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Page added on October 30, 2006

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The Headline that Did Not Happen and the One that Did

In a world of no excess capacity in oil production and with a true equilibrium between supply and demand, headlines have had the day. Volatility should be expected in a margin business where one half of one percent of over or under supply, real or speculated, has caused even in more

The United Nations deadline for Iran to comply with the resolution to stop nuclear enrichment passed with barely a whimper from the United States, Britain and France. The threat of a military option was noticeably absent perhaps because of Iraq fatigue and an almost certain lack of cooperation by Russia and China, permanent Security Council members with veto power. This is the headline that did not happen and it was heard around the oil trading world. The results were quick.

A headline that did happen was the huge discovery in the Gulf of Mexico by an oil company group headed by Chevron, Devon and Statoil. True to form good news, especially in the oil business gets less press space than bad news but it is certain that the find will have a huge real impact on both US reserves and, even more important, on US oil production. At full development, perhaps four years from now, the type of geologic formation, the flow characteristics of the crude oil and the reservoir pressure will reverse a trend of US production decline for years to come. It is my estimation that the find and associated structures could lead to as much as three million barrels per day of incremental production. Initial per well production may reach tens of thousands of barrels per day, only limited by the size of currently feasible well completion tubulars and technologies.

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