Peak Oil is You
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Page added on April 24, 2016
Market economy, engineers busted oil scarcity myth
Remember “peak oil”? This well-promoted theory was gaining peak notoriety right around the same time it was announced that, when washed through a whole list of “equalizing” adjustments, the Chinese economy had actually usurped the U.S. to become the world’s largest. In hindsight, neither prognostication appears to have been accurate. Imagine that.
I’d bet a pretty penny it was the same crowd promoting the concept that a highly manipulated, centrally-planned economy, aka China, could continue growing at eight percent-plus while our free market economy was stuck in second gear, who were also saying they could somehow discern the amount of oil trapped within the planet and more importantly gauge our ability to reach it. Once again, the anti-free market, anti-fossil fuel development crowd seems to have a problem with their calculations.
As it turned out, the world is awash in oil. Technology and engineering just had to figure out how to reach it. Because figuring things out is what free market economies do, hydraulic fracturing was developed and suddenly the U.S. is producing oil and gas on par with Saudi Arabia and Russia.
Hydraulic fracturing remains an American and Canadian extraction technique, but it’s not hard to imagine how world reserves could be expanded as this technology is adapted in other oil-producing regions. It now appears the world will move beyond oil before it runs out of it.
So what is the future of oil? For decades the supply of this vital commodity was manipulated by those countries, namely OPEC, with the easiest to reach reserves. As national economic concerns usurped price collusion in these nations however, the cooperation level diminished until today OPEC is barely relevant.
In an attempt to once again use price collusion to limit oil supply and lift oil prices these OPEC nations attempted last week to come to an agreement to reduce production. The discussions took place in Doha, the capital city of Qatar. This time it was the Iranians who played the part of spoiler. After being frozen out of the international oil market for decades by sanctions, the Iranians were in no mood to turn down the spigot. The word is they kind of need the money.
As extraction technology continues to improve and without the collusion of OPEC, it’s hard to predict where oil prices may go next, but it’s even harder to see how they could go materially higher.
I’ve used this analogy before, but looking at a chart of natural gas prices could give us some indication. Natural gas prices peaked around 2005 at over $15 per million BTU. Now ten years after the wider adoption of hydraulic fracturing in gas production, prices today remain stuck around the $4 range.
The same pricing ratios when applied to crude oil indicate a high point around $145 a barrel, and imply an eventual price level around $38, hmm.
As a transportation fuel, oil will continue to be important for decades, but as a wealth creator we may have indeed already seen peak oil. My opinion is that well run oil companies can continue to provide solid investment returns, but the highest priced days of oil itself may be behind us. Maybe I’ll get a bigger RV.
24 Comments on "Market economy, engineers busted oil scarcity myth"
Bob Owens on Sun, 24th Apr 2016 9:48 am
Why is this nonsense getting posted here? Legacy wells peaked in 2005 and are declining at 4-6% a year. Only $100 oil kept shale and tar sands alive; they are now crashing, never to return. Project this forward 20 years and tell me: where will we be? Hint: it won’t be in the all-the-oil-you-want world.
shortonoil on Sun, 24th Apr 2016 10:05 am
As it turned out, the world is awash in oil.
Another economist who believes that it is the volume of oil that is important, but ignores the most significant variable in the equation. A trillion barrels of oil that delivers no energy is just a big puddle of black goo – useless. What the world has remaining after extracting the best for 150 years is a big puddle of black goo. As the oil industry goes broke around the world even an economist will eventually figure out that something is wrong with their perspective of how things should be. Then they will try QE, NIRP and any other derivation possible to a currency to promote an economy that is not there. Perhaps they will chase their tails until they get tired, and then go dig up some old bone to gnaw on. Of course by that time the world will be back to forecasting the future with a can of dried chicken bones, and casting spells onto amulets.
adonis on Sun, 24th Apr 2016 10:19 am
once the shale dries up oil glut will turn into oil rationing then the parrots will change their tune
Northwest Resident on Sun, 24th Apr 2016 10:26 am
Econ 400: How To Spin Really Terrible Data Into Wonderful News
That must be a mandatory course for all would-be graduates in the field of economics. I’m just guessing that is what they have been trained to do, because for the most part that is what they are all doing!
We can think of the economics profession as the financial priesthood, the central banks heads as the bishops of that new-age religion, and all the muppets and day traders as their dedicated following, all trying to make it to the “promised land” of ever increasing profits.
Just one question: given this analogy, who is the pope? Janet Yellen? Something to get you laughing on a Sunday morning, maybe.
peakyeast on Sun, 24th Apr 2016 10:30 am
The peak-oil crowd is the same as those that think that china could grow at 8% forever?
Tell me I am reading this wrong? Its possible since I am not native to English.
If I read correctly then this man has reached a higher degree of stupidity than naturally possible – he must actually have worked hard at getting this demented.
Apneaman on Sun, 24th Apr 2016 10:39 am
Short, it matters not if economists eventually figure out something is wrong with their perspective of how things will be. They will just make up a new story about how awesome it is for workers or some other shit. That’s their job. The high priests of the masters of capitalism whose job it is to legitimize BAU and TPTP and keep the sheeple from asking too many questions. It’s the same role the priest class has always performed for the ruling class. Goes all the way back to the first civilizations – Sumer, Egypt. They just switched out the “invisible hand” and unseen “Market forces” with the gods as the new higher power. Still provides the same effect to the easily duped plebs.
The guy who owns the “HipCrime Vocab”, blog has given plenty of examples of their ever changing bullshit and excuse making. Here is a few of the more ridiculous ones in a quote from his latest piece.
“Drive through “flyover country” and you’ll see that all is not well in the heartland, from rural towns dominated by boarded-up storefronts, meth labs and food banks, to inner-cities dominated by crack houses, gun violence, panhandling and homelessness, to older suburbs dominated by foreclosures and dollar stores. Everything just worked out okay? But all of this is ignored in the mainstream media, who instead continue to insist that jobs are plentiful and all is well in the post-Fordist deindustrialized economy.
In fact, since the factories were shut down in the 1970-1990’s, there have been any number of “[fill-in-the-blank] economies” peddled by professional economists (“knowledge” economy, “information” economy, “service” economy, “FIRE” economy, “sharing” economy, “gig” economy, etc.). They insist that making things is so twentieth-century, and that the demand for “service workers” and “knowledge workers” is bottomless. The one constant between these ever-shifting adjectives is they have all been abject failures in the real world at providing lasting prosperity for anyone outside of a tiny circle of wealthy elites.”
http://hipcrimevocab.com/2016/04/19/20/
“knowledge” economy, “information” economy, “service” economy, “FIRE” economy, “sharing” economy, “gig” economy”
LMAO
There is a new economy the high priests and their cohorts in the MSM don’t want to talk about. It’s the AGW disaster recovery economy and business is BOOMING with no ceiling on the future. Eventually, they’ll be enough work to employ every survivor.
geopressure on Sun, 24th Apr 2016 11:44 am
Northwest Resident;
Bankers & Day-Traders are not even remotely similar professions…
If one was to construct a hierarchy of banking it would be central banks > regional banks >local banks… The stock market (or any market for that matter) does not really factor into a banker’s concerns – or shouldn’t…
geopressure on Sun, 24th Apr 2016 11:47 am
Saudi Arabia making a BIG ANNOUNCEMENT tomorrow… I wonder what it could be???
Dredd on Sun, 24th Apr 2016 12:35 pm
“In hindsight, neither prognostication appears to have been accurate. Imagine that.”
Hinnysight “appears” and “disappears” all kinds of things like that … it is Barbies fav way of revisionism.
Only one problem bucko (You Are Here).
penury on Sun, 24th Apr 2016 12:43 pm
Just a guess, but it could be that they will now accept payment in yuan and rubles as well as dollars, that would be a giggle.
Go Speed Racer on Sun, 24th Apr 2016 1:12 pm
The portrait looks like one of those bible preachers who drives around in a converted greyhound bus, swindling rural folk out of their week’s pay.
JuanP on Sun, 24th Apr 2016 1:18 pm
I couldn’t read this crap, it is unreadable.
sidzepp on Sun, 24th Apr 2016 4:57 pm
“Because figuring things out is what free market economies do.”
This is what our ‘free market economy does.
Creates trillions of dollars of debt.
Doesn’t solve the million plus homelessness.
Doesn’t address the 47 million on food stamps.
Doesn’t address the explosion in medical costs.
Doesn’t address the collapse of the education system.
Doesn’t deal with the obesity epidemic in this country.
It does give us a deteriorating environment.
It gives us endless police actions in the world as we attempt to continue our neo-colonialism.
It gives us a group of haves who say that since everything is ok for them, it must be ok for the other 90 percent.
It gives us politicos that promise us a better future.
Plantagenet on Sun, 24th Apr 2016 5:28 pm
Actually, the world IS awash in oil right now. We’re in an oil glut, and there is so much extra oil that a high percentage of all the storage capacity in the world is filled with oil.
No doubt this will change and the oil glut will eventually end, but for now enjoy the cheap energy prices.
Cheers!
makati1 on Sun, 24th Apr 2016 6:14 pm
Penury, I hope you are right. That would put the fox in the hen house. LOL.
I didn’t even bother to read this pile of shit article. More bloviating by the handmaidens of the elite saying nothing.
Comic Relief on Sun, 24th Apr 2016 6:29 pm
The perceived “oil glut” some idiots mention won’t “end”. It’s like a glut of oil tankers or railway wagons, the amount has not changed just the demand. The major economies of the world are in terminal decline and along with it, the demand for energy.
Energy producers, especially oil will become more and more desperate to ply their wares as demand falls off a cliff. The “end” will be when there is not enough market to support production. Many idiots like the above, think it’s the opposite.
MSN Fanboy on Sun, 24th Apr 2016 7:49 pm
Well Damn, Comic Relief, somebody finally gets it.
Harquebus on Sun, 24th Apr 2016 9:42 pm
It would be a brave or foolish investor that invests in shale E&D now. The currency invested in the existing shale industry is not likely to ever be repaid.
Boat on Sun, 24th Apr 2016 10:00 pm
When there is profit in anything the money will flow. Capitalism 101.
makati1 on Sun, 24th Apr 2016 10:55 pm
Boat, what you don’t seem to get is that Capitalism is in the ICU with life support also dying. It is about history. Gone for good. What are you going to do when your god is dead?
Boat on Mon, 25th Apr 2016 4:17 am
mak,
My life span is 20 more years. I am set. No fear. The last 2-3 years you have been talking crash. I believed the opposite and am doing well.
rockman on Mon, 25th Apr 2016 12:56 pm
H – that depends upon how knowledgeable the investor might be. There are many economically decent Eagle Ford wells being drilled now just as there were many money losers being drilled when oil was $100+/bbl. The profitability of drilling any wells has little to do with the price of oil and everything to do with the specific geology. Of course I don’t have access to the actual numbers but 40 years of experience tells me that the average rate of return for shale wells being drilled today is better than it was a couple of years ago. Happens that way in every boom cycle: higher oil/NG prices typically lead to poorer rates of return. Just go back 40 years to the last big boom: 4,500+ rigs drilling by the late 70’s. More than twice what we saw in this recent boom. Now look how much production in the US increased from all those rigs drilling. I’ll save you the time: it didn’t increase especially compared to what we saw in the recent boom. If you don’t believe me pull up the US production curves from the late 70’s/early 80’s. You think some folks lost their ass this time: think about it: 4,500+ rigs drilling and no meaningful production increase. How profitable the shale boom was in general can certainly be debated. But there’s no arguing how virtually no profit was made in that 40 yr old boom.
This is how the dynamic have always worked and always will. So again: how do you make a profit during an oil boom: you roll into town with the first wagon of whores and roll out before the first load of production equipment rolls in. LOL. As I’ve pointed out many times before: probably the most successful Eagle Ford Shale player was Petrohawk. They tool hundreds of thousands of acres of leases dirt cheap, drill a few seed wells and then sold the company for $12 billion. And in the summer of 2011 sold it to a company with experienced geologists and engineers…not some dumb sh*t private investors:
BHP Billiton Ltd., the world’s largest mining company, agreed to buy Petrohawk Energy Corp. for about $12.1 billion in cash in its biggest acquisition, betting natural gas demand will gain in the U.S. BHP will pay $38.75 a share using cash and debt. That’s 61 percent more than Houston-based Petrohawk’s average price over the past 20 trading days.
And how has that worked out for BHP: since the time of the acquisition the stock has consistently fallen from $100/share to $20/share at the beginning of 2016. IOW that $12 billion acquisition has caused the company to lose about $100 billion in market cap.
It’s real simple: private investors have no f*cking business investing in the oil patch…never have…never will. But that’s true of most technical investments, isn’t it? LOL.
Apneaman on Mon, 25th Apr 2016 1:30 pm
Top Shale Fracking Executive: We Won’t Frack the Rich
“Fracking companies deliberately keep their wells away from the “big houses” of wealthy and potentially influential people, a top executive from one of the country’s most prominent shale drilling companies told a gathering of attorneys at a seminar on oil and gas environmental law earlier this month, according the Pittsburgh Post-Gazette.
“’We heard Range Resources say it sites its shale gas wells away from large homes where wealthy people live and who might have the money to fight such drilling and fracking operations,’ said Patrick Grenter, an attorney and Center for Coalfield Justice executive director, who attended the lawyers’ forum,” the Post-Gazette reported. “A handful of attorneys in the audience confirmed that account,” and added that the Range Resources official had prefaced his remarks by saying “To be frank”.
The comments were made by Terry Bossert, Range Resources’s vice president for legislative and regulatory affairs, during a presentation at the Pennsylvania Bar Institute’s Environmental Law Forum on April 7. In 2004, Range Resources was the first company to drill in Pennsylvania’s Marcellus shale – but it has racked up a string of environmental violations so severe that state regulators slapped it with a record-breaking $4.15 million fine in 2014, followed the next year by an $8.9 million fine over a different incident.”
http://www.desmogblog.com/2016/04/21/top-shale-fracking-executive-we-won-t-frack-wealthy
makati1 on Mon, 25th Apr 2016 6:45 pm
Baot, my life span is 20 more years also and I am 71. Does that expectation make it so? Hardly, either of us could be gone tomorrow. The difference is that I am preparing for those 20 years as best as is possible. I see what is coming, just not the timeline.
You seem to be denying that it will happen in your 20 years. It could happen tomorrow. Wanting and getting are two very different things. Your god is dying along with everything you know and enjoy. Adjust or pay the price.