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The FT & commenters think Peak oil is finished

General discussions of the systemic, societal and civilisational effects of depletion.

The FT & commenters think Peak oil is finished

Unread postby zleo99 » Tue 11 Apr 2017, 09:02:39

https://www.ft.com/content/70a4c2e6-ded ... 93ee23ea35

Energy shifts to a buyers market Nick Butler FT
A fundamental shift of power is underway in the world energy market. This is not about the transition from fossil fuels to low carbon or from high cost choices such as nuclear to lower cost gas and renewables. Even more important for producers and investors is the move from a market led by producers to a buyers’ market in which the ability to set prices and choose trading partners lies in the hands of consumers.
The latest example of this is the creation of a buyers’ group led by the three leading Asian liquefied natural gas importers.
At the end of March, three of the largest LNG importers — Kogas of Korea, JERA from Japan and China’s Cnooc — signed a memorandum of understanding agreeing to co-operate in the procurement of LNG. As well the symbolism of such a tie-up between countries that are not always close allies and a set of companies which until very recently have been competitors for supplies, the deal signals the rebalancing of the global market in gas, and in the wider energy sector.
The buyers are in a powerful position. A whole set of new LNG projects started before the fall in prices began three years ago are due on stream within the next two years. The latest report from the International Gas Union lists 28 new plants under construction from Russia to Australia. Some are enormous: Cove Point in the US and the Yamal facility in Russia each has a liquefaction capacity of over 5m tonnes a year.
The problem is that demand for gas, as for other energy sources, is being outstripped by supply. Consumption is rising and in many countries the combination of relatively low emissions (compared with coal), convenience of use against nuclear and low prices makes it an obvious fuel of choice. But it is growing more slowly than supply. The IGU numbers show traded LNG in 2016 rose to 258m tonnes — an increase of 5 per cent year on year. But global liquefaction capacity grew to 339mt, leaving an overhang that helped push prices down.
There is a glut of gas and that will worsen as projects come on stream. Some future projects have been postponed, including several in Australia. Areas with recent discoveries such as East Africa are finding it hard to secure corporate approval for the development of identified resources. Egypt, for instance, is celebrating a series of discoveries but it is not clear when they will be needed.
The surplus is reflected in market prices. In Asia the price for imports is down from as much as $20 per mmbtu in 2013 to less than $6 today. The new surge in US shale production, which will bring more associated gas on to the market, can only add to the saturation. Russia has not given up hope of selling more gas into Europe through Nordstream 2.
This has all created a market in which the buyers have the whip hand.
Since in most parts of the world gas can no longer be flared off as a useless by-product of oil and LNG projects that have already absorbed huge capital investment cannot be abandoned, the answer for producers lies in long-term forward sales deals on terms that will be very advantageous to the consumer. The buyers’ cartel in Asia should be able to do great business. Sellers are in no position to resist flexible contracts and deals giving buyers the right to resell gas.
Buyer power will not be limited to Asia or to LNG. The oil market is also oversupplied. It is not hard to think of suppliers who need revenue: Nigeria, Venezuela and Russia all come to mind.
Nor is it difficult to think of companies that would like certainty that they can sell their output and to make any money they can from projects in which they have invested massive amounts of capital. Chevron’s Gorgon project off shore Australia, which came on stream last year, is just one example. Gorgon cost more than $50b, some $20bn over budget — it’s not just the nuclear sector that makes big mistakes.

Some of this move towards a buyers’ market has taken place already. Iran has continued to export oil despite sanctions. The Iranians have managed to keep trade going through bilateral deals at discounted prices. It is not alone; realised prices from oil and gas supplies do not always match the official quoted numbers.
Such a power shift has consequences. As Opec is finding, it is much harder to set and hold to prices in an age of plenty. As prices fall, so do returns to investors and state revenues. Bilateral deals also reduce the amount of oil and gas traded internationally, creating thin and volatile markets.
More buyers will catch on to the possibility of redrawing the terms of trade. A couple of years ago Donald Tusk, now European Council president, toyed with the idea of creating a single buyer structure to manage all Europe’s gas import needs. Although the challenge of matching the needs of the EU member states would be difficult, the idea is not as fanciful as some critics suggest. With a common purchasing process Europe could certainly secure more favourable deals than it has now.
Markets have a tendency to swing from side to side. There are times when suppliers can name their prices and times when the advantage is against them. We are at the cusp of a major change after half a century of producer control. For the companies involved and their investors this is a hard moment. Some will see it as a cyclical move that will be reversed as demand increases. That is a very risky investment strategy. The better approach for both companies and investors is to assume that we are experiencing a structural shift and that to thrive those involved in the sector must adapt their business model and their investment strategy to a new reality.
Comments

Patrick Heren
Very well put. In gas as in oil markets, the development of US shale has brought about a fundamental economic - and therefore power - shift. The historic cyclical boom and bust to which Nick Butler refers was a function of the risky nature of hydrocarbons exploration. At the shale margin, exploration and production has changed from a risk business to a manufacturing one. The resource is not in doubt, nor, to a large extent, its costs.
RiskManager
@Patrick Heren Spot on Patrick, the shift to a manufacturing business is still so poorly understood yet is the key change. Supply is now scaleable (global shale resources are truly vast) and lead times are short. Shale is a massive geopolitical event, perhaps the biggest since OPEC was created.
RiskManager
Yes, the received wisdom of peak oil etc was totally 100% incorrect. At the same time as most "smart" people thought the USA was going to war in Iraq for oil the reality was that the same G W Bush and Dick Cheyney were kick starting the shale revolution with a slew of tax and regulatory breaks, a revolution that is directly responsible for the world of cheaper and plentiful energy we see today and into the future, to the great benefit of all and particularly the worlds poor. So much received wisdom has turned out to be utter nonsense its hardly surprising experts are no longer trusted and fake news has an open door to walk through.
Ketavan
@RiskManager I think most people peddling the peak oil theory were well aware it wasn't true. It's much easier to convince people to moderate consumption of a pollutant (which wasn't being efficiently used) if they're made to believe (or suspect) it's in short supply. In the interim, thankfully efficiency in a wide range of industries has improved. You should thank the peak oil theory peddlers for their efforts, much like people in the future will thank you for peddling the theory that Dubya & Dick were responsible for the increase in U.S. shale gas production and that in some way makes energy plentiful for everybody on the planet far into the future.
RiskManager
@Ketavan @RiskManager Well I suspect most peakers did believe their story, Mathusian fear is ever popular despite decades of failure of its predictions. As for Dubya and Cheyney they did continue the long policy of federal support for shale https://en.wikipedia.org/wiki/Exemption ... ederal_law so, unlike peakers, this theory has the added feature of being true ;-)
NikkiJ
'Since in most parts of the world gas can no longer be flared off as a useless by-product'.... Not long since I saw an FT article stating that flaring is on the increase and the industry has no hope of meeting its 2030 target of zero flaring. Also, the 'relative low emissions' compared to coal is something the industry trumpets but is not borne out when full LCAs are done. Gas is not clean. The FT recently reported the world's flattening CO2 emissions as if they were all greenhouse gases, conveniently forgetting methane, 25 times more powerful. The US was reported to have 3% lower CO2 emissions but there was no accounting for its methane losses...
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Re: The FT & commenters think Peak oil is finished

Unread postby Tanada » Tue 11 Apr 2017, 10:16:23

That strategy only works if two or three conditions are met. The buyers must all stick to the agreement, the price they are willing to pay must support supply at the price they are willing to pay.

If there is any kind of a shortfall in world supply then the highest bidder is going to get the supply long term contract or no long term contract.

For LNG supply appears to be abundant for the foreseeable future due to the advent of fracking to retrieve gas which formerly had a very small flow rate.

Oil is a whole different story, OPEC exports are slowly declining due to a combination of natural depletion and export land model effects. Currently Fracking is getting its second wind in North America and its first big wind in Argentina/South America. If Argentina does well with their Vaca Meurta by January 2018 then I predict more places in South America will be on the table as potential sites for fracking.

It remains to be seen just how long Fracking will extend the 'oil age' while world population is still growing and demand is still growing day in and day out. If world population were stable predictions might have some value, but under the current rapid increase in petroleum demand in both India and China it is not possible to make a rational projection of how much more oil can enter the market nor how fast reserves will be drained if prices head back up to the $80/bbl zone where they hung out from 2010-2014.
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Re: The FT & commenters think Peak oil is finished

Unread postby ROCKMAN » Tue 11 Apr 2017, 10:35:55

"...to a buyers’ market in which the ability to set prices and choose trading partners lies in the hands of consumers." They buyers have always set the price of oil. When oil reached $145+/bbl it did so because SOME buyers were willing to pay that price. But not enough buyers to satisfy all the sellers. So oil dropped to $90/bbl because enough buyers to satisfy the sellers were willing to pay that price. And when oil fell recently to $28/bbl it was because those still buying oil set the price because they refused to pay more.

And today buyers are willing to buy enough oil at $50/bbl to satisfy the sellers. Even when the Texas Rail Road Commission had the absolute control over how much oil could be produced globally it could not directly dictate the price of oil: the buyers still decided how much oil they would consume and what they would pay. The only control the sellers ever have is how much oil they are willing to sell. Just as the KSA did when it increased production. And even then the buyers decided what they would pay. And just as the KSA et all did by cutting production. And to the KSA et al disappointment the buyers are still unwilling to pay much more then $50/bbl.

And if global oil production decreases much further the consumers will still decide how much they buy and at what price. That control never changes hand in a free market economy.
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Re: The FT & commenters think Peak oil is finished

Unread postby pstarr » Tue 11 Apr 2017, 10:41:05

Let's be succinct here regarding the headline: where in the article is it actually written that abiotic oil has been proved?

Otherwise, my takeaway is that supply is always generated by demand. If I wish it . . . it always comes true. So sweet!
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Re: The FT & commenters think Peak oil is finished

Unread postby Subjectivist » Tue 11 Apr 2017, 10:43:14

ROCKMAN wrote:"...to a buyers’ market in which the ability to set prices and choose trading partners lies in the hands of consumers." They buyers have always set the price of oil. When oil reached $145+/bbl it did so because SOME buyers were willing to pay that price. But not enough buyers to satisfy all the sellers. So oil dropped to $90/bbl because enough buyers to satisfy the sellers were willing to pay that price. And when oil fell recently to $28/bbl it was because those still buying oil set the price because they refused to pay more.

And today buyers are willing to buy enough oil at $50/bbl to satisfy the sellers. Even when the Texas Rail Road Commission had the absolute control over how much oil could be produced globally it could not directly dictate the price of oil: the buyers still decided how much oil they would consume and what they would pay. The only control the sellers ever have is how much oil they are willing to sell. Just as the KSA did when it increased production. And even then the buyers decided what they would pay. And just as the KSA et all did by cutting production. And to the KSA et al disappointment the buyers are still unwilling to pay much more then $50/bbl.

And if global oil production decreases much further the consumers will still decide how much they buy and at what price. That control never changes hand in a free market economy.



I think your focus is far too narrow Rockman. Sure Buyers were only paying $28/bbl January 2016, but it is a two way street. If nobody had been selling for that price then it wouldn't have been a sale, both buyers and sellers agreed on the price. If you have $100 and someone offers you 2bbl for your cash while others only offer 1.5bbl for your cash who do you make your deal with? Its a negotiation, not a one side sets the rules kind of deal.
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Re: The FT & commenters think Peak oil is finished

Unread postby ROCKMAN » Tue 11 Apr 2017, 10:46:08

"...and the industry has no hope of meeting its 2030 target of zero flaring". There never was and never will be an "industry goal" of zero global flaring because there is no global NG "industry" to establish such a goal. There are countries that flare that might eliminate it completely. And there are countries, like Nigeria, that will never stop flaring if it's necessary to maintain oil production.

Even worse: many countries have no regulations controlling the VENTING of unburned NG which is sometimes more efficient then flaring.
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Re: The FT & commenters think Peak oil is finished

Unread postby pstarr » Tue 11 Apr 2017, 10:52:53

In another words, it could have nothing to do with this:

In fact, the oil and gas well drilling producer price index fell 45 percent between March 2014 and January 2017 (Figure 2). As I wrote in an earlier post, sharply lower breakeven prices are 10 percent technology and 90 percent industry bust.

Oilprice.com: The Number One Source for Oil and Energy News
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Re: The FT & commenters think Peak oil is finished

Unread postby sparky » Tue 11 Apr 2017, 17:47:21

.
I fail to see how a swing in the supply/demand constitute "the end of peak oil"

unless I'm wrong crude price crashed in 1998 , then soared in 2008
same same now except that the crash price was 17$/b then ....and 30$ now ,
then it took one year to double in price , now it took three months to recover ?

From past form I would predict a spike in prices in a couple of years and it will all be dooooom and gloooooom again .
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Re: The FT & commenters think Peak oil is finished

Unread postby ROCKMAN » Tue 11 Apr 2017, 21:59:11

"the end of peak oil" - My basic problem with debates about such phrases is that it means anything a particular person thinks it means. Just like the oft used term "collapse". Which implies it means nothing. And debating nothing is a fool's game IMHO.
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Re: The FT & commenters think Peak oil is finished

Unread postby efarmer » Tue 11 Apr 2017, 22:39:33

Resource limits are all hogwash before they manifest.
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Re: The FT & commenters think Peak oil is finished

Unread postby ROCKMAN » Wed 12 Apr 2017, 08:13:20

Farmer - Not disagreeing with you but will take advantage of your post to emphasize my last post:

Resource limits = no more of that resource at any price.

Or

Resource limits = the remaining resources are too expensive for some to acquire. Which also implies there are no resource limits if you can afford to purchase it.

When oil was $100+/bbl there was no lack of resources...for those that could pay for them

When oil was $29/bbl recently (when the world was consuming more oil then ever before in history) there were tens of millions who suffered from the limitation of oil resources: there was no oil less then $29/bbl available.

So there has always and will always be a limitation of all resources: either there's none inexistence anymore or there is some left but not everyone can afford it.
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Re: The FT & commenters think Peak oil is finished

Unread postby Cog » Wed 12 Apr 2017, 08:16:02

I see no lack of happy motoring anywhere I travel. Perhaps those who can't afford fuel at its current price are living somewhere I have not been yet. Or perhaps they only exist in pstarr's head.
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Re: The FT & commenters think Peak oil is finished

Unread postby AdamB » Wed 12 Apr 2017, 10:36:27

efarmer wrote:Resource limits are all hogwash before they manifest.


In what way? Through price, or outright scarcity?
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Re: The FT & commenters think Peak oil is finished

Unread postby AdamB » Wed 12 Apr 2017, 10:44:58

Cog wrote:I see no lack of happy motoring anywhere I travel. Perhaps those who can't afford fuel at its current price are living somewhere I have not been yet. Or perhaps they only exist in pstarr's head.


I've got 5 cross country road trips planned between beginning of May and end of July. I will investigate small towns, big megalopolis, maybe 25% of the states in the L48, and will look about for anyone who is stranded by the side of the road, not being able to afford the low prices. Might even buy them 5 gallons to get them started again, it costing a measly $10 or so, a good donation so someone can get back to civilization or the next interstate stop where they can get some cheap fuel on their own dime.

This summer I'm thinking historical visits to the Rathbone well in WV, some Texas oil fields and windfarm fields (need a photo of a pumpjack and nice big windmill behind it for future presentations involving energy and the revolution allowing EVs to save the world), maybe a tour of the corvette factory to see obsolete manufacturing in action, and real estate options along the Atlantic seaboard for retirement. But at all points in time, I will have an eye out for people who can't afford the cheap fuels, sitting alongside the road, wondering what to do.
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Re: The FT & commenters think Peak oil is finished

Unread postby pstarr » Wed 12 Apr 2017, 11:25:11

ROCKMAN wrote:Farmer - Not disagreeing with you but will take advantage of your post to emphasize my last post:

Resource limits = no more of that resource at any price.

Or

Resource limits = the remaining resources are too expensive for some to acquire. Which also implies there are no resource limits if you can afford to purchase it.

When oil was $100+/bbl there was no lack of resources...for those that could pay for them

When oil was $29/bbl recently (when the world was consuming more oil then ever before in history) there were tens of millions who suffered from the limitation of oil resources: there was no oil less then $29/bbl available.

So there has always and will always be a limitation of all resources: either there's none inexistence anymore or there is some left but not everyone can afford it.

I doubt there will be any oil available at $29/bbl again. For anyone.

$29/bbl won't signal a supply glut, but rather a complete final demand dearth. RM, you know full well (no pun intended lol) there is precious little oil left to develop at $29/bbl. There's barely legacy oil left to produce at $29/bbl, not with all the GOSPS, oil/gas separation, and fracting equipment. It's all deep, hard to get at, and dirty now.

Modern oil today depends on a incredibly complex world economy of specialized technology, rare materials and industrial processes, and very fragile just-in-time manufacturing ecology. Barney the Blacksmith won't be pounding your corrosion-resistant super alloys tchotchkes in his backyard forge.

$29/bbl oil will signal that folks everywhere, billions more, will have already been priced out of the market. Billions were priced out after a decade of >$60/bbl. People won't put up with our crap forever. $29/bbl would have already signaled the oil production system is in collapse, that precious few labors would be willing or could even afford to gather the oil for us. They will be too busy rioting in the streets and grasping at what we believe we own.
Last edited by pstarr on Wed 12 Apr 2017, 11:41:56, edited 1 time in total.
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Re: The FT & commenters think Peak oil is finished

Unread postby rockdoc123 » Wed 12 Apr 2017, 11:41:16

maybe you can stop in Toledo and have a look at Jeep"s new manufacturing of the Grand Cherokee Trackhawk which has the 707 HP Hellcat engine in it. I think it comes with a trailer hitch for hauling around your needed fuel supply. My understanding is Fiat Chrysler thinks they won't be able to make enough of them due to high demand. :-D
But those stupid SUV manufacturers don't seem to understand nobody can afford fuel anymore and nobody wants SUV's anymore either. :P :roll:
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Re: The FT & commenters think Peak oil is finished

Unread postby pstarr » Wed 12 Apr 2017, 12:04:26

That's nice Fiat is making man-jewelry for the few, wealthy, white guys still left in America who believe they need such ridiculous crap. Getting in, Rock?

Maybe it'll bring home a few dollars the collapsing Italian economy. Why Italy's shaky economy should worry us all
. . . while markets and policymakers fret anew over the possibility that Greece might finally be forced out of the euro, Italy's seeming political unraveling is attracting relatively little attention.

This is surprising considering that while the euro could very well survive a Greek exit, it certainly could not survive in anything like its present form were Italy to have a full-blown economic and financial crisis that forced it to default on its public debt mountain.
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Re: The FT & commenters think Peak oil is finished

Unread postby Cog » Wed 12 Apr 2017, 12:26:49

Good deal I don't live in Italy. I will continue to happy motor in the good old USA seemingly unaffected by the ETP model.
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Re: The FT & commenters think Peak oil is finished

Unread postby rockdoc123 » Wed 12 Apr 2017, 12:37:06

That's nice Fiat is making man-jewelry for the few, wealthy, white guys still left in America who believe they need such ridiculous crap.


Few wealthy white guys huh? :?

Seems it is a bit more than that.

According to the statistics on car sales between January 2017 and January 2016:

sales of Jeep Grand Cherokee are up 23.8%, Chevrolet Surburban is up 72.3%, BMW X5 up 26.8%, GMC Yukon up 20%, Mercedes Benz GL Class up 30%, Cadillac Escalade up 9.7%, Land Rover Range Rover up 24.3%, Land Rover Range Rover Sport up 40.9%, Nissan Armada up 147%, BMW X6 up 11.4%

sales on Jeep Grand Cherokee have steadily increased in the US from 2009 until recently so apparently there are a growing number of Americans who "believe they need such ridiculous crap." :roll:
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Re: The FT & commenters think Peak oil is finished

Unread postby AdamB » Wed 12 Apr 2017, 13:01:46

rockdoc123 wrote:
But those stupid SUV manufacturers don't seem to understand nobody can afford fuel anymore and nobody wants SUV's anymore either. :P :roll:


And NASCAR will have to race EVs!!
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