Mike/spike,

Will you go on record by guess-timating/predicting the price of a barrel of oil at the following future dates please?
Nymex light sweet crude please.
Jan 01 2006
June 01 2006
August 01 2006
Jan 01 2007

Hope this isnt asking too much and Thanks for your time.

Sorry, I was imprecise. I meant 'reserves added' not discoveries.
We don't really know how much oil was discovered in a given year; fields expand with age, so if we replaced half of oil produced with new discoveries, and they are likely to grow by 100% or more, than we've probably replaced production with discoveries.
IHS Energy says that discoveries replaced half, and that upward revisions to older discoveries replaced half, so that was the source of my comment. And yes I am assuming reserve growth; Campbell, Laherrere and others are not being honest when they say there won't be reserve growth. The only evidence they have reported shows reserve growth, and they have never given any credible reason for it to cease.
Mike Lynch

The Shell barrels were different from the OPEC barrels. If you exclude the OPEC revisions in the 1980s, you find that reserves still did not fall, not even related to production.

The theory is that we find the easiest stuff first, all else being equal. The reality is that this oversimplifies. You don't find the offshore stuff until 1950, you don't find the stuff in central Africa until the roads are there, you don't find the stuff in places where the government doesn't let you in. So, you get a very different discovery curve, in terms of field size, then if everything was in E. Texas.

Infrastructure improvements allow access to places that you would ignore, i.e., Arauca in Colombia. Or the many small fields that go ignored until a pipeline goes nearby that they can be hooked up to. And small fields can make a big difference. By lowering the costs enough to make the fields viable, infrastructure improvements "add" them to URR.
Mike Lynch

Secondary recovery is a factor, but not the only one. Adelman and I, in a 1997 article, estimated that 25% (I think it was) of UK production in 1995 was from fields that had been discovered before 1980, but not put into production until after 1990. Mostly small fields using subsea sattelite templates, which made more sense as more platforms and pipelnes were placed (to which they could be connected).

Production growth has slowed because demand growth has slowed.

Understood.

I guess I wanted your opinion on how much you think "fudging" the numbers by the majors, (including OPEC in the 80's), affects URR?

(Do you have confidence that OPEC's 80's reserves doubling was legit?)

And also how wide-spread you think mis-reporting reserves has been?

If Shell found reasons to improperly classify reserve data, then do you believe this same incentive exists for other majors?

It's not as if Shell forgot to carry the 0... their snafu was intentional yes?

Heads rolled etc...



Certainly true during the recession in the US, but has not demand grown consistently when creamed over recent decades?



Fair enough...

And price per barrel makes many otherwise useless fields recoverable as well. My question was your opinion of how significant you consider these types of recovery will become?

Any thoughts on how advanced recovery techniques affect eventual depletion rates? (ala Simmons)?

Thanks Mike... we appreciate your candor and information very much.

I have enjoyed your exchanges with Jean on the O&GJ forum as well.

2 Comments on this:

#1

There are two peaks-
The first is the amount of oil that is actually there (whatever that amount is.)
The second is the amount discovered.
The first is a finite amount (though we don't know exactly how much that is.)
The second is the amount we actually find (which has been steadily going down for some time now.)
With the amount of exploration going on out there - one could logically conclude that it is getting harder to find...because there isn't as much to find.

#2

Regardless of how much oil may or may not be there...logic also dictates that rising demand combined with decreasing supply points the way toward contraction of use.
Responsibility dictates that we must prepare for an eventuality of scarcity - whether that comes in 5 years or 5 decades from now.
It makes little difference.
Unless every true blue conservative out there is indeed a flaming radical commie pinko (which is kind of an oxymoron anyway...emphasis on the moron) it is ridiculous to encourage and support an economy that relies on a resource whose supply is even in question.
Any alternative approach will not be utlilized until there is consensus on this...amongst those who have the power to institute change.

If this all turns out to be a giant hoax (which I seriously doubt) the changes we've implemented will be better for us, the planet, geopolitical stability, quality of life, etc.
We have much to gain, and little to lose, in the long run.

there has been little serious exploration for 20 years because the price of oil has been so low. no one is going to do serious research or exploration with oil under $20 / barrel. it was as low as $10 for some of the time.

infact when i started my degree course in petroleum geology i ended up switching some modules to engineering (foundations, dams, bridges, tunnels etc.) because there were so few job prospects in petroleum in the late 80s early 90s.

now there is a scramble on to find new wells because the price is so high.

there are many alternatives to oil and a huge supply of coal which can be converted though a variety of processes, and if things get really tight there is an entire continent called antartica sitting untouched.

every continent has a major oil basin and i am sure once people have to choose between their air con and SUV and a few penguins dying in oil slicks, the so called ban on mining in antartica will pretty soon be forgotten.

has anyone considered that the USA has peaked because there is easier and cheaper oil elsewhere in the interim ?

many fields were shut down because of environmental concerns not because there was no oil left. others like parts of alaska and the eastern gulf have been closed to exploration for years because people don't want to see ugly rigs offshore.........same reason southern CA. closed their rigs down. If you open up all the old fields and stick a sock in a few environmentalists and not in my back yard hypocrites, then the US with modern technology could be back and even above previous peaks.

the UK peaked as a textile producer once the US and subsequently various second world countries started making cheaper products and people lost interest in working in textile factories on minimum wage.

however it is always possible for a place to have a renassiance when things swing back the other way. who knows in 100 years time the UK could be the textile captial once again.

There is also the thought that with huge finds in Saudi and Iraq and Iran that it would make good sense to slow down local production and keep national reserves untapped, to be kicked in at some point in the future.

Oil is a very powerful geopolitical business, theories of supplies being depleted are nothing new and if the US cut some deals with the Saudi's where there oil costs $2 a barrel or less, pump them dry and then revert back to your own wells later on. It would leave the US in a very powerful position if everyone thought their oil was finished when infact their oil was not. Some new deep water rigs (which no one has to look at) are coming online soon with over 1/2M barrels a day total. It's not hard to see how the US production could be ramped up again with new finds and old fields previously closed for environmental reasons reopened.

demand in 1997 was 80M barrels, demand in 2005 is about 83-84M barrels. WIth thuderhorse and others producing 1/4M new barrels a day, I think the situation is highly exaggerated. the conspiracy theory of the Saudis is relevant, but if they are running out, the export figures are going to pretty soon show that shipping levels are falling.

really it would be in their interests to announce they are running short because we'd see oil at $100 a barrel overnight.

why sell 10M barrels a day at $50 and keep everyone calm, when you can spill the news and sell 5 million a day at $100 ???

Why then wasn't this oil produced in the 80's when oil price was sky high ?



Textile is not extracted from the ground.



The Saudis have vast amounts of money invested in first world, oil guzzling countries. Their interest is not to trigger a global recession, quite the contrary, because they would also suffer from it. Right now they are telling again and again that they have enough oil for 50 years, and that flies in the face of your conspiracy theory argument.

First, people pay for my projections, so I should give it away? Second, prices are not the subject of this group, supply is. Also, short-term prices are harder to predict than long-term prices. (See my article "“Drivers of Oil Price Volatility,” Journal of Energy and Development, December 2002.

I presume you saw this in the New York Times?

"Mr. Simmons said he favored a simpler wager, based on his expectation that the price of oil, now about $65 per barrel, would more than triple during the next five years. He said he'd bet that the price in 2010, when adjusted for inflation so it's stated in 2005 dollars, would be at least $200 per barrel. "

I think I can do better than that.
I believe (note the verb) that the price of WTI will drop to $40 by Jan 1, but stay between $30 and $40.
Mike Lynch

I think fudging by majors is minor. Simmons predicted widespread revisions, but it didn't happen. (Note that the oil in the ground you can claim as reserves goes down when price goes up when you have production sharing agreements.)

Unfortunately, national reserve figures are not very accurate and the 1980 revisions by the Gulf producers are highly suspicious. However, it's hard to say whether or not they're "wrong". IHS says the Saudis are conservative, gives a higher 2P number.

When I talk to oil audiences, I usually get several who approach me and talk about their new methods of getting more oil out. 4-D seismic is very good, for example, underbalanced drilling is spreading, and so forth. But they all require effort, and engineers, so I think they will be an incremental contribution.

Matt talks about 'super suckers' or something, but no one else does. He has been saying for 5 years that all the giant fields are about to suffer production collapse, but he has no evidence to support it.
Mike Lynch

thank you for your reply..

is it true about stressed resources lead to rising cost?

do you mean input to output ratios.. your fishing analogy seems unlikely to actually create a greater base cost to the industry?

my point thou is even if your correct the time-scale of substitution investment may require us to start long before a conventional market based stress being perceived?

ie we should be investing NOW for a future oil scarce scenario even if peak is way off as waiting for the resource to be stressed is too late.

To my mind the FACT that depletion is a issue of controversy is a marker moves should be made even if estimates of oil in place are woefully pessimistic?

Boris
london

Here's a link worth looking at.




http://www.lewrockwell.com/featherstone ... one18.html

Mike,
Awesome........ thanks for the freebie man!!
Ok thats something we can build on

If you will entertain me further please:

What contributing factors will cause oil prices to come down 30-50% in the next 4 months ?

I observe many experts speaking of "pure speculation" and "bull market" to describe the markets movements.
Assuming this stance is correct - there simply must be some sort of fantastic news coming - some great find coming online - to offset news like what we are seeing from indonesia, the north sea, political alignments in south central america etc.,etc.,

Is another ghawar coming online or something of that magnitude?

Lastly - If you are incorrect and Nymex SLC oil is as high or higher then lets say $60 by Jan 01 06 - how will that impact your current stance?

Always a pleasure Mike

For the lazy amongst us (ahem), do you have a URL for this?