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THE Royal Dutch Shell Oil Thread Pt. 2

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

Re: Shell Abandons Arctic

Unread postby kublikhan » Thu 01 Oct 2015, 08:29:57

ralfy wrote:The world can afford more expensive oil, but only if it uses credit that was meant for middle class conveniences. Meanwhile, the middle class relies on sales of these conveniences plus higher returns on investment to maintain its lifestyle.
The world's middle class continues to grow, as do their assets.

According to the most recent Allianz Global Wealth Report, the global middle class is nearing the billion people mark. The global gross financial assets - namely securities, bank deposits, and claims on insurance and pensions - of private households grew by 9.9% in 2013, the highest rate of growth since 2003. Growth in wealth has been particularly strong in eastern Europe. Over the past 13 years only Asia’s emerging markets have grown more quickly.
Global middle class nears one billion mark

The United Nations describes it as a historic shift not seen for 150 years. The new global middle class in China, India and Brazil have propelled their economies to equal the size of the industrialised G7 countries. By 2050, they are forecast to account for nearly half of world output, far surpassing the G7. The Brookings Institution estimates that there are 1.8 billion in the middle class, which will grow to 3.2 billion by the end of the decade.

As the UN suggests, the growth is being driven by industrialisation. The industrial revolution of the 19th Century transformed the economies of Britain, the US and Germany. The move from agrarian to industrial societies generated income rises that created the middle class. Now it's the turn of emerging economies, particularly in Asia. In Indonesia, for instance, investment now exceeds 30% of GDP, a sign that there is more manufacturing.
The rise of the global middle class
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Re: Shell Abandons Arctic

Unread postby yellowcanoe » Thu 01 Oct 2015, 10:18:00

Cog wrote:If there is a demand for a product that exceeds supply, the price goes up. When the price goes up, someone is going to want to make money on that transaction.


The cost of development is so high and the payback period so long that it isn't clear that anyone can make money drilling in the arctic north of Alaska. Shell has already spent $4 billion and failed to find anything of commercial value. The drop in oil prices over the last year is also going to have a profound impact on expensive, multi-year projects that get initiated in the future even when oil prices recover. If oil companies are not certain that oil prices will remain high long enough to pay back the development cost of a big project they are simply not going to do those projects.
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Re: Shell Abandons Arctic

Unread postby Outcast_Searcher » Thu 01 Oct 2015, 11:08:55

pstarr wrote:
ennui2 wrote:People shouldn't draw the conclusion that if drilling retreats that they'll never go back again and that there's no oil to recover. The jury is still out on that. All we know is they don't think it's worth their while right now. I have no doubt that if we have sustained >$100 oil prices that someone will try again.

No they won't. If we return to >$100 the entire world's economy will once again collapse in unison, leaving demand petrified at it's historical norm of $30.

No, it won't. It didn't collapse during the FOUR YEARS crude oil sustained an average price of nearly $100. In fact, the global economy continued to grow including things like air miles traveled.

And it didn't collapse in 2008-2009 due to oil prices -- it was the massive housing blow-up, which hit the over-leveraged (idiotic) banks.

ennui2 is exactly right. People will go after the difficult oil WHEN the price is high enough to justify the risk. Short term, the risk can be partly mitigated by forward selling production via the futures market.

And by the way, the world economy is NOT collapsing now. The oil price has collapsed due to over-production, and fears that will continue. The stock markets are having a long overdue correction to perceptions that there is SOME slowdown in global growth in places like China, even as growth continues in places like the US and even Europe. Just because many on this site call any negative headline "collapse" doesn't mean collapse is constantly occurring. And even a global recession would not be collapse, even though the negative Nellies on this board would surely call it that.
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: Shell Abandons Arctic

Unread postby yellowcanoe » Thu 01 Oct 2015, 13:29:07

Outcast_Searcher wrote:ennui2 is exactly right. People will go after the difficult oil WHEN the price is high enough to justify the risk. Short term, the risk can be partly mitigated by forward selling production via the futures market.

And by the way, the world economy is NOT collapsing now. The oil price has collapsed due to over-production, and fears that will continue. The stock markets are having a long overdue correction to perceptions that there is SOME slowdown in global growth in places like China, even as growth continues in places like the US and even Europe. Just because many on this site call any negative headline "collapse" doesn't mean collapse is constantly occurring. And even a global recession would not be collapse, even though the negative Nellies on this board would surely call it that.


The fact that oil prices dropped sharply last year when there really wasn't any reason to believe that the world was in a recession should be a cause for concern. It illustrated that high oil prices are inherently unstable -- a slight increase in supply or decrease in demand can cause a sharp drop in price. The price of oil will eventually go back up to the $100+ range but I don't expect oil companies are going to be as enthusiastic about embarking on big projects to tap into expensive/difficult oil sources as they had been in recent years. It's too easy to get hooped and lose a ton of money if oil prices tank again before your project has been paid off. We will see a resumption of drilling for LTO though as this can done incrementally and adds new production relatively quickly.

I would also note that some companies walked away from the Alberta tar sands prior to the fall in oil prices. They were finding that the cost of developing and producing oil from that source was too high, even with the high price of oil at that time.

Most people think that lower prices for fuel are a good thing. Many think that the period where oil was $100 per barrel was an anomaly due to speculators or greedy oil companies. The reality is that oil companies are not likely going to make the investments that would be required to maintain oil production and in a couple of years we are going to be in a whole lot of pain as production from existing fields declines.
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Re: Shell Abandons Arctic

Unread postby ennui2 » Thu 01 Oct 2015, 16:58:51

Here we go again with peak oil causing the credit crisis... Once more round the church-lady mulberry bush of correlation = causation.

Once you decide that everything is "peak oil" you create such a weak set of linkages and ignore all the other aspects of our complex system (like human tendency towards Ponzi schemes like the dot com and housing bubbles) that it really does become more of a cult-like belief-system rather than anything provable.
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Re: Shell Abandons Arctic

Unread postby onlooker » Thu 01 Oct 2015, 19:08:25

I would think that all these causation factors have been mutually reinforcing each other. You cannot pinpoint one or another as the sole reason for the trajectory of the world economy. I would have to agree with Ennui, the world economy is a "complex system" It is hard even to understand the order of things what caused what and what is an effect of what. What is clear though is that more than every the planet is interlocked itself globally so that one domino falls they can all fall.
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Re: Shell Abandons Arctic

Unread postby tita » Fri 02 Oct 2015, 04:32:02

Anyway, Shell expected to produce oil in the arctic only from 2030. If their decision to postpone indefinitly this project was due to the actual low-price, then they will need a sustained 10-15 years of 100$ oil (or more) to realise this project.

Prior to the events that led speculators to raise the price of oil to 147$, and the burst of the housing bubble, we got through a long period of increasing oil prices racing from 15$ to 100$. Whatever you may think, this was not due to speculation, but rather the end of cheap oil capacity. The impact on the economy is rather simple: You pay more for the same. And as energy is present at every stage of our global production process, we just reduced the margin every firm or individual who need oil or gas to do their stuff. There was no huge inflation. Only less spending power.

This wasn't probably the cause of the housing bubble. But it didn't help. It's part of the equation. And the period of 5 years of sustained 100$ oil was probably maintained by the huge debt contracted from central banks to pour money on the economy, in the aim to recover from the financial crisis. Again, no huge inflation, so less spending power.

So here we are now. There is no proof that 100$+ oil prices needed to drill the arctic are sustainable by our global economy.

Or maybe I'm wrong, and the price will be high enough between 2020 and 2035 for this (an other projects) to see the day. But history doesn't prove it to happen.
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Re: Shell Abandons Arctic

Unread postby ralfy » Fri 02 Oct 2015, 06:33:04

kublikhan wrote:
ralfy wrote:The world can afford more expensive oil, but only if it uses credit that was meant for middle class conveniences. Meanwhile, the middle class relies on sales of these conveniences plus higher returns on investment to maintain its lifestyle.
The world's middle class continues to grow, as do their assets.

According to the most recent Allianz Global Wealth Report, the global middle class is nearing the billion people mark. The global gross financial assets - namely securities, bank deposits, and claims on insurance and pensions - of private households grew by 9.9% in 2013, the highest rate of growth since 2003. Growth in wealth has been particularly strong in eastern Europe. Over the past 13 years only Asia’s emerging markets have grown more quickly.
Global middle class nears one billion mark

The United Nations describes it as a historic shift not seen for 150 years. The new global middle class in China, India and Brazil have propelled their economies to equal the size of the industrialised G7 countries. By 2050, they are forecast to account for nearly half of world output, far surpassing the G7. The Brookings Institution estimates that there are 1.8 billion in the middle class, which will grow to 3.2 billion by the end of the decade.

As the UN suggests, the growth is being driven by industrialisation. The industrial revolution of the 19th Century transformed the economies of Britain, the US and Germany. The move from agrarian to industrial societies generated income rises that created the middle class. Now it's the turn of emerging economies, particularly in Asia. In Indonesia, for instance, investment now exceeds 30% of GDP, a sign that there is more manufacturing.
The rise of the global middle class


It's ironic that I've been sharing the last link and this argument multiple times in this forum, and in several cases used it to counter the fantastic view that a combination of technofixes and "decoupling" will allow for business as usual. Why? Because much of that "wealth" is essentially debt, and has to be backed up with increasing production and consumption of goods, which can't happen in a biosphere with physical limitations.
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Re: Shell Abandons Arctic

Unread postby ralfy » Fri 02 Oct 2015, 06:34:12

Outcast_Searcher wrote:
pstarr wrote:
ennui2 wrote:People shouldn't draw the conclusion that if drilling retreats that they'll never go back again and that there's no oil to recover. The jury is still out on that. All we know is they don't think it's worth their while right now. I have no doubt that if we have sustained >$100 oil prices that someone will try again.

No they won't. If we return to >$100 the entire world's economy will once again collapse in unison, leaving demand petrified at it's historical norm of $30.

No, it won't. It didn't collapse during the FOUR YEARS crude oil sustained an average price of nearly $100. In fact, the global economy continued to grow including things like air miles traveled.

And it didn't collapse in 2008-2009 due to oil prices -- it was the massive housing blow-up, which hit the over-leveraged (idiotic) banks.

ennui2 is exactly right. People will go after the difficult oil WHEN the price is high enough to justify the risk. Short term, the risk can be partly mitigated by forward selling production via the futures market.

And by the way, the world economy is NOT collapsing now. The oil price has collapsed due to over-production, and fears that will continue. The stock markets are having a long overdue correction to perceptions that there is SOME slowdown in global growth in places like China, even as growth continues in places like the US and even Europe. Just because many on this site call any negative headline "collapse" doesn't mean collapse is constantly occurring. And even a global recession would not be collapse, even though the negative Nellies on this board would surely call it that.


Thanks to more funny money created. Unfortunately, that does not reverse lower energy returns.
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Re: Shell Abandons Arctic

Unread postby Tanada » Fri 02 Oct 2015, 07:37:13

tita wrote:Anyway, Shell expected to produce oil in the arctic only from 2030. If their decision to postpone indefinitly this project was due to the actual low-price, then they will need a sustained 10-15 years of 100$ oil (or more) to realise this project.

This wasn't probably the cause of the housing bubble. But it didn't help. It's part of the equation. And the period of 5 years of sustained 100$ oil was probably maintained by the huge debt contracted from central banks to pour money on the economy, in the aim to recover from the financial crisis. Again, no huge inflation, so less spending power.

So here we are now. There is no proof that 100$+ oil prices needed to drill the arctic are sustainable by our global economy.

Or maybe I'm wrong, and the price will be high enough between 2020 and 2035 for this (an other projects) to see the day. But history doesn't prove it to happen.


I would modestly disagree with your statement that the world can not sustain $100/bbl oil prices. While there was an insane level of debt creation in the USA and EU there is not a lot of evidence of the same in the rest of the world, where actual demand growth continued even during the demand decline in Europe and North America.

I think the bigger issue is the economy in the so called first world has been built on debt and promises for generations now, while the economy in China and India and most of the rest of the world is still based on physical extraction of raw materials and manufacturing. Real economy vs paper economy, and it sure looks to me as if the real economy has proven itself to be much more robust and successful.
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Re: Shell Abandons Arctic

Unread postby kublikhan » Fri 02 Oct 2015, 08:24:25

ralfy wrote:It's ironic that I've been sharing the last link and this argument multiple times in this forum, and in several cases used it to counter the fantastic view that a combination of technofixes and "decoupling" will allow for business as usual. Why? Because much of that "wealth" is essentially debt, and has to be backed up with increasing production and consumption of goods, which can't happen in a biosphere with physical limitations.
And yet the debt levels of those countries with growing middle classes, the developing countries, are relatively healthy.

As the sequester demonstrates new lows in America’s fiscal management and the European debt crisis drags on for its third year, it’s worth noting that most of the rest of the world’s financial health is pretty good. Developing countries used to rule the roost when it came to debt crises and defaults. But after a painful period of policy reform supported by considerable debt relief and restructuring, they were in a far stronger position by the end of the last decade. This has allowed them to follow policies that cushioned their citizens from the impact of the global slowdown, rather than having to ratchet up the pain—in contrast to the paths chosen by governments in much of Europe and now, the U.S.

The last decade brought dramatic change. By 2011, suggests the World Bank, the average external debt-to-GDP ratio fell to 42 percent and less than one in three developing countries had a ratio over 50 percent. Compare that to the euro zone, where gross external debt is worth about 125 percent of GDP. Similarly, public debt service in the developing world, measured as a percentage of exports, has fallen from 18 percent in 1990, through 8 percent in 2000, to below 3 percent in 2011.

Lower initial debt levels have also helped developing countries respond more forcefully to the global financial crisis. World Bank economists note that emerging economies didn’t sink as low during the 2008 crisis and bounced back faster than did advanced countries. In the past, they suggest, skittish foreign investors would force developing countries to cut spending and raise interest rates in the midst of a recession, worsening their slumps. This time around—thanks to lower debt, strong reserves, more flexible exchange rate regimes, and increasingly credible central bank leadership—many developing countries have possessed the ability to reduce interest rates and increase spending. And (unlike, say, the U.K.) most were smart enough to use that policy space to avoid shrinking their economies.
How the Developing World Escaped the Debt Trap

Some of the growth in global debt is benign and even desirable. To some extent, this reflects healthy financial system deepening, as more households and companies gain access to financial services. Moreover, debt in developing countries remains relatively modest, averaging 121 percent of GDP, compared with 280 percent for advanced economies.

The debt level in developing economies is still very low, at 42 percent of income, compared with an average of 110 percent in advanced economies. Developing nations today have much lower ratios of debt to GDP than advanced economies.
Debt and (not much) deleveraging
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Re: Shell Abandons Arctic

Unread postby ROCKMAN » Fri 02 Oct 2015, 08:57:15

T - "I would modestly disagree with your statement that the world can not sustain $100/bbl oil prices." Same thought but I would put it differently: the "world' cannot sustain $45/bbl oil. In fact there are countries that can't sustain $20/bbl while there are other countries that can sustain $100/bbl oil. The oil path doesn't give a sh*t how many hundreds of millions of folks there are on the planet who can't afford to pay $45/bbl for oil production. It's only interested in those that can pay $45/bbl OR MORE for oil.
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Re: Shell Abandons Arctic

Unread postby ROCKMAN » Fri 02 Oct 2015, 11:09:05

pstarr - And then there's the question of how long the US can hold that position before it starts to slide towards the "dark side". LOL.
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Re: Shell Abandons Arctic

Unread postby kublikhan » Fri 02 Oct 2015, 11:17:06

Pstarr, it's the US and the other developed countries that cut back consumption when oil hits $100. The rest of the world continues to buy it at $100.

Jeffrey J. Brown wrote:Re: “So the richest and most well developed countries will be outbid for oil by poorer countries? Absurd.”
Rich,
It’s always helpful to look at actual data.
Following is a graph showing normalized oil consumption from 2002 to 2010 (2002 = 100, BP Data Base) for China, India, the Top 33 Net Oil exporters and for the US:
http://i1095.photobucket.com/albums/i475/westexas/Slide1-16.jpg The recent trend has been pretty clear. Post-2005, developed oil importing countries like the US have been forced to consume a declining share of a declining volume of GNE, with the developing countries, especially the Chindia region, consuming an increasing share of a declining volume of GNE.
While it’s difficult to predict with certainty what will happen in the future, I suspect that we will see some version of the same trends going forward.
Crude oil and gasoline prices
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Re: Shell Abandons Arctic

Unread postby onlooker » Fri 02 Oct 2015, 12:06:44

Unless you have a super potent military in which case you can take what is not yours!
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Re: Shell Abandons Arctic

Unread postby kublikhan » Fri 02 Oct 2015, 12:59:24

Pstarr, China's oil demand is still growing strong, as is India's:

Oct. 1, 2015 -- China's apparent oil demand* rose 10.2% in August from a year earlier to 11.19 million barrels per day (b/d). Meanwhile, China's net imports of oil products surged 131% year on year to 700,000 b/d in August.

China's actual oil demand growth could be higher since stocks of key products have fallen. "Inventories of gasoil, gasoline and jet/kerosene fell by between 2.5% and 9.7% at the end of August.
China Oil Demand Grows 10% Year over Year in August

Boosted by fallen crude prices, India is expected to overtake Japan to become the world’s 3rd largest oil consumer, at about 4.1 million b/d. India is now where China was a decade ago. Compared to last year, India’s oil demand has risen 300,000 b/d, putting the country on track to surpass China in incremental growth for 2015.

India’s strong economic growth is trickling down to rising personal incomes, up 40% since 2008. India’s Middle Class could reach 45% of the population by 2030, up from 22% today and 4% in 2000. With 1,270 million people, the latent demand for oil in India is staggering. India has just 40 cars per every 1,000 people, compared to 525 in Western Europe. Bolstered by cheaper cars, lower fuel prices, and solid financing options, India’s passenger-vehicle sales are up nearly 20% this year. Within a few years, India could become the world’s largest market for diesel cars, now standing at over 50% of the fleet.
India's Rise To 3rd Place In Oil Demand
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