[h2]

agramante, that's very clear, and a reminder to some to think before they suggest someone doesn't grasp a concept, particularly in the case of Herr, who by so doing, showed that it is in fact they themselves who do not understand a concept, in this case, eroei.

I was going to note that eroei could never be zero, but then I woke up and remembered that every dry hole ever bored is a zero return on energy invested. ie: capital plus labor plus equipment plus energy yields 0 energy is a 0 eroei. dugh. The non energy components of this equation all represent embedded energy as well. Obviously, a company that pursues such returns will be out of business probably by the end of the year, or will be sold or dismantled, some off the choicer parts perhaps to be picked up by rockman's company.

If I remember right, for a capital based society to function the energy source must provide a return of somewhere around 5 or 6 to one, minimum. Embedded costs, energy, interest, capital access, etc make that kind of obvious, unless we pretend we aren't living in our society, of course, but then we aren't talking about reality, just fiction. And not very good fiction at that, since good fiction should be believable.

Placing a windmill on a windless plain will also give you zero, or a solar panel where there is no sun, or a dam where there is no river. And these of course are the real limits to fully unsustainable yet crudely short term renewable options. Then there's transmission line losses as well, which will have to factored in since where wind solar or hydro can be non sustainably built up is hardly ever close to the city that uses it. Line loss slices about 1/3 off the generated power I believe, on average. Think of a local power plant vs a distant one. San Francisco has a gas fired power plant right next to downtown, but all its renewable energy comes from far away, to put it simply. So that means those tw have to be reconsidered as well.

It's really not hard to see why you need 1 to 5 or 6, maybe much more, to make our society function. Considering it was built on far higher returns, coal, top grade, oil, easy to get, is what built our world.

[h2]

By the way, as rockman has frequently noted, no company out there uses eroie, but they do use cash flow, capital costs, and in my opinion, capital costs/availability in fact are a totally fine way to see how our social systems indicate an abstraction of the eroie calculation. This makes sense if you see money, capital, as simply a cipher for the embedded resources that run our social systems. For example, a pc chip takes a huge amount of industrial capacity, and a lot of strange elements, to create, and it's an intensely energy / resource intensive process, so that little chip costs a lot of money. Marx tried, foolishly, to tie all value to labor alone, pretending that there is no ecosystem or resource to consider, but if you ignore that mistake, and just replace the specific labor with a more general resource exploitation, then I think the math works well. All profit is externalized costs, and all profits basically vanish once you h ave forced the enterprise to accept responsibility for all externalized costs. At which point our current system collapses instantly, and is exposed for the raw mining/extraction activity it actually is, no matter how far abstracted it pretends to be from that source.

So I think cost, price, etc, are just fine indicators of eroie realities, though it's probably more accurate to use the term resources invested over resources gained. ie, the cost of getting a barrel is roughly enough to make the actual socially available resource gain compared to resource cost work out postiviely. ie, the bankers give some credit, the drillers drill, the oil or gas flows, and yields some profit, and that's a completely adequate way to abstract to eroie without getting caught up in pointless word games.

For example, today, 90-110 dollar units price per barrel of oil are required to justify most drilling activity, or tar sands etc. Those dollar units are declining in value, fairly rapidly, which means each one gets you fewer resources, less claim on the social total produced. Which means if it costs more than that per barrel to develop it, society considers it a bad deal, because it's not getting enough for its dollar unit investment, which itself represents a claim on the embedded resource extraction/exploitation of all previous eras before it. And this is of course why companies do not use eroie to do this math, it's not necessary, money already does that math for us, crudely speaking.

At a certain point, the amount of resources required to bring up new resources no longer can be justified, and that point is the breakeven point for that social system, in other words, it costs the social system more to bring online more crude flow than that crude flow is able to generate in resource based income. That isn't 1 as in eroie, it's probably a lot higher, the question is just how high is that point. Right now it looks like it's about 120 a barrel in today's dollars. In other words, carbon fuels priced above a certain point no longer create a net positive for the money using society because the cost does not leave enough over for the rest of the social system to function. Or something like that.

So talking about eroie, as rockman has noted many many times, is probably a waste of time, given we already have the mechanism, the abstraction of money/capital/capital access, in place to determine the true social value of the commodity. Every hole they decide not to drill, for example, has roughly been calculated to have a rough negative balance of resources invested to resourced extracted. As the cost of a barrel rises, and starts to bump against the highest social price that is acceptable, that brings on marginal oil supplies, as we've seen with fracking, but does nothing to change hte underlying dynamic, which is that it's too close to the ceiling price, which creates the bumpy plateau of peak production globally, which itself means the balance is not working correctly because the cost is too high for other parts of the social system to actually work correctly, at which point you see the price drop, down to about the cost of producing a new barrel, roughly, a touch higher or there is no motivation to get it. Then sales rise, prices go up as demand pushes up cost, and the plateau bumps along, precisely as it's doing. And out of this clear indication that we've hit that peak cost/price value number, somehow cornucopians manage to deduce that there is no peak oil, lol. Sort of like when global warming denialists use the movement of the arctic jet stream, caused by warming of the arctic, and its subsequent big winter storms in the us northern states, as proof that global warming isn't real.

eroie I think was always just an abstraction invented by intellectuals who wanted to try to break down the costs into discrete chunks, but I think that may be a fools game, given we already have our metric, cost/money, which works already to do that same thing, and far more accurately. Every day the oil markets ask.. will you pay x? and the world says, yes I will. Or it says, no I won't, And that shows what that resource is currently worth to us today, which in turn shows what you can get out of it and still hope to generate a 'profit'. It's an odd dynamic.

[ROCKMAN]

h2 - " Every day the oil markets ask.. will you pay x? and the world says, yes I will. Or it says, no I won't, And that shows what that resource is currently worth to us today". Exactly. The point I've been trying to make elsewhere: the market place (the consumers) decide what they can/will pay for refined products. And the refiners analyze that trend to determine what they can pay for the raw product...oil. Starting last April the consumers conveyed that the effects of high petroleum prices were finally impacting their consumption. Since then the average price of gasoline has declined 23%. The market made it clear: it was only going to buy enough refined products at the current price (and not a penny more) to create a sufficient cash flow the refiners required.

And guess what: as the price consumers were willing to pay for gasoline declined 23% during the same period the price of WTI declined 24%. Of course, there isn't a perfect linear relationship between oil and gasoline prices but close enough IMHO. And the refiners anticipated the trend. OPEC and the KSA didn't decide to lower the price of oil: the oil buyers, the refiners, were willing to only pay a price that would create an acceptable profit margin for them.

Crack spread: one of the mostly closely monitored metrics in the entire petroleum industry: the difference between the price of oil and refined products. Essentially the profit margin for the refiners. And since last summer the crack spread for the west coast (the only one I could find) is right where it was during the same period in 2013...about $10 - $12 per bbl. But recall that oil prices were significantly higher at that time in 2013. So how are the refiners able to make the same profit margin today: they had to buy oil at a lower price. If refiners were paying $90/bbl today and selling product at the current price consumers are willing to pay they would be losing money for every bbl they buy. It would be a better financial move to shut down and mothball their operations if prices had not fallen. And if the refiners stopped buying oil how much revenue would the KSA et al have today?

In the longer term the consumers, not the oil producers or refiners, determine the price of oil.

BTW a picky point: "...90-110 dollar units price per barrel of oil are required to justify...tar sands...". Canadian oil sands production reached 365 million bbls of oil per year when the inflation adjusted price of oil was between $30 to $40 per bbl.

[Tanada]

Crack spread: one of the mostly closely monitored metrics in the entire petroleum industry: the difference between the price of oil and refined products. Essentially the profit margin for the refiners. And since last summer the crack spread for the west coast (the only one I could find) is right where it was during the same period in 2013...about $10 - $12 per bbl. But recall that oil prices were significantly higher at that time in 2013. So how are the refiners able to make the same profit margin today: they had to buy oil at a lower price. If refiners were paying $90/bbl today and selling product at the current price consumers are willing to pay they would be losing money for every bbl they buy. It would be a better financial move to shut down and mothball their operations if prices had not fallen. And if the refiners stopped buying oil how much revenue would the KSA et al have today?

In the longer term the consumers, not the oil producers or refiners, determine the price of oil.

BTW a picky point: "...90-110 dollar units price per barrel of oil are required to justify...tar sands...". Canadian oil sands production reached 365 million bbls of oil per year when the inflation adjusted price of oil was between $30 to $40 per bbl.

IOW it sounds like it will remain full steam ahead for all the kinds of oil that are not tight shale/limestone that have to be horizontally drilled and multi-fracked to produce a useful rate of oil output. Deep water should do fine at these prices but might slow down a bit if I understand the economics there at all. Backyard drillers like they made those reality TV shows about a couple years ago should still do alright.

The real question that comes up is how far down for how long, and that raises additional questions of how many fracking companies remain when prices recover?

IMO KSA would have been better off cutting their sales 2 MM/bbl/d and letting the USA LTO shale boom reach its natural peak and bust all on its own. I don't think that would take nearly as long as the EIA seems to think it would. Then again KSA has a legion of analysts looking at data, maybe they see something I don't or maybe they told the bosses what they think the bosses want to hear. That is the problem with any sort of analysis. Sometimes you miss something obvious, sometimes you see something that isn't really there, and sometimes you shade what you see to please the boss.

[DesuMaiden]

I seriously doubt the USA will ever produce as much oil as Saudi Arabia, as the USA has already hit their peak in oil production in 1970. The USA will never ever produce as much oil as they did in 1970.

[SeaGypsy]

Homework again Desu. It's about fracking & new technologies for extraction, then it's about extraction vs internal consumption. The USA apparently just exceeded Saudi production this year, but nowhere near enough to supply its population. The Saudis are now the second biggest exporter, to Russia.

For a good read on this in depth, search up top for Export Land Model/ a theorem developed by a regular here- westexas.

[ROCKMAN]

D - "I seriously doubt the USA will ever produce as much oil as Saudi Arabia, as the USA has already hit their peak in oil production in 1970." FYI: Until the 1950's the US was the largest oil and NG producer on the planet. And until 1997 the US oil production rate was higher then that of Saudi Arabia. In fact, in 1985 the US oil production rate was almost 4X larger then the KSA. The KSA had cut their production in the mid 80's trying to raise oil prices. At the same time US producers flooded to market with more oil then the KSA is producing today. In fact in 1985 all the Middle East producers combined were doing 12 million bopd and the US alone was doing 11.1 million bopd.

Amazing isn't it that so many think OPEC controlled oil prices 30 years ago when in fact the US did by producing so much oil that it suppressed prices during the 80's and 90's.

[Subjectivist]

D - "I seriously doubt the USA will ever produce as much oil as Saudi Arabia, as the USA has already hit their peak in oil production in 1970." FYI: Until the 1950's the US was the largest oil and NG producer on the planet. And until 1997 the US oil production rate was higher then that of Saudi Arabia. In fact, in 1985 the US oil production rate was almost 4X larger then the KSA. The KSA had cut their production in the mid 80's trying to raise oil prices. At the same time US producers flooded to market with more oil then the KSA is producing today. In fact in 1985 all the Middle East producers combined were doing 12 million bopd and the US alone was doing 11.1 million bopd.

Amazing isn't it that so many think OPEC controlled oil prices 30 years ago when in fact the US did by producing so much oil that it suppressed prices during the 80's and 90's.

Two questions, what are you counting as oil because I have seen repeated ad nauseum that America peak late in 1970 at just under 10 MM bbl/day and you are saying we produced 11.1 in 1985.
Second question when KSA flooded the world market in 1986 and crashed the world oil price what happened to USA production? I have heard from different oil people it destroyed American high price production to the extent it took over twenty years to recover.

[ROCKMAN]

Sub – Here’s the link to the data from the EIA I’m using. Unfortunately it only goes back to 1980. Since they count other liquids then crude oil it wouldn't be correct to compare their numbers with another source. Likewise we have to stick with their numbers over time to see the dynamics change:

http://www.eia.gov/cfapps/ipdbproject/i ... &unit=TBPD

USA – 1985 – 11,192.4 million bopd
KSA – 1985 – 3,778.0 million bopd
ME – 1985 – 11,001 million bopd

From 1985 to 2000 the USA produced 9 to 11 million bopd. From 1985 to 2000 the KSA increased production from 3.8 million bopd to 9.5 million bopd. In 1999 the USA was still producing slightly more oil than the KSA.

Unfortunately with all the BS spin thrown out by so many parties with different agendas most Americans really don’t understand that for much of the last 25 years to volume of oil produced by the US has had much more impact on the global market then the KSA has had.

In 2013 the USA produced 4.51 billion bbls of oil. That year the KSA produced 4.23 billion bbls of oil. So if the KSA is to be blamed for the lower oil price by producing flooding the market with oil then US producers should get a tad more of that blame, don’t you think? IOW if the KSA is intentionally knocking down the price of oil then US producers must be part of that grand conspiracy. LOL.

[Subjectivist]

Rockman, thanks for the answer. I don't see it as an international oil conspiracy at all. The way I see it over eager oil companies in the fracking industry and over eager investors paying them via junk bonds ramped up American production faster than world wide depletion and increased demand.

If the TRRC were doing its old job like it was 1970 maybe it wouldn't have happened...when in doubt pass the blame lol. What I mean is, if Texas producers were not being encouraged to pump flat out as fast as they can perhaps a glut could have been avoided. The original purpose of the TRRC was to restrict output as needed to maintain a stable to slowly declining price . In the last five years American production has shot up like a rocket while decline in regular fields has continued at it's slow steady rate. With this pattern the only thing preventing a glut was OPEC being willing to cut their own production to maintain prices.

When that didn't happen there were only a few days when the Government or the TRRC could have acted to prevent a price collapse. The TRRC has not used its authority in decades and would quite likely be ignored if it tried to use it now. The Federal government could have acted by buying cheap $75.00/bbl oil at a rate sufficient to eliminate the over supply while it was still small and putting it into the strategic reserve. Of course that would have lead to howls of interference with the market.

[ROCKMAN]

Sub - "The TRRC has not used its authority in decades and would quite likely be ignored if it tried to use it now." The TRRC uses its authority to set the allowable every 30 days. And so far it is still at 100%. It is not some long forgotten reg: the commission take the vote every month and it's posted to every operator in the state. Ignore the TRRC on any regulatory matter and you lose your right to operate in Texas, lose the right to produce any of your existing wells and there's always the outside chance you end up in state prison. BTW the Texas Rangers (not the baseball team) is the law enforcement agency that handles such matters for the TRRC. The real battle would be between the state and the feds if they tried to decrease the allowable. The companies themselves would have no legal recourse: when you apply for a permit to operate in Texas you agree to abide by the allowable regs.

Forget about "messing with Texas"...no operator dares to mess with the TRRC. They are in absolute control over us operators.

[Pablo2079]

I certainly hope we've topped off the Strategic Petroleum Reserve at these low prices...

[Tanada]

Sub - "The TRRC has not used its authority in decades and would quite likely be ignored if it tried to use it now." The TRRC uses its authority to set the allowable every 30 days. And so far it is still at 100%. It is not some long forgotten reg: the commission take the vote every month and it's posted to every operator in the state. Ignore the TRRC on any regulatory matter and you lose your right to operate in Texas, lose the right to produce any of your existing wells and there's always the outside chance you end up in state prison. BTW the Texas Rangers (not the baseball team) is the law enforcement agency that handles such matters for the TRRC. The real battle would be between the state and the feds if they tried to decrease the allowable. The companies themselves would have no legal recourse: when you apply for a permit to operate in Texas you agree to abide by the allowable regs.

Forget about "messing with Texas"...no operator dares to mess with the TRRC. They are in absolute control over us operators.

Wait, what? You mean if the TRRC voted at the next meeting to limit Texas Production 50% all of the producers would have to cut production within 30 days or face fines/jail time? I was not even sure the TRRC did anything other than record keeping at this point.

[ROCKMAN]

The SPR a capacity of 727 million barrels and store emergency supplies of crude oil owned by the U.S. Government. Highest inventory - The SPR was filled to its 727 million barrel capacity on December 27, 2009. The current fill is 691 million bbls in Nov. If the govt took 30 days to fill the excess capacity (33 million bbls) it would pull 1.2 million bopd off the market for one month. So based upon current estimates of global oil production the US govt could reduce the available oil by 1.3% for 30 days. And then that volume would again be on the market.

Doesn't seem like it would be much of a game changer with respect to the price of oil goes.

[Withnail]

I certainly hope we've topped off the Strategic Petroleum Reserve at these low prices...

you would think China would be out there buying up lots of oil as well.

just use it or put it all in storage, the price is bound to go up.

[ROCKMAN]

T - It's amazing that folks think oil companies are so unrestricted. I can't do anything on the ground in Texas with respect to oil/NG drilling or production without following the TRRC regs. And they are freaking extensive. LOL. Here’s the link if you want more details. Below is just ONE OF THE 20 CHAPTERS that deal with regulating fossil fuels in the state. The TRRC has an annual budget of about $70 million. In 1940 it has almost 600 employees. In addition to the office staff they have field inspectors constantly checking on compliance. All inspectors have the right to full access without notice to all activity 24/365. Each Rule section below is extensive. The regulatory process is so complex at times there are numerous consultants in Austin we hire as needed. I have two of them on speed dial on my cell. LOL.

http://www.rrc.state.tx.us/legal/rules/current-rules/

RAILROAD COMMISSION OF TEXAS
CHAPTER 3
OIL AND GAS DIVISION

Rules

§3.1 Organization Report; Retention of Records; Notice Requirements
§3.2 Commission Access to Properties
§3.3 Identification of Properties, Wells, and Tanks
§3.4 Oil and Geothermal Lease Numbers and Gas Well ID Numbers Required on All Forms
§3.5 Application To Drill, Deepen, Reenter, or Plug Back
§3.6 Application for Multiple Completion
§3.7 Strata To Be Sealed Off
§3.8 Water Protection
§3.9 Disposal Wells
§3.10 Restriction of Production of Oil and Gas from Different Strata
§3.11 Inclination and Directional Surveys Required
§3.12 Directional Survey Company Report
§3.13 Casing, Cementing, Drilling, Well Control, and Completion Requirements
§3.14 Plugging
§3.15 Surface Equipment Removal Requirements and Inactive Wells
§3.16 Log and Completion or Plugging Report
§3.17 Pressure on Bradenhead
§3.18 Mud Circulation Required
§3.19 Density of Mud-Fluid
§3.20 Notification of Fire Breaks, Leaks, or Blow-outs
§3.21 Fire Prevention and Swabbing
§3.22 Protection of Birds
§3.23 Vacuum Pumps
§3.24 Check Valves Required
§3.25 Use of Common Storage
§3.26 Separating Devices, Tanks, and Surface Commingling of Oil
§3.27 Gas To Be Measured and Surface Commingling of Gas
§3.28 Potential and Deliverability of Gas Wells To Be Ascertained and Reported
§3.29 Hydraulic Fracturing Chemical Disclosure Requirements
§3.30 Memorandum of Understanding between the Railroad Commission of Texas (RRC) and the Texas Commission on Environmental Quality (TCEQ)
§3.31 Gas Reservoirs and Gas Well Allowable
§3.32 Gas Well Gas and Casinghead Gas Shall Be Utilized for Legal Purposes
§3.33 Geothermal Resource Production Test Forms Required
§3.34 Gas To Be Produced and Purchased Ratably
§3.35 Procedures for Identification and Control of Wellbores in Which Certain Logging Tools Have Been Abandoned
§3.36 Oil, Gas, or Geothermal Resource Operation in Hydrogen Sulfide Areas
§3.37 Statewide Spacing Rule
§3.38 Well Densities
§3.39 Proration and Drilling Units: Contiguity of Acreage and Exception Thereto
§3.40 Assignment of Acreage to Pooled Development and Proration Units
§3.41 Application for New Oil or Gas Field Designation and/or Allowable
§3.42 Oil Discovery Allowable
§3.43 Application for Temporary Field Rules
§3.45 Oil Allowables
§3.46 Fluid Injection into Productive Reservoirs
§3.47 Allowable Transfers for Saltwater Injection Wells
§3.48 Capacity Oil Allowables for Secondary or Tertiary Recovery Projects
§3.49 Gas-Oil Ratio
§3.50 Enhanced Oil Recovery Projects--Approval and Certification for Tax Incentive
§3.51 Oil Potential Test Forms Required
§3.52 Oil Well Allowable Production
§3.53 Annual Well Tests and Well Status Reports Required
§3.54 Gas Reports Required
§3.55 Reports on Gas Wells Commingling Liquid Hydrocarbons before Metering
§3.56 Scrubber Oil and Skim Hydrocarbons
§3.57 Reclaiming Tank Bottoms, Other Hydrocarbon Wastes, and Other Waste Materials
§3.58 Certificate of Compliance and Transportation Authority; Operator Reports
§3.59 Oil and Gas Transporter's Reports
§3.60 Refinery Reports
§3.61 Refinery and Gasoline Plants
§3.62 Cycling Plant Control and Reports
§3.63 Carbon Black Plant Permits Required
§3.70 Pipeline Permits Required
§3.71 Pipeline Tariffs
§3.72 Obtaining Pipeline Connections
§3.73 Pipeline Connection; Cancellation of Certificate of Compliance; Severance
§3.76 Commission Approval of Plats for Mineral Development
§3.78 Fees and Financial Security Requirements
§3.79 Definitions
§3.80 Commission Oil and Gas Forms, Applications, and Filing Requirements
§3.81 Brine Mining Injection Wells
§3.83 Tax Exemption for Two-Year Inactive Wells and Three-Year Inactive Wells
§3.84 Gas Shortage Emergency Response
§3.85 Manifest To Accompany Each Transport of Liquid Hydrocarbons by Vehicle
§3.86 Horizontal Drainhole Wells
§3.91 Cleanup of Soil Contaminated by a Crude Oil Spill
§3.93 Water Quality Certification Definitions
§3.95 Underground Storage of Liquid or Liquefied Hydrocarbons in Salt Formations
§3.96 Underground Storage of Gas in Productive or Depleted Reservoirs
§3.97 Underground Storage of Gas in Salt Formations
§3.98 Standards for Management of Hazardous Oil and Gas Waste
§3.99 Cathodic Protection Wells
§3.100 Seismic Holes and Core Holes
§3.101 Certification for Severance Tax Exemption or Reduction for Gas Produced From High-Cost Gas Wells
§3.102 Tax Reduction for Incremental Production
§3.103 Certification for Severance Tax Exemption for Casinghead Gas Previously Vented or Flared
§3.106 Sour Gas Pipeline Facility Construction Permit
§3.107 Penalty Guidelines for Oil and Gas Violations

[ROCKMAN]

Speaking of the extra 33 million bbl of storage capacity in the SPR are we all aware of the storage at Cushing, OK? Total capacity is 76 million bbls of oil. It reached its recent peak of 52 million bbls in January 2013. Now that more pipeline capacity has opened up to Texas refineries it has dropped to 23 million bbls.

There's lots of places to stick oil if you want to wait for prices to come up. But you do pay storage fees.

[Subjectivist]

Sub - "The TRRC has not used its authority in decades and would quite likely be ignored if it tried to use it now." The TRRC uses its authority to set the allowable every 30 days. And so far it is still at 100%. It is not some long forgotten reg: the commission take the vote every month and it's posted to every operator in the state. Ignore the TRRC on any regulatory matter and you lose your right to operate in Texas, lose the right to produce any of your existing wells and there's always the outside chance you end up in state prison. BTW the Texas Rangers (not the baseball team) is the law enforcement agency that handles such matters for the TRRC. The real battle would be between the state and the feds if they tried to decrease the allowable. The companies themselves would have no legal recourse: when you apply for a permit to operate in Texas you agree to abide by the allowable regs.

Forget about "messing with Texas"...no operator dares to mess with the TRRC. They are in absolute control over us operators.

As Mr. Spock would say...Fascinating!

[Withnail]

Surely the big winner of this oil price fall is going to be China.

Russia will lose, OPEC will lose, and the US shale oil plays will lose.

But I don't see how China can lose. Cheaper oil, more growth.

[ROCKMAN]

Withnail - It would seem so. And just as the Chinese economy was hitting a small bump in the road.