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THE Chevron Thread (merged)

Discussions related to the global politics of energy use and acquisition.

Why is Chevron producing oil costing $70?

Unread postby misterno » Mon 06 Jun 2011, 11:37:35

Here is what it says:
"Chevron says the project will be profitable as long as oil prices stay above $60 or $70 per barrel, well below Monday’s level of $97.70."

We got so many reserves in Arabian Peninsula costing less than $10/barrel to produce oil and yet Chevron is pursuing this project. There are many reserves in the world that will cost much less than $70/barrel all around the world and yet Chevron's cost is $70???? Something does not make sense here.

http://peakoil.com/production/facing-up ... %e2%80%99/ I would like to hear your comments.
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Re: Why is Chevron producing oil costing $70?

Unread postby dinopello » Mon 06 Jun 2011, 12:11:52

What you quoted doesn't say what Chevron's cost is, it just implies that a $70 price satisfies Chevron's profit goals.

Probably it does cost more to produce than some other fields in the world but as long as their are buyers and they make their profit goals that does not matter - athough it implies that the cheaper to produce oil can't be ramped up in production rate.
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Re: Why is Chevron producing oil costing $70?

Unread postby rockdoc123 » Mon 06 Jun 2011, 14:17:46

We got so many reserves in Arabian Peninsula costing less than $10/barrel to produce oil and yet Chevron is pursuing this project. There are many reserves in the world that will cost much less than $70/barrel all around the world and yet Chevron's cost is $70????

Something does not make sense here.


There is obviously oil that has lower finding and development costs associated....it's just that Chevron doesn't have access to enough of it. The reference you make to the middle east is a case in point. Saudi Arabia has very low lifting costs as does Iran but Chevron can't access either place at this point.

As another poster mentioned as long as Chevron can generate positive economics they will continue with any project. Note that what they are referring to here is a breakeven cost. That is the cost at which Chevron would see a NPV of zero. Anything above that makes money.
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Re: Why is Chevron producing oil costing $70?

Unread postby Pops » Mon 06 Jun 2011, 14:18:34

misterno wrote:We got so many reserves in Arabian Peninsula costing less than $10/barrel to produce oil and yet Chevron is pursuing this project. There are many reserves in the world that will cost much less than $70/barrel all around the world and yet Chevron's cost is $70????

Because there is not enough capacity regardless of reserves.

More than that, you can only extract oil from a field so fast without passing up a large percentage.

But finally, what is the value to Chevron of oil in the ground? It's a corp like any other and profits today are the only point.

This is another reason why nationalization of resources is just about inevitable.
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Re: Why is Chevron producing oil costing $70?

Unread postby Serial_Worrier » Mon 06 Jun 2011, 14:43:39

At what point does Ghawar become un-economical?
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Re: Why is Chevron producing oil costing $70?

Unread postby Pops » Mon 06 Jun 2011, 14:52:06

I've said a couple of times that capitalism is awesome at extracting resources, profit is the incentive to get out more and faster and cheaper than the next guy and that drives innovation and technology. The entire modern industry is the result of capitalism and the result is ever increasing production and efficiency and lowered cost. This is the history of extraction, ever lower cost, it was the basis of the big "End of Growth" bet between Eirlich and Simon.

But in a capitalist "free market" there is much less profit to be made in not producing and not consuming resources. Theoretically, Chevron could shut in all of their wells and potentially be making money as the value of those reserves grows with scarcity but that isn't how things are done in a capitalist business, the investors of the company would rebel.

In fact, listen to any conservative pundit and they'll go red in the face hollering at the very idea of not extracting every last bit asap!

So when the King of Saud says they are going to save some for future generations (especially the one now trying to revolt) I can believe him, 10Mbd is probably good enough. After all, how many Bentleys does a guy need? In fact I'm kind of envious that we can't find representatives in our government that actually work for the good of the people the way a republic is supposed to and not simply be a proxy to a poll of statistical sampling of the most likely and extreme voters.
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Re: Why is Chevron producing oil costing $70?

Unread postby rockdoc123 » Mon 06 Jun 2011, 15:12:26

At what point does Ghawar become un-economical?

the point at which operating costs are balanced out by oil price. This is a very low number.

that being said the Saudis in general need $88/bbl in order to balance their budgets. So it isn't so much about whether a profit can be generated but rather how much profit is necessary to stay whole.

good article on this

http://blogs.wsj.com/economics/2011/03/31/saudi-governments-break-even-oil-price-rises-20-in-a-year/
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Re: Why is Chevron producing oil costing $70?

Unread postby dinopello » Mon 06 Jun 2011, 15:33:55

Pops wrote:After all, how many Bentleys does a guy need?


The question also is - how many are there in the House of Saud that want Bentleys?

I recall this article from The Atlantic (Robert Baer)

The House of Saud currently has some 30,000 members. The number will be 60,000 in a generation, maybe much higher. According to reliable sources, anecdotal evidence, and the Saudi gossip machine, the royal family is obsessed with gambling, alcohol, prostitution, and parties. And the commissions and other outlays to fund their vices are constant. What would the price of oil have to be in 2025 to support even the most basic privileges—for example, free air travel anywhere in the world on Saudia, the Saudi national airline—that the Saudi royals have come to enjoy? Once the family numbers 60,000, or 100,000, will there even be a spare seat for a mere commoner who wants to fly out of Riyadh or Jidda? Reformers among the royal family talk about cutting back the perks, but that's a hard package to sell.
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Re: Why is Chevron producing oil costing $70?

Unread postby misterno » Mon 06 Jun 2011, 16:28:11

Sorry folks

Here is the link that was supposed to be in the original posting

http://peakoil.com/production/facing-up ... %e2%80%99/
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Re: Why is Chevron producing oil costing $70?

Unread postby bratticus » Mon 06 Jun 2011, 19:26:23

Serial_Worrier wrote:At what point does Ghawar become un-economical?

That will happen later in the future than something else:

At what point will more of Saudi Arabian oil be heavy rather than light crude?

Arab Heavy: the crude of the future. There's more oil in SA than elsewhere in the world and none is offshore so in the future there will be more heavy than not in the world.
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Re: Why is Chevron producing oil costing $70?

Unread postby rockdoc123 » Mon 06 Jun 2011, 19:31:52

Arab Heavy: the crude of the future. There's more oil in SA than elsewhere in the world and none is offshore so in the future there will be more heavy than not in the world.


incorrect. The heavy oil in Saudi Arabia is mainly in Manifa and Safaniyah fields, both of which are located in the Arab Gulf, hence offshore. Contrary to popular opinion the vast majority of oil which has been brought into the near term capacity of Saudi Arabia is either Light or Super Light. Manifa was the only major project that had heavy oil and that was postponed until 2013.
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Re: Why is Chevron producing oil costing $70?

Unread postby bratticus » Tue 07 Jun 2011, 08:05:10

rockdoc123 wrote:
Arab Heavy: the crude of the future. There's more oil in SA than elsewhere in the world and none is offshore so in the future there will be more heavy than not in the world.


incorrect. The heavy oil in Saudi Arabia is mainly in Manifa and Safaniyah fields, both of which are located in the Arab Gulf, hence offshore. Contrary to popular opinion the vast majority of oil which has been brought into the near term capacity of Saudi Arabia is either Light or Super Light. Manifa was the only major project that had heavy oil and that was postponed until 2013.

So Ghawar is sweet crude from it's tip to the last drop in the bottom?

What does "future" mean to you?
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Re: Why is Chevron producing oil costing $70?

Unread postby rockdoc123 » Tue 07 Jun 2011, 09:25:24

So Ghawar is sweet crude from it's tip to the last drop in the bottom?


Either you are strawmaning the issue or you don't understand the terminology.
Sweet or Sour refers to the abscence or presence of sulphur. Anything above 1.5% is generally refered to as sour and requires additional processing to handle it. Some refineries can handle sour crudes, others can't. This is the main reason why the European refineries wanted the sulphur free Libyan crude, they aren't set up to handle sour crudes. Many refineries are and hence there is a large demand for Saudi crude in various places including the far east.
Heavy, light, medium refers to specific gravity of the crude normally measured as API. Crudes below 20 API are normally called heavy, 20-30 medium and 30+ light (superlight refers to 40+). The issues with heavy crude are related to viscosity (highly viscous low API crude such as found in the Cold Lake field in Alberta requires thermal energy to initiate flow whereas low viscous low API crudes such as present in Colombia flow on their own energy), pipeline and refinery specs and markets.
The two are independant of one another, there are sweet crudes that are light to superlight (Shaybah) there are sour crudes that are light (Ghawar) and there are heavy crudes that aren't that sour and heavy crudes such as Manifa that are very sour.
If you are suggesting that somehow Ghawar is a layered reservoir with both heavy and light hydrocarbons this is not the case at all. Many of the reservoirs have very thin "tar mats" but these are not considered reserves and can't be produced.
The most recent exploration by Aramco that discovered oil (2006 I think) resulted in several small discoveries which were all light or super-light. At present something in the order of 70% of Saudi production is light or superlight, the remainder medium or heavy.
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Re: Why is Chevron producing oil costing $70?

Unread postby Pops » Tue 07 Jun 2011, 09:37:40

This thread is the epitome of peak oil. I mean, this thread is about exactly what everyone was yammering about and predicting all these years! Demand has exceeded the capacity of the cheap/easy "conventional" oil (see: low-hanging fruit ) forcing us to use more expensive "substitutes" or do without.

The economists were right after all! The magic hand is "creating" a substitute for $20/bbl conventional oil in the form of $80 Syncrude (now there's an Orwellian term) and of course stagflation and unemployment for those who can't afford that price. Peakers were mistaken in thinking the economists were deranged voodoo priests who promised the Energy Fairy would pull a cheap-energy rabbit out of her ear when all they really predicted was that "something" would take the place of Clampett Crude. It turns out the substitute is the Deepwater Horizon, fracking methane on tap and stagflation.


The following chart should tell us everything we need to know about peak oil:

Image
Dave Murphy/OilDrum

We've exceeded the production capacity of the $20 oil, the $40 oil, the $60 oil and now we're pushing the capacity of the $100 oil. Coal liquefaction or gas to liquids or methane from saturn might fall in that range or not but we also need to remember we're using up the cheap oil as fast as we can - that chart is being eaten up from the left constantly. (For you King fans out there it's just like the Langoliers consuming the past!)

Notice that deep-water oil, which our few remaining cornies speak of so fondly and reproduce oil company press releases about so faithfully, falls at the extreme right hand side of this chart - that's the expensive end btw. That means all that oil will be sold for at least $100 I'd guess. Of course there is more oil to find, no one disputes that, but the simple fact that is hasn't been found yet should give an indication of how well it is hidden and how hard (expensive) it will be to extract.

The only way for oil prices to fall below $80 for any period is either to come up with 50mbpd of oil costing less than $60 to produce or dropping demand by about 20%.

Oil is priced at the cost of the most expensive barrel needed to meet demand.

Turns out everyone was right - except the people who said oil would always be cheap.
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Re: Why is Chevron producing oil costing $70?

Unread postby rockdoc123 » Tue 07 Jun 2011, 10:35:19

You are right Pops. But I think we all forget that although oil seems expensive in comparison to what it was it is really because it has been so cheap for so many years. As a comparison a barrel of Clamato juice would cost about $150, a barrel of soda water $130 and a barrel of Evian $314.
Also a large driver in the increasing price of oil has been the cost of labour. Although the recession saw a decrease in cost of materials (steel, consumables) used in oil extraction there was really no decrease in labour costs.
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Re: Why is Chevron producing oil costing $70?

Unread postby misterno » Tue 07 Jun 2011, 18:42:50

So let me get this straight.

From all the posts in this thread, I got the impression that "if Chevron is producing oil costing $70/barrel, that means they were not able to find a cheaper well/reserve to do the same" or "they do not have access to to cheaper wells like the ones in Saudi Arabia, Algeria, Venezuela, etc"

So generally speaking global private companies like Chevron exhausted all their abilities to find the cheapest oil and lately they come up with a well costing $70/barrel.

Did I understand it right? Is there any possibility that Chevron is in this specific reserve for experiment of a new technology? Or maybe the article is nonsense and there is no way $70 can be correct?
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Re: Why is Chevron producing oil costing $70?

Unread postby Pops » Tue 07 Jun 2011, 19:47:53

misterno wrote:Did I understand it right? Is there any possibility that Chevron is in this specific reserve for experiment of a new technology? Or maybe the article is nonsense and there is no way $70 can be correct?

Could be, but that oil was there when the market price was at $20bbl and no one was itching to invest billions on "experiments".

What do you think has changed?

I think you're still you missing the overall point, there are plenty of companies spending very large amounts in historical terms to extract unconventional oil in a very non-experimental way because of the even more fundamental point that the big pools of cheap oil have mostly been found and lately found wanting in capacity.
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Re: Why is Chevron producing oil costing $70?

Unread postby Pops » Tue 07 Jun 2011, 20:37:54

You guys are perverting the meaning of Hubbert's Peak Oil,

Hubert was a geologist. As it turns out the cost of oil is very important to the economy, regardless of how "cheap" it may seem, although I agree with doc that considering it's true value, it is truely cheap and a good portion has been wasted.

Inflation adjusted, oil is quite a bargain.

No, actually it isn't:

Image


Current production limitations
are OPEC constraints, not production limitations.

So OPEC countries have no physical limitations?


If it hit's 200 per barrel, you will see peak oil estimates being pushed back to 2050, with the market awash in plentiful oil.

:-D That's pretty good.
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Re: Why is Chevron producing oil costing $70?

Unread postby Pops » Tue 07 Jun 2011, 20:56:25

yukon wrote:Indeed Pops, Hubbert was a geologist. He predicted peak world oil in 1995. Now what would
you like to discuss.

John

How about the topic of this thread?
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Chevron Caught Manipulating Crude

Unread postby peeker01 » Sun 17 Jul 2011, 17:49:28

oops! accidental email shows chevron's role in trader's manipulation of oil prices.
WSJ
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