Guest “who fracking cares?” by David Middleton
What is so newsworthy about peak oil predictions? The latest is from someone named Adam Waterous and it’s all over the news. This is a typical example:
Markets
Peak Permian Oil Output Is Closer Than You Think, Investor Says
By Simon Casey
January 14, 2020-Adam Waterous says U.S. shale is in an unsustainable position
-Likens industry’s plight to going through ‘5 stages of grief’Such is the extent of the shakeout in the U.S. shale industry that Permian Basin oil production is closer to peaking than many forecasts suggest, according to one energy investor.
Adam Waterous, who runs Waterous Energy Fund, regards the sector’s financial position as unsustainable after years of disappointing returns for investors and negative free cash flow. With capital markets now largely shunning shale producers, the impact will begin to show in oil and natural gas output from the largest U.S. oil patch, he said.
[…]
Predicting peak Permian output for 2020 isn’t a mainstream view. There’s plenty of debate about how much production growth in the West Texas and New Mexico patch may slow this year as shale drillers slash capital spending, but the consensus is that supplies will rise, albeit at a slower pace.
[…]
As head of investment banking at Bank of Nova Scotia, Waterous had a direct hand in mergers and acquisitions that reshaped the energy sector. But he says the model those deals represented, one in which oil and gas companies prioritized production gains and M&A, is now a relic.
“The capital gains model is broken,” he said. “The M&A market is gone and it’s not coming back.”
The kind of industry rationalization Waterous describes may work to his advantage. His Calgary-based private equity firm, which he founded in 2017, controls two Canadian oil producers.
[…]
Waterous likens the plight of U.S. shale in recent years to the five stages of grief. The first stage, denial, is characterized by a belief that the M&A market will return, he said. That’s followed by anger (“the market is wrong”), then bargaining, by trying to operate within cash flow, followed by depression — moving to the free cash-flow model that many shale operators have been touting.
The final stage, acceptance, is defined by Waterous as the industry finally resolving to provide investors with cash payouts via dividends so that they recover their initial investments.
[…]
Bloomberg
How many things can one “investor” get wrong? The Permian M&A market was booming in 2019 and overall, 2019 actually closed on an upswing. Regarding Permian Basin production, almost everyone is forecasting a slowdown in growth. A slowdown is inevitable because the explosive growth since 2016 was a key factor in driving oil prices down since October 2018 and this led to a drop in the rig count. The rig count largely drives production and price drive the rig count. Apart from oil prices, investors play almost no role in this cycle.
While the rig count has tailed off since November 2018, the productivity of new wells has increased.
So, the rig count can actually fall while production continues to increase. Although, production will eventually “peak” and then decline, without a resumption of increasing actvity.
Will Permian Basin oil production “peak” in 2020? This all depends on oil prices.
“It’s tough to make predictions, especially about the future.”
Arm-waving claims that Permian Basin oil production will peak this year, next year or twenty years from now are not very useful. Actual predictions, more accurately forecasts, attempt to quantify what the production will be at some point in the future. Wood Mackenzie (aka WoodMac) is a a professional research firm. They started out providing research and analysis products for the upstream oil & gas sector and have since spread out into many other industrial sectors. In many ways, WoodMac is a professional forecasting outfit. Let’s look at their 2017 Permian Basin forecast.
Geology vs. technology: How sustainable is Permian tight oil growth?
18 September 2017
*Peak Permian production could increase by 500,000 b/d over WoodMac’s base case in a modelling scenario where new technology adoption accelerates more aggressively
*Long term reservoir performance presents bigger risks and may bring peak Permian production forward by 4 years– putting more than 1.5 million b/d of future production in question
*Both upside and downside scenarios have potentially significant implications for oil price and industry cash flowTechnology has played a huge role in the rapid rise of production in the Permian. Operators are bullish on the region’s long-term potential and poised to exploit the Permian at an unparalleled pace over the next few years. However, according to a report by Wood Mackenzie, Geology vs. technology: how sustainable is Permian tight oil growth?, geological constraints that may arise as the play is aggressively developed could lead to production shortfalls, and in turn, higher prices early next decade.
In the report’s reference case analysis, Wood Mackenzie forecasts Permian production to increase to more than 5 million b/d in 2025. Fully modelling the potential impact of the latest breakthrough technologies reveals measurable upside to Permian peak production; however, downside risks related to tighter well spacing and well-on-well interference, could bring peak Permian production forward by 4 years compared to the upside case – putting more than 1.5 million b/d of future production in question.
[…]
A few things are clear from Woodmac’s sensitivity analysis though. Permian production will grow aggressively for the next few years, technology advancements will quickly spread across all operators, and EURs for many parent wells should keep rising. Further into the future though, huge downside reservoir risks may quickly become a reality if technologies don’t evolve to meet the geological challenges of the future.
“The technology vs. geology tug-of-war has the ability to profoundly alter the future production profile of the region, and ultimately oil price. Less Permian supply from 2021 onwards would exacerbate the global supply gap and effectively mean the US cannot deliver what the market believes it can. Other sources of higher cost, conventional production would be needed.” Clarke concludes.
[…]
WoodMac
Note the total lack of reference to investors. Geology, technology and oil prices would drive Permian Basin production growth. WoodMac forecast that Permian Basin oil production would peak at about 5 million bbl/d in 2025, with a range of 1.5 million bbl/d from low-end to high-end. In December 2019, Permian Basin oil production was 4.7 million bbl/d and the EIA’s short-term outlook is that it will average more than 5 million bbl/d in 2020, beating WoodMac’s forecast by 5 years.
NOVEMBER 21, 2019
EIA increases U.S. crude oil production forecast for 2019 and 2020[…]
With these changes, EIA now forecasts U.S. crude oil production will increase to 12.3 million b/d in 2019 from 11.0 million b/d in 2018. Output in the Permian region is the primary driver of EIA’s forecast crude oil production growth, and EIA forecasts Permian production will grow by 915,000 b/d in 2019 and by 810,000 b/d in 2020.
Increases in Permian crude oil production in Texas and New Mexico are supported by crude oil pipeline infrastructure expansions that came online earlier this year. These expansions, which helped alleviate transportation bottlenecks and led to increased prices for WTI in Midland, Texas, (the price that producers may expect to receive in the Permian region) relative to prices for WTI-Cushing. The higher relative prices in the Permian region should continue to encourage crude oil production growth in the region.
EIA forecasts that the Bakken region in North Dakota will have the next largest crude oil production growth in 2019. EIA expects Bakken crude oil production will grow by 152,000 b/d in 2019 and 96,000 b/d in 2020. EIA forecasts that production in the Federal Offshore Gulf of Mexico will increase by 138,000 b/d in 2019 and 116,000 b/d in 2020.
Although EIA forecasts that overall U.S. crude oil production will continue to increase, EIA expects the growth rate will slow largely because of a decline in oil-directed rigs. According to Baker Hughes, active rig counts fell from 877 oil-directed rigs in the beginning of January 2019 to 674 rigs in mid-November, a 23% decline. Rig counts in the Permian region fell 15% during this period, from 487 to 408 rigs.
Because EIA expects WTI-Cushing crude oil prices to stay lower than $55/b until August 2020, EIA anticipates that drilling rigs will continue to decline as producers cut back on their capital spending, resulting in notable slowing in the growth of domestic crude oil production over the next 14 months.
Although U.S. rig counts are declining, improvements in rig efficiency, which allows fewer rigs to drill the same number of wells, partially offsets declining rig counts. In addition, higher initial production from wells (although not necessarily the total estimated ultimate recovery) is offsetting some of the slowdown in rig counts.
US EIA
Like just about everyone else, EIA forecast the growth rate to slow because they anticipated WTI to remain below $55/bbl through at least August 2020… Not because investors were demanding anything. This EIA report was published in November 2019. While 2020 is still young, WTI has averaged about $61/bbl so far. If WTI averages less than $55/bbl this year, Permian production may very well peak at a bit over 5 million bbl/d. If WTI rises to $75/bbl, the Permian Basin production rate will continue to climb. It is currently estimated that takeaway capacity will increase to 9 million bbl/d by the end of 2021. Depending on oil prices, Permian Basin production could rise to over 8 million bbl/d within a couple of years.
Many people think of the Permian Basin as a discrete oil field, when in fact is is massive collection of sedimentary basins (a super-basin) with over 7,000 oil fields producing from multiple, often stacked, oil & gas plays.
The Permian Basin is fracking YUGE…
Aug 17, 2017, 07:52pm
Gilmer: We Should View The Permian Basin As A Permanent ResourceDavid Blackmon
* If Gilmer’s estimate of the real scope of Permian Basin oil is on target, it would represent a prize of somewhere between $25 – $100 trillion at current prices.
*the experts in our industry have historically massively underestimated the resource potential.Allen Gilmer, Co-Founder and Executive Chairman at DrillingInfo, Inc., is not a man who minces words, an attribute that has served him well during a long career in the oil and gas industry. When it comes to the Permian Basin and the amount of oil and gas resource contained in it, he becomes positively loquacious.
We should view the Permian Basin as a permanent resource,” he says, “The Permian is best viewed as a near infinite resource – we will never produce the last drop of economic oil from the Basin.”
No one disputes that the resource in the Permian is huge, but ‘infinite’ is a big word. I asked him to expand on that concept. “That is the practical reality with the amount of resource that is in the ground,” he says, “The research we’ve done indicates that we have at least half a trillion barrels in the Permian at reasonable economics, and it could be as high as 2 trillion barrels. That is, as a practical matter, an infinite amount of resource, and it is something that has huge geopolitical consequence for the United States, in a very good way. It has a huge consequence in terms of GDP, and right now it is creating an American energy global ascendancy.”
[…]
Forbes
Amazingly (or maybe not), every candidate vying for the Democrat nomination to run for president this year is promising to spend trillions on green schist and to destroy $25 – $100 trillion worth of resources in the Permian Basin. Where’s that Ron White meme?
I’m with David Middleton on this. You can’t call a little wiggle in production “peak oil”.
More than that, you shouldn’t call anything “peak oil” without identifying what you mean by it. Do you mean (a) when production finally stops increasing – ie reaches a rate which is never exceeded later – or do you mean (b) hitting the wall – when they simply can’t increase production no matter how hard they try, or do you mean something else? It makes a difference. Certainly on a global scale (a) could be a good thing, eg, because something cheaper and better has replaced oil, but (b) is likely to be disastrous.
I think peak oil production in the Permian will be 2100 give or take some months.
“… the experts in our industry have historically massively underestimated the resource potential.”
Then they were never experts.
“… the experts in our industry have historically massively underestimated the resource potential.”
Because their theories of oil formation are incorrect… plus technology for oil discovery & recovery have tremendously advanced over the decades.
The theories are correct (that’s why they are theories) and irrelevant to the subject.
So-called “peak” oil production or the claim, thereof, relies on those so-called “theories”, rather hypothesis.
Hubbert’s claim of so-called “peak” oil production in 1970, which was so far off, relied on so-called “fossil” theory.
How long these basins will keep producing oil and how much money to invest depend on an idea of the total amount of oil in these basins.
The origin of oil & gas is relevant, if for nothing else, the scientific truth of the matter.
And, the belief in those hypothesis (algae & plants forming oil) is one reason why “the experts in our industry have historically massively underestimated the resource potential.”
So. it’s relevant, although you disagree with it.
Not even wrong.
Usually these predictions have a (sometimes unspoken) assumption of “if nothing changes”, or “everything else being equal”, which is almost never true. Specifically, new discoveries and technology are always changing the landscape. The older you get, the more you realize this, unless you are stoopid.
What exactly is your hypothesis on how underground oil forms?
You do realize many coal beds are filled with plant fossils from which they formed? If you “cook” coal with enough heat and pressure (and time in the natural case) you get a crude-like oil (assuming you do not allow the various weights of oil to separate). It contains various unwanted materials, usually sulfur for example.
Left to itself, this liquid oil migrates upwards as it is pushed upon by pressure. It can collect under impermeable formations (often a salt) into reservoirs where geologists locate it and its extracted from. If there is nothing to stop it’s upward progress it eventually reaches the surface where the volatile materials escape leaving behind a tar-like substance (tar pits, tar sands). Given more time even these solidify and weather away.
There is nothing controversial at all about where most oil comes from. If the theories were wrong, we would be unable to find so much of the underground oil. (They are theories – originally they were hypothesis but have now made numerous successful predictions about where to find oil so they are well established theories now)
Robert of Texas: “What exactly is your hypothesis on how underground oil forms?”
A natural version of the Fischer–Tropsch process. Science has a specific chemical pathway and it is well understood.
Deep deposits of oil have been found, such as the deep oil deposits off the coast of Brazil, where the hydrocarbon suite of the oil match the hydrocarbon suite of oil produced by the Fischer-Tropsch process.
So-called “fossil” fuel theory has NO established chemical pathway, only general descriptions, such as Catagenesis & Diagenesis.
Those descriptions are only assumptions without scientific confirmation.
Robert of Texas: “If the theories were wrong, we would be unable to find so much of the underground oil.”
On the contrary, if those hypothesis were right we wouldn’t be able to find so much oil and, indeed, so-called “peak” oil advocates rely on the “fossil” theory for their claims of “peak” oil. Think of Spindle Top, it’s a salt dome, the oil was encrusted and atop gypsum, anhydrite, limestone, sulphur and dolomite, 80% of oil deposits in the United States are associated with dolomite.
Guess what? Geologists don’t know how dolomite forms either.
Many deposits of oil have rare earth minerals mixed in which geologists believe originate from deep within the earth’s crust. Deeper than where the so-called “fossil” theory claims oil forms from algae & plants.
What is more likely, decayed algae & plants being responsible for the abundance of oil & gas in the earth’s crust or geophysical chemical reactions among abundant constituent elements in the earth”s crust.
Common sense suggests an answer.
Not even… not even wrong.
I would look at frac spreads rather than rig counts to get a handle on future production. I agree that what matters is price or, more accurately, the future strip. THe shale player have destroyed an amazing amount of capital. They have transferred huge wealth from shareholders to oil consumers. I can’t think of a single management team in the Permian that should still have a job. As a group, they are arrogant, ignorant and dishonest.
Nelson,
Then you should be making big long term bets against these companies, but honestly I hope you aren’t. You remind me of a guy a know that is always talking about the economy and acts like he’s really an expert. Last summer he told me confidentially that a recession was coming and advised me to “get out of equities” as he was doing. Just last week I asked him about the record markets we were experiencing and he admitted that he moved “back in the market” recently. He was pretty glum about it, so I didn’t push and ask how many earnings he had passed up over the last 5 or 6 months, but after looking at my own 401K, I know it must have been a lot since he has more invested than I do. That was an expensive lesson for him, but I’m not sure he understands exactly what his mistake was.
His mistake was listening to democrats and their MSM cronies talking points hoping to cause a recession, after the FED raised interest rates 4 times in 2018 to attempt to create a recession to hurt TRUMP! It seems to have almost worked, but low unemployment and wage growth stopped it from happening.
The propaganda machine kept TRUMPS! economy approval around 50% most of last summer when they were pushing the “recession is comming” scam. Even now the RCP average is just 54.3% approval for TRUMPS! handling of the economy, ridiculous when you think about it. It should be over 60%, with only the hard core libs not approving when polled, out of spite.
Sorry to hear of your freinds losses, but his recent buy back in, along with the others like him, have made US good money in the market the last few months.
Then get some capital together and wait for them to go bust, scoop up the assets from the creditors for a huge discount, start producing at a way lower marginal cost, and make some bank! 😉
The company that are mismanaged that badly are going to go under, and the strong hands that have dry powder left will be able to produce far more economically without the debt hangover when they buy their operations for a 50% discount or more. The market will shake out the weak hands. Just wait for the creditors to start getting iffy about seeing anything back at all.
If Scoldilocks ever gets wind of this…
Texas, to declare independence (again) in 3 … 2 … 1
/sarc
_Jim,
I’ve been to Texas recently, and I can say that there is some truth to your sarcasm.
Actually, we just want to package and ship Austin off to California were it belongs… Most of Texas is still populated by good solid common sense citizens who love their country and believe in law and order.
Austin has succumbed to the Liberal-Plague (very much like a zombie plague where thoughtless undead roam about but these zombies get to vote). It was once such a nice city to visit.
The Black Rock Fund has announced it is departing Coal and fossil fuels, at least in some part.
Last May, Warren Buffett invested US $10 billion in Occidental Petroleum.
Who would you prefer to have managing your retirement fund?
Black Rock or Warren Buffett?
Bye-bye Black Rock Fund. Thanks for making room for other players.
Black Rock are increasing investing in Tesla
…Tesla makes widgets?
Yep. Dumped all of my BR almost two years ago. Not compatible philosophically.
If the Permian basin (ever) runs out of oil, they will simply drill into another basin. Remember that whole whole of Greenland and Antarctica awaits a future mankind. 5000 years from now people will still need energy and materials.
At some point we will discover how to generate large amounts of energy with some form or other of nuclear processes. We already have options.
Is it not a surprise that so many predictions are made on the precept that we will never discover anything new? While it is true that a techno-fix is not the solution to every problem, but it certainly is the solution to the energy problem.
Crispin: absolutely right.
re: “At some point we will discover how to generate large amounts of energy with some form or other of nuclear processes.”
Witness, new tech undergoing water bath calorimetry (approximately 50 kW power production, 120 gallons of water brought up to the boiling point; video is time compressed):
I have no idea what your point is, _Jim. A contraption in a water bath with wires and bubbling proves nothing.
re: “I have no idea what your point is”
The post was in response to this post: “At some point we will discover how to generate large amounts of energy with some form or other of nuclear processes.” Did you understand it in that context or no?
To which your most recent response is: “A contraption in a water bath with wires and bubbling proves nothing.”
Why not ASK what is taking place? Did you even bother to read the description in the video? Do you know what “water bath calorimetry” is? At this point, I care not to elaborate further, leaving you ignorant of this technology going forward and un-apprised of new developments in the field of energy generation. Your ignorance affects me not in the least, except having to read evermore ignorant comments posted to public forums.
video of “Suncell®”
“…DIRECTLY GENERATES ELECTRICITY. FROM REACTION OF HYDROGEN TO DARK MATTER USING WATER FREELY AVAILABLE IN THE HUMIDITY IN THE AIR.”
….Wow, I don’t know what to say….
You can’t fix Stupid and the disease is spreading wildly and is quite out of control. The least little thing in the popular press will set off another outbreak.
+10
Whenever oil fields in Texas get tapped out (as if) there are locations in New York that haven’t been touched.
There are a few locations in California that haven’t been touched either…
Lots of fields off the coast of Florida as well.
Not fields… Yet.
David,
Peak Oil predictions are based on economic modelling.
As John Kenneth Galbraith quipped, economic modelling was invented to make Astrology look good.
Great posting, David. Whenever I read “peak” predictions I wonder if they considered American ingenuity and innovation? The key phrase in your report, for me, is “new technology adaptation”. I’m guessing you have the Exxon Ferrari parked in the driveway now.
Adam is a relatively famous Canadian oil and gas banker than had a very large M&A business. He recently started a private equity fund.
His observation isn’t about peak oil or Permian geology; its about capital markets. Equity for anyone but extremely large producers dried up over two years ago. The production boom in the Permian was then driven by an extreme amount of high yield debt capital. That has also dried up (and lead to a few bankruptcies as well as large debt funds like Apollo pulling out of the market). It was a capital bubble and companies didn’t grow fast enough at these prices to cover the capital cost. The market is now reverting and values dividend/cash flow growth. This is happening across the entire commodity space, not just oil and gas.
Its a correct observation, IMHO. Besides slower growth leads to higher prices, leads to more growth and lower prices and the cycle continues…
His observation is relevant to why most oil companies are currently valued as if oil was $35/bbl. It has no relevance as to whether or not Permian Basin production “peaks” this year. The production will follow oil prices, not equity valuations.
And an explanation as to why valuations are priced where they are. Oil and gas is extremely capital intensive and there is little capital aside from bank RBLs and internal cash flow which are mostly tapped and quite conservative for anyone who isn’t Shell, Exxon, Suncor, etc… As a result production slows until capital returns or cash flow grows.
I’ve been in the capital markets side of this business a very long time and am a huge believer in shale and the power of producers to grow production and continue to innovate. This article is not an attack on the latter, but rather a thesis on how capital has moved out of the sector and will evolve in the future. And its an accurate one.
The article simply confuses equity valuations with operations.
Sorry, David, your Guest commentator is correct.
Try re-reading the piece while assuming Waterous is making no statement whatsoever about the “peak oil” issue you are addressing. It will make sense, as it did to your Guest (and to me.) It’s a comment on the interaction between the capital markets of today and the current crop of oil producers.
Waterous could be right about the future interplay between capital markets and oil producers, or he could be wrong, but he doesn’t address peak oil in the sense you mean it (at least in the excerpt you provided.) That’s a straw man you devised so you could blow it down. And that’s not to say you did a poor job if it, either, just that you’ve taken Waterous wrong.
From the Bloomberg article…
He’s predicting peak Permian production.
https://www.smartbrief.com/branded/770E861F-CD18-4AE6-9531-4BA122801F12/44311695-B9A2-428C-9E61-5286995CC411
https://www.waterous.com/assets/NewsFiles/WEFnewsPeakPermianPodcast2.pdf
https://oilprice.com/Energy/Energy-General/Will-The-Permian-Peak-This-Year.html
Interesting but the rig count you show is about 200 less than the one I looked up.
https://ycharts.com/indicators/us_oil_rotary_rigs
Since the rig count and production are linked it is a stat I follow. Either way a far cry from the halcyon days of over a thousand rigs.
We’ll see if QE4/BUT-NOT-QE will pump more low cost money into the drilling or if investors have had enough of the “growth at all costs” and want to see returns.
That’s the total US rig count. I posted the rig count for just the Permian Basin. Investors have no bearing on production rates. Production rates track oil prices, not equity valuations.
In the”halcyon days”, rig productivity was 100 bbl/d, today it’s 600 bbl/d, thanks to horizontal drilling and frac’ing.
Right. So 400 in the Permian and 200 for the rest of the country. Thanks.
“There should be a basic requirement for politicians, policy wonks, accountants, college professors, analysts, prognosticators, forecasters, futurists, meteorologists, climatologists, scientists, predictors, and visionaries: They all should have to disclose their past record for predicting the future.”
Steve Heins
P.S. Don’t be surprised if they are all dead wrong, long after they are dead.
Remember Hubbert – he said peak oil was in 1974 – Whoops
then he said it would be in 1995 – 6 years after he died – Whoops
Remember Simmons – he said it would 2005 and he died in his hot tub in 2010 – “Foreign Policy” the
publication for conventional wisdom for idiots and Democrats, sorry I am repeating myself, called him a “Great Thinker” in this obituary. Who reads this garbage: Ben Rhodes, Liz Warren or maybe Bernie Josef Stalin Sanders
https://foreignpolicy.com/2010/08/09/matthew-simmons-peak-oil-proponent-dies-at-67/
Hubbert’s equation is fine. He just underestimated the recoverable resource by a wide margin.
Impeccable mathematics – fed with garbage assumptions. Hmm…
It’s just a matter of known unknowns and unknown unknowns. In 1956, there were a lot of unknown unknowns
There still is. No one can predict the market swings, the technology breakthroughs, the switch from oil to electric (if ever).
But one can count on – “if they can make a profit on it, they will find a way to get the oil out of the ground”. And there is a LOT of oil still in the ground – most of it just not as easy to get out as in the past.
Peak oil is totally dependent on all of the above, it isn’t some easily quantifiable independent variable. So more than likely you will get a series of partial “peak oil” curves strung together as the outside influences keep evolving.
Yep… Peak oil is dependent on knowing what the ultimate recoverable resource is… The mother of unknown unknowns.
Hubbert assumed that technology would not change. He knew that in a given oil field a certain percentage was recoverable through 1st) Conventional drilling; 2nd) Secondary Methods – water and/or CO2 injection; 3) Tertiatary methods – natural gas injection.
Well, hydraulic fracturing and horizontal drilling came along and the rest is history.
So, when the Left, primarily, along with the bien pensant clowns of the MSM, government bureaucracies and educational establishment announce gravely that “the science is settled” tell them that the science is never settled and that they are dopes for thinking that.
Perhaps we are not so much at a peak-oil stage as we are at a peak price stage because the quantity of reserves is increasing constantly. Companies having to write down the value of their in-the-ground asset has to have some of the same consequences as deflationary price pressure has on the economy. Am I wrong?
re: “Perhaps we are not so much at a peak-oil stage as we are at a peak price stage ”
$2 a gallon (thereabouts) gasoline? I’ll take that …
It’s really fascinating how many people appear to be emotionally invested in the idea that we are going to run out of oil and gas very soon.
People have been invested in that idea since 1914.
“Peak copper” is even funnier or stupider.
From Wiki:
In 1924 geologist and copper-mining expert Ira Joralemon warned:
“… the age of electricity and of copper will be short. At the intense rate of production that must come, the copper supply of the world will last hardly a score of years. … Our civilization based on electrical power will dwindle and die.”
~ ~ ~ ~
Thanks for the post.
Peak copper is like the truth on the X Files… It’s out there somewhere.
The problem with peak copper is that unlike oil, copper isn’t consumed when it is used.
If we ever start to run out of places to mine it, we can just start tapping all the trash dumps around the planet. (I would image the concentration levels in your average dump would be at least as high as the concentrations in most natural mines.)
From Wikipedia:
Like aluminium,[33] copper is recyclable without any loss of quality, both from raw state and from manufactured products.[34] In volume, copper is the third most recycled metal after iron and aluminium.[35] An estimated 80% of all copper ever mined is still in use today.[3
Interesting that a “copper expert” in 1924 predicted that the copper supply would dwindle within 20 years, or by 1944.
That would be strange news to the Kennecott copper mine in Bingham Canyon, Utah, which discovered a new vein of copper ore (near their existing mine) a few years ago and is now expanding their production!
We don’t really know what is under our feet until we start digging!
If we really start running out of copper, we can start melting down pennies, whose copper content is worth more than 1 cent each.
A clown who has been writing for years and syndicating his rubbish around the world names Gwynne Dyer ‘
Over 30 years ago he wrote predicting peak oil and most other commodities and he still has a job and he still sells his rubbish column all around the world .
These people don’t seem to live on the same planet as the rest of us that produce everything that modern civilization requires .
Our green leaning government here in New Zealand have banned any new oil and gas exploration off our coasts
which is crazy and was announced by the Prime Minister as her “nuclear moment ” but it is a really expensive moment for the country and will be more so when gas supplies run low
Graham
There are so many obvious, clear shortfalls in the view that “OMG!! Permian output gonna peak!!” that one would be hard pressed to list them all.
For those willing to look back 12/24 months from now at these absurd claims, note well these …
Pipeline constraints (oil) are rapidly being debottlenecked with new pipe coming online.
The present backup at the dock level is clumsily being addressed via reverse lightering so the VLCCs can economically make the deliveries to Asia.
Both deepwater port and offshore VLCC-capable projects are being built.
China is set to open a few massive refineries.
As the past few months have demonstrated with the ongoing IMO 2020 regulations kicking in, Very Low Sulpher Fuel Oil (VLSFO) is shaping up as the – potentially – fuel of choice with one HUGE qualification … that being compatibility across the global supply chain. It is becoming apparent that light, sweet US LTO is becoming THE preferred feedstock for refineries and bunker suppliers to confidently offer problem free fuel to the shipowners.
While Permian operators continue to recover ~6/8% of the OOIP, cutting edge operators in the Bakken and EF are now getting ~20%.
Chevron has made very clear that they are preparing to apply these drilling/completion practices to the Permian with an anticipated learning curve as the heterogeneous nature (not to mention the size) of the Permian horizons is simply mind boggling.
EOR techniques continue to evolve with foamed natgas being one of several approaches that will undoubtedly find sucess sooner rather than later.
A somewhat related aspect to Permian oil production will arise when the 2 (out of 3, potentially) LNG terminals open up on Mexico’s west coast.
The Costa Azul project should be the first with a ~2.4 mtpa module plunked down and ready to go by 2023. Along with the Puerto Libertad project, these 2 plants will ship the cheapest LNG on the planet as already-existing pipelines will source from the Permian (and, most likely, the Piceance). The anticipated ~55 mtpa from these 2 projects – by themselves – are within shouting distance of Qatar’s current ~77 mtpa.
The above article calling for a plateauing of Permian output is beyond farce.
I am a Geologist who has worked all over North America on the exploration development and operations side of things. The Permian will peak in the next 24 months. There are multiple lines of evidence for this. One of the largest is the understanding that the reservoir properties of the major stacked plays are turning out to be smaller then original estimates. You just need to look at the geosteering reports and it stands out clear as day. They have no idea where they are and are bouncing up and down across several hrzs over the hz section of the well. They are knocking out these 8000-9000 ft laterals very quickly, management teams are indifferent to percentage in the zone because they plan on selling the company with the DUCs and moving on. That’s a very bad sign.Many of the new.wells are entering multi phase flow much quicker then thought, with major issues related to pressure draw downs occuring well before the predicted recovery of liquids is met….. The Permian will not collapse but the growth is slowing because of reservoir geology not technology. Bigger players like XTO have identified the outer limits of the sweet spots and are nailing down their positions.
That’s actually a combination of geology and technology.
Thomas- are you predicting it will peak at the current strip price or at any strip price ?
At risk of being ostrascized here also, a gentle but fact based rebuttal. Based on several much more detailed essays in ebook Blowing Smoke.
There are several ways to estimate remaining discoverable oil ( note, not including natural gas). All of those (creaming curves by basin being but one) say about 75% of all oil that will ever be discovered has already been. And most of that is already being consumed.
A 2008 IEA survey of about 75% of all existing oil fields (790 to be precise), comprising > 85% of all oil production, found a >5% production decline per annum. (Well, exactly 5.7%). So unless new fields come on greater than that decline rate , global production eventually declines. And despite fracked source rocks, it ‘soon’ will. By about 2025. Math in several ebook Blowing Smoke essays.
The measured declines in ‘conventional’ oil reservoirs cannot offset by new fracked source rock reserves except in the very short run. Short run ~ a decade.
Only about 17% of the technically recoverable resource has been produced. “Creaming curves” in the 1990’s would have not captured “shale”, most of the deepwater plays in the Gulf of Mexico, offshore Brazil pre-salt, etc.
Rud, internationally there is a massive amount of oil in frackable source rocks that has not been touched. We might see some ups and downs and various proclamations of peak, but be assured the USA is not the only place multi-stage horizontal fracking will work.
We keep running into oil & that’s a good thing.
This is a great article!
I’ve been reading these doomster predictions about fracking since day 2 of the fracking boom. That they’re pretty much always wrong does not bother their audience.
It is an example of the desire – the demand – for bad news in America today. Since there isn’t enough of it to meet the demand, people manufacture fake bad news. Sad.
We’ll never see peak bad news.
If Gilmer’s estimate of the Permian Basin being worth $25 to $100 trillion is correct, and current Permian Basin production is 4.7 million barrels per day, even at the low end, $25 trillion at $61 per barrel comes out to about 410 billion barrels of reserves. At 4.7 million barrels per day, the oil would last 87,200 days or nearly 239 years. No one alive today would have to worry about the Permian Basin running out of oil within their lifetimes, unless the USA elects a government stupid enough to demand that the oil be “left in the ground” to prevent “climate change”.
If the market is allowed to operate freely, one can expect fluctuations in the number of new oil rigs brought onstream with the price of crude oil. If crude prices are relatively low, investors won’t pay for new rigs, and the production rate per rig will gradually decline for the existing rigs. But this could lead to a shortage on the world market, which causes crude prices to rise, which makes new rigs more attractive to investors.
World oil shortages could also be caused by either natural disasters (such as a hurricane that destroys offshore rigs) or political upheaval (such as the decline in Venezuelan production, the destruction of the facility in Saudi Arabia, or economic sanctions or boycotts), and such shortages could produce price hikes that make additional rigs an attractive investment in free-market areas such as the Permian Basin.
Permian Basin oil may, in the future, command a price premium over crude oil from other countries, particularly from the Middle East. West Texas Intermediate is much lighter and sweeter (contains less sulfur) than Middle East oil, meaning that it produces more naphtha (used to make gasoline) and straight-run diesel than Middle East oil, and requires less expensive processing to remove the sulfur. Refineries may be willing to pay more for Permian Basin crude, since the refining costs to produce saleable fuel products are lower for Permian Basin crude than Middle East crude. The same is true of Bakken crude.
Peak oil, peak copper, peak this, peak that….
What I want to know is if humans will ever hit their peak stupidity? I submit that no matter how stupid we get, their will always be the capacity for us to become more stupid, until of course we all run out of oil in 2030 (that is the latest prediction for the end of the world, right?)
The world is awash in oil right now. If every place that we have drilled were actually producing at their current obtainable peak, we could fill lakes with the excess oil. This is AFTER we supposed would run out of oil two or three times in the past (maybe more, I have lost count).
So I wouldn’t worry about any new peak oil claims. It is all about economics – the price you can sell a barrel versus the cost to produce the barrel. Period. Oh, wait, and politics. OK, maybe we are all doomed.
OH! And David, you write the best articles! I love your topics. Keep it up!
(Sorry, meant to finish up my former comment with that and hit the Post button too fast)
Once upon a time in the early 90’s I was on the Joint Staff, responsible for advising on potential industrial/resource availability to support military strategy. I was scared shxxless with all the apoplexy about the abysmal state of our manufacturing/resource base to include “peak oil.” Admittedly a neophyte on oil production, I hit the books to try to figure how reserves and production estimates were figured and presented. I was staggered by the apparent lack of analytical rigor and intellectual curiosity of those who declared “peak oil”. They just accepted the assertions of the supposed “thought leaders.” “Of COURSE we are approaching peak oil…..all the experts say so”. I was lucky in that I ran into a really smart petroleum engineer who advised me to ask the gurus about their assumptions about advances in exploration and production technology. He also gave me a tutorial about what HE thought what the advances might be. Of course the gurus thought my “naïve” questions were irrelevant and not useful.
As a newly minted mechanical engineer in 1968 that went to work for an oil company Midland Tx. I was being told the basics of how the wells were drilled to exposed the 10 feet or so pay zones that were drilled thru to set casing and perforated and produce. I naively asked why don’t they just drill horizontally and produce a large amount of the pay zone. The response from the petroleum engineer was this was impossible to do and he right for about 30 years. The next 30 years could bring about something that is impossible.
There is value in not having to transport the stuff from the ends of the world to the US. There is value in spending US money in the US to support US jobs that in turn produce consumption in the US in turn enhancing the industrial output of the country and so forth. Normal oil economics don’t apply to shale. How many times has shale been crossed off the list – and it’s still getting bigger. Who listens to those naysayers?