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Page added on December 11, 2015
OPEC cannot kill shale oil
Gulf Cooperation Council (GCC) members including Saudi Arabia are no longer able to afford their abundant welfare and near-zero taxes because of the collapse in oil prices and expensive military campaigns. The six Gulf States have agreed to introduce VAT, to plug the gap. It’s not yet clear how high the tax is going to be, but it will be introduced over the next three years.
Saudi Arabia recently decided not to cut oil production, which would’ve helped drive up prices. RT asked Dr. Mamdouh Salameh whether it is now reaping what it has sowed.
In his words, Riyadh’s policy on the matter is “fluid”.
“They are insisting on not cutting production and also putting pressure on OPEC not to cut production…. They claim they want to defend their market share,” he said. According to Salameh, “that policy was tested and found wanting by Sheikh Ahmed Yamani, the former Saudi Oil Minister, who tried it in the early 80’s when he flooded the oil market with 10 million barrels a day leading to a collapse in the oil price to $10 a barrel.”
“He was forced to withdraw it, and he lost his job afterwards,” he added.
The expert argues that this policy will not work and “Saudi Arabia and the other Arab Gulf producers within OPEC will have to cut production.”
“Their talk about gaining or defending market share is nonsense, because even if Saudi Arabia gets five percent more market share, the value of that five per cent amounts between $6-8 billions,” he told RT. He suggests that Saudi Arabia alone is losing $140 billion.
Salameh cited the International Energy Agency in Paris that said that “the global demand for oil this year, 2015 has been increasing by 1.4 per cent translating into 1.3 million barrels a day or 1.4 million barrels a day. That is a good and positive development.”
“But what is preventing the price from increasing – is that every time the price shows signs of moving up, OPEC and particularly Saudi Arabia introduces more oil thus exacerbating an already existing glut,” he continued.
Salameh argues the Saudis claim that they “will stick to 30 million barrels a day.” However, they are producing 32.2 million. “If you take that 2.2 out of the market, you stop the glut and a price could rise immediately or within a week to 70 or 80 dollars,” he added.
He does not think that Saudi Arabia is driving down oil prices to squeeze out the American shale producers, “because the minute the oil price starts to go up, shale oil will be back.“
He said that it is “true that some shale oil producers have gone out of the market, and the production of US shale oil has declined this year by 600,000 barrels a day.” He went on to say that “it is projected to decline by almost 900,000 barrels next year” if the prices continue to be that low.
“Efficient producers of shale oil will remain in the market, and they are using technology to reduce the breakeven prices from $70 to $85 – now it is $60,” Salameh told RT. “Maybe in few months it could go to $50.”
According to Salameh, we have to accept that shale oil is “a fact of life and we have to deal with it.” But, he added,” the shortcoming of shale oil is their depletion rate.”
“In the first year of production a well of shale oil loses 70 – 90 per cent of its reserves. That means that shale oil producers will have to produce and drill so many thousand, estimated, I think by Bloomberg, to be 9,000 wells every year at a cost of $45 billion that are just to remain where they are to prevent production from declining further. So OPEC cannot kill or slowdown – it can slowdown shale oil, but … the geology will eventually kill shale oil,” the expert said.
OPEC, he noted, cannot kill shale oil production, but can slow it down. However, it is “geology that “will eventually kill shale oil.”
122 Comments on "OPEC cannot kill shale oil"
Dredd on Fri, 11th Dec 2015 3:29 pm
“OPEC cannot kill shale oil”
Nobody can kill something that is already dead (The Evolution of Models – 18)..
Apneaman on Fri, 11th Dec 2015 3:54 pm
This One Suit Could Take Down Oklahoma’s Oil And Gas Industry
“Chad Devereaux works to clear up bricks that fell from three sides of his in-laws’ home in Sparks, Okla, after two earthquakes hit the area in less than 24 hours. Oil and gas companies say the industry can’t survive if they are held accountable for earthquake damage.
Less than a week after state regulators shut down seven waste disposal wells in Oklahoma, two companies being sued for earthquake damages are asking the case be dismissed.
Spess Oil Company and New Dominion LLC say that plaintiff Sandra Ladra waited too long to file her suit, which asks for $75,000 in damages stemming from being hit by falling rock when an earthquake struck her home and damaged her chimney. The earthquake was allegedly triggered by the fracking companies, who were conducting wastewater injection nearby.
“When you look at the actual science and you look at the data, you can’t help but go, ‘It’s the injection wells, stupid.’ It’s just that obvious,” Scott E. Poynter, Ladra’s lead attorney, told the Associated Press. “Oklahoma shouldn’t have more earthquakes than anywhere on the planet, but it does.””
http://thinkprogress.org/climate/2015/12/11/3730531/oil-gas-doesnt-want-to-pay-for-earthquake-damage/?0
ghung on Fri, 11th Dec 2015 4:02 pm
“Oil and gas companies say the industry can’t survive if they are held accountable for earthquake damage.”
Yeah,, life’s a bitch that way. It’s just business.
Anonymous on Fri, 11th Dec 2015 4:25 pm
The corrupt ‘saudi’ regime could fix most of its budget problems easily by cutting production and letting the price of oil rise again. The saudi position has been a huge lie all along. Arabia has something everyone wants-oil. It makes more sense to sell less of it at a higher price, than more of it at a much lower price, right? Whatever oil Arabia doesn’t sell today, it can always sell tomorrow. That simple logic either eludes the US puppet, or something else is at work here.
If the price rises, it rises for everyone, including the empires sworn enemies, Russia, Iran, and Venezuela?(the CIA backed ‘opposition’ won so are they still the enemy?). Only RT seems capable of printing the obvious, the Arabian story about ‘market share’ is complete BS, and has been all along. Clearly the US realizes that to let the price rise benefits the empires enemies as well, so that is off the table.However the US can always print more toilet paper out of thin air to give to its oil corporations and oily allies in the GCC. The US elite hardly cares if a bunch of hill-billy, redneck ‘shale’ companies and workers get thrown under the bus in the homeland-collateral damage and all that.
The OPEC shale tale is just that, a fairy tale. ‘OPEC’ hardly cares about shale and never did. Of course, the Saudis could also stop sending billions to ‘ISIS’ and stop invading its neighbors at the behest of the US, that would help its balance sheets as well. The corrupt saudi regime and its US masters are banking on its ‘enemies’ being hurt so bad by all this, they will eventually give in. Russia, to its credit, has *not* cut production(not mentioned here), which implies they are not going to allow a repeat of the 1990’s again. IoW, Russia is not rolling over and is making sure the US and S.A. economic war policy hurts them as much as anyone else.
Now if Iran were not under illegal US embargo, if Iraq and Iraq and Libya were whole and stable(and not playgrounds for the CIA\Mossad\’ISIS’ types) oil prices would(or could be) lower still. Imagine what that would look like.
Newfie on Fri, 11th Dec 2015 5:08 pm
He does not think that Saudi Arabia is driving down oil prices to squeeze out the American shale producers, “because the minute the oil price starts to go up, shale oil will be back.“
That statement contradicts itself.
tita on Fri, 11th Dec 2015 6:12 pm
Well, any producer could reduce his output to help prices rises.
And also, any consumer could reduce his consumption when the price is too high.
Oh, sorry, your revenue depends on it. Better have half of it than nothing at all.
Yeah, people just think with this saying: “One ‘yours’ is better than two ‘you’ll get it'”
Harquebus on Fri, 11th Dec 2015 7:19 pm
“We no longer have to wait for the collapse of U.S. shale oil production, it already has begun.”
https://srsroccoreport.com/collapse-of-u-s-shale-oil-production-has-begun/
Boat on Fri, 11th Dec 2015 7:53 pm
I don’t know why ya’ll are so fascinated with US shale oil. It represents less than 6% of the market.
twocats on Fri, 11th Dec 2015 7:55 pm
Harquebus, I think those numbers were based on an EIA estimate, well the first actual reporting of numbers is out and US shale production is… slightly up. Sorry, you’ll just have to wait a little longer. But a true doomer wants the overproduction to carry on as long as possible thus more thoroughly devastating the financials of the oil industry such that they can’t fire the engine back up as easily once prices recover. That’s the quickest road to peak oil once and for fucking final.
twocats on Fri, 11th Dec 2015 7:56 pm
peak of “all oily stuff that burns” peak oil oil happened in 2005
twocats on Fri, 11th Dec 2015 7:59 pm
and ignore boat, he loves red herring. Ennui is more of a straw man sort of guy.
Harquebus on Fri, 11th Dec 2015 8:01 pm
twocats
The article was one that I have just come across and submitted it as information to others and for comment.
Thank you for yours. It is appreciated.
Cheers.
Bob Owens on Fri, 11th Dec 2015 8:18 pm
OPEC cannot kill shale oil, but the financial markets can and are now doing so. They are having to recalculate and reprice their reserves as we speak. Investors are getting burned and will not be reinvesting any time soon. Employees are getting laid off, assets are being sold, rig counts are going down, new debt can’t be sold. They are dead, dead, dead! In addition they have the awful initial depletion rates, more environmental oversite and are causing earthquakes. Investors are starting to do the sane thing and invest in solar/wind farms. They don’t have problems shale has.
Boat on Fri, 11th Dec 2015 8:22 pm
twocats,
Peak Oil happened when? Do you have a clue? World consumption and production continues to rise. This doomer cult like fascination with untruth is amazing. Did you watch GregT and his $19.99 video on reading charts? Lol
Truth Has A Liberal Bias on Fri, 11th Dec 2015 9:40 pm
Oil with API gravity of 40 and less peaked in 2005. What we have today is a condensate glut.
antaris on Fri, 11th Dec 2015 9:50 pm
Boat, yah actually printed something I agree with.
GregT on Fri, 11th Dec 2015 10:11 pm
“What we have today is a condensate glut.”
And a glut of the oily stuff that will not allow our economies to continue to grow at the rates that they need to, in order to service a system based entirely on infinite exponential growth, which is in of itself, a physical, and mathematical impossibility.
Should be common sense, but obviously in this day and age, sense is not common. Neither is smart, never mind intelligent.
Boat on Fri, 11th Dec 2015 10:43 pm
GregT,
If you look at the last 15 years the developed countries have grown slowly and their populations have stabilized to slight degrowth. In the US case only immigration keeps population growing. Yet instead of recognising these improvements those are who you pound on. Many countries are making efforts to clean up their act. Your just a negative man who likes to spew trash. A popular commodity on this site.
And condensate is a good mix with heavy oil for refinery blends. That’s why they buy it.
antaris on Fri, 11th Dec 2015 10:45 pm
Talking about the less than 6%
antaris on Fri, 11th Dec 2015 10:48 pm
And boat you spew a lot of trash yourself
Boat on Fri, 11th Dec 2015 10:56 pm
Truth Has A Liberal Bias
Oil with API gravity of 40 and less peaked in 2005. What we have today is a condensate glut.
All oil gets priced at the refinery. All kinds and types of oil is used. Oil from any source is successful if it makes money. This 2005 API at 40 peak is very questionable. There could be another peak of that type of oil in the next few years. Geopolitics has gotten in the way of production in Libya, Nigeria, Iraq and Iran etc. If and when their resources come online fracking oil could be replaced. But this is not a lack of oil in the ground. Just conflict zones that make it to dangerous.
GregT on Fri, 11th Dec 2015 10:57 pm
Boat,
I’m not at all interested in your ignorance, or your lack of rationality. What I am interested in is the truth, and the people that come to this site looking for the truth. You are without a doubt the dumbest person that I have ever interacted with anywhere, in my entire life. Your constant stupidity is not helping anyone Boat, and is going to be your own personal downfall. Mark my words.
Boat on Fri, 11th Dec 2015 11:05 pm
GregT,
Maybe you Canadians were raised different but here in the US we are not forced to read or respond to any comment. I give you permission not to read any of my comments. Get some therapy to help you get through this. Your apparently a troubled man.
GregT on Fri, 11th Dec 2015 11:10 pm
Furthermore Boat,
If you expect to have the least bit of credibility, try adhering to the English language. If you’re not willing to do so, the rest of your diatribe is also on the same level.
makati1 on Fri, 11th Dec 2015 11:11 pm
You cannot ‘kill’ something that is already dying. You can only ‘finish it off. Fraked oil was just another bubble supported by zero interest borrowing. If you own shale stock, dump it now. LOL
antaris on Fri, 11th Dec 2015 11:14 pm
Forced not, brainwashed yes.
Bloomer on Fri, 11th Dec 2015 11:42 pm
The Saudis are providing cheap abundant oil. This eventually should spur demand and drive excess consumption.
The faster consumers can pump CO2 emissions into the atmosphere, the sooner the human race can call it a day.
rockman on Sat, 12th Dec 2015 6:11 am
“Oil and gas companies say the industry can’t survive if they are held accountable for earthquake damage.”
FYI: oil/NG companies could rarely be held accountable for any damage from disposal wells. And the reminder once more: the situation has nothing to do with frac’ng directly: the source of the injected fluids is not the issue. Frac fluids make up a very small % of the injected volume in OK. Neither the injected fluid nor the disposal wells are typically owned by operators. They are owned by injection well companies as is the fluid.
It would be no different then one transferring the title of their car to someone and then being held responsible for an accident they had. The operators are not responsible for those wells: the companies that own them and the state regulators are.
Now having said that the operators are very dependent upon such disposal companies and having some/all of those operations in OK banned would be costly. But the fluids could be hauled to other states where injection wells are not being blamed for earthquakes. This is already being down with such fluids being produced in PA.
But as long as the OK regulators continue to allow most disposal wells in the state to operate this hasn’t yet become a significant issue for either the operators or the injection companies. Some of the lawsuits might win but it will be difficult given the USGS reports tens of thousands of similar tremors per year in areas with no injection wells.
rockman on Sat, 12th Dec 2015 6:56 am
” What we have today is a condensate glut.” There is no glut of light oil: not only is almost every bbl being used it is absolutely critical to both the refining industry and the Canadian oil sands producers.
Refineries do not process heavy oils very efficiently. Which is why they’ve been designed for decades to process “blended oil” with a very narrow range of weight. Typically between 31 API and 33 API. Before the boom in Eagle Ford Shale condensate Texas refiners had to import such oil to blend with their heavier oils.
The oil sands producers could not pipeline millions of bbls per day to the US if they also didn’t blend condensate with their crud: it can’t flow thru pipelines without being diluted. IOW a billion bbls of Canadian oil is not being exported yearly to the US: a billion bbls of “dilbit” is being shipped. Dilbit stands for diluted bitumen. Bitumen is a kind of crude oil found in natural oil sands deposits — it’s the heaviest crude oil used today. It can neither be pipelined nor refined without significant volumes of condensate: about 11 BILLION GALLONS PER YEAR of condensate is being used for the oil sands alone. And the Canadians aren’t alone: recently Venezuela imported light oil from half way around the world from Libya to use for blending. They had to do so because the oil sands producers and the US/Canadian refiners are buying every bbl they can get their hands on.
IOW there is not “glut” of condensate. It does not matter if the MSM or anyone else proclaims there is one…there is no glut. Oil prices are not lower because of the amount of oil being produced. We had the same volume of $60/bbl oil being produced as we had when oil was $90+/bbl. The price of oil declined because the refiners who buy oil (the public doesn’t buy oil…it buys refinery products)won’t pay more for oil then they can project the profit they can make from cracking it.
And yes, it doesn’t matter if folks believe it or not: the oil buyers set the price…not the producers. Neither the KSA nor the Rockman can force buyers to pay $100/bbl…if we could we damn well would. LOL. The only control we producers have is how much of our oil we sell. And neither the KSA nor most other producers will reduce production because they all need to max their revenue at the current price THE OIL BUYERS HAVE SET. In fact many producers with excess production capacity, like the KSA, have increased sales to generate as much revenue as possible.
ennui2 on Sat, 12th Dec 2015 8:01 am
The first line here says it all:
“The minute oil prices go up shale oil production will go up again to its previous levels”
Translation for the tone-deaf peakers out there is this.
The drop in shale drilling does NOT indicate geological depletion. There is at least one more act here before the depletion takes over.
shortonoil on Sat, 12th Dec 2015 8:59 am
“The minute oil prices go up shale oil production will go up again to its previous levels”
Shale is the unfortunate result of an extractive industry that has been high grading its resource base. When the best of a resource is continually extracted for 150 years what remains is likely to get pretty worthless. That is what happened to shale. It is also what is happening to the remainder of the world’s petroleum supply. Prices are not going up (at least very far) because what remains of the world’s petroleum reserve is just not very valuable:
http://www.thehillsgroup.org/depletion2_022.htm
The Etp Model quantifies this process. Since about the only thing petroleum is good for is as an energy source; the Etp Model calculates its energy state. It is sort of a no brainier unless one lives in fairytale land, where fairies and elves bring gifts and goodies to all the good little children. Petroleum is one of our primary means to power the economy, as its ability to do that declines the economy declines, and without an economy there is not much demand for petroleum. The price goes down. The title of the articles is incomplete, it should read “OPEC can not kill shale oil as long as the Central Banks keep printing worthless currency to support it.”
That is not likely to happen until the world’s FX markets collapse. We are coming up on that date real soon!
http://www.thehillsgroup.org/
Northwest Resident on Sat, 12th Dec 2015 10:31 am
Sorry, ennui2, depletion has already taken over. You just don’t see it. For shale to return to its glory days of massive debt accumulation, somebody is going to have to give them billion$ of fresh cash to burn. That would require another massive propaganda blitz designed to reel in the suckers, the exact same suckers who are currently losing their asses on plunging shale investments, or who have already cashed out at pennies on the dollar. Granted, there are plenty of greed-driven suckers out there, but even those aren’t stupid enough to get screwed by the same Big Lie twice in a row — well, most aren’t. The FED would have to keep interest rates near zero and the banks would have to print up another few trillion$ — ain’t gonna happen. And last but not least, there just isn’t enough good oil to power another ramp-up in shale crap production, keeping in mind that the unconventional oil extracted is NOT sufficient to drive its own extraction, much less power the rest of the economy. No, ennui2, so sorry, your POV is in the realm of fantasy, a fact you shall soon be forced to recognize.
onlooker on Sat, 12th Dec 2015 10:39 am
Wow that is about the best explanation of where we are relative to peak oil and the economy that I have heard to date. Thanks Northwest.
rockman on Sat, 12th Dec 2015 10:42 am
NR – Some valid points. But I watched a lot more “stupid money” (a technical term we really use in the oil patch) pissed away in the late 70’s boom. But when/if there’s another price inspired boom the greedy stupid money will return. The fed rates certainly helped push capital our way.
And sorry to preach about it again but the EROEI will never kill any play. Never has..never will. Poor economics will first. There were many Eagle Ford wells that didn’t produce enough oil to recover half the money spent to drill and complete them. But the vast majority still produced more energy then used to drill them.
Davy on Sat, 12th Dec 2015 10:53 am
Rock/NR, we are seeing a little of both. The oil patch and Wall Street are not the same but they need each other and operate together when oil is being exploited. They both suffer from the others mistakes. We are seeing that now with the end of the shale boom.
It is my opinion we will likely never see those conditions again allowing another boom. We will not see virgin QE again. When bubbles burst they don’t reflate the same. The best spots have been exploited. The economy is not what it was. We are in new waters and adrift. I imagine another stab at it will be made if prices elevate but with the condition of the global economy poor how long will any elevation of prices last before demand is again damaged. Remember we will not see virgin QE. We may see the slut version but sluts can’t compare to sweet innocence of virginity.
Northwest Resident on Sat, 12th Dec 2015 12:11 pm
rockman — Excellent points as usual. Stupid money! A lot of that stupid money has been soaked up by the 0.01% in a process known as “wealth transfer”. Investment portfolios, retirement accounts — taking big hits and it is difficult to see at this point how they’ll ever get a sufficient quantity of stupid money to reinvest in the next ass-reaming courtesy of the shale/unconventional biz.
I also do not doubt your assertion that the vast majority of Eagle Ford wells produced more energy than was used to drill them. BUT… When you take into account the entire process — exploration, drilling, extraction, delivery to refineries, refinement, storage, distribution — what we end up with is an industry as a whole that has flat out lost its ass and piled up an astronomical amount of unpayable debt. That FACT speaks for itself. IF at the end of all that full-cycle production there had been net energy remaining, then the industry as a whole would have turned a profit. Excess net energy = profit, or am I wrong. Again, the fact that the whole shebang ended up in a trillion dollar pit of debt tells me that as a whole, the shale/unconventional business was a net energy sink. And that’s without doing all the PHD level math — just looking at the obvious.
Or not?
GregT on Sat, 12th Dec 2015 12:34 pm
“And sorry to preach about it again but the EROEI will never kill any play. Never has..never will. Poor economics will first.”
Is it not EROEI that is killing ‘poor economics’?
Welcome back NWR. Long time no see.
twocats on Sat, 12th Dec 2015 12:56 pm
Some of these concepts, like debt, are in part artificial concepts. The debt for an entire industry can simply be forgiven (e.g. like with a bailout or bail-in). So debt isn’t always the end all be all that it’s made out. For instance, if as CEO of a company I get a million-dollar salary, and my company goes into debt, does that mean it’s not a profitable company? EROEI is presumably a knowable hard number that could be quantified as Net Energy available to society, but at least I can imagine fields of people manually pushing gears to power drills that slowly bring up remaining oil reserves in exchange for food and shelter. EROEI could be negative in a sense, but just converting human energy (obtained via solar energy into food production) into oil energy to be used by oligarchical warlords.
Two things that are of interest: one, when they went full-throttle on this whole central bank monetizing scheme the big risk to the system wasn’t necessarily debt but the best thing capitalism has ever created: price discovery. This is now gotten really wobbly to the point that people might become unclear as to what things are worth. If this system breaks down enough it could unravel the exchange of goods around the world.
The second interesting aspect is the managing of expectations. The system survives so long as people think they are getting what they deserve. The developed world is being down-shifted to lower expectations at the same time the developing world is in full bloom of higher expectations. The sense of entitlement amongst middle and upper classes in developing countries is very strong. How far can the expectations of developed world be pushed down before social fabric reaches a tipping point? How much can expectations for developing be slowed up before their populations unravel?
Apneaman on Sat, 12th Dec 2015 1:01 pm
The drillers do not pay for the externalities, but someone or some tax payers do. What’s the energy content when you add those up? Earthquake damage, torn up roads that need repaving, polluted water sources and the fixes. Workers at the “man camps” causing havoc in town, spills into streams and rivers and farmers fields, oil trains blowing entire towns up, etc, etc. The rockman don’t give a fuck he just rolls into town, does his deed, gets paid and it’s on to the next one. How many disasters are left after? How many sick kids and pregnant woman? What’s the EROEI cost of all the unfortunate human externalities? I’m not sure, but the people profiting do not give a fuck – you can be sure of that. Donate a toy to a laid off oil patch workers kid and you are self exonerated. Now go do it again.
Northwest Resident on Sat, 12th Dec 2015 1:09 pm
“If this system breaks down enough it could unravel the exchange of goods around the world.”
Already happening. International trade tanking. Container freight plumbing the depths of severe recession. Inventories piled high with no buyers in sight. Commodities producers standing in line to file for bankruptcy. Middle class shrinking.
Unraveling is an excellent word to describe just exactly what is happening right here and now.
Hey GregT — thanks. I found a moment of free time, a rarity for me these days. Been travelling a lot. The whole world is burning but in the financial sector things are still in overdrive, for the time being…
Northwest Resident on Sat, 12th Dec 2015 1:15 pm
Another thought before heading out for the day. Like I said above, I have been travelling a lot.
Recently returned from a 3-day biz trip to a major U.S. city. They flew us out there, put us up in a high class hotel, wined and dined us. We had two solid days of meetings — nothing that couldn’t have been done via remote connections, but they wanted the “face to face”. Flying back, all I could think was what a godawful waste of good fuel this whole trip was. Multiply my trip by what? One hundred thousand similar trips per day worldwide, something like that? And we wonder why everything is going down the tubes. Isn’t it obvious?
ennui2 on Sat, 12th Dec 2015 1:48 pm
“Prices are not going up (at least very far) because what remains of the world’s petroleum reserve is just not very valuable”
Sure it is. Matt Simmons explained the value of oil. It’s so valuable that even at $10/gallon it would be a steal for the amount of work it does as an energy slave.
shortonoil on Sat, 12th Dec 2015 2:10 pm
“EROEI could be negative in a sense, but just converting human energy”</i?
Not to pick on twocats, but ERoEI is a ratio. Energy returned over energy invested. The only way it could be negative would be if there where such a thing as "negative energy". In our area of the universe there is not much of it, at least as far as we know.
It is this very lack of understanding of the most fundamental principals, by people in management and control positions, that makes our present situation most dire. The world is not likely to address our coming energy crisis very effectively if it does not even understand what is happening? The world has morphed into a society of techno geeks that fix the third clog on the fourth wheel. When the wheel falls off they are left with no solution to the problem.
rockman on Sat, 12th Dec 2015 5:08 pm
Greg – “Is it not EROEI that is killing ‘poor economics’?” There is a relationship between rate of return and the amount of oil used/produced. But folks greatly overestimate the amount of fossil fuels we use in exploration and production. The amount of capital spent to drill with those fossil fuels is typically less than 10% of the total well cost…often much less. The well I often speak of that’s been making 400 bopd for several years cost about $8 million to dill and complete. But the diesel cost less than $600,000. IOW it took a lot less production to recover the fuel budget then the total cost of the well. IOW I had to net only 15,000 bo to pay for the diesel at $40/bbl and net 200,000 bbls to pay for the entire well (made 360,000 bbls so far and still going strong). So an EROEI of 6 would mean netting 90,000 bo (15,000 bbls X 6). But if the well only netted me 90,000 bbls I would have made only $3.6 million…IOW I would have lost over $4 million. So if I knew it would have an EROEI of 6 I would never had drilled it.
Now to get to NR’s point about total energy input for the entire process. Basically that has no bearing on what I decide to drill. It doesn’t effect my drilling decisions if the entire dynamic produces a negative EROEI. For instance maybe the refining process is very low EROEI…doesn’t make any difference to me. Likewise the refiner doesn’t care if my drilling effort has a low EROEI. In fact he doesn’t care if I also lost my ass on a well: hi sole concern is his profit margin. If he can use as much energy as his products produce he doesn’t care if he’s receiving a lot more revenue for his product the oil and cracking costs him. IOW a bbl of oil is currently selling for $0.90/gallon and gasoline for about twice that. BTW a lot of the energy used in refining comes from much cheaper NG then from oil.
Which explains whythe EROEI of every phase(dr illing, refining, marketing, etc) is not relevant to the DECISIONS made in the process. So even if the EROIE of the entire system is very low it doesn’t have bearing on what happens IN EACH PHASE.
IOW as long as the MONETARY value of the energy delivered (not the Btu’s) is high enough compared to the MONETARY cost of the energy input (and not the Btu’s) the process goes forward. Which takes us full circle back to what I keep saying: EROEI never has and never will be used to make investment decisions in the oil patch. It $’s in vs $’s out…not Btu’s.
Or let’s put it in your lap: when you fill your car up with gasoline do you make that decision on the basis of its EROEI or on the price per gallon? IOW if you knew the EROEI of that gallon of ExxonMobil was much better then that at the Chevron station would you be willing to pay $0.40 more per gallon for it?
roman on Sat, 12th Dec 2015 5:32 pm
Comparing fake debt money to joules is retarded. When money=joules peak oil date can be predicted.
onlooker on Sat, 12th Dec 2015 5:45 pm
Great primer Rockman on the economic issues that predominate in the production and availability of oil. So in fact peak oil will really bite when it is not so economically viable to find and produce oil for the market.
Kenz300 on Sat, 12th Dec 2015 6:04 pm
Boom…..bust………..
The banks have stopped lending……
Bankruptcy is next…………….
adonis on Sat, 12th Dec 2015 6:21 pm
thank you rockman for that explanation of refinery products how they are made your expertise on this site is greatly appreciated
shortonoil on Sat, 12th Dec 2015 6:42 pm
“Comparing fake debt money to joules is retarded. When money=joules peak oil date can be predicted.”
The petroleum industry still relies heavily on the British Engineering System of measures, so we use BTU in place of joules, 1 BTU = 1.0551 kJ. But basically that is what we do (did). We convert BTU to $s with a fairly good margin of error. Yes, the peak date can be predicted. It will be recorded as no latter than when the central banks had to stop printing huge amounts of currencies. Petroleum went through a critical thermodynamic point in 2012 so it is just a matter of how long the financial system can absorb the losses.
Stop by and check it out.
http://www.thehillsgroup.org/
shortonoil on Sat, 12th Dec 2015 7:02 pm
“The amount of capital spent to drill with those fossil fuels is typically less than 10% of the total well cost…often much less”
The Etp Model puts the energy cost of extraction at 14% of the total energy invested to extract, process and distribute the oil to the end user. The only way it could be 10% would be if we underestimated distribution energy cost. The higher use of crude by car, rather than more pipe, could be changing that percentage. But pipe construction over the last few years has probably kept up with expansion in rail? But I doubt seriously that that number could be under 12%.
http://www.thehillsgroup.org/