Peak Oil is You

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Page added on March 14, 2017

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OPEC Cracks?

OPEC Cracks? thumbnail

One of my go-to analysts on oil production is former Italian oilman Leonardo Maugeri, who now works at the Belfer Center at Harvard University. In my book, The End of Doom, I cited his 2012 analysis Oil: The Next Revolution published when oil prices hovered around $100 per barrel in which he correctly predicted that they would drop steeply in the middle of current decade. Why? “Oil is not in short supply. From a purely physical point of view, there are huge volumes of conventional and unconventional oils still to be developed, with no ‘peak-oil’ in sight,” he argued. Maugeri was right: WTI oil fell below $30 per barrel in early 2016.

Last fall, the Organization of Petroleum Exporting Countries (OPEC) and Russia agreed to restrain their production (create a shortage) in order to boost prices. The Saudi Arabians had let their own production rip for the last couple of years in the hope of pushing down oil prices so low that they would bankrupt U.S. shale oil producers. Many rigs did stop drilling, but U.S. producers became much more efficient and many successfully competed with OPEC oil even at the lower prices. The recently higher prices over $50 per barrel spurred by OPEC’s supposed production restraint has been a gift to U.S. oil producers who have ramped production back up to over 9 million barrels per day.

In his latest analysis, Maugeri suggests that OPEC’s production numbers are fishy and notes that global oil demand is less than anticipated. As if right on cue, the price of WTI crude fell $50 per barrel on the day Maugeri released his new report. From Maugeri:

[W]e still need more data and elements in order to make a sound assessment of what will actually happen on global oil markets in 2017. But it’s not too early to raise a red flag: there is something wrong in the numbers that circulate globally about oil supplies. And one thing is for sure: OPEC and non-OPEC cuts are not enough to re-absorb the world’s excess supply. So, unless oil demand growth rebounds to record levels in 2017, oil prices could head for another substantial fall.

Peak oil indeed.

In any case, Maugeri does believe that era of cheap oil—sustained prices below $30 per barrel—is over, but thinks that prices will bounce between $50 and $70 until the end of this decade at least.

18 Comments on "OPEC Cracks?"

  1. Boat on Tue, 14th Mar 2017 8:18 pm 

    Wow a normal sounding assement. I would only add if the OPEC/Russian cut ends soon $35 oil might be in range.

  2. Nony on Tue, 14th Mar 2017 8:48 pm 

    Maguerri was directionally correct on his call for a big drop. I think he said to 65, not to 50. But that is a detail. He said this while other people (Dennis Coyne, etc.) were predicting 150, 175. James Hamilton ironically predicted “hundred here to stay” in JUL14, right before it started dropping. And even the futures market showed 90 or so in 5-10 years. Was a contrarian call and Leonardo got it right. And for fundamental reasons of peak oil being overplayed and of looking at previous examples (1986, etc.)

  3. Jan on Wed, 15th Mar 2017 2:45 am 

    The Oildrum mob did peak oil a huge injustice.
    Making assumptions about Saudi Arabia and Russia that were way off the mark.
    They certainly did not see Shale Oil making the impact that it did.

    So 12 years after the 2005 Oildrum peak we have global oil production 8 million barrels per day higher.
    It was obvious back in 2005, even 2010 that there were still many countries that could increase production.
    None of the Oildrum experts ever put all the data together and looked at best case scenarios.
    Some people could see that it would take only a couple of countries to delay peak oil for a decade or two.
    My bet was that Iraq would be one, which proved correct.
    My guess is oil production will struggle to increase after 2022 although I am not sure. I leave being sure to EX Oildrum writers.

  4. Cloggie on Wed, 15th Mar 2017 3:55 am 

    TheOilDrum existed between 2005-2013.

    They began lifting on the ASPO-Heinberg craze and closed shop shortly after the shale/third carbon age began. They had a good look at the data and decided that the ASPO-story of serious peak oil supply as per 2010-2015 would not materialize and that they could not wait until 2030 or (much) later for real depletion to make itself felt.

    They quietly dropped the subject, nothing to be seen here.

    The most likely scenario is now that peak oil demand will (vastly) precede peak oil supply and that fossil will be replaced by renewables, in Europe first by 2050. The transition is in full swing now in Eurasia, where America still attempts to “Make America Look Like The Fifties Again”, a daunting task with 40% and counting coloreds under your belt and a 1% “elite”, committed to anti-Euro-centric ideas.

  5. brough on Wed, 15th Mar 2017 4:19 am 

    OK The Oil Drum is now part of petroleum history and at the time it did a ‘damm good’ job of highlighting the problem of oil field depletion. Without it, shale oil would probably not have come into play as quickly as it did. Although the oildrum people could not have predicted the growth in shale oil production, they should have been able to predict the massive growth in natural gas production and NGLs. NGLs have probably contributed as much as shales oils to total liquids global growth

  6. sinnycool on Wed, 15th Mar 2017 4:46 am 

    All wrong.
    – peak conventional oil was called for and arrived
    – high prices + investment bubble drove conventional + non-conventional oil to a new peak
    – demand destruction caused the price fall below cost of production
    – non-convention hung on for investment reasons + production of conventional oil via market wars created a “glut”
    – investment in large conventional off-shore and exploration fell of a cliff
    – prices ‘normalised’ to non-Goldilocks value: too high for growth / too low to sustain investment
    – attempts to control price via collusion

  7. Cloggie on Wed, 15th Mar 2017 4:48 am 

    OPEC will crack, because even when the world is still hooked on massive fossil fuel consumption, there is for the first time a real alternative at the horizon. And then there is Paris and climate doom.

    Fossil fuel is a dead man walking.

  8. Davy on Wed, 15th Mar 2017 5:32 am 

    The Oil Drum did a great job exploring energy topics and depletion like has never been done before since Hubbert. It was the vanguard addressing decline. It also looked for solutions and reality tested potential solutions like alternatives. It made a huge impact on me. It showed me many of the peak oil dynamics that are now at play, were in play, or will be in play. We are dealing with a depleting resource undergoing change. Supply and production are not the only issue because it is also about the economic. It is about alternatives and eroi of all our energy resources and delivery systems. The Oil Drum began the discussion. That discussion is not over it has just adapted.

    We are now in economic stagnation. No one can argue with that. Debt and unfunded liabilities are excessive and dangerous. Oil is a part of that. It initiated parts of it. It is now tearing apart nations and industries with low prices. The usual response to lower oil prices with higher growth is not happening. Growth today is wealth transfer to elevated asset markets and low cost money seeking risk reward but at the public’s expense. We are in a broad malinvestment moment in our civilization manifested by moral hazard and bad debt. We are not properly investing in our future. We are gutting our future and this as we continue to destroy the planet.

    Oil is part of this because an oil based civilization is not sustainable. By its very nature as dirty and depleting oil is eroding our foundation and tearing apart our social fabric. You wouldn’t know that from watching the markets or the fake news. It is all about issues and topics of little importance to reality. We have a civilization wanting to transition away from oil but with an oil mentality. We want our cake and eat it. We want alternative to oil but to live like we do with oil. That is incompatible with the reality of a civilization maturing and facing decline on a number of fronts. Oil has done this by adapting every aspect to our culture to a basis of oil. Oil allowed us unfettered exploitation and growth of both consumption and population.

    Oil continues to deplete and our civilization is in a broad based decline. This decline is multifaceted and multidimensional. It is physical and abstract. What that means is it is systematic and self-organizing. You can’t manage something like this because you grab one area and it bulges elsewhere. Oil is right in the middle of this as a cause and as a trap. We are in an energy trap and a behavioral trap. Try to leave oil and civilization will fall apart. Greens are delusional about an energy transition. They should be talking about a transition of behaviors to collapse but that would not be a movement because that won’t sell.

    These issues were first discussed in earnest on the Oil Drum. Now there are multiple areas that discuss them. Peak oil is now mainstream. It is now considered past tense on both sides. Past tense with the cornucopians that tell us to look to the glut and the end of peak oil and to peakiest that say look at the decline of conventional oil and economic oil. I say it is at work and it is now part of a systematic destructive change and the end of civilization as we know it. It is together with climate change and systematic decay of our economy and institutions. Moral hazard and denial are part of every issue. The social narrative does not change. TV commercials are the same with cars, industrial food, air travel, and unneeded consumerism. Unfortunately all that is needed because of economies of scale and the financial reality of debt. Try to find any pessimism that addresses reality but you won’t because that won’t sell. What sells is optimism. What sells is experts goal seeking with graphs and projections of more of the same optimism. Market based capitalism and liberal democracy sell optimism to individuals that moves productive behavior that attempts to produces vital growth. Degrowth is a fringe concept of abstract thinkers. This reality cannot be changed because that is our basis and only oil makes that possible. Oil then makes all the other problems worse like climate change and bad behavior. It is a vicious trap.

    Peak oil is pure pessimism. We are now in the end game of peak oil dynamics with demand destruction, stagnation, and the flip side with the gutting of our productive abilities in the oil complex. Investments are not being made with oil as needed. Alternatives are hopelessly behind the scale curve and can never substitute for oil. Techno optimist are delusional. Their motives are good and the technology is vital but they deny the illness. They want to adapt the illness to a little bit less carbon. Green is not much better than the status quo. 1BIL people living 18th century lives is green. Behaviors have not changed one bit. Population is exploding and the planet failing. Our green movement has been coopted by the pursuit of affluence. Let’s be green and live better. Let’s fly to a Paris party and talk lower carbon hypocrisy. Let’s Al Gore this thing with a private jet and elite lifestyles. We are now going to live with less because of nature as more people want more. That can’t end well and peak oil is right in the middle. We need a new Oil Drum called Alice in Wonderland because we are all mad.

  9. rockman on Wed, 15th Mar 2017 7:41 am 

    “Without it, shale oil would probably not have come into play as quickly as it did.” Discussions of PO by anyone did not lead to the shale plays being developed. High oil prices did. Had oil stayed at $35/bbl there would have been no shale boom.

    “Although the oildrum people could not have predicted the growth in shale oil production…” They and anyone else could have predicted a surge in all oil development activity if they had predicted $100/bbl oil. That relationship was well established many decade ago: low prices = less drilling = declining production; high prices = more drilling = increasing production.

    “…they should have been able to predict the massive growth in natural gas production and NGLs.” There has been no surge in global NG production. Its increase has been steady for many years. US NG production did increase significant starting 7 years ago but was due almost entirely to the Marcellus Shale and not the oil plays.

    “The Oil Drum” did not predict anything. Individuals on TOD did. And for every prediction made there were counter arguments. No different then what we see today at In fact, other then a different site name, the discussions here are identical to what was seen at TOD. One could cut and paste 100 TOD posts here and it would be difficult to tell the difference.

    Nothing has changed in the basic dynamics of fossil fuel development and production since the Rockman started in the oil patch in 1975.

  10. Simon on Wed, 15th Mar 2017 8:10 am 

    I arrived here about 2008 and seem to remember the discussions about peak oil being the long emergency increasing nationalism and resource wars, and even more pertinently when we are at the peak of the curve we would be on the bumpy plateau.
    Whilst the verifiable peak was from conventional reservoirs, it seems to me,
    we have all the things that are calling out bumpy plateau, and a swing back to 35 would not surprise, but remember last was 24 then up to 55, if we go 35, where will the next high be ?.
    Brace yerself we are soon (decade) in for the bumpy descent.
    Yes Cloggie we are going hell for leather over here, but too late to maintain BAU, its trains/trams and NG Ferries I fear.


  11. brough on Wed, 15th Mar 2017 9:11 am 

    Rockman, I’m not sure that your, high prices=more drilling=increasing production paradigm held true in 2009. It may do today, but back then the US financial institutions were in full rescue mode (Oil drum had done a real good job on them ) and believed peak oil was upon them and collapse was imminent. Interest rates droped to zero and cash was made available for anyone going out to drill for oil. After all, in 2008 before the financial crisis, oil went to $147/barrel, but US oil production was pretty flat with most drilling concentrated on NG.
    There has been real global growth in NG and its corresponding NGLs. According to the BP stat.rev. NG has seen a 24% increase in production between 2005 and 2015. Of course this is driven by the swap of coal for NG in electricity generation in many countries. I’ve no figures for NGLs, but in decades gone by where these were flared off as useless by-products, they are now collected and used as road fuel, particularly in Asia. Have you got any stats for NGLs? I’m sure they are significant.

  12. dkb on Wed, 15th Mar 2017 9:50 am 

    You can pick up Seadrill for a dollar thirty-seven cents today.

    This is worth reading/reviewing:

  13. GregT on Wed, 15th Mar 2017 11:11 am 

    “We are now in economic stagnation. No one can argue with that. Debt and unfunded liabilities are excessive and dangerous. Oil is a part of that. It initiated parts of it. It is now tearing apart nations and industries with low prices.”

    But Davy, oil prices are not low, not when compared with prices going back for the better part of a century during non recessionary periods. In reality, oil prices are still very high at $50/bbl, just not high enough to make much of what was brought online after ’08 profitable. The glut is mainly of oily stuff that has no value to our current economic systems. IOW, the dregs. Take that stuff off of the markets and we are well on our way down the slippery slope, post peak oil.

    sinnycool hit the nail on the head with the following point, (as well as all others he made)

    “– prices ‘normalised’ to non-Goldilocks value: too high for growth / too low to sustain investment”

  14. Davy on Wed, 15th Mar 2017 11:22 am 

    Greg, oil prices are low per the range needed for a healthy oil industry and many parts of the economy in today’s economic environment. You can argue your relative historic value which is fine. We can also argue the real value of oil is huge and the real damage from oil awful. I am correct in the context of my discussion and you yours.

  15. GregT on Wed, 15th Mar 2017 11:38 am 

    ” We can also argue the real value of oil is huge and the real damage from oil awful. ”

    No argument there.

    With high oil prices, however ($50/bbl plus), cost of living has increased dramatically, standards of living overall have gone down, and debt continues to skyrocket. Globally.

    Our economic system was predicated on ~$25/bbl oil. Whenever oil has gone above that range for the last century, we have entered into economic recession. When oil has gone below that range, we have experienced periods of rapid growth and economic prosperity. Oil has much more value than $50/bbl, but not to our current economic arrangement, and not to everbody’s current standards of living.

  16. onlooker on Wed, 15th Mar 2017 11:45 am 

    Oil prices have become irrelevant in so much as we are now stuck on a downward spiral characterized by hard impediments to growth including resource shortages, too much debt, not enough net energy and unsound economic fundamentals such as a chronically weak consumer base. So that, the Oil Industry and Economy are in a death embrace pulling each other down. The oil price cannot change that trajectory

  17. Jerome Purtzer on Wed, 15th Mar 2017 7:02 pm 

    First the Capital Artists blow up the natural gas Ponzi bubble, flood the market with NG that costs more to produce than it can be sold for and then, for an encore the same Ponzi Artists blow up the shale oil Ponzi bubble. Double the bubble, double the trouble and double the fun! Let’s do it again. Oops, ran out of money. No problem. Start the presses! We will never run out of Suckers!

  18. Nony on Wed, 15th Mar 2017 8:12 pm 

    The Oil Drum was a bunch of amateur idiots who had a Dunning Kruger inability to even evaluate their own inability. Good riddance. Total joke in science or business analysis. Bunch of old underemployed losers who wrote articles instead of doing work and thought it made them important. Total fucking goobers.

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