[dcoyne78]

Pops – “But ignoring or even denying that main dynamic, the underlying curve - "what the geology can offer", is to miss - or ignore, the whole point.” I don’t think I ever “denied” geology wasn’t part of the dynamic. But back to the point I made earlier: if the “geology” is the “main dynamic” please explain how the geology produced $140+ oil in 2008 and then $50+ oil in 2009 and then $100 oil in 2013. Did the geology change that much in just a few years? I think it’s much easier to explain those price swings as well as what’s going on in the world today by analyzing all the components of the POD.

Hi Rockman,

It seems you and Pops are arguing about something that you mostly agree on. It seems to me that the peak oil dynamic mostly is looking at the interaction between economics and geology and its effect on the energy industry and society in general. I don't think Pops is denying that the price of oil has an effect or should be ignored, I think for him and for many of us, the geological fact that oil resources are finite is the starting point of our analysis. One does not need to argue that the date of the peak is of paramount importance, one only needs to point out that at some point (my guess is within 10 years, but we have all heard that kind of guess before) a peak will be reached. Nonsense you say, what if real oil prices rise to $500/barrel?
I would respond that the demand for oil is unlikely to be higher than current levels of output at $500 or even $250/barrel (in May 2013 $) in 2023. One can easily explain the oil price movements since 2004 with an analysis that starts with geological constraints.

The inability of world supply to ramp up sufficiently over the 2004 to 2008 period to bring prices back to the 30 dollar level spooked the markets and drove prices to very high levels, these high energy prices were a major factor (I think this overstates the case) in the ensuing economic meltdown. The great recession reduced demand for oil causing oil prices to drop, the lowered energy prices played some part in the recovery of the economy (though this recovery was pretty anemic). A better economy resulted in increased demand for energy which drove prices back up to $100/barrel.

If one claims that such an analysis can be done without talking about both oil prices and underlying geological constraints (that is how easy is it to extract oil), then I would disagree. If the POD attempts to say you cannot just focus on geology you also have to look at the economics (and maybe politics as well), then I am in complete agreement. I think Pops might agree, but he would say the geological part is more important, and you might say the price aspect is more important, but I think you might claim they are equally important and that the political and maybe even sociological aspects need to be included to get a full picture. This may be correct, but it is difficult to throw too much into the mix and make any headway from an analytical perspective.

DC

[dcoyne78]

Hi Pops,

You used a chart from peakoilbarrel that uses JODI data. I would caution against using the JODI chart because the JODI dataset is not very good, since June 2012 Iran, Libya, and Kazakhstan have not reported data to JODI, in addition about 35 "other countries" are reported by the EIA, but not by JODI. Finally there is a major difference between Canadian output reported by the two agencies (about 1000 kb/d). To account for all this I deducted all the "other countries" from the EIA data set and a few of the smaller countries with an incomplete data set (4 years or more of missing data) in the JODI data form both the Jodi and EIA world totals. Then to account for the problem with Canada, Iran, Libya, and Kazakhstan, I deducted those countries from both data sets. Finally I subtracted the US from both data sets. When all this is done and we look at EIA World minus (other countries, Canada, Libya, Iran, Kazakhstan, and the US) vs JODI World minus ( Canada, Libya, Iran, Kazakhstan, and the US) where "other countries" are the countries included in EIA data but not in JODI data we get:



This chart is of course different and is not focusing on non-OPEC output, but I was trying to get a handle on the question "Is JODI data very different from EIA data"? When you are comparing only the countries where there is data in both data sets, they look pretty much the same. The data from the EIA is more comprehensive, it seems the better choice to me.

DC

[ROCKMAN]

DC - Yes…I don’t think there’s any real substantial difference between my thoughts and Pops. But there are differences with even what you just posted as simple as it may be.

“…one only needs to point out that at some point (my guess is within 10 years, but we have all heard that kind of guess before) a peak will be reached.” And what, exactly, does that prediction portend? Does that mean $150 oil in 10 years? Or $50 oil in 10 years? I can make a very plausible argument for the $50 guess. How could we be at PO in 10 years and have $50 oil??? Very easily…same reason we had $10 in 1986.

“One can easily explain the oil price movements since 2004 with an analysis that starts with geological constraints.” Okie dokie: please explain how since 2002 global production has increased 9% and that represents some geologic constraint? Ok…let’s just go back to 2004: global oil production has increased by about 5%. So again where is that geologic restraint? One can argue all day long about how much oil the world will or won’t produce. But let’s just stick with factual data: the world is buying significantly more oil today that it was just a few years ago. Where’s that geologic restraint at? It certainly isn’t apparent in the market place today.

“The inability of world supply to ramp up sufficiently over the 2004 to 2008 period to bring prices back to the 30 dollar level spooked the markets and drove prices to very high levels”. I really don’t understand that statement: the world is currently producing more oil today then since the beginning of the petroleum age. The difference now is that none of the sellers are willing to sell for $30 a bbl. And why should they: the world is buying as much or more oil than ever before and are willing to pay $100/bbl for it. There is no panic. Just buyers and sellers coming to mutually acceptable terms. Most folks agree that the KSA could bring some more oil to the market place. but why would they do that if it resulted in a lower sales price? After all the only folks not buying oil today are the ones who can't afford the current price.

“If the POD attempts to say you cannot just focus on geology you also have to look at the economics (and maybe politics as well)”. And again I’m totally mystified. Who has made such a statement? I've know the POS since the day of its birth and have yet to hear it utter a single word. LOL. It certainly wasn’t me. And I’ve never said price was more important. Again I just don’t understand why such statements are attributed to me when I never made them. Way too much “reading between the lines” IMHO. LOL.

Again let me explain, hopefully for the last time, what POD represents: all those restraints (including geological, governmental, logistical, economic activity, environmental, etc.) that determine the price and availability of oil. I coined the term “POD”. Someone else wants to define it differently that’s fine but that doesn’t make me responsible for defending their interpretation.

Does anyone deny that the price and availability of oil isn’t a result of the combination of factors that I just listed? If so speak up. Explain how global economic activity can’t affect the price of oil. Explain how the depletion of a finite resource like oil can’t affect the price of oil. Explain how a military conflict that closes the Strait of Hormuz can’t affect the price of oil. Explain how China tying up increasing amount of future crude production can’t affect the price of oil. Explain how environmentalists succeeding in shutting down the Canadian oil sands production can’t affect the price of oil. Explain how the US govt imposing a $3/gallon tax increase on gasoline can’t affect the price of oil. Explain why oil prices increasing 300% in less than 10 years wouldn’t increase drilling activity and cause an increase in US production. Etc., etc., etc.

My only argument has been that offering any one factor as being THE critical one is wrong. Just as wrong as saying global oil production reaching its peak on some particular day will be THE determining factor for the price of oil. And I’ve given numerous historic examples proving it. So one last time: if geologic constraint is THE critical factor than explain how it has changed so rapidly in just a few years to cause those wide price swings. Either Mother Earth’s geology has had some wild changes in the last 8 years or I don’t think you can hang it on her. LOL.

[dcoyne78]

Rockman,

I could envision either high or low prices depending on how the situation evolves. If real oil prices roughly follow the EIA reference scenario (+/- 10 %) I think a peak is likely within 10 years, I can also envision many different scenarios where prices are higher or lower.

I tend to agree that expensive energy is not the only thing which moves the economy, but I believe it is an important factor.

According to the EIA avg annual C+C was 73.6 MMb/d in 2005 and 75.6 MMb/d in 2012 a 2.7 % increase over 7 years, with a rise in real oil prices of 75 % over the same period.

I think we agree, but keep in mind that just because production increases does not imply there are no geological constraints, why didn't output rise by 10 % over those 7 years? Output rose about 1.5 % per year from 1983 to 2005 and at three times less than that rate from 2005 to 2012.

DC

[Pops]

I'm not pissed ROCK, but it's not much of a debate if you just keep restating the same points regardless of evidence to the contrary.

You say PO has everything to do with POD. Then turn around and say production has increased 5% in 8 years as if that negates the very real constraints in supply witnessed these last years. As DC points out the increase is actually 2.7% over 8 years - an average increase of only .3% per year. Pretending that increase disproves a plateau and possible peak conveniently ignores the fact that prior to '05 there was a fairly steady 1.5% increase every year for 20 years.

Obviously the flatlining of production has not satisfied demand because the price has steadily increased.




"It has been interesting to watch all the various interpretations of what folks thought I was trying to say."
Interesting but no surprise, lol. You make all the PO noises then turn around and argue there is no constraint on production, rather "none of the sellers are willing to sell for $30 a bbl."

Come on, you know that isn't how markets work. If someone had more and could profit for less they would sell it for a little less to earn a larger income (I'm repeating myself again...), someone else would do the same for a little less, etc until the supply balanced the demand at some lower price - that is the fundamental of competitive markets.

After 3 years I'm thinking this is the lower price.

Producers are producing as fast as they can and only as much as they are because the price IS high. And the price is high because the market wants still more. $30 oil would only result from a large increase in supply from cheap, easily extracted oil or a devastating drop in demand.

Is some oil shut in for political reasons? Sure, but when wasn't it? What happens when Iran and Sudan come back online? Will prices fall to $30? I'm pretty sure they can't because an increasing portion of the supply now costs more than that to produce. And why is that? The plateau is the peak.

Might lots more cheap oil come online from somewhere? Of course it might, I'm no nostradamus and don't play one on the internet. But at what point do we look in the rearview and start to believe that ain't liable to happen if it hasn't yet?


Anyway, you've been saying PO is a part of the POD and making all the PC PO noises and all the while denying any evidence of near term PO. It seems the same to me as the blurb JD has about oil being finite at the top of his PO-debunked blog: 'of course oil is finite and will peak, just not now.' I don't care that you have that opinion, and I gave up trying to change opinions way back, I just wanted to point it out for the sake of others reading here.

[sparky]

.
On the subject of price , keeping in mind the variation in the value of the U.S. dollar

In my mind ,the word price of oil is the price FOB of the one barrel which bring the demand and supply in balance .
This is for a normal free market ,with no large government manipulation

IE if three quarter of the oil has a cost of 20$/a barrel and one quarter has a price of 80$
then the global price is 80$ .
the oil produced at 150$ has no buyer
should there be less oil at 20$ , the client has the choice to do without or purchase the one barrel at 150$ , it would push the price at 150$ , and create a strong incentive to increase production of the 80$ oil.
there is in fact a full graduation of price , even in the same field
this cost curve is shifted upward with depletion of the first used , easy stuff

Should a new Ghawar be discovered, price would adjust downward.

the price dynamic is not a side effect ,
it's the very measure of the cost of supply and the ability of the demand to be satisfied
or to be constrained

[Pops]

Thanks on the JODI info DC I'll keep that in mind (the JODI chart posted was just handy to my argument, lol)

Sparky, it is eternally interesting to me how price is both a driver of supply and a result of supply, ditto its effect on and how it's affected by the economy, which as ROCK said makes it hard to predict future prices.

[ROCKMAN]

Pops - gave a long response that got lost out there somewhere on the net. I'll try again after breakfast. LOL

[Pops]

Doesn't that hack you off!? especially when you've dug up a bunch of links &c.

I've gotten in the habit of hitting ctrl-A then ctrl-c (select all/copy) before previewing or submitting anything. saves putting money in the swear-jar, lol

[sparky]

.
On Peak oil ,exploration and exploitation happen because of price dynamic , usually with a lag
if suddenly someone invented a tabletop cold fusion machine ,
the crude oil demand would then be restricted to the chemical industry plus some lubricants .
the first modern use of oil was for medicine ,
in America , a entrepreneur cashed in on supposedly Indian wisdom , selling Seneca oil
as good for the skin , happiness and such , later they branched out into the second use , lighting lamps fuel
one can rewind the movie and presume it will be the last use
peal oil exist because the demand drive the extraction and the geology deliver , with ever more reluctance
the price of oil should be compared with the price of wheat or corn .
it would highlight the food energy / fuel energy relationship

Got one !
http://www.indexmundi.com/commodities/
the net result is that the food portion of a family budget will rise , squeezing disposable income down

IE peak oil means the majority will get poorer , labor cheaper , politics trickier