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Peak Oil Call and Bet

General discussions of the systemic, societal and civilisational effects of depletion.

Peak Oil Call and Bet

Unread postby onlooker » Thu 08 Nov 2018, 14:24:22

I am in, on the side of Pstarr!
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Re: Peak Oil Call and Bet

Unread postby Armageddon » Thu 08 Nov 2018, 17:54:58

Count me in the peak oil is now side
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Re: Peak Oil Call and Bet

Unread postby spike » Fri 09 Nov 2018, 05:28:36

But this is a bet on some set of a) peak oil; b) a recession; c) price weakness and an OPEC production cut.
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Re: Peak Oil Call and Bet

Unread postby Tanada » Fri 09 Nov 2018, 07:22:57

Mike has a point, there have been periods when world demand slowed so much due to economic disruptions that production was cut even though capacity was still available. Most noticeable was the late 70's early 80's recession when world wide demand dropped so much that world production dropped to a lower level. Then as demand kicked back into gear starting around 1982 the production ramped up apace and by 1986 the world was producing and consuming more than ever before proving the 'peak' was an economically induced illusion.
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Re: Peak Oil Call and Bet

Unread postby Plantagenet » Fri 09 Nov 2018, 11:01:00

Tanada wrote:Mike has a point, there have been periods when world demand slowed so much due to economic disruptions that production was cut even though capacity was still available. Most noticeable was the late 70's early 80's recession when world wide demand dropped so much that world production dropped to a lower level. Then as demand kicked back into gear starting around 1982 the production ramped up apace and by 1986 the world was producing and consuming more than ever before proving the 'peak' was an economically induced illusion.


Exactly right.

There is a fair chance the world will go into recession in 2019-20, and the global demand for oil will drop as global economic activity slows. In that case a decline in oil production would be due to the economic slowdown and a concomitant drop in oil demand and have nothing to do with "peak oil."
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Re: Peak Oil Call and Bet

Unread postby onlooker » Fri 09 Nov 2018, 11:09:08

But, I think the situation going forward is different now than ever before. The Etp price predictions did not pan out. But, does that mean that the theory underlying it was wrong? Maybe not. If indeed the EROEI is falling and thermodynamics is insuring that it cannot improve, then we have a situation whereby counting barrles or total world oil production might at this very moment not be telling the full story of what is going on. Because, if indeed the rest of the Economy is subsidizing or being cannibilized by the Oil indistry, this will allow production to continue roughly the same but it will instead be reflected in lower demand and economic disruptions. Is rampant lending to the Fracking Shale Industry of the US a sign that this cannibilization is indeed occurring already? I am not sure about the answers to all this but I am trying to understand and do believe that for various reasons including responses to CC, the Oil Industry will be in fits and starts producing less Oil going forward worldwide.
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Re: Peak Oil Call and Bet

Unread postby ROCKMAN » Fri 09 Nov 2018, 11:38:21

Looker – “If indeed the EROEI is falling and thermodynamics is insuring that it cannot improve”. As explained in detail many times the EROEI of global oil development INCREASED significantly as a result of the dramatic decrease in oil prices several years ago. Of course, as oil prices have increased the EROEI has also increased. As long as folks continue to ignore the dominant effect the price of oil has on the EROEI they’ll never understand the true complexity of the dynamic.

As far as the current bet on global peak oil I doubt anyone here will be alive when a sufficient amount of time has passed to convincedly prove the wager correct or not.
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Re: Peak Oil Call and Bet

Unread postby marmico » Fri 09 Nov 2018, 12:01:37

The Etp price predictions did not pan out. But, does that mean that the theory underlying it was wrong?


Really. The ETP Bozo's oscillating theory when he was a deflationist [hyperinflationist] said that the price of WTI will be $2 [$550] by January 1, 2021.

BW Hill is a retard.

Now spike (Michael Lynch) has outlasted all the peak oil doomtards. Let's try Campbell/Laherrere in 1998, Matt Simmons in 2005, etc. for starters. I'm sure MIke can provide the list for all the doomtards from The Oil Drum (2005-2013).
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Re: Peak Oil Call and Bet

Unread postby aspera » Fri 09 Nov 2018, 13:00:07

Rockman wrote: Looker – “If indeed the EROEI is falling and thermodynamics is insuring that it cannot improve”. As explained in detail many times the EROEI of global oil development INCREASED significantly as a result of the dramatic decrease in oil prices several years ago. Of course, as oil prices have increased the EROEI has also increased. As long as folks continue to ignore the dominant effect the price of oil has on the EROEI they’ll never understand the true complexity of the dynamic.

I'm confused here Rockman. I've followed your Peak Oil Dynamics arguments for some time and find those insights useful. But I do not understand your own understanding of EROEI. EROEI is, by both intent and it's very formulation, a metric that removes price from the calculation. (Energy returned on dollar invested, an ROI formulation, would follow your logic, but that is not EROEI). Thus, isn't your argument confusing correlation with causation?
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Re: Peak Oil Call and Bet

Unread postby Outcast_Searcher » Fri 09 Nov 2018, 13:27:17

Tanada wrote:Mike has a point, there have been periods when world demand slowed so much due to economic disruptions that production was cut even though capacity was still available. Most noticeable was the late 70's early 80's recession when world wide demand dropped so much that world production dropped to a lower level. Then as demand kicked back into gear starting around 1982 the production ramped up apace and by 1986 the world was producing and consuming more than ever before proving the 'peak' was an economically induced illusion.

I'm with you and spike on this. Betting any credible source says global oil production dips for one year is a FAR different thing than being able to credibly claim peak oil occurs.

When I saw the OP (and pstarr's original challenge to Cog), I thought, "How in the hell would they DEFINE 'peak oil', much less be confident in the call, without waiting 5 or 10 years to be reasonably sure?"

This, IMO, is more like a short term bet on recession. That metric should be popular with pstarr and the doomers who like to call economic doom quite frequently (and persistently wrongly), BTW.
Given the track record of the perma-doomer blogs, I wouldn't bet a fast crash doomer's money on their predictions.
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Re: Peak Oil Call and Bet

Unread postby kublikhan » Fri 09 Nov 2018, 16:08:53

aspera wrote:I'm confused here Rockman. I've followed your Peak Oil Dynamics arguments for some time and find those insights useful. But I do not understand your own understanding of EROEI. EROEI is, by both intent and it's very formulation, a metric that removes price from the calculation. (Energy returned on dollar invested, an ROI formulation, would follow your logic, but that is not EROEI). Thus, isn't your argument confusing correlation with causation?
Look at the rig count data. The number of rigs drilling for new oil fell sharply as the oil price plunged. That means less diesel(energy inputs) being poured into oil production. yet global oil production(energy output) has continued to increase.

year rigs global oil production(million barrels per day)
2018 2202 100.1
2017 2029 98.1
2016 1593 97.4
2015 2337 97.0
2014 3578 94.1
2013 3412 91.6
2012 3518 91.0
2011 3465 89.0
Worldwide Rig Counts - Current & Historical Data

International Energy Statistics

Short-Term Energy Outlook
Last edited by kublikhan on Fri 09 Nov 2018, 17:08:55, edited 1 time in total.
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Re: Peak Oil Call and Bet

Unread postby onlooker » Fri 09 Nov 2018, 16:42:46

Aspera, the barrels do not tell you the energy balance between energy inputs and energy output. And notice that the rig count for new oil dropped. That is what Short has been saying, that new production is being neglected or in the parlance of the Oil Industry R&D Research and Development. Why? Because only so much lending can be doled out and because, the flow rate must continue to service the voracious world economy. So, basically sacrificing tomorrow for the sake of today.
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Re: Peak Oil Call and Bet

Unread postby kublikhan » Fri 09 Nov 2018, 16:53:31

onlooker wrote:Aspera, the barrels do not tell you the energy balance between energy inputs and energy output. And notice that the rig count for new oil dropped. That is what Short has been saying, that new production is being neglected or in the parlance of the Oil Industry R&D Research and Development.
That is not what the data says onlooker. It says energy output increased(more oil) while energy input decreased(less rigs drilling). IE, EROEI increased, not decreased as shortonoil claimed.
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Re: Peak Oil Call and Bet

Unread postby kublikhan » Fri 09 Nov 2018, 17:20:52

In my recent Oil Production Vital Statistics post, commenter rjsigmund posted a link to this EIA update on shale oil production efficiency, which in my opinion contains some astonishing data on how the industry has drilled better and better wells, year on year, for a decade. US production is heading higher.

Figure 4 shows how drilling and production efficiency has risen year on year for a decade. When the frackers first drilled, the Bakken wells produced 150 barrels per day initially. By 2017, that had grown to near 700 barrels per day. Following the 2014 oil price crash, the number of active rigs declined (Figure 5). The slowdown in drilling was compensated by this improved efficiency and did not produce the reversal in US oil production that many had expected.
The Efficiency Of U.S. Shale Oil Drilling And Production
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Re: Peak Oil Call and Bet

Unread postby kublikhan » Fri 09 Nov 2018, 17:32:49

onlooker wrote:If indeed the EROEI is falling and thermodynamics is insuring that it cannot improve, then we have a situation whereby counting barrles or total world oil production might at this very moment not be telling the full story of what is going on. Because, if indeed the rest of the Economy is subsidizing or being cannibilized by the Oil indistry, this will allow production to continue roughly the same but it will instead be reflected in lower demand and economic disruptions.
Of course counting oil barrels alone is only half the story. The other half is counting inputs. And as the number of drilling rigs tells as, the energy inputs into the oil industry have fallen, not grown, as you and short are saying. If you want to look at another metric, you can look at the amount of diesel consumed in the oil industry. It mirrors the rig count data and tells us the energy inputs are falling.

year oil industry diesel consumption(thousand gallons)
2016 883
2015 1178
2014 2105
2013 1751
2012 1711
Sales of Distillate Fuel Oil by End Use

onlooker wrote:Is rampant lending to the Fracking Shale Industry of the US a sign that this cannibilization is indeed occurring already?
As aspera pointed out, EROEI values and monetary values are two different things. The FED cannot print oil. If you are talking about EROEI, stick with energy in and energy out.
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Re: Peak Oil Call and Bet

Unread postby onlooker » Sat 10 Nov 2018, 12:38:06

onlooker wrote:Is rampant lending to the Fracking Shale Industry of the US a sign that this cannibilization is indeed occurring already?
As aspera pointed out, EROEI values and monetary values are two different things. The FED cannot print oil. If you are talking about EROEI, stick with energy in and energy out.[/quote] what you said Kub.
This is what I said :
Sure, you can print money out of thin air and keep production ramped up, but you are NOT improving the EROEI one bit. They seem totally to not see or wish to see that the underlying Thermodynamics is the EROEI not the pendelum swings of supply/demand and price which can and are being affected by other outside forces and manipulations

This is what Aspera said:
EROEI is, by both intent and it's very formulation, a metric that removes price from the calculation. (Energy returned on dollar invested, an ROI formulation, would follow your logic, but that is not EROEI). Thus, isn't your argument confusing correlation with causation?

So you see Kub, both Aspera and I are bemused by the interpretation you and Rockman are ascribing to what is happening in terms of the rampant lending across the Economy and especially within the Shale/Fracking industry. You both are failing to see how this is reflective of a lower EROEI. You say the Fed does not print Oil, but it does and is funding the production process of Oil. So, both you and Rockman do not see a problem because Oil Production stays at high levels and Demand also. That is confirmation to you that the EROEI must be acceptable.
But, again you are not seeing how the monetary funding is allowing the Oil Industry to produce at current high levels and this in turn is proping up Demand as Oil allows for economic activity over a wide range of activities and incites this activity as higher supply ultimately translates to higher Demand see Jevons Paradox. But, ultimately this is putting balance sheets across the Economic spectrum ever more into the red and inflating unrealistically asset prices. Even as the net energy is declining. Setting up for a highly indedted Economy teetering under this onerous Debt levels with diminishing returns from its principal energy source ie. OIL.
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Re: Peak Oil Call and Bet

Unread postby rockdoc123 » Sat 10 Nov 2018, 12:59:53

But, again you are not seeing how the monetary funding is allowing the Oil Industry to produce at current high levels and this in turn is proping up Demand as Oil allows for economic activity over a wide range of activities and incites this activity as higher supply ultimately translates to higher Demand see Jevons Paradox. But, ultimately this is putting balance sheets across the Economic spectrum ever more into the red and inflating unrealistically asset prices. Even as the net energy is declining. Setting up for a highly indedted Economy teetering under this onerous Debt levels with diminishing returns from its principal energy source ie. OIL.


you guys keep making these claims that the oil industry is funded by continually increasing debt and that all of the companies are failing. The facts as shown in balance sheets for most of the shale players doesn't support this view from what I have seen (they are decreasing debt and have sound balance sheets). Perhaps you could supply us with some data that makes you think this way.

Also I want to point out that debt is not free money, not even close. At the end of the day the company has to not only pay off the principle but also carrying charges that are likely north of 9%. In other words it costs them more to pull a barrel out of the ground with debt, not less. The only reason companies take on debt is to speed up their programs as funding from cash flow is a slow process.
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Re: Peak Oil Call and Bet

Unread postby kublikhan » Sat 10 Nov 2018, 16:06:44

onlooker wrote:Sure, you can print money out of thin air and keep production ramped up, but you are NOT improving the EROEI one bit. They seem totally to not see or wish to see that the underlying Thermodynamics is the EROEI not the pendelum swings of supply/demand and price which can and are being affected by other outside forces and manipulations
So let me get this straight:
1. money does not effect EROEI one bit
2. I exclude money when talking about EROEI and strictly use energy values
3. You ignore energy values and talk about debt instead
4. Yet I am the one who doesn't understand EROEI
Is that correct onlooker?

onlooker wrote:So you see Kub, both Aspera and I are bemused by the interpretation you and Rockman are ascribing to what is happening in terms of the rampant lending across the Economy and especially within the Shale/Fracking industry. You both are failing to see how this is reflective of a lower EROEI. You say the Fed does not print Oil, but it does and is funding the production process of Oil.
Aspera, is this what you believe as well? Should we exclude energy values when talking about EROEI and instead talk about debt levels as onlooker here suggests?

onlooker wrote:So, both you and Rockman do not see a problem because Oil Production stays at high levels and Demand also. That is confirmation to you that the EROEI must be acceptable.
WTF? Never did I say anything as stupid as "Since both oil production and demand are high, the EROEI must be good." Where did you pull that garbage from? Go look at the very first post I made in this thread onlooker. I was strictly talking about rig count(energy inputs) and oil production(energy outputs). Later I added a second metric talking about energy inputs(diesel consumption).

onlooker wrote:But, again you are not seeing how the monetary funding is allowing the Oil Industry to produce at current high levels and this in turn is proping up Demand as Oil allows for economic activity over a wide range of activities and incites this activity as higher supply ultimately translates to higher Demand see Jevons Paradox. But, ultimately this is putting balance sheets across the Economic spectrum ever more into the red and inflating unrealistically asset prices. Even as the net energy is declining. Setting up for a highly indedted Economy teetering under this onerous Debt levels with diminishing returns from its principal energy source ie. OIL.
Rockdoc beat me to this one. Please see his answer.
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Re: Peak Oil Call and Bet

Unread postby ROCKMAN » Sat 10 Nov 2018, 16:48:39

aspera – Lots of answers to your questions. But here’s the simple explanation. As you probably know companies don’t make drilling decisions based on EROEI. They are based upon anticipated rate of return…so it’s really very simple. I have a project that I anticipate will return 200,000 net bbls of oil and will cost me $X millions to drill and complete. So I use $90/bbl to calculate the anticipated ROR. Then oil drops to $60/bbl before I drill. So now I use that price to calculate my ROR. Obviously the ROR has decreased significantly since the net income has decreased significantly. Right? But I would drill the well using the same number of Btu’s and produce the same number of Btu’s…right? So the EROEI is obviously the same.

But guess what: the ROR at $60/bbl doesn’t justify my investment so I don’t drill the well at $60/bbl. But I do have another project (which uses the same number of Btu's to drill and complete) that may produce 300,000 bbl and at $60/bbl the ROR is adequate. So I use the same number of Btu’s and PRODUCE MORE BTU’S. IOW the EROEI of those investment $’s deliver more energy then the 200,000 bbl well I’m not drilling.

As someone pointed out when oil prices fell the rig count as dropped. But there were the same number of shale prospects that could be drilled. BUT there were few of those wells that were as economic to drill as when oil prices were higher. Wells still got drilled at the lower oil prices but only those that produced more oil then the ones being drilled when prices were higher. IOW the EROEI of the well drilled at lower oil prices had to have much higher EROEI’s in order to produce more oil which allowed adequate ROR’s for those investments to be made.

So yes: the EROEI of wells being drilled is obviously VERY DEPENDENT on the price of oil. The energy returned (IOW the number of bbls produced) on a drilling investment AND the price of oil DETERMINES the ROR.

A long explanation but unless you fully understand how economic analysis is done by the petroleum industry it will be very difficult to appreciate that the big decrease in oil prices resulted in a dramatic INCREASE in the EROEI of the wells subsequently drill. It should now also hopefully obvious that the increases in oil prices have caused a reduction in the EROEI of wells now being drilled.

Now imagine what the EROEI of new wells will be if oil goes above $100/bbl. If you think back 10+ years you might remember that EROEI only became a popular subject when oil prices boomed and not so much when oil was less then $20/bbl in the late 1990’s. Newbies lack the perspective that some of us old farts like the Rockdoc and the Rockman have. LOL.
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Re: Peak Oil Call and Bet

Unread postby aspera » Sat 10 Nov 2018, 19:59:41

Kublikhan wrote: Aspera, is this what you believe as well? Should we exclude energy values when talking about EROEI ...
No. My understanding of EROEI is that it is a thermodynamic metric with no relationship to money (in any of its forms). (But I imagine your question of me is not serious given what I've previously written.) My understanding of EROEI is that it is intended to be based on first principles. It is an attempt to help decision making with variables that cannot be manipulated as easily as, say, money.

Rockman wrote: As you probably know companies don’t make drilling decisions based on EROEI.
Yes. I do understand that. Mainly from your writing here and elsewhere. Yet, I still hope you'll try to understand my perspective as well. As I've written in reply to a previous posting of yours, while I respect your many contributions my concern is not focused on oil companies. Rather it is the larger social system, its decision-making process, and the changes likely to be made in that process as we approach limits-to-growth.

EROEI (e.g., surplus energy economics, net energy, or any of the other related notions) would seem, at the very least, something to consider as useful for future decision-making. It might be useful as institutions, enterprises, organization and social systems confront limits, perhaps because it (in its intended form) resists easy manipulation. But I would never argue that it alone should be the only metric used in decision-making.

And, since I have your attention. I'm trying to make sense of the following charts (and others like them). If I understand the concept captured in Likvern's work on the Bakken, we can turn money (debt) into oil. But, being unsustainable, this can't last. And furthermore, it would seem to be a foolish way to run a society. Thus, my search for ways of making decisions about energy sources that don't get muddled.
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