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Plentiful oil will sustain the age of hydrocarbons



Last week, I wrote about the likelihood of a long plateau of oil demand at something around 100m barrels a day for the next two to three decades. That figure reflects a balance between falling consumption of petrol as electric vehicle numbers grow and continuing increases in demand for diesel for the freight business, aviation fuel and oil for the petrochemicals industry.

The question is whether that demand can be sustained without a damaging increase in price. The answer is yes. There will be spikes and volatility. But even on very cautious assumptions about the availability of new oil supplies there is no reason to fear a sustained upward shift in prices. And if some new research turns out to be true, the recent band of prices between $45 and $60 a barrel could represent a ceiling rather than a floor.
Starting with geology, there is simply no shortage of oil. According to the BP Statistical Review, global reserves at the end of 2016 were 1.7tn barrels — double the record in 1980. One can dispute the data from some countries, such as Saudi Arabia, but most of the reserves numbers are genuine, and in many cases understatements.

“Reserves” means oil that has been identified and is judged capable of commercial development. Beyond that are resources — oil believed to be in place but not fully appraised or judged capable of development now. For many countries and companies the resource base is significant and will add to availability as technology advances.

The next question is whether the oil can be developed without a sharp increase in costs. The answer here is more nuanced. The majority of reserves are in areas where costs are already low, such as most of the onshore fields across the Middle East. Those areas have infrastructure in place, requiring only limited investment to add in new producing fields.

In addition, significant volumes of reserves and potential resources sit in fields that are already producing. At the moment the average recovery factor across the industry is between 35 and 45 per cent. As reservoir management technology advances that will rise, with each percentage gain adding billions of barrels. Prudhoe Bay in Alaska, for instance — which began producing in 1977 and was originally supposed to close down within 30 years — is still producing 280,000 b/d thanks to technical advances that have slowed the decline rate to a minimum.

Optimism on costs is reinforced by the evidence of the last three years. Across the world the industry has responded to a fall in prices of more than 60 per cent by reducing costs and applying new technology. Most companies are now viable if prices stay at $50. The process has been painful but the result is remarkable. A new cost base is enabling a wave of projects to be launched.

One problem remains, however. Much of the reserve base needed to supply a long plateau of demand is located in areas beset by conflict or closed to investment for political reasons. Iran, Iraq, Saudi Arabia, Nigeria, Venezuela and other significant producing and exporting countries carry a high level of political risk. That is why so many commentators and some in the industry still expect prices to rise as supply comes to depend on high cost areas such as the Arctic.

But that expectation may soon be overtaken by reality. A new study published by the investment research and execution firm Redburn suggests that the US shale business is only in its infancy. Technology continues to advance in drilling, mechanical learning from each frac, the process of recycling water and the improved efficiency of fluid use. These are reducing costs and Redburn boldly suggests these could fall from around $50 a barrel to around $25 to $30. Given the volumes involved, this would set a new cost base for the whole industry.

As Redburn notes, the traditional industry has focused on oil accumulated in reservoirs. The bulk of it continues to sit within the rocks and the shale business is tapping that potential. The Redburn study focuses on the US but technology soon moves globally and if it is right, the potential for shale production from Argentina to China is very high.

The aggregate message is that there is no shortage. Sporadic spikes and volatility will be driven by political instability but demand can be supplied at a relatively high level for many years to come. Oil is not going away any time soon. That will comfort those companies that are unprepared for the energy transition but is more disturbing in terms of emissions and climate change.

David Howell, the UK’s former energy secretary, writes in the new edition of his fascinating book on energy policy that there is a fundamental conflict between different views of the energy future — what he describes as the Black and the Green. That conflict will shape the public debate on energy for a long time to come. The age of hydrocarbons is far from over.

22 Comments on "Plentiful oil will sustain the age of hydrocarbons"

  1. gwb on Mon, 25th Sep 2017 7:35 pm 

    What a piece of fluff — and it’s behind a paywall. The Financial Times wants us to pay for this? I think I’ll pass

  2. fmr-paultard on Mon, 25th Sep 2017 8:56 pm 

    this is old news

    this is the phils

  3. mick on Mon, 25th Sep 2017 9:32 pm 

    Another hopium article the fleece investors (suckers)

  4. Bloomer on Mon, 25th Sep 2017 9:33 pm 

    Conflict between Black and Green what about the conflicts between drinking water and fracking water. The wars to control oil will be superceded by the wars over water rights as the glaciers melt and the rivers go dry.

    Oil Derrick’s will soon be used to drill for water. And as water becomes commodize it will be the planets more sought after scarce resource.

  5. makati1 on Mon, 25th Sep 2017 9:41 pm 

    Annual births by country:

    US – `4,400,000
    Philippines – ~2,400,000

    Even Niger, #1, only added less then 1 million in 2016

    Looks like the US is ahead by almost double. But you also have to factor in the death rate and the infant mortality to come up with a true number of population increase.

    US increase was 23 million from 2002 to 2008.
    Ps increase was 8 million in the same time frame.

    So, what is your point?

  6. Boat on Mon, 25th Sep 2017 11:44 pm 

    population growth per capita 2017

    US Population growth rate:
    0.81% (2016 est.)

    Philippines 1.59 2016 est.

    Population growth in the P’s is almost double per year and that includes immigration.

    Wish you knew how to google and read with comprehension.

  7. makati1 on Tue, 26th Sep 2017 12:11 am 

    So? The total Ps numbers is less than half that of the US. What are you trying to prove, Boat?
    This is a country of young people that is growing its GDP at twice the US rate. Not a country of old people that is contracting, like the US.

  8. Davy on Tue, 26th Sep 2017 5:33 am 

    “US increase was 23 million from 2002 to 2008. Ps increase was 8 million in the same time frame. So, what is your point?”
    The point dumbass is you are already an overpopulated little island no bigger than Arizona. One American state mkat, got it.

    “This is a country of young people that is growing its GDP at twice the US rate.”
    A country with 16 times the population and a similar GDP to my insignificant State of Missouri. LMFAO

  9. Cloggie on Tue, 26th Sep 2017 6:16 am 

    What is important is that there are enough hydro-carbons left to bridge the 30-60 (Europe-World) years transition period.

  10. GregT on Tue, 26th Sep 2017 9:43 am 

    What is important is the natural environment.

    Burning another 30-60 years worth of hydrocarbons, in a futile attempt at maintaining infinite exponential growth on a finite planet, isn’t exactly smart. That is exactly what the humans will try to do, however, only they don’t have 30-60 years left.

  11. Hello on Tue, 26th Sep 2017 9:50 am 

    >>>> What is important is the natural environment.

    Very true !!

    >>>> “This is a country of young people that is growing its GDP at twice the US rate.”

    That’s easy. If your current GDP consists of producing one hammer/year, doubling it to 2 ain’t that hard.

  12. onlooker on Tue, 26th Sep 2017 10:17 am 

    What Greg just said bears repeating. I am a bit amused by the back and forth of what region is or will be better off. Just like I am amused by the Renewable debate. Our entire way of life is unsustainable in rich countries. And poor countries are no better off because they are massively overpopulated. This is not solved with techno fixes or more energy or economic restructuring. Everyday we are degrading the capacity of the Earth too support much of life on it. We are the Wily Coyote who is already off the cliff and just now realizes he will fall. All we can really do is try and stay united and compassionate and help each other on this harrowing road down. The tipping points will tip, the lag times in the worse effects including of climate change will run out and we will be left with a rather inhospitable Earth. Our species is in the midst of an existential crisis

  13. GregT on Tue, 26th Sep 2017 10:38 am 

    Mankind’s greatest predicament stems from a surplus of energy. That predicament will be solved when there is no longer a surplus of energy, or the natural environment reaches a tipping point, whichever comes first. Mankind is not in control of either ‘solution’.

  14. Dredd on Tue, 26th Sep 2017 11:07 am 

    This post from FT gives new meaning to “dreamer.”

  15. rockman on Tue, 26th Sep 2017 12:20 pm 

    “Oil Derrick’s will soon be used to drill for water.” No, they won’t. Even the smallest oil rig is tremendously inefficient to drill water wells. Small oil rig = $4,000+ per day. Water well rig = $600 per day. Typical cost for a completed water well I drill for my oil drilling locations: $3,200. Less then 1/2 the cost to just transport the smallest drill rig to a location: requires a number of 18 wheeler loads in addition to the truck mounted oil drilling derrick.

    As far as frac’ng competing with other fresh water consumers: won’t happen if fresh water supplies become tight. That would increase the price of fresh water and we have systems to recycle frac water. That costs more money but still cheaper then paying for high priced fresh water. Also takes away bad environmental PR from disposing of frac water.

  16. rockman on Tue, 26th Sep 2017 12:23 pm 

    BTW there is a huge shortage of oil. $20/bbl oil that is. At $20/bbl many tens of millions would see a huge improvement of their lives and that of their children.

  17. Green People's Media on Tue, 26th Sep 2017 10:04 pm 

    All of these “Oil Cornucopia” pundits are flaming climate-change deniers, do you ever notice this?

    It’s as if NOAA, the IPCC, James Hansen, and all of these people working on the Co2 emissions problem are just a bunch of high school bloggers, to be ignored and meanwhile,

    they’re pumpin’ & dumpin’ yiz…


  18. Anonymous on Tue, 26th Sep 2017 11:46 pm 

    Rockman, get busy and find more oil please. I really prefer $20 to $50. Heck, I will make it easier on you. Just drive the price down to $30 and I will say well done.

    P.s. How about that natgas price? Oscillating $3 strip until the cows come home.

  19. Anonymouse1 on Wed, 27th Sep 2017 1:47 am 

    Look, narrativeman just played the ‘Wont somebody think of the children’ card. This card is seldom played by pro-oil shills.

    >Art, Argument, and Advocacy (2002) argued that the appeal substitutes emotion for reason in debate.

    This is kind of low, even by your greasy standards narrativeman, claiming that if you prevent for-profit oil cartels from drilling for oil, specifically ‘cheap’ oil, you’ll be denying….children(sniff)…a chance for a better life.

    And narrativeman isn’t just saying children…but *millions* of them. Double-down time!

  20. Davy on Wed, 27th Sep 2017 6:12 am 

    “This is kind of low, even by your greasy standards narrativeman, claiming that if you prevent for-profit oil cartels from drilling for oil, specifically ‘cheap’ oil, you’ll be denying….children(sniff)…a chance for a better life.”

    A stupid Canadian millennial does not understand you take away oil and you take away the basis of modern civilization. The boy wonder wants to blame big oil for the pollution and destruction as he lives his cushy life in mom’s basement. Millennial baby, why is it so hard for you and your neighbor grehg to process reality. Did they not teach you guys how to live in the real world in those wonderful Canadian schools? BTW, what is your plan to get rid of oil? All you do is bitch, moan, and complain about Americans, Jew, and big oil. What would you do to save the world little Einstein with the goofy millennial anti-American vocabulary? How would you save the world? I know you have not thought that far through have you. Probably on Xbox too much. Put the controller down and go out into the world. Go out and do some community service and maybe you would not be so angry and self-absorbed. I don’t like oil either but I can reality test.

  21. Davy on Wed, 27th Sep 2017 6:30 am 

    Since a significant amount of Canadians hate the US lets thicken the border up.

    “Trade War Escalates After US Slaps Canada’s Bombardier Jet With 220% Tariff”

    “As Bloomberg reports, the Commerce Department slapped import duties of 220% on Bombardier’s C Series plane Tuesday, agreeing with Boeing’s complaint that “improper” government subsidies allowed Bombardier to illegally dump their jets on the US market. The preliminary determination threatens to upend Bombardier’s planned deliveries next year to Delta Air Lines Inc., which ordered at least 75 jets with a list value of more than $5 billion, an order which was critical for Bombardier after a rocky stretch of weak sales.”

    “The decision is only the latest provocation from US trade hawks, who’ve sought to impose stiffer import penalties on a range of Canadian industries, frequently blaming government subsidies. In August, Commerce Secretary Wilbur Ross provoked an angry response from Canadian Prime Minister Justin Trudeau – who threatened a “thickening” of the US-Canada border.”

  22. Davy on Wed, 27th Sep 2017 6:50 am 

    Wow, Gail is going to stir some shit up with this piece. Too long to list all the stuff that will disturb our audiences. Good section on religion for the Atheist religion types too. PO DOT COM will likely run the article but here is an early look. I included this reference to upset Eurotards who dream of 100% renewable fantasy futures. I love the very end of my reference where Gail trounces the Eurotards 1KW equals 1KW nonsense.

    “Why Political Correctness Fails (When What We Know “For Sure” Is Wrong)”

    “Conveniently, BP gives the production of wind and solar in “terawatt hours.” If we take today’s world population of 7.5 billion, and multiply it by 24 hours a day, 365.25 days per year, and 200 watts, we come to needed energy of 13,149 terawatt hours per year. In 2016, the output of wind was 959.5 terawatt hours; the output of solar was 333.1 terawatt hours, or a total of 1,293 terawatt hours. Comparing the actual provided energy (1,293 tWh) to the required energy of 13,149 tWh, today’s wind and solar would provide only 9.8% of the supplemental energy needed to maintain a hunter-gatherer level of existence for today’s population. “

    “Of course, this is without considering how we would continue to create wind and solar electricity as hunter-gatherers, and how we would distribute such electricity. Needless to say, we would be nowhere near reproducing an agricultural level of existence for any large number of people, using only wind and solar. Even adding water power, the amount comes to only 40.4% of the added energy required for existence as hunter gatherers for today’s population. Many people believe that wind and solar are ramping up rapidly. Starting from a base of zero, the annual percentage increases do appear to be large. But relative to the end point required to maintain any reasonable level of population, we are very far away. A recent lecture by Energy Professor Vaclav Smil is titled, “The Energy Revolution? More Like a Crawl.”

    “we have a hard time determining total “energy in.” A large share of energy use comes from indirect sources, such as roads that are shared by many different users. A particular problem occurs with intermittent resources, such as wind and solar. The EROI analyses available for wind and solar are based on analyses of these devices as stand-alone units…..On this basis, they appear to be reasonably good choices as transition devices away from fossil fuels.”

    “Any of these workarounds is expensive and becomes more expensive, the larger the percentage of intermittent electricity that is added. Euan Mearns recently estimated that for a particular offshore wind farm, the cost would be six times as high, if battery backup sufficient to even out wind fluctuations in a single month were added. If the goal were to even out longer term fluctuations, the cost would no doubt be higher. It is difficult to model what workarounds would be needed for a truly 100% renewable system. The cost would no doubt be astronomical.”

    “Another way of viewing the issue is as a “quality” issue. EROI theory generally treats all types of energy as equivalent (including coal, oil, natural gas, intermittent electricity, and grid-quality electricity). From this perspective, there is no need to correct for differences in types of energy output. Thus, it makes perfect sense to publish EROI and LCA analyses that seem to indicate that wind and solar are great solutions, without any explanation regarding the likely high real-world cost associated with using them on the electric grid.”

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