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Peak Investment = Peak Oil

Discussions about the economic and financial ramifications of PEAK OIL

Re: Peak Investment = Peak Oil

Unread postby Pops » Fri 17 Jan 2014, 07:20:49

Thanks for the observation doc. Glad to hear you and Kopits agree. ("glad" probably isn't the right word)

Thanks Dolan, the proof of the pudding.

Economists have been telling us right along that demand "makes" energy so not to worry about physical constraints on production because profit seekers will find new tech and new resources in order to make a buck. I think it might be the greatest irony if now, back in the real world, shareholders are forcing international oil companies to switch from long term investment in "making energy" to short term returns because the shareholders want to make a buck - now. The intersection of "financialization" or "end stage capitalism" with Limits to Growth and peak oil.

Back in '08 before the crash Prof John Stevens wrote in "The Coming Oil Supply Crunch""
This report argues that unless there is a collapse in oil
demand within the next five to ten years, there will be a
serious oil ‘supply crunch’ – not because of below-ground
resource constraints but because of inadequate investment
by international oil companies (IOCs) and national oil
companies (NOCs). An oil supply crunch is where excess
crude producing capacity falls to low levels and is followed
by a crude ‘outage’ leading to a price spike. If this happens
then the resulting price spike will carry serious policy implications
with long-lasting effects on the global energy picture.


... The willingness of the IOCs to invest is constrained by
the adoption of ‘value-based management’ as a financial
strategy. Thus they are returning investment funds to
shareholders rather than investing in the industry. For the
NOCs, willingness is driven by depletion policy.
Increasingly this is motivated by a view that ‘oil in the
ground is worth more than money in the bank’.



Of course there was a momentary collapse in demand - along with a temporary surge in "new" tech and supply. But the supply crunch, or at least supply "crimp" has been right on time, early in fact, as witnessed by flat production and the record high average prices and for a record length of time. Which makes sense if 5-8 years is typical to develop a conventional reservoir. The notable statistic however is that the oil companies, both IOC & NOC have been investing record amounts of dollars since 2008 yet production is flat nonetheless.

Image


Most ironic is that there are fewer and fewer places in which to invest - 50% of conventional reserves are in Iran, Iraq, Kuwait & KSA. The euphoria of drillers and service companies over the advent of profitable LTO in the US then is not surprising, they fell in love at first sight with the Red Queen.

We are right now at the point where Stevens predicted the lack of investment would begin to manifest in a lack of replacement capacity. The fact that IOCs & NOCs did invest - and invest big - but came up dry is a bad sign. Of course he was talking about conventional reservoirs, which take years to develop but last for years and decades. The fact that so much attention and dollars have been focused on US LTO is the most worrisome to me because wells there won't last for decades. Not only did it divert OilCo CapEx and attention to a flash in the pan that will not be repeated elsewhere in the world in any significant timeframe, it diverted public attention from the problem as well - witness the 625hp Corvette ZO6 at the Detroit Car Show this week.

So not only are we facing 4.5% yearly depletion from conventionals (Yergin, 2007) that may not be replaced, we are increasingly dependent on rapidly depleting unconventionals like LTO & deepwater; but also on slow to develop unconventionals like bitumen and kerogen that may not scale up fast enough to replace conventional depletion.


...
https://www.gov.uk/government/uploads/s ... crunch.pdf
http://www.argutori.com/kreuz-set-sail/
http://fuelfix.com/blog/2013/12/17/shal ... -oil-boom/
If destruction be our lot, we must ourselves be its author and finisher. As a nation of freemen we must live through all time or die by suicide.
-- Abraham Lincoln
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Re: Peak Investment = Peak Oil

Unread postby Synapsid » Fri 17 Jan 2014, 19:05:27

Pops,

"...they fell in love at first sight with the Red Queen."

The LTO situation beautifully stated.
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Re: Peak Investment = Peak Oil

Unread postby sparky » Sat 18 Jan 2014, 01:38:49

.
For your information
...Reuters
Shell warns of "significant "profit" miss
http://www.reuters.com/article/2014/01/ ... B220140117

Their share price got hammered
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Re: Peak Investment = Peak Oil

Unread postby ROCKMAN » Sat 18 Jan 2014, 13:46:07

Pops - Hit the nail on the head as usual: "Not only did it divert OilCo CapEx and attention to a flash in the pan that will not be repeated elsewhere in the world in any significant timeframe". And thus THE difference between the US oil patch focused on the quarter (or at most annual) time frame and China's plans penciled in on at least a 50 decade long calendar. And the worst is that I see no way for the US to effective escape this trap of our on design. Our "system" worked great for much of the 20th century. For the 21st...not so much IMHO. Lots of TPTB are still benefitting from that system today that don't have to worry about a which future they won't be around to deal with.
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Re: Peak Investment = Peak Oil

Unread postby Graeme » Mon 20 Jan 2014, 19:08:11

Oil Industry Nears a Big Asset Sell-Off

Royal Dutch Shell said on Monday that it would sell its minority interest in an Australian liquefied natural gas project to the Kuwait Foreign Petroleum Exploration Company for about $1.1 billion.

The sale will probably be one of many in the oil industry this year as companies try to raise cash for other projects or to finance share buybacks and higher dividends.

Even though global oil prices are relatively high, with Brent crude trading at about $106 a barrel, profit at many oil companies has been disappointing and the stock performance of some companies, including Shell, has been lackluster.

“All too often, Shell’s answer to an issue or problem is that the market is being too short term; that Shell takes the long-term view, and that in the long term, the company’s approach will be proved right,” Lucas Herrmann, an analyst at Deutsche Bank in London, wrote in a note to clients on Monday. “Sadly, we would argue that the weight of evidence is, if anything, against the company.”

At the same time, large oil companies have accumulated huge collections of oil fields and other assets over the years, through their own exploration and development activities and through acquisitions of smaller companies. Selling properties that they no longer consider vital is a way of trying to appease investors.

The sales also help companies conserve capital. “We are refocusing our investment to where we can add the most value with Shell’s capital and technology,” Shell’s chief executive, Ben van Beurden, said in a statement on Monday. “We are making hard choices in our worldwide portfolio.”

The company’s stake in the Wheatstone project, in the Carnarvon Basin off Western Australia, is typical of the kind of asset that oil companies may want to sell. Shell does not control the project, which is operated by Chevron. Wheatstone is still under construction, and labor and other costs have become expensive for the oil industry in Australia. The Kuwaitis were already partners in Wheatstone.

Mr. van Beurden, who took over as the head of Shell from Peter Voser less than three weeks ago, seems determined to shake things up. He surprised investors on Friday by warning that Shell’s earnings for the fourth quarter of 2013 would be 48 percent lower than those a year earlier.

Shell’s recent performance illustrates trends in the industry that have disappointed investors. In recent years, capital investment in the industry has soared, more than doubling from 2005 to 2012, but it has not produced solid returns. Rising costs have trimmed profit margins, while oil companies have plowed much of their earnings back into projects that are becoming more expensive.


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Re: Peak Investment = Peak Oil

Unread postby ROCKMAN » Tue 21 Jan 2014, 08:41:19

Oil Industry Nears a Big Asset Sell-Off = Oil Industry Nears a Big Asset Buy-in

Which to a fair degree is how Big Oil got to be Big. The Shell sale highlights the continued development of Big NOC. Outside the US Big NOC already dominates Big Oil. The US is the last realm of Big Oil and even here it's losing its gripe to Little Oil. Big, Little or NOC, it still energy companies that dominate life on the planet. Shifting the deck chairs around on the Titanic didn't prevent it for sinking.
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Re: Peak Investment = Peak Oil

Unread postby Graeme » Wed 29 Jan 2014, 17:31:59

Big Oil Companies Struggle to Justify Soaring Project Costs

Chevron Corp. CVX -0.72% , Exxon Mobil Corp. XOM -0.56% and Royal Dutch Shell RDSB.LN +0.49% PLC spent more than $120 billion in 2013 to boost their oil and gas output—about the same cost in today's dollars as putting a man on the moon.

But the three oil giants have little to show for all their big spending. Oil and gas production are down despite combined capital expenses of a half-trillion dollars in the past five years. Each company is expected to report later this week a profit decline for 2013 compared with 2012, even though oil prices are high.

One of the biggest problems: Costs are soaring for many of the new "megaprojects" to tap petroleum deposits needed to replenish depleting fields.

Plans under way to pump oil using man-made islands in the Caspian Sea could cost a consortium that includes Exxon and Shell $40 billion, up from the original budget of $10 billion. The price tag for a natural-gas project in Australia, called Gorgon and jointly owned by the three companies, has ballooned 45% to $54 billion. Shell is spending at least $10 billion on untested technology to build a natural-gas plant on a large boat so the company can tap a remote field, according to people who have worked on the project.



Full-year earnings at Shell are expected to total about $16.8 billion, down from $27.2 billion in 2012. Net capital spending hit $44.3 billion in 2013, up nearly 50% from 2012.

Oil-industry experts say it will be difficult for the oil giants to spend less because they need to replenish the oil and gas they are pumping—and must keep up with rivals in the world-wide exploration race.

"If you don't spend, you're going to shrink," says Dan Pickering, co-president of Tudor, Pickering Holt & Co., an investment bank in Houston that specializes in the energy industry. Unfortunately for the oil giants, though, "I don't think there's any way these projects are more profitable than their legacy production," he adds.


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Re: Peak Investment = Peak Oil

Unread postby dolanbaker » Wed 29 Jan 2014, 17:44:06

Looks like they're setting us up for another "energy crunch" soon as they're waiting for the price of oil to rise on the back of limited supply before investing to produce $150 a barrel oil rather than investing now to avoid a shortfall in the near future. Just like in 2005, it took the price spike in 2008 to kick start investment, by which time, the high oil prices had helped to trigger the financial meltdown.
Ronald Coase, Nobel Economic Sciences, said in 1991 “If we torture the data long enough, it will confess.”
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Re: Peak Investment = Peak Oil

Unread postby Pops » Wed 29 Jan 2014, 18:34:17

Whether they are setting anything up or not, we must have learned by now that when the crunch comes and the prices rise, there will be more oil come busting onto the market.

Or will it?

There are the underwater "cities" on both sides of the Atlantic, off Brazil on the field formerly know as Tupi and on the other side ovv Africa.

There is shale oil.

Methane hydrates.

ROCK, Roc, and whomever else is in the know, what is the next Fracking Revolution that kicks in when the price doubles?
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Re: Peak Investment = Peak Oil

Unread postby ROCKMAN » Wed 29 Jan 2014, 21:15:14

Pop - First, even though I have my doubts about the hydrates ever becoming significant contributors, you seem to be focused on oil. So where are there huge known oil deposits that are not economical to develop at today's price. And by huge I mean on the scale of the Eagle Ford, Bakken and all the known Deep Water plays. Maybe Doc can toss one out some but I can't think of one trend. More important I can't think where we might find one yet to discover except for the Arctic. The little I know about the Antarctic tells me it would be unlikely. But at a much higher price the currently uneconomical projects in known trends would become viable. But I think you're asking about new big trends...not developing the smaller deposits of the ones being developed now. And Deeper Water trends? We've talked about it before: the DW plays being developed now are sediments that have washed off the continents or developed in the shallow waters on the shelf area on the flanks on the continents. IOW developing the tech to drill/produce in 20,000'+ won't be of much help because it very unlikely to expect any significant deposits out there.

And it's handy to remember that our "new big plays" are not all that new. Most here know that the Bakken was being drilled/produced over 50 years ago. Yep...we've got tech and oil prices that make the play more viable then ever before. But it's the expansion of a known play...a long known play. The same can be said about every onshore unconventional reservoir play. And the Deep Water, like the Gulf of México, is an old play. The first DW GOM field went on production over 30 years ago. In 1976 I was looking at interesting structures on seismic data in the GOM in the water depths we're drilling today. It just took decades to develop the engineering tech to drill prospects we suspected were there long go. So again, the plays producing our current oil surge were known decades ago. So you ask what big potential plays we are just discovering today that, given increased oil prices and decades of time, we'll eventually be adding to our global reserve base. I can't think of one with the possible exception of the Arctic. And we've yet to determine if there is a play in the Arctic.
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Re: Peak Investment = Peak Oil

Unread postby Synapsid » Wed 29 Jan 2014, 22:39:31

ROCKMAN, Pops,

Maybe the Atlantic coast of Morocco, symmetrical with Brazil's Below the Salt?

Likely to be no easier to develop, if it's there.
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Re: Peak Investment = Peak Oil

Unread postby Loki » Wed 29 Jan 2014, 23:33:58

ROCKMAN wrote:And it's handy to remember that our "new big plays" are not all that new. Most here know that the Bakken was being drilled/produced over 50 years ago. Yep...we've got tech and oil prices that make the play more viable then ever before. But it's the expansion of a known play...a long known play.

NPR is running a series on the North Dakota boom, human interest stuff mostly, but worth listening to. They've mentioned more than once that these communities have experienced other oil booms before. Also mentioned more than once that the current boom is different, this one will apparently last forever :lol:
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Re: Peak Investment = Peak Oil

Unread postby Pops » Thu 30 Jan 2014, 08:01:27

Yeah, the hydrates suggestion was a bit tongue-n-cheek, but just a bit. LOL

I read somewhere yesterday that the next oil repricing would not be as painful because we're transitioning to electricity - so coal, nat gas, maybe nukes - and away from oil. I think that was Gregor Macdonald, he used to have a blog when he was a doomer but now has a subscription paywall - goes to show that fluffing with good news pays better, LOL.

I think the big news this year will be that the land rush aspect of LTO has burned through so much capital that future investment becomes skittish. LTO will peak in the next couple of years it looks like and the life cycle profit will come out of the closet. If it turns out to be negative, then look for the end of fracking the world because nowhere else is as encouraging of Ponzi Economics as the US - another one of our Social-Darwinistic strengths.

Shell is of course the perfect, public face of the problem of short-termism and the official IOC of this thread it looks like:

Rigzone via PO.com News
Royal Dutch Shell revealed Thursday that 2014 will see the company stop its Alaska program and focus on achieving better capital efficiency by making ‘hard choices’ about new projects and reducing capital spending.
...
“Our overall strategy remains robust, but 2014 will be a year where we are changing emphasis, to improve our returns and cash flow performance.”

Meanwhile, Shell said the recent Ninth Circuit Court decision against the Department of the Interior “raises substantial obstacles to Shell’s plans for drilling in offshore Alaska”. As a result, Shell has decided to stop its exploration program for Alaska in 2014.

“This is a disappointing outcome, but the lack of a clear path forward means that I am not prepared to commit further resources for drilling in Alaska in 2014,” van Beurden said. “We will look to relevant agencies and the Court to resolve their open legal issues as quickly as possible.”

Shell’s capital spending in 2014 is targeted at around $37 billion, compared with the $46 million it spent in 2013. Meanwhile, the firm plans to increase the pace of its asset sales, which are expected to be $15 billion for 2014-2015 in both its upstream and downstream segments.
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Re: Peak Investment = Peak Oil

Unread postby ROCKMAN » Thu 30 Jan 2014, 08:38:42

Syn - If I read him correctly Pops was asking about NEW big trends. Offshore Morocco is just the extension of the DW west coast Africa trend that has been known for a couple of decades. Probably lots of fields left to found out there. But that’s a play being developed today. Not the future plays I think Pops was asking about.

Here’s a bit about Morocco. From a pubco so I would take their reserve numbers with a big grain of salt.

Pura Vida Energy has a 75% interest in the Mazagan permit. Mazagan is located off the coast of Morocco in the Atlantic ocean. We have modern, high quality 3D seismic data over the block with independently certified mean prospective resources of 5.3 billion barrels of oil (net). The Toubkal prospect alone has a prospective resource range of 436 mmbo to 3,074 mmbo barrels, with a mean estimate of 1,507 mmbo. Toubkal is an analogue of the billion barrel Jubilee field in Ghana – the largest oil discovery made in West Africa in the past decade
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Re: Peak Investment = Peak Oil

Unread postby Synapsid » Thu 30 Jan 2014, 10:27:30

ROCKMAN,

I was wondering about possible below-the-salt stuff, the other side of the rift that became the Atlantic from the Brazil stuff. Jubilee is from the Cretaceous isn't it?

OT but news: I just learned that there's an 81-mile oil pipeline across Panama, with a capacity of 800 000 bopd. Who knew? Panama is getting some attention from companies in the Gulf, including pipeline companies, as a route for sending Gulf light oil to California. One of the pipeliners (KM or Enbridge?) is buying Jones-act oil tankers.
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Re: Peak Investment = Peak Oil

Unread postby Subjectivist » Thu 30 Jan 2014, 10:55:34

Synapsid wrote:ROCKMAN,

I was wondering about possible below-the-salt stuff, the other side of the rift that became the Atlantic from the Brazil stuff. Jubilee is from the Cretaceous isn't it?

OT but news: I just learned that there's an 81-mile oil pipeline across Panama, with a capacity of 800 000 bopd. Who knew? Panama is getting some attention from companies in the Gulf, including pipeline companies, as a route for sending Gulf light oil to California. One of the pipeliners (KM or Enbridge?) is buying Jones-act oil tankers.

My understanding from stuff I read on po.com somewhere or other is that the Panama pipeline mostly moves Venezuela crude to the Pacific where Chinese supertankers pick it up and haul it to the Peoples Republic.
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Re: Peak Investment = Peak Oil

Unread postby ROCKMAN » Thu 30 Jan 2014, 11:04:57

Syn/Sub - I'll have to dig into it later. But there was also a story a couple of months ago about Vz negotiating with Columbia to lay an oil pipeline across their land to deliver Vz oil to Chinese ships at Columbian port terminals. As I've pointed out many times: when there are many tens of $TRILLIONS on the line the system will be modified to take advantage of the situation.
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Re: Peak Investment = Peak Oil

Unread postby Synapsid » Thu 30 Jan 2014, 12:03:43

ROCKMAN,

I realized after I'd commented that Morocco wouldn't be the other side of the rift from Brazil, but from the East Coast of North America, so that suggestion goes down the drain.

I think I read recently that that Venezuela-Colombia pipeline deal was approved. My point about the Panama pipeline was: 800 000 bopd and I didn't know the thing was THERE.

Reason totters.
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Re: Peak Investment = Peak Oil

Unread postby ROCKMAN » Thu 30 Jan 2014, 12:13:43

Syn - Actually it's those blind spots out there that keep me interested in this site. There's so much going on in the world folks never hear about from our MSM. for instance, speaking of the P Canal: do you know about China's conversation to build another canal across Nicaragua to match the P Canal? I pointed that out here months ago. None of this info is difficult to find. Most I dig up reading rigzone daily in about 5 minutes.
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Re: Peak Investment = Peak Oil

Unread postby Synapsid » Thu 30 Jan 2014, 12:43:11

ROCKMAN,

Yeh, a guy named Wang. That sounded very strange because he seemed to be independent of the government in Beijing, but Nicaragua sounded willing to take his money if he actually has it. I haven't seen anything about that project for quite a few weeks at least.

It would be good news for Pacific sea snakes (cobra relatives) if there are no locks in the system--the Caribbean has no sea snakes. A new frontier, just a-waiting. And a new point of interest for the Caribbean tourist industry.
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