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Is EROEI Important Pt. 4

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

Re: Is EROEI Important Pt. 4

Unread postby shortonoil » Sun 03 Feb 2019, 12:35:04

From the Article:

Here’s the real problem: the fracking bonanza is ending. Most of the sweet spots have already been tapped; newer wells are depleting faster and producing less while costing more; the next waves of fracking, were they to happen, would squander $500 billion, then $1 trillion, then $2 trillion… The drilling rate is already slowing, and started slowing even while oil prices were still high. Meanwhile, peak conventional (non-fracked) oil happened back in 2005-6, only a few countries haven’t peaked yet, Russia has announced that it will start reducing production in just a couple years and Saudi Arabia doesn’t have any spare capacity left.


The Shale industry is definitely the only source of liquid hydrocarbons that has prevented the world from Peaking on its total production to date. It is also an industry that has not been able to turn a profit, and it has a constantly growing expensive that must be covered each, and every year. That is, its cost of replacing its legacy decline, and that has increased by 200% in the last five years. As long as Shale's output remains the same that expense will also increase. That is product that must be compensated for to maintain production levels, but doesn't generate any income.

Shale's production and legacy decline figures:

Code: Select all
Year   Production   Decline
       mb/d          mb/d
2018   8.03      1.43
2017   6.44      1.15
2016   4.71      0.84
2015   4.95      0.88
2014   5.41      0.96


At present market prices, replacing Shale's 2018 legacy decline during 2019 will cost the Shale industry $26 billion. Even Microsoft couldn't afford that for long! $26 billion will be a quarter of all the profits generated in 2019 by all of the world's oil producers. Even though Shale's function as a diluent is essential for the remainder of the industry in order for them to get their product to market; it generates no income. It is merely an expensive of doing business.

Shale's net losses to date have been financed by the equity and bond markets, but as Shale's production tops out for a lack of funds, rigs, or sweet spots those sources will increasingly lose interest. The remainder of the oil industry will then be forced to carry the load if they want the diluent they will need to stay in business. The oil industry will also become rather reluctant to ship LTO to China at a loss.

The Shale industry tree is going to get a badly needed pruning. The oil industry will be attempting to grow Bonsai trees rather than the Shale industry's Sequoia. The new owners will be interested in limiting the production of Shale to as little as possible. The industry will need enough diluent to supply its heavy crude suppliers. Canada, Mexico, and soon Venezuela will need to be supplied, along with the industry's own internal usage, but that will top out at about 5 mb/d. The 12 mb/d Shale production projections are a hallucination promoted by the same banks, and brokerage firms that sold all the Shale stocks. and bonds to the pension funds.

The price of oil is limited by what the economy can afford to pay for it, and still be able to grow. It is now about $10 higher than the needed figure. The oil industry is limited to how high it can elevated prices, and not lose market. Excess cost, like unneeded Shale production in an economy where world petroleum production has already Peaked, will not be tolerated for long.
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Re: Is EROEI Important Pt. 4

Unread postby rockdoc123 » Sun 03 Feb 2019, 13:43:04

It is also an industry that has not been able to turn a profit, 


Once again, learn to read a financial balance sheet...

Concho Resources
Revenues nine months ended Setp; 30, 2018 = $3.1 billion
Cash operating costs and expenses = $1.1 billion
Interest expense = $103 MM
Income tax = $225 MM

Cash flow AT(ignoring non cash DD&A) = $1.67 billion

EOG
Revenues nine months ended Setp; 30, 2018 =$12.7 billion
Cash operating costs and expenses = $6.68 billion
Interest expense = $189 MM
Income tax = $626 MM

Cash flow AT (ignoring non cash DD&A) = $5.2 bllion

Pioneer
Revenues nine months ended Setp; 30, 2018 =$ 6.7 billion
Cash operating costs and expenses (includes interest) = $1.79
Income tax = $- 188 million
Purchase of oil and gas properties = $3.0 billion

Cash flow AT before acquisitions = $5.1 billion
Free Cash on hand after acquisitions = $2.0 billion


At present market prices, replacing Shale's 2018 legacy decline during 2019 will cost the Shale industry $26 billion.


Please provide the calculation as this comment without backup is meaningless

Even though Shale's function as a diluent is essential for the remainder of the industry in order for them to get their product to market; it generates no income. It is merely an expensive of doing business.
 

Basically stupid comment. If you couldn’t make money selling LTO as a diluent to a heavy oil producer who needs to ship his product to a refinery then nobody would be doing it. As I’ve shown above Concho, EOG and Pioneer are all making profits.

The price of oil is limited by what the economy can afford to pay for it, and still be able to grow. It is now about $10 higher than the needed figure. The oil industry is limited to how high it can elevated prices, and not lose market


As you have been told countless times this is complete BS. The price of oil was just recently at $70/bbl and demand was continuing to rise, between 2011 and 2014 it was steadily above $100/bbl and demand was continuing to rise. There has yet to be any indication of a price point that cannot be afforded by the buyers (refiners).
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Re: Is EROEI Important Pt. 4

Unread postby AdamB » Sun 03 Feb 2019, 20:30:58

rockdoc123 wrote:
It is also an industry that has not been able to turn a profit, 


Once again, learn to read a financial balance sheet...

EOG
Revenues nine months ended Setp; 30, 2018 =$12.7 billion
Cash operating costs and expenses = $6.68 billion
Interest expense = $189 MM
Income tax = $626 MM

Cash flow AT (ignoring non cash DD&A) = $5.2 bllion


They don't know what non cash DD&A is Roc, and they don't care. Shorty hangs out with Steve De Angelo, and he wouldn't know DD&A in the balance sheet if you engraved what it is into his forehead backwards so he could read it in the morning mirror when he shaves. They don't care Roc, they just want to say stupid stuff because it is what zealots do. There is no more concenr for reality than Short using outdated information in his net energy scheme and excluding entire oil production streams because otherwise he couldn't make his spurious relationships work.
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Re: Is EROEI Important Pt. 4

Unread postby Yoshua » Tue 12 Feb 2019, 09:25:42

Auto sales plunged in the last quarter of 2018 around the world. Today gasoline crack spreads are negative around the world. Saudi Arabia has decided to cut oil production to 9.8 mmbpd.

Global trade is falling and shipping rates are below the breakeven point.

It looks like we are heading for a recession...or a global depression.

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Re: Is EROEI Important Pt. 4

Unread postby shortonoil » Tue 12 Feb 2019, 13:42:56

A lot of the recent decline in the crack spread is the result of Venezuelan crude coming off the market. If this results in taking out Maduro, and his party of cocaine traffickers it will be worth another 10¢ at the pump. The crack whores soliciting at the local Get&Zip in my area are getting annoying!
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Re: Is EROEI Important Pt. 4

Unread postby Yoshua » Wed 13 Feb 2019, 03:26:36

The gasoline glut is perhaps the result of too much light crude and not enough heavy crude in the market.

Perhaps it's the result of falling EROEI and falling demand due to falling affordability? This should lead to massive industrial/machine over capacity and a glut?

Today this over capacity and glut seems to turn into a global event. Even the U.S seems to affected by it.

A record 7 million car loans are +90 days behind payments in the U.S today. Those car owners can't really afford a car and the gasoline.
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Re: Is EROEI Important Pt. 4

Unread postby Cog » Wed 13 Feb 2019, 06:32:09

They can't afford the car they bought because they overbought. Same sort of people who shop at rent to own stores. Nothing new.
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Re: Is EROEI Important Pt. 4

Unread postby vtsnowedin » Wed 13 Feb 2019, 14:55:42

Yoshua wrote:
A record 7 million car loans are +90 days behind payments in the U.S today. Those car owners can't really afford a car and the gasoline.

That is an example of "fake news" designed to make the Trump administration look bad. If you read the whole story the number of bad loans has risen because of a surge in auto sales 17.5 million in 2016 alone, but the delinquency rate has dropped from 5.3 percent in 2010 down to just 4.5 percent last year.
The headline could more accurately read " Delinquency rates declining" but that wouldn't make Trump look bad.
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Re: Is EROEI Important Pt. 4

Unread postby Yoshua » Wed 13 Feb 2019, 15:38:33

2000 - U.S auto sales 17 million - delinquencies 1 million.

2018 - U.S auto sales 17 million - delinquencies 7 million.

In 2008 auto sales dropped to 10 million during the financial crisis.
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Re: Is EROEI Important Pt. 4

Unread postby Yoshua » Wed 13 Feb 2019, 15:44:44

In 2000 the EROEI from petroleum production started to fall of a cliff. This has nothing to do with politics.

I actually think that Trump is entertaining. But he's facing mission impossible. There's nothing he can do against the thermodynamic laws.
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Re: Is EROEI Important Pt. 4

Unread postby shortonoil » Wed 13 Feb 2019, 18:38:06

In 2000 the EROEI from petroleum production started to fall of a cliff. This has nothing to do with politics.


Well -- it has to do with money; as all energy transfers entail as they relate to humans. The Cost Benefit gap has been closing real fast. When the Cost becomes greater than the Benefit someone starts doing without. This week it is someplace called Venezuela?
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Re: Is EROEI Important Pt. 4

Unread postby AdamB » Wed 13 Feb 2019, 20:37:53

shortonoil wrote:The Shale industry.....


US E&Ps. American exceptionalism run amuck, I'll admit, but it isn't the first time.
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Re: Is EROEI Important Pt. 4

Unread postby AdamB » Wed 13 Feb 2019, 20:52:54

Yoshua wrote:In 2000 the EROEI from petroleum production started to fall of a cliff. This has nothing to do with politics.


eroei has no more to do with petroleum production than it does auto sales or politics, so you are sorta right.

Yoshua wrote:
I actually think that Trump is entertaining. But he's facing mission impossible. There's nothing he can do against the thermodynamic laws.


Those laws aren't any different today than they were in 1859, or the last century. But people with no experience in industry pretending they have changed, that is something else altogether.
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Re: Is EROEI Important Pt. 4

Unread postby rockdoc123 » Wed 13 Feb 2019, 20:55:51

When the Cost becomes greater than the Benefit someone starts doing without. This week it is someplace called Venezuela?


well you will have to explain that one, given the cost to extract Venezuela crude has nothing whatsoever to do with their current situation nor the lack of Venezuela crude being imported by US refineries. If you don't understand this very simple dynamic that has transpired then it is no wonder you came up with the most ridiculous ETP nonsense.
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Re: Is EROEI Important Pt. 4

Unread postby Yoshua » Thu 14 Feb 2019, 02:13:30

Adam and Rockdoc are living in Lala land. It's sometimes hard to think that they are serious.

How does someone explain their reality escape?
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Re: Is EROEI Important Pt. 4

Unread postby Yoshua » Thu 14 Feb 2019, 02:21:11

The thermodynamic laws are the same...but the depletion rate of the world's petroleum reservoir is rising.

These things are not hard to understand.
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Re: Is EROEI Important Pt. 4

Unread postby Yoshua » Thu 14 Feb 2019, 11:51:23

But then again: a theory is a psychological abstraction of the physical reality.

The psychological and the physical worlds are never exactly the same.
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Re: Is EROEI Important Pt. 4

Unread postby onlooker » Thu 14 Feb 2019, 14:59:27

rockdoc123 wrote:
When the Cost becomes greater than the Benefit someone starts doing without. This week it is someplace called Venezuela?


well you will have to explain that one, given the cost to extract Venezuela crude has nothing whatsoever to do with their current situation nor the lack of Venezuela crude being imported by US refineries. If you don't understand this very simple dynamic that has transpired then it is no wonder you came up with the most ridiculous ETP nonsense.

Oil has everything to do with the situation there. The oil curse is very real and is about the priviledged few and few countries coveting that oil to the detriment of the locals who are at best an afterthought. It is also about the quality of oil they have which makes it very difficult to produce without alot of money and expertise
So, the Bolivarian Revolution was destined to fail because of this and because the tremendous economic pressures the US and its allies can exert in the Western Hemisphere.
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Re: Is EROEI Important Pt. 4

Unread postby shortonoil » Thu 14 Feb 2019, 15:39:02

The IEA seems to be admitting that the world has reached Peak; even though you must read between the lines to see it. Post Peak fields are plummeting, and "yet to be approved" means if they could economically justify them. The IEA is putting the decline of existing fields at 4.5% per year. We can expect to see a continual decline in world trade, continual declines in industrial production, and a continual decline in asset returns. The world is entering a recession from which it will never recover. The entropic decay of the world's petroleum resources has removed oil's ability to power such a recovery.

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Re: Is EROEI Important Pt. 4

Unread postby shortonoil » Thu 14 Feb 2019, 15:49:32

well you will have to explain that one, given the cost to extract Venezuela crude has nothing whatsoever to do with their current situation nor the lack of Venezuela crude being imported by US refineries.


The cost of extracting Venezuela heavy (API 7 to 16) has been estimated at as much as 9 times higher than Saudi Light. In the 1970's PVdS was saying $18/ barrel. Venezuela heavy is not crude, it is bitumen.

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