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Page added on October 23, 2016

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Gail Tverberg: Why There’s No Economically Sustainable Price For Oil Anymore

Actuary Gail Tverberg returns to provide an update on where we are in the global energy story. Her outlook is not rosy: she doesn’t not see a path for society to transition to an affordable, plentiful substitute to petroleum as a transportation fuel. The physics as well as the funding do not pencil out, at least with today’s known technologies.

Without such a solution in hand, the world finds itself now mired in a scenario where there really is no long-term workable range for the price of oil. It’s either “too high” and demand suffers, or “too low” and producers can’t afford to extract it. The acceptable middle ground has disappeared:

When on the rising side of the Hubbert curve, everybody has good wage level and everybody can feed themselves. You can build new oil wells and everything works out fine. But what happens as you get past the 50% mark is that you no longer have enough oil coming out for the economy to keep growing. It starts going down. And what happens then is that the economy doesn’t function in the same way. You start getting the prices to spike as you try to get higher-cost oil out. And this is what we saw in the 2007-2008 period.

The price of oil spikes and you get recession. Then the price of oil comes back down. But wages don’t recover and you get the very low price problem that we have right now. So it doesn’t work right. You can’t keep getting the same amount of oil out, essentially because the wages of the people don’t stay up high enough in order to afford the output of the economy.

At this point, it has gotten bad enough that there is no price that works. The price that producers need is higher than what the market will bear.

If we go to a place like Saudi Arabia, you’d say: They can get it out of the ground for $20 a barrel. But then when you look at it, you discover that they really need a much higher price if you include in all of the taxes and all of the funding they need to keep social order, import lots of wheat and the many other things that their economy needs, and build a desalination plant. So they really can’t get along on $20 a barrel. They learned how they can get along on $100 or $120 a barrel, but they can’t get along on $50 a barrel  — even in Saudi Arabia.

So you end up with a situation where there isn’t any kind price that really will work.



24 Comments on "Gail Tverberg: Why There’s No Economically Sustainable Price For Oil Anymore"

  1. onlooker on Sun, 23rd Oct 2016 6:25 pm 

    Sounds like Gail buys into the Etp modeling projections

  2. BillC on Sun, 23rd Oct 2016 8:20 pm 

    Yes, this is where we are. In a slow downward spiral which will feed upon itself and accelerate.

  3. denial on Sun, 23rd Oct 2016 8:45 pm 

    I am having a hard time with this price point…..is money really that static? I mean what is a 100 dollars? It is a massive manipulated currency….with little to no transparency…..so if I am the FED and I want to give Europe 5 trillion dollars I do so and no one is the wiser because it is secret…The real problem is when you are burning 2 barrels of oil to get 1….money is a very intangible object in this scenario…

  4. Boat on Sun, 23rd Oct 2016 9:34 pm 

    In 1960 the Saudi had 4 million in population Now there are more than 30 million. Gail wants to blame oil revenue for problems?

  5. GregT on Mon, 24th Oct 2016 12:35 am 

    Boat,

    Gail isn’t talking about Saudi Arabia, she is talking about why the entire global economy continues to unravel, and why it will continue to do so.

    Ignorance is bliss, until the 2×4 of reality smacks you squarely between the eyes. Which it eventually will.

  6. Theedrich on Mon, 24th Oct 2016 2:33 am 

    Venezuela is a metaphor for the world.  In the U.S., the MSM wants Robin Hood in a pants suit.  Robin Hoodwinker, like Hugo Chavez, knows everything about political deception and nothing about the realities of energy — to say nothing about the limitations of technology.  (By the way, politicians like to use the word “science” when they are really bloviating about technology.  “Science” [Latin scientia] originally meant “knowledge,” which is hard to elicit from nature, and verges on philosophy — and in fact was originally called “natural philosophy.”)  Gail is simply a voice crying in the desert, trying to point out that technological magic does not exist on this planet.

    Venezuela is a perfect trial run of the fantasies being spun out by the media.  It amounts to a pilot test of the communist wishdream of the empire and its denizens.  As Gail points out, the finances ($50 trillion!) needed to implement that wishdream are simply unavailable.  In effect, what she is doing is predicting death, whose timing is not predictable with exactitude, but whose occurrence is absolutely inevitable, no matter what technology is available or what politicians say.  Venezuela collapsed because the commie political structure gainsaid this reality.

    The current election campaign amounts to a debate about whether to continue on the present course or to change that course radically.  The ultra-rich (e.g., Sörös and his kinsmen) who are backing the Clintonian lunatic refuse to recognize that the present course is collapseward.  Given that the U.S. has doubled its national debt during the eight years of the Negro’s administration, a continuation of that doubling under the madwoman will terminate the empire altogether in short order.  Gail is pointing out that even now the economic floor and ceiling (global cost and price of energy) are meeting and squeezing profit out of existence.  Moreover, money printing will not solve anything, despite what nobel-prize economists claim.

    All of this is so absolutely certain that its denial simply dumbfounds the serious onlooker.  It is true that the Trumpian goal of 4% growth is unrealistic;  but Trump, as a dyed-in-the-wool businessman, is thorougly realistic when confronted with absolute blocks, and will alter his direction of the ship of state.  Under no circumstances will the rabid female from hell change course;  but Trump will.

    Considering these facts, it is clear that the anti-White, pro-banshee electorate wants suicide.

  7. peakyeast on Mon, 24th Oct 2016 4:07 am 

    Today there is an article in the Danish MSM: Danish Northsea oil is profitable at
    16DKR (approx. 2$).

    The headline is, of course, clickbait. The article itself states that only about 8% is profitable at the approx. 2$.

    3/4 of the resources are profitable (15% profit include) at 25$.

    That sounds very low to me. Anyone who has a clue?

    http://energiwatch.dk/Energinyt/Olie___Gas/article9097149.ece

  8. sparky on Mon, 24th Oct 2016 7:15 am 

    .
    My take on this is that a fully equipped oil well on its primary extraction has very little cost to run .
    the big costs are upfront .
    that’s why the major oil companies are cutting on exploration and initial development .
    meanwhile producing oilfields deplete

  9. Kenz300 on Mon, 24th Oct 2016 12:45 pm 

    The oil companies and the auto companies need to get their collective heads out of the sand and realize that the world is changing with or without them.

    Climate Change is real….. it will impact all of us…

    It is time to move away from fossil fuels and embrace alternative energy sources like wind, solar, wave energy, geothermal and second generation biofuels made from algae, cellulose and waste. They need to change their business models and move from being OIL companies to ENERGY companies. The auto industry needs to move from just building compliance vehicles to embracing electric vehicles and start putting development and advertising behind them..

  10. Anonymous on Mon, 24th Oct 2016 2:39 pm 

    Yes, kenzmoron, the first thing we should do, is put the auto and oil companies in charge of……..building….MORE cars, just powered by slightly different means.

    But still cars eh? I guess you haven’t been following the auto\oil cartels environmental, political, social crimes much have you? The last 100 years of mandated car-dependency and all its consequences never happened in your mind. But yea, by all means, keep suggesting the very same people and groups that got us into our collective mess, will come around, atone for their crimes, and start building us wind turbines and electric cars.

    JHC are you ever a fookn moron. Parrots have more brains that you. At least parrots say something new every so often. But, you’re a moron that stays on message at least, lol.

  11. Apneaman on Mon, 24th Oct 2016 4:26 pm 

    Douchy is yet another one who has convinced himself that lifetime club member Trump will be his daddy-saviour. Fuck are you people ever pathetic. Trump wouldn’t piss on any of you if you were on fire. Your not in the club and thus you don’t fucking count. Must be the recent rash of superhero movies has convinced a bunch of middle aged white men that such beings exist – they don’t. It’s gone and never coming back because it can’t.

  12. peakyeast on Mon, 24th Oct 2016 4:30 pm 

    @sparky: So its profitable because the primary investment/loans has been paid off and now its just pump-baby-pump?

    But 8% @ 2$ ? That is really really cheap – especially considering its being pulled from the bottom of the ocean and shipped from few-mans-places.

  13. peakyeast on Mon, 24th Oct 2016 4:33 pm 

    @anon: You are being a little rough on poor kenzie. I have noticed markedly improvements in his posts the past ½ year. Before that I think it was the same y-o-y and d-o-d.

    Today he might actually pass for something different than a one-trick-chat-bot. 😀

  14. peakyeast on Mon, 24th Oct 2016 4:38 pm 

    @onlooker: Yep.

    People can believe or not believe the ETP model and its values.

    But the basic assumptions that it is based on seems sound to me.

    Which is partly why I freely donated $33 to the hills group.

  15. HARM on Mon, 24th Oct 2016 5:47 pm 

    “Venezuela is a perfect trial run of the fantasies being spun out by the media. It amounts to a pilot test of the communist wishdream of the empire and its denizens.”

    As opposed to the unfettered capitalist/fascist wishdream of empire so prevalent here is the U.S., which is also failing, albeit at a much slower pace.

  16. Mr. Pockets on Mon, 24th Oct 2016 6:37 pm 

    Theedrich, we’re all loud and clear on your white supremacist, anit-socialist screed…. Would you please do us all the honor of S’ingTFU? … Thanks so much. Everyone else.

  17. rockman on Tue, 25th Oct 2016 7:52 am 

    Peaky – I think you are referring to what it cost to produce (the LOE) a well and not the cost to develop new reserves.

    As sparky says: “My take on this is that a fully equipped oil well on its primary extraction has very little cost to run .
    the big costs are upfront.” Stop thinking $2 to produce a bbl of oil is cheap. If you’re producing 100 bopd your LOE would be $6,000/month. I have a well in La making 250 bopd and its LOE is $3,000/month.

    But forget my cheap little onshore well. Let’s talk about a very expensive N Sea offshore platform that’s costing not $2,500/month or even $6,000/month. Let’s use $300,000 per month to run that platform. That’s $3.6 MILLION PER YEAR! Now that’s expensive, eh? And it isn’t one of those big fields making 100,000 to 300,000 bopd…just 5,000 bopd. So let’s see: 5,000 bopd X 30 days = 150,000 bbls per month. And $300,000 per month/150,000 bbl per month = $2 per bbl LOE. WTF! I thought you said $2/bbl was cheap? LOL.

    Obvious one can’t look at a production cost of $X/bbl and decide if that’s cheap or expensive. Consider one of our big DW GOM fields doing 150,000 bopd. And if the LOE is running $2/bbl that means it’s costing the operator over $100 MILLION PER YEAR to produce that field.

    IOW folks are thinking $X/bbl is cheap because the are putting into the context of what oil is selling for. Obviously wrong: the proper context is what the total cost to produce a field compared to the gross revenue it’s generating.

    Let’s look again at the relatively small 5,000 bopd N Sea field and assume it’s not costing $3.6 million/year to produce but about $40 million per year. Now that’s f*cking expense production. LOL. So it’s costing about $22/bbl to produce. And we don’t know what it cost to develop the field or how much it has produced. But for sake of illustration let’s assume it recovered 100% just last month. So going forward with an LOE about 10X your $2/bbl this relatively small but extremely expensive ($40 million/yr) field to produce is currently yielding a $40 million profit with oil selling for about $42/bbl.

    Context, bubba, context. LOL.

  18. peakyeast on Tue, 25th Oct 2016 12:40 pm 

    @Rock: Thanks. I love your explanations! I am still digesting your answer – unfortunately I dont have time right now to make a reply. I will return tomorrow.

  19. rockman on Tue, 25th Oct 2016 9:52 pm 

    Peaky – Anytime. I’ve made that point before but I figured some specific examples might help.

    But the key is to not focus on the $/bbl production costs. IOW how many bbls produced in a month vs the cost to produce the well/field for that month.

  20. Kenz300 on Wed, 26th Oct 2016 11:32 am 

    Electric cars, trucks, bicycles and mass transit are the future. Fossil fuel ICE cars are the past.

    Think teen agers vs your grand father. cell phones vs land lines.

    NO EMISSIONS. Climate change is real..

    Uber’s Otto completes first shipment by self-driving truck: an autonomous beer run with Budweiser

    https://electrek.co/2016/10/25/uber-otto-first-shipment-self-driving-truck-autonomous-beer-run/

  21. Boat on Thu, 27th Oct 2016 1:57 am 

    greggiet,
    Gail
    If we go to a place like Saudi Arabia, you’d say: They can get it out of the ground for $20 a barrel. But then when you look at it, you discover that they really need a much higher price if you include in all of the taxes and all of the funding they need to keep social order, import lots of wheat and the many other things that their economy needs, and build a desalination plant. So they really can’t get along on $20 a barrel

    Boat on Sun, 23rd Oct 2016 9:34 pm
    In 1960 the Saudi had 4 million in population Now there are more than 30 million. Gail wants to blame oil revenue for problems?

    Stupid ass argument.

    There has never been enough income generated to go around in the history of the world, even if you included every commodity, let alone oil by itself. You get that? There never will be.

  22. Karle on Thu, 27th Oct 2016 2:03 am 

    Hi Kenz300,

    Electric cars = no emissions? Very interesting, please explain.

    What Theedrich says above sounds reasonable.

    It would be interesting to hear what these guys have to say about the ETP model:

    https://cleantechnica.com/2016/10/23/oil-collapse-death-spiral-coming-soon/

    https://cleantechnica.com/2016/10/12/heres-build-100-clean-renewable-energy-us-2040/

  23. Anonymous on Thu, 27th Oct 2016 9:33 am 

    Oh thank goodness kenzparrot, someone, somewhere, delivered a bunch of chemically flavored water (aka ‘bud’), in an electric truck.

    The world is saved……

    PS, the world is not saved and, you’re still a moron.

  24. GregT on Thu, 27th Oct 2016 12:14 pm 

    “There has never been enough income generated to go around in the history of the world, even if you included every commodity, let alone oil by itself. You get that? There never will be.”

    There always has been Boat, it has just been unevenly distributed. With the dismal growth in western nations as of late, and the continued growth in the East, that distribution is well into a
    process of reversal. How long it takes before you find yourself in the soup lines is still a matter of debate, but like it or not, those days are coming.

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