Oil Prices and Global Exports

[nmap]

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?

:

[nmap]

Originally Posted by Broadsword2004

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]

Originally Posted by nmap

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]

Originally Posted by Broadsword2004

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.

Originally Posted by Broadsword2004

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.

Originally Posted by Broadsword2004

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...

Originally Posted by Broadsword2004

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]

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

[GratefulCitizen]

Originally Posted by nmap

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

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]

Originally Posted by nmap

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

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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]

I reject peak oil as nonsense.

http://video.google.com/videoplay?do...74697167011147

[nmap]

Originally Posted by GratefulCitizen

-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.

Originally Posted by bailaviborita

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...

Originally Posted by JGarcia

I reject peak oil as nonsense.

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

[Peregrino]

Originally Posted by JGarcia

I reject peak oil as nonsense.

http://video.google.com/videoplay?do...74697167011147

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]

Originally Posted by JGarcia

I reject peak oil as nonsense.

http://video.google.com/videoplay?do...74697167011147

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-g...-happened.aspx

[nmap]

Originally Posted by GratefulCitizen

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-g...-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]

Originally Posted by nmap

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]

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]

Originally Posted by nmap

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? )
-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...