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Are We On The Cusp Of A Global Energy Crisis?

Are We On The Cusp Of A Global Energy Crisis? thumbnail

Goehring and Rozencwajg believe that we are on the cusp of a global energy crisis because of the depletion of U.S. tight oil plays.

“We are on the cusp of a global energy crisis…Global energy markets in general and oil markets in particular are slipping into a structural deficit as we speak. We believe that energy will be the most important investment theme of the next several years and the biggest unintended consequence of the coronavirus.”

—Goehring and Rozencwajg, July 2020

I doubt that they are right but their logic is sound.

U.S. tight oil accounted for 83% of growth in world production over the decade 2009 to 2019 (Figure 1). Deep water and oil sands were the other growth area at 23% while conventional production declined 9% over the same period.

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World production fell an astonishing 10.8 mmb/d from April to June of this year. About 30% of that decline was from U.S. output and a little more than half of the U.S. decline was from tight oil.

Tight Oil Rig Count and Oil Production

Rig count is a good way to predict future oil production as long as the proper leads and lags are incorporated.

It takes a month or two between increased oil price and a signed rig contract. It takes another 5 or 6 months to drill and complete all the wells on a drilling pad. It then takes another 5 or 6 months from first production before new wells offset declining output from older wells. Add it all together and it takes at least a year between an upward price signal and enough new production to maintain or increase output.

Twelve-month lagged tight oil horizontal production reached 7.28 mmb/d when the rig count was 613 (Figure 2). That corresponded to 12.9 mmb/d of U.S. oil production (tight oil is about 53% of total U.S. output). The EIA forecasts about 11 mmb/d of output through 2021. Approximately 450 rigs are needed to maintain that level but the July tight oil rig count was 147, about one-third of the number needed to maintain 11 mmb/d.

It is, therefore, inevitable that production will fall. The considerable lags and leads mean that production decline cannot be expected to reverse until well into 2021 assuming that large numbers of rigs are added immediately. That won’t happen because of constrained budgets and low oil prices. Based on rig count analysis, U.S. oil production will probably be about 6 mmb/d by mid-2021 or less than half of peak November 2019 levels.

That sounds ominous but it is only half of the story. World liquids demand has fallen almost 19 mmb/d in the first half of 2020 (Figure 3). That works out to a crude and condensate decrease of about 15.5 mmb/d.

And that is precisely the problem and why oil prices remain range-bound in the $40 range. A big drop in supply only results in an energy crisis if demand recovers to 2019 levels.

The integrated OPEC-EIA data shown in Figure 3 indicates a V-shaped demand recovery in the third quarter of 2020 with a lagging recovery in supply. I don’t believe that either forecast is likely but let’s put that aside for now so we can understand the best-case outcome.

A huge supply surplus in the first half of the year is expected to give way to a smaller yet significant supply deficit in the second half. A 2.25 to 2.50 mmb/d supply deficit in the second half of the year is not an energy crisis but it does suggest higher oil prices are ahead.

The OPEC-EIA model suggests approximate market balance in early 2021 followed by a substantial surplus during the rest of the year. That is hardly a death knell for the oil industry but it does suggest lower oil prices are ahead.

Where is the crisis ?

To be fair, I’m sure that Goehring and Rozencwajg would say that they are thinking farther into the future. Their models assume some version of business-as-usual but I don’t think there is anything usual about the either the present or the future. The world has changed but paradigms change slowly.


13 Comments on "Are We On The Cusp Of A Global Energy Crisis?"

  1. Wolfgang de Dangler on Mon, 7th Sep 2020 10:29 am 

    We need to start cooking the Jews, starting with Harvey Weinstein.
    They have hijacked the West.

  2. Bo Chen on Mon, 7th Sep 2020 3:36 pm

    The world needs to cut out the useless middle man

    I’m hoping the Jews do the right thing here…

  3. Rik on Mon, 7th Sep 2020 4:05 pm 

    There is a way to create alternative energy: turn garbage into energy (by capturing methane gas and feed it into the power grid). Ship all garbage from other countries and give them to countries like Sweden where they can be incinerated.

  4. Rik on Mon, 7th Sep 2020 4:22 pm 

    Send Ghislaine Maxwell to the Middle East where all of the men can have their way with her.

  5. makati1 on Mon, 7th Sep 2020 4:48 pm 

    Not one intelligent post above. Typical.

    There is no oil shortage, only a shortage of those who can afford to buy and use it. THAT is the problem and it will not be fixed by printing $$$. No demand. No profit. No oil.

    Many billions of barrels will still be in the ground when the age of petroleum is over.

  6. Brent Georgeson on Mon, 7th Sep 2020 5:55 pm 

    They were not making a profit at 100 dollars a barrell. I think investers got so burned this time that they are not going to kump in until the price goes way up and that will kill the economy.

  7. zero juan on Mon, 7th Sep 2020 6:01 pm 

    Widdle juan PPee has lost it:

    bochen777 said

    bochen777 said Rik, USA will nuke China on Oct 15th 2020 https://

    Rik said Beijing should be nuked along with Shanghai, Shenz…

    Rik said All Chinese megaprojects should be indefinitely ca…

    Rik said The Filipinos/Filipinas should kill all Moslems.

    bochen777 said

    Rik said China should exterminate all Hong Kongers, Macauer…

    Rik said Juan P is a spick.

    Rik said Bochen777, the Covid-19 isn’t real. And take…

    bochen777 said Rik == Real Green == Short on Oil

    Rik said The people of Iran are just like the Arabs: sand n…

    bochen777 said Rik,

    Rik said Bring back slavery of niggers.

    Rik said Note to Chinks: stay the fuck out of the West. You…

    Rik said The COVID-19 is a hoax. Everything is fine and dan…
    Rik said All non-whites, feminists, non-Christians, LGBT pe…

    Rik said Anti-racism is codeword for anti-white.

    Rik said The real racists are non-whites.

  8. Bo Chen on Mon, 7th Sep 2020 7:32 pm 


  9. what is the meaning of keeping whitey supertard atheist scientific supremacist thunderfoot whole on Mon, 7th Sep 2020 9:13 pm 

    This supertard speaks high British British English exclusively does he love muzzies oh yeah sure does

    Is it about white supremacy

    But club science-19 admitted DROPOUT-19 so the club is a whorehaus

    Please explain

  10. Cloggie on Tue, 8th Sep 2020 3:05 am 

    Denmark has the foresight to preempt an energy crisis and has just approved a giant plan for 2 energy islands and 6 GW of offshore wind + hydrogen capacity:

    “Denmark Approves 2 Energy Islands and 6 GW Wind + H2”

  11. Adriano on Wed, 9th Sep 2020 5:19 am 

    with elettricity you don’t eat

  12. JuanP on Fri, 11th Sep 2020 7:10 pm 

    So guys remember this disabled/ inter-able coupled I commented on when back in March the lockdown just started?

    Well the follow up is their wedding was reduced to a “zoom” wedding, which is to say it was basically just to two of them at home…
    and the wifey that was trying on all these fancy dressess and was gonna surprise her husband with one on wedding day ended up borrowing her mom’s wedding dress with does not fit on her at all….

    This is the China Dream turned into the China’s Nightmare…

  13. JuanP on Sat, 12th Sep 2020 5:24 pm 

    Uncle Joe is very, very popular among a certain segment of the German population. Specifically, German neo-Nazis. German neo-Nazis absolutely adore our weird-haired, buffoonish, racist leader

    Some positive news for the brain dead Biden

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