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A Contrarian View On The Peak Oil Debate

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Summary

Because peak oil demand theory has become self-evident truth, it is hard to even suggest at this point that the theory might be wrong, even when backed by solid evidence.

Conventional oil production only increased by about 1.5 mb/d over the past decade. Discovery as well as current reserves data suggest a peak and decline will occur within the next decade.

Expectations of unconventional oil sources making up for any loss in conventional production and making up for yearly demand growth are highly misplaced.

A combination of two major trending stories from the past few years provided for a very powerful one-two punch against the whole peak oil supply theory. On the supply side, we have the U.S. shale revolution, which brought an additional 5 mb/d on the global market since 2008. On the demand side, we have had increasing speculation in regard to EVs killing oil demand going forward. As a result, peak oil demand replaced peak oil supply as the main predominant narrative in regards to our oil future. More and more, we have peak oil demand forecasts coming from reputable sources, such as this latest one from Goldman Sachs. The demise of peak oil supply theory in the public sphere has become so absolute in the past few years that it is becoming increasingly hard to even suggest that serious attention still needs to be paid to the global supply situation. No one even bothers to discuss it, as increasingly the conversation turned to speculation in regards to which countries and companies will be caught with most reserves that they will never be able to produce, as demand will not be there to necessitate its production. What I want to do with this article is show that a case still exists for the other side of the argument and point out the fact that it may be stronger than the prevailing consensus may suggest.

My own view on peak oil

Before I get into the details of the current situation in regards to where we stand on oil supply prospects for the future, I want to briefly share my own personal views on the subject, which have not changed all that much in the past decade or so. In fact, my first article written on Seeking Alpha was on this subject back in 2013. My overall view of the subject starts from the obvious geological reality, namely that oil is a finite resource, and how much of it can be extracted is largely a function of how high our long-term oil price economic threshold is. That threshold is itself subject to change. For instance, following the 2008 economic crisis, our threshold increased, due to the fact that low interest rates for a prolonged period of time provided for a period of declining interest rate burdens throughout the economy. Given that we are now basically done re-financing debts at the lower rates, the trend of continued relief is over. Therefore, our ability to absorb an oil price increase is lower than it was in the years after the economic crisis triggered a sustained global decline in interest rates. In other words, oil prices rising above $100/barrel at this point in time would most likely lead to a global recession. I really don’t believe that we would be able to sustain oil prices at that level as we did in the 2010-2014 period.

I also believe that the marginal cost of producing that extra barrel of oil is constantly increasing, because we naturally produced the least challenging reserves first, and we are gradually moving on to more and more challenging new projects and also to more challenging projects within older fields in order to retrieve the last remnant barrels. There are some who like to argue that technological advances tend to prevent an increase in production costs, even as we move into more and more challenging projects, but the historical evidence does not support that thesis. For instance, oil prices were in the $10-20/barrel range for much of the decade in the 1990’s. Today, most oil producers would either go bankrupt within a relatively short period of time if prices were to drop to $30/barrel, or at least they would put many of their more costly projects on hold. At $10/barrel, most of the industry would collapse within a few years. The quarterly reports we have been seeing in the past year or so, with prices in the $50/barrel range are proof of this fact. In many ways, the best way to view peak oil supply is as a measure of what is the price of oil that the economy can sustain versus the cost of getting that marginal barrel out of the ground. It is basic supply/demand economic theory.

Global conventional reserves

BP puts total global reserves at 1.7 trillion barrels. Personally, I believe that it is worth taking a very close look at the components that make up of those reserves.

  • Gulf region oil reserve inflation.

The controversy in regards to a number of OPEC members inflating their reserve numbers in order to gain an advantage in terms of their quota allocations is relatively well known to most who have been following the global oil industry and the peak oil argument. I will not go into great detail here in regards to why I believe the Persian Gulf region oil reserve inflation issue to be real. If it is true, it means that about 250 billion barrels we assume to be there are in fact only available on paper. The number above is not only my own view, since there are some estimates which suggest that total OPEC reserves may have been overstated by as much as 450 billion barrels.

There are of course those who will argue that the increase in reserves we have seen in the region is justified by new discoveries as well as enhanced recovery. But if we were to only look at Saudi Arabia as an example, it quickly becomes apparent that these numbers cannot be justified by those explanations. We know that in the 1970s, estimated oil in place in Saudi Arabia was around 530 billion barrels. We also know that there were few major discoveries since then. Therefore, the current oil in place tally cannot be higher than about 600 billion barrels. If that is the case and we consider the fact that Saudi Arabia already produced about 150 billion barrels and it claims a further 270 billion barrels in reserves, it would mean that it would take a recovery rate of 70% in order to make it happen. Given today’s technology and more recent price range history, I believe a 50% average recovery would be a more realistic assumption.

Venezuela

Venezuela currently claims to have 300 billion barrels in oil reserves, which is the largest reserve in the world. Yet, as we know, it is suffering a continued long-term trend of production decline, and there is a reason for that. Most of its reserves are very expensive to produce and upgrade. In addition to that, there is the political climate, which in effect renders the country’s reserves out of reach for intensive development, even if prices were to rise to a level which would make extraction of those reserves profitable. I do not want to over-analyze the complex situation in regards to Venezuela’s oil reserves. A Forbes article suggested that given current prices, its reserves should be downgraded by about 220 billion barrels, and I will go with that in regards to my calculation here. I should point out that the downgrade would still leave it with the same reserves as Russia’s, yet any suggestion that Venezuela could potentially match Russia’s current production level in the foreseeable future is frankly lacking much credibility. I do believe that Venezuela’s massive potential oil reserves will come into play at some point, but it will likely happen when we will have oil prices we cannot afford.

North American unconventional resources

In addition to some of the alleged paper reserves of OPEC, we also have about 180 billion barrels of unconventional oil reserves in North America. I by no means want to dismiss these reserves or pretend they do not exist. I do want to subtract it from the real conventional reserve tally, because I think it is useful to separate the two, in order to concentrate on what is happening with what is by far the most important source of crude oil and liquid fuels, namely conventional crude reserves. The conventional crude reserves production is responsible for about 70 mb/d out of about 80 mb/d in total. Therefore, it is the determining factor in terms of where future oil production is headed. So, if we are to subtract the Persian Gulf area resources that are thought to be fictive of about 300 billion barrels, as well as 220 billion barrels thought to be currently un-economical in Venezuela, as well as the 180 billion barrels in unconventional resources from North America, we end up with only about a trillion barrels in conventional resources, while we already produced about 1.2 trillion barrels.

Given past estimates of total conventional oil in place of about 5 trillion barrels, and total resources produced plus yet to be produced proven reserves totaling about 2.2 trillion barrels, we get a current recovery rate of about 44%, which is what would be expected to be the current average recovery rate given primary, secondary, and tertiary production methods available and current prices. It should be noted that a sustained oil price increase to over $80/barrel would most likely increase the recover-ability rate to about 50% most likely, giving us a total of about 1.3 trillion barrels in conventional reserves. There are also still new discoveries happening, but they are well below current production rates, which has been especially problematic in the past decade and a half or so. In the past five years, however, things have become severe in this regard, with only a small fraction of reserve replacement taking place.

Source: Bloomberg

Since about 2010, we are discovering about 5 billion barrels per year on average, while we are producing about 25 billion barrels from the conventional reserves available. This means that every year, we are producing about 20 billion barrels more than we are discovering in new reserves.

Some may be tempted to look at this number and conclude that it is no big deal, because if we are to take the assumption of roughly 50% recoverability from conventional fields, there are still 65 years’ worth of reserves left, given the net decline of about 20 billion barrels per year. Of course, the problem is not when we run dry but when this resource enters terminal production decline. Personally, I am not sure whether the Hubbert curve that peak oil theorists have been using to promote the idea that peak oil is imminent is a good model to predict this. A lot of time has passed since that prediction was made, and it did not include certain factors such as price, in my view. For instance, if we were to find out that the global economy can only sustain oil prices in the current range of around $50/barrel, I believe that we would see a peak in oil production within the next few years, which would include unconventional as well, given the fact that they are the higher-cost producers.

I am assuming that average oil prices will rise from this point, and we will be able to cope with a higher price for a while at least. I am therefore going with the assumption that conventional reserves are in the 1.3 trillion barrel range. If that is the case, we are right now more or less at the halfway point of the Hubbert curve, at least when it comes to conventional oil.

Source: Conspiracywiki.com

My personal take on the Hubbert curve is that in the end, oil extraction is a human activity, and as such, we can defy a model based on geological realities to some extent. One thing we can do is distort the economics of extraction to both change the shape of the curve and also expand the area of the curve, in other words, add to reserves. I believe that we are already doing that right now. One good example of it is the global low interest rate environment, which makes costs of borrowing cheaper for both oil producers, as well as oil consumers, which makes oil cheaper to produce, while it gives consumers a higher capacity to support higher prices, both of which are supportive of enhanced oil recovery efforts.

While our ability to change the economic environment in order to facilitate more oil production, whether through direct or in-direct stimulation can change the timing of eventual decline, in reality, we cannot do so to a great extent in terms of timing or ultimate volume. The only factor which would potentially change the outcome is if we were to see a great increase in the conventional oil base, or oil in place. Based on recent discovery trends, however, it seems that odds of that happening are rather low at this point. While there may still be some significant discoveries yet to be made, large discoveries are now becoming fewer and smaller. Odds of new discoveries changing the overall trend by a great deal are low, in my opinion.

Given what we know so far, I think it is rather sensible to assume that conventional global oil production may in fact start declining within the next decade or so. In fact, the last decade has seen very little in terms of conventional production growth.

Data source: EIA

I should note that 2017 data is only for the first four months of the year. My guess is that by the end of the year, the production average for the year will be below the 2017 average presented in my graph.

As we can see, it was not until the half decade period of near $100/barrel oil stimulated extra production by 2015 that the 2008 production level was surpassed. The increase over a decade’s time amounts to about 1.5 mb/d, which is hardly a production boom. If we would have had a more prolonged period on the $100/barrel plateau we saw between 2010 and 2014, perhaps we would have seen a more robust increase in production going forward, but as things stand right now, it looks like things are stalling out. What this tells us is that at $100/barrel and rock-bottom interest rates, we have not reached peak conventional oil production yet. It is questionable, however, whether we can sustain such a high price economically speaking, given that the post-2008 era of refinancing high interest debt is now over, and we will not have any more debt-servicing relief, allowing us to afford to pay more for oil. If interest rates will rise, perhaps due to an increased perception of risk, it will also make it harder for oil producers to get as much oil out of the ground, even if oil prices were to rise to $100/barrel again. And then, we also have to remember that with every year that passes, we are producing about 20 billion barrels net of discoveries, so eventually, we may need prices above $100/barrel to get more and more oil out of the ground. For these reasons, I do believe that conventional oil production is near its peak. I cannot say for sure when it will happen, given not only geological but also economic factors, but it is possible that it may even be here right now. Or perhaps it will happen a decade from now.

Unconventional to the rescue?

While the increase in oil production between 2008 and 2016 was 1.5 mb/d when we exclude the gains from Canada and US, which came courtesy of oil sands and shale production, when including the increase from these two countries, we have an increase of 6.6 mb/d according to EIA data, which was basically the increase we needed to keep the economy going at the relatively weak pace of global growth we have experienced during the period. In the absence of these unconventional resources, it goes without saying that we would have likely been in trouble. The post-2008 recovery would have never taken place in the absence of the necessary oil supplies needed to make it happen.

Going forward, most people seem to be convinced that unconventional oil can repeat the global economic savior role. We should keep in mind, however, that in the past decade, we still experienced a slight increase in conventional oil production. Once conventional oil goes into collective global decline, we could easily be looking at a yearly decline rate of 1 mb/d or more, which will be relentless. While we have seen years of oil sands and shale production increase which did surpass the 1 mb/d per year level, I don’t believe that such an increase from these sources is realistically sustainable over a period of many years or decades. Not to mention that in order to support a healthy global economy, we currently still need a relatively significant increase in yearly total oil supplies. In my view, it needs to be at least 500,000 b/d per year on average in the longer term, when including possible recession years. Based on what we see currently, during recovery years, we may need to see a total global oil production increase of about 1-1.5 mb/d per year during the recovery years. Looking at it in terms of a decade from the point when a hypothetical peak in conventional oil will occur, it would mean that Canadian oil sands and US shale oil would have to add at least 15 mb/d in extra production in order to keep the global economy humming along at a more or less healthy pace. Then, there may need to be another 10-15 mb/d supplied in the next decade, and who knows how much more beyond that, if we were to claim that we have permanently banished the threat of peak oil supply.

We should also keep in mind the fact that shale oil in particular is no longer an emerging industry, but rather one which matured rather fast. As I pointed out in the past, Eagle Ford’s best-producing county of Karnes is now most likely heavily saturated with wells, as it was responsible for about a fifth of all oil produced cumulatively from the field. In the Bakken, where it all really got started in terms of the shale oil revolution, we have a total of roughly 3,000 square miles where one can say that drilling has proven to be potentially profitable, mostly concentrated within four counties.

Source: The million dollar way

In this area of roughly 3,000 square miles where it is really worth drilling, we now have about 10,000-11,000 wells producing based on North Dakota government data, meaning that we are now seeing a saturation of about 3.5 wells per square mile on average. There is obviously more room to drill for many years and even decades to come, depending on how fast we will drill, but clearly, there are limits to how much production we can see from such fields. Some well-spacing data may suggest that on average, we may see as many as 10 wells per square mile within the profitable zone of the field. If that is the case, we may still see as many as roughly 20,000 additional wells that are yet to be potentially drilled in the field. It is probable, however, that we will see declining returns per well as even within the profitable space, there are more profitable and less profitable areas, with the more profitable acreage generally targeted first. There is also the issue of well interference to consider as the profitable acreage becomes more and more saturated with wells.

My personal take on the shale oil story is that two of the three main fields have already seen their permanent peak occur about two years ago, and those two fields are Eagle Ford and Bakken. Even if that will prove not to be the case in the future, I don’t believe that any new peak in either of these two fields will be much higher than the last one. The Permian field still has some potential left, but it questionable just how much potential there still is in that field as well. It is entirely possible in my view that within a decade, US shale oil fields will be more likely to contribute to a potential overall decline in global production, rather than helping stem the decline.

If there is to be a longer term unconventional rescue of a potential conventional crude decline situation, it will likely be courtesy of Canadian oil sands, as well as Venezuelan unconventional reserves entering the market. These resources are far more vast than US shale, and given their relative size, it could be argued that they are underproduced, meaning that there is room to grow. We should remember, however, that Canadian oil sands operations are also already extensive and it is unclear just how much of it can be produced at a profit at an oil price level that would also allow for decent global economic growth going forward. As for Venezuela, if it ever comes down to us having to rely on its resources to keep things going, we need to keep in mind that oil production there will be a political decision, which may lead to Venezuela actually wishing to limit production to a level which will keep global oil prices significantly above its unconventional production break-even levels, in order to benefit from those resources from an economic point of view. While these resources may be massive, by the time we will get to the point of having to rely on them for our global economic well-being, our well-being will most likely not look all that bright, given the likely price we will have to pay to get our oil resources needed to keep us afloat.

Peak demand to the rescue?

The overwhelming consensus at this moment is that we will see a peak in global oil demand before we will see a peak in oil production. One of the main factors that many are looking at is the rise of EVs. In this regard, I wrote a recent article pointing out the fact that global EV sales will probably reach about 1 million units this year, which is about 1.3% of total sales, while there are currently about twice as many cars being sold each year than there are being scrapped, meaning that the total number of cars on the global roads is currently increasing by about 38 million units per year. Aside from that, we have continued growth in jet fuel demand for air travel, increasing demand in various land and maritime transport services, as well as in other needs, where EVs will not help stem the increase. I do believe that EVs will play an increasing role in dampening oil demand growth in coming years and decades. Having said that, I do not believe we are anywhere near the point where EVs will cause global oil demand to peak.

If there is one factor which could potentially cause a peak in global demand that factor is the economy. If it ends up downshifting significantly from its current rate of growth that is already rather anemic, then it can definitely cause a peak in demand, at least for as long as the economic downturn persists. That, however, is no reason for anyone to be cheerful. It is entirely possible that we will see a combination of production peaking and the economy being weakened perhaps due to higher oil prices, which will in turn cause a drop in demand. Such a potential situation might lead us to the wrong conclusion that it is demand which in fact peaked and not supply. While the current mainstream consensus is that peak oil demand is more likely to happen before supply, I think there is plenty of evidence to suggest the opposite is the case, it is just that the peak demand theory is now so trendy that it is defying the evidence to the contrary, through its self-evident truth status. If the supporting facts turn out to be wrong, however, self-evident truth can only go so far.

Disclosure:I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

seeking alpha



25 Comments on "A Contrarian View On The Peak Oil Debate"

  1. Davy on Wed, 23rd Aug 2017 7:59 am 

    Good read with a very divisive and difficult topic of multidimensional variables. Here are some of the topics I have been promoting.

    “My personal take on the Hubbert curve is that in the end, oil extraction is a human activity, and as such, we can defy a model based on geological realities to some extent. One thing we can do is distort the economics of extraction to both change the shape of the curve and also expand the area of the curve, in other words, add to reserves. I believe that we are already doing that right now. One good example of it is the global low interest rate environment, which makes costs of borrowing cheaper for both oil producers, as well as oil consumers, which makes oil cheaper to produce, while it gives consumers a higher capacity to support higher prices, both of which are supportive of enhanced oil recovery efforts.”

    “If there is one factor which could potentially cause a peak in global demand that factor is the economy. If it ends up downshifting significantly from its current rate of growth that is already rather anemic, then it can definitely cause a peak in demand, at least for as long as the economic downturn persists. That, however, is no reason for anyone to be cheerful. It is entirely possible that we will see a combination of production peaking and the economy being weakened perhaps due to higher oil prices, which will in turn cause a drop in demand. Such a potential situation might lead us to the wrong conclusion that it is demand which in fact peaked and not supply. While the current mainstream consensus is that peak oil demand is more likely to happen before supply, I think there is plenty of evidence to suggest the opposite is the case, it is just that the peak demand theory is now so trendy that it is defying the evidence to the contrary, through its self-evident truth status. If the supporting facts turn out to be wrong, however, self-evident truth can only go so far.”

  2. Darrell Cloud on Wed, 23rd Aug 2017 8:56 am 

    The key undercurrent of this entire dynamic is the reality that we have reached the end of growth. Pension plans, entitlements, state and local budgets, bond issues are all zero sum games. Exponential growth is now sustained by exponential currency creation. Fiscal responsibility is an impossibility in the current political and economic environment. There will be rapid injections of liquidity into too big to fail institutions that are about to collapse. Whether it be banks, governments or major oil companies, these injections will continue right up and until the currency collapses. No sane politician is going to be party to blood in streets as long as a single mouse click will forestall it. When that happens is a bit like trying to predict when a school of fish will change course on a reef. When it happens it will be sudden.

  3. MASTERMIND on Wed, 23rd Aug 2017 10:07 am 

    Here used a chart that linked to wikiconspircy. People are so dumb they think all science in America is a conspiracy. LOL

  4. Outcast_Searcher on Wed, 23rd Aug 2017 3:49 pm 

    As if fracking for oil can occur outside the US. The primary reasons experts have given for the US having the lead in fracking for oil is in terms of aggressive private business funding and less regulation to prohibit it. NOT just geology.

    As if new oil discoveries won’t increase if the price of oil does increase, leading to more investment in E&P.

    This looks to me like the usual one-sided argument.

  5. onlooker on Wed, 23rd Aug 2017 4:35 pm 

    Yes. How long can this smoke and mirrors economic machinations continue? How long can the Debt bonanza continue? How long can people delude themselves that the Economy can continue on this course indefinitely. Money in all its forms will always be forthcoming. That we can count on. The powers that be in unison among all the important countries are in collusion to make sure this happens. This is a self reinforcing loop a Ponzi scheme. But ultimately, the biophysical factors will assert themselves and/or the capacity to service the Debt in the form of money creation will end on a large scale. When either or both of those circumstances manifest then the Party is Over and we will uncover that the Emperor ie. Economy has no clothes.

  6. Plantagenet on Wed, 23rd Aug 2017 5:01 pm 

    The chart showing “new oil discoveries” doesn’t include any of the major US shale oil discoveries. For instance, the Bakken contains about 12-15 BILLION bbls of oil and the tight oil shale reserves in the Permian Basin are thought to be about 70 BILLION barrels of oil—but these aren’t shown. Obviously shale oil is important and needs to be incorporated into this story.

    Cheers!

  7. Harquebus on Wed, 23rd Aug 2017 6:15 pm 

    Rising electricity prices eroded my ability to own a motor car years ago. Before that, I owned one all of my adult life.

  8. Anonymous on Wed, 23rd Aug 2017 7:34 pm 

    1. Ignoring LTO when looking at world price expectations when LTO is the marginal barrel makes no analytical sense.

    2. Author has overestimated price over the years and underestimated volume. For both shale oil and gas. His old articles on Seeking Alpha are worth looking at.

  9. Boat on Wed, 23rd Aug 2017 9:52 pm 

    mous,

    https://www.eia.gov/todayinenergy/detail.php?id=26132

    Tight oil is over half of US production. Around 20 percent has an api over 50 the rest sells at a higher price than the heavy crude imported called conventional.
    Your argument is oft repeated but remains stupid. You want the price charts or maybe you can find them. Odds are your another non chart reading fool like greggiet, mak, shortonoil among others.

  10. GregT on Wed, 23rd Aug 2017 11:47 pm 

    Boat,

    Reading comprehension troubles again?

  11. peripato on Wed, 23rd Aug 2017 11:52 pm 

    @ Plantagenet on Wed, 23rd Aug 2017 5:01 pm

    The chart is for new conventional oil discoveries only. LTO is unconventional oil and can’t be included.

  12. GregT on Thu, 24th Aug 2017 12:29 am 

    peripato,

    Judging from some of the comments above, people didn’t bother to read the article before commenting.

  13. deadlykillerbeaz on Thu, 24th Aug 2017 5:44 am 

    List of oil formations in the Williston Basin:

    BAKKEN 1,590,525,938 46.9581 10,930
    BAKKEN/THREE FORKS 10,268,622 0.3032 53
    BIRDBEAR 20,708,932 0.6114 174
    CAMBRO/ORDOVICIAN 436,287 0.0129 5
    DAWSON BAY 4,125,673 0.1218 14
    DEADWOOD 1,008 0.0000 2
    DEVONIAN 102,156,282 3.0160 139
    DUPEROW 52,560,753 1.5518 347
    GUNTON 262,504 0.0078 11
    HEATH 67,002,356 1.9782 198
    INTERLAKE 8,568 0.0003 1
    LODGEPOLE 60,790,925 1.7948 52
    LODGEPOLE/BAKKEN 5,883 0.0002 1
    MADISON 952,792,497 28.1299 5,606
    MIDALE/NESSON 3,136,312 0.0926 48
    MISSION CANYON 22,179 0.0007 1
    ORDOVICIAN 33,766,422 0.9969 123
    RATCLIFFE 232,841 0.0069 4
    RED RIVER 113,418,588 3.3485 756
    RED RIVER B 163,150,927 4.8168 567
    RED RIVER C 11,829 0.0003 1
    SANISH 40,508,676 1.1960 198
    SILURIAN 65,374,165 1.9301 223
    SOURIS RIVER 59,256 0.0017 3
    SPEARFISH 3,659,656 0.1080 132
    SPEARFISH/CHARLES 50,991,964 1.5055 238
    SPEARFISH/MADISON 5,138,559 0.1517 113
    STONEWALL 16,495,447 0.4870 129
    STONY MOUNTAIN 5,668 0.0002 1
    THREE FORKS 198,266 0.0059 5
    TYLER 15,966,266 0.4714 88
    TYLER A 3,085,786 0.0911 7
    WINNIPEG 150,164 0.0044 4
    WINNIPEG/DEADWOOD 43,341 0.0013 6
    WINNIPEGOSIS 10,053,823 0.2968 56
    TOTALS 3,387,116,363 100.00 20,236

    https://www.dmr.nd.gov/oilgas/stats/statisticsvw.asp

    Click on ‘cumulative oil production by formation’.

    The Lodgepole has 52 wells and has produced 60,790,125.

    The 52 Lodgepole wells have produced more than 1.1 million barrels each.

    The Madison has 5,606 wells and production is 952,792,497 barrels of oil cumulative.

    The Devonian has impressive numbers also.

    Oil from the Madison Formation is not Bakken oil.

    Even though the Bakken forms the majority, it is not the whole.

  14. Davy on Thu, 24th Aug 2017 9:48 am 

    “Hurricane Harvey, First Since 2008, Set To Wreak Havoc On Texas Crude Production”
    http://tinyurl.com/ybnzlu26

    “In terms of economic impacts, nearly one-third of America’s refining capacity currently sits in the path of the storm and large E&P companies have already started to evacuate staff from offshore rigs which will reduce oil imports to the Texas coast. The Gulf Coast from Corpus Christi, Texas, to Lake Charles, Louisiana, is home to nearly 30 refineries — making up about 7 million barrels a day of refining capacity, or one-third of the U.S. total. It’s in the path of expected heavy rainfall. Flooding poses risks to operations and may cause power failures. “Biggest impact of this storm will be a significant reduction of crude oil imports into the Texas Gulf Coast, resulting in refineries cutting crude rates,” Andy Lipow, president of Lipow Oil Associates in Houston, said by email. “There will also be a significant impact on petroleum product exports impacting supplies into Mexico.” Exxon Mobil Corp. had said it’s cutting output at its Hoover production platform in the Gulf of Mexico ahead of the storm. The company’s also working on plans to evacuate staff in stages from offshore facilities that will be in the path of the storm, Suann Guthrie, a spokeswoman, said by email. Royal Dutch Shell Plc shut production at its Perdido platform and evacuated the facility. Anadarko Petroleum Corp. said earlier this week it’s removing nonessential staff from some production platforms in the Gulf of Mexico in response to weather conditions. Cheniere Energy Inc. “activated” the severe weather team at its Sabine Pass LNG export terminal in Louisiana, Eben Burnham-Snyder, a spokesman, said by email. “At this time no production impacts expected.”

  15. rockman on Thu, 24th Aug 2017 11:42 am 

    First a reminder: the Bakken and Eagle Ford are not “fields”. They are TENDS of fields. And those TRENDS were identified as oil productive more the HALF A CENTUTY ago. In that sense the date of discovery isn’t the issue. More important is how the amount of commercially producible oil has varied over time. Varied as technology has changed and, as recently shown, how prices have changed. The amount of recoverable oil in the B and EFS has significant DECLINED at current prices. Which also means it could significantly increase if one predicts much higher future prices.

    Which actually means no one can predict the future production over the next 30 or 40 years because no one can credibly predict the price of oil for every year over the next several decades. Just as no one did for the last several decades. And no: getting it right for a few years doesn’t count: name someone who consistently rid so year after year since 1985.

    And forget what he said about well density in the Bakken. It was proven many decades ago that the productivity was far from ubiquitous. Just as it has been proven in recently years in the EFS: just looking at the very wide range of production between counties in the trend proves that.

  16. rockman on Thu, 24th Aug 2017 11:49 am 

    Good point Davy. Fortunately much of the refining and offshore oil production lies far to the east of the storm. But another factor: about 130 million bbls per year of Eagle Ford oil is exported out of the current bulls eye of the storm: Corpus Christi. Storm surge might be the big issue there.

  17. bobinget on Thu, 24th Aug 2017 1:15 pm 

    This just in. Putin now controls over 4% of our total oil imports. That’s vital 4%. Venezuela and Ecuador.

    Oh Davy, America loses. Putin wins.
    (buy canada)

    HOUSTON (Reuters) – Russian oil firm Rosneft has struck deals with several buyers for almost its entire quota of Venezuelan crude for the remainder of the year, traders told Reuters on Wednesday, the first time it has conducted such a large sale of the OPEC member’s oil.

    Rosneft, which is taking a growing volume of Venezuelan crude and products while extending credits to President Nicolas Maduro’s government, previously had resold the barrels in the United States and Asia through trading firms, according to PDVSA’s [PDVSA.UL] internal documents.

    The new sales mechanism is similar to the one used by Andes Petroleum, a China National Petroleum Corporation (CNPC) and Sinopec joint venture, to sell its quota of Ecuadorian crude by awarding the barrels through annual or biannual tenders, one of the traders said.

    It was not immediately clear which refiners agreed to buy the oil or the volume of the tender, but traders said the buyers included U.S. firms. Among the largest buyers of Venezuelan heavy crude in North America are Valero Energy Corp, Citgo Petroleum [PDVSAC.UL], Phillips 66, Chevron Corp and PBF Energy Inc, according to Thomson Reuters data.

    Rosneft, Chevron and Valero did not immediately respond to requests for comment. U.S. refiners Phillips 66 and PBF Energy declined to comment on commercial arrangements.

    Some of these refiners recently have struggled to purchase Venezuelan oil directly from PDVSA as banks based in the United States have refused to extend the letters of credit the buyers need to complete imports from Venezuela.

    Rosneft’s deliveries of Venezuelan oil will occur during September through December. The crude grades offered include diluted crude oil (DCO), a blend of extra heavy oil and heavy naphtha, according to the sources.

    Russian oil firms Rosneft and Lukoil since May have received some 250,000 barrels per day (bpd) of crude and refined products from Venezuela, according to the PDVSA’s internal documents.

    Venezuela’s oil deliveries to the United States have declined in recent years amid falling production, commercial issues, and sanctions on Venezuelan officials. It has relied on deliveries to Russian oil firms to repay loans and swaps.

    Reporting by Marianna Parraga; editing by Diane Craft and Lisa Shumaker

  18. Apneaman on Thu, 24th Aug 2017 3:16 pm 

    Hey cancer-rockman, you might want to put your water-wings on or sumthin. It looks like it’s consequences time again.

    90% of the heat from AGW has gone into the oceans and ocean heat is an energy source for hurricanes. I think the Gulf waters are 2 degree above average right now.

    Hurricane as Rain Bomb — Rapidly Intensifying Harvey Threatens to Dump 20-30 Inches on Texas

    https://robertscribbler.com/2017/08/24/hurricane-as-rain-bomb-harvey-threatens-to-dump-21-inches-on-texas/

    Factors that increase the destructive potential of hurricanes

    “The oceans have taken in nearly all of the excess energy created by global warming, absorbing 93 percent of the increase in the planet’s energy inventory from 1971-2010.”

    “Since 1970, tropical ocean sea surface temperatures worldwide have warmed by about an average of 0.5°C”

    “Higher sea levels give coastal storm surges a higher starting point when major storms approach and pile water up along the shore. The resulting storm surge reaches higher and penetrates further inland in low-lying areas. The risk is even greater if storms make landfall during high tides.”

    “Since the mid-1970s, the number of hurricanes that reach Categories 4 and 5 in strength—that is, the two strongest classifications—has roughly doubled [12].

    Measures of the potential destructiveness of hurricanes (a measure of the power of a hurricane over its entire lifetime) also show a doubling during this time period. Indices for hurricane activity based on storm surge data from tide gauges further indicate an increase in intensity”

    http://www.ucsusa.org/global_warming/science_and_impacts/impacts/hurricanes-and-climate-change.html

    Don’t worry cancer-rockman, if the damages are major just stick with the it’s 100% the consumers fault meme and never mention anything about the decades long billion dollar a year denial and science disinformation campaign (that you participated in & still do) whose sole purpose was to confuse and fool the consumer.

    Rant off. Please return to your all important, 68 times a day, barrel counting and status seeking.

  19. bobinget on Thu, 24th Aug 2017 3:37 pm 

    A sharp decline in Venezuela supply of crude and refined products to Cuba led to China overtaking South American country

    24.08.2017, 00:59
    A sharp decline in Venezuela supply of crude and refined products to Cuba led to China overtaking South American country
    OREANDA-NEWS. August 24, 2017. A sharp decline in Venezuela supply of crude and refined products to Cuba last year led to China overtaking the South American country as the Caribbean island’s main trading partner, according to official Cuban data.
    Bilateral trade between Cuba and Venezuela, close political allies, was valued at $2.22bn in 2016, down by 47pc year over year, while trade with China reached $2.58bn, down by 0.5pc on the previous year.

    Cuba’s imports from Venezuela in 2016 were valued at $1.58bn, 43pc below 2015.

    The value of Cuba’s trade with Venezuela in 2016 plunged by 70pc from 2014, according to the data.

    Cuba’s exports to Venezuela were valued at $642.2mn in 2016, 55pc less than in the previous year.

    “It was the reduction in crude and refined products that was mainly responsible for the lower trade volume with Venezuela,” an official of Cuba’s state-owned oil company Cupet tells Argus.

    “But the trade figures also reflect lower prices for the imports over the past two years.”

    Venezuela’s state-owned oil company PdV had traditionally supplied Cuba with between 100,000-110,000 b/d of crude and products under preferential terms based on an agreement signed in 2000.

    The oil supplies, part of a barter arrangement in which Havana provides medical, security and sports experts and products such as pharmaceuticals in lieu of cash, supplement Cuban oil production of around 50,000 b/d.

    Source: Argus

  20. bobinget on Thu, 24th Aug 2017 5:11 pm 

    HOUSTON (Reuters) – Russian oil firm Rosneft has struck deals with several buyers for almost its entire quota of Venezuelan crude for the remainder of the year, traders told Reuters on Wednesday, the first time it has conducted such a large sale of the OPEC member’s oil.

    Rosneft, which is taking a growing volume of Venezuelan crude and products while extending credits to President Nicolas Maduro’s government, previously had resold the barrels in the United States and Asia through trading firms, according to PDVSA’s [PDVSA.UL] internal documents.

    The new sales mechanism is similar to the one used by Andes Petroleum, a China National Petroleum Corporation (CNPC) and Sinopec joint venture, to sell its quota of Ecuadorian crude by awarding the barrels through annual or biannual tenders, one of the traders said.

    It was not immediately clear which refiners agreed to buy the oil or the volume of the tender, but traders said the buyers included U.S. firms. Among the largest buyers of Venezuelan heavy crude in North America are Valero Energy Corp, Citgo Petroleum [PDVSAC.UL], Phillips 66, Chevron Corp and PBF Energy Inc, according to Thomson Reuters data.

    Rosneft, Chevron and Valero did not immediately respond to requests for comment. U.S. refiners Phillips 66 and PBF Energy declined to comment on commercial arrangements.

  21. bobinget on Thu, 24th Aug 2017 5:12 pm 

    Please use the sharing tools found via the email icon at the top of articles. Copying articles to share with others is a breach of FT.com T&Cs and Copyright Policy. Email licensing@ft.com to buy additional rights. Subscribers may share up to 10 or 20 articles per month using the gift article service. More information can be found at https://www.ft.com/tour.
    https://www.ft.com/content/e936bf4e-866c-11e7-bf50-e1c239b45787

    Russia’s Rosneft and partners including Swiss commodity house Trafigura have finalised their $13bn takeover of Indian refiner Essar Oil, giving the two companies a foothold in the fast-growing Asian market.

    Rosneft, Trafigura and Russian fund UCP first announced in October an agreement to buy a stake of just over 98 per cent in Essar Oil from its holding company, which has struggled with a huge debt burden. Retail investors will own the rest of Essar Oil.

    After months of delays, Rosneft’s chief executive Igor Sechin told shareholders at the company’s annual general meeting in June that the consortium had cleared all obstacles from the Indian government and the country’s lenders for the biggest foreign direct investment in India to date.

    Mr Sechin said in a statement on Monday that the acquisition would enable state-controlled Rosneft, the world’s largest listed oil producer, to enter the “high-potential” Indian market.

    India is the world’s third largest crude importer. With 1.3bn people, the country holds high hopes for exporter countries as rising incomes and the rapid uptake of motorcycles and cars boosts petrol and diesel demand, offsetting fading consumption in the west.

  22. peripato on Thu, 24th Aug 2017 8:52 pm 

    @ GregT on Thu, 24th Aug 2017 12:29 am

    They are just being intentionally ignorant. Obviously paid trolls. Who has the time, in this economy, to post so often during the day, unless they are being bankrolled?

  23. Anonymous on Fri, 25th Aug 2017 11:36 pm 

    “First a reminder: the Bakken and Eagle Ford are not “fields”. They are TENDS of fields.”

    These terms are more appropriate in conventional traps (even here field is an imprecise term). USGS uses the term “continuous accumulation” to refer to areas like the Bakken or Eagle Ford. This makes sense since the source is also the reservoir and is a continuous layer in the ground. (Think also of how shale wells are less than 1% dry holes.)

    See here for some USGS discussion:

    https://energy.usgs.gov/GeneralInfo/HelpfulResources/EnergyGlossary.aspx

  24. Davy on Sat, 26th Aug 2017 3:50 am 

    Thanks Noony, it is always nice to get a better understanding of oil’s physics.

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