Peak Oil Question

Factual Questions
81

You stated the “cost” of production natural gas was not going up. I’m still trying to find the relevancy in your citation, which deals mainly with prices and doesn’t deal with production costs at all.

And yes, those costs are going up, in general. Our company is somewhat upstream, but we’re not charging less for our services than before. Quite the opposite, And with the recovery in oil prices after '09, most oilfield service companies have starting raising the prices for their services back and beyond their pre-'09 levels.

82

Here’s the wiki. Basically, the carbon is there from the beginning and inorganic processes eventually get it to hydrocarbon form.

Obviously, abiogenic hydrocarbon formation exists, or else there wouldn’t be so much methane even in our own solar system. But it’s a bit more of a stretch to claim significant (or at least commercial) quantities of more complex hydrocarbons on Earth were formed the same way.

83

Oh Jesus. I’d think it would be obvious but ok fine. Historically nat gas came from direct drilling into natural deposits. Since fracking has come on the scene, that is no longer the case. Technically it is, but not in the historical sense of getting ‘free’ gas. Fracking is clearly much cheaper. THAT is why production costs are lower.

84

The carbon was there the whole time? What are “carbon-bearing fluids” if not oil?
My ignorance is fighting back… I suspect I should just remain ignorant on the whole topic, and just comply with the dominant paradigm, dinosaur!oil.

85

“Obvious”? “Clearly cheaper”?

Got a cite to back you up? Wiki is nice for a historical context but it’s a general reference. It doesn’t get you into the nitty-gritty of real operations.

I’d actually prefer if LonghornDave fielded this, as I’m much more upstream, but here’s the reality.

We’ve been direct drilling for gas for a few decades now. Yes, there’s still gas associated with oil wells but that doesn’t make capture of gas any cheaper just because we have fracturing. It doesn’t even make wells really any cheaper. You still need to contract your drilling guys (who aren’t any cheaper now than in '09) and contract your crew to operate the well (who certainly aren’t any cheaper now than in '09). Fracturing extends the life of wells, but you still need new wells, and they aren’t any cheaper to drill or operate than before. Worse, operating costs can be higher because you now need tons of water (and the infrastructure to get it to a well) and drilling mud to fracture.

Beyond that, you need equipment to capture and store natural gas. It may be obvious, but gas isn’t liquid oil. The equipment to store and/or transport natural gas is expensive. In fact, it’s expensive enough that sometimes we don’t bother. Ever see a map of the US at night. Right now, North Dakota is lit up like a birthday cake. Not because there’s a ton of people there but before of gas flaring. Have a look here if you like.

So, no, it’s not magically cheaper to drill and operate a well than before, nor is it cheaper to capture, store, and transport natural gas than before. It’s actually a bit of a pain.

Again, I ask, do you have anything like a cite on these lower production costs or were you using some kind of “common sense” estimate of costs that ignored the on-the-ground reality of hydrocarbons?

86

Hey, if oil producers like SA, Venezuela, Columbia, etc. invested in natural gas plants (separation, compressing, etc.), there wold be even more NG available. At present Venezuela flares (burns off) 99% of the NG from its producing oil wells.
Hell of a waste.

87

If you think about it, methane is just an atom of carbon and four atoms of hydrogen. There’s plenty of hydrogen and carbon in the universe, and a lot of it ended up forming earth. Carbon itself is produced from stars and it does get around the universe.

Methane itself can be formed from abiogenically and is a simple hydrocarbon. It’s certainly the case that if we have methane, we can generate more complex hydrocarbons under the right conditions. Some abiogenic theories posit that such a process took place.

Also note that abiogenesis of oil is not comprised of a single theory but of several theories. Another theory has slightly more complex carbon compounds (not necessarily hydrocarbons) forming in space and falling to earth as meteorites, which then appropriately cooked under the surface and formed hydrocarbons.

88

Are you still upset about getting put down in my pit thread? It would seem so since we’re going so far off topic on what seems to be such a miniscule point, but as long as no one objects, I’m game.

However if you think I’m going to waste time trying to do research on oil and gas production costs just to make a point, you should think again and yes I am in fact going to cite common sense. It is clearly a lot cheaper to drill on land than in the open ocean - which is what we’re being relegated to doing.

Since you seem to be an expert on drilling, tell me. What is the cost for BOTH exploration AND development of a deep water site like the Lula, Iara or Iracema fields?

89

So basically, you don’t know and have no intention of rectifying this?

Fracking is significantly more expensive than conventional recovery. The most important point is that you have to drill many additional holes, either more wells, or horizontally, in order to penetrate the strata that you will fracture. Worse, the beds that you are recovering gas from are not all that big. You don’t simply poke a hole into a massive deposit and have it rush up the pipe. You have to keep fracturing for every new bit of strata that you liberate gas from. The beds are not deep, but neither do they go very deep either. You need to drill a lot of wells to get even small amounts of gas out.

In the Gulf of Mexico you can spend a million dollars a day over three months to drill a well. Then spend a few tens of millions setting up a production platform. But you might pull a a few hundred million dollars worth of oil out of that well. In a coal or shale gas bed, each well costs comparatively little, but individually results in a pitiful amount of gas. So there are tens of thousands of cheap shallow wells producing gas. The margin is not great.

There are other issues. In any area exploration isn’t cheap. Seismic can cost serious money, and in order to get good results from fracking you need high quality data about the geology. You can have a 3 to 1 ratio in recovery simply because the wells were drilled in the wrong spot or direction.

Fracking shallow deposits is a relatively cheap game to get into - it doesn’t have the massive barriers to entry that deep sea drilling has for instance. So it attracts a lot of interest from smaller players. In some ways it is a return to days or old. But the difference is that fracking is not a cheap new technology that opens up these deposits. It is, in comparison, an expensive new technology that just makes economical the exploitation of what are individually very small deposits. The actual margins are not really all that brilliant. You don’t just drill a hole in the ground and gas magically rushes out. You drill a lot of holes in the ground and you work hard to convince the gas to flow out of the solid rock.

90

Just so you know, that’s where I stopped reading.

I already have one pit thread going so if you want to make this personal, feel free to jump in there and I’ll be happy to ummm . . . ‘talk’ to you there. But no, I think it is self evident that w/o fracking domestic US nat gas prices would have continued to rise.

edit: by the way, if anyone thinks that production costs can go up while prices fall, please explain to me how that happens.

91

Could you post a link? I don’t recall a pit thread involving you or the oil business, and I really don’t pay much attention to most threads past a few hours of last posting.

Never claimed to be an expert on drilling. Just that I’m in the industry and quite apparently more familiar with the particulars than you are.

Deep water exploration? That actually does happen to be my field of employment, rather than drilling (like I said, I’m way upstream of development). I’m not sure why you’re focusing on Brazilian fields out of Santos/Campos Basins instead of the Gulf of Mexico, which is a more developed deep water exploration area, but ok.

Starting with exploration: the cost depends on a few things.but the exploration for fields like these runs in the tens to hundreds of millions of US dollars. Primarily because you have to find them first.

The initial seismic offshore surveys can be cheap if you’re running a bunch of 2D lines - like hundreds of thousands of dollars cheap. The processing of the data costs a bit more on top of that but in the tens of thousands. There’s also your own geologists and geophysicists to review this data, but I’m assuming you are counting their employment as a fixed cost. Much of the geological and geophysical services are again contracted out to service companies but again, that’s relatively cheap.

But after you have your 2D, you will of course go out and shoot a 3D survey. And these days, it will be a wide azimuth acquisition. Running those crews takes about $1 million USD a day. For offshore Brazil, I happen to actually know it cost in excess of $200 million for acquiring just the seismic data for Santos and Campos. Again, there’s processing of the data involved as well, but that’s often less than 10% of the cost of shooting seismic. And, again, there’s some contracting of geophysical data analysis services but that’s again a small fraction of the seismic acquisition cost.

In the Gulf of Mexico or other parts of the world, it won’t cost quite as much for individual companies because an oil company won’t try to cover such big areas alone. They will purchase spec data from service companies, who make up the big cost by spreading it over multiple clients. But even there, covering a modest sized field can run in the tens of million USD. I guess to be fair, the relative glut of boats and the drop in oil prices in '09 took their toll on the prices charged to the oil companies. But the pricing has recovered to pre-recession levels.

Once you have found your target fields, follow on exploration and development seismic surveys are less expensive because you can cover less area - so tens of millions USD. Why followup? Rather than a broad general survey, you can now focus on your area of interest and perform the data acquisition in the best way to highlight the area you want. Also, after you start extracting oil (or gas), you can run a 4D survey to determine how subsurface conditions have changed. In particular, how much the oil/water contact has shifted and revise your estimates of the remaining recoverable oil, subsidence, and rate of recovery. Also, technology continually advances. We have wide azimuth seismic acquisition now, which is only 6 or 7 years old. And the different service companies are continually improving the quality of the sensing equipment, which means continual improvement in your subsurface image. And, of course, the processing of the data continually improves with additional research and more powerful computers, so that’s several millions more per year for deep water fields.

For what it’s worth, the exploration budgets of the major US oil companies has been growing quite rapidly the last couple years, so that part of the cost has certainly been rising.

There’s also the cost to the government to lease the sites. I’m less familiar with the Brazilian situation, but in the US portion of the Gulf of Mexico, oil companies will pay anywhere from $1 million to in excess of $300 million for just the right to attempt drilling on a 3 mile by 3 mile site in lease sales offered semi-regularly through the Dept. of the Interior (through the Bureau of Land Management). The conditions are that drilling must take place on that site within a certain period of time from the sale or lose the lease. Any oil/gas found is the companies, but taxes are paid to the government at a fixed and published rate based on volume extracted.

Development: I’m less sure and am relying solely on what I’ve been told by others and what is reported in industry magazines. Deep water development is more expensive than on shore. Drilling costs in excess of $1 million USD a day and can be more expensive. The most expensive deep water wells cost in excess of $200 million to drill (like Shell’s new ultra deep water wells). Even cheap deep water GoM wells cost tens of millions. After drilling, the well is connected to a local platform or drill ship. It’s cheaper to operate those in shallow water. But deep water operations cost well over $100k USD a day to operate, but those costs are often split over multiple wells (though usually a single field).

92

As in many businesses, much of cost is related to people. And there’s a relatively shortage of people in oil/gas right now. Whether or not prices fall or rise, those people will get paid. And they’re usually paid pretty well.

Worse, if times are busy (like now), contracting companies can charge more for their services, as they are much in demand and supply is limited. The oil companies contract out for much of the stuff they need, like drilling and daily operations and such.

Remember Deepwater Horizon and Macondo? It was BPs well, but Transocean owned the rig and Halliburton was involved in the drilling. BP used contractors, which is common for major oil companies. There aren’t many such rigs. When demand goes up (as it is now), prices go up, which means production costs go up.

And as much of the same (but not exactly the same) equipment is used to find/extract oil and gas, production prices can go up even if gas prices fall. That’s true as long as oil prices hold up.

93

Sure. I didn’t say it related to the oil business though did I? :cool:

So if not for fracking, what do you think the production cost would be for nat gas?

94

Uh huh. So that just happens to coincide with the down trend in nat gas prices I linked to? Wow. That is one weird coinky dink isn’t it?

95

Again, do you have a cite or anything beyond an argument by incredulity? Denying what happens in reality because it doesn’t match a “just-so” story based on limited experience or knowledge doesn’t make sense.

Natural gas prices are down but oil is up (or at worst, not down). That’s why tons of gas is being flared instead of captured.

96

I gave you a cite - the steady down trend in nat gas since fracking which clearly contrast the steady up trend prior to that. How about you give some cites buddy?

97

Again, what does that have to do with production costs?

  1. Natural gas prices down.
  2. ???
  3. Natural gas production costs down.

Where’s your cite for the magical operation between 1 and 3? Right now, you have a “just-so” story that doesn’t match the real world. Using logic in lieu of real world data only works if you have all pertinent facts. It’s readily apparent that’s not the case here.

Just for reference, here’s Rigzone. Salaries have gone up over the last 3 years (recovering from recession). And there’s more wells than 3 years ago (recovering from recession). So, salaries go up, more work is available, and production costs go down? Something doesn’t compute there.

98

If you’re not going to read what I post, go away.

edit: salaries do not equal total costs do they?

99

Be very careful attempting to analyze finding and development costs or lifting costs by looking at companies like Exxon or Chevron. The problem is that these companies operate in international markets where the ownership arrangements may be very different as well as they operate in multiple different related industries.

However, if you would look at pure domestic exploration and production companies, you would find that generally speaking costs have gone up. However, this can be a little misleading. The economics in the unconventional plays are quite a bit different than the conventional. As most domestic companies have moved more toward unconventional you’re naturally going to see changes in margins.

100

I’m not entirely clear what you mean by “fracking is clearly much cheaper”. Clearly F&D costs have increased over time. That’s just a factual statement.