Login



Peak Oil is You


Donate Bitcoins ;-) or Paypal :-)


Page added on March 5, 2014

Bookmark and Share

Total CEO to Yergin: “peak capacity”

Consumption

Oil industry costs are spiraling out of control, and it’s time to rein them in, Total CEO Christophe de Margerie insisted Tuesday.

“Excellence cannot be an excuse for doing anything at any price,” de Margerie told oil and gas industry executives gathered at the IHS CERAWeek energy summit in Houston. “We cannot continue to swallow this huge inflation.”

The French oil executive suggested that soaring capital expenditures are partly being driven by greedy subcontractors. He stopped short of naming names, but blamed “Asian countries (that) think we are ready to pay forever.”

“We have to go to the sub-subcontractors and say: ‘We know what’s going on. We can no longer be the deep pocket,’” de Margerie said.

Big oil cuts

De Margerie’s comments came as other industry leaders highlighted the climbing costs of oil projects. Chevron CEO John Watson noted that those ventures are becoming far more complex, even as labor costs and offshore rig prices escalate.

Industry leaders also are under pressure to cut their capital spending — the backdrop for recent cuts announced by Shell Oil Co. and other energy majors.

Read more: Activist investors pressure energy companies to cut spending

The immediate answer was not clear for executives looking to get new balance in their books.

Safety expenses

While Watson suggested companies could look to share engineering work across projects, de Margerie urged more restraint on potentially inefficient environmental and safety expenditures that may have jumped in the wake of the 2010 Deepwater Horizon disaster.

He suggested that safety and environmental concerns after the Gulf oil spill had been used to justify outsize expenses.

Cost-cutting doesn’t mean you are not doing your job properly, he stressed.

“A good company, which is extremely capital intensive, cannot just ignore that they are responsible for what they are producing,” de Margerie said. “There are ways of being safer, cleaner, without always adding additional costs.

“It’s now time to stop this, and we can do it without putting people in trouble” or at risk, he said. “It’s a lack of efficiency in most cases.”

‘Enhanced stimulation’

De Margerie’s colorful conversation with IHS CERA Chairman Daniel Yergin briefly strayed from cost concerns into oil-field terminology Tuesday. He suggested the industry made a blunder in widely adopting “hydraulic fracturing” as the name of the pivotal well completion technology allowing companies to extract previously inaccessible oil and gas resources.

He derided “this stupid word we are using, which is ‘fracturing.’” Yergin said he preferred “enhanced stimulation.”

He also cautioned against oil and gas industry pronouncements about abundant energy resources. When industry leaders “say there is plenty of oil and gas . . . you’re sending the message that we don’t care about the environment,” de Margerie said. “We do care. And the problem today is not the oil and gas resources — it is access to those resources.”

Some resources are locked away in relatively unfriendly countries, de Margerie said. There is “no more peak oil” and “no more peak gas,” he said, but those geopolitical and access constraints do translate into “peak capacity.”

FuelFix



12 Comments on "Total CEO to Yergin: “peak capacity”"

  1. Davy, Hermann, MO on Wed, 5th Mar 2014 5:11 pm 

    Cost-cutting doesn’t mean you are not doing your job properly, he stressed.
    “A good company, which is extremely capital intensive, cannot just ignore that they are responsible for what they are producing,” de Margerie said. “There are ways of being safer, cleaner, without always adding additional costs.
    “It’s now time to stop this, and we can do it without putting people in trouble” or at risk, he said. “It’s a lack of efficiency in most cases.”

    Why is it so tough in industry after industry to finally admit to the fact of diminishing returns from the limits of growth. We hear it time and time again of the ability of doing better without sacrifice. The “Only If” expression of it can be done. If one looks closely to multiple areas of the human ecosystem we see an inability to solve problems and the constant refrain that these problems can and will be solved. The oil industry is a leading denial industry in this meme. Not only are we in a situation of a diminishing returns on our efforts as a society we are well into the process. We are approaching the point of a break to a new equilibrium. This most likely will be in the financial sector and the consequences will slam the oil industry with unachievable production forecasts. When interest rates go up, that is the only place interest rates can go, the oil industry will price out many currently marginal projects. Once this next round of investment curtailment happens it will be the nail in the coffin for oil supply growth and peak oil production. We will be talking all liquids not just the conventional stuff. This is just around the corner. The financial markets are a Ponzi scheme that will blow apart when confidence is raddled. The raddle is currently on multiple fronts. If it were not for the central bank injection of liquidity the all-important confidence factor would not be there

  2. Paulo on Wed, 5th Mar 2014 6:17 pm 

    This is a thinly veiled threat to go after contractors and their employees, in other words, wages. I have seen this my entire working life. Every industry I have worked in eventually focused their attention on limiting contract(wage) pay-outs to bolster returns and profits.

    Natural limits or attention to supply and demand economics suggests that if a project is too expensive, then don’t start it. Just don’t expect every country to allow the importation of foreign workers from China or the Phillipines to keep the rates low. This race for the bottom further errodes the strength of economies and countries.

    Guess what, when it costs $700,000 to buy a particle board box house in Fort Mac, companies have to pay a relative wage and any project’s costs will reflect this. If you want skilled workers to risk working in Iraq or Nigeria, you have to make it worthwhile, nay, lucrative. These costs include lodging and flights. They sure as hell include safety provisions and environmental standards.

    Let’s suggest the CEO of Total take a pay cut and maybe work outside at -40C or +40C and see what he thinks then about costs.

    Paulo

  3. Paulo on Wed, 5th Mar 2014 6:27 pm 

    Plus,

    (this article ticked me off)…re: “There is “no more peak oil” and “no more peak gas,” he said, but those geopolitical and access constraints do translate into “peak capacity.”

    For God’s sake, if you can’t get the oil out of the ground then it might as well not exist. If you can’t do it safely or pay a decent wage getting it done, then leave it there. If this isn’t a relection of limits or Peak, I don’t know what is?

    Hey, maybe there’s oil on the moon…lots of it. We just can’t get it. There really isn’t peak oil or limits to how much we can produce, we just don’t have access. But it’s there. We could get it if we didn’t have to worry about safety, the environment, or paying for it. Hmmmm

    Paulo

  4. rockman on Wed, 5th Mar 2014 7:20 pm 

    I agree with you guys: this CEO is just trying to blame his failure on the cost side of the equation. He doesn’t say it outright but IMHO he’s trying to sell the same BS as many others: the high cost of developing hydrocarbons is driving their price up. The cost of drilling a well is made of just two components: the actual cost to the contractor + the mark up. The first is obviously fixed with the second subject to the supply/demand dynamics. I’ve seen the daily rare of a offshore rig go from $250,000/day to $650,000/day in just 5 years. Why? Demand as a result of higher fossil fuel prices. And when demand crashes as a result of a price collapse (as happened at the end of ’08 for NG) the day rate for those rigs crash.

    Increase ff prices lead to an increase in drilling which leads to increase demand for drilling infrastructure which leads to increased drilling costs. Really butt simple, eh? If Mr. CEO wants to lower costs all he and the other CEO’s have to do is cut their drilling budgets in half. I promise you drilling costs would plunge. So they would have their wish: lower drilling costs. Of course, that would mean they would only add half the reserves. Which would mean they wouldn’t be able to replace all their production. Which would mean that while their profit per bbl/mcf might increase the value of their company’s asset decreases year to year. And who is going to buy the stock in company with perpetually decreasing value?

    And this is exactly the rock and hard place Mr. Total is stuck between. IOW yes…reality can really suck. LOL.

  5. Northwest Resident on Wed, 5th Mar 2014 7:28 pm 

    Paulo — After I read this article and especially that “There is no more peak oil…” sentence, I scrolled down to write a flaming derisive rebuttal to that ludicrous statement — but it appears you beat me to it.

    It is amazing to witness the mental gymnastics that some people perform to keep themselves from having to recognize that peak oil is not only a reality, but that it is here and now.

    Take for example our resident Cornucopian, who will be along shortly to proclaim that NG futures are looking great and that the Marcellus play is pumping out the barrels of light sweet crude nonstop, therefore, why all the fuss about peak oil which will happen at some point in the future?

  6. DC on Wed, 5th Mar 2014 7:57 pm 

    I am surprised none of you have mentioned Totals whining about how ‘certain parties’ *cough asians* are too blame for Totals woes? I mean, we hear, and will continue to hear, every excuse, evasion, and fabrication to deny peak oil is upon us from these guys, right? Greedy un-named ‘asian’ contractors, well, thats a new one. This article all but admits something I have been saying. The uber expensive projects will at some point, force the western oil cartel to do either one of two things, or heck even a combination of;

    They will forced to start passing along those costs to end-users,(thats us btw) and end over a century of artificially low prices(mainly in the US of War of course), but ALL oil wasting, western countries(the ones that have squandered their own oil so thoroughly) would feel it as well.

    OR alternately, the public subsidies for western oil corporations will need a massive buffing. Even more so than the insane levels we are at now. Globally ~1 Trillion for western oil corporations. The endless and generous corporate welfare scheme big oil has enjoyed for century, is also, no longer sufficent to keep papering over ever higher costs. Right now US oil corporations working inside the US basically drill royalty free. A wonderful subsidy to be sure, but what will be next? A negative royalty scheme? ‘We’ pay royalties to shell, exxon and BP? Dont laugh, the PTB have probably considered negative interest rates too…

    Of course, they could, and probably will do both-blame it on ‘China’, Environmentalists, ‘Peak Demand lol’ and finally start passing on the true costs to the soccer moms and wall mart shoppers of amerika(and France too to be sure).

    Either way,the ‘Us consumers’ free oil joyride at the worlds expense will soon be coming to an end no matter how much oil the UsGov secures for there oil corporate masters. Once that starts to happen(and it will have to), Us ‘consumers’ won’t be whining like little children about nickel and dime increases, but multiple dollar increases.

    And it will be long over-due….

  7. Kenz300 on Wed, 5th Mar 2014 9:55 pm 

    The cost to produce oil keeps getting more expensive raising the price to end consumers..

    Alternatives look better and better as the price of oil continues to rise.

  8. Harquebus on Wed, 5th Mar 2014 10:20 pm 

    Peak capacity sounds like peak oil to me.

  9. Cloud9 on Wed, 5th Mar 2014 10:20 pm 

    You cannot mention peak oil or you run out of investors.

  10. DMyers on Thu, 6th Mar 2014 2:12 am 

    Great comments

    This article has to be mounted in the “You Can’t Make This Shit Up” Gallery.

    I believe this new terminology must have come from a meeting between Ben Bernanke and Daniel Yergin. It would have gone something like this.

    Yergin: “Thanks for seeing me, Mr. Bernanke..”

    Bernanke: “Ben!”

    Yergin: “Ben. Everyone has been telling me you’re the best at political linguistics. What I need is something equivalent to ‘Quantitative Easing’ for the oil business.”

    Bernanke: “Sounds like God’s Work to me. That’s what I do. I don’t spin anything though. I simply say things effectively. By the way, I wanted to thank you for your telling people about the huge quantity of oil in our future. It’s been good for the petro dollar.”

    Yergin: “This is related. We’re using hydraulic fracturing to get all that oil. We’ve got to change that term. They’re calling it fracking now. It sounds dirty and common. You can’t just call something what it is like that.”

    Bernanke: “Tell me what happens.”

    Yergin: They bombard the shale with some secret shit, and the oil pops out.”

    Bernanke: “Does the oil get excited? Stimulated?”

    Yergin: “Exactly. It gets very stimulated and pops out. Are you thinking?…..”

    Bernanke: “I’m always thinking stimulus. So is Janet, by the way.”

    Yergin: “Right. It’s being stimulated the hell out of.”

    Bernanke: “Sounds like you’re improving things. I always call that ‘enhancement.’ So, just put those two together. ‘Enhanced Stimulation.’ I’m feeling good with it already. Pardon me. I have to take this call from the building staff……”

    Yergin: “Enhanced Stimulation. That is awesome. Who could oppose it? He is good.”

    Bernanke: “Excuse me Daniel, I have to get someone on a problem they’re having downstairs.”

    Yergin: “Certainly. What’s wrong?”

    Bernanke: “I don’t know. A janitor in waste disposal says they’ve reached peak capacity down there.”

    Yergin: “Wait! What did you just say?! Peak what?”

  11. dashster on Thu, 6th Mar 2014 3:25 am 

    So he uses the term “Peak Capacity” instead of “Peak Oil” and then says “no more Peak Oil. Cute. And similarly, all these “Demand Constraint” forecasters, when they see world production go down can say that what we are looking at is “Peak Demand”.

  12. rollin on Thu, 6th Mar 2014 3:42 am 

    I think from now on this type of talk will be coming from the oil magnates. Great job opportunity for people to translate the BS into something more understandable.

    “de Margerie urged more restraint on potentially inefficient environmental and safety expenditures that may have jumped in the wake of the 2010 Deepwater Horizon disaster.”

    Translation:
    I am going to sulk and do little until they drop those ridiculously expensive preventative measures. Do they want oil or not?