[ROCKMAN]

Sum - "1.6%? So you are claiming that the ERoEI of US oil production is 62.5:1?". Not sure if that 62.5:1 is close or not. But as I've pointed out many times the direct consumption of deisel used in drilling is much less than many assume. I actually sign the deisel invoices for all the wells my company drills. From a cost basis the fuel is less then 10% of the total well cost...some times a good bit less.

So let's talk Btu's. It varies a bit but a 25% yield of diesel from a bbl of oil is not uncommon. IOW it takes 100 bbls of oil to make 25 bbls of diesel. Of course a lot more Btu's come from those 100 bbls of oil...like gasoline, bunker fuel, etc. But we'll ignore that or now.

So lets say I burn 300,000 GALLONS of diesel to drill a well...typical of what I drill. That's about 7,200 BBLS of diesel which would be cracked from about 30,000 bbls of oil. So if the well produces 300,000 bbls of oil that's roughly an EROEI of 10...but using only the Btu's of the diesel. Again (very roughly) the Btu's from those bbls represents something closer to 4X that EROEI.

Of course there's the Btu's used to build the drill rig, etc. But that has to be amortized over the many wells that the rig will drill during its life time. But another issue: that rig wasn't built to specifically drill my wells. So in one sense those Btu's are like a "sunk cost" and don't really apply to my wells.

And back to the basics: drilling decisions have never and will nevertnevert be based upon EROEI. They are based upon economic analysis. Back when oil was $100/bbl most wells couldn't meet economic justification at an EROEI below 5 or 6. An now that oil is $50/bbl or less the minimum drillable EROEI is closer to 12.

Long before the EROEI gets below 3 or so nearly all drilling for oil will cease because the VALUE (not the Btu content) of the production would be less then the cost (and not the Btu's consumed) of a well.

[ennui2]

Long before the EROEI gets below 3 or so nearly all drilling for oil will cease because the VALUE (not the Btu content) of the production would be less then the cost (and not the Btu's consumed) of a well.

...and...do you see that happening, as ETP says, within 4 years?

[kublikhan]

1.6%? So you are claiming that the ERoEI of US oil production is 62.5:1? That cannot be possibly true.

No. I am saying the direct diesel consumption used by the oil industry is very low: 1.6% of their production. Rockman has stated a similiar position many times. This is not the same as EROEI. When calculating EROEI, there are many indirect energy costs you have to add, depending on what boundry conditions you draw. For example: The energy used to make the steel, well casing, tools, transportation, etc. All of these will obviously lower the EROEI. However much of that energy doesn't even coming from oil. For example: coal is used to make steel. So saying something ridiculous like: "The Etp model accounts for the rise in demand. It is coming mostly from the oil industry itself!" Is nothing but pure BS.

I am saying that most of the recent demand increase was from the oil industry, and you are saying that most of the oil produced does not make diesel. That is a total non sequitur. You are comparing apples and oranges by using the phrase "most of it" to mean something very different than I meant.

I already debunked this in an earlier post. Rockdoc and Rockman have as well. Did you miss the part where the number of drilling rigs has declined substantially? Oil sector activity is down substantially this year and last year from it's peak. And yet US oil consumption still grew. I know you won't take my word for it. So here are some more facts for you:

Consumption
Total U.S. liquid fuels consumption increased by an estimated 290,000 b/d (1.5%) in 2015. Liquid fuels consumption is forecast to increase by 170,000 b/d (0.9%) in 2016 and by an additional 90,000 b/d (0.5%) in 2017.

Motor gasoline consumption is forecast to increase by 150,000 b/d (1.7%) to 9.31 million b/d in 2016, which would make it the highest annual average gasoline consumption on record, surpassing the previous record set in 2007. The increase in gasoline consumption reflects a forecast 2.3% increase in highway travel (because of employment growth and lower retail gasoline prices) that is partially offset by increases in vehicle fleet fuel economy. EIA forecasts that gasoline consumption in 2017 will be close to the 2016 average.

In 2015, jet fuel consumption increased by an estimated 70,000 b/d (4.7%). Jet fuel consumption is forecast to increase by 30,000 b/d (2.0%) in 2016 and remain unchanged in 2017, with improvements in average airline fleet fuel economy offset by growth in freight and passenger travel.

Consumption of distillate fuel, which includes diesel fuel and heating oil, is expected to fall by 100,000 b/d (2.4%) in 2016, after falling by 60,000 b/d (1.5%) in 2015. Falling distillate consumption in 2016 is the result of relatively warm winter temperatures, reduced oil and natural gas drilling (which uses diesel fuel in its operations), and declining coal production.

U.S. Petroleum and Other Liquid Fuels

[rockdoc123]

WTF are you talking about? Natural gas is fast replacing coal for power plants. Keeping the lights on is critical to maintaining BAU. It's also often used for home-heating, keeping people from freezing in the winter. And you just casually discount its value to civilization?????????????????????

Yes seems like a strange comment. Any oil production system be it onshore or offshore that I have been involved with that produced any amount of associated natural gas used it to power the facilities. That offsets fuel oil that would normally be used. In Canada natural gas heating is the norm I think in the US it makes up about half of the homes needing heating or cooling. Mexico is currently on a path to supply much of their electricity from Co-gen facilities. Saudi Arabia has been trying to convert much of their fuel oil consumption to natural gas but are currently limited by the amount of natural gas they have on hand (this was why there was a push for exploration in the Rub Al Khali). On a global basis based on BTU output natural gas production accounts for 40% of the total BTU output when coal is excluded. Natural Gas is by no means insignificant and especially when you consider that it’s use for electricity or heating offsets the use of oil which frees the latter up for other uses (i.e. transportation). As a direct transportation fuel LPG and NGL’s have made some penetration into the market and are projected to become more and more important in Asia and Europe. The total number of natural gas vehicles increased from about 9 million in 2008 to close to 20 million in 2014 which certainly suggests it is becoming more important as a fuel in certain parts of the world. Methane hydrates have not received attention simply because there is so much cheap natural gas around as it is.

[ROCKMAN]

k - "...do you see that happening (EROEI less the 5 or 6), as ETP says, within 4 years?" It's a bit of a mind twister but think about it: oil @ $50/bbl and minimum required EROEI about 12 and oil @ $100/bbl and minimum required EROEI around 5 or 6. So at what price would oil have to be to get for down for EROEI to be half of 6...about 3? Assuming drilling costs and reserve additions are roughly the same as today: about $150 to $200 per bbl..more or less. Such very high oil prices are possible - we've already seen it happen back in '08. But they didn't last long.

So again it's just a very rough gauge but I doubt we'll ever see the EROEI below 5 for an extended period of time. But here's a better question: how long will the current EROEI required minimum of 12 or so last? Remember what that really means: an oil project today will have to be about 2X as much oil to justify drilling as it did when oil was around $100/bbl.

Sorta explains why the number of shale wells being drilled has fallen so far: the reserves in the ground are exactly the same volume as they were 2+ years ago. Which also explains why shale wells being drilled today appear to be preforming so much better: if they didn't have that potential they wouldn't be drilled. Just like the thousands of shale wells that were drilled 3 years ago that aren't being drilled today.

IOW there has been a rough relationship between EROEI: as long as drilling costs were about the same the higher the oil price the lower value of EROEI is required.

That should really stir up an hornet's nest, eh? LOL.

[ralfy]

According to this article, both energy and oil consumption have been rising, but the growth is slowing down due to limits to growth:

https://ourfiniteworld.com/2015/06/23/b ... gy-demand/

[SumYunGai]

According to this article, both energy and oil consumption have been rising, but the growth is slowing down due to limits to growth:

https://ourfiniteworld.com/2015/06/23/b ... gy-demand/

Hi ralfy. I agree. It is obvious that we are reaching the end of growth. To some, this will be seen as some sort of outlandish proposition to be made fun of, and endless demands for data will be issued. To people who understand the cumulative effects of peak oil, this all comes as no surprise. It's been expected.

[onlooker]

Also its good to remember that we are reaching limits to growth in other resources as well

[ennui2]

There's a difference between conceding that growth is slowing and accepting a specific prediction of empty store shelves and mass panic in just 4 years.

[SumYunGai]

Babydoomer posted this link on the Etp thread:

https://www.woodmac.com/analysis/US-ups ... k-in-brief

Oilfield services recovery unlikely in 2016

Although some smaller oilfield service players are operating at (or below) true variable cash breakevens, Schlumberger has cautioned analysts against using their failure as a basis for a bottom, since their equipment is likely to end up in the hands of larger players.

Indeed, the profitability of small companies shouldn’t be expected to define the bottom of this oil service cycle. The US market is currently operating below 50% of peak activity and may never be called upon to grow production at the same pace as it did from 2012 to 2014.

The market is sending signals to the oilfield service industry: scrap equipment or run it into the ground. Halliburton estimates 25% of pumping capacity has been cannibalised beyond recovery.

This is something that BWHill, as well as many others, predicted would happen.

When an extractive industry knows that its deposit is soon going to be uneconomical to work, they will often pump the depreciation of their infrastructure. Instead of replacing a leaking pipe they'll throw a quit weld patch on it. Instead of replacing a blown tire on a fork lift, they'll run with one flat out of 5.
~BWHill

[Tanada]

EVERYONE predicted this would happen. That is everyone who knows the first thing about oil industry economics, which includes most o the folks posting n this board.

The exact same pattern happens in every industry you can name when they are in a burst bubble economy. First they lay off as many workers as they can to economize. Then they scrap the oldest least efficient equipment in their inventory. If the doldrums last long enough they cut more workers and scrap more equipment.

Look at another industry, say the Airlines just as an example. Costs go up, passenger traffic plummets what do they do? First every airline has list of aircraft in their inventory with stats on age, capacity and fuel efficiency. The least valuable aircraft upon review get sent to the desert and parked, the flight crews for those aircraft get laid of. If the recovery happens quickly those aircraft are reactivated. If the recovery takes a while then those aircraft are offered for sale, some are bought by cargo companies and some end up being parted out and scrapped.

The oil industry works the same way, drilling rates are in the toilet so lots of drilling rigs and their crews were put in storage and laid off. Things have continued at a low level long enough that to keep the working rigs operational parts have been stripped from the rigs in storage. The only thing mysterious about this is why anyone finds it surprising or thinks it was hard to predict.

[SumYunGai]

The only thing mysterious about this is why anyone finds it surprising or thinks it was hard to predict.

I agree. I certainly didn't find it surprising or hard to predict either. I think you are reading to much into my quick post.

But just to avoid people getting the wrong impression, I edited my comment above to make it clearer and more acurate. It now says: "This is something that BWHill, as well as many others, predicted would happen."

[ennui2]

You guys don't see the forest through the trees. Just because there are bankruptcies and layoffs in the oil patch does not back up ETP's predictions.

In fact, you could say they server to invalidate it should it set the stage for a future supply shortfall that leads to a price spike (which is most likely). These spikes are NOT part of ETP's narrative. The economy is supposed to keel over before oil has a chance to go up in price.

Every time oil inches upward in price it erodes the validity of ETP. The more it goes up and the longer it stays up the more ETP's simple "down and only down" logic looks idiotic.

Likewise, oil saying cheap and the economy chugging along also invalidates ETP. The low oil prices is supposed to be reflective of a lack of economic activity (aka demand destruction). That is not happening. We're experiencing marginal but steady growth instead.

[rockdoc123]

The oil industry works the same way, drilling rates are in the toilet so lots of drilling rigs and their crews were put in storage and laid off. Things have continued at a low level long enough that to keep the working rigs operational parts have been stripped from the rigs in storage. The only thing mysterious about this is why anyone finds it surprising or thinks it was hard to predict.

For those of us who were in the industry throughout several cycles that were exactly the same....too much oil, price drops (Opec involved or not), companies scramble for survival, cost cutting starts with all exploration programs, next step is layoffs, next step is postponing planned commissioning of new production, next step is looking to farmout projects inorder to gain additional cash, next step is to look at outright sale or merger. Then price comes back up and everyone begins again...commissioning is back on the schedule, companies look at acquiring low hanging fruit, exploration programs back on the books and hiring starts anew. The suggestion that equipment (drilling or service) left standing can never be used again is ludicrous. I remember numerous times companies I worked for picking up a drilling rig that had been left standing unused in a humid environment for 5 years or more. Basically replacing all the rubber bits, lubricating the rotating parts, pressure tests, steel stress tests, coat of paint and it is up and running like new. The oil industry has been through this a number of times previously and each and everyone it was thought to be somehow "different". The main risk is not equipment which actually will be cheaper to acquire out of the gates but rather a lack of experienced talent if the downturn lasts too long.

Those who cannot remember the past are condemned to repeat it - George Santayana

[AdamB]

And back to the basics: drilling decisions have never and will nevertnevert be based upon EROEI.

Zealots have no concern for the facts of the matter Mr Rockman. They only need to BELIEVE...and we're talking about people so uneducated on the peak oil topic in general that they don't know that Hubbert predicted US peak by 1950...all the way back in 1938. They only need to BELIEVE....and that requires only cherry picked information, only the history that fits that belief, and some recycled LATOC claims and they are good to go.

[AdamB]

According to this article, both energy and oil consumption have been rising, but the growth is slowing down due to limits to growth:

https://ourfiniteworld.com/2015/06/23/b ... gy-demand/

Fortunate we are then that the same industry professionals who made a lie out of peak oil consequences a decade ago don't take advice from actuaries with zero relevant training or experience in the field in question. Otherwise all of us here would be in the same boat you once were, thinking that an unemployed ambulance chaser knew any more about a highly technical and complex field than you did. He learned enough to become an honest astrologist, which means he at least learned when to run away from a bad idea. What stopped you ralfy?

[StarvingLion]

The bankruptcy of the Concorde in the beginning of 2004 (perfectly coinciding with Peak Oil) signaled the death of the Oil Industry as well. You think they couldn't find enough customers printing oil (fake money) to keep that gas guzzling Jet operating?

Any supersonic jet startup now has to cut the cost of a ticket from $20,000 to $5000. Meaning they won't be giving the oil industry any higher prices per barrel.

Where is the successor to the Concorde, Adam?

[ennui2]

The bankruptcy of the Concorde in the beginning of 2004 (perfectly coinciding with Peak Oil) signaled the death of the Oil Industry as well.

It's 2016 and both the oil and airline industries are still around.