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Peak of conventional oil in 2005

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(edited)

In last couple of years thanks to shale there is no longer a discussion about peak oil but yesterday Art Berman on Twitter show us a very interesting and important chart.

You can see that in 2005 we had very quiet peak of coventional oil production and after that year we are producing more oil thanks exclusively to tight oil, oil from sands and  deep water because low cost fields are increasingly depleted.

I think this conclusion is  extremely important for future oil price development because we now use more and more unconventional oil that needs higher price environment of 60 $ or more.

So I would like to start discussion about that because I see on this forum a lot of shale cheerleaders and a common knowledge is  lower for longer and abudance of cheap oil even in a situation of constantly growing oil demand.

Because imho we need to wait just a couple of years when  there will be a perfect storm of  inevitable peak of shale oil production and a problem of underinvestment in deep water at the same time.

 I agree with IEA that we will have a supply crunch somewhere in next decade.

Im not sure whether we will see a 100$ oil which is discussed in another topic but I think this chart show us without doubt that we are in world of historically rather increasing oil price because new low cost fields are no longer available.

There is of course quite high spare capacity because of political reasons in Venezuela or Iran or some spare capacity in Gulf States or even Russia  but most of oil producing countries are maxed out.

And imho  its really single most important conclusion from this chart so rarely mentioned in discussion about oil price development or green energy.

EAPsllpXkAYX64S.png

Edited by Tomasz
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Canada is also sitting on spare capacity at the moment. We are under mandatory production cuts because of pipeline bottlenecks. Oil sands production continues to increase while export capacity is cinched to the max. It has displaced conventional drilling in central alberta which is down to about 25% of what it was. Canada also has lots of shale basins  *cough* sorry I meant to say that north east BC, alberta and Saskatchewan has shale basins. Producers aren't even thinking about touching the shale until we have more export pipelines. The shale isn't counted as official reserves nor is 80% of oil sands part of the figure that places canada #3 in reserves. If you count those Canada is #1 by a factor of 3 and has more oil then all of the middle east combined. Then add all the gas and coal we have too and canada wins the fossil fuel lottery. 

There will likely be a supply crunch in 5 years or so. The USA is burning through their reserves like mad. Shale will decline ferociously with no hope to keep it going. The best locations are already drilled, in a few years the wells will decline and that's that. 

It's looking like keystone XL and trans mountian (dont fool yourselves most of trans mountian's exports are going to California via tanker) will be built right on schedule somewhere around 2024  and fill the supply gap created by usa shale decline. I honestly think the decade plus delays to these vital oil corridors is part of the plan. 

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Also FYI the break even cost of a barrel of bitumen is down to $20-$30 which is why we can sell it at a discount and oil sands producers are still making record profits. 

Oil sands being too  expensive to compete is a pathetic lie. It's cheap and abundant, just the stuff close to the surface will last hundreds of years. 

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I'm not sure whether oil sands break-even is really so low.  I know you have some spare capacity at the moment but as far as I know it's rather expensive source of oil. 

All I want to say I'm amused that more and more users on this forum present version of 40$ oil because of abundance of cheap resources. 

I understand you are proud of shale oil industry but that's just something like retirement party because low cost fields in USA are depleted. 

In a case of steady even slowing oil demand times of low oil price are over.  There can be a couple of years of low prices because of new discoveries like North Sea or shale but we no longer have new low cost fields and we need to use unconventional oil and that means rather a higher oil price in the future. 

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Just now, Tomasz said:

I'm not sure whether oil sands break-even is really so low.  I know you have some spare capacity at the moment but as far as I know it's rather expensive source of oil. 

 

I dont "feel" that oil sands is cheap to produce. I sit in smoke pits in base plant  talking to suncor coordinators who share with me first hand information from their meetings.  

 

Cenovus SAGD $20

Suncor base plant $24

CNRL $26

Syncrude $30

Upgrading to synthetic crude that is feedstock ready for refineries costs more. But the upgraded stuff sells for upwards of $100 a barrel and it virtually never hits the open market its all spoken for and used in canadian refineries. 

 

Although cenovus can brag they are the cheapest player, they were slaughtered when the discount for  bitumen hit record lows and was momentarily fetching $12 a barrel. They dont have locked in pipeline contracts and depend on rail, and they dont have upgraders or significant storage capacity. All they can do is sell raw bitumen and they can NOT shut in their wells without seriously damaging them. It takes months to heat the bitumen underground if it cools and the  bitumen solidifies  the wells are schmegged.   

Suncor didnt sell one single barrel for $12. They were locked in long term contracts and have refineries and a distribution network all over north America. Suncor actually profited from the over supply crisis by purchasing stranded oil (cenovus OMG what do we do we cant stop producing barrels) at rock bottom prices and storing it in their abundant tank farm storage capacity then selling it later at better prices. 

Several oil sands players are posting huge profits this year. Shale producers cant say the same thing. 

 

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12 minutes ago, Keith boyd said:

I dont "feel" that oil sands is cheap to produce. I sit in smoke pits in base plant  talking to suncor coordinators who share with me first hand information from their meetings.  

 

Cenovus SAGD $20

Suncor base plant $24

CNRL $26

Syncrude $30

Upgrading to synthetic crude that is feedstock ready for refineries costs more. But the upgraded stuff sells for upwards of $100 a barrel and it virtually never hits the open market its all spoken for and used in canadian refineries. 

 

Although cenovus can brag they are the cheapest player, they were slaughtered when the discount for  bitumen hit record lows and was momentarily fetching $12 a barrel. They dont have locked in pipeline contracts and depend on rail, and they dont have upgraders or significant storage capacity. All they can do is sell raw bitumen and they can NOT shut in their wells without seriously damaging them. It takes months to heat the bitumen underground if it cools and the  bitumen solidifies  the wells are schmegged.   

Suncor didnt sell one single barrel for $12. They were locked in long term contracts and have refineries and a distribution network all over north America. Suncor actually profited from the over supply crisis by purchasing stranded oil (cenovus OMG what do we do we cant stop producing barrels) at rock bottom prices and storing it in their abundant tank farm storage capacity then selling it later at better prices. 

Several oil sands players are posting huge profits this year. Shale producers cant say the same thing. 

 

Cough cough, Imperial, Husky. That party has set sale with the mandatory curtailment. Don't forget refining, the crack spreads margin from refining the oil from companies like cenovous, meg, cnq etc... We're massive, hence their vocal fight against curtailment.

Just to add to your point though, Cnq and Suncor in particular are cash machines. They cover massive buy backs, 3-5% dividend yields depending on their market price per share, and cover their capital costs with excess cash just from cash flow at current oil prices. If Thomasz is right and we eventually hit a $100 average oil price for even a year, the EPS these companies will generate will be scary. It's amazing the price you can pick them up for because of egress issues at the moment.

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30 minutes ago, Matthew w said:

Cough cough, Imperial, Husky. That party has set sale with the mandatory curtailment. Don't forget refining, the crack spreads margin from refining the oil from companies like cenovous, meg, cnq etc... We're massive, hence their vocal fight against curtailment.

Just to add to your point though, Cnq and Suncor in particular are cash machines. They cover massive buy backs, 3-5% dividend yields depending on their market price per share, and cover their capital costs with excess cash just from cash flow at current oil prices. If Thomasz is right and we eventually hit a $100 average oil price for even a year, the EPS these companies will generate will be scary. It's amazing the price you can pick them up for because of egress issues at the moment.

Suncor and Husky can laugh at low oil prices because of their refining capacity.

What do you think about Baytex and MEG's future?  BTE shares are so cheap right now...

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(edited)

3 hours ago, Tomasz said:

In last couple of years thanks to shale there is no longer a discussion about peak oil but yesterday Art Berman on Twitter show us a very interesting and important chart.

You can see that in 2005 we had very quiet peak of coventional oil production and after that year we are producing more oil thanks exclusively to tight oil, oil from sands and  deep water because low cost fields are increasingly depleted.

I think this conclusion is  extremely important for future oil price development because we now use more and more unconventional oil that needs higher price environment of 60 $ or more.

So I would like to start discussion about that because I see on this forum a lot of shale cheerleaders and a common knowledge is  lower for longer and abudance of cheap oil even in a situation of constantly growing oil demand.

Because imho we need to wait just a couple of years when  there will be a perfect storm of  inevitable peak of shale oil production and a problem of underinvestment in deep water at the same time.

 I agree with IEA that we will have a supply crunch somewhere in next decade.

Im not sure whether we will see a 100$ oil which is discussed in another topic but I think this chart show us without doubt that we are in world of historically rather increasing oil price because new low cost fields are no longer available.

There is of course quite high spare capacity because of political reasons in Venezuela or Iran or some spare capacity in Gulf States or even Russia  but most of oil producing countries are maxed out.

And imho  its really single most important conclusion from this chart so rarely mentioned in discussion about oil price development or green energy.

EAPsllpXkAYX64S.png

You bring up one good point. The other points are:

1.Many areas of the world have undeveloped fields. 

2. Advanced technology has not been used in many fields around the world or been used in re-drilling at old finds.

3. Once oil becomes moe expensive there will be a lot of profit for a temporary period but natural gas and electric vehicles will eventually dominate the market. Natural gas fueling systems can convert any ICE vehicle to a natural gas vehicle. Possibly electric vehicle add ons can also replace ICE engines, but that is not likely. Electric hybrids are possible with natural gas also. Propane is another popular option. 

4. Ethanol is currently about the same price as gasoline figuring the energy differential. It could play a much larger role with new technology to produce it from cellulose and other feedstocks. Soybeans also can be used to make diesel. Natual gas can also be made into gasoline or methanol. 

5. Coal is very abundant and can be used to make gasoline or diesel. 

Most people who post here are too focused on oil and do not look at all the future options. The electric car boosters are far too optimistic IMHO, but I am a natural gas booster. There are ten times as many natural gas vehicles in the world than there are electric. They are also much larger overall and include large trucks, and ships. 

Whenever oil becomes pricier people will look to other fuel options. They have already begun to. 

Edited by ronwagn
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3 hours ago, Tomasz said:

I'm not sure whether oil sands break-even is really so low.  I know you have some spare capacity at the moment but as far as I know it's rather expensive source of oil. 

All I want to say I'm amused that more and more users on this forum present version of 40$ oil because of abundance of cheap resources. 

I understand you are proud of shale oil industry but that's just something like retirement party because low cost fields in USA are depleted. 

In a case of steady even slowing oil demand times of low oil price are over.  There can be a couple of years of low prices because of new discoveries like North Sea or shale but we no longer have new low cost fields and we need to use unconventional oil and that means rather a higher oil price in the future. 

Yes, oil-sands are actually that low. There is in Canada alone enough to last well into the next century. 40$ oil and less in most of the world. 

In your graph you show conventional oil not growing since 2005, just wait till South America and Australia drill more and get to the refineries. That curve will start to climb again. Venezuela once back in productions is largest deposit. You seem to look at the "dark" side whereas I look at the "bright" side. Strange how oil still in the normal parameters dollars wise.

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5 hours ago, ronwagn said:

5. Coal is very abundant and can be used to make gasoline or diesel. 

The technology to convert coal into diesel is mature.  There are no surprises here, and future applications will only bring the costs down.  There is enough coal in Montana and Wyoming to satisfy US demand for diesel for at least a century.  Coal is found world-wide, there is even a vast deposit in India that caught fire 2,000 years ago, is still burning at the mine face, and the coal is being mined right next to the burn.  Imagine a deposit so vast that it can burn for 2,000 years and still be merrily mined as if nothing was happening; that gives you an idea of the scale of that vast deposit.  

Do not underestimate the ability of technology to expand access to resources and to drive costs down. Why bother drilling in 7,000 feet of ocean water when you can go scoop up the coal right at the surface, in some gigantic open-pit mine in Montana?

When you look at the transcript of the analyst call with Cenovus, they show that they were able to pare back their debt by a billion dollars just out of cash flow, and this in an environment of low prices, production curtailment orders, and rail take-away costs.  Does not sound like these oilsands miners are hurting, now does it?

Between demand destruction, product substitution to natural gas, and new technology, I see oil headed back down to $29.  And if new nukes in the form of modular thorium molten-salt reactors ever take off?  The push to electrification will continue to take off. 

One final P.S:  the current formula for electric automobiles is the battery system, and includes exotic metals to obtain fast charging rates and long range.  All that assumes no change in either the technology or the use pattern.  Yet that assumption is naive.  As roads are rebuilt, it is likely that they will incorporate magnetic-coil structures to recharge the on-board storage unit directly from the road surface.  If that storage unit dispenses with the battery and goes instead to a flywheel, then the need for reliance on rare-earth mining disappears. If the USA goes to tunnels for the roadways traversing the Appalachians and the Sierra Nevada mountains, the total fuel use drops way down. It is inevitable that the approaches to fuels provision and use are going to undergo substantial change.  All that alters the consumption end, and changes the dynamics on the production end.  Will the technology be developed to produce diesel from coal at $29/Beq?  If so, then that will set the market price.  We live in interesting times!

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15 hours ago, Enthalpic said:

Suncor and Husky can laugh at low oil prices because of their refining capacity.

What do you think about Baytex and MEG's future?  BTE shares are so cheap right now...

High risk high reward. The problem is their profitability compared to the more integrated companies and their levels of debt. If you believe oil will trade at a 40-70 dollar price over the next couple years with let's say an average of $55 per barrel. I'd put my money into companies like Cnq and suncor. However, if you believe in 100+ oil, baytex and meg would have the leverage to triple or quadruple.

It's complicated investing in publicly traded oil companies (with exception of the few such as royal dutch, chevron, etc..)and moreso in Canadian one's. The sentiment has never been lower.

Personally, I see it as an opportunity, but not without major risk to your capital.

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(edited)

9 hours ago, Jan van Eck said:

Between demand destruction, product substitution to natural gas, and new technology, I see oil headed back down to $29.  And if new nukes in the form of modular thorium molten-salt reactors ever take off?  The push to electrification will continue to take off.

$29, ouch! That would be disastrous. Is this a near term prediction? For oil to hit a level that low in the near future, we'd require the perfect storm of a global recession coupled with significant supply growth most probably from shale.

 

You can also throw in OPEC's capitulation on production cuts. If oil we're to begin plummeting sub 35-40, do you think they would further sacrifice market share to prop up the price?

Edited by Matthew w

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 Tek energy wants to build a new  mega oil sands mine up north 30 km from wood buffalo national park. They are at the stage of approval where environment and climate change minister Catherine McKenna has the sole final say under the new bill c69 whether or not the project goes ahead. They want to start construction and be producing by 2026 

 

LOLOLOLOLOL!!!!! what planet do they live on?  Do you think that horse faced c**t is going to approve that? Waste their time for a decade yes, approve it? Come on. 

But governments come and go. Tek owns 30% of fort hills and they got a taste of the potential of oil sands. When the United states is suffering acute shortages of crude supply in a decade or decades I imagine people will feel a little differently about the situation. 

 

As for SAGD producers, they have an advantage over open pit mining. Its cleaner, less destructive to the environment, and cheaper to extract, at least for now. SAGD wells decline like any other wells. Their problems lie in not being integrated and not having access to pipeline contracts, tank farms, upgraders or refineries.

CNRL bought Devon energy recently. Now those SAGD sites will have badly needed access to CNRL'S integrated networks. 

I imagine cenovus will need to get bought out by a bigger fish soon as well. Maybe husky, imperial or suncor. 

 

 

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4 hours ago, Keith boyd said:

 Tek energy wants to build a new  mega oil sands mine up north 30 km from wood buffalo national park. They are at the stage of approval where environment and climate change minister Catherine McKenna has the sole final say under the new bill c69 whether or not the project goes ahead. They want to start construction and be producing by 2026 

 

LOLOLOLOLOL!!!!! what planet do they live on?  Do you think that horse faced c**t is going to approve that? Waste their time for a decade yes, approve it? Come on. 

But governments come and go. Tek owns 30% of fort hills and they got a taste of the potential of oil sands. When the United states is suffering acute shortages of crude supply in a decade or decades I imagine people will feel a little differently about the situation. 

 

As for SAGD producers, they have an advantage over open pit mining. Its cleaner, less destructive to the environment, and cheaper to extract, at least for now. SAGD wells decline like any other wells. Their problems lie in not being integrated and not having access to pipeline contracts, tank farms, upgraders or refineries.

CNRL bought Devon energy recently. Now those SAGD sites will have badly needed access to CNRL'S integrated networks. 

I imagine cenovus will need to get bought out by a bigger fish soon as well. Maybe husky, imperial or suncor. 

 

 

I saw that recently on BNN, I doubt it will get approved as well.

CNRL definitely capitalized on foreign energy firms exiting Canada, assuming we can get another major pipeline built that acquisition will pay dividends.

As for cenovous, their pricier than their counterparts. If anything companies like meg and crescent would get gobbled up first. I honestly don't expect any acquisitions though, their so cheap relative to their probable/proved reserves it should of happened right now. Maybe the big fish are waiting for more clarity on egress and would rather pay a higher price with more certainty on their investment. Who knows though, it's all speculation at best.

 

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5 hours ago, Keith boyd said:

 Tek energy wants to build a new  mega oil sands mine up north 30 km from wood buffalo national park. They are at the stage of approval where environment and climate change minister Catherine McKenna has the sole final say under the new bill c69 whether or not the project goes ahead. They want to start construction and be producing by 2026 

 

LOLOLOLOLOL!!!!! what planet do they live on?  Do you think that horse faced c**t is going to approve that? Waste their time for a decade yes, approve it? Come on.

 

As far as politicians go she is hot.

 

 

McKenna.jpg

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1 hour ago, Matthew w said:

I saw that recently on BNN, I doubt it will get approved as well.

CNRL definitely capitalized on foreign energy firms exiting Canada, assuming we can get another major pipeline built that acquisition will pay dividends.

As for cenovous, their pricier than their counterparts. If anything companies like meg and crescent would get gobbled up first. I honestly don't expect any acquisitions though, their so cheap relative to their probable/proved reserves it should of happened right now. Maybe the big fish are waiting for more clarity on egress and would rather pay a higher price with more certainty on their investment. Who knows though, it's all speculation at best.

 

Friend works for Devon, wasn't super thrilled about the CNRL buyout but they gave him 25% of his annual salary as a retention bonus.  Pretty good chunk of change just for keeping your job. 

MEG turned down a nice buyout option, stupid IMO.

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23 hours ago, Old-Ruffneck said:

Yes, oil-sands are actually that low. There is in Canada alone enough to last well into the next century. 40$ oil and less in most of the world.

My understanding is that oil sands are a tar-like oil, and is not easy to refine.  It is also my understanding that in order to separate the oil from the sand you have to superheat large vats of water with lots of natural gas, which is then skilmmed off the top.  I further heard you have to heat it in order to get it down a pipeline.

Now mind you, this is from memory.  I know there is a lot of it, but how much can realistically be produced and refined in this state?

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19 hours ago, Jan van Eck said:

If the USA goes to tunnels for the roadways traversing the Appalachians and the Sierra Nevada mountains, the total fuel use drops way down.

First, how much would it cost and how long would it take to recover that cost?

Second, did you forget about the Rocky Mountains, or has it already been done there (or unnecessary)?

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4 minutes ago, Okie said:

My understanding is that oil sands are a tar-like oil, and is not easy to refine.  It is also my understanding that in order to separate the oil from the sand you have to superheat large vats of water with lots of natural gas, which is then skilmmed off the top.  I further heard you have to heat it in order to get it down a pipeline.

Now mind you, this is from memory.  I know there is a lot of it, but how much can realistically be produced and refined in this state?

Yup, they superheat water to get it free, then and gasoline like product to dilute it down to run in pipelines. Much like Venezuela does to get their extreme heavy tar/like oil going. The thinning material was coming from the US but I think Russia and China helping the Venezuelans.

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1 hour ago, Okie said:

My understanding is that oil sands are a tar-like oil, and is not easy to refine.  It is also my understanding that in order to separate the oil from the sand you have to superheat large vats of water with lots of natural gas, which is then skilmmed off the top.  I further heard you have to heat it in order to get it down a pipeline.

Now mind you, this is from memory.  I know there is a lot of it, but how much can realistically be produced and refined in this state?

They call it dilbit (diluted bitumen). They blend the bitumen with condensate (sometimes call naphtha). There's an abundance of condensate in Canada and also produced in the USA. There's a science to the mixture, but for standard sake it's a 2/3 oil to condensate ratio. In short, Canada has the ability to produce this stuff for a very very long time.

In terms of refinement of dilbit, you need to install upgraders to do so. Much of the Gulf coast having imported their oil from countries such as Venezuela and Saudi Arabia over the last couple decades or more, whom both produce heavy oil, are setup with upgraders to refine it. Effectively, due to the sanctions on Venezuela, and Saudi reducing their spare capacity, there's a shortage of heavy oil at the moment for refinement in the United States.

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