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$10 Trillion Investment Needed To Avoid Massive Oil Price Spike

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OPEC says that $10 trillion worth of investment will need to flow into oil and gas through 2040 in order to meet the world’s energy needs. 

The OPEC published its World Oil Outlook 2015 (WOO) in late December, which struck a much more pessimistic note on the state of oil markets than in the past. On the one hand, OPEC does not see oil prices returning to triple-digit territory within the next 25 years, a strikingly bearish conclusion. The group expects oil prices to rise by an average of about $5 per year over the course of this decade, only reaching $80 per barrel in 2020. From there, it sees oil prices rising slowly, hitting $95 per barrel in 2040. 

Long-term projections are notoriously inaccurate, and oil prices are impossible to predict only a few years out, let alone a few decades from now. Priced modeling involves an array of variables, and slight alterations in certain assumptions – such as global GDP or the pace of population growth – can lead to dramatically different conclusions. So the estimates should be taken only as a reference case rather than a serious attempt at predicting crude prices in 25 years. Nevertheless, the conclusion suggests that OPEC believes there will be adequate supply for quite a long time, enough to prevent a return the price spikes seen in recent years. 

Part of that has to do with what OPEC sees as a gradual shift towards efficiency and alternatives to oil. The report issued estimates for demand growth five years at a time, with demand decelerating gradually. For example, the world will consume an extra 6.1 million barrels of oil per day between now and 2020. But demand growth slows thereafter: 3.5 mb/d between 2020 and 2025, 3.3 mb/d for 2025 to 2030; 3 mb/d for 2030 to 2035; and finally, 2.5 mb/d for 2035 to 2040. The reasons for this are multiple: slowing economic growth, declining population rates, and crucially, efficiency and climate change efforts to slow consumption. In fact, since last year’s 2014 WOO, OPEC lowered its 2040 oil demand projection by 1.3 mb/d because it sees much more serious climate mitigation policies coming down the pike than it did last year. 

Of course, some might argue that even that estimate – that the world will be consuming 110 mb/d in 2040 – could be overly optimistic. Coming from a collection of oil-exporting countries, that should be expected. Energy transitions are hard to predict ahead of time, but when they come, they tend to produce rapid changes. Any shot at achieving the world’s stated climate change targets will require a much more ambitious effort. While governments have dithered for years, efforts appear to be getting more serious. More to the point, the cost of electric vehicles will only decline in real dollar terms over time, and adoption should continue to rise in a non-linear fashion. That presents a significant threat to long-term oil sales. 

At the same time, OPEC also issued a word of caution in its report. While oil markets experience oversupply in the short- to medium-term, massive investments in exploration and production are still needed to meet demand over the long-term. OPEC believes $10 trillion will be necessary over the next 25 years to ensure adequate oil supplies. “If the right signals are not forthcoming, there is the possibility that the market could find that there is not enough new capacity and infrastructure in place to meet future rising demand levels, and this would obviously have a knock-on impact for prices,” OPEC concluded. About $250 billion each year will have to come from non-OPEC countries. 

In a similar but more disconcerting conclusion, the Oslo-based Rystad Energy recently concluded that the current state of oversupply could be “turned upside down over the next few years.” That is because the drastic spending cuts today will result in a shortage within a few years. To put things in perspective, Rystad says that the oil industry “needs to replace 34 billion barrels of crude every year – equal to current consumption.” But as a result of the collapse in prices, the industry has slashed spending across the board and “investment decisions for only 8 billion barrels were made in 2015. This amount is less than 25% of what the market requires long-term,” Rystad Energy concluded. The industry cut upstream investment by $250 billion in 2015, and another $70 billion could be cut in 2016. The latter figure did not take into account the recent decision by OPEC to abandon its production target, which sent oil prices falling further. 

So what are we to make of this? There could be plenty of oil supplies in the future, but as it stands, the industry is massively underinvesting? This illustrates a troubling tension within the oil industry. Oil prices will be set by the marginal cost of production, and recent efficiency gains notwithstanding, marginal costs have generally increased over time. Low-cost production depletes, and the industry becomes more reliant on deep-water, shale, or Arctic oil, all of which require higher levels of spending. In many cases, these sorts of projects are not profitable at today’s prices. The price spikes seen in 2011-2014 sowed the seeds of the current bust, but the pullback today could create the conditions of another spike in the future. OPEC could be a bit too sanguine with its call for $95 oil in 2040. 

At the same time, future price spikes set up the possibility of much greater demand destruction, especially if alternatives become more viable. This is the difficult balancing act that the industry must pull off over the next few decades. 

By Nick Cunningham of Oilprice.com



38 Comments on "$10 Trillion Investment Needed To Avoid Massive Oil Price Spike"

  1. onlooker on Wed, 30th Dec 2015 1:07 pm 

    Read the Headline and stopped reading. Where is the world going to get $10 Trillion. Print baby print. Yea and prolong the illusion of growth all the while real tangible stuff is getting more expensive per capita day by day and more difficult to produce. Oh and what happens when you have all that money floating around and relatively near worthless assets because debt is overwhelming and nobody wants to be the one holding the bag when the correction
    which it will. I am sure investors are going to think twice as well as the Banks. The time of deception is ending time to confront the real hard light of reality.

  2. Pennsyguy on Wed, 30th Dec 2015 1:40 pm 

    You said it all Onlooker. Happy New Year to all: 2016 will be interesting.

  3. Anonymous on Wed, 30th Dec 2015 1:40 pm 

    Oil majors started cutting development budgets in 2014 with prices at $110 to $120 per barrel. OPEC indicate $95 per barrel by 2040 but somehow expect $10 trillion of investment. In 2011 Goldman Sachs identified 360 major oil an gas projects to be developed which would add about 28 million bpd if prices reached $140, but only $10 million at $60. About a third to half of all of these have been or are being developed despite the low oil price. Since 2011 exploration success has been, at best, disappointing, and this year absolutely awful. So where is the money supposed to be invested even if it was available and companies thought they could make a profit?

    Things don’t add up!

  4. onlooker on Wed, 30th Dec 2015 1:46 pm 

    Sorry did not finish my sentence.
    Oh and what happens when you have all that money floating around and relatively near worthless assets because debt is overwhelming and nobody wants to be the one holding the bag when the correction happens which it will. You get Stagflation.

  5. geopressure on Wed, 30th Dec 2015 2:50 pm 

    The tides are turning… Looks like we are headed for higher oil prices by mid 2016, despite Iranian exports increasing…

  6. shortonoil on Wed, 30th Dec 2015 3:45 pm 

    In 2015 US crude inventories grew on average by 2.1 mb/week. Prices fell by 65% and demand increased by 3%. To balance supply to demand production would have to fall by 4.8% or prices would have to continue down to $15.63 per barrel. Cash flows in the present price environment are not adequate for any producer to replace the reserves that they are extracting, which is $25 to $30 per barrel. It is even questionable if those reserves even exist. Very few, if any, producers are presently making money when their required replacement costs are included.

    By our calculations it will require additional debt formation of $39 trillion over the next decade to keep petroleum production operating. Where that funding will originate from, when it is very unlikely to ever be re-payed, will be of tantamount importance. It will take very strong willed societies to make such sacrifices. If those sacrifices are not made the integrated, global production system will have disappeared by 2026. 2016 will be witness to the beginning of this event with dramatically increasing closures, and bankruptcies throughout the world’s petroleum industry.

    http://www.thehillsgroup.org/

  7. observerbrb on Wed, 30th Dec 2015 4:08 pm 

    “To balance supply to demand production would have to fall by 4.8% or prices would have to continue down to $15.63 per barrel.”

    Hello shortonoil,

    Do you mean that if prices had fallen to 15.63$ per barrel during this year, production would have been absorbed by the consumer?

    Best Regards,

  8. twocats on Wed, 30th Dec 2015 4:28 pm 

    well, there is also the current business cycle which is extremely long in the tooth and kind of weak on “the next best thing” arena – star wars and “hoverboards” really aren’t going to cut it. So shorts estimation is in many ways a BEST CASE scenario. But he is right that a fall of that significance will probably correspond with a bottoming out – an overly bearish “it’s all over” mentality, and then pent-up demand will begin to express itself – Right now people won’t be buying because they will be expecting lower prices in the future.

  9. rockman on Wed, 30th Dec 2015 5:01 pm 

    What I find most amazing by such statements that $X trillion will have to spent in Y years in order to develop A million of bopd production from B billions of bbls of new reserves and yet not a single mention of the KNOWN AND PROVEN geologic prospects that are needed to make all these projections come true. It’s as if there’s a belief that there’s a nearly limitless amount of prospects just sitting in some geologist’s file cabinet and he’s just waiting for the right circumstances to pull them out. lol.

  10. onlooker on Wed, 30th Dec 2015 5:06 pm 

    Its called wishful thinking Rock.

  11. geopressure on Wed, 30th Dec 2015 5:43 pm 

    Plenty of World-Class, billion-BBL projects that are just waiting to be developed in Kurdistan… This is why every Middle East Expert you see on the news channels always talks about how super-awesome the Kurds are… Eventually, we are going to finance their independence so that their oil can be delivered to market a pace that suits the US (which is not a pace that would suit an oil producing nation)… These reserves are also why OPEC rules have been written so that a cap cannot be put on Iraq’s production… More Oil in Kurdistan than Saudi Arabia & it’s practically all undeveloped…

  12. bug on Wed, 30th Dec 2015 5:52 pm 

    Geo, if the are zillions of barrels there, why didn’t/don’t the Russians exploit it? Or that matter the Chinese?

  13. shortonoil on Wed, 30th Dec 2015 6:50 pm 

    “Do you mean that if prices had fallen to 15.63$ per barrel during this year, production would have been absorbed by the consumer?”

    $15.63 is just a linear extrapolation of the two points that we now have; $37 and 2.1, and zero, and zero. In actuality, in my experience, nothing is naturally linear in petroleum. The curve is probably steeper on the $37 side than the zero side. It is possible that as little as the low $20’s could have balanced supply in 2015. But, in the low $20’s (maybe) either production would have fallen, or demand would have increased, or both. At that point inventory growth would have been at its minimum, and perhaps so small that it would not have yet been noticed. There is no way of knowing how it would have worked out, just that it would have.

  14. geopressure on Wed, 30th Dec 2015 7:14 pm 

    Bug, The Russians put an enormous amount of effort into convincing Saddam NOT to exploit it… The Russian want $100/BBL oil more than want their cut of the Kurdish Oil… I cannot account for the Chinese lack of interest…

    We actually fought two wars to try & get these reserves to market… In the 1990’s the Deepwater frontier did the job that the Kurdish oil was going to & after the second Iraq War, the new Iraqi constitution said that the Kurds could develop & sell the oil independent of Bagdad… Companies like Gulf keystone, Genel, and Western Zagros have concessions & are in various stages of development… 1.6 Million BOPD worth of pipeline capacity is already in place (I would imagine that the US funded that)…

    All this to ensure that the world is over-supplied with crude oil so that the balance of power does not tip in Russia’s favor…

    But, if you doubt that the Zagros fold Belt of Kurdistan houses ENOURMOUS reserves, well, I don’t know what to tell you… GKP discovered a 14 Billion BBL field with 13,000 BOPD wells in the last 2-3 years…

  15. makati1 on Wed, 30th Dec 2015 7:23 pm 

    Any way you cut it, the direction we are traveling is down, with a few plateaus along the way, but no ups that make a difference.

    What does it matter if oil is $15 if there is no one able to buy the end products at a profit for the oil companies? THAT is what is in our future. Not just less, but none.

    I have no investment in the stock markets. I glace at the current numbers occasionally out of curiosity. Ditto for oil prices. Nothing is as it seems there, so they are irrelevant to my life. I know it is ALL going to crash with such a noise that it will be heard on the moon. So be it.

  16. shortonoil on Wed, 30th Dec 2015 7:25 pm 

    “What I find most amazing by such statements that $X trillion will have to spent in Y years in order to develop A million of bopd production from B billions of bbls of new reserves and yet not a single mention of the KNOWN AND PROVEN geologic prospects that are needed to make all these projections come true.”

    We believe that the URR of world reserves is 2285.65 Gb and show how we came to that conclusion here:

    http://www.thehillsgroup.org/petrohg10.pdf

    That number is very close to the Campbell-Leharrere estimate, and the 50% 2000 USGS assessment. The BP assessments of recent years include everything from swamp gas, to axle grease. We think they are stretching it a bit! So in essence there is no “A million of bopd”. What we are saying is that it will require $39 trillion more in revenue than what the petroleum industry will generate over the next 10 years to keep it functioning. That is an average of $3.9 billion per year. Since very recent history shows that their revenue fell by $2.2 trillion in 2014-2015 is seems highly possible.Oil prices would not have to fall much further to reach $3.9 trillion. As a matter of fact we projected that they would over a year ago:

    http://www.thehillsgroup.org/depletion2_022.htm

  17. shortonoil on Wed, 30th Dec 2015 7:32 pm 

    “But, if you doubt that the Zagros fold Belt of Kurdistan houses ENOURMOUS reserves, well, I don’t know what to tell you… GKP discovered a 14 Billion BBL field with 13,000 BOPD wells in the last 2-3 years…”

    The quantity of resource, or even reserve is not the problem facing the petroleum industry today. It is the process that is used to produce it. That is hard to explain in a blog spot so we put up a 20 page site, and 10 pages of the report to expand on it:

    http://www.thehillsgroup.org/petrohg10.pdf

  18. geopressure on Wed, 30th Dec 2015 8:05 pm 

    “The quantity of resource, or even reserve is not the problem facing the petroleum industry today. It is the process that is used to produce it. That is hard to explain in a blog spot so we put up a 20 page site, and 10 pages of the report to expand on it”

    I think that that website’s logic is flawed, tho be honest with you & it has no credibility in my eyes…

  19. Truth Has A Liberal Bias on Wed, 30th Dec 2015 8:30 pm 

    Wouldn’t a price spike be required to raise the 10 trillion so they had it to spend? Retards!

  20. Pete Bauer on Wed, 30th Dec 2015 9:15 pm 

    Lets take this positive scenario.

    Iraq increased the oil production by 1 million b/d in 2015 very effortlessly because they can produce light crude oil from lower depth. And they plan to ramp up their production from 4 to 10 million b/d. Along with them, Iran, Arab countries also increase by another 5-6 million b/d with a total increase of 10 million b/d.

    And the World oil production will go to 105 million b/d. But when this easy crude depletes and the production crashes, …. what happens next.

    Everyone will depend on American shale which has 40% depletion rate. There will be rapid drilling and depletion as well and the cost will skyrocket.

    And what will the motorists do?.

    Just crib.

  21. Apneaman on Wed, 30th Dec 2015 9:15 pm 

    geopressure, flawed logic? How so? Anyone can claim another’s logic is flawed, but without demonstrating how, your claim is baseless.

  22. Ted Wilson on Wed, 30th Dec 2015 10:16 pm 

    1 watt of Solar PV installed capacity costs $3. So for 1 TW (Terawatt) will cost $3 trillion and for $10 trillion, we can install 3.3 TW of Solar PV installed capacity which can power the entire US electricity even with its 20% capacity factor.

    And the share of US in World electricity generation is 20%, so for a 1 time cost of $50 trillion, we can power the whole world with Solar power.

    But with further cost decrease, we can achieve this at a much lower cost.

    But for the Oil, the $10 trillion will get us only few million extra b/d.

    After that capacity is depleted, we need another $10 trillion. An endless black hole.

  23. GregT on Wed, 30th Dec 2015 10:48 pm 

    Where do you believe that money comes from Ted Wilson?

  24. Apneaman on Wed, 30th Dec 2015 11:03 pm 

    Ted Wilson,industrialized ape dreams are an endless black hole. The physical reality is finite.

    Human domination of the biosphere: Rapid
    discharge of the earth-space battery foretells
    the future of humankind

    https://collapseofindustrialcivilization.files.wordpress.com/2015/07/pnas-2015-schramski-1508353112.pdf

  25. theedrich on Thu, 31st Dec 2015 12:03 am 

    Let’s look at the 10-terabucks “investment” from another viewpoint — namely that of declining marginal returns leading to civilizational collapse:

    From Joseph A. Tainter, The Collapse of Complex Societies (Cambridge [England], NY:  Cambridge Univ. Press, 1988, 1992, pp. 214ff.):

    “A society trapped in a competitive peer polity system must invest more and more for no increased return, and is thereby economically weakened.  And yet the option of withdrawal or collapse does not exist.  So it is that collapse (from declining marginal returns) is not in the immediate future for any contemporary nation.  This is not, however, due so much to anything we have accomplished as it is to the competitive spiral in which we have allowed ourselves to become trapped.

    “Here is the reason why proposals for economic undevelopment, for living in balance on a small planet, will not work.  Given the close link between economic and military power, unilateral economic deceleration would be equivalent to, and as foolhardy as, unilateral disarmament.  We simply do not have the option to return to a lower economic level, at least not a rational option.  Peer polity competition drives increased complexity and resource competition regardless of costs, human or ecological.

    “Peer polities then tend to undergo long periods of upwardly-spiraling competitive costs, and downward marginal returns.  This is terminated finally by domination of one and acquisition of a new energy subsidy (as in Republican Rome and Warring States China), or by mutual collapse (as among the Mycenaeans and the Maya).  Collapse, if and when it comes again, will this time be global.  No longer can any individual nation collapse.  World civilization will disintegrate as a whole.  Competitors who evolve as peers collapse in like manner.

    “There are then notes of optimism and pessimism in the current situation.  We are in a curious position where competitive interactions force a level of investment, and a declining marginal return, that might ultimately lead to collapse except that the competitor who collapses first will simply be dominated or absorbed by the survivor.  A respite from the threat of collapse might be granted thereby, although we may find that we will not like to bear its costs.  If collapse is not in the immediate future, that is not to say that the industrial standard of living is also reprieved.  As marginal returns decline (a process ongoing even now), up to the point where a new energy subsidy is in place, the standard of living that industrial societies have enjoyed will not grow so rapidly, and for some groups and nations may remain static or decline.  The political conflicts that this will cause, coupled with the increasingly easy availability of nuclear weapons, will create a dangerous world situation in the foreseeable future.

    “However much we like to think of ourseles as something special in world history, in fact industrial societies are subject to the same principles that caused earlier societies to collapse.  If civilization collapses again, it will be from failure to take advantage of the current reprieve, a reprieve paradoxically both detrimental and essential to our anticipated future.”

    Conclusion:  willy-nilly, the majority of the human species will have to cease to be — either by deliberate, consciously chosen means, or ineluctably through a collapse effected by the same principles which brought down earlier societies.

  26. makati1 on Thu, 31st Dec 2015 12:04 am 

    Ted, solar produced electric is less than 2% of the world’s total. That would barely power the electric cars on the world’s roads. And what happens when the sun isn’t shining? Northern climates with heavy snow? Etc. Did you factor in the maintenance/replacement costs. Insurance? Profitability?

    You better take another look at your math.

  27. theedrich on Thu, 31st Dec 2015 12:17 am 

    Let’s look at the 10-terabucks “investment” from another viewpoint — namely that of declining marginal returns leading to civilizational collapse:

    From Joseph A. Tainter, The Collapse of Complex Societies (Cambridge [England], NY:  Cambridge Univ. Press, 1988, 1992, pp. 214ff.):

    “A society trapped in a competitive peer polity system must invest more and more for no increased return, and is thereby economically weakened.  And yet the option of withdrawal or collapse does not exist.  So it is that collapse (from declining marginal returns) is not in the immediate future for any contemporary nation.  This is not, however, due so much to anything we have accomplished as it is to the competitive spiral in which we have allowed ourselves to become trapped.

    “Here is the reason why proposals for economic undevelopment, for living in balance on a small planet, will not work.  Given the close link between economic and military power, unilateral economic deceleration would be equivalent to, and as foolhardy as, unilateral disarmament.  We simply do not have the option to return to a lower economic level, at least not a rational option.  Peer polity competition drives increased complexity and resource competition regardless of costs, human or ecological.

    “Peer polities then tend to undergo long periods of upwardly-spiraling competitive costs, and downward marginal returns.  This is terminated finally by domination of one and acquisition of a new energy subsidy (as in Republican Rome and Warring States China), or by
    mutual collapse (as among the Mycenaeans and the Maya).  Collapse, if and when it comes again, will this time be global.  No longer can any individual nation collapse.  World civilization will disintegrate as a whole.  Competitors who evolve as peers collapse in like manner.

    “There are then notes of optimism and pessimism in the current situation.  We are in a curious position where competitive interactions force a level of investment, and a declining marginal return, that might ultimately lead to collapse except that the competitor who collapses first will simply be dominated or absorbed by the survivor.  A respite from the threat of collapse might be granted thereby, although we may find that we will not like to bear its costs.  If collapse is not in the immediate future, that is not to say that the industrial standard of living is also reprieved.  As marginal returns decline (a process ongoing even now), up to the point where a new energy subsidy is in place, the standard of living that industrial societies have enjoyed will not grow so rapidly, and for some groups and nations may remain static or decline.  The political conflicts that this will cause, coupled with the increasingly easy availability of nuclear weapons, will create a dangerous world situation in the foreseeable future.

    “However much we like to think of ourselves as something special in world history, in fact industrial societies are subject to the same principles that caused earlier societies to collapse.  If civilization collapses again, it will be from failure to take advantage of the current reprieve, a reprieve paradoxically both detrimental and essential to our anticipated future.”

    Conclusion:  willy-nilly, the majority of the human species will have to cease to be — either by deliberate, consciously chosen means, or ineluctably through a collapse effected by the same principles which brought down earlier societies.

  28. Truth Has A Liberal Bias on Thu, 31st Dec 2015 1:01 am 

    Solar requires batteries. Batteries require metal. Metal requires mining. As long as you’re digging holes in the ground to mine ore it’s not ‘renewable’, whatever the fuck that is. You want renewable. Go pick an apple of a tree. That’s renewable. You want to drive around looking at show homes on renewables? You’re on crack.

  29. makati1 on Thu, 31st Dec 2015 2:17 am 

    They never think that far, Truth. Everything with any metal starts in the mines somewhere on the earth, get refined, forged, machined, assembled and, usually, transported half way around the world to a warehouse, before it hits the store shelves.

    Then you get the, “but it takes less energy to recycle” comeback, when they again do not consider the energy involved in gathering the junk, separating/disassembling and trucking it to a refinery. Then melting it down, refining it, forged, machined, assembled, and again transported many miles to the warehouse and then to the store shelves. Ditto for replacement parts. Very little energy is actually ‘saved’ by recycling.

    Then they call you negative minded when you point it out to them. Dreamers all.

  30. Davy on Thu, 31st Dec 2015 5:02 am 

    I wouldn’t call it negative I would call it thinking you know what you just can’t know. There are variable of time and place to consider. Nothing wrong with negative. What is wrong is a focused negative agenda. What is worse is a focused negative agenda with a narrow positive agenda to boot.

    The world does not operate in this kind of linear arrangement of human agenda. In a non-linear global world that is self-organizing at its own systematic time frame we can only see trends not absolutes.

  31. rockman on Thu, 31st Dec 2015 7:26 am 

    looker – Perhaps a better description would be “wishful non-thinking”. lol.

    Billions and billions of exploration bbls out there. And I’m still waiting for that list of SPECIFIC prospects those $trillions will be spent on. And saying country X has Y billions of bbls doesn’t mean sh*t: the only thing that matters is rigs on the ground turning to the right…and then only if they find something. For 40 years I’ve listened to one optimist after another predict huge reserves from one trend or another. But the oil patch doesn’t drill trends…it drills specific delineated prospects. And even at that the majority of those PROSPECTS didn’t find the big reserves.

    Yes: there are some big discoveries left to be made. But as far as there being huge amounts of oil left to be found compared to what we’ve already found is bullsh*t. And that the opinion of someone who actually generates oil PROSPECTS. I might not be the sharpest pencil in the oil patch box but I am one of the few here that actually drills for oil. lol.

  32. shortonoil on Thu, 31st Dec 2015 8:57 am 

    “geopressure, flawed logic? How so? Anyone can claim another’s logic is flawed, but without demonstrating how, your claim is baseless.”

    To assume that there is a shortage of oil is not not only flawed in its basic nature, it contradicts every thing that we know about the quantities of the world’s petroleum resource. Using the low estimates that have been put out by the USGS, BP and others, at present consumption rates, there are several centuries worth remaining in the ground. The quantity of oil remaining is not even a factor.

    The primary factor is the 160 year old process that is used to produce petroleum products. That process has to be able to deliver energy to the economy at a price that it can afford, and at a price at which the producer can afford to produce it. At $36.44 (this morning) the producer can no longer cover the full life cycle cost of their products. Consequently, the production side of the process is failing.

    The Etp Model is an analytical tool used to determine the state of the process (PPS). It is based on the derivation a Second Law Statement. If its logic is flawed then all of science as we know it is flawed. The Second Law is considered the most fundamental statement of reality know to man.

    The Model is informing us that oil can never again, using our present production process, satisfy the needs of both the economy, and the producer. If prices go up the economy can not afford it, and if it doesn’t producers can not continue to produce it. From a financial perspective to keep producers functioning the economy will have to subsidize their production. An analogy would be someone who is burning their house a piece at a time to keep warm. Since a vast majority of the world’s wealth is held by a very few people, and they will soon be asked to turn that wealth over to maintain the present system, this is not likely to end well!

    http://www.thehillsgroup.org/

  33. rockman on Thu, 31st Dec 2015 12:12 pm 

    “…oil can never again…satisfy the needs of both the economy, and the producer.” Again where shorty and I tend to disagree. There has never been a single day when ALL the economies had the oil they needed at a price they could afford. Not when oil was $3/bbl. And there were economies that had all the oil they needed (and could afford) when it was $120/bbl.

    Today the global economy “needs” several hundred milllion bopd…at a minimum. Hundreds of millions of bopd it can afford to buy. Thus not only has the global economy ever had the oil it need it never will. Even those economies that could afford $3/bbl and $145/bbl oil never had all the oil they “needed”: they only had the oil they could afford to buy.

    This concept of how much oil is “needed” is difficult to discuss. Demand has nothing to do with the need for oil: it is a function of what the consumers can afford to buy. Obviously consumers cannot pay more for oil the they can afford. And producers can’t afford to develop new reserves if the cost is greater then the price they sell the oil for. But producers can (and often do) sell oil for less then it cost them to develop those reserves. There have been millions of bbls of Eagle Ford and Bakken oil sold for significantly less then it cost those companies to develop them. This is often a factor that some models don’t take into account. Likewise the cost to develop future reserves isn’t the cost to drill new SUCCESSFUL wells. It is the cost to dtill those wells PLUS the wells that produce oil at a cost well above prevailing prices PLUS the cost of dry holes PLUS the hundreds of $millions of undrilled leases PLUS the overhead cost of the producers PLUS the interest cost of the capex borrowed to drill all the wells, take all the drilled/undrilled leases and all the overhead costs.

    These are just some of the dynamics at play. It is a very difficult system to fully model. Individual components might be easier but that doesn’t paint the entire picture.

  34. geopressure on Thu, 31st Dec 2015 2:12 pm 

    “geopressure, flawed logic? How so? Anyone can claim another’s logic is flawed, but without demonstrating how, your claim is baseless.”

    One example of where the Hills Group Logic is flawed:

    If you calculations include reservoir temperature, then you are trying to apply thermodynamical principles that simply do not apply…

    That is but one of many flaws… The Hills Group Website looks like someone opened a thermodynamics textbook & started cut/pasting differential equations to make themselves appear to be smart, but the equations do not apply – not even remotely…

  35. Apneaman on Thu, 31st Dec 2015 2:30 pm 

    geo, you just did it again.

  36. geopressure on Thu, 31st Dec 2015 3:22 pm 

    You asked for specifics, I gave it to you… I just toppled the Hills Group’s entire argument…

  37. Apneaman on Thu, 31st Dec 2015 3:31 pm 

    “If you calculations include reservoir temperature, then you are trying to apply thermodynamical principles that simply do not apply…”

    “The Hills Group Website looks like someone opened a thermodynamics textbook & started cut/pasting differential equations to make themselves appear to be smart, but the equations do not apply – not even remotely…”

    That’s it? You call that toppling an entire argument? Why do I get the impression that you did not make the debating team at mouth breather high?

  38. geopressure on Thu, 31st Dec 2015 4:06 pm 

    “If you calculations include reservoir temperature, then you are trying to apply thermodynamical principles that simply do not apply…”

    Bam! The Hills Group’s logic is shattered…

    Have a good day…

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