“The price of oil will hit its floor and it will rise again,” President Nicolas Maduro assured Venezuelans, whose shaky economy depends critically on a high oil price.

“Venezuela will continue with its social plans. Venezuela will move forward.”

No it won’t, and neither will Russia, Iran or Nigeria. The only major oil exporters that are not in deep trouble are the Arab countries, whose governments have some room to manoeuvre because of low production costs, relatively small populations and big foreign currency reserves.

Since June, the cost of a barrel of Brent crude, the benchmark for world oil prices, has fallen by almost a quarter, from around $110 a barrel (where it was stuck for the past four years) to just above $80 a barrel. Last month, for the first time in decades, Nigeria exported no oil at all to the United States. Even at a big discount, Americans just don’t need it. And the main reason for all that is fracking.

American production has almost doubled in the past five years thanks to the new drilling technologies, and the U.S. overtook Russia last year to become the world’s largest producer of oil and gas combined. (Saudi Arabia comes a distant third.)

With production soaring and world demand for oil stalling due to slow economic growth, a collapse in prices was inevitable. The question is: how far will they collapse, and for how long?

The answer is probably not much farther, for the moment — but they could easily stay down in the $75 to $85 range for a couple of years. The reason for that is that the “swing” producers (mostly Arab), who could theoretically push prices back up by cutting their own production, have clearly decided not to do so.

Their concern is for the long-term power of the Organization of the Petroleum Exporting Countries cartel, which used to be strong enough to set the price of oil. That never will be true again unless they can drive the (mainly American) frackers who are causing the oversupply of oil out of business.

Saudi Arabia and its allies are hoping a prolonged period when the price of a barrel of oil is lower than the cost of getting that barrel out of the ground by fracking will ruin this new industry and bring back the Good Old Days.

Dream on.

The Saudi strategy won’t work because some 98 per cent of U.S. crude oil and condensates has a break-even price of below $80 per barrel. Indeed, 82 per cent of American production would still be turning a profit at $60 per barrel.

Even with its massive foreign currency reserves, Saudi Arabia probably cannot afford to keep the oil price low enough for long enough to break the American frackers. (Its own break-even price for conventional oil is $93 per barrel.) And the Iranians, Nigerians, Venezuelans and Russians, who depend on oil revenues for at least half of their national budgets, will be screaming for higher prices before they face riots in the streets.

So this is not a transient event; it’s a revolution. The oil cartel came into its own when the United States ceased to be the dominant global producer in the early 1970s. With the re-emergence of the U.S. as the biggest producer, the cartel’s clout is bound to shrink, so oil prices will probably stay well below $100 a barrel for the foreseeable future.

This will be a great boon for countries that depend heavily on imported oil, like India and China. It may eventually liberate the United States from its compulsion to intervene repeatedly in Middle Eastern disputes that are really none of its business. And it may be a disaster for repressive and/or corrupt regimes in countries like Russia (break-even price $105 per barrel), Nigeria ($119), Venezuela ($121) and Iran ($140).

It also means that worries about “peak oil,” and the underlying calculation that the world had only about 40 years’ worth of proven oil reserves left, can be set aside for a while. We are already up to 53 years of reserves, and we are finding new oil faster than we are using existing reserves.

Of course, a broader view of our situation would find little reason for rejoicing in all this. Our global civilization depends on fossil fuels for 85 per cent of its energy, and our annual emissions of carbon dioxide and other greenhouse gases are still rising.

Just another 25 years of that will deliver us to the “point of no return”: 450 parts per million of carbon dioxide equivalent in the atmosphere. That would raise the average global temperature by two degrees C and trigger natural sources of warming that it will be impossible for us to turn off again. Runaway warming is not a happy prospect, so it is unseemly to celebrate the news that we have even more oil to burn — and cheaper oil, at that.

On the other hand, it would be entirely appropriate to celebrate the news that other new technologies may open up a better escape route from fossil fuels.

Solar power, wind power, nuclear fission and hydro power all have a role to play in that task, but the Holy Grail for half a century has been fusion power. It may be much closer than we thought.

the record

24 Comments on "Technology has blindsided oil states"

Plantagenet on Fri, 24th Oct 2014 9:33 pm 



We are certainly living in interesting times. In just five years we’ve gone from the worrying about oil shortages and high oil prices to worrying about an oil glut and low prices.

rockman on Fri, 24th Oct 2014 9:57 pm 



So the KSA ploy is to “…bring back the Good Old Days.” I’m confused: are they talking about the “good old days” when the KSA revenue was 1/3 of its recent record high? I wouldn’t think so. So are they talking about the “good old days” when oil was $100+/bbl? IOW when oil prices were high enough to justify aggressively developing the shales, oil sands and Deep Water fields? So the KSA will be willing to lose tens of $billions to kill incentives for other oil development projects which would spring back up as soon as prices spike again?

I fail to see the logic. Maybe the thought is that if enough of those companies went under and then prices spiked up again the oil patch won’t rush back into those plays. If so they obviously don’t know sh*t about how the oil patch and capital markets work. LOL.

What we’re seeing todays pales in comparison to the oil patch meltdown of the mid 80’s. Hundreds of oil patch operations disappeared. And what happened less than 10 years later: prices rose and the hottest oil play on the plant began with the horizontal development of the fractured Austin Chalk in Texas. And then oil prices fell and the oil patch again went into hibernation. And then just 8 years or so ago oil prices began to rise, the oil patch woke up and the capex market started throwing money at us faster then we could count it.

It’s called the boom/busy cycle and it’s as old as the oil patch itself.

Keith_McClary on Fri, 24th Oct 2014 11:24 pm 



Isn’t he using a different definition of “break-even price” for the US vs. SA, Russia, etc.? The former being the actual cost of production, the latter the price needed to balance the national budget.

Texas Engineer on Sat, 25th Oct 2014 7:56 am 



We are already up to 53 years of reserves, and we are finding new oil faster than we are using existing reserves.

An incredible assertion. Data? Facts?

shortonoil on Sat, 25th Oct 2014 8:26 am 



When you read such an article it makes one wonder why anyone would write such a thing. It is littered with misinformation, and obfuscation. Who was such deceit written to benefit? American’s shale industry will not survive $60/b oil without huge government subsidizes. Drilling costs in the Bakken are $53/barrel, and half of US shale production is not even used to produce fuels, they are feed stocks. With a government that is already in debt over $17 trillion, those subsidizes are looking more unlikely by the day.

Petroleum has reached its maximum price that can be supported by the economy; its ultimate value is dependent upon its energy content, and production costs continue to increase with every barrel produced. As the two approach their inevitable meeting place the highest cost production will be shut-in first. 11,200 foot wells that produce 110 barrels per day, and decline by 70% per year are obviously in that high cost category.

Did the author really believe the ridiculous statements that they made? Is this delusion, or illusion? It is difficult to determine from here!

http://www.thehillsgroup.org/

Davy on Sat, 25th Oct 2014 8:57 am 



Short it is delusional, it is illusion, and it is goal seeking. These folks are grasping at any and all conditions and situations that support their faulty thinking. It is a propaganda effort with allot at stake. We are in interesting and dangerous times. We are seeing many articles from the cornucopians now because they are scared and desperate. Nothing is working as they would have planned. So what works for them is wishful thinking and having their lucky star. Cornucopianism, especially the type that is used to support propaganda and ideologue is the least in touch with reality. It uses lies and the truth in a combination to paint the reality they believe in not reality itself.

JuanP on Sat, 25th Oct 2014 11:48 am 



This article includes so many distortions and half truths that it obviously was done on purpose to confuse and disinform.
This is my favorite quote, “We are already up to 53 years of reserves, and we are finding new oil faster than we are using existing reserves.”
This is a well thought out manipulation of data. IIRC, in this century some large long known oil resources like Canadian tar sands, Orinoco Belt sour gunk, Arctic oil, and ultra deep water oil have been relabeled as reserves because of higher oil prices. Because of this, the total oil reserves value has increased in some of the last years, and is higher now because these new reserves are humongous.
But new oil discoveries have been less than oil production for many years.

nemteck on Sat, 25th Oct 2014 1:32 pm 



“…. 82 per cent of American production would still be turning a profit at $60 per barrel.” Maybe at the well-head. Many producers got investments based on $100+ oil price requiring up 20-40% debt service cost from that high gains but at $60 oil this debt cannot be serviced anymore for a lot of producers.

Perk Earl on Sat, 25th Oct 2014 2:43 pm 



“Who was such deceit written to benefit? American’s shale industry will not survive $60/b oil without huge government subsidizes.”

I think that’s where we are headed, short, i.e. subsidies. It’s a no brainer that when fracking starts to wane, TPTB will ask why and find out future supply is at risk if something is not done to counter low oil price. They will ask oil companies what do you need, as in whatever you need we’ll supply (via the taxpayer)? It’s even possible the Fed might start up a special QE just for funding oil production/exploration.

It won’t counter diminishing returns, but it might buy some more time and that’s all TPTB are doing right now, is buying time hoping for some kind of techno-corn solution to come along before shtf.

Davy on Sat, 25th Oct 2014 3:07 pm 



Perk that is my take. The avoidence of economic abandonment for oil. They did It on Easter Island to fund their god statues. We will do it with our black liquid god or should I say devil.

shortonoil on Sat, 25th Oct 2014 4:45 pm 



“Short it is delusional, it is illusion, and it is goal seeking. These folks are grasping at any and all conditions and situations that support their faulty thinking.”

We have passed Peak, and Peak is when oil production goes into terminal decline. This does not occur because of any shortage of oil, there is 4,200 Gb of the stuff buried somewhere on this planet. Peak occurs because of the energy dynamics of oil, which result in oil that becomes too expensive to produce, and too expensive for the end consumer to afford. Those dynamics ensure that the value of a unit of oil (what they can afford) will go down over time for the end consumer. As that occurs the world’s economy, that is directly reliant on oil, will decline with it.

It is doubtful that many of the authors of the articles seen here really understand what is happening. But, anyone watching the oil situation must be aware that something very strange is occurring to the petroleum market. World production has barely increased over the last decade, but prices are falling like a rock. That is not what standard economic theory would predict. Standard economic theory assumes that a barrel of oil is a barrel of oil; has always been, and always will be. There is no allowance made for any possible change in the value of that barrel. Only by ignoring oils fundamental relationship to the economy (which has been well established) could that price drop be rationalized using an a purely economic model.

This lack of understanding is leaving many of those who are watching the situation with a broken paradigm. To compensate they are inventing Fairy Tales. Saudi Arabia seems to be the Ogre under the bridge this week. Regardless of the fact that SA has no ability to reduce prices, or any rational motivation to do so they feel compelled to blame anyone they can point a finger at. The mean, nasty, rich House of Saud has become that object of derision. This lack of critical thinking will leave us in a worse position than where we already find ourselves. Beginning with a false assumption is not likely to lead to the best remedy for the situation.

http://www.thehillsgroup.org/

rockman on Sat, 25th Oct 2014 4:53 pm 



“The Saudi strategy won’t work because some 98 per cent of U.S. crude oil and condensates has a break-even price of below $80 per barrel. Indeed, 82 per cent of American production would still be turning a profit at $60 per barrel.”

A rather meaningless statement IMHO. First, he doesn’t distinguish between the cost to drill for new reserve vs the cost to produce an existing well. And making a profit by drilling doesn’t necessarily lead to more drilling/production. For instance consider my project drilling horizontal wells in an old conventional oil field. While these wells would “make a profit” at $60/bbl my owner wouldn’t spend one $ to drill them. Profitable… yes. Adequate rate of return…no. Same reason he didn’t jump into the shales. He can make a better ROR elsewhere without paying Rockman’s exorbitant salary. My owner does like me very much. But if I couldn’t make him an acceptable ROR he would run my ass off.

It ain’t personal…just business. LOL. Just like the shales: regardless of making a profit if they don’t add enough reserves to the books the pubcos will drop them like a red-hot horseshoe.

Perk Earl on Sat, 25th Oct 2014 6:53 pm 



“Peak occurs because of the energy dynamics of oil, which result in oil that becomes too expensive to produce, and too expensive for the end consumer to afford.”

“To compensate they are inventing Fairy Tales. Saudi Arabia seems to be the Ogre under the bridge this week.”

Short, they don’t get the predicament, and in this ‘can’t you explain it in ever fewer words’ world, the first lizard brain layer reaches out to lay blame because it is the simplest, easiest way to handle it.

Post collapse they will be forced think much harder than they want, and those fancy-phone-distraction-gizmos that have gone silent will not have the answers. “I’m feeling so insecure. If I could just make a call, or ck. the weather! But I guess what I really need is some food. If I could just call someone to find out where to get food.” You get the picture – LOL.

Northwest Resident on Sat, 25th Oct 2014 6:56 pm 



“Is this delusion, or illusion? It is difficult to determine from here!”

Everybody here knows what I think, but just to make sure, I’ll repeat myself again, and definitely not for the last time.

The clever folks who OWN the MSM, the majority of “news” reporters, all the politicians and just about everything and everybody else have one major goal at this critical point in time. And that is, to keep BAU going. Faith and trust and confidence in the “the system” is vital and critical to keeping BAU going. Therefore, to keep the faith and that trust and confidence at an adequate level to maintain BAU, they purposely create and maintain an illusion of “all is well”. They (TPTB) have rolled out a major Public Relations program complete with massive propaganda, lies and distortions, armies of agents and shills, and pretty much the entire financial and governmental structures. They are all marching in sync, all singing from the same sheet, all reading their lines from the same script. The world we live in is an illusion, with a large and ever growing disconnect from reality. Illusion or delusion? BOTH!!! The illusion has been created and is being maintained for the masses. And delusion is just what the masses are experiencing right now, and in ever increasing increments. You can’t blame the masses for being deluded — heck, they were never that bright to begin with, and now all they’ve got to process in their little pea brains are lies, distortions and pure crap dished out by “the machine” as God’s honest truth.

It’s going to get uglier before it gets better, and there is no limit to the depth of that chasm we are headed for.

Perk Earl on Sat, 25th Oct 2014 7:37 pm 



“The clever folks who OWN the MSM, the majority of “news” reporters, all the politicians and just about everything and everybody else have one major goal at this critical point in time. And that is, to keep BAU going. Faith and trust and confidence in the “the system” is vital and critical to keeping BAU going.”

That is most likely the greater truth, NWR. Not so much the people writing the articles don’t get the energy predicament, but instead are pushing BAU come hell or high water.

I was really stunned not long ago watching a whole series of clips from different TV stations from across the country all saying the same lines! Naïve me thought they wrote all their own news. No, they get spoon fed lines which amounts to marketing/propaganda. The government or some corporation that has the power to stick that information out there in the so called news. What was most striking was not one source changed the wording one ioda. Word for word repetition of the same lines. So I agree, we can’t blame the patriotic herd for following what is scripted for their undiscerning consumption.

But what an amazing situation we have here. We know where this whole thing is headed, but what will it be like when the numb-nuts that bought all the BAU forever rhetoric finally get it way too late to have more than a few days worth of food available. No seeds, no solar, just a dead cell phone and a bankrupt pizza parlor down the street. My advice; find a way to stay clear of them.

Davy on Sat, 25th Oct 2014 8:33 pm 



Evolving redundancies is what I would call it NR. Some of us are like birds in the trees singing the same songs in happy redundancies marking our territories and looking for mates. I know I am guilty of saying the same thing over and over but the important thing is idea of “evolving”. I also think we are in a battle of ideas with the cornucopians and the TPTB with what is reality and where this reality is going. I am here every day. I am here for you (our group) to share these ideas which few in my world can relate to. I am also here because I believe we are close to something profound and earth shattering. I sense something very near and talking with you all daily helps me prepare for this coming of profound change. I am a doomer and prepper but I do appreciate others views because I want to maintain balance. I do not want to get self-absorbed and delusional into thinking something is going to happen that may not. It helps to talk and to explore ideas and events. This is what I find here.

Nony on Sat, 25th Oct 2014 11:02 pm 



I don’t buy the idea that the Saudi’s can punish the shale drillers by dropping price and then raising them. When the prices go up, production will resume. There are two reasons for this.

1. shale is fast production (not like offshore).

2. shale can be done incrementally (10 million/well versus over a billion offshore). [makes it harder to have a credible threat to drop again because little guys can go in a bit.]

I think a more rational picture is we reach some equilibrium at 80 or the like. In an case, we would be at 150 if it were not for the shale-ies so I love them.

Northwest Resident on Sun, 26th Oct 2014 1:26 am 



It doesn’t seem likely or even plausible that the world economy could withstand $150 per barrel at this point in time or at any time in the future, not even for a little while. It’s a miracle that it handled $100 per barrel oil for so long. Shale has done very little to improve the world’s energy dilemma, and what little it has done has come with a nearly unbearable price tag as evident by the hefty chunk of debt that shale operators have hidden in their books somewhere and the near total lack of profit, all accounting tricks aside. Shale has been exposed as the Ponzi scheme that many of us always suspected it was. Shale was a short term “jobs program”, a way to churn the economy, inflate GDP and keep a lot of people in the oil, transportation and financial sectors working. And it was the centerpiece of the BAU forever illusion. When shale goes, which it will soon enough, so to will the illusion of BAU forever, along with a big chunk of economic activity. We’re creeping up on that moment. It’s time to give up the fantasies and recognize that we live in a world of declining energy and contracting economies, not to mention ecological decay. There’s nowhere to go from here but down. Seriously, Nony, I think you can give up on the hope of shale restarting once it shuts down. The shale plays were the oil business’s retirement party, and it’s way past midnight. Time for everybody to go home. It’s over.

HalfEmpty on Sun, 26th Oct 2014 5:28 am 



I want to maintain balance. I do not want to get self-absorbed and delusional into thinking something is going to happen that may not. It helps to talk and to explore ideas and events. This is what I find here.

Well put. I disagree with many views expressed here, but I have learned much from those I disagree with.

Newfie on Sun, 26th Oct 2014 9:14 am 



“the Holy Grail for half a century has been fusion power”.

Fusion power is just ten years away. And it always will be.

Nony on Sun, 26th Oct 2014 9:51 am 



Also,

3. Shale producers can easily hedge their production financially (lock in pricing for the majority of the oil delivered). This is an advantage of rapid depletion.

Kenz300 on Sun, 26th Oct 2014 11:11 am 



” Technology has blindsided oil states” —- and the Saudi’s flooding the market with oil can blindside technology……..

The KSA wants to slow down the competition. If they can force delays in the competitions new investments they will be happy. If they can force a few bankruptcies they will be even happier.

Demand has slowed in China but it is still growing.

Any reduction in price will only be temporary.

The temporary drop in oil prices will help the global economy in its recovery from the Great Recession.

Ronald Wagner on Mon, 27th Oct 2014 8:28 pm 



You are totally forgetting about natural gas which is cleaner and far more abundant.

Northwest Resident on Mon, 27th Oct 2014 8:58 pm 



“The temporary drop in oil prices will help the global economy in its recovery from the Great Recession.”

Good luck with that Kenz. I think you’re in for a big disappointment.

“temporary drop” — To $80 per barrel or so? In other words, you think the $100 per barrel price is the “new normal”, and that once the global economy has recovered from the Great Recession” with the help of the really low (choke, cough) $80-per-barrel oil prices then the price will go back to $100 per barrel? Seriously? You think that?