
game of dumping oil at prices below the market to help to implement Goldman
$20 per barrel scenario. I doubt that this is a wise policy.
A better deal would be to get technology they need while they can ( for
example horizontal drilling) and wait a proper moment to put this oil on
the market. There is not much West can offer them now that they do not already
know or can't replicate themselves after surviving years of sanctions. Also
I think some Iranians leaders already suspect that they got into the trap
West set for them intentionally (whether this is true or not)
The real burden on the Saudi budget comes from the fact, that there is 13 million ex-pat workers
working in Saudi Arabia, which makes the subsidies number so huge, the government subsidies fuel,
electricity, water, medicine, food & gas for the total population (30 million). according to the
numbers issued by the ministry of labour last week, Saudi Arabia issued last year 1.5 million
work visa to the private sector & 800 thousand for domestic workers (maids & drivers) which represents
around 4.5% of total population Saudi Arabia, from 2010 to 2014 this the average rate of work
visa issuance in the country. This huge influx of labour to the kingdom means an increasing government
spending to expand and maintain the country's infra structure to accommodate the ever exploding
population, and it puts an inflationary pressure on the general prices because of the growing
demand on food and clothing and housing...etc, and it creates other social problems.
Factcheck4567
I think the reverse is true. The migrant labor force is exploited and do not have good living
conditions. The citizens gets a free ride by exploiting the labor class. It is the labor class
that is subsidising the Govt finances (they don't have pensions or even good healthcare) and the
citizens that is exploding it (they go to Germany for medical treatment with family in business
class when they have a chest pain- all paid by Govt). Please be humane and fact based.
MJDubuque
The potential of various neoliberal austerity measures, whose burden disproportionately falls
on the poor, to create social unrest in Saudi Arabia is hyperbolically discounted.
Douglas Jones
What is the price of bottled water in Saudi?
A 50-65% increase in gasoline prices just might invent Saudis not to leave their car engines
running to power the air conditioning while at shopping malls with outside temperatures over 110
Fahrenheit. Need more comparative gasoline and diesel prices in the Gulf region.
When Syrians, Ukraines, Libyans, Iraqis, Yemenis, Afghans and others are unable to drive
because they are car-less, road-less, dead, penniless or refugees, Americans drive in their place.
"The American way of life is non-negotiable," proclaimed George HW Bush in 1992; the inch-by-inch
demolition of countries … including Greece, Spain, Portugal and France … is what 'non-negotiable'
looks like.
The amounts of fuel to be had by way of 'consumption switching' from the destitute countries of
the global south is trivial, no more than a few hundred-thousand barrels per day; unraveling these
countries is overture/practice for the larger game. The prizes are Europe, with its crude daily consumption
of 12.5 million barrels; also China and Russia, with their daily output of 15+ million barrels per
day. Should Europe be wrenched into consuming half of that current total, Americans will gain the
balance. As China and Russia's economies collapse oil prices will crash even lower than they are
now as more desperate barrels are dumped onto the world market.
Figure 1: Iraq no longer exists as a unified country but the fragments nevertheless extract
4 million barrels of light crude per day(Ron Patterson/Peak
Oil Barrel). The appearance of excess supply glut has occurred during a period when gross crude
production has been relatively flat. In the face of unlimited demand (not to be confused with consumption)
there must be triage: to accommodate some users, other users have to levered out of the market …
by hook or by crook.
Figure 2: Hook vs. crook: French petroleum consumption has been declining steadily for economic
reasons, chart by Mazama Science
(click for big). French drivers guzzle 1.5 million barrels of MENA (Middle East, North Africa) crude
per day. Paris has an interest in destabilizing these areas to absorb their consumption and make
them more dependent upon French euros; the US has an interest in ruining France so that it's millions
of barrels of daily consumption might flow into American gas tanks.
The foregoing leaves out the fact that customers in France and elsewhere around the world are
broke and becoming less able to afford fuel at any price.
Islamic State is the New Black.
ISIS and other, similar groups are the future revealing itself. Instead of science fiction-y high
technology and 'innovation', singularities and robot immortality, there is
17th century barbarism.
Along with Ukraine and Iraq, Syria is one more fiercely ugly place-of-the-moment where fantasy of
unlimited material 'progress' and the reality of resource constraints collide. The West and the United
States have caught themselves in a trap of their own making. The West requires resources from
the Middle East and elsewhere to produce GDP expansion. The West's (borrowed) fuel payments provide
funding for messianic non-state actors that threaten the West itself. If you drive a car you must
buy fuel, when you buy fuel you are funding ISIS and growing constellation of similar groups.
Militancy cannot be removed from its context of neo-colonial exploitation of global south's
resources. We need to actually change our lifestyles, to make sacrifices, to give somethings
up, our useless, costly toys. #ISIS is a consequence, an externality of our squandrous waste of irreplaceable
capital. Sending in the air force fails because doing so wastes more capital even as prior interventions
are what birthed and nurtured groups like #ISIS in the first place.
The Last but not LeastTechnology is dominated by
two types of people: those who understand what they do not manage and those who manage what they do not understand ~Archibald Putt.
Ph.D
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shallow sand ,
Interesting post. Presumably "Expectations" = Crude Oil Futures Contracts. If so, who controls the price of Oil futures contracts and made the decision to throw the Bakken under the bus, along with more than a few sovereign nations who rely to a significant degree on oil exports economically and to maintain domestic political stability?
Role of demand suppression from high levels of consumer debt, China's economic slowdown, ongoing fallout from the 2008 financial collapse, neoliberal government austerity policies, improvement in energy efficiency, emergence of renewables, and other factors were understated here IMO.
In the past here has also been a variable time lag between low oil prices and rising levels of economic activity.
But maybe this development is overall not such a bad thing given global warming considerations.
CG, I was thinking something similar, that "expectations" is the euphemism for speculation in the futures markets, which, as most know from this site, is now dominated by investor-speculators. The model they used refers to Killian who is one of the handful of academics who try to refute anyone who argues speculators have influenced oil (and other commodity) prices.
My own take (anyone interested can read it here) is there was a series of bubbles generated from the futures market that created the belief higher oil prices were here to stay.
Interesting blog post. Thanks, TiPS.
Noted your article was written before the Central Banks-Primary Dealer cartel renewed pumping equities on February 11 IMHO. Jury is out on whether they've jumped the shark. Also, whether they care.
'The observed drop in oil prices should have a slightly positive impact on the EU economy.'
Probably true. But likely there's a "J-curve effect."
That is, the initial deflationary shock hikes corporate bond spreads (driven by the energy sector) and feeds recession fears. Such fears encourage investors to seek the safe haven of government bonds, at the expense of stocks and credit bonds.
Later as confidence returns, the beneficial effect of lower energy costs (including bolstered consumer demand) can actually be realized.
Arguably, Jan-Feb 2016 constituted the bottom of the "J." We'll see.