Canadian tar sands have one of the highest marginal lifting costs. Further, they receive such a large deduct that with the global price of crude in the mid-$80s, much of that is probably uneconomic right now.
The big U.S. resource plays likely need $80ish pricing to be full cycle economic, but much of that is due to high sunk costs like lease acquisition, seismic, etc. The U.S. resource players are also more likely to hedge, so they can withstand shorter term price drops without cutting capex. Having said that, they also have more highly leveraged balance sheets.
An interesting side effect is that this oil price decline could in an indirect way cause natural gas prices to rise. Gas production has been propped up by associated gas production in higher liquids resource plays. If the liquids get a lower price and people reduce capital spending there, the associated gas declines bringing gas prices up with it.
I know. He’s saying their production costs are $90+ and that they can’t economically produce oil in the sub $90 market. That’s so clearly and obviously wrong that I can’t believe anyone would even attempt to argue it. I think their all in production costs including finding and development are probably less than $20/bbl.
There is more to the “oil era” than the supply of oil. The problem is that when we get energy from fossil fuels, we get it by releasing carbon from permanent sequestrations and transferring it into the atmosphere. It isn’t a balanced or sustainable system regardless of supply. Every device that generates energy by burning fossil fuel has an energy cycle that always ends abruptly in an open exhaust to the atmosphere, whether it’s a tailpipe, a chimney, or some other vent that treats the atmosphere as a free dump of infinite capacity. This is a failed model both economically and physically, because the atmosphere as a dumping ground is neither free nor infinite, and the implications of both are beginning to be acutely felt.
The idea that we can just keep extracting and burning oil and coal until supplies run out is profoundly missing the point. Supplies are not the only issue, and not even the dominant one. Peak oil may, in fact, be a rather moot point.
[QUOTE=wolfpup]
When talking about historical trends, it might be appropriate to look at historical timeframes.
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You might want to look at the historic trend of, well, the thread. I was just tweaking ralfy’s nose there. BTW, unless I’m missing something there, it doesn’t look like your chart is in adjusted dollars. The trend data is useful, though I think most in this thread aren’t really surprised by it in the least…even ralfy, though his interpretation of it would be radically different.
It’s missing the point of the majority of this thread, in fact.
Well, yeah…good summary of pretty much what everyone has been saying for pages. Peak Oil IS moot…unless you are ralfy, in which case we are staring down the barrel of the End Of The World(tm…arr)!!
It’s not. But because I’m such a nice guy, I took the chart, converted it to current (well, 2013) dollars, and put it on Google Drive for us to use for whatever reference we need.
Not just Russia but the oil industry as a whole, as we see high production costs vs. low prices.
Not just the oil market but commodities, stocks, etc., are also suffering. In short, the lower oil price is not due to a peak in demand or greater efficiency or even economic recovery but the threat of another economic crash.
That’s what happened last time: the price of oil rose to around $150, the price went down followed by an economic crash, then went up again as demand picked up.
All these point to peak oil, as production of cheap oil cannot catch up with demand, forcing producers to use more expensive oil, which in turn leads to weaker demand brought about by economic crisis. More details are given in the article about an oil-constrained economy shared earlier.
For more details on production costs and capital expenditures, view the Kopits lecture and read the interview. Otherwise, the quoted phrase from Kopits which was shared earlier should suffice.
Finally, we probably shouldn’t be concerned with scraping the bottom of the barrel, as economic problems are already taking place even before production drops.
The glut in oil production is not caused by increasing production. The fact that we are now resorting to U.S. shale oil is proof of that.
The glut is taking place because of weakened demand, which in turn is not caused by more efficiency but by economic problems. That’s why other markets are also weakening.
Oil producers have no choice but to sell even at lower prices. That’s because their operating costs remain, not to mention debts that need to be covered:
“Oil and gas company debt soars to danger levels to cover shortfall in cash”
One of the drivers of increasing debt is increasing capital expenditures leading less production increase each time. That was discussed in detail in Kopits (shared earlier) and can readily be seen in shale:
This also explained why both the EIA and the IEA forecast that shale will peak after only a few years (shared earlier), and why the IEA argues that the industry has to go for maximum depletion rates plus replacing much of oil demand increase with renewable energy to maintain economic growth (shared earlier).
All of these are obviously connected to peak oil, which involves the increasing cost of producing oil. That leads to higher oil prices, but the economy cannot thrive with higher prices. At the same, financial speculation may lead to one crash after another.
This is precisely what we are seeing. From 2005 to the present, crude oil production has been in a plateau, leading to oil prices tripling. They went up even further because of increased financial speculation, part of a global economy where the level of credit in notional value tops the global economy by twenty times:
“Top Derivatives Expert Estimates Size of the Global Derivatives Market at $1,200 Trillion Dollars … 20 Times Larger than the Global Economy”
The catch is that we don’t live in isolated economies where consumers believe that local oil companies will sell only to them, and that there won’t be outsiders who will offer higher prices.
I think it refers to the marginal cost, which is around $90. There are more details in the Forbes article shared earlier.
There are also references in the same article to the 2009 crash as well as what is happening to Bakken, etc. In fact, many of the points raised support my arguments.
According to the IEA, we face both problems. That is, given peak oil, we are forced to resort to unconventional production, which in turn is characterized by low energy returns, and in several cases, more pollution.
More important, one of the ways to deal with global warming and pollution without decreasing energy and material resource consumption is to use renewable energy, but that requires components, transport, etc., that are still reliant on fossil fuel use.
The trend line is useful because the global economy thrives on low oil prices, which in turn involves increasing production. Put simply, what we want to see is crude oil production increasing readily, and prices at only around $35 a barrel.
FWIW, many believed in 2004 that production would increase to such an extent that oil prices would never exceed $50 until after a few decades.
Later, others believed that the price would hit $200, but it turns out that when oil prices are too high the global economy weakens considerably.
In which case, if there’s anything that’s moot, it’s not peak oil but the belief that it has not taken place.
What? Transportation costs are nothing. It costs maybe $2/bbl to ship oil by tanker from the Middle East to the U.S.
If you truly think oil production costs in Saudi Arabia are $90+/bbl then there is something wrong with you. That goes against all facts and all common sense.
Lets take a VLCC at height of the market at 250,000 per day (I think it currently is about 60k per day for a VLCC), 30 days from Saudi to US, let’s say it is only carrying 1,000,000 bbl.
$7.5million shipping cost. That’s going way high on the shipping price and low on the VCC capacity. Port fees etc add $0.2 to $0.6 per bbl , depending on the port.
That adds $7.5 / bbl. Which is really a discount the seller would have to offer to sell the oil, if other oil was closer and the buyer did not have to pay $7.5/bb shipping. (oil grade plays a more significant factor in price discounting)
So no, $90/bbl production cost in Saudi including transportation cost is laughable.
or are you saying VLCC rates are going to hit 2.5 Million dollars a day?
What catch? did you read what was posted? No one stated that consumers believe local oil companies will sell only to them, although the US market for domestic crude is a lot more isolated than you think.
US producers are not really pressured to drop production until the local price is below ongoing production cost*. Thinning margins will drive down future investment ( with knock on effects for gas and crude prices down the line) , but with the highly leveraged investments, even if your are sqeeking by, cash income is cash income, turning off the cash income is a bad idea. Hence if only 2% of US production is unprofitable below $80 you wont see a whole lot of shut in production. If the US doesn’t shut in production, and Saudi etc are still producing at current rates, the US won’t be importing as much crude, so that OPEC oil is available globally, so global prices stay depressed. Who are these outsiders offering higher prices when there is excess oil available?
The US market is slightly isolated, it is kind of important to note that the US bans the export of crude oil. So while on the large scale oil markets can be viewed as fungible, and the benchmark crude pricing can be useful, on the local scale, regulations, refinery capacity and type, transport chains available etc can have a significant effect on who does what and what price you get for your crude.
So regardless if someone outside the US offers a US supplier a higher price for their crude, they can’t act on that and have to sell and refine inside the US. Transport chains to refineries become important.
Refined product sales are a different story
life gets complicated when you have to account for sunk cost such as lease, explorations, well cost etc but any cash income to pay back that is better than shutting in and having no cash income. Unless you don’t owe anyone anything or have any shareholders to keep happy, and don’t need an income, then shutting in may be an idea, assuming you bet right on the future prices and account for time value and lost investment gains.
why - world economy seams to be OK at higher price points - where did $35 a bbl come from
I don’t think anyone disputes high oil prices have a breaking effect on world oil prices , that said, there may have been a couple of other things going on in 2008 20009 other than high oil prices.
So the belief that peak oil has not taken place of little or no practical value or meaning; purely academic?
I fully agree ,why do you keep trying to tell us it has occurred, if the belief has no practical value if it has occurred or not. Given that believing peak oil has taken place requires us to adopt ever changing definitions of what crude is, price and cost information largely pulled out of the air with no back up, reliance on opinions presented as fact from sources that have been consistently shown to be wrong ( Nice job John T with the review of past posts), ignoring current technology developments, inability to distinguish crude oil demand from energy demand, a rigid holding to out of date information really makes, misunderstandings of oil markets , the list goes on. Given that peak oil belief requires accepting this long list of unique thinking, it certainly is a niche, purely academic point, and, as has been proved over the last god knows how many years of peak oil claims being wrong, certainly of no practical value.
