Oil Prices and Global Exports [Archive] - Professional Soldiers ®

nmap

05-20-2008, 17:48

I came across the material in a newsletter from John Mauldin; I've attached a PDF for the entire piece. It presents some ideas about why oil prices may go up a great deal more, and rapidly. It also mentions the implications for Mexico which may be of interest.

Below are a few brief excerpts which will, hopefully, whet your appetite for more.

First the good news:

As a quick aside, if we would start a project to build a massive nuclear infrastructure, such as in France, which
produces 80% of its energy from nuclear, while at the same time pushing ahead in a Manhattan-type project the
development of electric cars (or some hybrid), we could reduce our dependence on foreign oil and lower travel
costs by the middle to the end of the next decade. And the environment would be cleaner and safer.

Now some of the challenges:

At the time the North Sea peaked in 1999, the U.K. was exporting 1 million barrels of oil per day. By August
2004, it had become a net importer. What happened to cause the situation to turn around so quickly?

As you can see, for illustrative purposes the ELM assumes that, after a country's oil production hits peak it will
decline at a rate 5% annually, at the same time that local consumption increases by 2.5%. The dotted red line
then shows the impact those two metrics will have on the ability of the country to export its excess production.
Using these assumptions, the ELM shows that exports reach zero in 9 years.

Rather it is that the global market is now deprived of those exports; between UK and Indonesia alone, the
change over just the last decade amounts to a swing in the wrong direction of a total of 2 million barrels per day.
And those are just two of a number of important countries which have swung from exporters to importers in
recent years.

This is what is creating so much international competition for the remaining supplies of oil. And why the trend to
higher energy prices is so well entrenched. And if the ELM is right, things are about to get far worse ... far sooner
than most people expect.

Here's a key point:

But here's the thing. Using straightforward ELM calculations, Jeffrey Brown is confident that Mexico will ship its
last barrel of oil to the United States -- or anywhere else, for that matter -- about 6 years from now, in 2014. In a
recent interview with Brown, I asked about this forecast.

"Mexico was consuming half of their production at peak in 2004. And if you look at the '05, '06, '07 data, they're
basically on track, on average, to approach zero net oil exports no later than 2014," he confirmed.

Of course, the US is completely unprepared to replace this source of oil, especially considering the growing
stresses on global oil supplies causing by ballooning demand from emerging markets. That means the
international competition for available supplies is only going to get more desperate in the months and years
ahead.

What will this mean to oil prices, according to Brown?

"From this point out I think we'll see a geometric progression in prices ... you know, $50, $100, $200, $400,
whatever. The only question now is how short the periods will be between prices doubling again."

The trend for sustained higher energy prices appears solidly in motion. If Brown and the ELM are correct, energy
prices will double, then double again.

Even if he is wrong and prices don't rise geometrically, the global dogfight to replace declining supplies -
decidedly exacerbated by the loss of Mexican and maybe Russian (and ??) exports in the near future - is going
to get ugly and expensive.

It looks as if we will experience interesting times.

nmap

05-21-2008, 07:03

Excellent point!

I like to look at quotations on the futures market. Oil for delivery in July 2008 just traded at $129.69. Oil for Dec. 2015 just traded at $139.48.

One is rarely more sincere than when one is investing; but here we see some 19,622 contracts that regard $139.48 as an equitable price 7 years hence. While I freely admit that I think oil will go higher, the counter-argument deserves careful consideration.

:munchin

3SoldierDad

05-21-2008, 09:18

Money makes people move - changes their habits, modifies their priorities. When our wallets get spanked hard enough, we finally decide it's time for a new look on life.

Wind, Solar, Nuclear, Oil Shale in the Rockies, Oil Sands in Canada, Alaska Oil, New Coal Technologies, Electric Cars....Everything starts looking good and doable.

We may look back in ten years at $150 / barrel oil and understand it's the best thing that ever happened to us.

Pain is good.

I could argue the other side, but right now I feel like looking on the bright side. The dark side I may share a little later. If you're at your computer and you've got a few minutes check out Thomas Freidman's article "Imbalances of Power" in the New York Times today. He makes an interesting point on the humongous windfall the Saudis are getting with all this oil - With oil at $200/ barrel prices, when they decide to go shopping (and they WILL go shopping), they'll be able to buy any big ticket American assets that they so choose - one month of their oil production can buy Bank of America, Apple Computer in a week, GM in 3 days - That's kind of scary. Okay, no darkness now.

More than any nation on earth, besides perhaps Israel, America HATES pain and takes action to change things.

Pain hurts, but pain is good....Pain makes things happen.

Three Soldier Dad...Chuck

enterfirst

05-21-2008, 11:58

nmap

05-21-2008, 15:11

Somewhat off topic, but sometimes I wonder what all this hope s*** from Obama really means or is about... Anyone?

A mere campaign slogan. He can't change what is coming any more than I can.

That's the real problem, in my opinion - the size of the problem is such that solutions will take time. No matter what form that solution might take, we are on a course that will be well-nigh impossible to change in the next four years. Not unlike trying to turn a great ship at sea, there is a large turning radius.

That supposes there is some pleasant solution. There may not be.

3SoldierDad

05-21-2008, 15:55

Somewhat off topic, but sometimes I wonder what all this hope s*** from Obama really means or is about... Anyone?

Words...that's it - words...BHO, he's just words...A pretty boy in an empty suit.

IMO, he's the biggest nothing presumptive leader this nation has ever seen. He couldn't run a small business - he's never lead anything except a law journal in college; which was a figurehead position.

He's a nice puppy, but a naive puppy - a speech maker. I'm afraid our enemies would eat his freaking lunch. If America backs this guy, I will be the first to tell you we will have taken the first step toward insanity. All bets will be off. One bright spot - If we hadn't had Carter we probably never would have gotten Reagan. But, getting "sober" after an idiot President can really be tough.

I think it is kind of telling that the guy who proposes to "unite" the country sat 20 years under Jeremiah Wright - Can't America read the billboard over this guy's head - The blinking FRAUD sign. Oh well, what was I saying? - Oh yeah, pain is good. ;)

Three Soldier Dad...Chuck

nmap

05-21-2008, 17:08

Yes - and keep in mind that Robert Hirsch has just gone on record - publicly - with a prediction of $12 gasoline in a few years. Dr. Hirsch has done significant work for the DOE, so he is no lightweight.

The implications of such developments for the economy are troubling. People will call for the President to do "something". And that "something" will probably involve the exercise of considerable authority.

Could an ambitious fellow abuse such a situation?

As has been pointed out, pain can be gain. But sometimes it takes awhile to get the gain...

grog18b

05-21-2008, 18:56

Not for anything... but gas prices in this nation have remained low for a LONG time. Like everything, it eventually goes up. Milk goes up, eggs go up, clothes go up, diapers go up, and pay goes up. Problem with oil is, once it's gone, ain't gonna be no more. I'll know when the price of gas is high, when the kids no longer buzz by my house on atvs and return to bikes.

It is beyond me how, the first nation to develop nuclear power would be so far behind in using it for the betterment of it's society. We as a nation should NOT need to use coal, or oil, or natural gas to heat our homes, or make our electricity. When are we, as a society, going to grow beyond the fright of the nuclear boogyman, and USE this energy to it's full potential??? Hell, if we can make a nuke plant for an aircraft carrier that can run for 12 YEARS without refueling... Why are we not using this to power our society? It makes very little sense to me; why we would rather pollute the air and water with coal and oil smoke, when we can use clean nuke power.

Personally, I think it comes from the 50s and 60s cold war fears of a nuke war.

We, as a society, NEED to get off these fossile fuels ASAP. Sure they helped fuel the industrial age, but, everyone knew these things would run out. What we really need to do is make middle east oil worthless. The sooner we no longer have to deal with them, the better.

3SoldierDad

05-21-2008, 19:03

As has been pointed out, pain can be gain. But sometimes it takes awhile to get the gain...

The most significant part of pain is that it is.....Well, painful.

Some wither and die, some riot, some alter their circumstances, and some change in a beneficial way. It all happens at the same time and the hearts of men are tested.

Pain can heal us and pain can harm us - It depends a bit on our souls.

Somehow I don't think all this oil under the feet of the Arabs is a coincidence. They are a people with both the resourcces and the temperment to bring much pain to the entire globe.

Three Soldier Dad...Chuck

Sten

05-22-2008, 07:18

nmap

05-22-2008, 07:32

Source on that factoid please.

You might find this LINK (http://www.iaea.org/NewsCenter/News/2006/uranium_resources.html) helpful.

Uranium 2005: Resources, Production and Demand - also called the "Red Book" - estimates the total identified amount of conventional uranium stock, which can be mined for less than USD 130 per kg, to be about 4.7 million tonnes. Based on the 2004 nuclear electricity generation rate of demand the amount is sufficient for 85 years, the study states. Fast reactor technology would lengthen this period to over 2500 years.

Notice the 85 years is at current usage; increased usage would change that. At the link, additional reserves are discussed.

Here's another LINK (http://www.world-nuclear.org/info/inf75.html) that may be helpful.

Peregrino

05-22-2008, 08:58

It's time to save/exploit petroleum for its chemical properties instead of burning it in IC engines. It's too valuable to continue wasting. Rhetorical question - "Why isn't the US Govt heavilly invested in fusion research?" Where is the next "Manhattan Project" or moon shot? We used to be able to mobilize innovative/imaginative science. What happened? Tokamak plasma containment (pioneered by the Russians, for Christ's sake) has been a reality since the mid-50s yet the US only has three active research facilities. Everything else was shut down or dismantled for lack of funding/interest. Most high-energy physics research is now conducted elsewhere (the Europeans seem to be doing most of it). Nuclear fusion is the only technology that actually creates energy. Everything else just "converts" stored energy (sun - fusion) into something useable. Do the math - we're trying to increase efficiencies of conversions, not create more. Ethanol, biodiesel, petroleum, etc. are all net losses. The more steps in the conversion, the greater the loss.

Penn

05-22-2008, 10:12

The most significant part of pain is that it is.....Well, painful.

Some wither and die, some riot, some alter their circumstances, and some change in a beneficial way.
Three Soldier Dad...Chuck

Demand curve for any good (oil) is inelastic when the quantity demanded for that good (Oil) does not change when price changes, if and only if, there are no substitutes for that good. In this case oil.

When that demand curve affects the home front; this is the impact I will experience due to the inelastic demand curve for oil.

We are expecting to enjoy an incredibly profitable season this summer at the beach restaurant. No one is going to be taking long trips with the price of fuel. People will be staying close to home. As a result, restaurants will be view as entertainment, as will other business’s that can supply the illusion of escape.

grog18b

05-22-2008, 11:22

We used to be able to mobilize innovative/imaginative science. What happened?

We lost our major competitor, the CCCP. Now, no one seems to care anymore. Also, today's society seems based on "what's in it for me" instead of "What can I do for my Country..."

dr. mabuse

05-22-2008, 15:22

Wouldn't hurt if we ignored the tree huggers and built 3 sweet crude refineries and 2 sour crudes ASAP...:)

The Reaper

05-22-2008, 15:42

Wouldn't hurt if we ignored the tree huggers and built 3 sweet crude refineries and 2 sour crudes ASAP...:)

I agree, and as long as I was compensated appropriately (and guaranteed product) you can build it on my property.

High time we all cowboyed up and did our part for the future.

TR

Monsoon65

05-22-2008, 16:10

I agree, and as long as I was compensated appropriately (and guaranteed product) you can build it on my property.

My dad said the same thing around a nuke plant. As long as they run an extension cord from the plant to the house!

nmap

05-22-2008, 16:46

Wouldn't hurt if we ignored the tree huggers and built 3 sweet crude refineries and 2 sour crudes ASAP...:)

It's interesting that they haven't isn't it? Clearly there is an ongoing demand for gasoline; why haven't the oil companies built several?

Perhaps tree huggers prevent building refineries in the U.S.; but notice that we imported something like 148,000,000 barrels of gasoline in 2007 - and that 23,000,000 of those came from the U.S. Virgin Islands. ( LINK (http://tonto.eia.doe.gov/dnav/pet/pet_move_impcus_a2_nus_epm0f_im0_mbbl_a.htm) ). Clearly, gasoline can be moved around the world. It doesn't have to be refined here. So perhaps the question becomes "Why hasn't anyone built more refinery capacity anywhere?"

It doesn't appear that the oil companies are attempting to gouge anyone on prices. Take a look at the attached chart - notice that the solid line in the main chart is the price of gasoline (wholesale), and the dotted line is crude oil (west Texas intermediate crude). The two track pretty closely. The price of gasoline got ahead of crude last year, but there isn't any evidence I can see that shows excessive markups. The lower portion of the chart represents how many gallons of gasoline a barrel of oil would buy. Right now, a barrel of oil buys (relatively speaking) a lot of gasoline.

My suspicion - peak oil is a real issue, the oil companies know it, and they're not about to put their money into building surplus capacity. If that suspicion is valid, the implications get interesting. Perhaps even exciting. But probably not pleasant.

frostfire

05-22-2008, 22:32

Rhetorical question - "Why isn't the US Govt heavilly invested in fusion research?"
not a physicist here, but I do recall that this is against the 2nd law of thermodynamics. The entropy of the universe always increases. Practically, it goes along the line of it takes less energy to break a matter to its constituents than the other way around.

Do the math - we're trying to increase efficiencies of conversions, not create more. Ethanol, biodiesel, petroleum, etc. are all net losses. The more steps in the conversion, the greater the loss. This is very true. When the whole hype on car running on hydrogen fuel was all over MSM, all the chemE called BS on that one. The H2 still came as a product of electrolysis, which uses electric power from fossil fuel and so on.

I'm still all for nuclear power. I'll have it in my backyard, no problem. 'Course I'm always moving :D

nmap

05-22-2008, 22:45

You bring up Iraq and oil reserves...I was looking at a piece that discussed the numbers. The highest was 300 billion barrels, which would exceed what Saudi Arabia had. LINK (http://www.brookings.edu/papers/2003/0512globalenvironment_luft.aspx)

The problem is, global use is up to 83 million barrels per day - or 30 billion barrels per year. So if we take as a given the most optimistic assessment, and also suppose it can all be recovered, then we get (at best) 10 years before we're in trouble again. ( LINK (http://www.eia.doe.gov/oiaf/ieo/oil.html) ) Ten years sounds like a lot, but it isn't much time to come up with new technology and get it implemented across the country. As Peregrino mentions, we've been toying with fusion for half a century, and we still haven't solved the problem. Projected increases in use, as available at the link above, render the problem even worse. If there are fresh reserves, we had best use the time it buys us wisely.

That makes it essential we get to work finding some new solutions, whatever those might be. And therein lies the trouble if the price of oil goes down. Complacency is comfortable; the status quo is easy to accept, and generally doesn't create controversy. If oil went back to where it was last year, and gasoline did the same, everyone would be happy - and all incentive for solutions would wither away. It seems we need the pressure of circumstances to motivate us.

nmap

05-22-2008, 23:00

not a physicist here, but I do recall that this is against the 2nd law of thermodynamics. The entropy of the universe always increases. Practically, it goes along the line of it takes less energy to break a matter to its constituents than the other way around.

In this case, a small amount of mass is converted to energy. The 2nd law is not violated, since disorder still increases.

LINK (http://library.thinkquest.org/17940/texts/binding_energy/binding_energy.html)

GratefulCitizen

05-22-2008, 23:10

Unfortunately, we don't have enough uranium to rely solely on nuclear power right now either I don't think, and even if we do, we don't have enough domestically, we have to import it.

As the price of uranium increases, stuff that was previously just "dirt" becomes ore.
(uranium is quite common)

The impact of fuel cost on power generation is not as great with uranium, when compared to coal or gas.

http://world-nuclear.org/info/inf02.html
(scroll down to "impact of fuel costs" graph)

dr. mabuse

05-23-2008, 11:06

Nmap, there's no "perhaps" to it. Just a little background. My stepfamily has been in the oil business for over 60 years now and they have a long track record of giving me accurate info. They are on the inside. I also have old friends that are on the fuel additive and refinery side of the business.

The reason "they" haven't built them is due to "green" legislation. If we pulled the trigger today on building one, it could be the better part of 25 years before it would be online thanks to current laws. I was told less than a year ago that if we had 5 refineries online(3 sweet, 2 sour), that alone would drop the cost ~ $2-$2.10 for premium (in Texas).

ALso, the "green" nonsense of having "boutique" custom gasoline blends (like in California) drives the price up. And you already know the folly of alcohol in gasoline.

Lastly, on average, when it is all said and done, the evil big oil companies are running a margin of about 8.5 cents on the dollar. We just use a hell of a lot of gas. Yes, we need to look at supply, yet let's not forget the processing end of things.

Why do you think the media quotes gross profits and never quotes profit margins???:rolleyes:

For you tree huggers out there, our electricity is all wind power, and we have a carbon footprint of about 7.2.

I'm with TR. Build one in my backyard.:D

dr. mabuse

05-23-2008, 11:12

Nmap, there's no "perhaps" to it. Just a little background. My stepfamily has been in the oil business for over 60 years now and they have a long track record of giving me accurate info. They are on the inside. I also have old friends that are on the fuel additive and refinery side of the business. The truth doesn't sell as many newspapers or boost your rate card for advertising dollars.

The reason "they" haven't built them is due to "green" legislation. If we pulled the trigger today on building one, it could be the better part of 25 years before it would be online thanks to current laws. I was told less than a year ago that if we had 5 refineries online(3 sweet, 2 sour), that alone would drop the cost ~ $2-$2.10 for premium (in Texas).

ALso, the "green" nonsense of having "boutique" custom gasoline blends (like in California) drives the price up. And you already know the folly of alcohol in gasoline.

Lastly, on average, when it is all said and done, the evil big oil companies are running a margin of about 8.5 cents on the dollar. We just use a hell of a lot of gas.

Why do you think the media quotes gross profits and never quotes profit margins???:rolleyes:

I'm with TR. Build one in my backyard.:D

P.S. If you want to get a feel for what the real margins are, this is the site for CA gasoline. Notice about 65 cents/gallon are taxes.....

nmap

05-23-2008, 11:43

nmap

05-23-2008, 15:06

I was told less than a year ago that if we had 5 refineries online(3 sweet, 2 sour), that alone would drop the cost ~ $2-$2.10 for premium (in Texas).

I've got a question...since gasoline can be imported, why couldn't a refinery be built in Mexico, or Haiti, or any of a number of other places that are likely to be less than fastidious when it comes to environmental regulations?

Surely the costs of moving a tanker load of fuel can't be that much, since it is already being done...

dr. mabuse

05-23-2008, 15:11

The link is http://www.energy.ca.gov/gasoline/margins/index.html.

As far as doing it outside the country, I don't know. I'll be in east texas visiting relatives this weekend and maybe I can get an answer if the "oil relatives" are in town.

bailaviborita

05-25-2008, 00:18

I would say invest. I am. Natural Resource mutual funds in no-load fund families that have a bunch of 4-5 star morning star rated funds (Vanguard?)

I don't see natural resources- whatever they are- going out of style anytime soon. The way China and India are growing only means that all energy sources will make money and will keep on being in high demand. Remember, most energy companies aren't just doing oil- they are spread out and also doing R&D.

As for what controls prices- I think there are different forces operating long-term vs. short-term and there are also time delays and multiple feedback loops associated with oil flows and price determinants that to make a decision based on fundamentals is almost impossible. I don't think the oil companies, OPEC, or speculators have a say any more than a group of well-intentioned would from boycotting CITGO. It is much too complex a system to boil it down to one group/ one cause. But, IMO, the overall, long-term trend is increased demand- far outstripping supply.

Too bad this country doesn't have a ballsy pol who makes a commitment to a "Manhattan-type" project for alternative energy.

nmap

05-25-2008, 20:29

I would say invest. I am. Natural Resource mutual funds in no-load fund families that have a bunch of 4-5 star morning star rated funds (Vanguard?)

I agree, Sir. The Vanguard Energy fund (VGENX) has done nicely over the years. I've also started dabbling in some of the commodity oriented ETFs - DBC, UNG and DBA being my favorites right now. The only thing wrong with them is the paperwork burden, since they are treated as limited partnerships instead of regular stocks.

As for what controls prices- I think there are different forces operating long-term vs. short-term and there are also time delays and multiple feedback loops associated with oil flows and price determinants that to make a decision based on fundamentals is almost impossible.

Entirely true. Matthew Simmons book develops the idea that we don't even have clear data from all the players, such as Saudi Arabia. The lack of clarity may be problematic at the policy level, since it becomes impossible to know if there is actually a problem.

Too bad this country doesn't have a ballsy pol who makes a commitment to a "Manhattan-type" project for alternative energy.

So true. I cannot help wondering if they would even need any particular courage. At current prices, we're sending about $400 billion to other countries each year. ( LINK (http://tonto.eia.doe.gov/dnav/pet/pet_move_impcus_a2_nus_epc0_im0_mbbl_a.htm) ); surely some politician somewhere could use that to create a mandate for new solutions.

nmap

05-28-2008, 06:59

An interesting development on the southern border, perhaps?

The short version - Mexico's oil production is dropping rapidly. This will tend to reduce their earnings, which could be a problem for their government. It also impacts our oil imports, and the price thereof.

-----------------------------------
Calderón pleads for energy reform
By Adam Thomson in Mexico City
May 26, 2008 9:29:00 PM

Mexican President Felipe Calderón issued a desperate plea to Congress at the weekend to approve his energy reform proposals after figures showed that oil production had slumped to a nine-year low.

The rapidly declining production in one of the world's top 10 oil-producing nations comes amid a global supply crunch that has sent the price of international crude to records in recent weeks.

On Friday, Pemex, Mexico's state oil monopoly, reported that April average daily production had fallen to 2.77m a day compared with 2.85m the previous month and 3.18m barrels in April 2007.

According to Pemex, production at Cantarell – one of the world's largest oil complexes, which accounts for roughly half of Mexico's total daily output – has shrunk 24 per cent in the past 12 months alone.

The latest data highlight the increasing difficulties faced by Pemex, which has long suffered from insufficient funds for exploration, ageing existing fields, and Mexico's constitution, which prohibits it from entering joint-risk contracts with third parties.

"The rate of decline is much quicker than we had anticipated," Jordy Herrera, under-secretary for energy, told the FT this month.

The situation for Mexico, which relies on oil revenue to fund about 40 per cent of total government income, has been made worse by the fact that proven reserves have also been deteriorating so fast that the country could become a net oil importer within a few years.

A recent study published by the energy ministry and Pemex showed that the country's total proven reserves had plummeted from 20.1bn barrels equivalent in 2002 to just 14.7bn barrels last year.

On Saturday, Mr Calderón told an audience in the coastal resort of Acapulco: "My government has presented a proposal to make Pemex stronger, more transparent, with greater operational and technological capacity and, importantly, to stop falling production."

One of the main ideas is to give Pemex greater flexibility to associate with third parties and, at the same time, to give private companies working with Pemex financial incentives linked to performance.

Most analysts view the proposed changes as a tepid reform and woefully short of what Mexico needs to turn the situation around. But even this proposal has faced stiff opposition in Congress.

Ordinary sessions ended on April 30 without any sign of progress, and leftwing members of the opposition have since managed to force a so-called national debate. The debate, which began on May 13 and is scheduled to last for 71 days, includes legislators, experts and other members of Mexican society.

However, industry analysts fear the delay diminishes the chances of a reform being approved.

LINK (http://d2cft.volantis.net/d2c/0.0?feed-article-id=4a244106-2b45-11dd-a7fc-000077b07658)

nmap

05-31-2008, 07:53

3SoldierDad

05-31-2008, 09:18

I came across a rather interesting chart; I've attached an image, as well as a link to the original source.

The chart plots oil price versus annual production of oil. Notice how the curve has become nearly vertical, which is unusual for typical supply-demand relationships. In essence, even though the price has gone up a lot, the supply hasn't increased.

Some have offered the analogy of 12 people on an airplane that is about to crash. They have 11 parachutes. What is the value of a parachute?

Notice the curved lines on the chart. These represent the percent of global GDP represented by energy costs at various levels. So we've gone from one percent to five percent rather quickly.

My take: shifts in allocation of global GDP will increase economic distress and conflict everywhere. 2009-2010 should be interesting times.

LINK (http://www.princeton.edu/hubbert/current-events.html)

Excellent info - Nmap, this is really good stuff - kudos, to you. A picture is worth a thousand words. I appreciate your sharp eye for such relevant information. How we deal with our energy needs in the next ten years will determine the destiny of many peoples and nations.

This is one of the reasons I enjoy coming to PS.com. The folks here are thinking. If America has a competiive advantage that is it - We think.

And, with enough pain - we act.

The day may come when we'll see these energy prices as a godsend. Pain works.

Three Soldier Dad...Chuck

GratefulCitizen

05-31-2008, 11:28

Some interesting historical perspective concerning diminishing energy supplies and economic effects:

http://www.eoearth.org/article/The_Coal_Question_(e-book)

That was over 140 years ago.
Coal is still cheap and abundant.

I would argue that the combination of democracies, ambitious politicians, and effective propoganda constitute the root of the problem.

nmap

05-31-2008, 14:47

The day may come when we'll see these energy prices as a godsend. Pain works.

Thank you for the kind words!

Yes, at some point, we will do something. What that something is remains to be seen - but curves can't be projected too far into the future. Especially when they go vertical.

Coal is still cheap and abundant.

I would argue that the combination of democracies, ambitious politicians, and effective propoganda constitute the root of the problem.

Ambitious politicians tend to be a problem; no argument there.

The link is a good reminder that extrapolating far ahead is likely to be wrong. Still, I find it interesting that the percentage has increased from 1% to 5%. That is quite a lot of money to transfer from one group (the U.S. among others) to another group - OPEC, in this case.

I do believe it suggests we should start thinking about solutions instead of merely complaining about gas prices.

GratefulCitizen

05-31-2008, 15:21

I do believe it suggests we should start thinking about solutions instead of merely complaining about gas prices.

As previously suggested in terms of "pain", high prices are the solution.

Clever men will develop a solution, provided they are allowed to profit from their creativity.

It may seem as if the oil problem cannot be overcome.
Jevons thought that the coal problem couldn't be overcome, and dismissed oil as a possible solution.

From chapter VIII of The Coal Question:
"Petroleum has of late years become the matter of a most extensive trade, and has even been proposed by American inventors for use in marine steam-engine boilers. It is undoubtedly superior to coal for many purposes, and is capable of replacing it. But then, What is Petroleum but the Essence of Coal, distilled from it by terrestrial or artificial heat? Its natural supply is far more limited and uncertain than that of coal, its price is about 15l. per ton already, and an artificial supply can only be had by the distillation of some kind of coal at considerable cost. To extend the use of petroleum, then, is only a new way of pushing the consumption of coal. It is more likely to be an aggravation of the drain than a remedy. "
(emphasis mine)

My comments on a price-driven solution are not made from a "let them eat cake" perspective.
Recent job changes have expanded my daily commute from 10 miles to 266 miles.

American ingenuity, absent excessive political meddling, will prevail. :lifter

Ret10Echo

06-04-2008, 05:16

Rich nations attacked over biofuels
By Javier Blas and Guy Dinmore in Rome

Published: June 3 2008 03:00 | Last updated: June 4 2008 08:42

Rich countries came under attack on Tuesday at the United Nations food summit for their biofuel subsidies and production targets, declining spending on development aid for agriculture and large subsidies to European and US farmers.

Jacques Diouf, director-general of the Food and Agriculture Organisation, told heads of state and governments gathered in Rome that ”nobody” understood why cereals had been diverted from human consumption ”mostly to satisfy a thirst for fuel vehicles”.

In an unexpectedly strong attack on western countries’ policies, he added that ”nobody understands” why rich countries had ”distorted world markets with the $272bn (€175bn, £138bn) spent on supporting their agriculture.” Mr Diouf said: ”The problem of food insecurity is a political one.”

Delegates and some FAO officials were surprised by his remarks, which opened a three-day summit in Rome to discuss ways to tackle soaring food prices. The cost of agricultural commodities has doubled since 2005.

Ban Ki-moon, UN secretary-general, was more conciliatory, saying the world needed to reach a ”greater degree of consensus on biofuels”, but stopped short of condemning them. Mr Ban aimed his criticism instead at developing countries that have imposed export bans on foodstuffs, such as India, Egypt and Argentina, asking them to lift the restrictions or at least ease them to allow humanitarian shipments of food. ”Some countries have taken action by limiting exports,” he said. This ”distorts markets and forces prices even higher. I call on nations to resist such measures and to immediately release exports designated for humanitarian purposes.”

Mr Ban also said as important as tackling the food emergency was to plan for a 50 per cent increase in food production by 2030. This was needed to match the expected increase in demand as the world’s population grows. ”The world needs to produce more food,” he said.

Diplomats said biofuels and trade restrictions were the most divisive issues to be surmounted before the summit’s declaration, to be issued tomorrow. Officials suggested a year-long international discussion on best practices for biofuels and another summit next year.

Luiz Inácio Lula da Silva, Brazil’s president, rebuffed the criticism on biofuels, saying some lobbies wanted to create a ”smoke screen blaming ethanol for the recent food inflation”. The link between biofuels and food prices, Mr Lula da Silva added, ”does not stand up”.

”The increase of food prices does not have a single explanation. It is a mix of soaring oil and fertiliser prices, climate change, speculation, growing consumption in developing countries such as China, India and Brazil, and the absurd protectionist [agricultural] policies of rich countries,” he said, echoing comments from US officials.

European leaders, including French President Nicolas Sarkozy, acknowledged biofuels’ role in pushing up food prices but there was little suggestion the EU may drop its support for biofuels.

The Financial Times Limited 2008

The Reaper

06-04-2008, 06:43

Mr Ban also said as important as tackling the food emergency was to plan for a 50 per cent increase in food production by 2030. This was needed to match the expected increase in demand as the world’s population grows. ”The world needs to produce more food,” he said.

Socialism lives. From each, according to his means, to each, according to his needs.

Wouldn't it be easier to produce less people, especially in undeveloped countries?

Here is a clue. Food shortages are nature's way of telling you that you have more people than the food necessary to support them. Crop failures are understandable anomalies. Ever rising populations with increasing demands are not.

Maybe food importers should look to fixing their problems?

TR

nmap

06-04-2008, 12:14

Jacques Diouf, director-general of the Food and Agriculture Organisation, told heads of state and governments gathered in Rome that ”nobody” understood why cereals had been diverted from human consumption ”mostly to satisfy a thirst for fuel vehicles”.

Sir, statements such as this one by Mr. Diouf, are breathtaking - but not in a good way.

The problem is not the effort to create biofuels. The problem is deeper. The agricultural system is rooted (pun intended) in fossil fuels, and has been since 1943. There is even a term for it - the Green Revolution, circa 1968.

The principles of modern, mechanized agriculture promulgated by the Green Revolution, did increase crop yields a great deal - but at a price. We had to use fossil fuels to accomplish the goal.

Now, we consume about 10 calories of oil for every 1 calorie of food we eat. Thus, as oil goes higher, we see feedback into food costs as everything from tractor fuel to truck transportation increase in price.

This means that if fuel availability declines, crop production is likely to decline too. It seems that Mr. Diouf has not considered that.

Green Revolution info (http://en.wikipedia.org/wiki/Green_Revolution)

Eating Oil reference (http://www.popularmechanics.com/blogs/energy_family_news/4206698.html)

Wouldn't it be easier to produce less people, especially in undeveloped countries?

Here is a clue. Food shortages are nature's way of telling you that you have more people than the food necessary to support them. Crop failures are understandable anomalies. Ever rising populations with increasing demands are not.

Maybe food importers should look to fixing their problems?

TR

Yes, Sir, absolutely true.

I suspect that the food importers will never recognize the problem. The original goal of the Green Revolution was to reduce global hunger, which now exists again. The methods used did increase crop yields - but population increased from 2.5 billion in 1950, to about 6.5 billion today. People expanded their numbers to match the available resources, when wisdom might have suggested more restraint.

Population Numbers (http://en.wikipedia.org/wiki/World_population)

The problem becomes one of "overshoot". If population continues to increase as resources decline, the most likely outcome seems to be a sharp reduction in numbers. While I acknowledge that people are not reindeer, the example of St. Matthews island is interesting. Their numbers went from 29 to 6000 - and then back to 42. Thousands starved.

St. Matthew's Island (http://www.energybulletin.net/2024.html)

This is part - and not a small part - of the issue with oil and declines in availability. It is part of almost everything we do, use - and eat.

I came across an interesting piece in IEEE Spectrum, an electrical engineering magazine. The world uses about a cubic mile of petroleum each year. To replace that, we would need to build 52 nuclear power plants...every year for 50 years. I believe this serves to illustrate the magnitude of the problem, as well as why we might not wish to remain sanguine about solutions and innovation.

IEEE (http://www.spectrum.ieee.org/print/4820)

I've attached the graphic from the IEEE piece.

Pete

06-04-2008, 13:34

Pete S

06-04-2008, 13:58

Great news, but I wonder how long it will take for it to be up and running with the enviromentalists fighting every step.

Ret10Echo

06-04-2008, 18:20

They voted and the Yea's beat the Nay's.

They voted to build the 1st new oil cracking plant in 32 years in the US.

http://www.siouxcityjournal.com/articles/2008/06/04/news/top/4e608d46402d5adb8625745e00110beb.txt

But what about the Nay's? They vow to fight on using every trick in the econut's tool box to stop the construction.

I wish them the best. Arizona Clean Fuels did an initial proposal to seek license in Arizona a few years back and the environmental wackos were flown in to start the assault.

http://www.arizonacleanfuels.com/index.htm

That created all sorts of greaf....

An Arizona refinery company that spent seven years struggling for approval to build illustrates why the U.S. needs to change its rules for reviewing refineries, oil industry officials told U.S. senators Thursday.

http://www.tucsoncitizen.com/daily/business/19103.php

Then they got their permit

http://www.azdeq.gov/environ/air/permits/acf.html

Now they are trying to figure out how to bring the oil in. I believe the original plan was a pipeline in from Mexico. Not sure how it is going since moving out here.

Any of our desert dwellers heard anything new?

R10

nmap

06-04-2008, 21:22

It appears that the Saudis will increase prices to the U.S., and decrease them to Europe.

In the article below, notice that starting in August, the U.S. will pay a premium of $2.40 above the price of West Texas Intermediate Crude compared with a discount of $1.45 in June. In contrast, Europe will receive small discounts.

Perhaps a diplomatic signal from the Saudis? :confused:

LINK (http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aca3WppLEC7E)

Saudi Arabia Raises Price for Lightest Oil to Record for U.S.

By Alexander Kwiatkowski and Nesa Subrahmaniyan

June 4 (Bloomberg) -- Saudi Aramco, the world's largest state oil company, will increase prices for its lightest crude oil exports for the U.S. to a record in July.

Aramco increased the price formula for Arab Extra Light exports to the U.S. in July to a premium of $2.40 a barrel above the West Texas Intermediate benchmark, compared with a discount of $1.45 in June, the Dhahran, Saudi Arabia-based company said in a faxed statement. That is the biggest ever premium.

Light crude oil is favored by U.S. refiners for its high gasoline yield compared with heavy crudes. U.S. refinery utilization rates rose 1.8 percent in the week ending May 30, according to an Energy Department report today. Crude oil stocks fell 1.5 percent, or 4.8 million barrels, to 306.8 million barrels.

``These prices are for oil which will come to the market in August and they are counting on a recovery in gasoline demand,'' said Ehsan Ul-Haq, head of research at JBC Energy in Vienna. ``Gasoline demand might pick up in the driving season.''

Prices for all crude other Saudi Arabian exports to the U.S. rose by between $1.60 and $3.20 a barrel, according to the statement.

Arab Light will be priced at a discount of $2.45 in July compared with a discount of $5.65 this month. Arab Medium exports to the U.S. in July will be at a discount of $8.30, compared with a discount of $10.45 in June and Arab Heavy grades will be priced at a discount of $13.30, compared with $14.90.

Production Increase

The middle eastern kingdom last month said it will increase oil production by 300,000 barrels a day to satisfy rising customer demand. Saudi Arabian crude accounted for about 14.5 percent of U.S. oil imports in 2007, or 1.45 million barrels a day, according to the Energy Information Administration. Only Canada imports more crude to the U.S.

In contrast to U.S. customers, refiners in Europe will pay less for Saudi Arabian crude oil shipments in July. For its Northwest European and Mediterranean customers, Aramco will lower its price differentials by between 10 cents and $1.90 a barrel, the statement said.

Mediterranean and European prices are expressed as a differential to Intercontinental Exchange's weighted average of North Sea Brent crude oil. All prices are free-on-board, where the buyer has to pay for shipping costs.

GratefulCitizen

06-07-2008, 20:05

nmap

06-07-2008, 20:23

The Bakken field is a nice discovery, but the amount recoverable is still in dispute. I've LINKED (https://www.dmr.nd.gov/ndgs/Bakken/newpostings/07272006_BakkenReserveEstimates.pdf) a report that discusses it, especially on page 2, under conclusions and recommendations. We import a lot, and a number of fields are in decline, so we'll be lucky to offset part of the overall reduction of supply.

I wouldn't worry much about environmentalists. When gas hits $5 per gallon, they are likely to become quite unpopular.

GratefulCitizen

06-18-2008, 16:41

Figured it would be better to add to this thread.

An interesting price difference:

http://tinyurl.com/3rm7mr

nmap

06-18-2008, 17:11

From the article: Gas is cheaper in Mexico because of a government subsidy intended to keep inflationary forces in check.

Those subsidies are where life starts getting interesting. Keeping the price down makes the populace happier - but it also drains the national treasury.

Mexico faces a problem; revenue from PEMEX and the Cantarell field are in decline - and costs, such as this subsidy, are going up.

So...what happens when they end the subsidy?

:munchin:

nmap

06-18-2008, 20:06

but if refining capacity is maxed-out right now, would increased drilling really do much?

Absolutely true.

But it gets worse. You may recall the Saudi announcement that they were going to pump more oil - however, that didn't reduce oil or gas prices.

Turns out, the Saudis really are pumping more - but it's heavy, sour crude. The refineries, with a few exceptions, are set up to handle light sweet crude. So not only are we constrained by refinery capacity, we're also limited by the type of oil they can process.

Where drilling may do some good is a few years hence. If we've hit global peak, as I believe we have, the old fields that have served well will begin an irreversible decline. So we'll need new production to offset declines from the old fields. That will help us maintain a plateau.

I hope we have the wisdom to find a way off the oil treadmill during that time.

Ret10Echo

06-19-2008, 04:50

Absolutely true.

But it gets worse. You may recall the Saudi announcement that they were going to pump more oil - however, that didn't reduce oil or gas prices.

Turns out, the Saudis really are pumping more - but it's heavy, sour crude. The refineries, with a few exceptions, are set up to handle light sweet crude. So not only are we constrained by refinery capacity, we're also limited by the type of oil they can process.

Where drilling may do some good is a few years hence. If we've hit global peak, as I believe we have, the old fields that have served well will begin an irreversible decline. So we'll need new production to offset declines from the old fields. That will help us maintain a plateau.

I hope we have the wisdom to find a way off the oil treadmill during that time.

I agree wholeheartedly with the concept of getting off of the treadmill. The real and permanent solution is not increased production, refining or any other real variance that requires crude oil. Alternative fuels, renewables (real renewables, not stealing food off of American's tables to shove in a fuel tank) and MAJOR adjustments in attitude are where we need to go. What works in other countries doesn't necessarily translate here. I would venture to guess that most people outside of the U.S. don't live as far from work as most of us do.
Those things that can be taken off the petroleum pipeline need to be first in the door. Power generation is the most obvious. Nuclear and clean coal then develop some serious solar, hydro and wind power capabilities.

Honda has their PEM fuelcell vehicle in limited production...OK American big 3, you're tanking, so why not step up!

nmap

06-19-2008, 20:01

They just said on the news that China has decided to increase the price of their oil, to lower demand, which will create more supply, and thus the price of oil dropped, and gas prices dropped a little.

This is going to be interesting to watch. In the U.S. and Europe, increased prices haven't reduced demand much. I suspect we'll only see a short term effect from this announcement; not that I would object to some lower gas prices.

I also have read that the shale oil reserves in the Rockies alone consist of about 3X the Saudi reserve, and then there's the similarly-sized tar sands reserves in Canada, it's just not profitable to drill and refine that oil (also no one wants to drill the Rockies).

Maybe...there seems to be a lot of argument on this one. Some believe that very little can actually be recovered from the shale (something like 3%), although others are far more optimistic. Tar sands are OK, I guess, but they have to use a lot of water in the process. With a growing population, water is important too. And then, there is the issue of flow rate. Despite the overall quantity of tar sands available, processing high flow rates is a problem.

Also, we have 230 years worth of coal reserves, and coal can be turned into oil, again though not profitably.

Isn't most power generation from coal, though? I think petroleum-based products are used for fueling automobiles, aircraft, ships, etc...but not power generation. Nuclear is fine.

I believe in the U.S., we generate 50% of our electricity from coal. Nuclear is fine with me; but we need to start building the facilities quickly. We may not have as much coal as we think; I can remember when we were supposed to have a couple hundred years of natural gas. That didn't turn out well...

I agree that someone needs to put up a $1 billion reward for whoever can develop a superbattery (something that has been alluding scientists since the development of the battery), as such a development will revolutionize energy usage; it will make things like wind and solar power much more viable, and also greatly reduce fossil-fuel usage.

Either a battery, or some other storage scheme. Using electricity to generate hydrogen might be one way; but whatever we do, we need to either innovate or decide to endure a much less abundant future. Selfishly, I know which choice I would prefer.

nmap

06-21-2008, 01:43

GratefulCitizen

06-21-2008, 12:29

I respectfully urge everyone to spend 6 minutes and 20 seconds watching the linked CNBC video with Dr. Hirsch. He prepared the original energy report for DOE, and is perhaps the formost expert on peak oil and mitigation of its effects.

The implications for each of us as individuals, as well as the foreign and domestic policy of the U.S., are, in my opinion, profound.

CNBC Video (http://www.cnbc.com/id/15840232?video=774744570)

Good clip.

IMO, sustained higher prices for oil would be a good thing, in the long run.

-It would allow for the profitable development of technology necessary for exploiting oil shale and coal.
(the coal-to-liquid bears great promise, particularly where methanol and DME is concerned)
-It would lower political resistance to the development of nuclear power.
-It would make the conventional petroleum resources in this country profitable.
-The greater demand price elasticity in emerging economies in Asia would give our economy a relative advantage.

However, I don't think that's what will happen.
My prediction:
-A combination of falling prices and government meddling will make the necessary capital investments unprofitable.
-Prices will ratchet up again, enough to bleed wealth, but not enough to promote change.
-The big one: there will be all manner of government fixes proposed which amount to energy rationing.

My bet is for a September fall in prices.

bailaviborita

06-21-2008, 15:33

It appears that the Saudis will increase prices to the U.S., and decrease them to Europe.

[/COLOR]

I'm no financier, but I wonder if it has anything to do with the dollar being so weak lately. I've heard that another nightmare on the horizon could be OPEC switching to Euros as the currency for oil rather than greenbacks...

JGarcia

06-21-2008, 16:30

I reject peak oil as nonsense.

http://video.google.com/videoplay?docid=3340274697167011147

nmap

06-21-2008, 17:54

-The big one: there will be all manner of government fixes proposed which amount to energy rationing.

My bet is for a September fall in prices.

You make some excellent points, and I wouldn't be surprised by a rationing scheme. I'm not so sure about a fall in prices; we haven't seen much demand destruction. And the refineries will start switching over to produce more heating oil about then.

I'd expect higher prices in September, but let's hope you're right.

I'm no financier, but I wonder if it has anything to do with the dollar being so weak lately. I've heard that another nightmare on the horizon could be OPEC switching to Euros as the currency for oil rather than greenbacks...

Yes, Sir, absolutely true. The Federal Reserve is talking about defending the dollar, but increasing interest rates probably won't work in an election year. This could easily mean further declines in the dollar, which creates incentive for OPEC to choose a stronger currency.

There is also the little matter of China, with its large dollar reserves.

On the good side, Ireland rejected the Lisbon treaty, which may weaken the EU...

I reject peak oil as nonsense.

So far, the theory seems to have produced accurate predictions. Time will tell.

Peregrino

06-21-2008, 20:37

I reject peak oil as nonsense.

http://video.google.com/videoplay?docid=3340274697167011147

OK - I just wasted 75 minutes watching a video with 5 minutes of information. Plausible, not really surprising, and I could have done without the delivery method.

GratefulCitizen

06-21-2008, 21:28

I reject peak oil as nonsense.

http://video.google.com/videoplay?docid=3340274697167011147

Watched the whole thing.
Knew about this guy and the Gull Island thing for a few years.

The story about the reserves up there I find quite believable (even likely).
But, his connecting of the dots seemed to have a bit much tin-foil hat in it.

Nonetheless, various groups are always leveraging their power and wealth to gain more of the same.

A recent quote from Ben Stein:
"I was just in a room with a whole bunch of speculators who are former Enron traders that are now trading natural gas and oil. And they're laughing their heads off about how much they're manipulating the price of oil. They couldn't care less."
http://www.foxnews.com/story/0,2933,369005,00.html

I also reject peak oil as nonsense, for various reasons.

This article reflects some of my thinking on the matter: http://www.fool.com/investing/high-growth/2008/06/19/the-history-of-things-that-never-happened.aspx

nmap

06-21-2008, 21:58

I also reject peak oil as nonsense, for various reasons.

This article reflects some of my thinking on the matter: http://www.fool.com/investing/high-growth/2008/06/19/the-history-of-things-that-never-happened.aspx

The article mentions that some engage in hyperbole regarding the effects of peak oil. True enough.

It also suggests that individuals will adapt their behavior, and that innovation and market economics may mitigate potential adverse effects of peak oil. That's certainly possible.

What I do not see is a refutation of the underlying theory, that being that fields, groups of fields, and (ultimately) the world reach some maximum of production which then declines.

Am I missing something?

GratefulCitizen

06-22-2008, 00:11

The article mentions that some engage in hyperbole regarding the effects of peak oil. True enough.

It also suggests that individuals will adapt their behavior, and that innovation and market economics may mitigate potential adverse effects of peak oil. That's certainly possible.

What I do not see is a refutation of the underlying theory, that being that fields, groups of fields, and (ultimately) the world reach some maximum of production which then declines.

Am I missing something?

Fields do go into decline.
The question is, what causes this?

Geologists know that oil collects in certain formations.
The oil collected in these formations came from somewhere (more on this later).
When a pool is discovered, how do we know that it is "full"?
When drained, will it fill some more?
If so, at what rate?

Some of the declination can be attributed to the well and porous rocks getting clogged up.
Explosives, surfactants, and the pumping steam/water back down into the resevoir are among the methods used to overcome this.

Regardless of the cause of declination, the extraction stops when the oil can no longer be sold for a profit.
Declination curves are an economic measure, not a geologic measure.

As the price of oil goes up, technological improvements are made and new infrastructure is constructed.
What used to be worthless "sludge" is now valuable "oil".
New technology and infrastructure promote the discovery of new deposits and increased exploitation of known ones.

Barring another event with impact similar to the burning of the Library at Alexandria, technological improvements are permanent.

The underlying theory of peak oil relies on one great assumption: Hydrocarbons come from a somewhat limited source of biological detritus which existed in geologic antiquity.
This is assumed because oil is primarily found in sedimentary formations.
Just because the oil is found in sedimentary formations does not mean it is sourced from sedimentary formations.

"Fossil fuel" is just a name.
What exactly is the chemical process by which biological detritus turns into petroleum?
Have the methods ever been tested in a lab to see if they are consistent with the conditions to which such detritus might be subjected?
What is the precise chemical process by which "kerogen" is formed?
Has this been tested in a lab?
How did methane get on Io and Titan?

In summation here are the main factors which dissuade me from believing the theory of peak oil.

1. Mineral economics:
As supplies reach an economic "floor", this creates economic motivation for exploration and improvements in technology.
This leads to new supplies and is just part of an oscillating price/supply cycle for a given mineral resource.

2. Market economics:
Demand elasticity limits consumption.
When demand becomes too inelastic, "poor" substitutes become "good" substitutes.
Technology adapts and enough inelasticity will cause disruptive technologies to be embraced.

3. Major assumption:
Scarce biogenic oil is a relatively untested hypothesis.
Conventional wisdom is not scientific evidence.

4. Convenience:
It is a convenient argument for those who would ration energy or feign scarcity as a means to acquire more power or wealth.

5. History:
Similar concerns were raised and given careful scrutiny by Thomas Robert Malthus and William Stanley Jevons.
Humankind overcame and thrived.

FWIW, there it is.
I may be dead wrong.

nmap

06-22-2008, 10:28

So,GratefulCitizen, in essence the argument is that abiotic oil is a possibility, and that
technology will result in improved extraction techniques or substitutions
that will eliminate the impact of resource depletion.

As you point out, there is no proof that abiotic oil is impossible. It is
counter to the accepted explanation.

Improvements in technology may solve the problem. However, such improvements
are speculative. We cannot know if they will occur. In additon, such advances
must be scalable. We have developed our petroleum-oriented infrastructure over
more than 70 years, so change is not likely to occur quickly or easily.

We also need to keep in mind that the key issue is not monetary cost, but
energy cost. If the energy cost (not dollar cost) of extracting new supplies
exceeds what we gather, the project won't work. We need a net energy gain.

In the end, the issues of energy availability are surfacing now. New technology doesn't
seem likely to solve the problem in the short term of five years or less, due to
scalability problems. Established experts such as Dr. Hirsch and Mr. Simmons report
that they believe we face substantial hurdles.

For the above reasons, I will continue to regard peak oil and the related challenges
as legitimate for the time being. If and when the theory is invalidated, I'll update
my views. I suppose, in the end, we must agree to disagree. Perhaps in five years,
one of us will get to tell the other "Told you so."

GratefulCitizen

06-22-2008, 13:27

So,GratefulCitizen, in essence the argument is that abiotic oil is a possibility, and that
technology will result in improved extraction techniques or substitutions
that will eliminate the impact of resource depletion.

Not exactly.

Concerning the Theory of Peak Oil:
-Others have proposed the theory.
-I am not trying to "disprove" the possibility or "prove" an alternative.
-The essence of the argument is:
The Theory of Peak Oil is a "guess" based primarily on untested assumptions and an unsound economic analogy.

Therefore, I will not base my political or economic decisions upon such a shaky foundation.

The abiotic angle is brought up for the purpose of knocking a peg out from under the argument for "scarce" oil and for pointing out an assumption which is commonly passed off as fact.
The argument does not rise or fall based upon whether the origins of hydrocarbons are biological.
(The origin of hydrocarbons is its own separate furball)

The Theory of Peak Oil is rooted in 2 core ideas:
1. Scarce oil (geological)
2. Hubbert's peak being applicable to a global economy (economic)

Concerning 1:
-The biogenic origin of petroleum is a relatively untested hypothesis.
It is an assumption passed off as fact to support the argument of scarce oil.
-Even given the assumption that petroleum has biogenic origin, it still does not prove scarcity, it is merely a good way of selling the idea of scarcity.
Scarce oil is still an assumption.
-Other mineral resources have not proven to have the scarcity problems projected for oil. (not even coal -- another "fossil fuel")

The main point: Scarce oil (geological) is without historical precedent in mineral economics and is without direct supporting evidence.

Concerning 2:
-Hubbert's peak was an economic phenomenon which occurred in the USA because of alternatives outside the USA.
We still had plenty of petroleum. It just couldn't be sold for a profit.
-Hubbert's peak would be applicable as an analogy to the global economy only if the Earth were competing with another planet/moon in oil production. (Io or Titan, perhaps? :D)
-However, if an economically competitive alternative is found, then a global "Hubbert's peak" may well occur.
In such a scenario, "Peak Oil" is irrelevant.

The main point: Hubbert's peak is an economic consequence, not a technical cause.

***************************
I do believe that there are some potential scenarios similar to peak oil.

Artificial scarcity would have similar consequences.
Prohibiting the exploration or development of resources and/or alternatives would certainly cause artificial scarcity.

This would mimic "Peak Oil".
Now...if there were only a scapegoat for this artificial scarcity...:munchin

GratefulCitizen

06-24-2008, 18:26

Gasoline prices in the USA have been a prime driver for the oil market for a long time.
The historical prices reflect a natural business cycle.

In 1996-1997, there was some artificial increase in the market supply of oil due to the SPR dump.
This dump, and subsequent refilling, could well have contributed to increased amplitude in the current cycle.
The increase in liquidity to consumers from cheap credit, recent tax policies, and the stimulus package may have extended the recent price climb.

New markets in emerging economies probably reduced overall demand elasticity.
The economy in the USA is less-oil dependent now than in the past. This reduces comparative demand elasticity.

Interference by various governments may have slowed supply response.
(regulation, nationalization of private industry, instability)
Lastly, speculation has probably further extended the climb.

The tech bubble popped.
The housing bubble popped.
This climb won't go on forever.

Historical gas prices and their deviation from the average:

* Price is in year 2000 chained dollars per gallon
**Standard deviations away from 1949-2007 yearly average (~$1.51)
***Price shifted from leaded regular to unleaded regular

Year ---- Price* --- Deviation**
1949 ---- $1.64 ---- 0.60
1950 ---- $1.62 ---- 0.51
1951 ---- $1.54 ---- 0.12
1952 ---- $1.52 ---- 0.02
1953 ---- $1.57 ---- 0.27
1954 ---- $1.58 ---- 0.31
1955 ---- $1.55 ---- 0.17
1956 ---- $1.54 ---- 0.12
1957 ---- $1.55 ---- 0.17
1958 ---- $1.48 ---- (0.17)
1959 ---- $1.47 ---- (0.22)
1960 ---- $1.48 ---- (0.17)
1961 ---- $1.45 ---- (0.32)
1962 ---- $1.42 ---- (0.46)
1963 ---- $1.40 ---- (0.56)
1964 ---- $1.37 ---- (0.70)
1965 ---- $1.39 ---- (0.61)
1966 ---- $1.39 ---- (0.61)
1967 ---- $1.39 ---- (0.61)
1968 ---- $1.35 ---- (0.80)
1969 ---- $1.33 ---- (0.90)
1970 ---- $1.30 ---- (1.04)
1971 ---- $1.26 ---- (1.24)
1972 ---- $1.20 ---- (1.53)
1973 ---- $1.22 ---- (1.43)
1974 ---- $1.53 ---- 0.07
1975 ---- $1.49 ---- (0.12)
1976 *** $1.53 ---- 0.07
1977 ---- $1.53 ---- 0.07
1978 ---- $1.46 ---- (0.27)
1979 ---- $1.82 ---- 1.48
1980 ---- $2.30 ---- 3.80
1981 ---- $2.33 ---- 3.95
1982 ---- $2.07 ---- 2.69
1983 ---- $1.90 ---- 1.86
1984 ---- $1.79 ---- 1.33
1985 ---- $1.72 ---- 0.99
1986 ---- $1.30 ---- (1.04)
1987 ---- $1.30 ---- (1.04)
1988 ---- $1.25 ---- (1.28)
1989 ---- $1.30 ---- (1.04)
1990 ---- $1.43 ---- (0.41)
1991 ---- $1.35 ---- (0.80)
1992 ---- $1.31 ---- (0.99)
1993 ---- $1.25 ---- (1.28)
1994 ---- $1.23 ---- (1.38)
1995 ---- $1.25 ---- (1.28)
1996 ---- $1.31 ---- (0.99)
1997 ---- $1.29 ---- (1.09)
1998 ---- $1.10 ---- (2.01)
1999 ---- $1.19 ---- (1.57)
2000 ---- $1.51 ---- (0.02)
2001 ---- $1.43 ---- (0.41)
2002 ---- $1.30 ---- (1.04)
2003 ---- $1.50 ---- (0.07)
2004 ---- $1.72 ---- 0.99
2005 ---- $2.03 ---- 2.49
2006 ---- $2.22 ---- 3.41
2007 ---- $2.34 ---- 3.99

Sources:
http://www.eia.doe.gov/emeu/aer/txt/ptb0524.html
http://tonto.eia.doe.gov/dnav/pet/hist/wcsstus1w.htm

nmap

06-24-2008, 19:26

Thanks for the numbers, GratefulCitizen!

I think these represent an opportunity to evaluate our two theories...although it may take several years to get a clear answer.

If the deviation remains high, or becomes higher, over time, peak oil would tend to be validated.

If, however, the standard deviation returns to a smaller level, your theory of a bubble would be strengthened.

The period from 1980 to 1982 (three years) seems to represent a previous high. We already have three years again (2005-2007). So if we get a fourth year in 2008, the scales should start tipping my way. And if it extends to 2009, I think you'll want to reconsider some of your assumptions. :)

Team Sergeant

06-25-2008, 12:17

Ret10Echo

06-25-2008, 12:20

http://www.nrel.gov

Team Sergeant

06-25-2008, 12:24

http://www.nrel.gov

I'd like to see their operating budget compared to "Homeland Security";)

I'd also like to see the salaries of the scientists working there.

IMO we're not going to see real progress until we put real money into the process.

Ret10Echo

06-25-2008, 12:26

I'd like to see their operating budget compared to "Homeland Security";)

I'd also like to see the salaries of the scientists working there.

IMO we're not going to see real progress until we put real money into the process.

Miniscule in comparison. I deal with some of the smart-folks there...they do some amazing work, but they do research, not production. Unless corporate America picks up where the NREL ends, there will not be a "product" so-to-speak...

My opinion...

and besides, not a lot of social-welfare recipients working there or Sandia Labs.

azmg

06-25-2008, 13:19

It' a rare occurrence that innovation and technology flourish under the stagnation of a bureaucracy. They often seem to come out of garages, on the backs of napkins and in dorm rooms;)

In support of Ret10Echo I have seen some recent strides in the efficiency of solar cells and a serious ramping of this technology in the private sector. While only one example, and mostly a commercial application it shows that advancement still works best in an entrepreneurial environment. Having played the game in a past life I can assure you that the private sector won't turn away grant money once you close down some of those non-essential government agencies and that the resulting competition has the potential to rapidly bring about solutions to at least some of these problems!

How do you all feel about the viability of hydrogen power for our cars, trucks etc.? Based on the success that BMW and Honda have shown it would be nice to see what the masses think. I realize that it is, for the time being a somewhat cost prohibitive option for most but as with most things mass production (and acceptance) brings a much lower cost. I am also aware that the main issue outside of the initial cost is "refueling" and the lack of "stations" but if the viability is there these things will come.

Ret10Echo

06-25-2008, 13:24

frostfire

06-27-2008, 12:25

Michael Masters testimony before the Committee on Homeland Security and Governmental Affairs
May 20, 2008

http://hsgac.senate.gov/public/_files/052008Masters.pdf

GratefulCitizen

07-01-2008, 09:59

Personally I’d like to see the Department of Homeland Security and a few other federal agencies sent the way of the dodo and use their funds for a Department of Alternative Fuel Research.

Team Sergeant

The USAF is already helping to push an economy-of-scale in one important area:
http://www.hawaiireporter.com/story.aspx?597b8878-ef74-4a5c-9d2f-03aa915bbfa1

The technology is already there:
http://www.futurecoalfuels.org/technology.asp

Once the economics reach a tipping point, it can take over.

In the early 80's, oil shale was ramping up in western Colorado.
Shortly before the infrastructure was in place, the price of oil dropped, and oil shale was no longer economically viable.

Another price drop may well doom/delay some current alternatives.

nmap

07-01-2008, 10:41

Coal to liquids may not be a viable solution. Just like oil, people tend to extract the part which is easiest to obtain, highest in quality, and cheapest. Coal usage is already high and generates approximately 50% of the electric power in the United States. As an interim (stopgap) measure, the approach may be necessary. However, as a general approach there is substantial risk of sinking considerable investment in infrastructure which will be rendered useless by reductions in supply.

There are some indications that peak coal will occur about 2050. That's only 42 years from now; which means we would have to scale up production leaving a relatively short amount of time before coal encounters the same problems faced by oil today. This does not address the issue of how a significant portion of the United States electrical power will be generated after peak coal.

The children of today seem likely to live in interesting times.

GratefulCitizen

07-02-2008, 01:51

It's a heavy read, but still an excellent lecture on the resource debate:

http://www.mines.edu/Fac_staff/senate/dist_lecture/tilton_text.pdf

The author:
http://www.mines.edu/academic/econbus/faculty/tilton.html

nmap

07-02-2008, 08:14

The paper is interesting, and well worth reading. It points out some useful concepts. The point raised in the abstract, “The optimists cannot prove the pessimists wrong, nor can the pessimists prove the optimists wrong” is an important point. At this point, both the optimistic and pessimistic views cannot be proved. However, in most areas of life we must make a variety of decisions based on inadequate and sometimes conflicting data. It is my contention that this applies to us and our individual lives, and to our nation in terms of the geopolitical strategies that must be pursued. From the perspective of potential military involvement, it may be prudent to at least consider the implications of the pessimistic case.

Let us consider page 4, paragraph 1. “This, for example, is the view of depletion found in Limits to Growth. Depletion is like a pair of mice eating away at a big piece of cheese. One day the mice (or their many descendents) are fat and happy, the next the cheese is gone, the cupboard is bare, and starvation looms.” This model is woefully inadequate with regard to discussions of oil depletion. We will not run out of oil in a hundred years, nor a thousand years, nor even in 10,000 years. What will happen is that the rate of flow will decline; and therein lies the potential problem.

In paragraph 3, also on page 4, we notice “Coal, natural gas, petroleum, nuclear, hydropower, wind, and solar energy can all be used to generate electric power. The mix of resources used at any particularly time reflects their costs. If depletion drives the costs of some energy sources up, society will reduce their use and rely more on alternative energy sources.” Which is generally true, although one might quibble that mere electrical power will not fuel trucks or cars as efficiently as liquid fuels do. Notice the key point within the quotation; when costs go up, disruptive effects may occur. The magnitude and the rate of price increases form the heart of concerns with regards to peak oil.

On page 5, paragraph 1, we see “but economic depletion, where the costs of producing and using mineral commodities rises to the point where they are no longer affordable.” It is not unreasonable for Dr. Tilton see the problem from the perspective of an economist; however, it is worthy of consideration that the extraction of energy must also account for the energy invested in the process of extraction. At inception, it cost the energy equivalent of about one barrel of oil to extract 100 barrels of oil. As the number declines, one gains less net energy from the process. Should that energy return become a negative, there is no net gain of energy. Thus, we need to consider not only the economics but also the energy balance in the process.

In paragraph 3 on page 5, Dr. Tilton points out that depletion will not be a surprise, and I agree wholeheartedly. My contention is that we are seeing the beginning of depletion effects in the oil markets. We should not be surprised as the process continues over years and decades, unless we choose to ignore the evidence. Notice that the problem is only partially one of oil depletion; a much greater problem is the human factor. If the entire population of the US met the standards of the Quiet Professionals, the various challenges of peak oil could almost be dismissed. However, the demographic realities are such that people will probably behave badly, and necessary planning and mitigation will not be pursued.

Again on page 7, paragraph 1, Dr. Tilton states “With the fixed stock paradigm, physical depletion is inevitable. It will come suddenly, and likely take us by surprise.” I could not disagree more strongly. Depletion will not come suddenly, and will only take us by surprise if we are steadfast in our refusal to look at the evidence.

On page 10, paragraph 3, is a nice statement of the optimistic case. “They stress the robustness of the marketplace. Any tendency for depletion to drive the price of a mineral commodity up unleashes a number of powerful forces that mitigate any tendency toward growing scarcity. Higher prices encourage exploration for new deposits, the development of new sources of supply, substitution toward more abundant resources, greater recycling, and conservation. More importantly, higher prices increase the expected returns to new technologies that reduce production costs, perhaps by exploiting completely new sources of supply, and to new technologies that reduce consumption.” Certainly, it cannot be discounted. That said, depending on hypothetical new technological creations seems imprudent. It is certainly reasonable to hope that such things occur, but quite another to base one's planning on such an indeterminate possibility. It seems akin to assuming that one will win the lottery. Still, it all comes down to what probability one assigns to the likelihood that someone, somewhere will create a new solution.

On page 11, paragraph 2, Dr. Tilton comments “Whether the optimists or pessimists are right will likely depend on the shape of the cumulative supply curve.” And I agree completely. This is one potential problem with the oil supply. New technology has, among other things, increased the rate of flow from oil fields. This means that when the fields start to deplete, they generally do so rapidly. We don't know what the condition of the fields in Saudi Arabia might be; however, we do know that they are old fields and that there are growing technological challenges with them. This is derived from Simmons text, Twilight in the Desert. Should the fields in Saudi Arabia depleted a rapid rate, there is a significant possibility of global economic dislocations. However, the shape of the curve is indeterminate.

Dr. Tilton's discussion of environmental and social costs are interesting. That said, I think we can discount both environmental and social costs in our examination of peak oil. If people are cold and hungry they will not be concerned about the rain forests, endangered species, or isolated groups of indigenous people. Whether that is right or wrong is way above my pay grade. I am convinced that the law of necessity will overrule all other considerations.

On page 18, paragraph 2, Dr. Tilton says “Conversely, if segments of the curve turn dramatically upward or incur discontinuities, future trends in resource availability could prove quite troubling.” And I agree completely. He goes on to say “Claims that mineral depletion unquestionably does, or does not, pose a serious threat to the welfare of modern civilization should be treated with some skepticism.”, and that is completely true. Predictions based on limited, ambiguous, and contradictory data deserve scrutiny and caution.

In the concluding paragraph on page 20, Dr. Tilton says “And so it is with our fears of mineral depletion. Over the next 50 to 100 years, . . .
mineral depletion is not likely to rank among the most pressing problems confronting society. The great beyond, however, depends on the race between the cost-increasing effects of depletion and the cost-reducing effects of new technology. The outcome will be influenced by many factors, and is simply unknown.” He's right. We can also say with certainty that it is impossible to protect if a hurricane is going to hit a specific town on a specific day. But if I lived in a coastal town, I think I would still want to address preparedness.

So, according to this paper, it looks as if we are nearly on the same side. :D

GratefulCitizen

07-02-2008, 17:05

Page 6, paragraph 2: "...population growth no longer necessarily undermines the long-run availability of mineral commodities. Every new baby is born with a brain as well as a mouth."

Herein lies my apprehension about the future of energy/oil for this nation -- the "brain drain".

Universities aren't cranking out very many graduates in the fields of mineral economics or petroleum engineering.

Many of these graduates are either foreigners or will be employed by foreign companies/governments.

We need appropriately skilled/educated people solving the USA's energy problems (as opposed to politicians actively or passively worsening the problem).

nmap

07-02-2008, 18:51

IMO Peak oil is not the only concern; the growing demand for oil in India and China and other developing nations is causing the demand to outstrip the current supply.

Americans don’t realize we’ve had it easy for the last century; we were the biggest consumers of oil, now we have to learn to share. India and China together are about six times more populous than the United States; just wait until each person in both those countries has two SUV’s, an ATV, a boat, a jet-ski, a private jet etc etc etc.:rolleyes:

Our time of living large is coming to an end and we are about to learn what it is to live in a "global" economy. The days of "biggie size" will soon be history so will restaurants serving an individual meal large enough to feed six.

Team Sergeant, your insights are ahead of some of the financial analysts. Dow Theory Letters published a portion of "Price Perspectives", which deals with commodities. In essence, they say about the same thing - except you beat them by 10 days!

Following the 1987 market crash, the Federal Reserve flooded the market with money to prevent a further decline. The injection of money lasted into the early Nineties, but inflation began to rear its ugly head. However, the US entered the North American Free Trade Agreement (NAFTA) in 1994 and as manufacturing moved to Canada and Mexico, lower priced imports brought inflation back under control. With inflation under control and increasing productivity holding inflation down, the Fed was free to continue pumping out money. Times were good.... The economy expanded as a result of money printing and inflation was contained through greater productivity and cheaper imported goods.

By the mid-Nineties, excess money flowed freely into the stock market and hedge funds grew by leaps and bounds. In 1998 a large hedge fund, Long Term Capital Management, became overextended and the Federal Reserve moved quickly to organize a $4.6 billion bailout. The bailout led many to believe the Federal Reserve would intervene in future large failures.

Assuming the Federal Reserve would come to the rescue of any major fund or banking failure, "leverage" became the mantra on Wall Street. The next major victim of excessive leverage was Enron in 2001. Although the Fed did not bail out Enron, they flooded the world with money once again following the 9-11 attack. Although inflation began to creep higher, China became a member of the World Trade Organization in early 2001. Manufacturing moved to China and cheap imports once again held inflation in check while the Fed continued to print money as never before.

By 2003, liquidity formed by war spending, tax cuts, and easy money from the Fed found its way into the housing market. In 2005, The Economists magazine called surging house prices the greatest bubble in history. However, Alan Greenspan, Chairman of the Federal Reserve, minimized the situation and said there was a little "froth" in the US housing market. Although signs of excessive money printing were obvious, an easy money policy was maintained as inflation remained under control through larger and larger imports of goods and services from India and China.

But, India and China's economies were booming through exporting goods and services to the US. As their populations became wealthier, they began demanding better food, cars and living standards similar to America. By 2005, oil prices reached $70 per barrel as India and China began competing with the US for fuel to meet their growing needs. Although fuel prices were rising, cheap imports held other prices down and the Federal Reserve once again ignored the growing threat of inflation.

Worldwide demand for fuel continue expanding as the global economy boomed. The US and Europe decided they could ease spiraling fuel prices by utilizing vegetable oils and ethanol to offset some of the cost of imported oil. In the meantime, growing global food demand was consuming the world's grain reserves. By 2007, it became clear the world was facing tightening supplies of both food and fuel.

In late 2007, the Federal Reserve was faced with a melt-down in the mortgage debt market. The only logical way to prevent a severe recession was by bailing out Wall Street banks. In an historic move, the Fed dropped interest rates from 6.25% to 2.0%. They also began buying mortgage backed securities from Wall Street banks. The huge volume of money pumped into the system over the past six months is unprecedented.

Over the past 20 years, the US has transferred its wealth to foreign nations. In return, we received cheap goods, cheap oil, and a higher standard of living. Now, foreign nations are beginning to use the transferred wealth to improve their standards of living. They are competing with the US for basic commodities we assumed would always be available.

We have been living beyond our means for too long... The piper has been paid with a fiat currency...We will now pay with inflated prices!

GratefulCitizen

07-06-2008, 00:19

Team Sergeant

07-06-2008, 08:47

Team Sergeant, your insights are ahead of some of the financial analysts. Dow Theory Letters published a portion of "Price Perspectives", which deals with commodities. In essence, they say about the same thing - except you beat them by 10 days!

I knew I was in the wrong line of work.;)

nmap

07-06-2008, 14:10

The price of coal started dropping.
Oil can't be that far behind.

Deliveries to the SPR are supposed to stop sometime in July.
The degree of demand destruction should be clear by summer's end.

I'm still betting on a September drop.
(My best friend is betting on a August drop...we'll see who gets to buy the beer :D)

There has been plenty of political posturing surrounding oil prices.
This is going to be interesting.
:munchin

I have an uneasy suspicion that you will be getting to buy a beer for your best friend.

The term "interesting" may be a masterpiece of understatement. The US and global economy are slowing, and the depth of the slowdown may be bad. First, we have the existing negative wealth effect from the decline in the housing market. Second, we have an additional negative wealth effect from established bear market in stocks. Combined, these two will tend to reduce spending in the US. However, the leading indicators for the Chinese economy are also pointed downward. LINK (http://www.chinastakes.com/story.aspx?id=484)

I have also attached a chart of the Baltic Dry Index. From Wikipedia: Most directly, the index measures the demand for shipping capacity versus the supply of dry bulk carriers. However, since the demand for shipping varies with the amount of cargo that is being traded in the market (supply and demand) and the supply of ships is much less elastic than the demand for them, the index indirectly measures global supply and demand for the commodities shipped aboard dry bulk carriers, such as cement, coal, iron ore, and grain.

The chart formation suggest the downward trend in global economic activity. LINK (http://blogs.telegraph.co.uk/ambrose_evans-pritchard/blog/2008/07/04/is_global_shipping_slowing_drastically)

The irony of all this is that we will probably see a reduction in demand while maintaining a bumpy plateau of supply. So as demand declines (demand destruction), the price will go down. This will tend to destroy alternative energy initiatives and will maintain the fiction that high oil prices are a transient phenomenon. All of which suggests to me that I should study diligently some of the material on this site. :cool:

So over the next couple years, we should see a test of peak oil theory. The classic theory suggests that escalating oil prices, caused by supply constraints, will cause reduced economic activity globally. The reduction in activity will reduce demand, causing a sharp reduction in prices. In turn, the reduced prices will spark a recovery. However, the nascent recovery will be quickly aborted as demand for crude oil increases and prices escalate even more rapidly than before. If that happens, along with clear data showing an ongoing downward trend in supply, the theory will have been tested and perhaps validated.

As you say, it should be interesting. Perhaps very interesting.:munchin

GratefulCitizen

07-06-2008, 23:06

An interesting article on the oil-shock effects upon emerging Asian economies:
http://tinyurl.com/6qlpb9

The rise in the price of oil would seem to reflect some sort of economic war of attrition.

Of course, for this country to sustain/escalate such a war of attrition a few things would be helpful:
-plenty of liquidity (from low interest rates)
-some artificial stimulation (perhaps a tax rebate...)
-a little fear driven investment (...peak oil?)
-indifference on the part of some major buyer(s) to the rising price of oil ( http://tinyurl.com/58syk4 )

It's almost like it was deliberate. ;)

nmap

07-07-2008, 19:25

A little something from down South:

Production at the Gulf of Mexico development dropped 34 percent in May from a year earlier, the biggest decline since October 1995, according to data compiled by the government and Bloomberg.

Pemex is seeking $20 billion in exploration and production funding for next year, up from its 2008 budget of $15 billion. Output at the three-decades-old Cantarell fell 25 percent in 2007, exceeding company projections for a 15 percent drop.

Pemex's funding request is too low to meet a goal of boosting oil production back above 3 million barrels a day, Kessel said in the interview. The company needs about $30 billion a year to hit that target, she said. Total crude output in May was 2.8 million barrels a day, down 10 percent from a year earlier, led by Cantarell's plunge.

LINK (http://www.bloomberg.com/apps/news?pid=20601087&sid=aQF381AACFAI&refer=home)

Mexico depends on revenues from PEMEX.

This may result in interesting side-effects on the U.S. Southern border.

nmap

07-12-2008, 10:07

Here's something from a Middle East news website. It focuses on Spain, but includes more general information as well.

LINK (http://www.middle-east-online.com/english/opinion/?id=26863)

nmap

07-12-2008, 11:13

I'm posting a web link to a YouTube interview on CNBC. Mr. Simmons contends that oil prices are headed higher, and that supply failure may occur.

Before dismissing his views, please consider his background:

Wikipedia (http://en.wikipedia.org/wiki/Matthew_Simmons)

Brief Resume (http://www.simmonsco-intl.com/company_org.aspx?DepartmentId=1)

His Company (http://www.simmonsco-intl.com/)

The video: Video Link: 6 minutes, 59 seconds duration (http://youtube.com/watch?v=rkzETN8qfzw)

GratefulCitizen

07-12-2008, 14:39

:DI'm posting a web link to a YouTube interview on CNBC. Mr. Simmons contends that oil prices are headed higher, and that supply failure may occur.

Before dismissing his views, please consider his background:

Wikipedia (http://en.wikipedia.org/wiki/Matthew_Simmons)

Brief Resume (http://www.simmonsco-intl.com/company_org.aspx?DepartmentId=1)

His Company (http://www.simmonsco-intl.com/)

The video: Video Link: 6 minutes, 59 seconds duration (http://youtube.com/watch?v=rkzETN8qfzw)

I am suspicious of his analysis given that he doesn't seem to qualify as a disinterested party to the debate.
(Investment Bankers to the Energy Industry...)

To be fair though, disinterested parties are difficult to find, and are rarely given media access.

If anyone's willing to put on their tin-foil hat for a moment, this may give you a chuckle.
Note that he's a CFR member.
Now visualize him holding his pinky to the corner of his mouth while saying a barrel of oil will eventually cost "100 billion dollars".

Sorry nmap, I couldn't resist. :D

nmap

07-12-2008, 14:43

Note that he's a CFR member.
Now visualize him holding his pinky to the corner of his mouth while saying a barrel of oil will eventually cost "100 billion dollars".

Sorry nmap, I couldn't resist. :D

I don't blame you - sometimes, it's best to give in to temptation. :D

GratefulCitizen

07-13-2008, 16:59

It's a few days old, but a concise commentary.

http://www.istockanalyst.com/article/viewarticle+articleid_2382876.html

IMO, the bubble still has a little room to inflate.
You can hear a pumping sound coming from the imminent Freddie-Fannie bailout.

<edit>
The bubble does seem to be getting pretty full, though:
http://www.presstv.ir/detail.aspx?id=63437&sectionid=3510213

GratefulCitizen

08-03-2008, 19:50

Figured this was the best "oil" thread upon which to add.

Much of this is a heavy read, but brings an interesting perspective.

http://www.gasresources.net/

GratefulCitizen

08-09-2008, 14:28

A lecture on the future availability of oil: http://pangea.stanford.edu/eslectures/endofoil/docs/OilDepletionMyth.pdf

The author: https://pangea.stanford.edu/people/cv_printable.php?personnel_id=189

********
********

Some excerpts from: http://www.runet.edu/~wkovarik/oil/5oilreservehistory.html

Timeline

• 1882 -- Institute of Mining Engineers estimates 95 million barrels of oil remain.

• 1919, Scientific American notes that the auto industry could no longer ignore the fact that only 20 years worth of U.S. oil was left.

• 1920 -- David White, chief geologist of USGS, estimates total oil remaining in the US at 6.7 billion barrels.

• 1925 -- US Commerce Dept. says that while U.S. oil production doubled between 1914 and 1921, it did not kept pace with fuel demand as the number of cars increased.

• 1926 -- Federal Oil Conservation Board estimates 4.5 billion barrels remain.

• 1932 -- Federal Oil Conservation Board estimates 10 billion barrels of oil remain.

• 1944 -- Petroleum Administrator for War estimates 20 billion barrels of oil remain.

• 1950 -- American Petroleum Institute says world oil reserves are at 100 billion barrels.

• 1966 - 1977 -- 19 billion barrels added to US reserves, most of which was from fields discovered before 1966.

• 1980 -- Remaining proven oil reserves put at 648 billion barrels

• 1993 -- Remaining proven oil reserves put at 999 billion barrels

• 2000 -- Remaining proven oil reserves put at 1016 billion barrels.

There is a difference between "proven", "identified", and "recoverable" reserves: http://www.radford.edu/~wkovarik/oil/2worldoil.mideast.html

Food for thought. :munchin

nmap

08-10-2008, 10:52

Food for thought. :munchin

It's come down some - which is in accord with your prediction that it would decline through the election. (Please correct me if I'm in error).

I, on the other hand, continue to expect that declines post-peak will assert themselves.

We live in interesting times. :cool:

GratefulCitizen

08-10-2008, 16:49

It's come down some - which is in accord with your prediction that it would decline through the election. (Please correct me if I'm in error).

Many of my comments in this thread and others reflect a belief in the relationship between oil prices and politics.

While I do believe that politicians have a hand in driving up oil prices, they don't seem to have much ability to drive it back down.
(other than in the long term through deregulation)
The present relationship is mainly one of posturing.

In the case of a September drop in fuel prices:
I believe this will be driven by demand destruction and excess inventory.
(in the case of diesel, I believe there will be a small post-Olympic glut)

In the case of oil prices:
I believe the market is currently inflated and supply will overcome demand.
Best guess is volatility for another week or two, then decline.

Speculators may have a bigger hand in impending decline of prices than they did in the rise.
IMO, a plummeting price of oil is not necessarily a good thing.

I, on the other hand, continue to expect that declines post-peak will assert themselves.

We live in interesting times. :cool:

Calling the "peak" for Peak Oil has been quite elusive.

I'll make a SWAG for Jan-Feb '09: oil goes for $60/barrel or less.
(this assumes no major hostilities involving Iran)

Guy

08-10-2008, 22:51

I'll make a SWAG for Jan-Feb '09: oil goes for $60/barrel or less.
(this assumes no major hostilities involving Iran)OPEC would reduce supply before it gets that low....

Stay safe.

nmap

08-12-2008, 10:44

GratefulCitizen

08-16-2008, 15:27

Here's a link to some of the current developments in the oil markets.

The info about the PKK, Turkey, Iraq, South Ossetia and the BTC pipeline seems interesting. I can't help but wonder how much activity the area will develop in the years ahead. (That's a rhetorical question.)

LINK (http://www.energybulletin.net/node/46188)

Russia's long-term interest in natural gas is in play:
http://www.theglobeandmail.com/servlet/story/RTGAM.20080815.wrcover16/BNStory/Front

Alaska isn't waiting for the Washington politicians:
http://www.investors.com/editorial/editorialcontent.asp?secid=1501&status=article&id=303693123946167

GratefulCitizen

09-07-2008, 14:40

The energy debate rages on during election season.

Meanwhile, the rest of the world is preparing for the future.

On the demand side:
http://www.telegraph.co.uk/news/worldnews/asia/china/2699789/China-marches-past-USA-to-stake-a-claim-to-Iraqs-oil.html
http://uk.reuters.com/article/oilRpt/idUKL749048420080907

On the supply side:
http://www.arabianbusiness.com/530165-gulf-crude-production-to-surge-by-2015---report?ln=en

I'm starting to develop some cynicism with certain elements of "peak oil".

Most of the "peak oil" story is being driven by man named Matt Simmons.
His company: http://www.simmonsco-intl.com/

There is a great deal of money to be made off of oil, both on the way up and the way down.

The best information with which to make decisions doesn't come cheaply.
Check out the price for FUTURE OIL & GAS SUPPLY: A QUANTITATIVE ANALYSIS
http://www.pennenergy.com/index/resourcecenter/reports/new_future_global/dr__rafael_sandrea.html

Information is power.
So is misinformation.

Many people stand to lose a great deal of money if they're left holding the bag after a rapid oil price drop.

nmap

09-07-2008, 15:05

Interesting articles, GratefulCitizen...but there may be some issues.

First, the piece from Arabian Business is notably optimistic about supply...but...notice that the OPEC countries had a sudden, large, and unexplained increase in reserves some years ago. Cynics suggest that OPEC lied. Are they being optimistic for political or economic reasons again?

Second, Simmons may be the most visible spokesman, but he isn't the only one. There is an interview in Barron's from Charles Maxwell. It's only available to subscribers, although I will provide the link: HERE (http://online.barrons.com/article/SB122065354946305325.html?mod=9_0031_b_this_weeks_ magazine_main)

Here's a salient paragraph:

How high do you think the price of oil will go from here?

We will see $300 a barrel -- or roughly $250 in today's dollars -- because oil supply will be so short. If you want that oil, that's what you will have to pay for it. That will be in 2015, after the peak of oil [supply]. But even earlier, around 2010, more than 50% of the non-OPEC world will have peaked in its production of oil so the dependence on OPEC will become extreme. That will give OPEC a chance, I'm afraid, to lift prices rather more quickly on us than they are doing today.

By the way - did you notice that Paulson announced the takeover of Fannie and Freddie today? You and I, along with the rest of the nation, just acquired a 5 trillion (with a T) mortgage loan portfolio. For some of the implications, read THIS (http://news.moneycentral.msn.com/ticker/article.aspx?Feed=MY&Date=20080902&ID=9086910&Symbol=FNM). Could this change the recent upward trend of the dollar, with implications for oil prices?

Sorry, Grateful, but I remain a peak-oil doomer in good standing. :munchin

GratefulCitizen

09-07-2008, 15:57

This layman still harbors some cynicism.

P90 standards (proved reserves) appear to be the numbers being used in peak oil predictions.
These numbers are added up and then conclusions are drawn.

This is mathematically incorrect.

P90 numbers are only useful for the given field to which they refer.
P90 values for different fields cannot be added together to draw meaningful inferences.

If a P90 standard were wanted for the entire world, you would need the mean values and the variances (standard deviation squared) associated with these estimates for every individual field.

A P90 for the whole world would be something like this:
P90 = (sum of all mean) - 1.28*(square root (sum of all variances))

The sum of all mean might as well be used because the sheer number of fields would tend to pull the world P90 value relatively close to the world mean value.

P90 values (for a field) are the ones reported to investors.
The mean values may or may not be available.

In a nutshell: mean reserves are the ones that matter, not proved reserves.

To be fair, there may be a peak oil issue related to production/consumption issues.

Production levels are primarily affected by investment, which is affected by price.
Consumption levels are primarily affected by price.

The market will tend to itself.

<edit>
-changed term to "mean" from P50/probable
-forgot that mean/median/mode may not be equal on non-normal/non-symmetric distributions

nmap

09-07-2008, 16:14

While everything you say makes good sense, it is my understanding that reporting standards vary wildly between countries - so we don't have (and aren't likely to get) consistent and widely applicable figures. Still worse, there are suggestions that some countries are not honest in what they do report.

I would also point out that Simmons has called (frequently) for transparent, clear accounting - such as you use.

Hence, peak oil predictions rest on foundations that lack rigor - which explains a portion of the difference between predictions. That said, whether peak was in 2005, is in 2008, or will be in 2015, it is likely we face significant change - changes that can drive policy in both the domestic and international arenas. Changes that affect markets. I suspect it behooves us to consider the implications.

Still, I can't criticize cynicism; it's probably more socially acceptable than doomer-ism, anyway. :D

GratefulCitizen

09-07-2008, 17:22

Simmons may be the most visible spokesman, but he isn't the only one.

Fair enough.

However, he is a prime driver of the meme.

How did he come to his position?

"Because he's spent the better part of the last two years carefully combing through a three feet-high stack of Society of Petroleum Engineer technical papers he discovered after attending an industry conference in Saudi Arabia."
http://www.evworld.com/article.cfm?storyid=884

Has his research been reviewed by any petroleum engineers?
What are their opinions?

You don't see a great number of petroleum engineers on the doomer side.
There is an interview with Jack Zagar out there.
His statements are carefully parsed.

He (Zagar) his also an associate of MHA Petroleum Consultants.
Their mission statement:
"The mission of MHA is to effectively augment the skills of our client organizations in the field of petroleum reservoir management to Maximize Hydrocarbon Asset value."
(emphasis mine)
http://www.mhausa.com/

It just seems like the experts pushing the doomer side of peak oil are usually on the financial side of the business.

I am all for these concerned citizens sounding the alarm...just as soon as they divest themselves from any way of profiting from it.

nmap

09-07-2008, 17:52

GratefulCitizen

09-07-2008, 19:06

Hmm. You might wish to take a look at the ASPO (Association for the study of peak oil), and The Oil Drum. I can provide links if you want them.

Anyway, some names you might want to Google.

Chris Skrebowski
Dr. Colin J Campbell
Mr. Jean Laherrere
Jeremy Leggett
Ali Samsam Bakhtiari
Albert Allen Bartlett

Simmons is visible - the others, less so. But the background of the others may impress you more. Among them, Samsam Bakhtiari - now deceased - is of particular interest. He was a senior official with the Iranian national oil company, lived in London (as I recall) and had some good insights about peak oil. Here's a LINK (http://www.moneyweek.com/investments/commodities/why-we-must-take-peak-oil-seriously.aspx) to whet your appetite.

When one person makes a claim, cynicism is a good idea. Same thing with two, or even three. But at some point, one might wish to consider that they are telling the truth as they see it. And even that they might be correct.

Chris Skrebowski
Journalist, editor, author.

Colin J. Campbell
Geologist, author.

Mr. Jean Laherrere
"variety of successively more responsible roles encompassing exploration activities"

Jeremy Leggett
Geologist, social entrepreneur, author.

Ali Morteza Samsam Bakhtiari
Chemical engineering, educator, author.

Albert Bartlett
Professor of Physics
"Modern-day Malthusian"
"lectured over 1,500 times on Arithmetic, Population, and Energy"

None of these men are qualified to substantiate Simmons' claims.

Where are the petroleum engineers who would be qualified to review Simmons' work and data?

I see a list of men who stand to benefit financially from exaggerating the risk.

nmap

09-07-2008, 22:10

GratefulCitizen

09-07-2008, 23:22

Let's take the first one as an example.

Chris Skrebowski:

Chris has 38 years experience in the Oil Industry, starting work in 1970 as a long-term planner for BP. His career has been divided between industry planning/market analysis and oil journalism. He was Senior Analyst for the Saudi Oil Ministry in London (1985-1994) [11], Editor of Petroleum Economist (1994-97) [12] and Editor of Petroleum Review (1997-2008)[13]. He comments regularly on oil and gas related subjects in the international media.

LINK (http://en.wikipedia.org/wiki/Chris_Skrebowski)

You don't regard experience with BP and the Saudi Oil Ministry as meaningful?

That is not my assertion.
My assertion is:
Petroleum engineers are uniquely qualified to interpret the meaning of information published by and for petroleum engineers.

As for the petroleum engineers...that would probably be in the journals published by the Society of Petroleum Engineers - the very source Simmons used for his book. Note that it includes the citations for 200 scholarly works from that source.

See previous assertion.

But would they explicitly say - especially in a published work - that their employer faced an inevitable decline in production?
Would they not be compelled to respect some degree of confidentiality on the part of their employer?

To put this argument into if/then form:

If catastrophic decline is inevitable and they need to hide it, then they will not confirm Simmons' assertion of catastrophic decline.
(If A is true, then B is true.)

Fact: they will not confirm the assertion of catastrophic decline.
(B)
It does not follow that: "B is true, therefore A is true."
This is the logical fallacy known as "affirming the consequent".

The fact that they will not confirm Simmons' assertion of catastrophic decline does not imply that there is catastrophic decline.

Healthy skepticism can be a good thing. But one can take a good thing too far.

I am only searching for one thing: a qualified expert (petroleum engineer) who will confirm Matt Simmons' assertions.

It seems unlikely that anyone really knows for sure how/when/why global oil production will go into decline.
I believe that the peak oil theorists will continue "moving the goal posts" as time moves forward.

Peak oil predictions need not be true or false for certain individuals to profit.
They only need to be believed by enough people, for a long enough time.

nmap

09-08-2008, 06:30

It seems unlikely that anyone really knows for sure how/when/why global oil production will go into decline.

Absolutely true. No one knows. No one will know until after the fact. And - even then - it will be several years before the situation is resolved and accepted.

I believe that the peak oil theorists will continue "moving the goal posts" as time moves forward.

Could be. That's one of those "time will tell" situations.

Here's the problem - either peak oil is true, hence a problem, or not true, hence a scam.

If it's true, we as individuals and as a society would be well advised to make some deep changes. They won't be pleasant.

On the other hand, if it isn't true, any changes we make will do nothing for most, will enrich some - and may lead to more laws, rules, regulations and control. And it would be, as I mentioned, for nothing.

So it becomes a balance between validity of the theory and consequences of right and wrong decisions.

Other than time...say, a decade?...I don't see much chance of a clear definitive answer. It becomes a matter of opinion until such established fact is in hand.

My view (as if it needs restating) is that it is real and we would be wise to get ready for much more expensive and less available energy.

Suppose you were advising a good friend. What advice would you give them?

ZonieDiver

09-08-2008, 07:53

<snip>Suppose you were advising a good friend. What advice would you give them?

Hope for the best, prepare for the worst?

Razor

09-08-2008, 08:51

If it's true, we as individuals and as a society would be well advised to make some deep changes. They won't be pleasant.

On the other hand, if it isn't true, any changes we make will do nothing for most, will enrich some - and may lead to more laws, rules, regulations and control. And it would be, as I mentioned, for nothing.

Are you discussing peak oil, or global warming? :cool:

nmap

09-08-2008, 09:38

Are you discussing peak oil, or global warming? :cool:

(Chuckle) Yes, Sir, there are some remarkable similarities in the arguments, aren't there?

GratefulCitizen

09-08-2008, 11:28

Here's the problem - either peak oil is true, hence a problem, or not true, hence a scam.

This is a false dichotomy.
There is still no clear definition as to what exactly "peak oil" means.
The goal posts keep moving in the definition, as well.

If it's true, we as individuals and as a society would be well advised to make some deep changes. They won't be pleasant.

On the other hand, if it isn't true, any changes we make will do nothing for most, will enrich some - and may lead to more laws, rules, regulations and control. And it would be, as I mentioned, for nothing.

So it becomes a balance between validity of the theory and consequences of right and wrong decisions.

Other than time...say, a decade?...I don't see much chance of a clear definitive answer. It becomes a matter of opinion until such established fact is in hand.

This is all an extension built upon the original false dichotomy.

My view (as if it needs restating) is that it is real and we would be wise to get ready for much more expensive and less available energy.

"It" is real?
What is the specific definition of "it"?
Is "it" the cause, the potential consequences, or the arguments connecting them?

This is a moving target.
It is hard to base a logical argument upon a moving foundation.

Suppose you were advising a good friend. What advice would you give them?

I would advise them to put trust in the private market to solve potential problems rather than in government(s).

Here's the problem: peak oil, global warming (or "climate change" since we're actually cooling right now), enviromental concerns, overpopulation, universal healthcare, etc. all lead to the same end.
Rationing.

Some authority will have to oversee this rationing.

Socialism by any other name still reeks of death.

nmap

09-08-2008, 12:28

This is a false dichotomy.
There is still no clear definition as to what exactly "peak oil" means.
The goal posts keep moving in the definition, as well.

On the contrary, there is a clear, precise, and generally accepted definition. It is:

Peak oil is the point in time when the maximum rate of global petroleum extraction is reached, after which the rate of production enters terminal decline. The concept is based on the observed production rates of individual oil wells, and the combined production rate of a field of related oil wells. The aggregate production rate from an oil field over time appears to grow exponentially until the rate peaks and then declines, sometimes rapidly, until the field is depleted. It has been shown to be applicable to the sum of a nation’s domestic production rate, and is similarly applied to the global rate of petroleum production. It is important to note that peak oil is not about running out of oil, but the peaking and subsequent decline of the production rate of oil.

Here's a LINK (http://en.wikipedia.org/wiki/Peak_oil)

I would advise them to put trust in the private market to solve potential problems rather than in government(s).

Agreed.

Here's the problem: peak oil, global warming (or "climate change" since we're actually cooling right now), enviromental concerns, overpopulation, universal healthcare, etc. all lead to the same end.
Rationing.

Some authority will have to oversee this rationing.

Socialism by any other name still reeks of death.

Once again, we are in complete agreement.

I am not a fan of government intervention, nor of rationing. I do think individuals and organizations should consider the possibilities from the perspective of personal preparedness.

GratefulCitizen

09-08-2008, 12:49

It has been shown to be applicable to the sum of a nation’s domestic production rate, and is similarly applied to the global rate of petroleum production.

It has?
Where?
What is the raw data and the mathematics used to reach this conclusion?

LINK (http://en.wikipedia.org/wiki/Peak_oil)

There is much information here.
I have read this before and I am still unable to find where this question is directly addressed.

I don't dispute the sincerity of the majority of peak oil theorists.
I am disputing parts of the underlying arguments.

There just seems to be a hole in the argument.

nmap

09-08-2008, 13:22

It has?
Where?
What is the raw data and the mathematics used to reach this conclusion?

I'm going to give you a couple links, with the first being the weaker of the two. Each originated with Dr. Robert Hirsch - and, of course, his background is not petroleum engineering. On the other hand, the Dept. of Energy and SAIC seem to think highly of him.

Link one ( HERE (http://www.ct-si.org/Cleantech2008/pdf/72026.pdf) ) makes the assertion of a connection between oil and GDP. (Yes, I know - it doesn't provide the raw data and mathematics you asked for ).

Link two ( LINK (http://www.netl.doe.gov/publications/others/pdf/Oil_Peaking_NETL.pdf) ) is another Hirsch publication, see page 31. Per Google scholar, the report is cited 62 times.

In footnote 42 of the above paper, an IEA paper considers the problem. You can see it HERE (http://www.iea.org/Textbase/Papers/2004/High_Oil_Prices.pdf). However, they do not provide the raw data or step-by-step mathematics you appear to require.

Here's a further link that implies the connection. It has a former head of the CIA, a former member of the JCS, and so on - but not a petroleum engineer in the bunch. Mathematics? Not to be found. So...should it be dismissed as drivel?

LINK (http://www.energycommission.org/ht/display/ReleaseDetails/i/1552/pid/500)

Here is a link with some dates on page 15. Alas, not an equation nor a petroleum engineer to be found. So...I suppose all of those listed are mere rogues and charlatans.

LINK (http://energycommerce.house.gov/reparchives/108/Hearings/12072005hearing1733/Hirsch.pdf)

GratefulCitizen

09-08-2008, 14:08

Here's a further link that implies the connection. It has a former head of the CIA, a former member of the JCS, and so on - but not a petroleum engineer in the bunch. Mathematics? Not to be found. So...should it be dismissed as drivel?

Here is a link with some dates on page 15. Alas, not an equation nor a petroleum engineer to be found. So...I suppose all of those listed are mere rogues and charlatans.

Let me be clear.

I am not trying do disprove peak oil.
I am saying that the existing peak oil arguments don't support the conclusion.

So far, the arguments are:
1. Something must be done, because the consequences will be too severe if this happens.
2. Oil production declines for individual fields, it declined for the USA, therefore it will for the world.
3. Numerous experts claim the previous arguments are valid.
4. In many instances it is simply asserted: Cheap oil is coming to an end.

All four of these arguments constitute logical fallacies:
1. Appeal to fear
2. Non-sequitur (A is an attribute of B. So A is an attribute of C.)
3. Appeal to authority
4. Begging the question

It could be said that I am using the "appeal to authority" in wanting the input of petroleum engineers.

This input is desired to verify the claims of Matt Simmons or review any other claims associated with argument #2.

So far, this input is unnecessary because nothing has been presented for review in the case of argument #2.

Just trying to unravel this and get to the root. :)
I believe the root is in whether argument #2 can be validated.

nmap

09-08-2008, 14:12

OK...math and rigor we want...math and rigor we shall have.

First, notice that the IEA has a presentation about energy costs vs. GDP.

LINK (http://www.iea.org/Textbase/work/2004/cambodia/bj_session1.3-jacobs%20presentation.pdf)

They mention 3 economic models they used.

Macro-economy: OECD countries - OECD Interlink model

Macro-economy : Rest of the world - IMF Multimode model

Energy: IEA’s World Energy Model

Let's look at the IEA model.

The current World Energy Model, which is comprised of nearly 16,000 equations, is the 11th version of the model. It covers 21 regions (Annex 1). The WEM is designed to analyse:

LINK (http://www.worldenergyoutlook.org/model.asp)

You can see one of the equations on page 9 of this LINK (http://www.worldenergyoutlook.org/docs/weo2007/WEM_Methodology_07.pdf). It's way above my pay grade (to quote a current cliche').

Read through the document, and you'll find lots of models, all complex, all interconnected. If you can make sense of it - then, sir, my hat is off to you.

And that's just one of three....

Now, how to deal with data to feed those thousands of equations? I have no idea. I suspect they come from a variety of places and are in several databases, but I don't know.

All in all, going to the numbers and math directly sounds like a lot of work. I think I'll apply myself to something easier...say, a nice sandwich. You can do all that heavy lifting if you wish. :lifter

nmap

09-08-2008, 14:45

2. Oil production declines for individual fields, it declined for the USA, therefore it will for the world

...snip...

This input is desired to verify the claims of Matt Simmons or review any other claims associated with argument #2.

So far, this input is unnecessary because nothing has been presented for review in the case of argument #2.

...snip...

Just trying to unravel this and get to the root. :)
I believe the root is in whether argument #2 can be validated.

Very well. To the roots. That takes us back to M. King Hubbert, who presented a paper in San Antonio in 1956. He is credited with accurately predicting the peak in U.S. production that came in 1970. You can see his paper HERE (http://www.hubbertpeak.com/hubbert/1956/1956.pdf), with the prediction on page 24. You'll find equations in the paper. :D

Now there is an easier way. Get two charts - one, of oil production, and one of oil discoveries. Look at the shape of the curves. There is a lag between the two curves. Notice the trend of discoveries. Can it be produced if it isn't discovered?

Unfortunately, I have to leave. I'll try to find a curve for you to look at later.

GratefulCitizen

09-08-2008, 14:57

OK...math and rigor we want...math and rigor we shall have.

I'm unsure how the links provided connect to the root argument addressed in peak oil.

It does illustrate a problem, though.
With peak oil, many charts and lots of information is presented.

The critical piece is notably absent.

Can the ideas of individual field decline be logically connected with world decline?

Intuitively, this makes sense.
If it is true, there should be a demonstrable mathematical connection.

I harbor no hostility in this debate.
Just trying to find the missing piece to the puzzle. :)

Concerning the posted links:

I wish them luck in their modeling.
Economic complexity is one big furball.

I'll take my cue on this matter from Turing and the Halting Problem.
(Or Solomon, for that matter...Ecclesiastes 1:15)
For interested parties: http://tinyurl.com/5zxuko

The equation on page 9 on the referenced link looks like a boilerplate exponential growth function.

Pete

09-08-2008, 15:17

You two just have to get together sometime in a friendly Pub with a laptop and cold one each.

Surf n Turf

09-08-2008, 15:55

Lost me after the 2nd post -- I just kept reading so as to not look stupid

SnT

GratefulCitizen

09-08-2008, 15:57

Very well. To the roots. That takes us back to M. King Hubbert, who presented a paper in San Antonio in 1956. He is credited with accurately predicting the peak in U.S. production that came in 1970. You can see his paper HERE (http://www.hubbertpeak.com/hubbert/1956/1956.pdf), with the prediction on page 24. You'll find equations in the paper. :D

"In my figure of 1956...these curves were not derived from any mathematical equation. They were simply tailored by hand...I suggest that anyone interested should draw the curves himself."
(Hubbert, 1982)

"there is an infinity of different shapes that such a curve may have."
(Hubbert, 1949)

See pages 5,6,7: http://tinyurl.com/5cvnsu

Now there is an easier way. Get two charts - one, of oil production, and one of oil discoveries. Look at the shape of the curves. There is a lag between the two curves. Notice the trend of discoveries.

In other words, there is a relationship between discovery and production.
When people want oil, they look for it and produce it.

Can it be produced if it isn't discovered?

This assumes it will not be discovered.
People will only look for oil when there is financial incentive to do so.
(They also have to be allowed access by the governing authority!)

Towards the bottom the page at this link, there is a section called "Impact of Prices on Industry Segments".
http://www.wtrg.com/prices.htm

The associated charts compare prices with activity.

nmap

09-08-2008, 19:49

You two just have to get together sometime in a friendly Pub with a laptop and cold one each.

Sir, there is wisdom in your words!

The Reaper

09-08-2008, 21:49

I was thinking they needed a motel room.

TR

nmap

09-08-2008, 22:04

I was thinking they needed a motel room.

TR

You have always given me good counsel and advice in the past, Sir.

I think it is time - long past time, actually - for me to agree to disagree with Grateful Citizen and move on to other things.

And so I shall.

GratefulCitizen

09-10-2008, 22:51

Note to mods/admins: Pete gave the green light to proceed.

********
********

Nmap: in the interest of intellectual honesty, I must present a few things.

My criticism of the common arguments which support peak oil theory do nothing to disprove peak oil.
Even if my refutations of these arguments are deemed successful, this only refutes the proposed cause, not the effect.

In other words: if the supporting arguments are true, then this implies peak oil is true.
(If A is true, then B is true.)

If I were to conclude: A is not true, therefore B is not true; it would be a logical fallacy.
Specifically, it would be the non-sequitur known as "denying the antecendent".

You have had the difficult position of trying to build and support a complex cause and effect.
I have had the easy task of trying to undermine the "cause" arguments.

There is definitely something going on in the world of oil production.
I only disagree as to the cause and the manner in which it may manifest.

In other words, I do agree that there will be "peak oil", just in a different way, and with different timing than is commonly explained.
By this weekend, I should have an argument put together which supports an alternative scenario for how peak oil may happen.

Public discourse is the crucible in which truth is refined.

A presentation from Dr. Richard Pike (a global-warmer!) is consistent with much of what I believe (about oil).
He also confirms much of what I asserted in post #110.

http://www.friction.tv/ftv_debate.php?debate_id=3369

So, Nmap; I cannot agree to disagree because I disagree that we actually disagree very much. :D
(You might make a doomer out of me yet!)

nmap

09-11-2008, 06:06

So, Nmap; I cannot agree to disagree because I disagree that we actually disagree very much. :D
(You might make a doomer out of me yet!)

I'll look forward to seeing your thoughts.

When I first came to the site (professionalsoldiers.com), I said I did so to get different perspectives. That was, and is, a true statement. I was not entirely forthcoming as to precisely what perspectives I was looking for, and why.

Peak Oil seems to be a complex issue - but the potential consequences are even more difficult to discern. The human factor, and how people react, are part of that issue. That's where the different perspectives mentioned above comes in. Most of the people I know and associate with are civilians, and in my opinion, are both emotionally and physically weak. This is not to say that I am any stronger or better; but the attributes of my fellow residents of the area is a factor in evaluating how matters will play out. The members of this board, both quiet professionals and guests, strike me as having considerably greater inner strength than most of the people I know - and this doesn't include training and physical agility. Those factors are in addition to the mental and emotional toughness I mentioned. These strengths could come out in a crises, making a prfound difference in the way our society faces a major challenge. Leadership - the type of qualitites displayed by some of the Quiet Professionals and others - just might prevent transition of the U.S. into a situation similar to New Orleans just after Katrina.

Thus, I am not quite as much of a doomer as I was - although most would still put me in the uber-doomer category, I'm willing to suppose that global population won't go below the one billion mark. (How's that for optimistic?) Perhaps, then, we will meet somewhere in the middle.

Anyway, as I mentioned - I look forward to your thoughts.

Dave

afchic

09-11-2008, 13:08

Saudi Arabia walked out on OPEC yesterday. It said it would not honor the cartel's production cut. It was tired of rants from Hugo Chavez of Venezuela and the well-dressed oil minister from Iran.

As the world's largest crude exporter, the kingdom in the desert took its ball and went home.

As the Saudis left the building the message was shockingly clear. According to The New York Times, “Saudi Arabia will meet the market’s demand,” a senior OPEC delegate said. “We will see what the market requires and we will not leave a customer without oil."

OPEC will still have lavish meetings and a nifty headquarters in Vienna, Austria, but the Saudis have made certain the the organization has lost its teeth. Even though the cartel argued that the sudden drop in crude as due to "over-supply", OPEC's most powerful member knows that the drop may only be temporary. Cold weather later this year could put pressure on prices. So could a decision by Russia that it wants to "punish" the US and EU for a time. That political battle is only at its beginning.

The downward pressure on oil got a second hand. Brazil has confirmed another huge oil deposit to add to one it discovered off-shore earlier this year. The first field uncovered by Petrobras has the promise of being one of the largest in the world. That breadth of that deposit has now expanded.

OPEC needs that Saudis to have any credibility in terms of pricing, supply, and the ongoing success of its bully pulpit. By failing to keep its most critical member it forfeits its leverage.

OPEC has made no announcement to the effect that it is dissolving, but the process is already over ~ MSN MoneyCentral Blogs

http://www.nytimes.com/2008/09/11/business/worldbusiness/11oil.html?_r=2&adxnnl=1&oref=slogin&ref=business&adxnnlx=1221131040-KOS/e6DE0gSZ3H0lkcDcLw&oref=slogin

Slantwire

09-11-2008, 13:29

Saudi Arabia walked out on OPEC yesterday. It said it would not honor the cartel's production cut.

They left the meeting, and refused to abide by OPEC's decision on the production cut. But it's not like they've withdrawn from the organization.

Unless I missed something?

afchic

09-11-2008, 17:10

YOu are correct and I did not mean to imply they did. I will change the title of my post.

GratefulCitizen

09-14-2008, 00:02

Still working on my alternative.
While researching, I came across some interesting info.

Anyway, some names you might want to Google.

Chris Skrebowski
Dr. Colin J Campbell
Mr. Jean Laherrere
Jeremy Leggett
Ali Samsam Bakhtiari
Albert Allen Bartlett

I missed something with Mr. Jean Laherrere.

http://en.wikipedia.org/wiki/Jean_Laherr%C3%A8re

This didn't pop up with a search last week.
As it turns out, he is a petroleum engineer.

It seems there is a petroleum engineer on the doomer side.
I stand corrected.

However...

While reading one of his publications, something piqued my interest.

From pages 5,6 of: http://www.oilcrisis.com/Laherrere/ShellDecline2004.pdf

aggregation and multiplication

Adding the estimates of a large number of fields is not straightforward, because the probability ranking of individual fields is not the same. Thus, the sum of the proved reserves of individual fields will be less than the proved reserves of a basin or country, as it is unlikely that every field estimate will be the minimum value. Only mean values may be summed. Yet the main public databases as published by World Oil, the Oil & Gas Journal and BP, all mistakenly sum what are described as proved reserves.

(emphasis mine)

Here Mr. Laherrere confirms that oil reserves are underreported.

With a large number of field P90 values, the aggregation for the nation should correspond to closer to P99.When playing dice, with one die the chance to get at least 2 is 5 out of 6 or 83% probability (which can be called proved for SEC), but in throwing 8 dice, the aggregation of 8 times 2 being 16 has a probability of 99 % and there is an 80 % probability of getting 24 which is much higher than the aggregated 16 (Capen 1996). It is necessary to run a MonteCarlo simulation to get a proper estimate of the proved value (as was done by the USGS 2000 study to estimate the P95, mean and P5 of the undiscovered). It is possible to avoid MonteCarlo runs by assuming a lognormal distribution for each parameter and to use a simple equation (Bourdaire et al 1988).

Now this is interesting.

This basically says that we can be 99% sure that the reserves of a given nation are actually higher than what is published.

He does argue elsewhere that this allows oil companies to monkey with the numbers to create a false impression.
This is true.

However, this does not change the fact that the amount of economically recoverable oil out there right now is much greater than what is published.

nmap

09-14-2008, 13:52

Grateful, all of this is fine...in fact, let's stipulate that it's all true and correct...but I don't see where this is getting us.

Here's a quote from Mr. Laherrere:

Annual liquids is modelled with such ultimate and will peak if there is no demand constraint (unlikely)
around 2010, but if there is some constraint from the demand (likely depression) the peak will be a
bumpy plateau and oil price will be chaotic. IEA 2004 forecast at 120 Mb/d in 2030 seems unrealistic
as the price forecast at 25 $2004/b.

It is at the bottom of page 42 of this Report (http://www.peak-oil-crisis.com/Laherrere_PeakOilReportMay2005.pdf)

OK, so that sounds like a peak date of 2010 or somewhat beyond to me.

But other sources are even more optimistic. I've attached a table, and here's the LINK (http://www.oildecline.com/)

The most optimistic end of the range for most sources is 2020. Suppose, for the sake of discussion, that 2020 is the date.

That means that - at best - we've got 12 years to mitigate the problem. We have 12 years to transition to new sources of energy, or new ways of using energy. And there is the little matter we discussed briefly, which suggests that the global economy may shrink as oil shrinks - so that means we would need to go from an economy based on growth, to one that could function while shrinking in twelve years or less. That sounds like a tall order to me.

And there is another assumption blended in there. All of this is public information - things that you, or I, or anyone else can access. Surely the big players - Saudi Arabia, Mexico, Venezuela, Nigeria, Russia, and so on - know all of this. Can we depend upon them to all be stable, well-behaved suppliers? Will the world continue to support free trade instead of practicing resource nationalism?

So...I guess I'd like to look beyond arguing over dates. What peak oil date do you find agreeable? And - whatever that date is - what are the implications for the individual and national policy?

nmap

09-15-2008, 13:17

The stock and bond market, along with the price of crude oil, are declining. is there a connection? Perhaps.

LINK (http://www.theoildrum.com/node/4534)

GratefulCitizen

09-15-2008, 23:00

Grateful, all of this is fine...in fact, let's stipulate that it's all true and correct...but I don't see where this is getting us.

So...I guess I'd like to look beyond arguing over dates. What peak oil date do you find agreeable? And - whatever that date is - what are the implications for the individual and national policy?

Been on the site intermittently.

I'm still going through Laherrere's stuff. There is quite a bit there.

Concerning the rough date and implications:

Peak around 2020-2030, soft landing.
I believe oil will peak because it will eventually lose the "downward" price race against other energy sources.
(buggy whips and steam locomotives also peaked in production)

That's the gist of it.
I'm still digging up sources for economic comparison.
(also looking through more of the doomer stuff)

*****
*****
Concerning the Laherrere link:

I've been trying to figure out exactly for what Laherrere is arguing.

He may be stating it right there in the conclusions on p. 43.
"Reliable forecasting needs reliable field discovery values."
As you metioned, Simmons is pushing for the same.

I'm still unsure what justifies requiring companies to give away proprietary information.

GratefulCitizen

09-15-2008, 23:13

The stock and bond market, along with the price of crude oil, are declining. is there a connection? Perhaps.

LINK (http://www.theoildrum.com/node/4534)

The market is oversupplied.
The slide will continue.

nmap

09-16-2008, 02:49

Peak around 2020-2030, soft landing.
I believe oil will peak because it will eventually lose the "downward" price race against other energy sources.
(buggy whips and steam locomotives also peaked in production)

(snip)

I'm still unsure what justifies requiring companies to give away proprietary information.

(Shrug). Time will tell, I suppose.

If you get a chance, you might wish to read Catton's book titled "Dieoff". It's been out for quite awhile, so your library should have it; if not, ask them to use interlibrary loan.

In the case of companies, there is an issue of shareholder rights. After all, a shareholder owns a piece of the business; shouldn't they know what they're getting? That becomes more problematic in the case of sovereign states. Does Saudi Arabia have some sort of moral obligation to tell us the state of their oil fields? (That's a purely rhetorical question, BTW).

GratefulCitizen

11-18-2008, 13:04

Necropost.

I'll make a SWAG for Jan-Feb '09: oil goes for $60/barrel or less.
(this assumes no major hostilities involving Iran)
(from page 7 of this thread)

Any bets for where the bottom is?

I'm betting that that it will settle between $30-$50/barrel and stay there for about 2 years.

Hopefully it will settle on the high side of that range.
This would keep many domestic sources profitable.

nmap

11-18-2008, 21:49

Times like this are good for reviewing some of the old texts about markets, stocks, and technical analysis.

Today, I was reminded that the duration or decline of a bear market can never be predicted. One must wait until the trend changes.

I think that applies to oil, too. I hope you're right about the price of oil; I still think it will ultimately go through the roof, but we are in a period of economic decline. How far (and how long) it will last no one knows. Hence, it isn't possible to say how low commodities will go.

One chart system suggests a bearish objective of $48 per barrel...but who knows? :confused:

nmap

12-07-2008, 22:14

$40.81...and Merrill suggests it may get down to $25. So, points to Grateful, I would say. :cool:

However, the peak oil faith springs eternal, so here's another piece that tries to fix a date for the event. :D

LINK (http://www.energybulletin.net/node/47401)

GratefulCitizen

12-11-2008, 14:16

Just as the high prices didn't last, neither will the low prices.

For various reasons, my bet is 2 years in the $30-50 range.

It's hard to say how meddlings by various governments may affect this.
If they are going to meddle, this is the right idea: http://seekingalpha.com/article/110337-three-inconvenient-energy-policy-truths

The harbinger of steadily rising oil prices will be when we again see the media pushing stories like this one: http://z.about.com/d/middleeast/1/0/e/0/-/-/0610-oil.jpg
The cover is from March, 1999.

Buy low, sell high.

Peregrino

12-11-2008, 15:15

Buy low, sell high.

A question for the cogniscenti - what happened to the speculators that ran up the price per barrel over the summer? Does anybody remember the Hunts (70s-80s) and the disaster they caused in the silver markets? Please tell me the oil speculators had to pay the prices they bid up on futures.

GratefulCitizen

12-11-2008, 23:06

A question for the cogniscenti - what happened to the speculators that ran up the price per barrel over the summer? Does anybody remember the Hunts (70s-80s) and the disaster they caused in the silver markets? Please tell me the oil speculators had to pay the prices they bid up on futures.

That's kinda the point.

The speculators stir up stories about getting in now, before it's too late.
If the story is out there, it's already too late.

Back in the late '90s the story was about how abundant oil was.

This (red line) predicted that it was going back up: http://www.wtrg.com/oil_graphs/rigwous.gif

Without investment, oil production declines.
With investment (say, from good cash positions and cheap labor/materials), oil production remains sufficient to demand.

nmap

12-11-2008, 23:48

Please tell me the oil speculators had to pay the prices they bid up on futures.

No question about it, Sir. Many have paid a heavy price. Hedge funds are failing and going out of business, delaying payments to investors, and generally turning in really bad performance. Oil speculators, whether those in futures or stocks, have most certainly been burned badly.

But as Grateful points out, oil production depends on investment. We face two problems today - first, that burned investors hesitate to repeat their behavior, and second, that the present market action is literally destroying wealth by the trillions of dollars. In essence, bad debt is being written off, and that represents the annihilation of capital. We get unintended (and unpleasant) consequences.

So, what happens next? When a recovery starts - and it may not come until 2010 - the availability of energy will have declined from present levels. We will hit those limits before the recovery is well underway, at which time prices may escalate rapidly. That action will, again, be exploited by speculators - and will kill the recovery to come.

Before that, I think we will see speculation in food. There are rumors that farmers aren't getting as much credit as before, thus reducing the amount of fertilizer purchased, and leading to lower crop yields. I'm starting to see some firming in the DB food ETF, symbol DBA.

All of this volatility is very destructive; a few days ago, 90-day Treasury bills had a negative yield. In essence, investors paid the U.S. government a small amount of money for the privilege of lending money to the government. If and when inflation asserts itself, the large sums will tend to flood into whatever seems poised for gain - and hence, distorting the markets.

Ahhh, well. Enough gloom and doom. At least we can enjoy cheap energy prices for a time.

nmap

12-12-2008, 17:48

I read through a newsletter I subscribe to - Dow Theory Letters, to be exact, published by a gentleman named Richard Russell, since 1954. He has a perspective on the markets possessed by few others.

I thought today's issue was particularly interesting, so I have attached the PDF. It considers the fate of the U.S. dollar - and that affects each of us, both personally and professionally.

Whether he's right, wrong, or none of the above I don't claim to know - but some of the material is, IMO, thought provoking.

GratefulCitizen

12-29-2008, 22:24

Looks like the SEC finally figured out how to count.

http://www.businessweek.com/ap/financialnews/D95CJU0O1.htm

The most important line:

--Allow companies to disclose their probable and possible reserves to investors. Until now, SEC rules limited disclosure only to proved reserves.

nmap

01-17-2009, 20:05

Pete

01-18-2009, 11:14

Thank You nmap

Got real interesting starting on page 5.

Pete

My bad times investment plan was only down 13% on Friday.

GratefulCitizen

02-01-2009, 16:34

It's seems someone had the oil problems figured out:

http://www.pkverlegerllc.com/080910%20PKV%20On%20Masters.pdf
http://www.pkverlegerllc.com/TIE0807.PDF

Now that the oil markets have stabilized, the USA is in a good position.

Here's why:
Our refineries can process sour crude into gasoline effectively.
Nobody (yet) processes sour crude into ULSD (ultra-low sulfur diesel) effectively.

So, refiners buy sweet crude, refine and export as much ULSD as they can, and the leftover fraction tends to create a glut in the gasoline market.
(Because we can already make plenty of gasoline from cheap/abundant sour crude.)

Basically, the Europeans are subsidizing gasoline costs in this country.
http://tonto.eia.doe.gov/oog/info/gdu/gasdiesel.asp
(Notice the respective refining costs of diesel and gasoline.)

Some history on ULSD production and petroleum product exports:
http://tonto.eia.doe.gov/dnav/pet/hist/wd0tp_nus_2w.htm
http://tonto.eia.doe.gov/dnav/pet/hist/wrpexus2w.htm

The beauty of the ULSD standards in this country: the gov't can "relax" domestic sulfur standards whenever the need arises (say, when hurricanes take out refining capacity).
Our refiners can make higher-sulfur diesel from sour crude.

The ability to adjust the sulfur standards and a full SPR would seem to leave the country well positioned to deal with potential supply interruptions/price shocks.

IMHO, the 2008 price spike was short-term pain which will yield longer-term stability.
It's almost like there were a couple of oil men in the executive branch recently.:munchin

Surf n Turf

02-01-2009, 21:51

The newsletter discusses current levels of unemployment (much higher than the headline numbers we've seen), as well as the mindset of the Treasury and Federal Reserve. It also discusses the future of Medicare and Social Security.

His projection - a long, slow recovery, declining housing prices, and an anemic stock market. In addition, the global economy will follow a similar path. Look forward to 2010...2011...2012.

On the good side, he suggests that bio-tech may produce real cures for some of the most dreaded illnesses of today - and they will come available over the next five years.

Nmap
Good article from John Mauldin. I had read his work before, and found him insightful.
I believe that he is correct that the new administration (with the Fed) will throw as much money as they can at the problem. And it will end up sort of like having a cold – Take some medicine, and it lasts 14 days, take no medicine and it lasts two weeks.
I believe this “financial crisis” will last about 4 years, with significant adjustment in values – (monetary and personal), and the slices of the pie will be smaller, because they will not bake a bigger pizza.
It amazes me that with so much brain-power in DC, that so little attention if paid to Ibn Khaldun, Milton Friedman, and Arthur Laffer.
I guess that I am at heart a Keynesian, because I once lived in Milton Keynes.:D
SnT

GratefulCitizen

02-07-2009, 23:01

This is the sort of thing that will cause peak oil:
http://www.chron.com/disp/story.mpl/business/energy/6239863.html

Historical domestic natural gas production (it's climbing):
http://tonto.eia.doe.gov/dnav/ng/hist/n9010us2m.htm

Natural gas is the fuel of the future.
When storage and distribution technology (tankers in particular) catches up to what exists for oil, peak oil will be near, because it will not be able to compete economically.

The gas reserves on the north slope of Alaska are absolutely massive.
They actually inhibit the oil production.
The gas pipeline from there will displace yet more domestic oil consumption and, ironically, could lead to (temporarily) increased oil production from that area.

There will probably be significant opposition to the gas pipeline coming out of the north slope.
I wonder why.:rolleyes:

nmap

02-08-2009, 17:20

Ahh, Grateful...

Natural gas may indeed be the fuel of the future; however, that future is unlikely to be of long duration. Keep in mind that natural gas, just like oil, has a finite supply. Ultimately, it too will deplete. And as the supply of oil declines, and the use of natural gas increases both for production of electricity and as an alternative fuel for vehicles, then the depletion of the resource must surely occur.

It's true that the shale formations are not, presently, economically viable. However, there is a deeper problem with them. First, the energy return on energy invested (EROEI) is quite low for such formations. Money is important, but in this equation the net energy gain is critical. Furthermore, our civilization is founded on cheap and available liquid fuels. The transition will be neither simple, quick, or cheap. And keep in mind, that the current economic festivities will tend to impact capital formation. Finally, there is an issue of scalability. One should look carefully at what is required to produce significant flows of oil from shale formations. It is not small, it is not trivial in cost, and I would contend it is not practical.

Peak oil will ultimately assert itself close to the present. Some argue that it is in the recent past, and some contend it will be in the near-term future. We will, of course, transition to alternatives including natural gas. These will sustain us for a time. In my opinion, we would be wise to consider carefully what comes next. This problem is about more than just the cars we drive, which are so central to our national lifestyle. It is about the delivery of goods of every sort across the nation and the world. It is about food supply, about the myriad transportation elements in all of our economic activities.

I will provide a couple links for your consideration. One is to the site named the "oil drum", and considers natural gas specifically LINK (http://www.theoildrum.com/tag/peak_natural_gas). The other links to the ASPO newsletter LINK (http://www.aspo-ireland.org/contentFiles/newsletterPDFs/newsletter97_200901.pdf). Please consider the implications of page 2. We can all enjoy the existing low prices for gasoline and natural gas. That said, events may become more interesting along about 2011 when the economy starts to show some growth again.

GratefulCitizen

02-15-2009, 16:05

The "Growing Gap" graph I find to be a bit disingenuous.
The problem is "backdating" of reserve growth.

When a "proved" reserve level for a given oil well is published, it is a number which means:
there is a 90% level of confidence that at least the proved reserve level or more will be profitably produced.

So, when later estimations of the reserves result in overall "growth" (as they will 90% of the time -- that's what "proved" means), our friends at the ASPO take the extra reserves and attribute them back to the date when the well was first proved.

At the same time, they refuse to acknowledge that reserve growth realized 10 years in the future may have to be "backdated" to a well discovered 5 years in the future.
So the picture (graph) we get is one where the oil behind us continually grows (even though much of this oil has yet to be pumped out of the ground) and the oil in front of us is continually underestimated.

I'm all for them arguing their case, but "backdating" is pure propaganda designed to make graphs look scary.

This all started when Hubbert made some intuitive observations and drew some curves, by hand.
Later, when one his guesses was close, and a pretty picture was formed, peak oil had an icon.

This icon ran into some problems.
First people kept calling it a "bell curve" to give it some mathematical legitimacy (even though it was originally hand-drawn).
Everyone has heard of the "bell curve".

Unfortunately, the "bell curve" (Guassian distribution) with which so many are familiar has no mathematical relationship whatsoever to resource production/depletion.
No problem, we'll just call it the "logistic distribution", which can be argued to have a mathematical relationship...and still looks like the bell curve.
(In fairness, the logistic distribution is probably what Hubbell edit -Hubbert- originally had in mind.)

The poor icon ended up lacking the predictive power with which it had been originally bestowed.
Later, we see the "undulating plateau" and others.

But, these icons are not scary enough.
Enter: backdating.

The bottom line is such long term predictions cannot be made (especially by pretty graphs).
Edward Lorenz demonstrated the limits of predictability in the 1960's with models far less complicated than actual petroleum economics.

While I applaud the efforts of the ASPO in addressing an important issue, they undermine their own credibility when they keep pushing outmoded icons.
The only useful purpose for such a deceptive icon is to mislead the uninformed.

nmap

02-15-2009, 17:27

That's all very nice, Grateful - but it does not address the key issue of flow rate. Therein lies quite a substantial problem - which is mentioned even in the JOE report on page 16. LINK (http://www.jfcom.mil/newslink/storyarchive/2008/JOE2008.pdf)

nmap

02-15-2009, 22:10

Oil output near peak. Simple words, fraught with meaning. How does economic growth proceed if transportation is constrained? And what of China, with 40 million cars, and a new-found appetite for the good life?

LINK (http://www.ft.com/cms/s/d25b8d2c-fb97-11dd-bcad-000077b07658,dwp_uuid=2592a208-a4fb-11dd-b4f5-000077b07658,print=yes.html)

Total says oil output near peak
By Carola Hoyos in London

Published: February 15 2009 23:37 | Last updated: February 15 2009 23:37

The world will never be able to produce more than 89m barrels a day of oil, the head of Europe’s third largest energy group has warned, citing high costs in areas such as Canada and political restrictions in countries like Iran and Iraq.

Christophe de Margerie, chief executive of Total, the French oil and gas company, said he had revised his forecast for 2015 oil production downward by at least 4m barrels a day because of the current economic crisis and the collapse in oil prices.

He noted that national oil companies, which control the vast majority of the world’s oil, and independent producers, which play a key role in finding new sources, were “substantially limited in their ability to fund investments in the current [financial] environment”.

Oil prices have fallen from a record $147 a barrel in July to about $35 a barrel on Monday, with the world consuming 84m barrels of oil a day. This year oil consumption is expected to fall from 2008 levels.

Mr de Margerie warned that the glut of oil caused by the dramatic reduction in demand would be short-lived and that, in spite of the economic crisis, in the long-term demand would remain constrained by supply. Three years ago, the International Energy Agency expected consumption and production to hit 130m b/d by 2025. It has since dropped its forecast to a little more than 100m b/d by 2030.

Delays and cancellations in projects to extract oil from Alberta’s tar sands and Venezuela’s Orinoco belt – both expensive and environmentally difficult operations in which Total is active – will cut 1.5m b/d of supply that would have come on stream had oil prices remained strong. The rest of the revisions from Total’s mid-2008 estimates came from the more pessimistic view of the political situation in Iran and Iraq, which hold the world’s second and third largest oil reserves.

Meanwhile, Mr de Margerie now expects a faster decline in production at older fields, such as those in the North Sea. At lower price levels, companies will find it harder to justify the greater cost of keeping such fields pumping.

Total’s chief executive has long been an outspoken advocate of maintaining investment, rather than repeating the mistakes of previous cycles by cutting costs so much that the industry is unable to meet global demand when economies recover. But he is also in the midst of trying to renegotiate contracts in Canada and is considering further investments in Venezuela.

GratefulCitizen

02-16-2009, 22:36

Oil output near peak. Simple words, fraught with meaning.

Perhaps the meaning is: you can't sell what people don't want to buy.

How does economic growth proceed if transportation is constrained?

This assumes transportation will be constrained.
How much driving is discretionary?

And what of China, with 40 million cars, and a new-found appetite for the good life?

Such action may very well delay peak oil.
The reason: when there's a market for oil, people are willing to invest in exploration and production.

There still haven't been any shortages; hurricanes, pirates, and tinhorn dictators notwithstanding.

I wonder how the Simmons-Tierney bet will turn out. :D

Richard

02-17-2009, 12:17

I took a small survey last month. Two retail distributors of gasoline, selling approx. 3 million gallons of gas per month in the Southeast Texas area. Their percentage of credit/debit card sales for gas, in 2008, were 80%. Of the 80%, 80% of said sales was credit card. These are rough estimates, +/- 10%.

Now, we all know that easy money (i.e. credit cards) will go away. How does a large portion of the consumer purchase gas in the near future? :confused:

REMINDER: Credit card use does not necessarily equate to credit card debt.

We used to purchase everything with cash/check but went to using a credit card for purchasing nearly everything a decade ago. Why? For every $1 of purchase on oury card we earn 1 mile of travel with AmAirlines and for convenience. Our card costs nothing and, because we pay the entire bill through a direct bank transfer every month after reviewing the charges, we pay no APR costs. Additionally, it has enhanced our credit rating and allows us to use our 'air miles' for several vacations per year--we just used our 'air miles' for our tickets for our trip to Scotland in May...cost 0$.

Although there are many people who misuse their credit, I know many people who effectively manage their credit purchasing as my wife and I, so be careful in equating credit card purchasing to indebtedness. ;)

Richard's $.02 :munchin

Dozer523

02-17-2009, 12:34

I took a small survey last month. Two retail distributors of gasoline, selling approx. 3 million gallons of gas per month in the Southeast Texas area. Their percentage of credit/debit card sales for gas, in 2008, were 80%. Of the 80%, 80% of said sales was credit card. These are rough estimates, +/- 10%.

I buy fuel with a Mastercard, I buy food with a Mastercard. Sometimes, I buy McDonald's Happy Meals (if the hunger pangs in the car seat get loud enough). A few years ago, I bought fuel with an Exxon card. I wasn't using "easy money". I wasn't going into debt because I couldn't afford to pay "hard money". I use my debit card because it is easy, because I like to buy gas at the pump so I don't have to go inside, and because now that the transaction is instantly posted I don't have to maintain my checkbook. Your conclusion misses this obvious fact. Tell your friend that it might look like a credit card but it's not.
"Hell, you can spit it out if its not to your liking. I won't blame you."
PaTooie!

ejcremata

02-17-2009, 19:04

Hello Rangertab1,

One quick point which may or may not ease your concerns a bit. You seem to be assuming that of the 30% in the population who cannot afford the "American lifestyle," (I wouldn't mind seeing some stats on this) these people will all immediately transition from 100% to 0% gasoline consumption or something near it. I consider this unlikely.

Given the historically inelastic demand for gasoline in this country, I would guess that those bottom 30% will, rather than be forced to buy less gas, instead be forced to make tradeoffs they otherwise would not have. Such as, "Gasoline this month to take me to work, or a new iphone?" Frankly, I would be more concerned if I were in the near- luxury goods business than the oil business for the next few years. And if you don't think the bottom 30% buy iphones and flat screen t.v.'s and new cars, I would suggest you go to any poor urban area and look in some of the houses.

One final thing, the people making 30,000 a year are by and large not "living" on 30,000 a year. HUD, food stamps, EITC, child credits, medicaid, and all other government programs and private charity work significantly bolster the lifestyle of the poor in America. Don't think of your life, as a taxpaying American citizen, and then try to imagine living off of 30,000 a year. Think of having little or no mortgage (HUD), no tax burden (EITC), free health care (Medicaid, SCHIP), a check for each child every month (mother of three gets 2,200 a month in California), and free clothes etc. from local charities. Now think of living in a house with your whole family rather than the generational stratification of mainstream America.. And now think of making 30,000 or even 20,000 a year. Not quite so desperate a situation now, is it?

Gasoline is one of the last things the American consumer will give up.

That's my two cents, anyway.

GratefulCitizen

03-13-2009, 20:20

It seems that high prices encourage oil producers to produce more oil.

http://www.eia.doe.gov/emeu/ipsr/t11d.xls

World Crude Oil Production (Including Lease Condensate)
2008 July: 74.831 million barrels per day.
2008 Average: 73.791 million barrels per day.

Both are records.

When prices went lower in August, less oil was produced.
Perhaps price drives supply.

Pete

03-14-2009, 05:45

.....Perhaps price drives supply.

Until one country gets just a little bit more hungry, pumps just a little bit more oil, starts to make some more money and then the race is on again.

GratefulCitizen

03-16-2009, 22:53

Here's someone who can present this much better than I can:

http://www.ercouncil.org/powerpoints/DrRichardPike.ppt

According to him, extraction rates are constrained by facilities, not geology.

Higher prices (or the belief that prices will be higher) result in greater investment in facilities, which in turn increases extraction rates.

Geology isn't (yet) the problem.

nmap

03-17-2009, 09:45

Grateful, the problem with peak oil is systemic. If it were only a problem of money, we could build some arbitrarily large number of nuclear reactors, distill carbon dioxide out of the air, then chemically convert it to crude oil. Unfortunately, there are reasons it won't work, which I will present shortly.

The first problem to consider is that we are not "running out of oil". No. The problem is that we are transitioning to less abundant, more expensive oil. The more expensive applies in two areas - money, which you've brought up, and energy, which will be discussed in a few paragraphs.

The first issue, money, faces two problems. We need cheap and abundant fuel to keep our civilization going as it is currently designed. When gasoline was $4 per gallon, it was easily available, but it was not cheap. It had an adverse effect on individuals and the overall economy. It may well have been part of the cause of the current financial meltdown, since people faced with a choice between driving to work and making their mortgage payment may well choose to default on the mortgage.

Additional investment in facilities is fine - but remember - gasoline at some high price does not solve our problem. We cannot sustain the suburbs, the countless businesses beside our roads, and our widely dispersed model of commerce with expensive fuel.

Yet another issue: from whence will come the abundant capital needed for all these facilities?

PRIVATE equity company Blackstone Group CEO Stephen Schwarzman has said that up to 45 per cent of the world's wealth has been destroyed by the global credit crisis.

"Between 40 and 45 per cent of the world's wealth has been destroyed in little less than a year and a half," Mr Schwarzman told an audience at the Japan Society. "This is absolutely unprecedented in our lifetime."

LINK (http://www.news.com.au/heraldsun/story/0,21985,25170415-31037,00.html)

Let us reflect for a moment. If 40% of the world's wealth has ceased to exist, where are we to get the investment to build these facilities? Our own U.S. Treasury is borrowing every dollar it can from around the world. How are we get this capital?

And if fuel prices go up? Oil company earnings before taxes will increase; will the tax man not tap such a source? I think we know the answer to that one. Keep in mind that high fuel prices will put additional stress on consumers - consumers who are already having a difficult time. Can we expect to invest great sums within such an environment? I question that.

Now - the promised issue of costs other than money. I speak now of Energy Returned on Energy Invested (EROEI).

Imagine we have an electric motor and an electric generator. Suppose we hook them together. The motor turns the generator, and the generator supplies electricity to the motor. How will this work?

It won't, will it? Due to losses (friction, resistance in the wires, and so forth), the mechanism will not keep going. The EROEI is less than one. So - will anything change if we build a hundred of these and hook them together? Will it change if we connect millions of them? In each case, the answer is - no. The EROEI is more important than money.

And that's the problem. You can read much more HERE (http://www.theoildrum.com/story/2006/8/2/114144/2387) if you wish.

Once, the EROEI for an oil well was 100:1. For one unit of energy invested, the extracted oil delivered 100 units of energy. As the ratio declines (and decline it has), the net return, and hence the available energy, declines. We spend ever more energy to get excess energy to run our machines. As we transition to more expensive oil (in terms of both EROEI and money), the price at the pump goes up rapidly - and the availability declines.

Only problem is - we are structured to use a great deal of oil. We use it to get to work, to buy things, to transport food from one side of the world to another, and to do almost everything we want and need to do. To successfully adapt to less abundant and more expensive energy, we face profound changes in the way we do just about everything.

Suppose shipping charges doubled, and then doubled again. Would this have an impact on businesses and consumers? If fuel became less available, such that a large military operation required substantial reductions in consumer use of fuel, and hence strict rationing, what would the effects on geopolitics be? If fuel prices go up, for whatever reason, what happens to all those houses in remote suburbs? What happens to the mortgages? Does this make the current financial mess worse - maybe much worse?

Some day, if you're driving on the expressway, take a look at the many businesses lining the road. They depend on the consumers within the flow of traffic. And they represent jobs. When driving declines, whether due to price, availability, or both, those businesses will wither. The jobs will go away. And more consumers, now jobless, will default on more debt.

The problem is, we as a society have little to no interest in changing the way we do things in order to soften the blow. That's why I don't mention peak oil as much as I did - we passed the point of no return some time ago, in my opinion. Perhaps we could have changed, could have found a way to minimize the effects; however, we haven't and we aren't. I concluded that the best approach is to enjoy the ride as best I can, and enjoy the present. Your mileage may vary. (pun intended).

lksteve

03-17-2009, 11:14

Alright, let me give you a thumbnail sketch of production field economics...last summer, when crude was over $100 per barrel, we couldn't get enough crews to survey pads, roads and other stuff necessary to develop a gas well...yes, Virginia, natural gas development is tied to the price of crude oil...most natural gas is produced by oil companies and oil is the cash cow that funds other development, like oil shale, natural gas, coal-bed methane, solar, wind, etc.; that the oil companies undertake...the oil company that was my former employer's only client (bad move on his part) was planning on running 4 drill rigs through the winter...when the price slipped to $60 a barrel last fall, the plan was reduced to 2 rigs...when the price bottomed out early this winter, they pulled the plug on all but one rig...and that one is only going to drill retention wells (enough to keep the lease, not enough to make any money)...the results? Construction companies went from 150 personnel on the project to 12...the survey firm I used to work for went from a PLS project manager (moi) and four crews to a draftman overseeing the project and one crew...and the client complains about that...

My opinion is this...we cannot reduce our dependence on foreign oil as long as it is cheaper to import than it is to produce...I could go on about environmental and permitting requirements, the desire for some folks to create a showcase project, etc. But until the market stabilized above $60 a barrel, imports will rule the day. And the spin off effect is that the domestic production of natural gas, coal, and other energy products will falter.

nmap

03-17-2009, 12:00

Thank you for the input, Sir.

Might I add that your comments parallel those by Simmons in Twilight in the Desert?

And when the crews are laid-off, they will find other jobs. It will take time and money to rebuild the crews - which suggests sharp moves upward when supply problems strike again. In addition, the experience of those crews is lost.

Verasun, the ethanol producer, has filed bankruptcy. Who will invest in alternative fuels with that track record? I would hesitate, and I suspect others would too.

So we face the destructive power of price volatility in addition to the underlying issue of supply constraints.

GratefulCitizen

03-17-2009, 21:55

lksteve

03-18-2009, 07:38

Seen this before.
I grew up in western Colorado and lived in Grand Junction when Exxon pulled out..Yeah..when the big dogs pull out, there is no warning, either...the firm I used to work for had a project in Labarge WY about the same time...the firm was preparing to build an office to support 100 staff to support Exxon's plannned expansion in the oil shale fields...one day, they called, cancelled the project and that was that...a good deal of the S&L crisis was oil and gas money, such as the Silverado S&L who had a lot of funny money about in Parachute...damn town booms and busts every twenty or so years...

The Saudi's "spare capacity" exists for the sole purpose of keeping prices just below the level where competitors can be profitable.In my mind, the only way to "encourage" domestic production is to swallow a poison pill of import taxes...unless the Druids and tree-hugger decide to take the necessary steps to streamline the permitting process, which I don't see coming out of a leftist administration.

Sten

03-18-2009, 08:03

In my mind, the only way to "encourage" domestic production is to swallow a poison pill of import taxes...unless the Druids and tree-hugger decide to take the necessary steps to streamline the permitting process, which I don't see coming out of a leftist administration.

To my mind we are getting to the point of clear and present danger with imported oil.

I agree with you 100% on the tough love on oil prices. The good news the rabid tree hugers are really a small percentage, once the center of the political bell curve see that increased domestic production is not that bad for the environment and will drop the price it will be an easy sale.

lksteve

03-18-2009, 08:11

To my mind we are getting to the point of clear and present danger with imported oil.

I agree with you 100% on the tough love on oil prices. The good news the rabid tree hugers are really a small percentage, once the center of the political bell curve see that increased domestic production is not that bad for the environment and will drop the price it will be an easy sale.The tree huggers have had sufficient impact, no matter their small numbers...on the last project, after years of not caring, the county government decided, last minute, that they needed to permit a pipeline on private land...environmental issues were cited...they had no idea what they wanted the permit application to look like, but by God, they needed a permit...to protect the environment...granted, there have been abuses in the past...

To my mind, we have long been past the point of clear and present danger regarding energy. Our involvement in the Middle East has had two pillars...protection of Israel and availability of cheap oil...of course, I think that was the premise of my graduate thesis in the 39 program...

Sten

03-18-2009, 08:37

The tree huggers have had sufficient impact, no matter their small numbers...on the last project, after years of not caring, the county government decided, last minute, that they needed to permit a pipeline on private land...environmental issues were cited...they had no idea what they wanted the permit application to look like, but by God, they needed a permit...to protect the environment...granted, there have been abuses in the past...

To my mind, we have long been past the point of clear and present danger regarding energy. Our involvement in the Middle East has had two pillars...protection of Israel and availability of cheap oil...of course, I think that was the premise of my graduate thesis in the 39 program...

Its the "pain at the pump" dilemma that will end any politician's career who does anything negative to gas prices. We need to look no further then the last election to see how fast the calls for tax holidays and other "price relief" schemes form either side of the aisle. But a small ray of light, I also remember that huge numbers of the crowds were calling for ramped up domestic production.

Its a delicate balancing act to keep companies accountable to the possible (or unforeseen) environmental damage vs enough profit to keep the capitol moving into new development. I am currently reading about the Montana mining industry so corporate environmental irresponsibility and blatant "socialized loss and privatized profits" is in the front of my mind.

lksteve

03-18-2009, 08:43

Its the "pain at the pump" dilemma that will end any politician's career who does anything negative to gas prices. We need to look no further then the last election to see how fast the calls for tax holidays and other "price relief" schemes form either side of the aisle. But a small ray of light, I also remember that huge numbers of the crowds were calling for ramped up domestic production.

Its a delicate balancing act to keep companies accountable to the possible (or unforeseen) environmental damage vs enough profit to keep the capitol moving into new development. I am currently reading about the Montana mining industry so corporate environmental irresponsibility and blatant "socialized loss and privatized profits" is in the front of my mind.This is the choice, in my mind. Pain at the pump or reliance on imports...domestic production undertaken with managed risks to the environment. It is Pollyanna-ish to assume no short-term damage will be done...I saw it everyday. It is very difficult to predict the long term affects...the Alaska Pipeline didn't do much damage to the caribou herds on the North Slope...but that said, it doesn't keep the self-haters from waving their arms and screaming "The sky is falling"...

nmap

03-25-2009, 22:39

The Oil Drum sometimes has some thoughtful pieces on the issue of oil, peak oil, and related subjects. The link goes to a rather long piece that discusses the relationship of credit and credit defaults, along with economic growth and oil availability. If you have the time, and are inclined to read a piece with rather unpleasant implications, I recommend the following.

LINK (http://www.theoildrum.com/node/5230)

My suspicion is that preparation is somewhat easier if one knows what to expect, and I present the linked item in that spirit.

Penn

03-26-2009, 03:10

This is going to be quite an educational process; last night I went to bed thinking of the National Geographic presentation on the depletion of the glaciers and polar ice caps and this morning I awake to the sweet kiss of Gail the Actuary...we are blindly gazing into the abyss...I am on the verge of a sleeping disorder.

nmap

03-27-2009, 17:56

I read the linked article, Nmap. Thanks for keeping me focused. It only confirms my 3rd grade-level prediction. It motivated me to increase my garden volume and you, my Texas brother, have a place at my dinner table. Hope you like black-eyed peas.:D

If I have to refugee out of San Antonio, I may take you up on that kind offer!

Fortunately, I like black-eyed peas (especially with some jalapeno). And, I have toys even some of the good people of this forum would approve of, the better to help defend the pea patch. ;)

nmap

04-13-2009, 18:33

GratefulCitizen

04-13-2009, 21:59

Was re-reading this thread after researching some on abiotic oil theory, one thing that confuses me, if Hubbert's Peak was a result of cheap oil from the Middle East and so forth, well I mean, how was the oil from those nations cheaper than the U.S. oil if we had plenty of oil and private enterprise? I mean aren't state-owned oil companies a lot less efficient at extracting the oil, and thus it would be more costly? What made the foreign oil cheaper?:confused:

Not all state-owned oil companies are inefficient.
The Saudis are outstanding.
The other Abab countries are pretty darn good.

The Iranians are probably going to go into steeper decline due to lack of investment.
The Russian gov't destroyed the profit motive and incentive for long-term investment with their confiscations.
-They will go into massive decline over the next several years.

There are other reasons besides geology for the cheaper foreign oil.
-Labor costs
-Next best use for the land
(land containing oil in the US is still quite valuable for other purposes -- however, if you can poke a hole in the desert and pump money out of it, why not?)
-Gov't encouragement/discouragement (environmental laws for instance)
I would suspect the biggest factor in the late '60's and early '70s was the development of more and bigger tankers.

=======
=======

The price of imported oil has had a predictable effect on domestic oil production:

Notice the price spikes on imported crude oil in '91 and '08 and the drops in '86 and '99.
http://www.eia.doe.gov/emeu/steo/pub/fsheets/real_prices.html

Notice the domestic production increase in '91 and '08 and the drops in '86 and '99.
http://tonto.eia.doe.gov/dnav/pet/hist/wcrfpus2w.htm

Production was increasing though '85~'86 due to the '81 spike.
The '86 price collapse put an end to that.

They're small bumps, but they make the point.

=======
=======

The Saudis will always pump more oil to keep prices down if they feel that their market share is being threatened.

I haven't been following very closely, but it looks like the market is in a state of oversupply right now.
There should be another small (real)price collapse before summer.

nmap

04-17-2009, 20:43

I see, nmap and GratefulCitizen, thank you for the information.

How is it they do that? Are there some very rare instances where a state-owned enterprise can work well...?

I think so. Look at how ARPA net developed into the Internet. And the Tennessee Valley Authority brought a great many rural families into the electricity age.

You can also look at regulated monopolies. AT&T used to give excellent service to everywhere, with equipment that was incredibly robust. The cost was expensive long distance. Now long distance is cheap - but getting service is problematic.

I think that state run enterprises can work well - but, like many organizations, they get hardening of the attitudes and ultimately become more an impediment than an advantage. All just IMHO.

nmap

04-17-2009, 20:47

The link provided below offers a good overview of peak oil - but much more importantly, the lower part of this rather long piece discusses current trends and their implications.

One point: We get a lot of oil from Mexico, and their fields are depleting rapidly.

Another: Saudi Arabia may have misrepresented both reserves and production

Another: We may be far too late to implement painless mitigation

Overall implication: When the current economic unpleasantness ends, any growth may quickly hit supply constraints, pushing us right back into trouble.

Personal speculation: When Mexico's oil supply depletes, their government will lose more than a third of its funding. Maintaining order within their society may become problematic.

LINK (http://www.marketoracle.co.uk/Article9913.html)

ZonieDiver

04-17-2009, 20:52

nmap

04-17-2009, 21:02

Geeze, thanks, nmap! I WAS having such a great day! I know you are almost as close to the Mexican border as I am - so you will suffer as much... but I really didn't want to think about that tonight! :D Again, thanks for your incisive insight (is that redundant?).

Thank you for the kind words!

Back some decades ago, during the last revolution in Mexico, a Dr. Urrutia came to San Antonio - a bit of history is HERE (http://www.texasescapes.com/SanAntonioTx/Dr-Aureliano-Urrutia-Tiled-Gates-San-Antonio-Texas.htm). I think we'll see a more troubling dislocation this time.

However, I am working hard to finish up a degree - and after that, I am going to look very seriously at some place well away from the border. San Antonio is, in many ways, a great place to live - mild weather, nice people, relatively inexpensive living - but we are simply not prepared for what I expect to come.

ZonieDiver

04-17-2009, 21:26

Thank you for the kind words!

Back some decades ago, during the last revolution in Mexico, a Dr. Urrutia came to San Antonio - a bit of history is HERE (http://www.texasescapes.com/SanAntonioTx/Dr-Aureliano-Urrutia-Tiled-Gates-San-Antonio-Texas.htm). I think we'll see a more troubling dislocation this time.

However, I am working hard to finish up a degree - and after that, I am going to look very seriously at some place well away from the border. San Antonio is, in many ways, a great place to live - mild weather, nice people, relatively inexpensive living - but we are simply not prepared for what I expect to come.

Ditto with Phoenix, and the places south of here I was considering for retirement. All of a sudden, Montana is looking good. I guess I could invest in warm clothes...

nmap

04-18-2009, 14:09

Hmm...a dream I have is to build a business (and become very wealthy:cool:). I was planning on moving to Texas to get started on this because it is a good business state, however this is making me not so sure. I would like to move to Houston.

Nothing wrong with that! :)

You might consider Dallas-Ft.Worth. When you do relocate, try to find someone who will talk frankly with you (and who knows, of course) about crime and other problems. You might even consider using the Internet to track stories - the Houston Chronicle is worthwhile.

On the one hand Houston has a can-do make it happen attitude - as does Dallas. But Houston is heavily involved with energy, and it may be some time before the money flows freely in that direction. The current decline has, I suspect, been rather destructive.

My half-cent's worth....

GratefulCitizen

04-22-2009, 17:03

We're getting close to another small drop in domestic oil prices.
(Not necessarily a good thing in the long term)

Check out the "stocks" graph on the left of this page:
http://tonto.eia.doe.gov/oog/info/twip/twip.asp

Days of supply (petroleum):
http://tonto.eia.doe.gov/dnav/pet/hist/w_epc0_vsd_nus_daysw.htm

Demand (petroleum products supplied):
http://tonto.eia.doe.gov/dnav/pet/hist/wrpupus2w.htm

nmap

04-26-2009, 14:25

Cantarell is dying...

I wonder what happens when our southern neighbor experiences a 40% reduction in its government spending?

As for me, I continue the effort to convince myself that snow is good...

LINK (http://www.glgroup.com/News/Cantarell-field-in-Mexico-falling-fast-as-gas-cap-expands-down-structure-37962.html)

GratefulCitizen

05-12-2009, 21:26

I'll say it now: oil prices are in a mini-bubble.
How big will it get before it pops again?

A few links:
http://online.wsj.com/article/BT-CO-20090512-716228.html
http://www.eia.doe.gov/emeu/steo/pub/xls/Fig14.xls
http://europe.theoildrum.com/node/5384

As nmap has stated repeatedly, we live in interesting times.;)

nmap

05-13-2009, 17:34

A bubble? I wouldn't bet against it. If the economy takes another leg down, we may well see a decline.

The interesting problem is the dollar - if the dollar declines, will oil go up? Or will supply and demand prevail?

Maybe I'll have to move from "interesting times" to exciting times... ;)

nmap

05-31-2009, 14:36

I suppose most have noticed the developing upward movement in oil prices.

This is one of the challenges in actually defining when peak has occurred (or will occur). On the one hand, we have various sources (as mentioned within this thread) who argue that peak has occurred. But confounding this argument is the price distortion caused by commodity investment and subsequent disinvestment. Furthermore, the economic environment has modified demand.

Grateful suggested earlier that we might see a small drop - and if those who suggest further deterioration of the economy are correct, then that could easily occur. However, as an additional complication, please consider the following:

One of the available data sources is the Baker-Hughes count of the number of drilling rigs actively digging for oil or natural gas. The Hughes rig count dates back to 1944, when salesmen from Hughes Tool Company went to the active rigs to sell drill bits. Here are some recent counts for North America:

September 12, 2008 2031 rigs running

May 22, 2009 900 rigs running

The rig count was cut in half in 8 months.

SOURCE (http://www.princeton.edu/hubbert/current-events.html)

So...let's suppose that we "muddle through" as Mauldin suggests. The economy doesn't get much better or much worse. The reduction in rig count impacts future supply, leading to supply imbalances in the future. The price action could lead to claims of peak - and the production figures will suggest those claims are true. The price could (and, in my opinion, will) lead to another recession - or perhaps another leg down in the present recession. And yet, these various pieces of information and the attendant claims may result in a distortion of the underlying reality.

More and more, I think it will take years - at least 3 - after peak occurs to get solid consensus to that effect. Unfortunately, that means that mitigation of the consequences will be devilishly hard. I think the sheepdogs will be busy. Very busy.

nmap

06-04-2009, 14:50

In other threads, we've discussed how policy is formulated and shaped before we see it. The following may be an example - and it also may suggest some long-term trends to be aware of.

This also suggests that the POTUS may be on board with regard to peak oil. This may have broad implications in terms of both diplomacy and all aspects of the military. All aspects because fuel will affect logistics, procurement plans, transportation, and vehicles on the battlefield. In addition, strategic considerations might be affected.

Domestic policy, including transportation could be affected. Rhetorical question: If battery powered cars have a range of 40 miles, will suburbs more than 20 miles outside the city be viable? Will the houses and land in such areas have a decline in value?

LINK (http://news.ino.com/headlines/?newsid=689874826874790)

Pickens left indelible mark on Obama

(AP:OKLAHOMA CITY) With a black Sharpie marker, T. Boone Pickens mapped out for Barack Obama the way to U.S. energy independence _ right there on a white tablecloth.

It was a demonstration he wouldn't soon forget. After Pickens' wife encountered Obama at a function this week in Las Vegas, she relayed word that the president was still astounded by her husband's indelible markings.

But as he tours the country promoting his "Pickens Plan," the Texas billionaire is confident that Obama has done more than just remember his plea. He believes the president will make great strides this year in formulating an energy plan that is less reliant on countries that aren't friendly with the U.S.

"I know the man understands the problem and I know that he knows the solution, and I know that that's the direction we're headed and you are going to see this year the most progressive, monumental changes in energy policy in America you have ever seen," Pickens said Wednesday during a speech at a downtown Oklahoma City hotel.

"It's going to affect your life, mine, all of us in America."

Pickens used his speech at the annual Sovereignty Symposium to ask American Indians to support the construction of wind turbines and solar panels on tribal land as part of his goal to eliminate America's dependence on foreign oil. Pickens wants to convert the country's electrical supply to alternative sources like wind and solar power, which would then free up natural gas to fuel vehicles.

He said American Indians would be affected as wind farms spring up on the Plains from Oklahoma to the Canadian border and as solar technology gets installed in Southwest states from Texas to California.

"This is going to affect you, too. ... I encourage you to look at it closely. Don't try to stop it. Work out the best deal you can for yourself and let it happen," Pickens said.

Stating matter-of-factly that he's "done a very good job of predicting the price of oil" to build his fortune over the years, Pickens said current energy policy has America headed toward importing 75 percent of its oil at a cost of $300 per barrel by the year 2019. That would cost the U.S. more than $2 trillion annually, Pickens said.

"That is not sustainable. It is not possible," Pickens said. "Something has to change."

Pickens has worked with members of Congress to propose a bill outlining the plan he has been promoting since last summer with a series of town hall meetings across the country.

"We have to get our oar in the water. We have to make something happen. We have got to start getting on our own resources," Pickens said.

"It's way too easy and way too dangerous to continue to rely on the enemy for our resources. We cannot do that. And I do believe that this is teed up for President Obama. It's a big, fat ball sitting on a tee for him and I think he's going to knock it out of the park."

Pickens said that during his 90-minute meeting with Obama in August, the future president discussed his preference to use battery technology to power vehicles. Pickens said he explained to Obama that natural gas was the only American resource that could power an 18-wheeler.

"Natural gas is cleaner, it's cheaper, it's ours and it's abundant. Lucky break for us," Pickens said. "Lucky break. A window of opportunity, and I'm convinced this administration will not let that window close without us getting through it. We are going to have this happen."

Pickens also predicted that oil prices, which fell to $66.12 per barrel on Wednesday, would reach $75 by the end of the year and consumers would again see $3-per-gallon gasoline.

"Now the price of gasoline has gone down, but the dependency features still exist, so it's a security problem for us more than it is an economic problem," Pickens said. "So, today, we're importing just as much oil as we did a year ago."

"The No. 1 problem we have is security," he added. "There's no question that we're buying oil from the enemy and we're paying for both sides of a war."

lksteve

06-04-2009, 20:08

Sigaba

06-04-2009, 20:24

Rhetorical question: If battery powered cars have a range of 40 miles, will suburbs more than 20 miles outside the city be viable? Will the houses and land in such areas have a decline in value?

EXACTLY!

They (urban planners and social engineers) want you to live in cities. They want the middle and upper middle class to live in very close contact with the working classes and various ethnic groups.

The logic (and I'm using this word provisionally) is that the common bonds of urban life will bring us all closer together. Regardless of what you want or how you want to live your life.

They (the proponents of this viewpoint) do not consider the possibility that America is better off for its cultural and social diversity and geographic dispersion.

IMHO, the way to go is: You do your thing, I'll do mine. Sometimes we'll agree, sometimes we'll agree to disagree. Maybe next time, I'll try doing something different. Maybe I won't. Maybe next time, I'll think about something from a different perspective. Maybe I won't. Regardless, I'm going to respect you as a fellow citizen by respecting your rights and try to earn your friendship if it is worth having.

To me, that's what makes America work.

Penn

06-04-2009, 21:25

Sigaba, Thats a strange way to reengage social capital networks...

GratefulCitizen

06-05-2009, 12:25

In the field I was woriking in recently, one company went from four rigs to one in four months...drilling plans changed as the price per barrel dropped...one rig was going to drill acreage retention wells, but not get into production wells for the forseeable future.

If the price of oil is going to stay high again, why would these producers be reluctant to start up again? :munchin

I still say it's a bubble.

Look at the stocks chart (lower left of page):
http://tonto.eia.doe.gov/oog/info/twip/twip.asp

Available supply, not counting the massive amounts stored offshore:
http://tonto.eia.doe.gov/dnav/pet/hist/w_epc0_vsd_nus_daysw.htm

The amount of petroleum being used:
http://tonto.eia.doe.gov/dnav/pet/hist/wrpupus2w.htm
Consumption is down from this time last year, even though prices are much lower.

It'll pop.

The Reaper

06-05-2009, 16:55

If the price of oil is going to stay high again, why would these producers be reluctant to start up again? :munchin

I still say it's a bubble.

Look at the stocks chart (lower left of page):
http://tonto.eia.doe.gov/oog/info/twip/twip.asp

Available supply, not counting the massive amounts stored offshore:
http://tonto.eia.doe.gov/dnav/pet/hist/w_epc0_vsd_nus_daysw.htm

The amount of petroleum being used:
http://tonto.eia.doe.gov/dnav/pet/hist/wrpupus2w.htm
Consumption is down from this time last year, even though prices are much lower.

It'll pop.

I agree.

Now where is nmap to bring us back down to Earth again?

TR

nmap

06-05-2009, 17:41

The problem seems to involve several variables.

1) The supply trends of oil.

2) Demand trends for oil.

3) Speculation

I think that if we look at the short term - say, a few months - then oil may well decline some. That comes with some very big "ifs". First, we have to consider the economy from the perspective of demand. We have 9.4% unemployment, and the U6 measure shows something over 16% unemployment. We have increasing interest rates, which cause increases in mortgage rates - and which, therefore, place downward pressures on the housing market. Green shoots notwithstanding, there is a real risk of continued economic decline, which would reduce demand - perhaps creating downward pressure on the price.

Supply is abundant for the moment. But the trend in some major fields is down, and unknown in others. For example, the Saudis are not particularly forthcoming about their oil supply. Rig count is down, just as lksteve points out. Capital formation will tend to have a long term detrimental effect on supply. So this could set the stage for a rapid decline as old fields deplete and new fields don't get developed.

And then we have speculation - and I include China's activities within the category. Rhetorical question: if you have a lot of money, where do you invest it? Interest rates are low on short-term high-quality debt instruments. There are higher rates (but still not particularly good rates) on longer term debt. Stocks have recovered, but are overvalued in terms of earnings, and the same economic factors mentioned above may be detrimental to the value of stocks. Finally, there is the big question - will we have inflation? With trillions of new money, we do have a case for inflation. On the other hand, the ongoing write-off of defaulted debt (example: GM) is deflationary. In addition, if the consumer is tapped out and not spending, price increases due to inflation crush consumer demand. So inflation has difficulty getting started. It could be that those who are concerned about the dollar, want to stockpile, or want to protect themselves against future price increases or lack of supply are running the price up. Until the U.S. controls its deficits, this trend could continue or get worse.

It's great fun to speculate on where oil prices are headed in the short term, but the real challenge is long term. Because if we get supply dislocations due to fundamental supply problems, we won't have time to mitigate the problem. That implies an horrific economic dislocation. This may suggest that a decline in prices, while pleasant for the moment, prevents preparation for a greater problem. When, exactly, that problem will occur is both unknown and unknowable. As Simmons points out, we will only see it in the rear-view mirror after the fact. It will then be quite hard to fix the problem - if it can be fixed.

So the good (?) news is, if the economy sickens, oil really should decline. Even if we muddle through and don't go up or down, a decline is possible. But if the economy gets stronger, then prices may start bumping into supply constraints, boosting prices upward. In any event, the key problem is long-term not short-term. Unless you're into options.... ;)

Right now, the trend is up.

Chart LINK (http://stockcharts.com/h-sc/ui?s=$WTIC&p=D&b=5&g=0&id=p58631913581&a=155222663)

Since RSI shows overbought, if the economic numbers start coming in bad, we can expect a decline.

So the bottom line is that The Reaper and Grateful are probably right. And they write more efficiently, too. Oh, well. :D

lksteve

06-06-2009, 09:24

If the price of oil is going to stay high again, why would these producers be reluctant to start up again?
The purpose of an acreage retention well is to demonstrate development sufficient to retain the lease rights. In many respects, it is not unlike homesteading in an earlier era. In order to retain an oil lease, a developer must show some progress towards developing the field. Acreage retention wells do not copletely develop all of the wells planned for a pad, but rather taps a portion of the resource. There is no requirement to pump or ship to market, it (a retention well) simply shows an intent to develop.

A speculator cannot take a lease and hold it without some show of intent to develop the resource, just as a homesteader could not take a land patent without proving up the property.

There is, and always has been, speculation in oil and minerals. It is the nature of the industry. The reluctance on the part of the producers stems from the fact that many know there is a bubble and a fear of getting caught holding the bag when it bursts, as it will...

nmap

06-10-2009, 19:10

Interesting developments today.

On the one hand, take a look at the chart. We have a strong uptrend - but we also have an overbought condition. Generally, when something is in that state, it should come down a bit. When it doesn't, there is an indication of a strong market.

LINK (http://stockcharts.com/h-sc/ui?s=$WTIC&p=D&b=5&g=0&id=p95970744469&a=170520145)

Then there's this: LINK (http://www.globeinvestor.com/servlet/story/RTGAM.20090610.wsaudioil0610/GIStory/)

DUBAI — Saudi Arabia has started production from its giant Khurais oilfield, the largest ever single addition to global oil supplies, Saudi Aramco's top executive said in remarks broadcast on Wednesday.

“I am happy to report today that Khurais has entered the stage of operation,” Khalid al-Falih told Al Arabiya television in an interview. “Oil will reach Aramco terminals in a few days for exports... it did not reach the stage of export (yet).”

“The oil from the plant is now being pumped into tanks that are at the project,” he said, adding that the field's capacity can now be seen as part of Saudi Arabia's total output capacity.

The kingdom does not need to use the extra capacity at current demand levels, the head of the state oil company said.

The 1.2 million barrels per day (bpd) Khurais field contains highly prized Arab Light crude, which is easily converted into transport fuel.

(This is an excerpt. Full article at the link above)

So we have an increase in supply coupled with a move up in price and a generally strong trend.

Interest rates (as measured by the 10 year treasury note) are going up, which may be detrimental to the overall economy. If oil is moving up in response to expectations of a stronger economy, it may be vulnerable. However, if the move is due to investors speculating on inflation, the move up might persist.

If the 50 day average (green dashed line) goes above the 200 day average (purple dashed line), then we have another indication of strength.

Is it a bubble? Probably. The fundamentals don't feel right. But that doesn't mean it can't go up some more. Coupled with an increase in interest rates, higher energy prices are likely to be detrimental to the economy.

nmap

06-11-2009, 05:56

It appears that CERA (Center for Strategic & International Studies) has called peak. Such views could drive speculation that would drive oil higher.

However...and here's the point to consider...demand for oil tends to be inelastic in terms of price. If people need to go to work, they will buy the gallon of gas, whether it costs $2 per gallon or $10. If peak is truly here, then the most likely near-term adjustment is demand destruction, which in turn implies reduced economic activity. The recession would probably be extended.

Interesting times, these.

LINK (http://www.energybulletin.net/node/49178)

Richard

06-11-2009, 06:14

nmap

06-11-2009, 08:04

Do any of these equations take into consideration any changes in consumer activity - such as a trend towards carpooling and greater public transport use - if the costs exceed reasonable customer expectations or willingness to pay?

Richard's $.02 :munchin

Yes, the last price move suggested that overall demand doesn't change much with price. Therefore all of the various individual strategies, from riding a bicycle to getting on the bus, don't result in much reduction in total use.

Perhaps the key points are expectations and willingness. It appears that the need (and desire?) for the flexibility of individual transportation is an overriding concern.

An additional possibility, advocated by Matthew Simmons, is the increased use of the internet instead of physical movement. Thus, everything from work to school could be conducted without using gasoline or diesel. In addition, the 4-day work week offers some promise.

Richard

06-11-2009, 08:15

Does the continual exponential growth in general energy generation demands (e.g., electricity) more-or-less offset any savings occurring with decreases in transportation usages?

And are increases in governmental use (e.g., military, border security) a component of these equations?

Just curious. :confused:

Richard's $.02 :munchin

nmap

06-11-2009, 09:46

Actually, very little petroleum is used for production of electricity. Coal, natural gas, and nuclear sources predominate.

LINK (http://tonto.eia.doe.gov/cfapps/STEO_Query/steotables.cfm?tableNumber=22&periodType=Annual&startYear=2006&endYear=2009&startMonthChanged=false&startQuarterChanged=false&endMonthChanged=false&endQuarterChanged=false&noScroll=true&loadAction=Apply+Changes)

The usages include everything supplied by domestic refineries. The EIA produces a table HERE (http://tonto.eia.doe.gov/dnav/pet/pet_cons_psup_dc_nus_mbbl_m.htm), so this should include military and official, as well as civilian use.

Dr. Hirsch has produced some interesting research in the area, and suggests that GDP and oil use tends to have a direct correlation. Thus, an increase in GDP implies an increase in oil use. Conversely, a restriction in oil availability may imply an indefinite decline in global GDP.

Page 44 of the linked PDF speaks directly to this point. LINK (http://www.portlandnetworks.com/client/AFVI/presentations/080512/General/RobertHirsch.pdf)

Per Dr. Hirsch, mitigation is likely to require a combination of both conservation and alternative fuels. No one solution will fix the problem; rather, each solution will contribute to the overall outcome. However - the current economic distress makes capital formation to fund such ventures more difficult. In addition, volatility of fuel prices discourages investment.

It is my opinion that peak oil represents one of those grand challenges that demands much of those who face it. I think we will have the opportunity to do so.

This is, by the way, one of the reasons for my strong interest in online and hybrid education in contrast to traditional classroom formats - an interest you may share. If fuel prices go up and availability becomes more problematic, the cost of getting students, faculty, and staff to school goes up. If availability becomes less dependable, the traditional model may be difficult to maintain.

Richard

06-11-2009, 10:16

Actual production - but does that take into account the fuel use/costs associated with mining and transporting the increasing amounts of coal being needed/used?

Richard

nmap

06-11-2009, 10:54

Actual production - but does that take into account the fuel use/costs associated with mining and transporting the increasing amounts of coal being needed/used?

Richard

No, it doesn't - and therein lies a major problem.

Coal, not unlike oil, is subject to the tendency people have to take the best and cheapest option first. So the coal we mine today tends to be of lower quality, and its harder to get - hence the cost in terms of energy, not just dollars increases.

This gets into the problem of Energy Returned on Energy Invested (EROEI), which underlies all discussions of alternatives. Unfortunately, it is not well addressed. Indeed, it is very nearly not addressed at all.

Corn ethanol is an example. To really know the EROEI, one must compute the energy cost (not dollars!!!) of fertilizer, transportation, cultivation, refinement, and so forth. Pimentel calculated a negative return - so if you invest one unit of energy, you get back less than you put in. Compare that with oil, which in the early years produced a ratio of 100:1. LINK (http://www.news.cornell.edu/stories/july05/ethanol.toocostly.ssl.html)

With coal, I am not aware of anyone who has done the work to find what the EROEI is. And there is another problem - if oil becomes scarce, we as a society must choose how to allocate (by price or otherwise) the supply. If we want to keep the lights on, then we had best keep mining coal. And if we have battery-powered cars, we'll need a lot of electricity. So this means that one segment of the demand is fixed - thus meaning even more must be removed from other areas.

This is one of the major problems with peak oil. We as a society (not just as a nation - the whole world is in this basket) have barely started mitigation efforts, and we don't really know what will work and what won't. Furthermore, we don't know the condition of the Saudi oil fields. Which suggests that a problem, when it comes, will find the world largely unprepared. And by unprepared, I mean at a conceptual level.

In my opinion, we will find ourselves in the same position as Polish cavalry charging German tanks at the beginning of WWII. We will attempt to use old tactics that simply do not apply and cannot work.

The Reaper

06-11-2009, 17:45

I would have thought that in a realistic market, the huge increase in CAFE standards that just passed in the largest gasoline market in the world would have had a serious impact on oil prices.

What happens when every storage facility is full, and there is no room to pump any more?

I am not an oil expert, but this really smells like a bubble to me.

TR

nmap

06-11-2009, 19:08

There was a recent item on CNBC that supports the idea of a bubble...this is from my recollection, and I don't have a link.

It seems that the NYMEX has total contract volume that is a bit smaller than the holdings of a company like Chevron and a lot smaller than Exxon. This size makes the market vulnerable to distortion in the face of concerted buying.

There exist several oil oriented ETFs. DBO, USO, and USL are three examples.
So it is possible to buy shares and hold them indefinitely, with no fear of margin calls. Someone who expects higher prices in months, years, or even a decade could buy them and hold them indefinitely. This means that the ETF managers would purchase more oil contracts, which will in turn drive the market higher.

Let us suppose that there are people who wish to hedge against inflation...or a decline in the dollar...or who expect oil to get more expensive due to peak oil. They might buy ETFs, and it all goes together to make the price go higher. And, too, the uptrend itself might be attractive to speculators.

As the funds buy, the underlying futures contracts require sellers - people who sell oil contracts at a given price. With lots of money coming into the market, and a strong uptrend, its hard to blame the sellers for being cautious. But this means that the market price will go up, higher and higher - and may be divorced from reality for a time.

This probably isn't good for the economy, since consumers aren't going to hedge their usage - they will get hurt by soaring prices.

So...I won't argue against it being a bubble. But that doesn't mean it can't go up quite a lot in the face of speculation. $100 per barrel will hurt no matter what the underlying reason for the price advance. (That's just an example, not a prediction.)

(By the way, in the event that anyone has an interest in buying such things, it is essential to read and understand the prospectus. The investments generate form K-1 on March 15th each year, and will complicate the tax return.)

nmap

06-11-2009, 19:42

By the way - with reference to CAFE standards.

Those won't have much effect. The U.S. vehicle fleet is quite large (250,000,000 vehicles) and doesn't turn over that quickly. LINK (http://en.wikipedia.org/wiki/Passenger_vehicles_in_the_United_States)

The problem with peak oil is that if we're getting ready to go on the downslope, then we will face accelerating declines of several percent per year. The new CAFE standards seem unlikely to produce sufficient savings to offset that decline, especially given the growing adoption of automobiles in China and India.

Conceptually, the ideas by Dr. Samsam Bakhtiari, who used to be with the Iranian national oil company may be useful. He suggests the decline will occur in 4 phases, with the first phase representing gradual decline, the second an accelerating decline, the third faster, and the fourth steep. So not only does availability decline, but the decline accelerates.

LINK to article (http://www.moneyweek.com/investments/commodities/why-we-must-take-peak-oil-seriously.aspx)

What will the rate of decline be? No one really knows. It's a combination of the decline of old fields and new discoveries. Still, 4% or more per year is on the conservative side.

LINK (http://seekingalpha.com/article/82861-pay-attention-to-oil-decline-rates)

Just raising CAFE standards over several years won't get us out of the problem.

GratefulCitizen

06-12-2009, 20:11

Last week's "drop" in supply is hardly significant.
It doesn't justify a price rally.

http://tonto.eia.doe.gov/dnav/pet/hist/wttstus1w.htm
1,824,313 - 1,822,599 = 1,714

Now let's take a look at the change net imports. :munchin
http://tonto.eia.doe.gov/dnav/pet/hist/wttntus2w.htm
10,727 - 9,672 = 1055

Oil was used from on-shore storage, but it was not replenished from off-shore storage (imports).
It's just a shell game to manipulate prices.

The traders in this country are making a killing off of oil they bought cheaply and kept stored at sea (domestic producers are doing OK, too).
Meanwhile, foreign producers are seeing their US market share decline and are seeing world-wide demand being suppressed by these games.

Compare the net imports to this time last year.
http://tonto.eia.doe.gov/dnav/pet/hist/wttntus2w.htm

Also, compare domestic production to this time last year. (Funny, I though we were in permanent decline...)
http://tonto.eia.doe.gov/dnav/pet/hist/wcrfpus2w.htm

The Saudis likely won't tolerate this condition for long.
Get ready for some "spare capacity". ;)

GratefulCitizen

06-27-2009, 17:24

Unsure of the significance, but DJUSCL, copper spots, and Brent spots all peaked back around June 11.

The drop in DJUSCL and copper spots preceded the popping of last year's bubble.

Brent spots tend to be less volatile than WTI.

http://tonto.eia.doe.gov/dnav/pet/hist/rbrted.htm
http://www.kitcometals.com/charts/copper_historical_large.html
http://www.google.com/finance?client=ob&q=INDEXDJX:DJUSCL

Anyone hearing an air leak?

nmap

06-27-2009, 19:10

Patience, Grateful, patience! :D

Keep in mind that the global economy, the value of the dollar, deleveraging, sovereign hoarding, along with supply and demand all pull back and forth on the value of oil, copper, and so forth. Let's look at some charts and let the prices speak for themselves.

You mention copper. Let's look at a chart: COPPER Link (http://stockcharts.com/h-sc/ui?s=$COPPER&p=M&b=5&g=0&id=p34031589647&a=171780497). It took a tumble, but is getting stronger.

Will the global economy fail leading to the Greater Depression? Perhaps. If that happens, copper should decline. There are some who are predicting exactly that, but I'm more inclined to expect a long-term jobless recovery. That shouldn't lead to a copper crash.

Let's also look at the monthly basis chart for West Texas Intermediate. OIL Link (http://stockcharts.com/h-sc/ui?s=$WTIC&p=M&b=5&g=0&id=p50242160290&a=171780174)

It is at an important resistance point. If the global or U.S. economy goes into the Greater Depression, it might decline - but the chart doesn't look particularly bearish to me. Notice too that the overbought condition of RSI has corrected itself rather nicely with modest moves down.

Don't you believe what the POTUS says about green shoots? ;)

nmap

06-27-2009, 20:59

Of course...on the other hand...

There is a blog that suggests we are at the beginning of a deflationary spiral which will hit commodities as well.

We don't want deflation. That will lead to the Greater Depression of '09.

LINK (http://zerohedge.blogspot.com/2009/06/guest-post-just-stop-madness-already.html)

GratefulCitizen

07-05-2009, 18:18

Pop!
There it goes.
Oil was trading for under $66/bbl over the weekend, supply is up, demand is down, and the "green shoots" don't look so good.

Let's see which companies get left without a chair now that the music has stopped.
Some of them probably don't need to worry...they're "too big" to fail. :rolleyes:

frostfire

07-08-2009, 21:10

nmap, I'm not as smart as you, but there's just got to be some fallacies in this article in addition to the obvious bias. What's your take on it?

(copy and paste)globalresearch.ca/index.php?context=va&aid=13997

nmap

07-08-2009, 22:47

but there's just got to be some fallacies in this article in addition to the obvious bias. What's your take on it?

(copy and paste)globalresearch.ca/index.php?context=va&aid=13997

Two fallacies that I see...First, they have a short time horizon. More often than not, big changes take time. Second, they take the worst possible case. Often, people muddle through and things aren't equal to the worst case.

That said, some of the basic information in the item is worth considering. I've included a link to the most recent copy of the Dow Theory newsletter - and have underlined several items. Notice the similarities.

LINK (http://www.professionalsoldiers.com/forums/attachment.php?attachmentid=12524&d=1247089895)

Unfortunately, there are a number of fairly well respected sources with reasonably good track records who see trouble ahead as we expand the debt. The Chinese are moving to commodities instead of dollars. The various countries are trying to end the reserve currency status of the dollar.

Clausewitz said that war is a continuation of politics by other means. Right now, we're seeing war continued through other means - through economics (IMO). China, Russia, and others are not our friends - they are for themselves. So as we make ourselves more dependent on them for money to fund our bailouts and social programs, they can be expected to take advantage of the situation.

We really need to control our national debt. We are spending ourselves into some problems. For you and I as individuals, cash is King. Maybe King and Queen. If we avoid debt, accumulate cash (or, more accurately, an FDIC insured bank account), and are careful about our spending, we can come through this. In some years, we will have the opportunity to buy stocks and real estate at great values - but in the meantime, we must be cautious.

I know that isn't terribly reassuring. But it is, I think, better to know that there is some stormy weather ahead.

nmap

08-25-2009, 16:49

I came across a discussion of Mexico's Cantarell oil field; for those interested in border issues and relations between the U.S. and Mexico, it may be worth reading.

Does it mean oil prices will move up? Maybe - much depends on the global economy and the direction of the dollar in comparison to other currencies. We could easily see oil go down somewhat from here in the short term.

Longer term, Cantarell is trouble. Because if Mexico has trouble with their economy, then the effects are likely to involve us to some degree. And, too, the amount available for our use would decline.

The article is short and includes a thought-provoking graph of the decline.

LINK (http://seekingalpha.com/article/157824-mexico-s-declining-oil-production-clarion-call-for-cantarell)

GratefulCitizen

09-13-2009, 15:05

Interesting times.

http://www.nytimes.com/2009/09/09/business/global/09opec.html

Russia is the world's leading oil exporter.
The USA is the world's leading oil importer.

Struggles are going on within both countries to determine what degree of capitalism will exist:
http://www.forbes.com/feeds/reuters/2009/09/13/2009-09-13T194515Z_01_LD541748_RTRIDST_0_RUSSIA-LEADERSHIP-ANALYSIS.html

What are the consequences of a weak/strong dollar (or ruble)?
What happens if our economy stumbles and oil prices drop?
What happens if our economy rebounds and oil prices climb?

OPEC appears not to have a clue:
http://www.neurope.eu/articles/96103.php
(kind of reminiscent of a certain politician who liked to vote "present")

Where is the line between dependence and interdependence?

What are the consequences of having self-interested and/or incompetent leaders at the helm?

:confused:

Richard

09-13-2009, 19:55

Gassed up today near Lewisville @ $1.99/Gal.

Richard's $.02 :munchin

nmap

09-13-2009, 20:17

Good questions, Grateful. I often wonder about them. Perhaps I can share my thoughts, with the disclaimer that they're MOO, YMMV. And, too, I would prefer to be wrong.

What are the consequences of a weak/strong dollar (or ruble)?

A strong dollar means weak commodity prices - and that's good for us. A strong Ruble won't mean much as long as the dollar is the global reserve currency. But the BRIC countries (Brazil, Russia, India, and China) want a new global reserve currency other than the dollar. A weak dollar will mean expensive commodities - whether corn or crude oil. Right now, the dollar is getting weaker. I suspect it will go lower.

What happens if our economy stumbles and oil prices drop?

I'm not sure we'll get much of a decline in consumption. In 2007, we consumed 315,000 bbls per day. In 2008, we declined to 296,000 bbls per day. That's only about 7%, despite a severe economic decline. The numbers come from the EIA, LINK (http://www.eia.doe.gov/aer/pdf/pages/sec5.pdf). It's on page 30 of the report.

Perhaps we should ask what happens if our economy stumbles and oil prices don't drop? That might make the problem worse. And if peak oil asserts itself, we might even ponder what happens if the economy stumbles and oil prices continue even higher.

What happens if our economy rebounds and oil prices climb?

One school of thought suggests that high energy prices work about like a tax increase. So some think that if supply is constrained - either due to peak oil or some other consideration - that we'll get a little recovery, prices for energy will zoom higher, and the recovery will die quickly.

Where is the line between dependence and interdependence?

Perhaps the answer lies outside the economic sphere. Maybe its a question of whether you can trust the other guy - and whether the parties might decide to take care of themselves without regard to anyone else.

Outside stresses might change the situation.

I suspect resource nationalism is in the future. China seems to be stockpiling and generally planning to take care of themselves. Others may do likewise.

What are the consequences of having self-interested and/or incompetent leaders at the helm?

For those they lead - tragedy and tears.

I continue to believe we are at the peak, and perhaps a little past it.

LINK (http://www.aspo-ireland.org/contentFiles/newsletterPDFs/newsletter99_200903.pdf)

So - am I right or wrong? At this moment, no one knows for sure. It can still be discussed and argued, with lots of references all 'round. But in the final analysis, I don't lead anyone. My opinions affect me and, perhaps, a small circle of others. (OK, a very, very small circle.). But our leaders are doing essentially nothing - not about your questions, Grateful, and not about mine either. This suggests we'll stumble along with no plans and no ideas.

And we both know how that's likely to turn out.

afchic

09-14-2009, 09:16

nmap, another question of I may. From what I understand, yes Russia is a major oil exporter, but from what I also understand they have done very little to upgrade any of their oil fields and the associated infrastructure, and within the next 3-5 years that infrastructure is going to collapse because it hasn't been maintained.

What happens then? They can no longer bully their neighbors and the Europeans, but those neighbors and Europeans will no longer have the oil they need to survive. How much worse will it make the global economy? Would it be in the best interests of other parties to intervene, and help shore up the Russian infrastructure, even at the cost of making them a much bigger bully again?

nmap

09-14-2009, 14:08

Russia is in the same relentless vice as the rest of us. There are lots of places - Mexico, for example - that are experiencing dramatic declines in oil production. There's an analysis of Russia's likely future production HERE (http://www.aspo-ireland.org/contentFiles/newsletterPDFs/newsletter93_200809.pdf), starting on page 5. Charts of the production curves are on page 9.

1) How much worse will it make the global economy?

The first issue is when will the effects hit. Probably after global peak hits - estimates range from in the past (2005 or so) to 2018. There seems to be a developing consensus that 2010-2011 will turn out to be the time. After peak, estimates of the decline in global supply range from 2-5% per year. So Russia's oil can make the decline a little less, whereas a failure of the industry would make it a little worse.

I highly recommend a paper by Hirsch published in Energy Policy. Dr. Hirsch has done research for the DOE, and has worked for SAIC. It's concise, at about 9 pages, and I have attached it to this post. It suggests that a decline in oil supply of 1% may result in a decline in global GDP of about 0.6% - 1.0%. So anything that Russia contributes to the global supply has some effect.

An annual decline in GDP of about 2% per year doesn't sound too bad, but it must be remembered that this is repeated year after year indefinitely. It will represent the depression (I use that word intentionally) that simply cannot end. Since the global economy is based on the presumption of growth, we can expect profound economic disruption. Worse, the expectation of a better tomorrow could ultimately fail. This may imply extensive social unrest, both domestically and across borders. While some breakthrough technology could negate all of this, scalability remains a problem. The world uses about a cubic mile of oil every year. Replacing that energy would require about 52 nuclear power plants...every year...for 50 years. LINK (http://www.spectrum.ieee.org/images/jan07/images/ncmo01.gif) So I do not make my prediction of a painful decline lightly. We face a grand challenge, and such challenges imply the possibility of not making the cut.

Our problem is that we don't have much time to mitigate this problem. Still worse, exporting countries may start to hoard their oil (also called resource nationalism). This means that any country that can export has a powerful tool, a source of revenue, and an opportunity to exert considerable influence.

2) Should the world help Russia out?

I think we should ask ourselves what happens if we don't. Oil may make them quite a lot more influential, but lack of oil will injure the world economy badly.

It is, perhaps, worth a moment to take a hard look at the next meal one eats. By some estimates we eat as many as 10 calories of crude oil for every one calorie of food. As oil availability declines, the problem of supply allocation will assert itself. We will face the practical questions of how much to provide people who wish to get to work, how much to give to farmers, and how much to provide to the truck drivers who transport our goods. WalMart speaks of its "warehouse on wheels", and our supermarkets are filled with goods from distant places. In planning for the future, we might wish to ask what happens if transportation ceases to be cheap and easily available?

Considering the consequences, helping Russia produce oil seems by far the better option.

We might also wish to reflect upon China. I cannot help but wonder what China and its 1.3 billion people will do when (if) the growth pattern fails. Will they decide to take oil from Russia by force? Or will they return to the rice fields? So helping Russia might mean more than pipelines and drilling rigs.

nmap

09-14-2009, 17:48

For a quick overview of the problem, along with some perspective, here is a recent interview with Dr. Hirsch.

LINK (http://www.aspousa.org/index.php/2009/09/interview-with-bob-hirsch-the-stonewalling-of-peak-oil/)

afchic

09-14-2009, 18:16

Thanks for the info nmap. I have some reading to do.

GratefulCitizen

09-14-2009, 22:56

But our leaders are doing essentially nothing - not about your questions, Grateful, and not about mine either. This suggests we'll stumble along with no plans and no ideas.

And we both know how that's likely to turn out.

I wouldn't say that they're doing nothing...:rolleyes:

http://money.cnn.com/news/newsfeeds/articles/djf500/200909101631DOWJONESDJONLINE000708_FORTUNE5.htm

The Obama administration opened a new front in its effort to impose $31.5 billion in taxes on oil and gas companies, saying that the nation puts too much emphasis on oil and gas at the expense of other industries.

Why don't they just repeal the laws of supply and demand?

http://www.ogj.com/index/article-display/4802880796/s-articles/s-oil-gas-journal/s-general-interest-2/s-government/s-2009/s-09/s-taep_-obama_tax_proposals.html

TAEP’s study estimated that oil and gas production tax revenues in Texas would drop $2.1 billion over the next 3 years as a result of not finding and replacing new reserves. US crude oil imports would increase as the nation spent an additional $551 billion for purchases from foreign suppliers, it said.

It predicted in a statement that if Congress adopted the proposals, the US oil and gas industry would quickly collapse. “The repeal of the tax provisions would be a quick death, while cap-and-trade would be a slower death,” TAEP said.

How exactly do they expect to improve the economy and develop energy independence???

I know part of the solution...November 2, 2010: Judgement Day.:lifter

GratefulCitizen

09-21-2009, 22:08

Nmap, could you translate this into English? :confused:
It looks like an indication of an impending price drop.

http://www.bloomberg.com/apps/news?pid=20601109&sid=awiq7K1Ch3BU

By Alexander Kwiatkowski and Grant Smith

Sept. 21 (Bloomberg) -- Oil traders are paying more than ever in the options market to protect against a plunge in crude prices.

The gap between prices of options betting on a decline and those that would profit from a rise in oil widened to a record 10 percentage points, according to five years of data compiled by Banc of America Securities-Merrill Lynch. Crude stockpiles in the U.S. are 14 percent larger than a year ago and OPEC is pumping 600,000 barrels a day more than the world needs, according to the International Energy Agency.

While the recovery from the first global recession since World War II pushed oil up 62 percent this year to $72.04 a barrel in New York, growth alone isn’t likely to erode the glut by the end of next year because production exceeds demand, data from the Paris-based IEA shows. A drop in prices would penalize companies from Exxon Mobil Corp. to BP Plc and exporters Russia and Saudi Arabia.

“If ever there was going to be a retreat below $60 a barrel, it is now,” Stephen Schork, president of consultant Schork Group Inc. in Villanova, Pennsylvania, said in a telephone interview. “It was a very weak summer. We came out with more gasoline than we started.”

Right to Sell

Options granting the right to sell, or put, oil in December below current prices have a so-called implied volatility of 54.3 percent, compared with 43.3 percent for the equivalent options to buy, or call, data from the New York Mercantile Exchange show.

The premium for December and other put options shows “the market is worried,” said Harry Tchilinguirian, a senior oil analyst at BNP Paribas SA in London. “If puts are pricing higher than calls, we are looking at a situation where the market is more averse to the downside and is looking for more compensation” for the option, he said.

Demand for puts may be caused by speculators betting on lower prices or by producers hedging against a decline in the value of their oil, Tchilinguirian said.

Oil inventories totaled about 2.8 billion barrels at the end of July within the 30 nations of the Organization for Economic Cooperation and Development, according to the IEA. The total is equal to 62 days of demand, and 4.6 percent more than the same time last year.

Brimming Stockpiles

Supplies are brimming on both sides of the Atlantic. U.S. distillate fuel inventories, which include heating oil and jet fuel, are the highest since 1983 at 167.8 million barrels, according to the Energy Department. U.S. gasoline supplies are 2.2 percent greater than they were in late May, the start of the peak-demand summer driving season, at 207.7 million barrels.

Gasoil stockpiles, the European equivalent of heating oil, near Europe’s refining hub of Rotterdam reached a record 3.03 million tons (23 million barrels) on Sept. 10, according to PJK International BV of Oosterhout, the Netherlands.

More than 60 million barrels of fuel is stored on tankers offshore, according to the IEA.

“There’s all this heating oil with no place to go,” Philip Verleger, a professor at the University of Calgary and head of consultant PKVerleger LLC, said in a phone interview. “I’m fairly certain we’ll see prices in the $30s this year.”

Crude rose as high as $75 a barrel on Aug. 25 as government spending to revive growth spurred demand around the world. Oil for October delivery slumped as much as $2.94, 4.3 percent, today to $68.96 a barrel on the New York Mercantile Exchange.

Gross domestic product in the U.S., the world’s biggest energy consumer, will expand by 2.4 percent in 2010, after shrinking 2.6 percent this year, according to the median estimate of 57 forecasters surveyed by Bloomberg.

Al-Naimi’s View

Saudi Arabia’s oil minister said stockpiles have become irrelevant to crude prices because of the rebound.

“Economic growth is the name of the game,” Ali al-Naimi told reporters in Vienna on Sept. 9 before a meeting of the Organization of Petroleum Exporting Countries. “Oil today is a commodity. As long as economic growth is there, the price is going to go up.”

Traders are betting with al-Naimi. Hedge-fund managers and other large speculators increased their net-long position in New York crude-oil futures 38 percent in the week ended Sept. 15 to 45,557 contracts, according to U.S. Commodity Futures Trading Commission data.

OPEC, whose members supply about a 40 percent of the world’s oil, agreed at the meeting in Vienna to maintain current production quotas and eliminate surplus production.

Above Target

The group pumped 1.2 million barrels a day above its target of 24.845 million barrels a day in August, according to Bloomberg estimates, and more is on the way. The group will increase shipments by almost 1 percent this month, according to Halifax, England-based consultant Oil Movements.

Kuwait’s OPEC delegate, Mohammed al-Shatti, said Sept. 17 a “small” reduction in output will be needed next year because of lower demand. The group agreed to record production cuts of 4.2 million barrels a day through December of last year.

Stockpiles would need to shrink by almost 1.1 million barrels a day in the OECD, close to the combined production of OPEC members Qatar and Ecuador, to get inventories to OPEC’s targeted levels a year from now, IEA data show.

The glut will cut demand at refiners from Valero Energy Corp. to Total SA as the seasonal peak in consumption approaches. The profit from turning West Texas Intermediate crude into gasoline and heating oil fell last week to $3.42 a barrel, the lowest since December. Plants in the U.S. and Europe are being idled.

Valero Energy

San Antonio, Texas-based Valero, the largest U.S. refiner, shut its plant in Aruba and is idling operations in Delaware City, Delaware. France’s Total, Repsol YPF SA of Madrid and Zug, Switzerland-based Petroplus Holdings AG have switched off refinery units in Europe.

“Combined refining margins for gasoline and heating oil have fallen to their lowest level since 2000 and refiners are going to respond by cutting runs, and cutting back on crude purchases,” said Verleger, a former U.S. Treasury adviser.

While Verleger has dropped a forecast made in July that oil would sink to $20 a barrel, traders are anticipating a decline. The Nymex’s most popular option is the right to sell December crude at $60 a barrel, with 69,244 contracts outstanding, exchange data show. The right to sell at $50 a barrel is the second most widely held. The December 60 put option rose today 47 percent to $1.66.

Richard

09-23-2009, 15:17

One of the issues which has always been an element of nagging doubt in my mind are the seemingly overly dire projections/predictions regarding the finiteness of the Earth's mineral, gas, and petroleum supplies - all predicated on recent past or current research and technology which is based solely on our experience in barely having scratched the surface of the planet...and so we seem to be constantly surprised when we discover even more and more resources. :confused:

And so it goes...;)

Richard's $.02 :munchin

Oil Industry Is on a Roll With New Discoveries
Jad Mouawad, NYT, 23 Sep 2009

The oil industry has been on a hot streak this year, thanks to a series of major discoveries that have rekindled a sense of excitement across the petroleum sector, despite falling prices and a tough economy.

These discoveries, spanning five continents, are the result of hefty investments that began earlier in the decade when oil prices rose, and of new technologies that allow explorers to drill at greater depths and break tougher rocks.

More than 200 discoveries have been reported so far this year in dozens of countries, including northern Iraq’s Kurdish region, Australia, Israel, Iran, Brazil, Norway, Ghana and Russia. They have been made by international giants, like Exxon Mobil, but also by industry minnows, like Tullow Oil.

Just this month, BP said that it found a giant deepwater field that might turn out to be the biggest oil discovery ever in the Gulf of Mexico, while Anadarko Petroleum announced a large find in an “exciting and highly prospective” region off Sierra Leone.

It is normal for companies to discover billions of barrels of new oil every year, but this year’s pace is unusually brisk. New oil discoveries have totaled about 10 billion barrels in the first half of the year, according to IHS Cambridge Energy Research Associates. If discoveries continue at that pace through year-end, they are likely to reach the highest level since 2000.

“That’s the wonderful thing about price signals in a free market — it puts people in a better position to take more exploration risk,” said James T. Hackett, Anadarko’s chairman and chief executive.

The good news comes, oddly enough, during a period of considerable stress for the global oil industry. The world economy is weak, oil prices have tumbled from last year’s records, corporate profits have shrunk and global demand for oil remains low. After falling to $34 in December, oil prices have doubled, stabilizing near $70 a barrel. But if the world economy does not pick up, some analysts say they believe the price could fall again.

Oil companies contend that is not a prospect they can afford. Despite reaping record profits in recent years, many executives have warned that they need prices above $60 a barrel to develop the world’s more challenging reserves. In fact, some exploration activity has already slowed this year, as producers seek better terms from service companies and contractors.

It is not just oil that is benefiting from the exploration boom. Repsol, Spain’s biggest oil company, said this month that it had discovered what could turn out to be Venezuela’s biggest natural gas field. In recent years, companies have found substantial natural gas reserves in the United States, from shale rocks once believed to be impossible to drill.

“The No. 1 question that exploration teams have right now is, Where do we go next?” said Robert Fryklund, who ran the operations of ConocoPhillips in Libya and Brazil, and is a vice president in Houston at Cambridge Energy Research Associates.

Exploration spending swelled in recent years, partly to offset a doubling of costs throughout the industry — from steel prices to the cost of renting deepwater drilling rigs. A big issue confronting the industry now is how to drive down costs while maintaining a high level of exploration. On average, costs have fallen by 15 to 20 percent from their peak, according to petroleum executives.

Exploration remains a risky, and costly, business, where some deepwater wells can cost up to $100 million. Between 30 and 50 percent of exploration wells find oil.

Some executives are also worried the world might face a shortfall in supplies in coming years if another decline in oil prices causes exploration to falter.

The chief executive of the French oil giant Total, Christophe de Margerie, has warned that such a supply crunch was possible by the middle of the next decade. “There could be a shortage of capacity,” he said.

His concerns echoed those of Abdullah al-Badri, the secretary general of the Organization of the Petroleum Exporting Countries, who said that lower oil prices also threatened investments by OPEC nations.

Saudi Arabia is also unlikely to expand its production in coming years because of the uncertainty clouding future oil demand, Ali al-Naimi, the kingdom’s oil minister, signaled earlier this month. Saudi Arabia is just completing a $100 billion program to increase its capacity to 12.5 million barrels a day, from around 9 million barrels a day just a few years ago.

Although they are substantial, the new finds do not match the giant fields discovered in the 1970s, like Alaska’s Prudhoe Bay, Ekofisk in the North Sea, or Cantarell in Mexico. They are also dwarfed by the last enormous discovery, the Kashagan field in the Caspian Sea, estimated to hold over 20 billion barrels of oil.

“We have not seen another Kashagan, but still these finds are very material,” said Alan Murray, the exploration service manager at Wood Mackenzie, a consulting firm in Edinburgh.

Since the early 1980s, discoveries have failed to keep up with the global rate of oil consumption, which last year reached 31 billion barrels of oil. Instead, companies have managed to expand production by finding new ways of getting more oil out of existing fields, or producing oil through unconventional sources, like Canada’s tar sands or heavy oil in Venezuela.

Reserve estimates typically rise over the life of a field, which can often be productive for decades, as companies find new ways of getting more oil out of the ground.

The industry’s record has improved in recent years, thanks to high prices. According to Cambridge Energy Research Associates, oil companies have found more oil than they produced for the last two years through a combination of exploration and field expansions.

“The appetite for opening new frontiers when prices were low in the 1990s was very small,” said Paolo Scaroni, the chief executive of Italy’s oil giant Eni. “Today, the biggest discovery of all is technology.”

One of the largest finds this year was made by a small producer, Heritage Oil, at the Miran West One field in the Kurdistan region of northern Iraq. It found nearly two billion barrels of oil and plans to drill a second well before the end of the year. While the central government of Iraq has had a hard time attracting investors to develop its huge fields, local authorities in Kurdistan have been successfully wooing foreign producers.

Meanwhile, in the Gulf of Mexico, BP’s discovery proves that the area remains one of the most promising oil regions in the United States. BP has estimated that the Tiber field holds four billion to six billion barrels of oil and gas, which would be enough, in theory, to meet domestic consumption for more than a year.

“In 30 years I’ve been in the business, the Gulf of Mexico has been called the Dead Sea countless times,” said Bobby Ryan, the vice president of global exploration at Chevron. “And yet it continues to revitalize itself.”

http://www.nytimes.com/2009/09/24/business/energy-environment/24oil.html?partner=rss&emc=rss

nmap

09-23-2009, 16:45

Sure, Grateful. It's entirely possible that crude will drop. You may recall that you and The Reaper predicted such events back on June 5th on this thread. And I agreed. :)

In plain English, your article says that a lot of oil has been stockpiled because current demand is relatively low. Some speculators and producers are betting that oil prices will go lower; on the other hand, some hedge funds think prices will go higher.

However - keep in mind that for every buyer, there is a seller. If someone, somewhere wishes to speculate that oil will go lower, then they must match a trade with another person who believes exactly the opposite. Each side has the courage to put their money where their mouth is.

Let's look at the chart: LINK (http://stockcharts.com/h-sc/ui?s=$WTIC&p=D&b=5&g=0&id=p51522117442&a=155222663)

So - you suggest that it could go lower. I think the chart signals the same thing. And, considering the issue of supply vs. demand, every time I post another gloom and doom item, I am (in essence) suggesting that the demand side is (and will be) under pressure. Since the sellers all need oil revenue, then a difficult global economy should force prices down....in the short term. For that matter, a lower dollar tends to mean higher crude prices, whereas a higher dollar buys more - so we experience lower crude prices. So we're working on crude oil supply and demand, the trend of the global economy, and the trend of the dollar. No small challenge, that.

This segues into Richard's point about resource availability. Making price predictions for the short term, or even a year or two ahead, is great fun. Speculators love the game, and I do too. But our challenge is to look at the trends and try to see where they're leading a decade or more into the future. In essence, to try and see what kind of world the children of today's teenagers might experience.

The world uses about 85,000,000 bbls per day of crude. Multiply by 365 days per year, and we get 31,000,000,000 bbls per year. That's 31 billion - a bit more than a cubic mile of crude every year. So it's great that we've discovered 10 billion bbls for the first half of the year. But here's the problem - even if we continue doing that at the same rate, we're discovering oil at a substantially lower rate than we're using it. This has been an ongoing situation for decades.

Our global economy needs crude oil, true enough - but it also needs both cheap and abundant oil. Those two qualifiers are deeply significant. None of us, nor our children, nor their children will see oil run out. However, if we believe the Hubbert's Peak concept - one which has done a pretty good job since 1952 - then at some point, crude oil production will peak. No one knows exactly when, and it can only be determined by looking backward. So if the date happened to be mid-2011, we would not really know for years afterward. After that peak date, the availability of oil will irreversibly and irrevocably trend downward, with minor fluctuations along the way. That means that, after peak (whenever that might be), the abundance is replaced by shortages that grow worse every year. And the price will trend up, since price serves to allocate the limited supply.

Will technology save us? Perhaps someone, somewhere will invent cheap desktop fusion generators - but I don't think we should bet our future on it. So far, the Hubbert Peak has worked as a good predictor despite the changes in technology we've seen since 1952. For those with children, we are gambling with the grandkid's future. Our decisions will cast a shadow (for good or ill) onto their lives. How's that for upping the stakes?

What happens when we no longer have the cheap and abundant crude oil I mentioned? That's all pure speculation. We have to examine everything from future innovation to human nature, along with everything in between. Such predictions may help us from a planning perspective, and they're good clean fun - but the future will surely hold surprises. I personally think the future will offer some remarkable challenges, and that we as a society ought to consider them with a view to softening the blow. Others see things differently. I fully expect this thread to reach 100 pages before anyone gets to say "Told ya so!". ;)

GratefulCitizen

09-23-2009, 20:37

Reading tea leaves.

I did expect the prices to pop back in mid-summer.
I was wrong.

The problem right now doesn't appear to be on the ability to pump it out of the ground.

The bottleneck is in storage and refining.
That is where the traders are making all of their money.

Much fuss was made about the '08 spike because of the absolute price.
However, the percentage change from spring '09 to summer '09 was much greater, and those who bought oil at its low stood to make a great deal more money with this year's smaller bubble.

They buy oil cheaply, store it in tankers for $1/month/barrel, effectively strangle the supply for awhile, and make money off of the contango.

The permutations on when/where/how to take profit are immense, but some big traders probably have the right programs/computers to do it.
Most everyone else who plays the game will lose.

There looks to be a supply dump in process.
Check out the "net imports" on the EIA website, it jumped significantly this week:
http://tonto.eia.doe.gov/dnav/pet/hist/wttntus2w.htm

They're just unloading oil which they bought at <$40/barrel and kept at sea.
The price will eventually be driven too low and they'll start the game again.

*********

*********
Concerning the Hubbert theory, no connection has ever been made between the peaking of a given nation and the peaking of world supplies.
The USA peaked because oil was more cheaply available from somewhere else.

The various Hubbert's curve models all suffer from the same logical fallacy.
This was addressed in another thread:
http://www.professionalsoldiers.com/forums/showpost.php?p=275537&postcount=33
*********

*********
Twilight in the Desert finally came in through ILL.
Skimmed through parts of it and took some notes.
Should get a more thorough reading done this weekend.

His investigations are detailed and the history lesson is fascinating.
The main complaint he puts forward seems to be that there are no hard numbers available (everything has a degree of uncertainty).
Don't know what to say about that. It is the nature of probabilistic estimations.

Thanks for the recommendation.
It's interesting to see things from the perspective of an uber-doomer.

nmap

09-23-2009, 22:03

Richard

09-23-2009, 22:11

But all based on recent (say last 150 years) stats and technology - what happens if (when) it all changes - demand, supply, use, tech advances, population changes, etc? Guess we'll all be surprised yet again. ;)

Richard's $.02 :munchin

GratefulCitizen

09-23-2009, 22:59

Well....Hubbert theory looks at oil wells, oil fields, and any arbitrary grouping of oil fields. That's a key point, because a country can represent such a grouping. However, the world as a whole is just another set of fields - in this case, all of them. So there is a connection between groups and the aggregation of groups represented by the world.

The math models I've seen have some serious flaws.
Taking a look at the wiki example (I'm sure there are others):
http://en.wikipedia.org/wiki/Hubbert_peak_theory

First and foremost is the logical fallacy previously mentioned.

In 1956, Hubbert proposed that fossil fuel production in a given region over time would follow a roughly bell-shaped curve without giving a precise formula; he later used the Hubbert curve, the derivative of the logistic curve, for estimating future production using past observed discoveries.

Hubbert assumed that after fossil fuel reserves (oil reserves, coal reserves, and natural gas reserves) are discovered, production at first increases approximately exponentially, as more extraction commences and more efficient facilities are installed. At some point, a peak output is reached, and production begins declining until it approximates an exponential decline.

The Hubbert curve satisfies these constraints. Furthermore, it is roughly symmetrical, with the peak of production reached when about half of the fossil fuel that will ultimately be produced has been produced. It also has a single peak.

This assumes what they are trying to prove.

Even ignoring that, there are problems.

Given past oil discovery and production data, a Hubbert curve that attempts to approximate past discovery data may be constructed and used to provide estimates for future production. In particular, the date of peak oil production or the total amount of oil ultimately produced can be estimated that way. Cavallo[5] defines the Hubbert curve used to predict the U.S. peak as the derivative of:

Q(t) = Qmax / 1 + (ae)^bt

where Qmax is the total resource available (ultimate recovery of crude oil), Q(t) the cumulative production, and a and b are constants. The year of maximum annual production (peak) is:

tmax = (1/b)*ln(1/a)

This is interesting.
How is the total resource available determined?
Summing "proven" reserves?

Summing the aggregate proven reserves is mathematically incorrect.
Any estimate you get is a severe underestimation.
The more wells used, the more severe the underestimation.

Only "probable" reserves can be summed.
This data is not publicly available (thank you, SEC).

Hubberts 1974 testimony is still available:
http://www.energybulletin.net/node/3845

...
My name is M. King Hubbert. I am a Research Geophysicist with the U.S. Geological Survey, but I wish to make it clear that I am testifying as an individual and I am not representing the views of the Geological Survey or of the Administration. My scientific education was received during the 1920's from the University of Chicago from which I have received the degrees B.S., M.S., and Ph.D. jointly in geology and physics with a minor in mathematics.
...

Alan Turing's stuff on the halting problem wasn't published until 1937.
(Basically it describes what can and cannot be done by computers/mathematics.)
Economic complexity (to which petroleum economics are subject) runs into the same issues as the halting problem.

Dr. Hubberts 1920's minor in mathematics probably didn't cover these issues.

The math models do not hold.

nmap

09-24-2009, 13:59

Sorry, Grateful, but we're not in agreement on this one.

The model is a curve that seems to provide a good fit for some empirical data. From that, it implies a curve which applies to other areas.

In an ideal world, one would develop a complete understanding of a problem, create a theory to describe it, and then establish equations from that theory. Unfortunately, there does not appear to be a grand unified theory of oil field production - at least, I've never seen one. So what do we do? We take the available data, and we examine it. We try to discern patterns.

Hubbert's peak just describes a pretty good (but not perfect) fit for the data. As additional data comes in, we get to examine its conformance with the curve. So far, it has worked well.

Now you mention that we don't know the amount of reserves. Absolutely true. What we can do, however, is take our "pretty good" curve and match it to regional or global data. This will imply a solution for where we are on the curve, what our totals might be, and when the global peak would occur.

Imperfect? Sure. But given the partial and ambiguous data available, it seems to be the best we have at present. One can ignore such results - as with anything, there are consequences for acting without a need, and other consequences for failing to act.

Now about Turing's halting problem...it seems that your position is that there is simply too much data to analyze successfully. Fortunately, we don't have to analyze everything for lots of problems we face.

We can take a sample, and from that sample infer results for the overall population. We limit our sample to something we can deal with, and we get a statistical result. When the FDA determines that a treatment is both safe and effective, it uses a sample to project results onto the overall population.

My perception - and please correct me if I'm wrong - is that you want something that's got more theoretical rigor and precision than what we've got. In the absence of such a superior tool, we're faced with using what's available - Hubbert's peak oil theory. I see this as analogous to hearing a hurricane forecast, one which suggests we might face a major storm, and choosing to ignore it. Those forecasts make mistakes - but is it really wise to ignore them because of the imperfections?

Richard suggests we'll be surprised yet again. Pearl Harbor was a surprise, the 1929 market crash was a surprise, and I suppose that the bubonic plague in Europe was a surprise.

Peak oil is one of those politically inconvenient problems with no pleasant solutions - so, unless we win the technological lottery, we'll have a surprise. Just not a pleasant surprise. On the positive side, I suppose adversity makes people stronger. After peak oil surprises us, we may get a lot stronger....

GratefulCitizen

09-26-2009, 16:47

I've been putting too many arguments/issues into a single post.

This post will focus on one:
The nature of data errors associated with "proven" reserves and consequences to peak oil theory.

Well....Hubbert theory looks at oil wells, oil fields, and any arbitrary grouping of oil fields. That's a key point, because a country can represent such a grouping. However, the world as a whole is just another set of fields - in this case, all of them. So there is a connection between groups and the aggregation of groups represented by the world.

Sorry, Grateful, but we're not in agreement on this one.

The model is a curve that seems to provide a good fit for some empirical data. From that, it implies a curve which applies to other areas.

In an ideal world, one would develop a complete understanding of a problem, create a theory to describe it, and then establish equations from that theory. Unfortunately, there does not appear to be a grand unified theory of oil field production - at least, I've never seen one. So what do we do? We take the available data, and we examine it. We try to discern patterns.

Hubbert's peak just describes a pretty good (but not perfect) fit for the data. As additional data comes in, we get to examine its conformance with the curve. So far, it has worked well.

Now you mention that we don't know the amount of reserves. Absolutely true. What we can do, however, is take our "pretty good" curve and match it to regional or global data. This will imply a solution for where we are on the curve, what our totals might be, and when the global peak would occur.

Imperfect? Sure. But given the partial and ambiguous data available, it seems to be the best we have at present. One can ignore such results - as with anything, there are consequences for acting without a need, and other consequences for failing to act.

There is not a problem with how reserves are measured for an individual well.
There is a huge problem with how those reserves are supposedly aggregated.

This results in worthless data when you try to make calculations on a larger (worldwide) scale.
(details below)

As the number of oil wells increases (aggregating larger groups of wells), the percentage error increases.
This error results in underestimations which worsen in severity with time.

These underestimations give the appearance that reserves are not being replaced as fast as they are being used, and that total resource is less than reality.
These supposed declining rates and lower total resource are central to the peak oil models.

If the numbers being input into the peak models were correct, there may be a case for impending peak oil.
The numbers being input are wrong.

Much of the concern over oil is nothing more than an arcane mathematical quirk.

*******************
Details
An individual well has a proven reserve based on two pieces of data, the mean and the variance.
A "proven" reserve is a conservative estimate determined by:
(mean) - (1.28 * (variance)^.5) = (proven)

It is a mapping of 2 dimensions into 1: f(m,v) --> p

You cannot take all of the "p" values and add them up.
You have to add up the "m" values, add up the "v" values, and put them through the original function.

f(msum, vsum) --> p(actual)

*********************
Attached is a spreadsheet demonstrating how the percentage error increases as the number of oil wells increases.
It is for illustrative purposes only.

The conversion to pdf had some issues (can't upload xml).
Page 21 is where the percentage error (28%) is listed for "10 wells"
Page 41 is where the percentage error is listed (40%) for "1000 wells"

<edit>
attachment fixed

nmap

09-26-2009, 17:49

GratefulCitizen

09-26-2009, 18:49

Well, my first issue is the notion of adding up the variance. The variances are huge! Much larger than any of the means. Further, there are no negative variances - I cannot help but wonder how all the variances could be positive. Have you already squared them? In a brief bit of playing with the numbers, I don't see it.

The variance is the standard deviation squared.

Technically, the standard deviation is a "distance".
When you add up "distance" in a problem of this type, you take the square root of the sum of the squares.
In this case, the variances are summed and square root is taken of the resulting sum, which yields the appropriate standard deviation for the sum of the means.

Second, I would appreciate a link or reference to your formula, (mean) - (1.28 * (variance)^.5) = (proven).

Thats just saying that you can be 90% certain that the variable in question will be greater than or equal to the "proven" number.

Go here: http://www.fourmilab.ch/rpkp/experiments/analysis/zCalc.html
Scroll down to the "Calculate z from probability Q".
Enter ".90" in the "given probability Q" box.

Third, if the theory is badly flawed, how does one account for the successful prediction for the peak of continental U.S. crude production?

This is affirming the consequent.

My personal belief is that Hubbert had an excellent intuition on this matter due to his experience in the industry.
He tried to find a math model which fit his intuition.

This does not mean that the model is valid (or invalid).
Even if the model is valid, my recent post is addressing the poor quality of data being input into the model, not the model itself.

Finally, when I use the 1,000 well example, and use the "sum of proven" and "underestimation" numbers, I get:

21065/7453629

Should be 21065/74536 and 3014744/7453629.
There is a problem with the format (page crossover).
I'll try to fix the format tomorrow.

The 1000 well example is just the 10 well example repeated 100 times.
This is to illustrate the fact that the number of wells matter, not just the amounts.

I'm not trying to cook up any numbers.
Just trying to explain the unintended consequence of the SEC regulations.
After reading parts of Simmons' book, I realized a contextual gap exists.

When people look at the numbers for "proven" reserves, they assume that those are just numbers and will act like regular numbers.
They do not.

They are not just "regular" numbers.
They are a one-dimensional representation of a two-dimensional measurement.
Normal arithmetic doesn't work.

The published total proven reserves for various countries are wrong.

nmap

09-29-2009, 17:25

Grateful, I've been looking at z-scores and there are some things that trouble me.

First issue - what exactly do the mean and variance apply to in this instance? I'd like to take a look at the source data, if you have a reference conveniently at hand.

Next problem - I want to do my calculations using Excel, not the online calculator. I find it gives me a better feel for the numbers. Now that means I need to use the underlying formulas - and I went HERE (http://controls.engin.umich.edu/wiki/index.php/Basic_statistics:_mean,_median,_average,_standard_ deviation,_z-scores,_and_p-value) to study them. Now notice that formula 6 deals with a single result, whereas formula 7 permits inference about the population. It seems to me that 7 would be more apropos - but the calculator ( HERE (http://www.fourmilab.ch/rpkp/experiments/analysis/zCalc.html) ) uses formula 6, does it not?

I also notice the following at LINK (http://controls.engin.umich.edu/wiki/index.php/Basic_statistics:_mean,_median,_average,_standard_ deviation,_z-scores,_and_p-value)

Z-scores normalize the sampling distribution for meaningful comparison.
Z-scores require a large amount of data.
Z-scores require independent, random data.

This means that we have violated the assumptions for item 3 on anything beyond the 10 well scenario, since the data have been replicated. And I'm not at all sure that 10 cases meets the requirements of item 2.

The first item may be critical to the discussion - the Z score seems more directed at comparing two results that happen to be in different units. Notice the discussion HERE (http://w3eos.whoi.edu/12.747/notes/lect02/lectno02.html#Normalization) at 2.2.4. In addition, notice LINK (http://www.stats4students.com/Essentials/Standard-Score/Overview.php)

Now in all fairness, sometimes violation of underlying assumptions isn't critical - but I haven't found anything rigorous on the issue.

The real problem I see is that the Z-score seems more about comparing populations than anything else.

Perhaps you could suggest a reference that would reconcile this?

GratefulCitizen

09-29-2009, 21:33

This is getting into the "contextual gap" to which I referred.

There are also numerous terms used by the industry which confuse matters because the English-language construction of terms doesn't necessarily match with the math reality.
(P1, P2, P3, P10, P50, P90, proved, probable, possible, proved+probable, proved+probable+possible :rolleyes: )

"Proved" reserves are generally accepted to be a P90 standard, i.e. there is at least a 90% probability of the oil being produced.

The data set was an arbitrary construction to demonstrate the difference between summing the "proved" and calculating a P90 standard for the total, and also to demonstrate what happens as you keep adding wells.

Dr. Richard Pike does a far better job explaining this, and a few links to him have already been posted in this thread.
http://www.ercouncil.org/powerpoints/DrRichardPike.ppt

To be fair, there is a limit to how far the summation method misses.

There is a difference between the P50 and P90 values for a given well.
Add up that difference for every well, and it will give you the underestimation error.

Also, the probability distributions for a given well aren't necessarily the standard, normal distribution.
However, this doesn't matter when all of the means and variances are summed to construct an aggregate distribution.

Because the aggregate distribution is made of of data points with finite means and variances, it will be normally distributed (central limit theorem).

*********************
*********************

GC's simplification:

A simpler way of putting the problem with summing the proved reserve:

Take a fair 10-sided die (such things do exist, I played D&D as a kid :D ).

A "proved" reserve is how much oil you will get from a well if you roll a 1.
You get more oil if you roll a 2, 3, 4, 5, 6, 7, 8, 9, 10.

Summing the "proved" reserves is the same as assuming you will always roll a "1".
It isn't going to happen.

Take million or so oil wells.
Roll that 10-sided die a million or so times.

What do you think will happen?

Once you average out all of the die rolls, you can be 90% sure (proved) that the average roll will be over 5 (the mean value is 5.5).

*************
*************

After looking into things on the doomer side, I can see why they are concerned.
If the decline in discoveries and total resource available were really as low as "proved" reserves indicate, I would be worried.

That data isn't painting a picture of the geologic reality.

Production/transportation/storage/refining infrastructure is another matter.
This may well be cause for concern.

nmap

10-01-2009, 16:13

GratefulCitizen

10-01-2009, 20:48

Interesting views.

Here's a link to an article that discusses the matter further. LINK (http://www.odac-info.org/newsletter/2008/06/13#ar2761)

So if he's right, the day of reckoning has been deferred. Our society will remain one of abundance for the remainder of my life. Then, peak oil would hit with a vengeance about the time Grateful's grandchildren reach adulthood.... :D

Time will tell, I suppose. I'm sticking to my early peak scenario - but I wouldn't mind if it didn't materialize. That said, if we have been given the gift of time, it might be a really good idea to use it wisely - for their sake, if not our own. MOO, YMMV.

OK. My turn to be a doomer.
(sort of...)

There does seem to be a problem with infrastructure.
Production infrastructure is a significant investment.

Look at what happens in various parts of the world when those investments return profit.
Governments step in and steal it.

This kills incentive and results in market instability, which various investment groups exploit further by strangling/flooding supplies in the "paper barrel" market.

There are certainly problems.
Geology just doesn't yet appear to be the most important one.

MOO: natural gas will start eating up some of the liquids market share.
When enough natural gas tankers are built, liquids will have trouble competing.
Environmental laws also tend to give natural gas a relative advantage.

Eventually, this may result in peak demand for liquids.
Then the problem will be deferred to peak gas.

Consider the present ratio of prices between oil/natual gas and compare it to historical ratios.

http://seekingalpha.com/article/158323-oil-and-natural-gas-ratio-explodes-in-2009

http://www.google.com/hostednews/ap/article/ALeqM5i5TtajgUpSm7KY5jf-lCJGHBB-tAD9B2G14G2

nmap

10-01-2009, 21:26

When it comes to the low price of natural gas, please be assured - I've noticed. ;)

Chart Link (http://stockcharts.com/h-sc/ui?s=$WTIC&p=W&b=5&g=0&id=p22858560301&a=172597797)

Natural gas is, as you say, cheap. It is, at least for now, available. There is quite a lot that is shut-in - hence, available in the future if not today. And if the LNG tanker "trains" can be built, it can be shipped.

Now - do we really have enough to supply electrical plants converting from coal to NG? Plus cars? Plus more electricity? If we had arguments about oil, the ones about NG can be even more amusing to spectators.

But I'd like to go back to your point about infrastructure - it's important. Not only do governments steal the stuff, but it requires quite a lot of capital formation. And that's a problem right now - one need look no further than Bernanke for confirmation.

GratefulCitizen

10-01-2009, 21:49

.
Now - do we really have enough to supply electrical plants converting from coal to NG? Plus cars? Plus more electricity? If we had arguments about oil, the ones about NG can be even more amusing to spectators.

Perhaps T. Boone Pickens' whole event was just to get ahead of the trend.
Something tells me that his wind farm was just an excuse to sell the natural gas "bridge".
Perhaps it was meant to be a rather long, profitable bridge.
*********
*********

Here's one that prompts the donning of a tinfoil hat.

I live in Page, Arizona (population ~7,000).
Electricity is cheap, and the electric company is owned by the city.

There is a 1356 megawatt (peak capacity) hydroelectic powerplant adjacent to the town.
There is a 2280 megawatt coal electric plant just outside of town in the other direction.
http://en.wikipedia.org/wiki/File:Page_arizona.jpg

We also have an array of natural gas generators which can power the city.

There are no natural gas pipelines which come here.
Natural gas is expensive here.

To my knowledge, the generators have never been used (other than testing).
For what, exactly, are they preparing?
:munchin

GratefulCitizen

10-21-2009, 18:14

Demand is down for oil:
http://tonto.eia.doe.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=WRPUPUS2&f=W

OPEC thinks the price is too high:
http://www.bloomberg.com/apps/news?pid=20601116&sid=azZjM_PLNf0s

Yet the price is up.

All the money printing is creating another oil bubble.

nmap

10-21-2009, 18:30

All the money printing is creating another oil bubble.

I agree - the current price action is about the decline in the dollar, not an artifact of any peak oil effects.

Patience, Grateful, patience. Peak oil will be here before you know it. :munchin

nmap

11-10-2009, 11:06

And round and round we go.

Now if oil does go into decline before 2020 - then the time for mitigation is ticking away. We would need to make substantial committments to alternatives or face severe dislocations.

Does Warren Buffett know something we don't? He's investing in railroads. Enough to make one say hmmm.

LINK (http://www.guardian.co.uk/environment/2009/nov/09/peak-oil-international-energy-agency/print)

The world is much closer to running out of oil than official estimates admit, according to a whistleblower at the International Energy Agency who claims it has been deliberately underplaying a looming shortage for fear of triggering panic buying.

The senior official claims the US has played an influential role in encouraging the watchdog to underplay the rate of decline from existing oil fields while overplaying the chances of finding new reserves.

The allegations raise serious questions about the accuracy of the organisation's latest World Energy Outlook on oil demand and supply to be published tomorrow – which is used by the British and many other governments to help guide their wider energy and climate change policies.

'There's suspicion the IEA has been influenced by the US' Link to this audio
In particular they question the prediction in the last World Economic Outlook, believed to be repeated again this year, that oil production can be raised from its current level of 83m barrels a day to 105m barrels. External critics have frequently argued that this cannot be substantiated by firm evidence and say the world has already passed its peak in oil production.

Now the "peak oil" theory is gaining support at the heart of the global energy establishment. "The IEA in 2005 was predicting oil supplies could rise as high as 120m barrels a day by 2030 although it was forced to reduce this gradually to 116m and then 105m last year," said the IEA source, who was unwilling to be identified for fear of reprisals inside the industry. "The 120m figure always was nonsense but even today's number is much higher than can be justified and the IEA knows this.

"Many inside the organisation believe that maintaining oil supplies at even 90m to 95m barrels a day would be impossible but there are fears that panic could spread on the financial markets if the figures were brought down further. And the Americans fear the end of oil supremacy because it would threaten their power over access to oil resources," he added.

A second senior IEA source, who has now left but was also unwilling to give his name, said a key rule at the organisation was that it was "imperative not to anger the Americans" but the fact was that there was not as much oil in the world as had been admitted. "We have [already] entered the 'peak oil' zone. I think that the situation is really bad," he added.

The IEA acknowledges the importance of its own figures, boasting on its website: "The IEA governments and industry from all across the globe have come to rely on the World Energy Outlook to provide a consistent basis on which they can formulate policies and design business plans."

The British government, among others, always uses the IEA statistics rather than any of its own to argue that there is little threat to long-term oil supplies.

The IEA said tonight that peak oil critics had often wrongly questioned the accuracy of its figures. A spokesman said it was unable to comment ahead of the 2009 report being released tomorrow.

John Hemming, the MP who chairs the all-party parliamentary group on peak oil and gas, said the revelations confirmed his suspicions that the IEA underplayed how quickly the world was running out and this had profound implications for British government energy policy.

He said he had also been contacted by some IEA officials unhappy with its lack of independent scepticism over predictions. "Reliance on IEA reports has been used to justify claims that oil and gas supplies will not peak before 2030. It is clear now that this will not be the case and the IEA figures cannot be relied on," said Hemming.

"This all gives an importance to the Copenhagen [climate change] talks and an urgent need for the UK to move faster towards a more sustainable [lower carbon] economy if it is to avoid severe economic dislocation," he added.

The IEA was established in 1974 after the oil crisis in an attempt to try to safeguard energy supplies to the west. The World Energy Outlook is produced annually under the control of the IEA's chief economist, Fatih Birol, who has defended the projections from earlier outside attack. Peak oil critics have often questioned the IEA figures.

But now IEA sources who have contacted the Guardian say that Birol has increasingly been facing questions about the figures inside the organisation.

Matt Simmons, a respected oil industry expert, has long questioned the decline rates and oil statistics provided by Saudi Arabia on its own fields. He has raised questions about whether peak oil is much closer than many have accepted.

A report by the UK Energy Research Centre (UKERC) last month said worldwide production of conventionally extracted oil could "peak" and go into terminal decline before 2020 – but that the government was not facing up to the risk. Steve Sorrell, chief author of the report, said forecasts suggesting oil production will not peak before 2030 were "at best optimistic and at worst implausible".

But as far back as 2004 there have been people making similar warnings. Colin Campbell, a former executive with Total of France told a conference: "If the real [oil reserve] figures were to come out there would be panic on the stock markets … in the end that would suit no one."

GratefulCitizen

11-10-2009, 14:10

nmap

11-10-2009, 16:37

If oil were peaking, wouldn't oil be a good investment?
Get control of a good which is decreasing in supply and increasing in demand.

I think oil fears are being pumped up in order to keep the price up.
If oil falls too fast, there will be serious deflation.

Yes, oil would be a good investment - but how, there's the rub. One can do so indirectly through various stocks and mutual funds, and I have - but that's still indirect. Or one can do so through futures or ETFs such as USO; however, there's a nasty little tendency for the pricing to be distorted by the sheer size of investments in the ETFs which can result in losses if one holds them for an extended period.

Now...would it be deflationary? Maybe. I'm not sure. Recall that crude is part of just about everything we do. So just as increased energy prices can have the effect of a broad-based tax increase, would not decreased prices for energy have a stimulative effect like a tax cut? Even though oil producers would be injured, oil consumers would benefit.

Ah, well. Patience, Grateful, patience. Peak will be here before you know it. :D

GratefulCitizen

11-12-2009, 18:26

Ah, well. Patience, Grateful, patience. Peak will be here before you know it. :D

People will probably be ignoring it.
We just hit "peak gold" :rolleyes:
http://www.telegraph.co.uk/finance/newsbysector/industry/mining/6546579/Barrick-shuts-hedge-book-as-world-gold-supply-runs-out.html

Seems like we saw this coming. :D
http://www.professionalsoldiers.com/forums/showthread.php?t=21251

6.8SPC_DUMP

11-14-2009, 21:09

Please be aware that Goldman Sachs, Morgan Stanley and other Corps are currently engaged in fraudulent oil price manipulation that has resulted in $2.5 Trillion dollars of illegal revenue.

This very year the scam has resulted in oil rising from $40 dollars a barrel to $80.

Goldman Sachs and Co. achieved this by creating an online commodities and futures marketplace (ICE) in 2000 (outside jurisdiction of US law) where largely unsupervised they recorded massive oil trades, where no commodities ever changes hands, but send a price signal to the market artificially boosted their companies’ revenue along with the and the price of oil.

With a 17.5% real unemployment rate, struggling Americans have handed over 28 billion in TARP (and an additional undisclosed amount of Gov. subsidies) to Goldman Sachs. GS has used that money to manipulate the markets, hand out record bonuses, pay their average employee 700K and has not aided in creating jobs or addressed our energy or infrastructure concerns. In fact our TARP money was used to the artificially inflate oil prices costing us more. The $4.7 trillion already paid to financial institutions has been estimated to possibly reach nearly $24 trillion or $80,000 for every American, by a respected watchdog report (http://www.huffingtonpost.com/2009/07/20/bailout-may-cost-237-tril_n_241512.html). (that is just what’s on the books).

The following artical puts the magnitude of what has been done to our country into perspective with detailed examples, credible sources and the documents to prove details which I haven’t scratched the surface of.

Every American should read this.

$2.5 Trillion - That’s the size of the global oil scam. (http://www.philstockworld.com/2009/11/11/goldmans-global-oil-scam-passes-the-50-madoff-mark/).

GratefulCitizen

11-19-2009, 13:54

Losta stored oil and oil products out there.
Eventually, the price will have to go down and those owning the oil will rush to sell it.

Holding onto that oil is akin to playing cowboy poker, except with a bear instead of a bull.

http://news.sky.com/skynews/Home/Business/Oil-Tankers-In-Lyme-Bay-Are-Not-To-Blame-For-Petrol-Price-Hikes-A-Shipbrokers-Firm-Has-Argued/Article/200911315458255?lpos=Business_First_Buisness_Artic le_Teaser_Region_0&lid=ARTICLE_15458255_Oil_Tankers_In_Lyme_Bay_Are_N ot_To_Blame_For_Petrol_Price_Hikes%2C_A_Shipbroker s_Firm_Has_Argued

http://www.reuters.com/article/reutersComService_3_MOLT/idUSTRE5AH3K320091118

Weak demand has generated huge stockpiles, which translate into a contango structure on the oil market, meaning crude for early delivery is cheaper than that for a later date.

The stock build is particularly marked for distillate stocks, which include diesel and heating fuel, and have reached their highest levels for nearly three decades.

Analysts have said even a severe winter would be unlikely to draw distillate levels back down to the average.

In addition to the large amounts of fuel storage on land, traders have built up fleets of floating of storage at sea, which have been rising since April.

Shipbrokers say volumes of oil products stored at sea have risen to more than 90 million barrels.

The fuel has been stored on vessels rather than on land as traders have taken advantage of cheap freight rates and market structure, which means they can make a profit from buying now and selling later.

Distillates are still in a deep contango -- when prompt contracts are cheaper than those for later delivery -- while the contango on the crude futures market is less than a dollar.

nmap

11-19-2009, 19:05

Could be. Interestingly enough, the Baltic Dry Index, which tries to measure the cost of shipping, is up, perhaps implying that storage costs will go up. That, in turn, could force oil dumping.

And, too, there is the possibility of a new decline in the economy, despite the uptick in the leading indicators. Should that happen, we might see a decline in demand, and creating further downward pressure.

However - if we know it, there's a good chance others know it. Isn't it interesting that the price is holding at the current level?

nmap

02-07-2010, 18:28

More grist for discussion. Or not.

LINK (http://www.guardian.co.uk/business/2010/feb/07/branson-warns-peak-oil-close)

Branson warns that oil crunch is coming within five years
• Virgin chief and fellow business leaders call for action
• Energy crisis threatens to be more serious than credit crunch

Sir Richard Branson and fellow leading businessmen will warn ministers this week that the world is running out of oil and faces an oil crunch within five years.

The founder of the Virgin group, whose rail, airline and travel companies are sensitive to energy prices, will say that the *coming crisis could be even more serious than the credit crunch.

"The next five years will see us face another crunch – the oil crunch. This time, we do have the chance to prepare. The challenge is to use that time well," Branson will say.

"Our message to government and businesses is clear: act," he says in a foreword to a new report on the crisis. "Don't let the oil crunch catch us out in the way that the credit crunch did."

Other British executives who will support the warning include Ian Marchant, chief executive of Scottish and Southern Energy group, and Brian Souter, chief executive of transport operator Stagecoach.

Their call for urgent government action comes amid a wider debate on the issue and follows allegations by insiders at the International Energy Agency that the organisation had deliberately underplayed the threat of so-called "peak oil" to avoid panic on the stock markets.

Ministers have until now refused to take predictions of oil droughts seriously, preferring to side with oil companies such as BP and ExxonMobil and crude producers such as the Saudis, who insist there is nothing to worry about.

But there are signs this is about to change, according to Jeremy Leggett, founder of the Solarcentury renewable power company and a member of a peak oil taskforce within the business community. "[We are] in regular contact with government; we have reason to believe their risk thinking on peak oil may be evolving away from BP et al's and we await the results of further consultations with keen interest."

The issue came up at the recent World Economic Forum in Davos where Thierry Desmarest, chief executive of the Total oil company in France, also broke ranks. The world could struggle to produce more than 95m barrels of oil a day in future, he said – 10% above present levels. "The problem of peak oil remains."

Chris Skrebowski, an independent oil consultant who prepared parts of the peak oil report for Branson and others, said that only recession is holding back a crisis: "The next major supply constraint, along with spiking oil prices, will not occur until recession-hit demand grows to the point that it removes the current excess oil stocks and the large spare capacity held by Opec. However, once these are removed, possibly as early as 2012-13 and no later than 2014-15, oil prices are likely to spike, imperilling economic growth and causing economic dislocation."

Skrebowski believes that Britain is particularly vulnerable because it has gone from being a net exporter of oil, gas and coal to being an importer, and is becoming increasingly exposed to competition for supplies.

"This is likely to put pressure on the UK balance of payments and in a world of floating exchange rates is also likely to put downward pressure on the valuation of sterling. In other words, the positive benefits to the valuation of the pound as a petrocurrency are now eroding," he said.

The question of peak oil came to centre stage last November when a whistleblower told the Guardian the figures provided by the IEA – and used by the UK and US governments for much of their planning scenarios – were inaccurate.

"The IEA in 2005 was predicting that oil supplies could rise as high as 120m barrels a day by 2030, although it was forced to reduce this gradually to 116m and then 105m last year," said the IEA source. "The 120m figure always was nonsense but even today's number is much higher than can be justified and the IEA knows this."

But Saudi Arabia launched a counter-strike at Davos, insisting the issue was overblown. "The concern about peak oil is behind us," said Khalid al-Falih, chief executive of Saudi Aramco.

Tony Hayward, the BP chief executive, downplayed fears about dwindling supplies in an interview with the Guardian last week.