Unconventional Oil Revolution Rocks Green Agenda

North America To Flood The World With Cheap & Abundant Fossil Fuels

peak_oil

North America, once a sponge that sucked in a significant portion of the world’s oil, will instead be supplying the world with oil and other liquid hydrocarbons by the end of this decade, according to ExxonMobil’s annual long-term energy forecast. In a forecast that might make economists happy but environmentalists fret, Exxon’s two chief products, oil and natural gas, will be abundant and affordable enough to meet the rising demand for energy in the developing world as the global middle class swells to 5 billion from 2 billion and buys energy-hungry conveniences such as cars and air conditioners. — Jonathan Fahey, Associated Press, 9 December 2014

The world’s largest oil company sees emissions in the developing world surging 50 percent, a forecast that suggests the diplomatic push to draft an accord to curb global warming stands to fall short. Even as the most advanced economies cut energy use by almost one tenth through 2040 and add hundreds of millions of fuel-efficient vehicles, booming growth in places like India, South Africa and Thailand will boost demand for fuels 36 percent, the Irving, Texas-based company said in its annual outlook. Emissions will surge as an expanding middle class in poorer nations demands electricity, schools and hospitals. –Joe Carroll, Bloomberg, 10 December 2014

WSJExxonChart

Low oil prices and the inaction of OPEC may well result in a shale crash next year. Many analysts now expect falling oil prices to throttle the US shale boom. The theory goes that, if high prices helped create the oil boom in USA and Canada, then low prices will inevitably result in a shale crash. That’s certainly what Saudi Arabia, the leading member of OPEC, are hoping. However, according to The Economist, ‘adversity will make shale stronger.’ The success of North American shale has been recognised globally and now many other countries are now hoping for similar success (Mexico

and the UK being two of the most prevalent). And, when oil prices recover, new wells can be purchased within weeks – it won’t take long to get North American shale production creaking back into action again. –Jeremy Coward, Shale World, 10 December 2014

A $200 million government backflip on an international green climate fund will come at the expense of Australia’s foreign aid budget. In a bittersweet victory for green groups, Foreign Minister Julie Bishop today announced to a UN climate change conference in Lima that Australia would now contribute to a $10 billion fund that aims to help developing nations tackle global warming. The decision is a reversal of its stance at the G20 summit in November. Mr Abbott said money from the fund would be “strictly invested in practical projects in our region” including energy efficiency, better infrastructure, reforestation and carbon offsets. –Dennis Shanahan, The Australian, 10 December 2014


 

Tabulation from Dr. Benny Peiser and the GWPF

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181 thoughts on “Unconventional Oil Revolution Rocks Green Agenda

  1. Interesting also is that the US is the #1 oil supplier currently; surpassing Saudi (production, not reserves).
    Basically, it is their fault, again, the current plunge

    • The USA isn’t the number one oil supplier. Those statistics can be confusing. USA production is inflated by biofuels and NGL s. The top producers are Saudi Arabia, Russia, and USA is third.

      • The world would be awash with oil, if only Greenpiss and their conniption-fit-brain-fart buddies would let everyone extract it.
        There should be mass protests worldwide calling for greenies to be banned from using conventional energies full stop. That would feed them a huge spoonful of STFU.
        But since we found naturally occurring hydrocarbons on Titan, where no dinosaur ever set foot, means that their favourite term “fossil fuel” needs a massive rethink.

      • Fernando Leanme
        You say

        The USA isn’t the number one oil supplier. Those statistics can be confusing. USA production is inflated by biofuels and NGL s. The top producers are Saudi Arabia, Russia, and USA is third.

        Please explain why you think not all “oil” should be accounted when discussing USA “oil supplies”.
        Surely, the total should include all sources and not only the oil obtained from a particular type of source? If not, then why not?
        Your assertion would make sense if the total were of economic production methods, but it was not.
        Richard

      • biofuels and NGLs don’t count because oil supplies more than just gasoline. A single barrel of oil cracks out to more than 1 barrel of various hydrocarbon outputs – including largely gasoline but not exclusively. Thus it is misleading to compare 1 barrel of biofuel or NGL to 1 barrel of oil – it significantly overstates the relative impact of the biofuel or NGL vs. its oil counterpart.

      • c1ue
        Thankyou for your post that attempts to justify the exclusion of biofuels and NGLs by saying

        biofuels and NGLs don’t count because oil supplies more than just gasoline. A single barrel of oil cracks out to more than 1 barrel of various hydrocarbon outputs – including largely gasoline but not exclusively. Thus it is misleading to compare 1 barrel of biofuel or NGL to 1 barrel of oil – it significantly overstates the relative impact of the biofuel or NGL vs. its oil counterpart.

        Sorry, but that does not wash.
        An oil refinery separates the components of crude oil by distilling the crude. The separated components are products which must match market demand; e.g. producing the required amount of benzene must not result in producing too much or too little petroleum. This match of products to market demand is obtained by blending (i.e. mixing) different crude oils for distillation: crudes from different places contain different proportions of hydrocarbons.
        Blending is expensive. It requires a variety of crudes to be transported and stored then mixed in controlled ratios.
        In the absence of further information it cannot be known whether the use of biofuels and NGLs increases or reduces the need for blending: that would depend oncircumstances. Simply, the inclusion of biofuels and NGLs may enhance or reduce the value of a “single barrel of oil”.
        There is no reason to exclude any supplied oil when totaling the supply of oil.
        Richard

      • Fernando (Dec10, 12:15p) is right. Oil & Gas Journal, Dec 1, 2014, pp32-34:
        2014 average crude & condensate production (not consumption, and excludes bio-fuels) estimates in millions of barrels per day:
        Russia 10,490
        Saudi Arabia 9,848
        United States 8,580

      • Tomazo
        Fernando is only “right” if he excludes – as he honestly admits he does – biofuels and NGL s. Nobody has questioned that Fernando “right” in that sense.
        c1ue and I have been discussing whether or not it can be considered as being acceptable to exclude biofuels and NGL s when totalling “production”: c1lue claims it is and I say it is not.
        Richard

  2. The theory goes that, if high prices helped create the oil boom in USA and Canada, then low prices will inevitably result in a shale crash. That’s certainly what Saudi Arabia, the leading member of OPEC, are hoping.
    The wells, once drilled, aren’t going to be filled in, so obviously if prices drop some will be turned off and be turned back on when prices rise again. Perhaps the Greens weren’t told about supply and demand.

    • The Saudis are targeting alternative sources of oil but they have lost their stranglehold on supply.

      • Precisely true, the best the can hope for now is to modestly increase prices or to drop the floor on prices. If they increase prices they will have less income since they can only do so by reducing output – and the U.S. will just take up the slack and make a killing doing it, if they let prices fall they will have less income, but U.S. companies will have a hard time keeping supplies up until prices increase.
        They have lost their stranglehold on the U.S. and, by extension, the global oil market. This is a wonderful thing, indeed!

    • In the USA, if you stop pumping oil from a well, you must seal it with concrete. This law was passed in the 1970s by democrats who didn’t want the oil companies to simply stop pumping from a well until prices rose again.

    • Correct. There are several essays in Blowing Smoke that explain why. Russia’s Bazhenov likely wont produce as much as Bakken. China’s sichuan basin has the same folding/faulting problem as California’s Monterey. While there is ‘good’ shale in Argentina, Europe, and Australia, that won’t make up for the US decline.
      Since read this report every year, all that can be said about the AP synopsis is that reporter didn’t.

    • We’ve been hearing this echo for 40 years now. New finds, new technologies, and new ideas always show that previous estimates are too conservative.

      • The echo has been reverberating for more than a hundred years, not just 40. The reason for this very durable error in reasoning may be easily seen in the following graph:
        http://i.telegraph.co.uk/multimedia/archive/03133/shale_fields_cost_3133134a.PNG
        The point is that reserves and availability are a very soft barrier. The graph only shows reserves where the break even is less than 75$, but obviously if market price goes above that point then ever increasing supplies become profitable.

      • I’m out of ideas. What do you have in mind? Shale oil looks attractive at high prices, it stinks at current prices. The same goes for deep water. And the Arctic? Forget it. We will be squeezing more oil, but it takes an ever increasing price. Maybe what needs to be explained is that oil prices will have to keep on climbing. Eventually it’ll be too expensive. By that time we will need something completely different.

      • The hard cap on pricing for oil is at the price where it becomes substantially cheaper for coal liquification.
        One input that this price of coal liquification depends on is the price of electricity. A high electricity price provides an advantage for conventional and unconventional oil producers over coal liquification.
        So high electricity prices provide a long-term advantage for oil producers. I guess this explains why you see so many oil producers as sponsors at the AGU meetings.

      • Great point. Peak oil was pretty much accepted dogma for decades. Then came tight oil and widespread fracking. All of a sudden the people who insisted that they could predict peak oil…the ones who couldn’t see the shale gas revolution coming…are making the same mistake. Truth is, we don’t know whether this oil will peter out or be replaced or supplemented by other oil produced by new techniques not yet invented.
        We may run out of oil some day but my bet is on ingenuity, innovation, and the profit motive to keep it coming. As long as people want oil someone will figure out how to produce it for a profit and we are going to be wanting this for a long, long time.
        Just remember how wrong all of the experts were on this one…and on climate change…oh, and ObamaCare…and on and on….

      • MarkW
        If your comment was sarcasm, please accept mu apology & ignore the rest of my comment…otherwise, read on:
        Global warming climate models and oil reserve predictions share (at least) 1 fatal flaw: neither one has ever accurately predicted the future.

    • The universe is saturated with carbon compounds. Every forecast of a peak has been wrong. I’m not buying yours.

  3. Too, Colorado School of Mines has done research on the use of Liquid Nitrogen rather than water to do the fracking in shale formations. They have lis. Continental Oil Corp. to do trials early next year.
    The EPA and the Greens have used the use of water to stall fracking. That in many parts of the world the formations are in areas where there is no water. The Liq. Nitrogen per. Col. School of Mines does a much better job due to great expansion of the gas when it reaches the formation to be fracked.
    Do not have a link but I have people I know who are on a “oil shale” blog where this is being discussed in depth.

    • Liquid nitrogen fracking
      “…..And because the liquid nitrogen would evaporate underground, cryogenic fracturing could form bigger canals for oil and gas to flow through than water-based fracturing, boosting oil and gas production. It would also solve the problem of extracting shale gas from clay-rich shales……”
      http://www.shalegas.international/2014/09/02/is-using-nitrogen-for-water-free-fracking-the-way-forward/
      Liquid co2 fracking
      http://www.shalegas.international/2014/04/15/using-co2-instead-of-water-may-make-fracking-more-environmentally-friendly/

      • Interesting. My first thought was “how do they get the proppants down there?” but I see they thought of it first:
        “However, the use of liquid nitrogen is not totally problem-free. It’s been pointed out, that liquid nitrogen, like many of the alternatives to water that the oil industry has tried, lacks the energy capacity – called viscosity – to carry sand and proppants.
        “You can’t energize the fluid efficiently because the viscosity of the fluid is significantly lower than water, which you can put a lot of energy behind,” Ramanan Krishnamoorti, a professor of petroleum engineering at the University of Houston said. “People have been thinking about this for a while. It’s still a long way before it can truly be applied.”
        It goes on to explain experimentation suggesting higher velocity can make a low viscosity fluid keep the particles in suspension and still drop them off where needed.
        Human ingenuity knows no bounds.

  4. “…Cheap & Abundant Fossil Fuels”
    It’s the ‘cheap’ part that matters and at the heart of what is ‘peak.’

  5. $200M eh? I guess Tony Abbott had no choice – but given the measure of control as to who gets the lolly and for what, reforestation and a few rooftop is good, andsolar panels in remote areas is an OK salve to the CO2 haters…please leave out BS wind farms?

    • The $200m is to be spent oin : energy efficiency – good, better infrastructure – good, reforestation – probably ok, carbon offsets – [unprintable]. Why oh why is Tony Abbott weakening just now, when he least needs to?

  6. … an expanding middle class in poorer nations demands electricity, schools and hospitals.

    Oh the temerity! Don’t they know that you don’t need electricity, schools and hospitals, or clean water even when your destiny is to be part of the 95% reduction in population the Earth needs to survive?

  7. It should be mentioned that production costs are much lower than all-in costs (which include exploration and development costs). It’s unlikely that massive cuts in production will occur in the shale oil plays, but certainly massive reductions in exploration and development will happen almost immediately.
    Also not mentioned is natural gas. The Marcellus play is so large that if it were its own country it would be the world’s 3rd largest producer. Its cost of production is almost 50% lower than the price seen in Alberta, Canada and this will have an effect on revenue for Canadian producers in another 2 years.
    Also let’s not forget the downside of low oil prices. BP will lay off 84,000 workers in 2015 at a cost of $1 billion.
    http://www.reuters.com/article/2014/12/10/us-bp-restructuring-idUSKBN0JO0QN20141210

    • You’re forgetting the rapid decline rates of existing shale wells. All that is needed for production to decline is to quit drilling new wells. That is already happening at $70/bbl.

      • The decline rates are high initially. They decrease over time. Meanwhile the well has already paid back the exploration and development costs and remains profitable at the lower production rates. The glut of oil from tight shale is very price sensitive at $70/bbl. But the pull-back in production will be slower than most think IMO. This will keep oil prices low for awhile (< $70/bbl for 18-24 months).


    • Also let’s not forget the downside of low oil prices. BP will lay off 84,000 workers in 2015 at a cost of $1 billion.

      This is good news, not bad, for the USA where the destruction of BP is both government policy and a national sport.

      • Congradulation Mr. Phlogiston….

        Everybody just loves receiving a “pink slip”

        Have you ever received one?

      • “Congradulations?”
        Is that what happens when you finish college? If so then .. congratulations!
        So then, let me guess, you strutted up on stage to receive your pink slip?
        Or was it pink and green?

      • My guess is that most of the workers laid off by BP will be the ones with the least control over company policies.

      • BP is downsizing because of the racist lynching it is receiving in the spiritual home of the racist lynching, the US south. So now you’re attacking PB because after having its money stolen by Barack Obama and fellow Ku Klux Klansmen, it has to lay people off? Even give them pink slips? How quaint. Well I guess it gives you an excuse – as if one were needed – to renew the racist lynching. Hey guys – help me find a Brit we can tar and feather.

    • Not nearly. Most of the federal offshore areas are still unexplored. The Bakken is still developing and they essentially haven’t even explored on the rim of the basin. The Springer formation in Oklahoma could potentially hold high reserves. If someone finds a way to cheaply and effectively produce the Green River formation that alone would add billions of barrels to reserves. If regions of South America, Africa, and Asia become politically stable and business friendly then who knows what could be found in completely unexplored basins.

  8. Foreign Minister Julie Bishop today announced to a UN climate change conference in Lima that Australia would now contribute to a $10 billion fund that aims to help developing nations tackle global warming.
    The context suggests that this should read would not contribute.

  9. Now that renewables are so price competitive with fossil fuels we need to tax them at the same rate as gasoline at the pumps. This way we can all benefit from their low cost and high efficiency and not just the people who put up the money originally (said the goose to the gander).

    • So where in the world are renewables (not counting cow dung and hydro) cost competitive with oil, coal and NG ?? (sans carbon credits and subsidies of course.)
      Doesn’t matter about cost; they have to make increased net energy available, rather than drain existing energy supplies in their fruitless pursuit of net energy gain (availability).

    • Did you forget the SARC tag, Steve? The real cost of renewable fuels is about twice the cost of so-called fossil fuels, and aren’t necessarily cleaner burning.

  10. Abundant and affordable energy leads to cleaner environments, lower birth rates, and far better health for the expanding middle classes in every developing country. The examples provided by developed countries are replete.

  11. Steve from Rockwood
    “It should be mentioned that production costs are much lower than all-in costs.”
    The sunken costs are part of the overall cost to profitability of a company, but incremental cost of the production of the next barrel of oil are much lower and such production will continue.
    The lower oil price will spur innovation and ultimately lead to lower total cost.
    When we have a gas pipeline from the North Slope, the ~50% of the BTU’s (gas) pumped out of existing
    wells will become a profit center instead of an expense, pumping the gas back into the ground, making the field much more profitable.
    Adding production from the Arctic and ANWAR could fully utilize the existing oil pipe line.
    These and many other conventional fields in addition to shale will continue to be discovered and produced
    and once again all the predictors of oil’s approaching demise will be proved wrong

  12. We’ve found too much oil. It has unintentionally triggered a deflationary spiral. To be fair, the true root cause of the spiral is not the oil supply. The underpinnings of the crisis were brewing for years. In any case, behold, Great Depression Release 2.0

  13. James
    Study the effect of the extreme drop in the price of oil in the early ’80s secondary to Reagans’ freeing the price from Carter’s control.
    The economy boomed.

  14. There seems to be quite a bit of disinformation among the comments to this blogpost.
    First, do not write off OPEC.
    Saudi Arabia has probably made a very astute move by not intervening in the market and making very bearish comments at the OPEC meeting in Vienna on November 27th. The market has moved dramatically lower with WTI presently at $63 and Brent at $66. By letting the market set prices, they are spreading the “pain” of lower prices to all producers, but particularly high-cost production, oil sands in Canada and Venezuela, tight oil in North America, and deep water in Gulf of Mexico, Brazil and Angola. If OPEC had made a production cut, the tight oil surge from North America would have continued unabated, worsening their position.
    Second, has their tactic had an effect?
    Reuters reported that Drilling Info Inc., an industry data analyst, noted a 15% drop in US drill permits in October versus September and a 37.5% drop in November versus October. (http://www.reuters.com/article/2014/12/01/us-oil-prices-shale-permits-idUSKCN0JF2CU20141201
    http://www.reuters.com/article/2014/12/01/us-oil-prices-shale-permits-idUSKCN0JF2CU20141201 )
    Given that the production profile of a fracked well declines relatively quickly over a 6 – 9 month period, and thereafter may continue producing at a lower level for up to 20 years, the prerogative in a tight oil play is to keep drilling to maintain production. This is a very different to conventional oil fields.
    Above there are comments about shutting in wells until prices recover. This does not work the same way in unconventional wells.
    Thirdly, from a Saudi point of view, the low-price effect also impinges on Russia, Iran and Iraq. Although the latter 2 are OPEC members, both are claiming they should not make cuts because of previous or extant sanctions. Their call (and that of other OPEC members) for production cuts is directed mostly at Saudi Arabia. The lack of production cuts is a message from Saudi Arabia to its Middle East rivals that potential production increases in Iraq and Iran will be opposed.
    Fourthly, comments have been made that the lack of cuts was agreed between the US and Saudi to punish Russia over recent military events in Ukraine. Oil price falls have had a dramatic effect on the exchange rate of the rouble, and in conjunction with sanctions, on the Russian economy in general.
    Fifthly, lower prices put pressure on costs, and staff cuts are one of the obvious reactions among operating companies and the service sector. However, the example given above about BP is wrong as the figure given is close to the entire staff rather than the number that might be cut.
    Finally, the fracking revolution and the surge in oil production in the US is proof that we have not reached peak oil. It is an example of how the market pushes technological innovation. Horizontal wells and multi-stage fracs caused a revolution in gas production. However collapsing gas prices in 2007/2008 motivated a switch to liquids-rich plays, and prompted a surge in US oil production from 2010 to the present to levels last seen 30 years ago.

    • We haven’t reached peak crude oil….maybe….when I look at refinery runs it sure looks like crude oil hit a plateau. We need $100 per bbl plus to overcome natural decline. Note: I don’t count syncrudes from gas to liquids plants, nor NGL as “crude oil”. I’ll give you the benefit of the doubt and count condensate as “oil”. If we limit it to oil (liquid at reservoir conditions treated to meet standard marketing specifications), we peaked a little while ago. And this is why worldwide refinery runs aren’t climbing that much.

  15. The decline in crude oil prices also means that we do not need to worry so much about protecting the Saudi’s. You know, the guys behind the 9/11 attack on our country. The decreasing importance of mideast oil, in general, will have a tremendous effect upon the world view of our military strategists and those of other countries. That is, assuming they have the brains to figure it out. For one thing, the US and Russia now have at least one thing in common, the glut of mideast oil reduces the value of our reserves. A smart administration might consider more liberal tax deductions for exploration and development to break the strangle hold of the mideast oil suppliers. But then we do not have one of those.

      • Talking about storage how’s the promised land of electricity storage for wind turbines coming along?

      • Don’t need it
        ..
        Talk to ERCOT

        They get more than 10% of their needs from wind

        They serve 85% of Texas

        Funny how grid operators can utilize wind without storage.

        • David Socrates
          Talk to ERCOT

          They get more than 10% of their needs from wind

          They serve 85% of Texas

          False. That’s “nameplate rating” or “100% theoretical” ratings. Actual power averages no more than 3% over the year. But, then again, more than 3% irregular, unpredictable wind power threatens the stability. Unless, as in Germany and Holland, you have the Norwegian and Swedish water power ready IMMEDIATELY to turn on and turn off their hydrogenerators. Which cannot occur anywhere else in the world.

      • No sir, you need to examine the ERCOT data
        ..
        Here is one
        http://www.ercot.com/news/press_releases/show/26576
        Note the percent figure for 2013…..9.9% in the “Generation mix changes” table.

        ..
        Here is another
        ..
        At the time the new record was set, wind generation was providing nearly 29 percent of the 35,768 MW of electricity being used on the ERCOT grid. The new record beats the previous record set earlier this month by more than 600 MW, and the American Wind Energy Association reports it was a record for any U.S. power system.
        ( http://ercot.com/news/press_releases/show/26611 )

      • Responding to David’s ERCOT posts: I noticed you are using the ERCOT website for your data. Do you work for the company? Statistics from green companies have been so inflated in the past, that there is no way I will believe that company’s are any better. Typically, wind and solar power sources only produce about 25% or less of their rated output over time. The cost of electricity from those sources is ten times or greater than that of conventional sources. Nothing to brag about here.

  16. And:
    – there’s shale gas in England
    – Israel has been producing NG since 2010 from an offshore field that extends to Turkey IIRC, has made deals to sell to Egypt and Jordan, and is pitching a pipeline to Europe.

  17. Drill, baby, drill. I’m going to go with if Sarah Palin says it and the Left flips out, it’s a certain thing. hey, she’s better at prediction than the consensus by a country mile.
    Obama backed Solyndra over production and called it Winning The Future. And they want to be in charge of everything including the climate, what we know, what we think, and how we feel.. Arrogance on stilts.

  18. Can’t think of better news. And they said gasoline would never get down below $2/gal. (One of the presidential candidates said he/she could get gas to $2/gal and they laughed at him/her) Maybe some poor folks can celebrate Christmas now and buy food and heat for a while. How long do you think this will last??
    Next trick, drill in ANWR to keep the pipeline flowing and of course the Keystone Pipeline etc.
    ANWR was set aside as an oil reserve originally…

    • At $60 WTI the Alaska National Wildlife Refuge looks as far as the moon. However, I’m pretty sure prices will recover. The low price environment will cut production in a jiffy. On the other hand, getting oil out of ANWR would take…7 to 10 years? Something like that.

      • Good luck with our “less than a year” projection.

        Takes time to prep, drill and lay the pipelines to move the product.

        Look at some of the large scale projects that Exxon and BP have. Their time horizons are close to the decade time scale.

      • You’d best get a map to locate where Valdez is relative to Alberta.
        That pipeline can’t handle bitumen

  19. Too the claims that shale oil needs $75 a barrel where true initially but as the technology has developed the cost per barrel has gone down. I’m not certain what it is now but it isn’t $75 a barrel to break even anymore it is something lower than that.

  20. Wanna see an economy in recovery ?, cut the price of oil in half.
    Hang onto your britches, while it lasts.

  21. Re Australia’s $200 million.
    In my opinion this is a better approach for Australia to take. Do what many countries are doing: pay lip service, contribute a little but carefully channel its use, and move very carefully and await further data and further developments.
    It is no good barrelling out in front of everyone on a great white charger when you are a tiny warrior with few weapons, not sure where the battle is, who the exact enemy is, who is really on your side, and what the outcome might be.

  22. I am sure my remarks will draw some fire but I think there is more to be concerned about than just the price of oil. This kind of cycle has happened before. In 1970 my buddy was drilling oil wells in western Pennsylvania at a rate of a well every 10 to 12 days. Not one of those wells was put into production in more than a year of work. Practically all of them hit either oil and/or gas. Mostly they found gas. The wells were logged and capped and left. At the time, the value of the well was to simply prove the production capability. There was enough money available from oil prices to invest. Here we are more than 40 years down the road and all of the area where he was drilling is now poised to produce oil and gas yet again. However, at a higher cost. Every other former gas and oil producing formation has been proven to offer the potential to produce more, but it will require additional cost. In Colorado and West Virginia,Wyoming and Ohio, without even having to mention North Dakota or Texas, a steady revisiting of former areas that boomed from the 1920’s and later is showing that they are far from played out. All it took was for the price of oil to reach the investment payback point.
    What will have to happen is for production to adjust back to demand which we passed when everyone who could get a lease and a rig to drill, did so, and in so doing blew past the market requirements. The big companies will kick back on their heels because they can afford to. They know the price of oil will go back up. It is just a matter of time. They have always been able to do that, but the little operator can’t. Everyone who has ever been in the oil business knows it operates in horrific wide swings of boom and bust. It will always be that way. The big companies know this and operate accordingly. The little operations have no choice but to produce and follow the price down until they are so far in the hole they go bankrupt, assuming prices stay low.
    Compounding the situation is the possibility that even the big operators misread the demand as a result of other issues. Middle East oil is easy to get and therefore highly competitive but even they may be seeing something to worry about. I think we will know pretty soon. The last time I saw gasoline at $2.50 a gallon was just before the economy hit the wall in 2008. We are now poised to go that low again. The economic activity that low fuel costs should support, if this was simply a supply and demand issue, isn’t happening that I can detect. That makes me think there are other constraints in the US and world economy. Cheap fuel is good. In my opinion, however, this is an abnormal looking situation that I believe indicates a sick economy on a world wide scale.

    • Compounding the situation is OPEC, they seem to think they/we let them set the price.
      When market forces override their manipulations, they are just along for the ride, like the rest of us.
      Cheap petroleum frees us to spend time researching the next energy source, all of us, it seems the solution might be very near.
      Then what ?, we’re predisposed to warfare, is that gonna change ?
      Maybe in my next life, I’ll see that play out.

      • The problem is that supply / demand has not changed 40% in the past three months.
        But the price has changed 40%.

        So, tell me……has the law of supply and demand been suspended in the past three months?

      • I’m not knowledgeable enough to answer your question precisely, but the market forces (bettors) seem to think they are on the right side of that bet.

      • Exactly !!
        Now where would you put your money ?
        On the US which just found 50+ years worth of oil and gas, or China which steals our technology (they don’t really steal it, we give it to them).

      • U.K..
        ..
        I would put my money in China, as they seem to be investing a lot more money into non-fossil fuel energy sources.

      • Socrates
        Price change is never linear with “supply & demand” change. Ie: you don’t need a 40% change in supply/demand to get a 40% price change.

      • David Socrates, out of curiosity, what are the actual changes in supply and demand in the last three months?

    • Agree with your comment – China and India are slowing, the whole world that supplied their economies are slowing. Hopefully we have a soft landing but with so many countries deep in debt, this could cause some serious damage. The companies around where I live are already shutting wells in, laying off people, and cutting their Capital budgets for 2015. Since every primary industry job spins off 5 or 6 other jobs in secondary and tertiary industry, the snowball effect may be pretty big.

  23. If those subsidies went to oil wells, instead of expensive wind & solar, the result would be much more positive. Good luck with getting subsidies for oil wells with this administration.

    • They already have an “oil depletion allowance” …..are you suggesting that we INCREASE oil subsidies?

      • Socrates:
        Bogus argument.
        “oil depletion allowances” are not subsidies; this topic been thoroughly vetted in prior WUWT discussions. Depletion allowances recognize the decreasing value of the original capital cost of the right to extract oil. Nothing more, nothing less.

    • LMAO…..Solar is now so cost competitive with current prices of electricity, that the electric utilities are now demanding that grid connection fees be increased to prevent their financial ruin ( Courtesy of ALEC )

      • Untrue.
        Solar, after politically forced utility rebates and 30% federal tax credits may be competitive, but unsubsidized solar isn’t. “Competitive” depends on how you count the beans.
        FYI I live in Fl and just installed 11,000kWh of PV solar:
        (1) Full retail cost $36,000
        (2) Florida Power & Light rebate $20,000
        (3) Federal tax credit 30% of $36,000 = $10,800
        (4) Apparent net cost to me = $5,200

      • You are an idiot or a salesman if you believe solar is competitive. The two giant solar thermal plants built in southern Arizona are offline half the time or worse due to maintenance problems. They can’t even break even with the production costs plus the water has to be heated in the morning to jumpstart the generation process. This was known by the contractor at the time they were installed, but he was too busy getting paid to worry about it
        I did my homework for putting solar panels on the roof of my house in that same desert both for leasing and purchase. I would have lost money leasing, and the panels would not last long enough to reach break even if I paid for them even with state and federal government subsidies. Desert heat lowers a panel’s efficiency when you need the electricity the most and degrades the panels over time. I spent my money on making the house and big appliances energy efficient.

  24. Next items that will help the world energy supply and continue to lift millions out of poverty are Methane Hydrate gas and Thorium Fluoride salt reactor. The energy future is very exciting.

      • Don’t have to be “careful” just relating the facts
        ..
        The Chinese don’t expect significant returns on R&D into thorium until well beyond 2020

    • While we keep dreaming about thorium salt reactors, the Russians and others have quietly been making progress with fast neutron (“breeder”) reactors. About two decades ago there was a mass abandonment of fast breeder research programs by the USA, UK, Germany and a few other countries. But not Russia.
      It became dogma that liquid metal coolant was simply too difficult an engineering challenge. I well remember working for 6 months at the Dounreay nuclear plant in Scotland and several times every week hearing the high pitched screech of vented pressurized gas signaling another shut-down due to coolant leakage. Every time it was the same thing. Welded joints in pipes carrying liquid sodium weren’t up to the job. No-one apparently considered any alternatives to welded pipe joints. I guess in our culture that would have been “putting on airs above one’s station”.
      So no-one seems to have noticed that the Russians have apparently completely solved the problem of liquid metal (sodium or lead) coolant in metal pipes. They have fast breeder reactors that have been more or less continuously providing electricity for their national grid since 1980 – i.e. into their 4th decade of uneventful operation:
      The Russian BN-600 fast breeder reactor – Beloyarsk unit 3 of 600 MWe gross, 560 MWe net – has been supplying electricity to the grid since 1980 and is said to have the best operating and production record of all Russia’s nuclear power units. It uses chiefly uranium oxide fuel, enriched to 17, 21 & 26%, with some MOX in recent years. It is a pool-type, with heat exchanger for secondary coolant inside a pool of sodium around the reactor vessel and 3 steam generators outside the pool. The sodium coolant delivers 525-550°C at little more than atmospheric pressure. Russia plans to reconfigure the BN-600 by replacing the fertile blanket around the core with steel reflector assemblies to burn the plutonium from its military stockpiles and to extend its life beyond the 30-year design span.
      Russia are not forging ahead with advanced 4th generation fast breeder designs, and exporting them to China and maybe India. A good overview of fast neutron / fast breeder research, which France, Japan and even the USA are belatedly returning to now, is given at:
      http://www.world-nuclear.org/info/Current-and-Future-Generation/Fast-Neutron-Reactors/

  25. Socrates,
    The law of supply v demand is exactly what you are seeing. When supply exceeds demand, inventory accumulates, then prices fall until demand increases or supply decreases, or both, until once again equilibrium is reached.

    • There has not been a 40% change in either supply, demand, nor any combination of the two that equals 40%

      • You keep saying that…
        Sorry for the source but Wiki says:
        “The 1979 (or second) oil crisis or oil shock occurred in the United States due to decreased oil output in the wake of the Iranian Revolution. Despite the fact that global oil supply decreased by only ~4%, widespread panic resulted, driving the price far higher than justified by supply. The price of crude oil rose to $39.50 per barrel over the next 12 months and long lines once again appeared at gas stations, as they had in the 1973 oil crisis.[2]”………

      • Mr U.K.

        Please look at current oil market stats.
        The current price has hit < $65 per barrel. It was $100 a barrel about three months ago.

        PS, you should know better than to cite Wikipedia

      • You can post all of the “inflation adjusted” numbers you wish, but that will not do justice to the 40% price movement in 3 months that is not attached to any significant supply/demand movement.

      • Socrates
        By just repeating the simple phrase “supply and demand”, you are arguing without the full spectrum of factors effecting price in a free market:
        (1) current “supply” (which has increased)
        (2) future estimate of “supply” (showing credible, substantial & sustained increases),
        (3) current “demand” which is declining (at least in the USA),
        (4) future estimate of “demand”,
        (5) political risk of supply (decreasing due to supplier geographic diversity),
        (6) emotional value placed on the commodity (this changes over time; e.g.:not much demand these days for expensive tulip bulbs),
        (7) plus other factors.
        Pricing moves are never the arithmetic sum of % changes to all of the above, and never move in linear relationship with changes in “supply & demand”. Current world oil demand is about 90BBL/day; an unresolvable 1-2% decline in supply easily & quickly drives price up 30-40%.

      • You don’t need a 40% oversupply. It only takes a 10% oversupply to send prices plumetting as that 10% seeks its share of the market. This sets the stage for another price adjustment as less profitable production is abandoned and less profitable plays are avoided.

      • Socrates – study “price elasticity” in economics.
        “It is better to keep your mouth closed and let people think you are a fool than to open it and remove all doubt.” – SAMUEL CLEMENS

    • Your time spent here at WUWT is paying off already – you’re starting to understand the free market.
      Kudos to you.

    • Absolutely yes – some enterprising guy will find a new technology (or process) to lower cost.
      Fracking is an excellent example: most of existing fracking wells came from pre-existing oil wells “tapped out” using old technology.
      Current fracking uses water; future fracking may use liquid nitrogen (and little/no water).

      • Check this reference:
        http://www.opec.org/opec_web/static_files_project/media/downloads/publications/WOO2012.pdf
        Chapter 7, third paragraph, page 205.
        It discusses the crude oil peak, as they see it. They don’t mention the word peak. They refer to gradual replacement by non crude oil liquids. Somewhere in that report they also show a price projection. They expect $150 plus dollars per barrel by 2035. This is what they think is needed to keep production meeting demand. But the demand isn’t met by crude (as opec defines it).
        In conclusion, we either hit peak or are about to hit it, condensate helps bump up the refinery feed. The other “crude” we can produce is the extra heavy from Canada. The canadian extra heavy, processed to make syncrude, or diluted so it can be pumped to a refinery, added to the shale or tight rock light crude will make North America a self supplied region. However, the new supply sources require higher prices. And the USA isn’t about to be Saudi Arabia. Getting that oil out will require a huge effort.

  26. MY APOLOGY, PUSHED THE ENTER KEY INADVERTANTLY.
    I’m astonished at some of the comments concerning the imminent demise of shale fracking. Personally, I knew nothing about the vast technology of tracking just a few years ago. The NYT, Bloomberg, CNN, Economist, BusinessWeek, NewsWeek, CNBC… etc, etc, ad nauseam, are now reporting the death of all fracking. I don’t think so. Fracking was founded on technology & technology & American ingenuity will keep the cost learning curve downward for a long, long time.

      • Fracking’s been around for more than 40 years, more like 60+ years. But directional drilling, the chemistry of the hydraulics, etc, the techniques of explosively fracturing the drilled layers, etc, etc, has what’s made fracking so practical & economical. And, the footprint & time to make the well pay off has shrunk tremendously… which keeps the GreenGuys off kilter.
        I believe in American ingenuity… ahhhh… except for those GreenGuys that are just against everything.

      • You can believe in “American ingenuity” all you want,but what is happening today is the destruction of the “facking boom” by foreign powers in possession of a heck of a lot more oil than exists in Bakken or Eagle Ford.

  27. A question for an oil expert, “Isn’t it possible that fracking company’s GAAP profit will take a hit at these sub $80 per barrel prices, but their cash flow will do very well?”

    • All you need to do is to examine today’s current prices for stocks in companies that are heavily leveraged in the shale oil plays.

    • Socrates
      I’m calling foul on you answer to Isn’t it possible that fracking company’s GAAP profit will take a hit at these sub $80 per barrel prices, but their cash flow will do very well?”
      Share price is the net present of expected future earnings. The question was: can earnings decrease while cash flow increases? The short answer is yes.

  28. Socrates
    You are confirming eloquently that the twin pillars of socialism are infantile naivety about, and blind prejudice against, free markets.

    • Yes, more than two dozen comments (!), none of which has much substance. If one is so knowlegeable, why comment here? He would be out on the French riviera, living large on his astute oil plays.

      • “none of which has much substance”

        But then, doesn’t compare with your ignorance of the WFT “isolate” function.

  29. Forget the price of oil stocks. It is the price of gas/energy that the poor/middle class will benefit from.
    $3 per gal vs $2 per gal will elevate some of the poor to “middle class”.

    • You think that the poor slob in the heart of Africa cares if gas costs $3 or $2 ???

      They need to feed their kids, not put gasoline into a non-existent automobile.

      • Socrates
        You’re damn right he cares.
        He cares when he plows his marginal farm by hand (or animal) because he has no mechanization; he cares when his children drink polluted water because of no treatment plant.
        Your arrogance of marginalizing “the poor slob in the heart of Africa” speaks volumes.

  30. Not highly credible given the report was composed before the recent fall in oil prices.
    A lot of the shale and tar sands plays become uneconomic at the present price. Equally the pause in Chinese oil consumption is a huge negative for world economies if it continues.

  31. Fernando
    If this is what they have always thought, they have always been wrong.
    1885 USGS “Little or no chance for oil in California”
    1891 USGS Same for Kansas and Texas.
    1914 US Bureau of mines: Total future production limit of 5.7 billion barrels
    1939 Department of the Interior: Reserves to last only 13 years.
    1951 Department of the Interior, Oil and Gas Division: Reserves to last 13 years.
    From Julian L. Simon, Page 165, “The Ultimate Resource 2”

  32. Watching the Peak Oil debate over the decades provides a glimpse of what it will look like when long cycles in climate undermine the efforts of climate advocates and political climatologists. Depending on the severity of the counter blow from reality, they will run silent for an extended period living off the spoils from prior policy victories. It will be up to new leadership to determine the speed of rollback and recovery in policy, programs, and science process, science education, and science professional societies.

  33. There are plenty of small suppliers/wells in the US that produce regardless of price. They don’t shut off the well just because the price falls, they just get lower monthly checks. Collectively they produce a large amount of oil. Re price sensitivity of frackers, once the well is drilled and producing, they aren’t going to shut it off just because prices drop. What we’ll see over the next few months if oil stays low is a decrease in drilling new wells rather than supply destruction. The small producers are relatively insensitive to price. The huge corrupt bloated petrol-welfare states, on the other hand, ARE sensitive to price. This is going to be interesting.

    • “price sensitivity of frackers, once the well is drilled and producing, they aren’t going to shut it off just because prices drop.”

      Yes, but they will go out of business when the money they get from the wells they have drilled can’t cover the money they borrowed to drill it in the first place.

    • OPEC producers will fight for market share and match price declines. Their oil is cheaper to produce and they will ride this out. The frac drilling will grind to a halt and the independents will suffer greatly. The handwriting is on the wall for the frac producers.

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