Oil Problems comin' round the mountain

[grmorton]

As promised a couple of days ago on the Peak Oil Still Future Thread, I am starting this thread to discuss the science of petroleum and how it affects the science of economics. I have run into a couple of data points with regard to future production.

Rob Watts, "Strong Message to UK," Upstream, March 20, 2009, p. 23

"In 2008, 108 exploration and appraisal wells were drilled off the UK, similar to 2007 levels.
"However, in 2009 only 34 wells have rig slots so far, according to Oil & Gas UK statistics."

© source where applicable

Rob Watts, "Strong Message to UK," Upstream, March 20, 2009, p. 23

"It is therefore very concerning that, since 2004 costs have doubled and the rate of tax charged on new developments has increased to 50%."

© source where applicable

I was once the Geophysical Manager for the North Sea living in Aberdeen, Scotland so the above data has particular poignancy for me. I have watched the decline of UK production now for 9 years. The UK is producing about half the oil it did just 9 years ago. and it keeps falling. What is going to happen is that there will come a point when the infrastructure, the platforms, processing facilities and pipelines start disappearing. Already platforms are being removed from the North Sea. The first was Hutton, a field the company I worked for owned. Frigg field has been removed, When the platforms go, so do the facilities and pipelines.

But worse problems exist. What we are finding is small. We are not often finding the big fields any longer. We are living off the past. Consider this.

Jeremy Beckman, "Activity High Across Europe but Costs and Credit May Take Their Toll," Offshore, May 2009, p. 50

Exploration drilling offshore Norway generated 25 discoveries in 2008, according to the Norwegian Petroleum Directorate. In most cases, volumes found were small, ranging from 1-26 MMcmoe(35-918 MMCfoe."

© source where applicable

Multiply by 6.2 to come up with barrels. Basicaly 26 million cubic meter is about 150 million bbl of oil. That lasts the world 2 days.

In the US the drilling is abating with rapidity because of the low demand.

Cathy Landry, " First quarter 2009 U.S. drilling activity dips to 2004 levels - API

WASHINGTON, April 15, 2009 - First-quarter U.S. oil and natural gas drilling activity dipped to levels not seen since 2004, marking the end of six consecutive years of first-quarter growth, new estimates from the American Petroleum Institute show.
According to API’s 2009 Quarterly Well Completion Report: First Quarter, an estimated 11,071 oil wells, natural gas wells and dry holes were completed in the first quarter of 2009, down 22 percent from 2008’s first quarter and down 35 percent from 2008’s fourth quarter.",

© source where applicable

http://www.api.org/Newsroom/drilling_q1_2009.cfm

Mexican production is declining at rates that will make them a net importer in a few years. They have been one of the US's major suppliers. Not for much longer

Gareth Chetwynd, Decline of Cantarell a Sore Point," Upstream, March 27, 2009, p. 8

"Total Mexican crude output declined 9% to 2.8 million barrels per day last year, with output on Cantarell down nearly a third by February, when it was running at 759,000 barrels per day."

© source where applicable

The high price of the last few years has caused a horrid recession and caused a vast drop in the demand for oil. We are driving less, using less electricity, Railroad freight volumes are down, people are flying less. and buying fewer goods. All of these depress demand for oil.

Two charts should be shown. The production is now being restricted both by OPEC and by natural decline. I know of fields in the Gulf of Mexico whose production was maintained by a constant drilling program over the past several years. There is now going to be a cessation of drilling on that field and within a year, projections show that the production will decline by 68% I also have learned of some big fields in the GOM which are now producing some water after only a very short time. Big fields are not supposed to do that. While I will not get into the specifics, anyone with access to the MMS database can figure out what I am speaking of

In the first picture you can see that as the oil price rose in the past few years, production didn't rise very much. Largely it was the crash in demand for oil that crashed the green curve (the price) back to what it is today. The second chart shows the percentage change month to month of oil price and of crude production. This shows that it is largely demand or lack of it that controls the price. Production doesn't have to change that much to create large price swings

[showmeproof]

Great stuff GM. We are without a doubt dependent upon oil for current life-styles. I have no doubt that the current cut in demand is causing huge economic issues. However, (and here I'll claim a bit of ignorance), do you think that the market system could drive us towards oil independence via new technological replacements and advancements? For instance even though taxes are monumental for these oil fields, but there are huge tax credits for alternative energies. I know we do not have anything yet to rival or replace oil, but don't we eventually have to wean ourselves from it. Oil is definitely the driving force of the world economy, but will we not set ourselves up for further economic failure if we ignore it's finite use and continue along this path?

[grmorton]

Great stuff GM. We are without a doubt dependent upon oil for current life-styles. I have no doubt that the current cut in demand is causing huge economic issues. However, (and here I'll claim a bit of ignorance), do you think that the market system could drive us towards oil independence via new technological replacements and advancements? For instance even though taxes are monumental for these oil fields, but there are huge tax credits for alternative energies. I know we do not have anything yet to rival or replace oil, but don't we eventually have to wean ourselves from it. Oil is definitely the driving force of the world economy, but will we not set ourselves up for further economic failure if we ignore it's finite use and continue along this path?

Price is the only thing that will wean us off oil. And it must be REAL price. The problem with raising prices through taxation is that the political class, who are all scientific idiots, will chose which technology wins and which loses. Taxed money is not available for re-investment in the invention of new technologies and will be wasted on paying for people not to work or giving money to people who didn't earn it. We need lots of invention and lots of trials of different technologies so that the most efficient can be found. What is happening right now is that the even with the subsidies, the chosen, annointed technologies of wind and solar in their current forms are economic losers and the companies engaged in those businesses are going broke by the bucket load. Subsidizing them won't solve their fundamental problem--they are too inefficient wrt oil right now.

The political class has done an effective job of demonizing the oil industry but I can tell you that as a director of technology for Kerr-McGee, I looked at alternative energies that we could make money on. The assignment was not to buy and kill the alternative, the assignment was find something because the oil is going to run out and we need something that works. KMG was invested in new battery technology among other things. But if the political class succeeds in convincing the masses to tax the profits of the companies, who is going to have the money to invest and improve on alternative energies?

One other thing to think about if the money is taxed and part is set aside to invest by the political class into alternative energies, they will invest it with their political supporters. The investment will not be based upon a hard nosed business decision.

[wattsr1]

Price is the only thing that will wean us off oil. And it must be REAL price. The problem with raising prices through taxation is that the political class, who are all scientific idiots, will chose which technology wins and which loses. Taxed money is not available for re-investment in the invention of new technologies and will be wasted on paying for people not to work or giving money to people who didn't earn it. We need lots of invention and lots of trials of different technologies so that the most efficient can be found. What is happening right now is that the even with the subsidies, the chosen, annointed technologies of wind and solar in their current forms are economic losers and the companies engaged in those businesses are going broke by the bucket load. Subsidizing them won't solve their fundamental problem--they are too inefficient wrt oil right now.

The political class has done an effective job of demonizing the oil industry but I can tell you that as a director of technology for Kerr-McGee, I looked at alternative energies that we could make money on. The assignment was not to buy and kill the alternative, the assignment was find something because the oil is going to run out and we need something that works. KMG was invested in new battery technology among other things. But if the political class succeeds in convincing the masses to tax the profits of the companies, who is going to have the money to invest and improve on alternative energies?

One other thing to think about if the money is taxed and part is set aside to invest by the political class into alternative energies, they will invest it with their political supporters. The investment will not be based upon a hard nosed business decision.

I did hear on the radio this morning that oil is on the rise again, so petrol is going to start creeping and jumping up again.


Regards, Roland

[lee_merrill]

... so petrol is going to start creeping and jumping up again.

Petrol? for the lorries by the kerb, eh wot?

But indeed, it does seem the only way we are going to give up oil is through cold turkey withdrawal.

I'll sober up if you ring the bobbies and haul me off to gaol...

Blessings,
Lee

[showmeproof]

Price is the only thing that will wean us off oil. And it must be REAL price. The problem with raising prices through taxation is that the political class, who are all scientific idiots, will chose which technology wins and which loses. Taxed money is not available for re-investment in the invention of new technologies and will be wasted on paying for people not to work or giving money to people who didn't earn it. We need lots of invention and lots of trials of different technologies so that the most efficient can be found. What is happening right now is that the even with the subsidies, the chosen, annointed technologies of wind and solar in their current forms are economic losers and the companies engaged in those businesses are going broke by the bucket load. Subsidizing them won't solve their fundamental problem--they are too inefficient wrt oil right now.

The political class has done an effective job of demonizing the oil industry but I can tell you that as a director of technology for Kerr-McGee, I looked at alternative energies that we could make money on. The assignment was not to buy and kill the alternative, the assignment was find something because the oil is going to run out and we need something that works. KMG was invested in new battery technology among other things. But if the political class succeeds in convincing the masses to tax the profits of the companies, who is going to have the money to invest and improve on alternative energies?

One other thing to think about if the money is taxed and part is set aside to invest by the political class into alternative energies, they will invest it with their political supporters. The investment will not be based upon a hard nosed business decision.

Good points. It will be interesting to see how it all turns out. I've heard a few numbers kicked around, but in your circles what is the ETA of us effectively running out of oil to where society can no longer continue to function in its current state?

[grmorton]

I did hear on the radio this morning that oil is on the rise again, so petrol is going to start creeping and jumping up again.


Regards, Roland

I still think it is a wee bit too early for oil to be rising from loss of production. Storage numbers are still very high. But give it about a year.

One thing I didn't mention last night was that Petro-Canada laid off, I think, 200 employees and 100 contractors who were working on a Canadian oil sands project. Those who think that tar sands are going to save our cookies should know that the layoff means that the project they were trying to get going is now not going to get going. That means that all that tar sands oil which is going to save us, isn't going to be there.

The largest producer in the world, Russia, is and has been declining since late 2007

[grmorton]

Good points. It will be interesting to see how it all turns out. I've heard a few numbers kicked around, but in your circles what is the ETA of us effectively running out of oil to where society can no longer continue to function in its current state?

I hate answering that question, so I won't. I have my ideas, but I also know that humanity will do everything in its power to avoid the problems, AFTER our governments finally realize that the threat to the planet is not warming, but not having oil. Unfortunately, I am not entirely sanguine that the current occupants of the idiotic political class are up to the task.

Let's look at Chavez. You would think that making his people's lives better would be his goal. He has done nothing to help the people of Venezuela in 10 years. He has also presided over a huge drop in oil production. he is looting the place. They can't get food now, so Chavez nationalizes some of the food importers, as if that will help make other countries send rice to Venezuela.

If we allow our political idiots to loot us, we will have the same wonderful experience that the Venezuelans have had. Politicians are like parasites to a living organism. They don't often produce much of good value to the host. They just suck the life out of their host.

I deleted the original copy of this because I forgot to upload the picture and I must write something new into this or the system won't let me re-load the post.

[Augustine2004]

What do you mean by that, ' . . . I am starting this thread to discuss the science of petroleum and how it affects the science of economics.' Good grief, you think that history should be used to determine the basics of economics. Economists should not ignore history. Some great economists are or were also great historians, but they apply their knowledge of economics to make sense of history and not the other way around. History may be used to suggest topics, for example, the second Great Depression (I hope not, but fear) and to check economic theories (with due caution).

I would never write anything like, ' . . . and how it affects the science of economics' unless the topic was the development or evolution of the science.

[grmorton]

What do you mean by that, ' . . . I am starting this thread to discuss the science of petroleum and how it affects the science of economics.' Good grief, you think that history should be used to determine the basics of economics. Economists should not ignore history. Some great economists are or were also great historians, but they apply their knowledge of economics to make sense of history and not the other way around. History may be used to suggest topics, for example, the second Great Depression (I hope not, but fear) and to check economic theories (with due caution).

I would never write anything like, ' . . . and how it affects the science of economics' unless the topic was the development or evolution of the science.

YOu wanted all economic discussions to move to your other threads. I said I would start another because you wanted economics out of the Peak oil thread. Let's see, you said in the Peak oil future thread

Look, people, this is my thread, and threads discuss economics already: Augustine2004's opinions, public goods, and small government.
Again we have to agree on the basics first.

I am just fulfilling your wishes to get the economics out of your thread. One should always be careful what one wishes for.

[grmorton]

Today's bad news bear for the future of oil production comes from the Wall Street Journal

Spencer Swartz, "Downturn Sets Up Surge in Oil Prices," Wall Street Journal May 20, 2009, p. a8

Energy investment is "plunging" because of the recession, paving the way for oil-price surges within three years, the International Energy Agency warned in a new report.

The Paris-based watchdog for the world's major energy-consuming nations said that in recent months, oil companies and investors have canceled or postponed about $170 billion of investment equivalent to roughly two million barrels a day in future oil supply.

An additional 4.2 million barrels a day in future oil-supply capacity has been delayed by at least 18 months as companies slash spending.

© source where applicable

to put that 4.2 million bbl/day into perspective, natural pressure decline in the world's oil fields causes a drop of 5.5 million bbl/day per year. By the time that 4.2 million per day of delayed production comes on line the world will have dropped something like 8 million bbl/day in production, giving us a net loss of about 4 million bbl/day.

Less oil means 1 higher prices or 2. less economic activity--meaning you don't have a job because no one is buying the widgets you produce

[Augustine2004]

I am just fulfilling your wishes to get the economics out of your thread. One should always be careful what one wishes for.

What does that mean, I should not jump onto economics mistakes in this thread?

[grmorton]

What does that mean, I should not jump onto economics mistakes in this thread?

Never mind, Augustine, jump on any errors you find.

Ok, tonight's message will be about the new CAFE standards and their perverse impact on the usage of fuel. I think there are some sectors of the economy which will be forced to use more gasoline, not less, because of the new CAFE standards.

No, this is not a place where you eat. CAFE stands for Corporate Average Fuel Economy standards. The Obama administration, in their madness just said that cars must meet 42 mpg and light trucks, 30 mpg by 2016. I won't comment on the cars, but now being in the world of agriculture (even if still a bit inept about it), I can see that these idiotic rules, designed by a bunch of ignorant city folk, are going to cost us lots of fuel on the farms, which means it will cost you when you buy your food. Someone must pay and it won't be the farmer.

Here is how it works. I have a 1999 half ton pickup which I use at the ranch. It gets about 20 mpg, which isn't all that bad. I have put 3/4 of a ton of stuff in the back (I know this for a fact) but I wouldn't go much bigger than that for a load fearing breaking an axle or something worse. Now, lets say I need to drive 20 miles to pick up 3/4 of a ton of stuff. I can do that in approximately the expenditure of 1 gallon of gasoline. So far, the math is simple.

But, if I had a truck which required 30 mpg, I would need one of those tiny little, puny pickups that most real men avoid. Well, farmers avoid them because they can't do much. A Ford Ranger can get 30 mpg but it can only carry about half of what my truck can. So, when I needed dirt to fix my dam and got it in one bed load of my present truck, it would require two trips to get that same amount of dirt. That means, 20 miles twice, or 40 miles. That means I would spend 1/3 more gasoline with a clown truck which is supposed to save the planet, to do the same job.

Boy, don't those city-slickers in Washington just know how to save the planet? Us poor ignorant hicks in fly-over country are too stupid to see their wisdom. We must be wrong out here in hicksville because the entire country is applauding the coming salvation of the world.

This is why I am democratic. The Dems always mess things up so that they increase my oil investments. Father forgive me

[Augustine2004]

Jeremy Grantham thinks that alternative energy initiatives will be the most important trend in the next 10 years, if I understand him correctly. I don’t know, there’s a chance hyperinflation will whack us. If it does, maybe the people will finally start to mistrust the government. After all, it controls the money supply and it’s just so clear that it had been gunning that. http://moneynews.newsmax.com/streett...26/218103.html

Graph of the money supply growth
http://seekingalpha.com/article/1396...-balance-sheet

[Cow Poke]

Glenn,
How closely would Natural Gas mirror your Oil story, if it all.
I know people use "Oil and Gas" as a topic, but I also understand there's not necessarily a direct association.
Comments?