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Tech Talk – the numbers keep going down

Tech Talk – the numbers keep going down thumbnail

One problem with defining a peak in global oil production is that it is only really evident some time after the event, when one can look in the rearview mirror and see the transition from a growing oil supply to one that is now declining. Before that relatively absolute point, there will likely come a time when global supply can no longer match the global demand for oil that exists at that price. We are beginning to approach the latter of these two conditions, with the former being increasingly probable in the non-too distant future. Rising prices continually change this latter condition, and may initially disguise the arrival of the peak, but it is becoming inevitable.

Over the past two years there has been a steady growth in demand, which OPEC expects to continue at around the 1 mbd range, as has been the recent pattern. The challenge, on a global scale, has been to identify where the matching growth in supply will come from, given the declining production from older oilfields and the decline rate of most of the horizontal fracked wells in shale.

Figure 1. Growth in global demand for oil (OPEC MOMR )

At present the United States is sitting with folk being relatively complacent, anticipating that global oil supplies will remain sufficient, and that the availability of enough oil in the global market to supply that reducing volume of oil that the US cannot produce for itself will continue to exist.

Increasingly over the next couple of years this is going to turn out to have created a false sense of security, and led to decisions on energy that will not easily be reversed. Consider that the Canadians have now decided to built their Pipeline to the Pacific. The Northern Gateway pipeline that Enbridge will build from the oil sands to the port of Kitimat.

Figure 2. Route for the Northern Gateway pipeline (Northern Gateway )

The 731 mile long pipeline will carry 525 kbd to the port, and a twin pipe will carry some 193 kbd of condensate back to Bruderheim to help in the processing of the initial crude. It will, sensibly, move the oil that was to have come down through the Keystone pipeline to American refineries instead to tankers out to the Canadian coast, where it will be shipped to Asia to meet their growing demands. Given the investment in the pipe, infrastructure etc once this oil is committed to that market and the US will not be able to gain that supply back when it is needed in a few years.

There is a secondary impact to the opening of that market that may not be evident for a little time, but it something that the Russians discovered after the gas pipeline connected Turkmenistan to China. Suddenly there is a second market for the product, and producers are no longer tied to having to accept the price that the sole purchaser is willing to pay. At the moment, when there is a sufficiency of oil, that is an incidental, with significant impact only in improving the economics of the oil sand operations, but since it now ties the American refineries that would have received this oil more closely to the Venezuelan production it now receives (a somewhat less reliable supplier) this change remains as something of a future concern. It is not likely, in itself, to initially change the price of oil much ( a minor increase) but it will change the names and nationalities of those that profit from the trade.

The problems that the Keystone pipeline had are, to a degree, a function of the lack of concern over the supply of oil to the American market. As long as oil production continues to increase, from the Bakken and Three Forks in North Dakota, and the Eagle Ford in Texas, then there is no clear evidence for concern. But those wells are cumulatively starting to reach peak production, and the next shales on the list (the Spearfish and the Tyler) don’t hold the potential to match the gains that have been achieved to date. Particularly this is when, as the North Dakota DMR notes, the wells see an average decline of 65% in the first year.

 


Figure 3. Typical Oil production from a well in the Bakken:Three Forks region of North Dakota (ND DMR Oil and Gas Division )

The projections that gains in production continue thus rely on a continued high level of drilling and production with a defined rig count required having been estimated, and an assumed sustained level of production even beyond the time that the “sweet spots” start to disappear.

 


Figure 4. Projected production from the Bakken:Three Forks formations, assuming well productions are sustained and that the rigs are available. (ND DMR Oil and Gas Division )

At the end of June, 2014 the rig count in North Dakota is less than 190 (DNR says 189, but Kirk Eggleston notes that some 15 of these are moving, so that the real number is 173, a bit less than 225. That suggests that peak production may be delayed, and lowered from 1.75 mbd down to around 1.4 mbd. This reduction in short-term supply will have less impact in the US than elsewhere since it will be used to release oil that the US would otherwise have bought to the world market, but less than anticipated, and at a slower rate than expected. (Note that Eagle Ford production growth rate is also slowing and that this also affects OPEC projections which anticipates that US oil production will grow some 950 kbd this year).

At the same time, as I have noted in an earlier piece the reliance of many models of future oil supply have focused on Iraq as the next major supplier to sustain growth in production, even as other suppliers decline. But those projections are increasingly obsolete. It is unrealistic to expect the oil export business from Iraq to be sustained and continue to grow in the face of the developing civil war. The nature of the conflict makes it difficult to see how it can be easily resolved, and particularly if the country becomes divided, then the oil pipelines become a target of opportunity to attack the financial underpinnings of the different sectors. It is likely that the pipeline from Kurdistan into Turkey will carry increasing volumes up to Ceyhan and thence to the world market, under better security, given that does not now venture into Sunni territory, but the vulnerabilities likely remain.

The result of these declines in anticipated production (not to mention Libya, the Sudan’s etc) is likely to become evident within a year, while demand continues to grow. The balance need change only a small amount however, for the consequences to be dire. As Mr. Micawber said in “David Copperfield”:

Annual income twenty pounds, annual expenditure nineteen [pounds] nineteen [shillings] and six [pence], result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

 

 

Bit Tooth Energy



36 Comments on "Tech Talk – the numbers keep going down"

  1. Plantagenet on Mon, 30th Jun 2014 9:54 am 

    Good observation that Obama’s idiotic refusal to approve the Keystone has motivated Canada to instead sell that crude to Asia. Of course, Obama believes the USA is on the road to energy independence, so one can’t expect him to realistically understand the peak oil problem.

  2. J-Gav on Mon, 30th Jun 2014 10:49 am 

    Keystone isn’t the only way Canadian crud (oh sorry, I meant ‘crude’)can make it to the U.S. A Canadian energy offical recently pointed this out in stating that “What doesn’t get to the States by pipeline will get there by some other means.” So, no Plant, all of Canada’s crud (Damn! Just can’t get that spelling right …) will not be going to China.

  3. Plantagenet on Mon, 30th Jun 2014 11:45 am 

    3-Gav

    Your suggestion that “all of Canada’s….crude” might be bound for China is silly. The problem isn’t that ALL of Canada’s crude will go to China—the problem is that when peak oil hits hard the US is going to need all the crude from Canada that it can get.

  4. rollin on Mon, 30th Jun 2014 11:48 am 

    Oil prices will keep rising until demand destruction occurs and things rebalance. Oil consumption has been higher than production for decades. Not sure how that works, probably substituting other fuels.

  5. Northwest Resident on Mon, 30th Jun 2014 11:51 am 

    Plant just can’t resist the urge to insult and blame Obama. It is grotesque to witness Plant’s uncontrollable urges splattered on this forum — kind of like being forced to sit next to an old man on the bus who can’t control his bowel movements. Plant, you are too simple-minded to understand that there are a million considerations and a whole army of high-ranking opinions that go into the final decision on Keystone, and that in fact the decision is SO complex that it really isn’t even Obama’s decision — he’s just the one whose face and name gets put on it.

    The overall point of the article is very clear and relevant. Growing demand cannot be met. We are barely holding the line right now on worldwide production and demand for that oil. More demand will directly translate into “not enough supply” in the very near future.

    And don’t tell me that “demand” will decrease when the price of increasingly unavailable oil goes up. Yeah, I know, that’s what the economists say. But “demand” for oil in the real world is “I gotta have this much oil and I need it today no matter what the price is”. That is “REAL” demand. Just like demand for air and water — it doesn’t matter how much air and water cost, you gotta have them, and you need them now. Same with oil.

    The article mentions that demand will exceed supply within the next year. Sounds about right to me. When that happens, look for a whole chain of nasty events to start firing off, each one acting as a catalyst to the next.

  6. Lore on Mon, 30th Jun 2014 11:57 am 

    A lot of the oil won’t be going to the US in any case regardless of which line is built. As it stands now the KXL has the better chance of ever becoming a done deal. Too many obstacles still exist for the NG line to ever be completed.

    Those in favor of the KXL should really put their thinking caps back on. If they were so concerned about the US getting enough Canadian oil they’d oppose the line. Keeping the CN oil reserves land locked for midwest refineries. Allowing only more expensive rail shipments to be exported. across the planet.

  7. Davy on Mon, 30th Jun 2014 11:58 am 

    Plant when PO hits should be past tense so repeat “peak oil dynamics hit 10 years ago and we have been on a undulating plateau of paint thinner, moonshine, road tar, and fantasy refinery gains ever since. Plant, I suspect when we start seeing liquid fuel shortages in North America it will be in the interest of Canada, US, and Mexico to work with each other. It is not like we can decouple our continent from our neighbor’s problems. China will not be an issue I can assure you. I can also assure you when we start experiencing food insecurity from liquid fuel shortages China will not be receiving her daily US rations of corn, soy, pork, and beef. Walmart will not be getting Chinese plastic junk so trade will drop off remarkable. A side effect of this will be a sharp drop in the stock price of waste management companies because the landfills will be idle.

  8. Plantagenet on Mon, 30th Jun 2014 12:01 pm 

    @Northwest Resident

    Please spare us your fantasies about bowel movements. There are some things best kept to yourself.

  9. Plantagenet on Mon, 30th Jun 2014 12:04 pm 

    @Davy

    Yes, PO in CONVENTIONAL oil production occurred several years ago. No, PO in UNCONVENTIONAL oil production still hasn’t occurred.

    Once PO really starts to hit, then the US is going to need all the oil it can get. Why pretend otherwise? For instance, China is doing all it can to lock up future global oil supplies for China. Why shouldn’t the US be doing the same thing?

  10. Plantagenet on Mon, 30th Jun 2014 12:06 pm 

    @Lore

    You missed the entire point of the discussion. Rather than Canadian oil being “locked up” as you are fantasizing, Obama’s opposition to the Keystone pipeline has resulted in Canada building a pipeline to the west coast to begin large scale export of their oil to China.

  11. Lore on Mon, 30th Jun 2014 12:23 pm 

    @Plant

    As usual it’s you that misses the point.

    1) It’s not “either/or”. The Enbridge Northern Gateway Project is quite a separate initiative to that of Keystone XL. It was first proposed back in 2006.

    2) There are still a lot of hurdles to overcome before it becomes a reality, if it does.

    3) Both of these projects are export lines. Meaning, refined products sold off the NA continent.

    As usual you’re just being fooled by big oil interests, your zealotry for the right and your anti-Obama hatred.

  12. Northwest Resident on Mon, 30th Jun 2014 12:23 pm 

    Plant — There you go again, making totally false accusations, not just against me but against Lore also. You just aren’t very bright, are you?

  13. paulo1 on Mon, 30th Jun 2014 12:57 pm 

    Northern Gateway will not be built. repeat…Northern Gateway will not be built. Last week Natives given veto power by Supreme Court on projects crossing non-treaty land. They don’t want Northern Gateway, therefore, it won’t happen.

    Paulo

  14. Plantagenet on Mon, 30th Jun 2014 1:16 pm 

    @Paulo.

    I hope you are right about no Northern Gateway Pipeline.

  15. Dave Thompson on Mon, 30th Jun 2014 1:27 pm 

    Export of tar sands bitumen anyplace starts and ends with an EROEI of maybe EIGHT to one? Canadian “crude” is barely profitable as it is add on shipping to china what is the EROEI?

  16. J-Gav on Mon, 30th Jun 2014 3:19 pm 

    Plant- Do you actually read posts here before responding? I never suggested ALL of Canada’s oil would go to China – you did! Well, you said Asia, but that means essentially China, doesn’t it? And, in case you missed my other point, it’s not crude, it’s crud.

  17. Steve on Mon, 30th Jun 2014 4:22 pm 

    As far as U.S presidents are concerned I am pretty disgusted with all of them from the time they were aware of peak oil…instead of pushing the truth they have all been prostitutes to the major corporations! Who gives a shit if you get re-elected…History(if there is one) will have them all as idiots…As well as the baby boomers…It is hard to convince wealthy Westerners what is going on because even if they do believe it or get it….they think it will be on someone else and not them and pretty far into the future…

  18. bobinget on Mon, 30th Jun 2014 4:40 pm 

    An ad hominem argument is one that is used to counter another argument; but, it is based on feelings or prejudice, rather than facts, reason or logic. It is often a personal attack on one’s character rather than an attempt to address the issue at hand. This type of fallacy can often be witnessed in usage in individual debate, in court or in politics. Often, the attack is based on one’s social, political, or religious views, or is based on lifestyle choices of the person being attacked using ad hominem.

  19. bobinget on Mon, 30th Jun 2014 4:54 pm 

    Saudi Arabia could realize an additional 350,000 B p/d by simply replacing oil fired desalination with PV solar power.
    http://kacstwatertech.org/eng/presentatoins/Day1/Session_1_1/Turki.pdf

    TEMPE, Ariz., Jun 26, 2014 (BUSINESS WIRE) — First Solar, Inc. FSLR -0.41% today announced it has received board approval from the Overseas Private Investment Corporation (OPIC), the U.S. Government’s development finance institution, and IFC, a member of the World Bank Group, for financing to support construction of the 141MW(ac) Luz del Norte solar power plant in Chile’s Atacama Desert. The loans, which are expected to close later this summer, clear the way for First Solar to proceed with construction planning at the site, which is near the city of Copiapo. Terms of the deals were not disclosed.

    The OPIC board approved a loan of up to $230 million; the IFC board approved a $60 million loan.

    The Luz del Norte project is the first of several projects First Solar has in its regional development pipeline, and will be the company’s initial project to start construction in Chile. The Chilean government’s National Energy Strategy includes expansion of the country’s renewable energy capacity to 20 percent of its total generated power by 2025. Energy from Luz del Norte will be supplied into the Chilean Central Interconnected System, contributing significantly towards this goal.

    “The Latin American region has a growing need for innovative and efficient energy solutions right now,” said Tim Rebhorn, Senior Vice President, Americas for First Solar. “This investment support from OPIC and IFC is instrumental in bringing the project in Chile to life.”

    Chile’s Atacama Desert receives some of the planet’s steadiest concentrations of direct sunlight, presenting ideal conditions for solar power generation. Widespread utilization of this tremendous resource is relatively new, and Luz del Norte represents an important advancement for development of solar energy in the region.

  20. Kenz300 on Mon, 30th Jun 2014 6:13 pm 

    Climate Change is real and will impact all of us.

    It is time to transition to safer, cleaner and cheaper alternative energy sources.

    Fossil fuels keep getting more expensive and cause environmental damage.

    Alternative energy sources get less expensive every year.

    ————————

    How Fossil Fuel Interests Attack Renewable Energy

    http://www.renewableenergyworld.com/rea/news/article/2014/05/how-fossil-fuel-interests-attack-renewable-energy

  21. shortonoil on Mon, 30th Jun 2014 7:00 pm 

    The US has already begun the process of selling its LTO to the rest of the world. LTO’s ability to produce transportation fuels is limited to nil. That situation will worsen as the pressure in condensate fields falls, and the production becomes increasingly lighter. As of 2012 the cost of production began to increase faster than the price. That is the phenomena that will ultimately end the oil age. Its effects are still small, but will become increasingly apparent as the decade moves on. The squeeze on margin will limit Cap Ex, and reduce E&D expenditures. As a consequence many of the reserves that look attractive today won’t be in the future. That includes shale, extra heavy, ultra deep water, and much of the bitumen deposits.

    Petroleum is essential to the powering of the world economy. With the quality of petroleum falling economic activity is falling with it. Falling economic activity will only aggravate the political unrest that is now threatening many of the world’s producers. Falling economic activity will also lessen US demand for Canadian production. US petroleum consumption has already fallen from 21 mb/d to about 18.5, and this trend will continue into the future. Whether demand decline will outpace source decline depends on geopolitical events that are unpredictable. But one thing is for sure, we are entering into the most volatile period that the oil age has ever known.

    http://www.thehillsgroup.org/

  22. Plantagenet on Mon, 30th Jun 2014 8:37 pm 

    @ 3 GAV

    Do you actually read posts here before responding? I never suggested ALL of Canada’s oil would go to Asia – you did —you said it would all go to China!

    AND, I hate to break it to you, but Asia is not the same as China.

    —————-
    @Steve

    Your assumption that “American presidents are aware of Peak oil” isn’t supported by the evidence. Obama, for instance, spent a great deal of 2012 talking about US energy independence and the 100 years of natural gas supplies we supposedly have thanks to fracking, when both are patently improbable.

  23. Makati1 on Mon, 30th Jun 2014 8:50 pm 

    As I see it:

    First: The tar sands of Canada and the oil left in Mexico are both part of the NAU plans. The North American continent will likely become one political unit under a ‘dictator’ in the near future. That is, IF the US cannot get a war started soon.

    Second: Look for an avalanche of Executive Orders in the next 30 or so months as Obama does not have to run again, assuming that there is an election in 2016. He is going to finish the Police State* and be a dictator in all but name by then. If there is an election, the next ‘president’ will be even worse. Wait and see.

    *In 1930s Nazi Germany, if I understand correctly, you had to have ‘papers’ and permission to go anywhere outside of your town and you had to show them anytime you were stopped by the police, anywhere. How close is the US to that today? You are being tracked with your cell phone, recorded and watched 24/7/365(6). They are already trying to decide between a chip implant and an National I.D. card you will be required to carry. Or both.

    No? Why not?

  24. Northwest Resident on Mon, 30th Jun 2014 9:41 pm 

    Plant — You’re making the mistake of thinking that what the president says or doesn’t say is reflective of what he does or doesn’t know. What’s he supposed to do — come out and give a speech and explain to everybody that we’re running out of oil. You know — crash the markets, set of panic, create chaos? No. The president and all responsible elected and unelected officials are doing exactly what you see them doing — projecting confidence, assuring the nervous masses that all is well, trying to keep the good ship BAU floating for another day. But the U.S. Military certainly knows about peak oil and all its ramifications, as do all the oil and industry execs. If they know, the president knows. Anybody with a brain could follow the logic of that, except for you obviously. They know, Plant, they know. They’re just not telling you.

  25. Mike999 on Mon, 30th Jun 2014 9:50 pm 

    Austin TX is now paying 5 cent per kWh for solar energy. SOLAR is now cheaper then ALL Other Energy sources.

    1) You should start to see Geometric growth in Volts and EV’s.
    2) You should start to see corporations smart enough to do the math, to build their own solar energy generation. As it will Stop Peak Demand Hour Price Speculation, and save these companies a Fortune.
    3) Home Solar also becoming price competitive.

    New Tar Sand funding has DRIED UP.
    The Tar Sands are DEAD.

  26. Plantagenet on Mon, 30th Jun 2014 9:57 pm 

    @Northwest Resident

    You have a simple-minded faith that the president “knows” about peak oil, even though his public statements and actual actions show that he doesn’t have a clue.

  27. Steve on Mon, 30th Jun 2014 10:20 pm 

    Wait a minute hold on it appears this here peak oil thing has been a big joke on all of us….we can all go back to bed! Here is the book to explain it all http://www.amazon.com/Myths-Lies-Wars-William-Engdahl/dp/3981326369….wow that was a close one….

  28. GregT on Mon, 30th Jun 2014 11:22 pm 

    Plant,

    Sorry, but it is you that ‘has a simple minded faith’.

    You have repeatedly exposed your inability to comprehend that the world is a far more complicated place that what you believe. Of course Obama is aware of peak oil, it has been a topic of discussion for over 40 years. We learned about it in school back in the 70s.

  29. Northwest Resident on Mon, 30th Jun 2014 11:45 pm 

    Plant — It’s good to have your point of view on this forum, even if more often than not you just don’t get it. I guess this conversation is done.

  30. Dubya on Tue, 1st Jul 2014 12:30 am 

    As another BC resident I think I can agree with Paulo. Despite approval the earliest a pipeline could be operational is about 2018. Unfortunately there is a greedy premier ( wants some money for the risk) about 30 native bands with effective veto power, difficult terrain poor access and a short season. Picture building the Alaska pipeline with 1/10 the population and oil 50 times as expensive. Did I mention that of the 2000 or so submissions to the review about 2 were in favour? I suspect if the Feds force this there will be a “rotation” only because it is bad to say “evolution” while the canada & US security forces are datamining for that word.
    If enbridge had not gysered into the Kalamazoo they might have had a 5% chance. But there are too few people left who can be persuaded by the “jobs” bait (yep, we’ll hire local Indians to weld pipe…) at the risk of losing the
    fisheries.

  31. Energy Investor on Tue, 1st Jul 2014 3:49 am 

    Well folks,

    We in lil’ ole New Zealand are paying 3 cents more for petrol today…so that 43% of our petrol price goes in one sort of tax or another.

    That is partly to pay for roads and partly because of the need to reduce demand for oil.

    So we pay NZD2.20 or USD1.94 per litre.

    Our politicians believe yours when they say there is plenty of oil…or do they?

  32. simonr on Tue, 1st Jul 2014 6:20 am 

    Whether Obama knows or not, is ignorant or not, he signs the papers.

    Whoever Signs things into law HAS to take responsibility for these actions.
    Similarly with pronouncements. Thats just the way it is, Authority and Responsibility go together.

    Also I dont think we can credit someone with knowledge because they do NOT acknowledge it, that seems a tad obtuse.

    Caveat … I am completely disinterested in Obama.

  33. Northwest Resident on Tue, 1st Jul 2014 10:18 am 

    simonr — All decent points that you made. But the main issue here is that we have a “reality” being pumped through the mass media, the mouths of politicians and through numerous other channels, and that “reality” denies the imminent threat or even the existence of Peak Oil. Not only is it denied, the promise of oil gluts, American energy independence, shale technological improvements that give us access to trillions of barrels of “oil” are all added to the illusion that is meant to replace the grim reality.

    Given all the above, a lot of people who are trying to connect the dots are looking at the total disconnect from reality that the politicians and elites and talking heads promote, trying to reconcile what they’re being told with the directly conflicting story line found on this and other niche websites or other news sources.

    And those people ask themselves, does the president (or other politicians or corporate execs or other so-called “leaders” in our society) just not KNOW that we are facing serious issues with rapidly approaching energy shortages, or is he lying to us?

    The answer is, he is lying to us, as are all politicians and all corporate execs and all elites. He knows. They all know. Their job is to maintain calm, peace and order and to do or say nothing that would disturb that peace or order, NOT to tell us or give us any hint that the end of life as we know it is rapidly drawing to a close.

    To speculate or to assert that the president doesn’t know about peak oil or the consequences of peak oil is just so absurd and simple-minded that it has to be called out for the utter idiocy that it is.

  34. simonr on Tue, 1st Jul 2014 11:53 am 

    Hi NR

    I am inclined to believe that he knows PO exists, but what date he puts on it, and how serious he thinks it is, I cannot answer.
    We on this forum, by our very nature, see this light at the end of the tunnel as the on coming train it is, I sometimes have to remember there are contrary points of view to mine (naturally they are all wrong 🙂 )

  35. Northwest Resident on Tue, 1st Jul 2014 12:34 pm 

    simonr — I hear you! The one thing that always stands out to me, though, is the undeniable and fully documented fact that the U.S. Military is highly aware of the dangers presented by peak oil, and that they are budgeting funds to deal with those security threats, moving troops and equipment, training, preparing for mass insurrection. And not just the military — homeland security, special police forces, militarization of law enforcement. And not only that, Obama has issued proclamations (in 2010) that the U.S. Military IS AUTHORIZED for the first time to take whatever steps necessary to protect federal property and to aide and assist civilian law enforcement and/or to put down unrest and riot — ON American soil. How could Obama, a very bright and accomplished individual (regardless of personal feelings toward him) NOT realize that the shit is about to hit the fan when all this is going on??? It defies logic to believe that Obama is “clueless” about peak oil, doesn’t it?

  36. simonr on Wed, 2nd Jul 2014 1:05 am 

    Hi NR

    I am not aware of these things (I live in SW France and we have our own political idiots to worry about).
    I know Barak Obama is a bright cookie.
    He does however from the outside strike me as someone out of their depth.
    I do worry that his re-enforcing of an entitlement culture in the USA could actually remove one of your strengths, this being that to a large extent the people of the USA do not expect or want much from a government (in our current collapse, most governments are less and less able to deliver)

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