Saudi Arabia Ready to Start Pumping More Oil

[Dennis Coyne + 82]

9 hours ago, Rodent said:

Agree, technology, particularly in the case of US shale, has increased US reserves. Also better data regarding the reserves may play into this as well.  Not sure they will increase "forever" though.

Agree, should have used a smiley face.

My view can be found at link below

http://peakoilbarrel.com/oil-shock-models-with-different-ultimately-recoverable-resources-of-crude-plus-condensate-3100-gb-to-3700-gb/

[Eric C. Alldritt + 18]

9 hours ago, Fulcaneli said:

Your assessments are much more in line with the prevailing opinions on the situation.

Essentially what we have is a "perfect storm" brewing. Extremely healthy world demand increases are combining with the record lack of investment over the last few years, depleting existing sources, and geo political uncertainty. 

Most of the "lower for longer" forecasts were depending on American shale being able to satisfy world demand increases virtually on it own. I think that it's clearly evident at this point that is going to be extremely difficult, as the Permian is already facing bottlenecks, labour shortages, material shortages, and the perception that many of the "sweet spots" have already been tapped. How long can the shale industry continue ramping up production by over a million barrels per day? I have my doubts, and as you've pointed out in any case it still won't be enough barring a massive global recession. 

I see oil going a lot higher before it goes down any. The fundamentals are there, it's a simple supply/demand issue where the producers are going to struggle mightily to meet increasing demand. Couple that with production in Venezuela dropping off dramatically, places like Libya and Nigeria struggling to maintain output, and the fact that decline rates alone require the development of around 5 million new barrels per day of production, just to maintain the status quo. 

I think that $100 oil will likely look like a bargain in 2020, barring any major global economic calamities. 

Is there any data on how many "sweet spots" are left, what about a graph showing the Permian's breakeven cost over time?

[Bhimsen Pachawry + 72]

On 5/18/2018 at 4:32 PM, Dennis Coyne said:

Bhimsen,

The reserves I reported were from the American operators of Aramoco in 1979, see Twilight in the Desert Appendix C.  I don't expect that KSA can continue producing at 10 Mb/d until 2050, they might develop some of their smaller fields as oil prices rise.  I agree with a 115 to 130 Gb 2P estimate, KSA is probably reporting 3P reserves plus contingent resources, nobody really knows.

If oil prices go to $150/b KSA may ramp up output, but I doubt they can get to 12 Mb/d easily, it will take a few years and the claim that they can easily get to 20 Mb is bunk, this claim has been around since 1970, the highest output we have seen is 10.5 Mb/d and it might not ever be surpassed.

KSA can produce oil at 20MBD. USA with reserves of 40GBL is producing 10MBD. KSA can definitely produce 20MBD. All they have to do is drill wells in several small fields which they have left untouched for future. KSA has been using big oil fields and some of the big ones like Ghawar have almost reached terminal phase. Of the 170GBL OOIP, 50% is gone and maximum of another 5-7% remains. KSA is now using co2 injection and CH4 injection EOR techniques since 2015.

23 hours ago, Dennis Coyne said:

William.

The oil won't "run out" , it just becomes more costly to produce at high rates as the best reservoirs get produced first.  Note that an assumption that oil reserves increase in direct proportion to price is silly.  Just look at the change in US proved reserves when prices fell in half from 2014 to 2015, were they 50% lower in 2015 compared to 2014, no!  They went from 40 Gb in 2014 to 35 Gb in 2015.

How about 7.5 times higher from 1998 to 2008?  In 1998 US proved reserves were 21 Gb and the average annual oil price was $13/b, were proved reserves 7.5 times higher in 2008 when the average annual oil price was $97/b, that is 157 Gb?  No, actual US proved crude reserves in 2008 were 19 Gb, over 8 times lower than William suggests.

Ah, but we have the magic of technological progress so reserves will increase forever. For example in 1971 US proved reserves were 38 Gb so they must be much larger now due to all the technology, but alas at the end of 2016 US crude reserves were 33 Gb.

I do agree that ceteris paribus higher prices will increase reserves, but a doubling of prices does not lead to a doubling of reserves.

What is the meaning of costly to produce? How costly to produce? The definition of running out is that the oil can no longer be profitably extracted. The profitablity depends on the closest substitute. Since there is no substitute, the oil running out means that the EROI (Energy returned on (energy) invested) goes to 1 or less. In that case, no matter what, the extraction of oil becomes technically unfeasible as the energy needed to bring out that oil will vastly outweigh the energy the oil possesses.

21 hours ago, Dennis Coyne said:

William,

I guess we will find out, it seems these very low cost producers need prices well above $50/b.

Why is it that they didn't just produce this lower cost oil from 2011 to 2014 to keep oil prices from rising to over $100/b?

How many years from 1973-2016 was the annual oil price over $50/b (in 2016$) ?  Answer: 23 of 44 years.  Average price was $57.67/b (2016$).  The average price weighted by C+C output from 1973 to 2016 was $58.92/b in 2016$.  For the past 20 years (1997-2016) the weighted average oil price in 2016$ was $66.41/b and the 20 years before that (1977-1996) the average weighted oil price in 2016$ was $52.28/b.  So it seems the price needed to balance the market has been increasing.

 

Look man, the oil price is both political and based on other economical. The KSA can produce oil at large quantity does not mean it does as that will jeopardise the future reserves. Also, why should KSA help the economy of other countries by providing low cost oil? In addition, oil is a strategic asset. If one is getting oil from unreliable countries who can impose sanctions at the drop of a hat, then you have to have backup oil supply of your own to maintain continuity. It even becomes worthwhile to subsidise oil production by govt funds to maintain domestic production as a matter of insurance.

 

18 hours ago, Dennis Coyne said:

Thanks.  I agree oil prices will rise, though it's not clear how quickly, they may stabilize in 2019 around $85/b, but I think they might gradually rise from 2020 to 2025, maybe by $5 to $10/b each year, reaching about $122/b (2017$) in 2025.  If peak oil hits about that time(as I suspect) the increase in oil price may accelerate to $15/b increase annually until 2030 ($197/b in 2017$), either the World begins a serious transition to plug in vehicles over the next 12 years, or we see a severe economic recession in 2030-2035, it may be both as EV output might not ramp quickly enough to avoid a crisis.

The oil price will rise depending on the political requirement of the oil producers. Currently, Muslim countries have 350GBL oil out of a total 650GBL world reserves. Russia has another 100-120GBL. So, these countries now have a great sway over oil price and will try their best to secure best bargain for themselves rather than subsiding the economy of Europe, USA, China etc.

There is no alternative to oil and one must accept that oil exhausting will make the world like it was before 1940 but with 4 times the population

[Dennis Coyne + 82]

22 hours ago, Eric C. Alldritt said:

Is there any data on how many "sweet spots" are left, what about a graph showing the Permian's breakeven cost over time?

The Breakeven in the Permian basin for the average 2016 well (well started producing in 2016) is about $71/b at the well head if we assume a real annual ROI of 10% (assuming 3% average inflation rate), note that currently there is about a $12/b spread between midland WTI and Houston WTI, so for producers without contracts for pipeline space, they would need a refinery gate price of $83/b to break even.  Those with pipeline access would need only about $76/b at the refinery gate assuming $5/b transport cost.

Edited May 20, 2018 by Dennis Coyne

[Eric C. Alldritt + 18]

3 hours ago, Dennis Coyne said:

The Breakeven in the Permian basin for the average 2016 well (well started producing in 2016) is about $66/b at the well head if we assume a real annual ROI of 10% (assuming 3% average inflation rate), note that currently there is about a $12/b spread between midland WTI and Houston WTI, so for producers without contracts for pipeline space, they would need a refinery gate price of $78/b to break even.  Those with pipeline access would need only about $71/b at the refinery gate assuming $5/b transport cost.

Thank you, Mr. Coyne, although may I ask the source of information for which you got these numbers? Although most likely correct considering this was posted as of yesterday (https://oilprice.com/Energy/Energy-General/Oil-At-Highest-Level-Since-2014.html#): 

[Dennis Coyne + 82]

3 hours ago, Eric C. Alldritt said:

Thank you, Mr. Coyne, although may I ask the source of information for which you got these numbers? Although most likely correct considering this was posted as of yesterday (https://oilprice.com/Energy/Energy-General/Oil-At-Highest-Level-Since-2014.html#): 

Eric,

I used Permian well profile data from

https://shaleprofile.com/index.php/2018/05/08/permian-update-through-january-2018/

and fit a hyperbolic well profile to the data, then I used reasonable assumptions for CAPEX and LOE and a real annual discount rate of 10% to determine the net present value(NPV) of the well using a discounted cash flow analysis.  The wellhead price needed so the NPV of future cash flow from the well to be equal to the capital cost is $66/b.  I estimate the transport cost by pipeline to be $5/b to the refinery for those with contracts for pipeline space, for others the transport cost is likely $12/b or perhaps more.

Comment further down has spreadsheet attached

Edited May 20, 2018 by Dennis Coyne

[Dennis Coyne + 82]

12 hours ago, Bhimsen Pachawry said:

KSA can produce oil at 20MBD. USA with reserves of 40GBL is producing 10MBD. KSA can definitely produce 20MBD. All they have to do is drill wells in several small fields which they have left untouched for future. KSA has been using big oil fields and some of the big ones like Ghawar have almost reached terminal phase. Of the 170GBL OOIP, 50% is gone and maximum of another 5-7% remains. KSA is now using co2 injection and CH4 injection EOR techniques since 2015.

What is the meaning of costly to produce? How costly to produce? The definition of running out is that the oil can no longer be profitably extracted. The profitablity depends on the closest substitute. Since there is no substitute, the oil running out means that the EROI (Energy returned on (energy) invested) goes to 1 or less. In that case, no matter what, the extraction of oil becomes technically unfeasible as the energy needed to bring out that oil will vastly outweigh the energy the oil possesses.

Look man, the oil price is both political and based on other economical. The KSA can produce oil at large quantity does not mean it does as that will jeopardise the future reserves. Also, why should KSA help the economy of other countries by providing low cost oil? In addition, oil is a strategic asset. If one is getting oil from unreliable countries who can impose sanctions at the drop of a hat, then you have to have backup oil supply of your own to maintain continuity. It even becomes worthwhile to subsidise oil production by govt funds to maintain domestic production as a matter of insurance.

 

The oil price will rise depending on the political requirement of the oil producers. Currently, Muslim countries have 350GBL oil out of a total 650GBL world reserves. Russia has another 100-120GBL. So, these countries now have a great sway over oil price and will try their best to secure best bargain for themselves rather than subsiding the economy of Europe, USA, China etc.

There is no alternative to oil and one must accept that oil exhausting will make the world like it was before 1940 but with 4 times the population

Alternatives to oil will be found, but it is not likely to be easy.

EROEI needs to be looked at for the World as a whole for all energy, looking at a single product is silly, all energy products have to be taken together.

What is the EROEI for an electric power producer using fossil fuel?

Yes energy production needs to make a profit, but cost is measured in money not energy, some oil is more expensive to produce than other oil (oil sands compared to middle east), the peak in oil output will be determined by the maximum flow rate of oil that can be profitably produced.  Oil will not "run out" when the peak is reached, there will simply be less oil that can be profitably produced.

Often a nation reaches a peak when half of its URR has been produced or less (the US seems to be an exception to this general rule).  Saudi Arabia may have surpassed the half way point of its URR (my estimate is 295 Gb for KSA URR), cumulative production at the end of 2017 was 149 Gb so peak for Saudi C+C output may be, doubtful we will see more than 11.5 Mb/d from KSA.

[Dennis Coyne + 82]

Breakeven analysis in spreadsheet attached, noticed error. The breakeven price at wellhead at 10% real discount rate (13% nominal rate at 3% inflation) is $71/b (2017$).

 

breakeven Permian2016b.xlsx

Edited May 20, 2018 by Dennis Coyne

[Dennis Coyne + 82]

On ‎5‎/‎18‎/‎2018 at 3:20 PM, Fulcaneli said:

In my view the only thing that prevented sustained prices in excess of $100 was the dramatic increase in American production, coupled with OPECs initial refusal to cut production to support prices. If the shale revolution had not happened, the bottom never would have fallen out of prices. So when shale gets depleted, or when/if it becomes even more obvious that shale in its own can't meet world demand, then what? I don't think that day is very far away from happening.

At that point, how will we meet demand? I saw it theorized that Saudi Arabia will potentially increase its production capacity, but to be completely honest I don't see that happening because they have no real incentive to do so. If they already refused to do so previously, which spurred the development of high cost sources such as oil sands and shale, why would they start now? Not to mention that Saudi reserves are seemingly shrouded in a degree of uncertainty, and have been questioned by numerous people. 

My expectation is that as US tight oil output declines oil prices will be high and Canadian, Brazilian, OPEC, and perhaps tight oil from other nations will help to mitigate the decline in oil output.

I believe the annual decline rate will remain under 1% for up to 5 years and then gradually decrease.

Over this period oil prices may need to rise to very high levels (maybe $200/b or more in 2017$) to destroy demand for oil, EV sales are likely to accelerate if that is the case and economies of scale may drive the price of EVs lower and make them the car of choice for the masses.  Difficult to predict how fast this might occur, but at $200/b it might be 5 to 10 years.

[Eric C. Alldritt + 18]

1 hour ago, Dennis Coyne said:

Breakeven analysis in spreadsheet attached, noticed error. The breakeven price at wellhead at 10% real discount rate (13% nominal rate at 3% inflation) is $71/b (2017$).

 

breakeven Permian2016b.xlsx

3

In other words, that WSJ article that I cited along with this break-even spreadsheet (which very well done) means that beyond a doubt the current break-even of Permian wells is too high for the given price of oil (when factoring in the steep Midland discount). Also, thank you, Mr. Conye for sharing that blog, it has some extremely well-done analytics on the shale industry. 62 months to break-even huh? That seems like a long time.

[Eric C. Alldritt + 18]

1 hour ago, Dennis Coyne said:

My expectation is that as US tight oil output declines oil prices will be high and Canadian, Brazilian, OPEC, and perhaps tight oil from other nations will help to mitigate the decline in oil output.

I believe the annual decline rate will remain under 1% for up to 5 years and then gradually decrease.

Over this period oil prices may need to rise to very high levels (maybe $200/b or more in 2017$) to destroy demand for oil, EV sales are likely to accelerate if that is the case and economies of scale may drive the price of EVs lower and make them the car of choice for the masses.  Difficult to predict how fast this might occur, but at $200/b it might be 5 to 10 years.

When you say annual decline rate, do you mean reducing global oil production if we assume a business-as-usual scenario? Also, $200/bbl, perhaps not so unrealistic considering the stat below (https://www.icis.com/resources/news/2018/05/14/10221547/corrected-89-of-non-opec-2018-supply-growth-from-us-opec/). It might not be sustainable if all the production growth comes from one nation and if every other nation is unable or unwilling to produce more oil.

[Tom Kirkman + 8,860]

3 hours ago, Eric C. Alldritt said:

Also, thank you, Mr. Conye for sharing that blog, it has some extremely well-done analytics on the shale industry.

That's Enno Peters site, with the extremely well-done analytics on the shale industry.  Shale Profile.com

Eric, please say hi to Enno, he is also here on Oil Price forum:

North Dakota: Initial well productivity trending higher, will a rising Gas/Oil ratio negatively impact EURs?

[Dennis Coyne + 82]

9 hours ago, Eric C. Alldritt said:

When you say annual decline rate, do you mean reducing global oil production if we assume a business-as-usual scenario? Also, $200/bbl, perhaps not so unrealistic considering the stat below (https://www.icis.com/resources/news/2018/05/14/10221547/corrected-89-of-non-opec-2018-supply-growth-from-us-opec/). It might not be sustainable if all the production growth comes from one nation and if every other nation is unable or unwilling to produce more oil.

see

http://peakoilbarrel.com/oil-shock-models-with-different-ultimately-recoverable-resources-of-crude-plus-condensate-3100-gb-to-3700-gb/

http://peakoilbarrel.com/oil-shock-model-dispersive-discovery-simplified/

The model below is an updated "full oil shock model" with fallow, build, and mature mean time of 13 years, equivalent to 39 years in simplified model.

Note extraction rate is for producing conventional reserves (does not include extra heavy (XH) oil with API<=10 or tight oil which are modelled separately, URR conventional is 2800 with 500 Gb XH oil and 100 Gb light tight oil for the World (may be optimistic by 25 Gb).

[William Edwards + 708]

On 5/18/2018 at 9:30 AM, Tomasz said:

So for example why US produces 5 milion barrels of shale and shale gas and not 5 milion more barrels of conventional oil or gas? 

Conventional oil may have break even lets say below 10-20 $  in Russia, in Saudi Arabia rather about 5 $ shale  I think about 45-50 $.

Why we also produce a lot oil from sands in Canada - its very expensive oil?

Why Russia, US Norway and Canada and even China has a conflict of interest who will use a oil resources of Arctic? Its even more expensive.

Can you tell me?

Generally speaking, the reason that uneconomic decisions occur is the fact that economics is not the basis for most decisions.

[William Edwards + 708]

On 5/18/2018 at 9:10 AM, Dennis Coyne said:

William,

Can you use your experience to explain what happened in 2015, do you believe there was a large drop in the demand for oil?  You seem to claim demand is the driving force (which I tend to agree with over the long term, output of oil correlates quite strongly with World real GDP,which is a fairly good proxy for oil demand.)

It seems to me that at times supply grows faster than demand for oil (such as over the 2011-2014 period) and an excess inventory builds (actual inventory grows to a level that is higher than desired inventory). I realize that this does not determine prices in real time as the inventory level at the World level is not very clear.  Eventually the high stock levels will influence the price of oil and I believe this is what was seen in 2015-2017, and was the reason for low oil prices.

Are you suggesting the level of demand crashed?  I don't really understand your argument.  So you believe prices affect supply, as do I, but remember that supply is a rate of flow.  Determined by the number of producing wells and the level of investment, where reserves are a stock and while oil prices may increase the proportion of that stock that can profitably be produced, to suggest a doubling of the oil price would double the level of 2P reserves seems incorrect.  Reserves might increase by 10% with a doubling of price, though there are technological limits to how much oil from a reservoir can be profitably produced based on physics.  Sometimes economists miss this point.  ( I have degrees in both physics and economics).

Of course I can use my experience to explain 2015. A valid understanding of the pricing mechanism requires a valid explanation for all events and time periods. Had you been a subscriber to the now-defunct Oilpro, you would have seen my explanations before, during and after the fact. Demand did not drop in 2015. The price did. The Saudis became weary of allowing the rest of the industry to take their potential markets and became price aggressive. In other words, they cut the price. Since they were the swing producer, that dictated a corresponding drop in the global price of crude.

It appears that you have not bothered to look at the 2014-2017 inventory data. If you had you would have noticed that the inventory build-up occurred after the price drop, not before. How does that fact stack up with your belief that demand or inventory level sets the price?

Of course I have not suggested that demand crashed. Demand is the one dependable constant factor in the mix. It grows at a steady rate unless we have a large price jump and then demand falters for a couple of years. The reason that you do not understand my argument is your insistence on sticking with the erroneous idea that demand sets the price. Discard that fallacy, open your mind and start looking at data and analyzing it objectively and your ideas will change.

I am sure that your training in physics included the law of conservation of matter. Therefore supply must equal consumption. Keep that fact forefront in your mind as you think you might find anything other than demand setting production levels.

[Dennis Coyne + 82]

20 hours ago, William Edwards said:

Of course I can use my experience to explain 2015. A valid understanding of the pricing mechanism requires a valid explanation for all events and time periods. Had you been a subscriber to the now-defunct Oilpro, you would have seen my explanations before, during and after the fact. Demand did not drop in 2015. The price did. The Saudis became weary of allowing the rest of the industry to take their potential markets and became price aggressive. In other words, they cut the price. Since they were the swing producer, that dictated a corresponding drop in the global price of crude.

It appears that you have not bothered to look at the 2014-2017 inventory data. If you had you would have noticed that the inventory build-up occurred after the price drop, not before. How does that fact stack up with your belief that demand or inventory level sets the price?

Of course I have not suggested that demand crashed. Demand is the one dependable constant factor in the mix. It grows at a steady rate unless we have a large price jump and then demand falters for a couple of years. The reason that you do not understand my argument is your insistence on sticking with the erroneous idea that demand sets the price. Discard that fallacy, open your mind and start looking at data and analyzing it objectively and your ideas will change.

I am sure that your training in physics included the law of conservation of matter. Therefore supply must equal consumption. Keep that fact forefront in your mind as you think you might find anything other than demand setting production levels.

William,

The trend in OECD stocks was strongly up in 2014, I agree demand did not crash, I had misunderstood your comments and had never read your work on OilPro.

I also agree the inventory picture is never very clear as usually inventory data is 2 months old, but given this the market looks at past trends and tries to anticipate the direction of oil stocks.

In the autumn of 2014 the trend from Jan to July 2014 in oil stocks was strongly up.  Many thought that the fall in oil prices from July 2014, would lead to OPEC cuts they didn't so the market was over supplied which caused a continued drop in oil prices, higher OPEC and Russian output in 2015 and 2016 kept the market oversupplied until OPEC/Russia cut their output levels.

As far as conservation of matter, there is no physical reason the market cannot be oversupplied as was clearly the case from July 2014 to July 2016, which is why stocks rose above the 5 year average.  Note that an assumption of supply=demand implies a constant oil stock level, which is far from reality.  

I so not believe demand sets the price, it is the interaction of supply and demand, demand is sometimes less than supply (stock build) and sometimes more than supply (which leads to a stock draw).  I would agree in the long term supply will be equal to demand, in the short term the difference between supply and demand (and the movement of oil stock levels relative to the 5 year average) will move oil prices higher or lower.  The long term oil price will be set by the cost of the most expensive marginal barrel.

You have the mistaken notion that OPEC can choose any oil price it wants.  If OPEC targets a long term price of $65/b, for example and decides 34 Mb/d of OPEC output will accomplish this, you seem to assume that non-OPEC supply and World demand will magically get the market to equilibrium at the price that OPEC chooses.

I contend that price will indeed determine the level of both demand and supply.  If non-OPEC producers are not profitable at the target price of $65/b, then prices will need to rise to a level where non-OPEC supply+ OPEC supply is equal to oil demand at that price.

Edited May 21, 2018 by Dennis Coyne

[William Edwards + 708]

1 hour ago, Dennis Coyne said:

William,

The trend in OECD stocks was strongly up in 2014, I agree demand did not crash, I had misunderstood your comments and had never read your work on OilPro.

I also agree the inventory picture is never very clear as usually inventory data is 2 months old, but given this the market looks at past trends and tries to anticipate the direction of oil stocks.

In the autumn of 2014 the trend from Jan to July 2014 in oil stocks was strongly up.  Many thought that the fall in oil prices from July 2014, would lead to OPEC cuts they didn't so the market was over supplied which caused a continued drop in oil prices, higher OPEC and Russian output in 2015 and 2016 kept the market oversupplied until OPEC/Russia cut their output levels.

As far as conservation of matter, there is no physical reason the market cannot be oversupplied as was clearly the case from July 2014 to July 2016, which is why stocks rose above the 5 year average.  Note that an assumption of supply=demand implies a constant oil stock level, which is far from reality.  

I so not believe demand sets the price, it is the interaction of supply and demand, demand is sometimes less than supply (stock build) and sometimes more than supply (which leads to a stock draw).  I would agree in the long term supply will be equal to demand, in the short term the difference between supply and demand (and the movement of oil stock levels relative to the 5 year average) will move oil prices higher or lower.  The long term oil price will be set by the cost of the most expensive marginal barrel.

You have the mistaken notion that OPEC can choose any oil price it wants.  If OPEC targets a long term price of $65/b, for example and decides 34 Mb/d of OPEC output will accomplish this, you seem to assume that non-OPEC supply and World demand will magically get the market to equilibrium at the price that OPEC chooses.

I contend that price will indeed determine the level of both demand and supply.  If non-OPEC producers are not profitable at the target price of $65/b, then prices will need to rise to a level where non-OPEC supply+ OPEC supply is equal to oil demand at that price.

Thanks for presenting the data. However, I must ignore most of what you say, Dennis, because of the inconsistencies in your presentation. But turning to the data, can you show me what inventory signal occurred in 2014 that was responsible for the dramatic price drop in the latter part of that year? I believe that a realistic assessment was that the growth in stocks FOLLOWED the price drop. It did not precede it. Explanation, please. But try to avoid such faulty statements as saying that OPEC can select both price and demand. They choose the price and demand follows. Or, equally offensive, counting inventory swings as consumption, either positive or negative. Any reasonable-minded person understands that inventories fluctuate in order to handle short term mismatches between deliveries and consumption. These fluctuations wash out.

[Bhimsen Pachawry + 72]

On 5/20/2018 at 7:01 AM, Dennis Coyne said:

Alternatives to oil will be found, but it is not likely to be easy.

EROEI needs to be looked at for the World as a whole for all energy, looking at a single product is silly, all energy products have to be taken together.

What is the EROEI for an electric power producer using fossil fuel?

Yes energy production needs to make a profit, but cost is measured in money not energy, some oil is more expensive to produce than other oil (oil sands compared to middle east), the peak in oil output will be determined by the maximum flow rate of oil that can be profitably produced.  Oil will not "run out" when the peak is reached, there will simply be less oil that can be profitably produced.

Often a nation reaches a peak when half of its URR has been produced or less (the US seems to be an exception to this general rule).  Saudi Arabia may have surpassed the half way point of its URR (my estimate is 295 Gb for KSA URR), cumulative production at the end of 2017 was 149 Gb so peak for Saudi C+C output may be, doubtful we will see more than 11.5 Mb/d from KSA.

Alternatives to oil is not yet found and it is difficult due to the special nature of it. Oil is also a source of organic compounds, medicines, plastics, paints, pesticide, fertiliser etc. Also, the EROI requirements don't come in power plants. EROI is only for extraction process till transportation to processing unit. Don't mix up power plants with fossil fuel extraction.

Money means nothing. It is just a convention of exchange. Energy is the natural currency which works in absolute sense. I never spoke of peak oil. I a speaking of oil exhaustion. Peak oil s a theory that relies on bell curve oil extraction. But with EOR techniques, cartelisation of supply, artificial/political pricing of oil, peak oil makes no sense.

KSA has gone past its 50% mark by extracting 165GBL oil till date. KSA URR is 270-280GBL. The statement whereby KSA has said that it can recover 55% of oil does not apply universally to all fields. It is the maximum that can be extracted from any field and that maximum is generally applicable to the giant fields like Ghawar. Other fields, however, can extract only upto 40-50% depending on size and rock formations. Ghawar field has 170GBL original oil in place which is the largest in the world. Due to collectivisation, the extraction becomes easier and hence it can extract 55%. Smaller fields with 20GBL OOIP can't extract 55% of it.

[Dennis Coyne + 82]

1 hour ago, William Edwards said:

Thanks for presenting the data. However, I must ignore most of what you say, Dennis, because of the inconsistencies in your presentation. But turning to the data, can you show me what inventory signal occurred in 2014 that was responsible for the dramatic price drop in the latter part of that year? I believe that a realistic assessment was that the growth in stocks FOLLOWED the price drop. It did not precede it. Explanation, please. But try to avoid such faulty statements as saying that OPEC can select both price and demand. They choose the price and demand follows. Or, equally offensive, counting inventory swings as consumption, either positive or negative. Any reasonable-minded person understands that inventories fluctuate in order to handle short term mismatches between deliveries and consumption. These fluctuations wash out.

William,

The stocks did continue to grow, that is correct.  The signal was the change in stock levels from Jan 2014 to August 2014 when stocks were sharply up.

What is your explanation for the drop in price?  It was pretty clear at the time that supply was growing much more rapidly than demand growth.

So the signal is the change in the level of oil stocks.  The market looks not only at the level of stocks in relation to the 5 year average level, it looks at how they are changing over time.

Yes any reasonable person does not assume that supply is equal to demand in the short term.

I am not claiming supply is always equal to demand, except in the long term, in the short term we seem to agree that supply and demand do not always match.  In fact that is the explanation for price movements.

Also there is a lag between the inventory data and price movements, because the inventory data is not available for several months.  So the sharp build in inventories from Jan 2014 to April 2014 would have been apparent only in June 2014.  The failure of OPEC to cut in response to falling oil prices was a surprise to many in Nov 2014, as was the continued growth of US LTO when oil prices were cut in half, US LTO did not start to decline until April 2015.  Not sure why OPEC chose to shoot itself in the foot.

Economic actors do not always behave rationally.

Edited May 21, 2018 by Dennis Coyne

[William Edwards + 708]

4 minutes ago, Dennis Coyne said:

William,

The stocks did continue to grow, that is correct.  The signal was the change in stock levels from Jan 2014 to August 2014 when stocks were sharply up.

What is your explanation for the drop in price?  It was pretty clear at the time that supply was growing much more rapidly than demand growth.

So the signal is the change in the level of oil stocks.  The market looks not only at the level of stocks in relation to the 5 year average level, it looks at how they are changing over time.

Yes any reasonable person does not assume that supply is equal to demand in the short term.

I am not claiming supply is always equal to demand, except in the long term, in the short term we seem to agree that supply and demand do not always match.  In fact that is the explanation for price movements.

Dennis, it appears that your imagination is much better than my eyesight. Even forgetting that the data on inventories that you present have a three-month lag time before the system can observe them, your explanation is not consistent with the facts. So I think that I will give it little consideration.

I would like to see your attempt to justify your statement "In fact that is the explanation for price movements." using historical data for the past thirty years. Good luck!!!

[Dennis Coyne + 82]

2 minutes ago, William Edwards said:

Dennis, it appears that your imagination is much better than my eyesight. Even forgetting that the data on inventories that you present have a three-month lag time before the system can observe them, your explanation is not consistent with the facts. So I think that I will give it little consideration.

I would like to see your attempt to justify your statement "In fact that is the explanation for price movements." using historical data for the past thirty years. Good luck!!!

William,

It explains short term price movements fairly well.  What do you think moves oil prices higher or lower?  

You find my explanation for why oil prices decreased in 2014 unsatisfying, can you present an alternative hypothesis?

[William Edwards + 708]

Rather than presenting a hypothesis, I can present the reality! The Saudis, who happen to be the swing producer (which sets prices) decided to compete in the market and cut the price. They did and the global market followed. That mood continued until the new prince called for a change in strategy. When the Saudis tire of stepping aside and stop allowing other producers to take their market, they will become price competitive again with a repeat in the pricing action.

A word to the wise is sufficient.

[Dennis Coyne + 82]

17 minutes ago, William Edwards said:

Rather than presenting a hypothesis, I can present the reality! The Saudis, who happen to be the swing producer (which sets prices) decided to compete in the market and cut the price. They did and the global market followed. That mood continued until the new prince called for a change in strategy. When the Saudis tire of stepping aside and stop allowing other producers to take their market, they will become price competitive again with a repeat in the pricing action.

A word to the wise is sufficient.

If Saudis set prices, why do they choose to have such volatile prices?

 

[William Edwards + 708]

6 minutes ago, Dennis Coyne said:

If Saudis set prices, why do they choose to have such volatile prices?

 

Because, amazingly enough, they, like you, do not understand the pricing mechanism and, therefore, do not understand that they can, indeed, set the price unilaterally. They blew it in 1985 and have not learned that lesson yet. Like you, and many others, they think that the secret is production control, but so far they have not realized that there is no way to "push" oil into the market, so, in fact they cannot control production except to restrain deliveries.. You have to entice the buyer to pick it up by PRICE! Price is the only operational control that they have at their disposal.

If you think through the steps of a sale of a tanker of oil, paying particular attention to each step in the process, you will realize the validity of my assertions. As a substitute, you might reflect on your own purchase of gasoline for your vehicle. Do you negotiate the price from the service station owner based upon his inventory level? Or do yo pay the price that he posts and YOU decide how much gasoline he delivers. The same sequence applies to cargo purchases.

[Dennis Coyne + 82]

2 hours ago, Bhimsen Pachawry said:

Alternatives to oil is not yet found and it is difficult due to the special nature of it. Oil is also a source of organic compounds, medicines, plastics, paints, pesticide, fertiliser etc. Also, the EROI requirements don't come in power plants. EROI is only for extraction process till transportation to processing unit. Don't mix up power plants with fossil fuel extraction.

Money means nothing. It is just a convention of exchange. Energy is the natural currency which works in absolute sense. I never spoke of peak oil. I a speaking of oil exhaustion. Peak oil s a theory that relies on bell curve oil extraction. But with EOR techniques, cartelisation of supply, artificial/political pricing of oil, peak oil makes no sense.

KSA has gone past its 50% mark by extracting 165GBL oil till date. KSA URR is 270-280GBL. The statement whereby KSA has said that it can recover 55% of oil does not apply universally to all fields. It is the maximum that can be extracted from any field and that maximum is generally applicable to the giant fields like Ghawar. Other fields, however, can extract only upto 40-50% depending on size and rock formations. Ghawar field has 170GBL original oil in place which is the largest in the world. Due to collectivisation, the extraction becomes easier and hence it can extract 55%. Smaller fields with 20GBL OOIP can't extract 55% of it.

Peak oil does not rely on a bell curve, one can use a physical model that does not rely on heuristics such as the logistic.  Peak oil simply recognizes that oil is a finite resource that will reach some maximum level of output.  Cumulative C+C output by Saudi Arabia was 149 Gb through the end of 2017,  it is possible peak output will be well past 50% of URR, time will tell.

Well it depend on how one does the EROEI analysis, if all of the embedded energy in the equipment, pipe, etc is accounted for, you will find that some the actual energy utilized is from electricity.  If one is considering energy as your "source" for all value it makes more sense to look at society as a whole because energy can be converted from fuel to electricity to work, it's the exergy that matters, lots of waste in the system through thermal losses.  Fertilizer comes mostly from natural gas rather than oil.

Most petroleum is burned, if it were not, supply would be plentiful.