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Page added on April 29, 2014

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Just keeping up

Consumption

HERE is a striking fact from James Hamilton:

U.S. production of oil from tight formations is up 3.5 mb/d since 2005, and yet total global field production of crude from all sources is only up 2.3 mb/d. In other words, more than all of the increase worldwide over the last 8 years is attributable to U.S. tight oil production. Without U.S. tight oil, world oil production would be lower today than it was 8 years ago.

Petrol prices have been ticking up in recent weeks, mostly for seasonal reasons. But the broader picture, Mr Hamilton points out, is one of surprising stability in prices. For most of the last three years oil has hovered around $100 a barrel, and the price of petrol has been correspondingly flat.

But there is another way of looking at this stability; prices have remained relatively high in order to temper demand growth and keep it in line with available supply growth. But for the North American oil bonanza, global demand would have to have been considerably more muted; indeed, it may have needed to decline (at a time while the world economy was growing steadily). That would presumably have taken a far higher price of oil.

It’s interesting: the public may underestimate the economic benefits of new oil production because prices have not been falling. But that oil has allowed the economy to continue growing even as older fields are generating less output, and without suffering a massive and economically damaging oil-price spike.

economist



12 Comments on "Just keeping up"

  1. Plantagenet on Tue, 29th Apr 2014 10:46 pm 

    All the more reason for other countries around the world to start producing oil from their oil shales.

    Drill baby drill—and then frack baby frack.

  2. Makati1 on Tue, 29th Apr 2014 11:22 pm 

    Plant, fraking is insanity. I hope the world economy collapses and shuts down all fraking everywhere. Tomorrow would be OK … but you cannot understand why I want that, can you?

  3. Perk Earl on Wed, 30th Apr 2014 2:41 am 

    “But the broader picture, Mr Hamilton points out, is one of surprising stability in prices. For most of the last three years oil has hovered around $100 a barrel, and the price of petrol has been correspondingly flat.

    But there is another way of looking at this stability; prices have remained relatively high in order to temper demand growth and keep it in line with available supply growth.”

    He writes this as if the price was intentionally calculated and moderated to achieve this balance. Instead, I would suggest upward pressure on price has been quelled by demand destruction, at a price inflection point. If the price goes higher, demand drops price back down and vice versa. We are at a price ceiling relative to oil flow and economic viability to support that price.

    This long period of oil price stability while costs of exploration have recently exceeded return on investment, means long term supply increases are no longer keeping up with extraction of aging wells.

    Also, without US fracking the descent from peak would have already ensued, is yet another obvious nail in the peak oil coffin.

    We are at the summit of a long period of expansion. Time to check your brakes, golden parachute, food cache, solar panels, seed stores, and whatever other things you can think of before we begin the fast descent down because it’s going to be so fast you’re going to feel the breeze blowing past your face and your heart in your throat.

  4. Davey on Wed, 30th Apr 2014 6:13 am 

    ARTICLE SAID – But that oil has allowed the economy to continue growing even as older fields are generating less output, and without suffering a massive and economically damaging oil-price spike.

    That oil has allowed the further illusion of growth. It allowed the central banks to continue financial repression through market distortions and wealth transfer resulted in a statistical pseudo growth. This was at least partly responsible by oil supply remaining stable with the US LTO and gas increases. There would have been little ability of the central banks to continue with their monetizing policies in a global world of declining oil supply. They could manipulate price and markets but there is little chance they could have done this manipulation in a climate of declining oil supply. The resulting rate increases would have destroyed that effort and initiated a deflationary debt spiral of defaults, bankruptcy, and increased unemployment. We are again facing supply issues because of the stalling of prices and the stalling of efforts. We see the stalling of efforts with production falling at the same time capex increases have been stressed and are set to fall. This whole LTO and gas effort has been in effect a Ponzi scheme that has supported the even larger global Ponzi scheme. Likewise the debt bubble has allowed the unconventional energy increases which has allowed the debt bubble to continue. These financial situations have a way of triggering ugly events. This situation has distorted markets, political action, and corporate decisions. We are close to a period of cascading bad news that will not be able to be painted over with this or that financial manipulation tools we see so prevalent today. US LTO and gas has been a mixed blessing. It bought us time but the cost of that extra time is the lack of structural reform efforts. This could lead to an ugly correction or worse a serious contraction. With all the limits of growth issues, diminishing return issues, and worsening ecological overshoot this financial/energy trap will likely bring down BAU or at the very least the status quo of financial repression. If we are lucky this process will play out slowly and the effects less severe. A population’s ability to reboot after a contraction is related to the duration and degree of that contraction.

  5. Kenz300 on Wed, 30th Apr 2014 6:59 am 

    Biofuels have been growing in use around the world adding to the mix of transportation fuel supplies.

    Second generation biofuels made from algae, cellulose and waste are the future.

  6. shortonoil on Wed, 30th Apr 2014 8:14 am 

    “If wishes were horses beggars would ride.” More than half of the US reported 3.5 mb/d of tight oil production is condensate. Condensate is very handy stuff if you want to make plastic pipe, or Action Figures for 5 year olds. If you want to power a civilization it is only a little bit better than using a horse, only because you don’t have to feed it twice a day. Condensate has a different density than crude, has a different chemical formula, is used for different purposes, and Gulf Coast storage is overflowing with the stuff, because not that many companies want to make more plastic pipe. Yet economists insist on expounding the wonders of all the condensate that the US tight oil industry is producing. OK America, get on your wishes, and ride into the sunset. You’ll have a whole army of economists galloping along behind you!

    http://www.thehillsgroup.org

  7. Northwest Resident on Wed, 30th Apr 2014 9:30 am 

    Anybody with a brain who steps back and looks at the intensive efforts to squeeze more oil out of the rock via fracking can only come to one conclusion: this is the last desperate act of a dying civilization.

    As shortonoil points out in his post above, the majority of the “stuff” that gets forced out of rock via fracking isn’t good for much of anything, certainly NOT for driving the world economy. So why in the world is so much intensive effort going into fracking operations?

    Certainly NOT for the profits to be made. Fracking is flat out money loser. Here is an article from Bloomberg title “Shale Drillers Feast on Junk Debt to Say on Treadmill” that explains why:

    “The U.S. drive for energy independence is backed by a surge in junk-rated borrowing that’s been as vital as the technological breakthroughs that enabled the drilling spree. While the high-yield debt market has doubled in size since the end of 2004, the amount issued by exploration and production companies has grown nine-fold, according to Barclays Plc. That’s what keeps the shale revolution going even as companies spend money faster than they make it.”

    “There’s a lot of Kool-Aid that’s being drunk now by investors (i.e., Nony),” says Tim Gramatovich, who helps manage more than $800 million as chief investment officer of Santa Barbara, California-based Peritus Asset Management LLC. “People lose their discipline. They stop doing the math. They stop doing the accounting. They’re just dreaming the dream, and that’s what’s happening with the shale boom.”

    Bloomberg dot com/news/2014-04-30/shale-drillers-feast-on-junk-debt-to-say-on-treadmill.html

    Question: So why all the intensive effort to squeeze oil out of rocks when it is a sure money loser?

    Speculative Answer: Because TPTB need to extend BAU for a little while longer, to buy time so that final preparations can be made. Why else would they be doing it?

  8. bobinget on Wed, 30th Apr 2014 9:35 am 

    Time for some reflection on last week’s EIA petroleum
    repore:

    Summary of Weekly Petroleum Data for the Week Ending April 25, 2014
    U.S. crude oil refinery inputs averaged 16.0 million barrels per day during the week ending April 25, 2014, 26,000 barrels per day less than the previous week’s average. Refineries operated at 91.0% of their operable capacity last week. Gasoline production decreased last week, averaging over 8.6 million barrels per day. Distillate fuel production decreased last week, averaging over 4.9 million barrels per day.
    U.S. crude oil imports averaged 7.5 million barrels per day last week, down by 313,000 barrels per day from the previous week. Over the last four weeks, crude oil imports averaged over 7.7 million barrels per day, 0.1% below the same four-week period last year. Total motor gasoline imports (including both finished gasoline and gasoline blending components) last week averaged 651,000 barrels per day. Distillate fuel imports averaged 173,000 barrels per day last week.
    U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 1.7 million barrels from the previous week. At 399.4 million barrels, U.S. crude oil inventories are above the average range for this time of year.
    Total motor gasoline inventories increased by 1.6 million barrels last week, but are in the lower half of the average range.
    Finished gasoline inventories decreased while blending components inventories increased last week.

    Distillate fuel inventories increased by 1.9 million barrels last week but are below the lower limit of the average range for this time of year. Propane/propylene inventories rose 2.0 million barrels last week but are in the lower half of the average range. Total commercial petroleum inventories increased by 7.9 million barrels last week.

    Total products supplied over the last four-week period averaged 18.4 million barrels per day, up by 0.6% from the same period last year. Over the last four weeks, motor gasoline product supplied averaged 8.7 million barrels per day, up by 2.1% from the same period last year. Distillate fuel product supplied averaged 4.0 million barrels per day over the last four weeks, up by 7.5% from the same period last year. Jet fuel product supplied is up 1.9% compared to the same four-week period last year.

  9. bobinget on Wed, 30th Apr 2014 9:46 am 

    A couple of things;
    First, we should have more gasoline in stock.
    Second, Check out how much finished product we imported. I know, I know, we Export quite a bit as well— but hardly ever mention imports.

    thirdly, Assuming imports and exports gasoline and diesel are a wash, domestic consumption is going higher.. inevitable, IMO.
    If 18.4 is consumed in shoulder season, what will our
    number be in June? Nineteen MB for sure, maybe higher.

    Inflation is on the way folks. It’s still too wet in many regions for tractors to plant and not compress oils.
    Storm activity is increasing, therefore so will unproductive economic activity rebuilding ‘broken windows’. Can diesel keep-up?

  10. peakyeast on Wed, 30th Apr 2014 7:42 pm 

    But in the coming years the decline of the old fields will accelerate – possibly dramatically.

    Keeping that tiny rise and possibly in reality a net-decline in oil extraction has only been possible through major price hikes and an enormeous effort to exploit low grade resources.

    How does that make the prospect of leaving the plateau of conventional oil extraction look like?

  11. Patrick on Wed, 30th Apr 2014 7:59 pm 

    Global Oil Production from the EIA statistics made easy in a video (less than 4 minutes):
    http://jklm.cc/9/740996550.php?video=ad120231

  12. Makati1 on Thu, 1st May 2014 6:55 am 

    “The whole boom in shale is really a treadmill of capital spending and debt,” Chauhan said. … “People lose their discipline. They stop doing the math. They stop doing the accounting. They’re just dreaming the dream, and that’s what’s happening with the shale boom.”

    http://www.theautomaticearth.com/debt-rattle-apr-30-2014-the-boy-in-the-bubble/

    Interesting…

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