Peak Shale Will Send Oil Prices Sky High

[0R0 + 6,251]

At $100 in 2014, there were nearly 2000 rigs in the US and 3659 peak worldwide. 

Oil crashed to $30 end 2015 and rig counts dropped accordingly to bottom at about 400 US and 1400 worldwide in April 2016. Where oil was up to $50, and rigs counts started up rapidly and stayed rising while oil was above $50 and falling below $50.

By Aug 2018 we hit $75 oil and 1050 rigs US and 2278 worldwide. Where it peaked and prices fell rapidly to $45 and rig counts followed down a bit later and slowed in decline to 791 at $55-60 with 2073 worldwide in Jan 2020, up from 2043, largely on Canadian rig increases of 70. So the rational price turning point is at about $55-60 for increased drilling and $50 to halt                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

[Gerry Maddoux + 3,627]

5 hours ago, Douglas Buckland said:

On thing has bothered me these past 5 years. If the international market is flooded with oil, why do we (collectively) keep producing and putting even more oil into an over supplied market and guaranteeing a low price? Wouldn’t it make more sense to sell what you have in storage, at the present price, dry up the surplus, get the price back up to a reasonable level and get back to work?

Yes, it would, but the minute you step off the treadmill, the bank calls your loan. If you're the CEO of a small production company, I'm not even sure what the legal ramifications would be if you just quit drilling. There are several such companies, over-leveraged and just barely holding on. 

The Texas RRC and the ND counterpart are propagating the syndrome by letting these guys violate Statewide Rule 32: you may vent for 24 hours or flare for ten days. Sure, they're getting rid of gas, but in the doing they're able to keep on drilling, when if the rule was enforced they'd have no recourse but to call it quits and take bankruptcy. 

Painful though it may be to watch, this has to wind down by its own destruction: such low prices for long enough to rid the system of the most unfortunate and weakest producers. At some point all this acreage will be in the hands of Chevron, Occidental, Exxon, Marathon, Hess, BP, Apache and a few strong independents like EOG and Pioneer. At that point it will follow the format you visualize. 

[James Regan + 1,776]

On 2/10/2020 at 4:26 PM, zbest1966 said:

OK what industry makes money in oil 

Haha this is either trolling or lack of industry knowledge, it’s always making money, Go into Chapter 11 and still make money. All sectors are making money some more than others we need all the sub sectors to complete the process from ground to pump, take your pick and study it no freebies on here , LMAO 😂 

[Gerry Maddoux + 3,627]

6 hours ago, James Regan said:

Haha this is either trolling or lack of industry knowledge, it’s always making money, Go into Chapter 11 and still make money.

You're right in part; however, these companies that are in shale are going to find it very hard to emerge from Chapter 11 with enough financial backing to participate. The CEO may do okay, but I think there will be a lot of companies that die out here. 

[Guillaume Albasini + 851]

US shale oil could be a collateral victim of the coronavirus.

Stranded airlines, closed factories, disrupted industrial supply chains, empty roads...

Oil demand was already weak before the coronavirus outbreak and even the risk of a US-Iran war wasn't able to substantially rise the oil price.

If the covid-19 pandemic spreads and lasts more than a couple of months this could have a devastating impact on the US shale oil industry unable to sustain for too long a very low oil price.

 

 

[BenFranklin'sSpectacles + 762]

On 2/15/2020 at 10:53 AM, Tomasz said:

According to Art Berman research full cost of producing oil at largest Permian Basin is about 58-60 $. You have to add discount of local grades to WTI and also light sweet discount to Brent. I think something about 65-70  $ per WTI and about  5 $ more per Brent would be suitable.

Above $ 80 begins the destruction of potential demand for oil and a greater propensity to replace oil with renewable energy, so I think Brent oil around $ 75-80 would suit for both private producers and producer countries and would not cause problems for importing countries because on the other hand the price above $ 100 holds back global growth.

You should also not forget about the dollar index, which is currently very high and many people predict its weakening in the current decade, which should have a positive effect on the prices of commodities  related to the inverse correlation with the dollar exchange rate to currency of emerging markets.

I mostly agree with you, but I'd pick one nit: based on what I read in forums for renewable energy, emerging hydrogen economies, EVs, fuel-efficient vehicles, and geopolitics, I would argue that demand destruction is coming hard and fast, with or without high oil prices.

The economics of natural gas, vehicle electrification, plastic reprocessing, and other technologies are already set to drive more demand destruction than is predicted.  One look at what's coming down the technology pipeline should give oil executives pause. 

That's just the technology side.  On the geopolitical side, the US is disengaging from its role as World Police, which means global trade lanes are no longer secure.  If a nation can't secure its energy supplies, whether oil is $25/bbl or $100/bbl is immaterial.  This stark reality is forcing oil importing nations that lack sufficient global military reach (I.e. every oil-importing nation less the USA) to fast-track oil independence.  At any moment, the full weight of half the industrialized world could be thrown at eliminating oil demand.

For an example of what happens when the full weight of industrialized nations gets thrown behind something, study WWII.  We think change must happen slowly, but this is only because we spend most our lives in times of peace: little is risked, little is gained, and we come to believe this is normal.  It's not.  When the right crisis presents itself, political leaders convince populations to throw enormous resources at perceived problems.  They don't even have to be real problems; just sufficiently menacing.  E.g. climate change. 

To summarize: incredible wealth, power, industrial capacity, and R&D capability are being thrown at eliminating oil demand to fight a perceived existential threat.  The results of this effort are already trickling into markets; in the next 5-10 years, we'll see the flood.  Any spike above $60/bbl will be short lived.

[0R0 + 6,251]

1 hour ago, Guillaume Albasini said:

US shale oil could be a collateral victim of the coronavirus.

Stranded airlines, closed factories, disrupted industrial supply chains, empty roads...

Oil demand was already weak before the coronavirus outbreak and even the risk of a US-Iran war wasn't able to substantially rise the oil price.

If the covid-19 pandemic spreads and lasts more than a couple of months this could have a devastating impact on the US shale oil industry unable to sustain for too long a very low oil price.

 

 

You are very likely correct about the long term influence. travel biz is rapidly turning to a standstill. Everyone is grounding. Events and even cinemas are closing in Europe, and now US is preparing for a work from home closed schools and cancelled events. 

On the other hand. China is stocking up with as much as they can afford to spend for its oil reserves. Which is supporting prices. They and perhaps India are putting a bid under the market. I don't know how long it lasts. At some point they would be using used coke bottles. 

[0R0 + 6,251]

6 minutes ago, BenFranklin'sSpectacles said:

To summarize: incredible wealth, power, industrial capacity, and R&D capability are being thrown at eliminating oil demand to fight a perceived existential threat.  The results of this effort are already trickling into markets; in the next 5-10 years, we'll see the flood.  Any spike above $60/bbl will be short lived.

I wonder what that means for relative competitive position after this is implemented globally ex US. The US would presumably continue having whatever oil supply it needs rather cheaply as it can secure its deliveries outgoing or incoming. So while everyone goes ex oil at tremendous capital costs and paying horrendous pricing for key minerals (Neodymium and copper for motors, nickle and cobalt and even Lithium for batteries). Thus building in a permanent disadvantage for their products in third party markets, and the extra insurance cost or military protection cost to duplicate US naval capabilities would make the USMCA the sole credible exporter and importer for a prolonged transition period.  

I don't understand how EU is expecting to survive this way in lieu of cutting a US slanted trade deal with a cutoff of China. They should be rushing to the table and throwing down endless goodies, but are instead locked into internal migration wars that threaten the existence of the EC entirely. Their consensus policies are pitchfork mob material. Yellow Vests will look like a kindergarten fight. 

[Gerry Maddoux + 3,627]

24 minutes ago, BenFranklin'sSpectacles said:

To summarize: incredible wealth, power, industrial capacity, and R&D capability are being thrown at eliminating oil demand to fight a perceived existential threat.  The results of this effort are already trickling into markets; in the next 5-10 years, we'll see the flood.  Any spike above $60/bbl will be short lived.

Everyone has an opinion. Yours is well thought out. 

However, I think you're overlooking the fact that worldwide exploration for oil ceased in 2014--except for small flourishes off the coast of Guyana. True, there's going to be demand destruction, but supply disruption also belongs in the equation. John Hess has been making the speaking circuit saying that "shale is no Saudi Arabia," and that the Bakken will "peak in 2022, the Permian in 2025." The Saudi fields are sick--they're requiring millions of gallons of saltwater to keep them going. Barring the sudden discovery of something profound--Big Oil without even bigger gas--we're going to see a tightening of the supply side. 

Short term, we're going to see very low prices if this thing goes pandemic, shut everything down. I don't personally think that working from home, closing the cinemas, etc., will do much for containment but I suppose it has to be tried. So, short time, we're just going to have to hunker down. 

Long term, we're going to see a linear price rise starting about the end of the year--unless the population is decimated more than it would currently appear. 

[Rasmus Jorgensen + 1,169]

4 minutes ago, 0R0 said:

I wonder what that means for relative competitive position after this is implemented globally ex US. The US would presumably continue having whatever oil supply it needs rather cheaply as it can secure its deliveries outgoing or incoming.

The thing is that as demand starts to disappear so will supply and when supply starts to contract then the snowball effect will really kick in. For a long time I have maintained that marginal offshore will be the first victim of LTO and demand destruction. After that, my guess is that LTO is next. 

Coronavirus may just have accellerated the trend quite a bit. NB! rather inconvinient for me - I was planning to move money into precious metals after Trumps re-election, capitalizing a little but more on the stock market untill the election... 

[0R0 + 6,251]

I think the recovery phase from coronavirus pandemic will involve a broad regionalization of supply chains and a circumvention of China. I estimate a 3 MOB/d extra consumption for a period of 2-3 years, slowing gradually from there as Chinese sole sourced parts subassemblies, and materials capacity is duplicated outside China. The lack of investment since the 2014 price crash will prevent supply from responding to higher prices. 

If the headlong push into oil displacement by EVs etc. takes place as @BenFranklin'sSpectaclesargues, then demand for oil and LNG will go through an enormous push in demand while this goes on. As a rule of thumb, each $1 Trillion of physical investment is about 1 MOB/d of additional oil demand. Prices would spike that much further and cause a substantial rise in oil prices beyond what would be expected just from a rebound of China.  

[0R0 + 6,251]

45 minutes ago, Rasmus Jorgensen said:

The thing is that as demand starts to disappear so will supply and when supply starts to contract then the snowball effect will really kick in. For a long time I have maintained that marginal offshore will be the first victim of LTO and demand destruction. After that, my guess is that LTO is next. 

Coronavirus may just have accellerated the trend quite a bit. NB! rather inconvinient for me - I was planning to move money into precious metals after Trumps re-election, capitalizing a little but more on the stock market untill the election... 

The above is - partially - a reply to this.

[BenFranklin'sSpectacles + 762]

5 hours ago, 0R0 said:

So while everyone goes ex oil at tremendous capital costs and paying horrendous pricing for key minerals (Neodymium and copper for motors, nickle and cobalt and even Lithium for batteries). Thus building in a permanent disadvantage for their products in third party markets, and the extra insurance cost or military protection cost to duplicate US naval capabilities would make the USMCA the sole credible exporter and importer for a prolonged transition period. 

@Gerry Maddoux, I meant to put your quote here but forgot.  Now I can't get it to insert properly. 

 

I think you're parroting industry conventional wisdom without doing actual analysis.  Let's explore this in more detail. 

I doubt the new technologies will be so expensive.  First, let's discuss "key minerals".  For a couple decades now, engineers have been trained in "sustainable" methods, usually involving "cradle to grave" analysis of materials.  What this means in practice is that everything is becoming recyclable.  That, in turn, means the demand for natural resources will be relatively limited.  Of course, we must mine the minerals to build all this new technology - but once they're mined, they don't magically disappear.  Unlike oil, minerals are reusable.  That means importing nations will have no difficulty securing them. 

A corollary to the reuse of minerals is that raw material imports become an exceedingly small fraction of a nation's GDP.  Under the current system, I import a barrel of oil, use that barrel of oil, and that's it.  Compare that with minerals.  I import it, use it... and then use it again.  And again.  And again.  With the exception of nuclear fuel, matter is conserved, so I just go on reusing it.  At some point, the cost of importing the mineral compared to the value I generate from it is trivial.  I.e. minerals are not consumables; they're capital investments that never degrade.  That becomes an enormous boon for the economies that master recycling.  Your first-world countries won't be handicapped by their new, circular economy; it will be their competitive advantage. 

That's beside the fact that, in the absence of a world superpower willing to police the sea lanes, cheap third world labor doesn't exist.  If there's no safe way to ship the product, no one will set up shop in those holes.  Thus, all the 1st world need do to protect its industry from the 3rd world is... nothing.  Our "protective" measures would save billions annually!

Next, let's discuss the "tremendous capital costs" you mention.  Focusing on capital costs alone is... not useful.  We must look at total life-cycle costs.  E.g. when people discuss the low capital costs of internal combustion engines (ICEs), they don't mention fuel, maintenance, national defense, intermittent oil price spikes, etc.  I.e. they ignore a majority of ICE costs.  When total life-cycle costs are considered, it turns out that these new technologies with their "tremendous capital costs" are often cheaper than oil-fueled solutions.  Much cheaper, in fact.  E.g. commercial trucks will go electric as fast as the trucks can be built - not because governments demanded it, but because the fuel and maintenance savings on an EV are astounding.  Similarly, ferries and buses are already are going electric.  Electric consumer vehicles will likely break even in <5 years.  Trains will be able to switch to hydrogen fuel cells at equivalent capital and fuel costs.  Etc.  There will be outliers that see cost increases, but for the majority of use cases, costs will either see no difference or an industry-altering reduction.

The irrelevance of highlighting capital costs is beside the fact that most of what's being replaced is commercial equipment.  Commercial equipment isn't like consumer vehicles; it's tremendously expensive whether or not it's green.  E.g. the cost gap between Class-8 diesel trucks and Class-8 fuel cell/electric trucks will be negligible when both are produced at scale. 

Commercial equipment also gets replaced every 15-30 years or so.  Short of an immediate, existential crisis, there won't be a massive surge in capital spending.  Our current expenditures on capital, fuel, and maintenance will simply be shunted into alternatives.  If it takes 30 years for existing equipment to wear out, and if all the new equipment does not consume fossil fuels, then oil will decline at a rate of 3.3MMbpd/year.  Of course, we won't replace everything in exactly that manner, but you get the gist: demand destruction will happen quickly without an additional cent invested. 

That brings me to your point about exploration: looking at wikipedia's list of countries by proven oil reserves, I see that the world has approximately 1.5 trillion barrels of proven reserves.  Let's make some conservative assumptions:
1)  We can extract only half of those 1.5 trillion barrels
2)  Demand peaks at 110MMbpd in 2030
3)  Demand declines by 1MMbpd thereafter. 

In this scenario, the world has enough oil to last until 2038 without another drop found or technology developed.  That's 18 years.  If you're an shrewd oil executive, and if your company is entering a new era of austerity, and if you notice the world has ample reserves, and if you further notice that demand for your product could soon be in rapid decline, you're not going to waste money exploring for more product.  You're going to conserve your now-limited capital, exploring only if and when you're confident you'll have a buyer at viable prices. 

That's what's happening right now: oil companies are learning to behave rationally instead of mindlessly reacting as they've always reacted.  If there's a supply crunch, it will either be the result of major disruptions or it will exist purely in the minds of the panicky animals we call traders. 

The numbers don't support your hypothesis.  As I said, I think you're parroting industry conventional wisdom without doing any hard analysis. 

Edited February 26, 2020 by BenFranklin'sSpectacles
Added comment by @Gerry Maddoux.

[Old-Ruffneck + 1,177]

5 hours ago, Gerry Maddoux said:

John Hess has been making the speaking circuit saying that "shale is no Saudi Arabia," and that the Bakken will "peak in 2022, the Permian in 2025."

I surely hope you don't believe this quote from John Hess. The billions of $$'s poured into these formations to last a few years and lose over 50% of CapEx? I find this a bit a stretch...… Probably Bakken by 2030 and the Permian by 2050-2060, long after I will be planted!

[BenFranklin'sSpectacles + 762]

4 hours ago, 0R0 said:

I think the recovery phase from coronavirus pandemic will involve a broad regionalization of supply chains and a circumvention of China. I estimate a 3 MOB/d extra consumption for a period of 2-3 years, slowing gradually from there as Chinese sole sourced parts subassemblies, and materials capacity is duplicated outside China. The lack of investment since the 2014 price crash will prevent supply from responding to higher prices. 

If the headlong push into oil displacement by EVs etc. takes place as @BenFranklin'sSpectaclesargues, then demand for oil and LNG will go through an enormous push in demand while this goes on. As a rule of thumb, each $1 Trillion of physical investment is about 1 MOB/d of additional oil demand. Prices would spike that much further and cause a substantial rise in oil prices beyond what would be expected just from a rebound of China.  

Why do you assume the transition to EVs will require a spike in oil consumption?

[Old-Ruffneck + 1,177]

18 minutes ago, BenFranklin'sSpectacles said:

Next, let's discuss the "tremendous capital costs" you mention.  Focusing on capital costs alone is... not useful.  We must look at total life-cycle costs.  E.g. when people discuss the low capital costs of internal combustion engines (ICEs), they don't mention fuel, maintenance, national defense, intermittent oil price spikes, etc.  I.e. they ignore a majority of ICE costs. 

Read the window sticker. It tells you on most models average costs on a yearly basis of said amount of normal driving. Insurance and Car manufacturers put it at 13,000 miles per year. But yes at the time of production is what that cost is figured on, kind of hard to predict gasoline prices a year out but they average it on the high side.

Ferries and Buses going electric means nothing to me as "WE the TAXPAYER" are forking the high costs of the units and the "ELECTRIC" bill !! 

Edited February 26, 2020 by Old-Ruffneck
add

[Gerry Maddoux + 3,627]

18 minutes ago, Old-Ruffneck said:

I surely hope you don't believe this quote from John Hess. The billions of $$'s poured into these formations to last a few years and lose over 50% of CapEx? I find this a bit a stretch...… Probably Bakken by 2030 and the Permian by 2050-2060, long after I will be planted!

Not at all, heh heh. I just put that in because I was trying to make a point that a day will come when we're not oversupplied. I don't know when it will be but we'll get there. We'd be there now if the damn TRRC would abide by Statewide Rule 32: may vent for 24 hours and flare for 10 days. It's driving me nuts! They think they're helping small producers, but they're not--they're just giving them a conduit to offload their gas so they can keep drilling, which adds to the glut, which causes more gas to be vented and flared, which . . . . .

I'm in a foul mood! If the Saudis cut back a bit, and this rule was upheld, supply/demand would come back in and everyone could eat. Well, except for those who are going to eventually go Ch. 11 anyway. Maybe I need to take a leave of absence.

[Old-Ruffneck + 1,177]

4 minutes ago, Gerry Maddoux said:

Not at all, heh heh. I just put that in because I was trying to make a point that a day will come when we're not oversupplied. I don't know when it will be but we'll get there. We'd be there now if the damn TRRC would abide by Statewide Rule 32: may vent for 24 hours and flare for 10 days. It's driving me nuts! They think they're helping small producers, but they're not--they're just giving them a conduit to offload their gas so they can keep drilling, which adds to the glut, which causes more gas to be vented and flared, which . . . . .

I'm in a foul mood! If the Saudis cut back a bit, and this rule was upheld, supply/demand would come back in and everyone could eat. Well, except for those who are going to eventually go Ch. 11 anyway. Maybe I need to take a leave of absence.

Well here's the issue with the TRRC. Cut all new drilling so as not to be flaring and keep supply at the 13mbd mark won't happen as too much gas and not enough pipelines. I would rather see a program of compressing the NG and associated liquids pumped right back in the hole it came out of. Won't happen but that's a viable plan as the alternative is to burn it off...which they are doing. So, slow the drilling or flare?? 

[Old-Ruffneck + 1,177]

36 minutes ago, BenFranklin'sSpectacles said:

That brings me to your point about exploration: looking at wikipedia's list of countries by proven oil reserves, I see that the world has approximately 1.5 trillion barrels of proven reserves.  Let's make some conservative assumptions:
1)  We can extract only half of those 1.5 trillion barrels
2)  Demand peaks at 110MMbpd in 2030
3)  Demand declines by 1MMbpd thereafter. 

In this scenario, the world has enough oil to last until 2038 without another drop found or technology developed.  That's 18 years.

Seriously?? Using Wikipedia to get proven reserves? and can only extract half?? YA!! OKAY!!!!

[Gerry Maddoux + 3,627]

38 minutes ago, Old-Ruffneck said:

So, slow the drilling or flare?? 

They're in a bind now, because they've allowed unrestricted venting/flaring----which has given the whole industry a big black eye. I like your plan. More and more they're using gas-lifting, but in the Permian it's mostly methane, with about 10% propane--and neither is the best gas for low-normal pressure lifting. Anyway, that would only use a fraction. The problem got exacerbated in the Delaware which gets gassy early on the decline curve. WRS could weigh in, as he is right there in the middle of it. I don't know, there's just something about burning and blowing so much natural gas. It gives me heartburn.

[Old-Ruffneck + 1,177]

3 minutes ago, Gerry Maddoux said:

They're in a bind now, because they've allowed unrestricted venting/flaring----which has given the whole industry a big black eye. I like your plan. More and more they're using gas-lifting, but in the Permian it's mostly methane, with about 10% propane--and neither is the best gas for low-normal pressure lifting. Anyway, that would only use a fraction. The problem got exacerbated in the Delaware which gets gassy early on the decline curve. WRS could weigh in, as he is right there in the middle of it. I don't know, there's just something about burning and blowing so much natural gas. It gives me heartburn.

Yup, understandable seeing the amount being torched. I drilled deep holes very close to @wrs properties are in the late 70's. We were gas only rig, punching to anywhere from 16.500 to 18+ on some wells. All were high pressure wells (over 12k psi), and is slow drilling down that level. We used 10# to 13,500 then switched to inverted mud or sometimes called high visc mud. But that was yesteryear and todays tech is totally different. The gases from the fracking wells in that area and up into New Mexico is about 50% crap gas and needs either to be burned off or re-inject into the well. But to save every bit and pollute the mains to the Midland refinery with those gases isn't worth the hassle when everything is so far apart. Until ya drive that big circle around the Permian one who hasn't the concept of the massive pipelines needed they will keep blowing it off. Again, I'd rather they re-inject in the hole it came from but I am guessing the budget on these wells and margins so close, not going to happen unless trrc forces the issue.

[0R0 + 6,251]

5 minutes ago, BenFranklin'sSpectacles said:

I doubt the new technologies will be so expensive.  First, let's discuss "key minerals".  For a couple decades now, engineers have been trained in "sustainable" methods, usually involving "cradle to grave" analysis of materials.  What this means in practice is that everything is becoming recyclable.  That, in turn, means the demand for natural resources will be relatively limited.  Of course, we must mine the minerals to build all this new technology - but once they're mined, they don't magically disappear.  Unlike oil, minerals are reusable.  That means importing nations will have no difficulty securing them. 

 

I am talking about the rush causing the key minerals to rise in price such that financing of the buildout will weigh on the economies building this for a decade of financial stress after a decade of stretching economically to put the capital in place. 

 I do agree that AFTER the next two decades, perhaps as early as 2035, then yes, there will be the situation you speak of after all these economies go broke. There will be a built in resource to be recycled within their region.

The US will do exactly as everyone else is doing, just do it later, when best practices are established and materials are cheaper. Do it on a commercial basis rather than a national/regional effort.

10 minutes ago, BenFranklin'sSpectacles said:

That's beside the fact that, in the absence of a world superpower willing to police the sea lanes, cheap third world labor doesn't exist.  If there's no safe way to ship the product, no one will set up shop in those holes.  Thus, all the 1st world need do to protect its industry from the 3rd world is... nothing.  Our "protective" measures would save billions annually!

 

The US will continue policing its own trade routes with its trading partners who pay to play or just happen to be actually strategic. The proponent of the new neo-isolation did not dump so much money into reviving and modernizing the Navy to decorate domestic dry docks.  If you noticed, India is being "groomed" as a potential development target for its young demographics and "work for food and shelter" labor. 

The point is that the US would have a way to ship to and from its chosen trade partners. Others would not.

22 minutes ago, BenFranklin'sSpectacles said:

Next, let's discuss the "tremendous capital costs" you mention.  Focusing on capital costs alone is... not useful.  We must look at total life-cycle costs.  E.g. when people discuss the low capital costs of internal combustion engines (ICEs), they don't mention fuel, maintenance, national defense, intermittent oil price spikes, etc.  I.e. they ignore a majority of ICE costs.  When total life-cycle costs are considered, it turns out that these new technologies with their "tremendous capital costs" are often cheaper than oil-fueled solutions.  Much cheaper, in fact.  E.g. commercial trucks will go electric as fast as the trucks can be built - not because governments demanded it, but because the fuel and maintenance savings on an EV are astounding.  Similarly, ferries and buses are already are going electric.  Electric consumer vehicles will likely break even in <5 years.  Trains will be able to switch to hydrogen fuel cells at equivalent capital and fuel costs.  Etc.  There will be outliers that see cost increases, but for the majority of use cases, costs will either see no difference or an industry-altering reduction.

 

Totally agree. I have seen the math from the first Tesla roadster. it was cheaper to maintain than my old Towncar.  At least till the batteries wore out. The replacement cost more than 1/2 as much as the car unless it was under warranty. True that given a low enough interest rate and a low enough capital cost per MW capacity the financials work great and long term costs are a fraction of FF, particularly if they are running out. That is why I don't expect us to run out of oil, but for it to become eventually obsolete. I figured a 20 year transition as discussed in a study from Finland's geological survey, which is on this forum by which time, ~2040-2050 or so, you would be at the tipping point where oil and most NG are redundant and their pricing and economies of scale collapse. Some years afterwards you have an economy of nearly free energy and petrochemicals produced from electrogas and hydrogen for powering air flight (if we dare, think Hindenburg) and long range cars. 

I don't disagree about the whole thing happening. Where it is an issue is compressing the transition into a short period of a decade. That means that you need a new set of mines for each of the minerals, among them Neodymium which is very rare outside China. That would be about 3-4 times as large a mining capacity as is currently present for each of the key elements and at least double what would be necessary from economic considerations if you had 20+ years of transition. Thus the pricing would be 4 fold more expensive on the mineral inputs. Second is that the only practical way to build all of that mining, transport and installation of renewables + storage and EVs would be by powering it all with huge amounts of gas and oil initially and for a long time  into the transition. Meaning that oil and gas may also be double or even quadruple the price they would obtain without this headlong rush into renewables. You would also be diverting an entire generation of engineers and techs to do the job from the myriad other work that the markets demand from them. 

So the short politically forced transition would raise the cost of the effort by 4 X and result in a benefit for those who follow when the mines are built up and the oil and gas are cheap and their cost to transition is 1/4 of that of the forced buildout, presumably Europe Japan/Korea and China footing the high cost  bill and the US following. Due to the high saving demographics of these countries, there is a good chance that the financing would be possible at negative real rates, though China will likely flip to negative savings before it had completed building up its renewables system. 

This is not what happens in the US. Demographics in the US flip to higher interest rates as the center of gravity of the boomers retires just as US Millennials crest into their major spending wave. The US will be bidding interest rates higher That may cut off the capital flows from the renewables transition investment towards financing US demand at an above 0 real rate vs. a seriously negative real rate elsewhere. 

So I am expecting that towards the end of a decade long rush to transition to renewables by policy rather than economics, all of these countries and much of their industries would be broke. And there would be a retirement crisis of huge proportions. AFTER that, everyone would have "free" energy. 

Cont....

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3 hours ago, BenFranklin'sSpectacles said:

That brings me to your point about exploration: looking at wikipedia's list of countries by proven oil reserves, I see that the world has approximately 1.5 trillion barrels of proven reserves.  Let's make some conservative assumptions:
1)  We can extract only half of those 1.5 trillion barrels
2)  Demand peaks at 110MMbpd in 2030
3)  Demand declines by 1MMbpd thereafter. 

That is irrelevant. We will not reach 110MMBbl/d because using NG and LNG is far cheaper for shipping and petrochemical inputs, which is 25% (out of 28%) of oil demand displaced by NG/LNG and the IEA's source of 85% of marginal demand expansion. It won't happen UNLESS there is a turbocharged you know whats to the wall rush into renewables forced by politics. By 2030 OECD+China ex USA demographics will have flipped to 20-30% FEWER cars on the road, less consumption, no need for infrastructure expansion and new housing. 

In another forum thread there is a discussion of Saudi tapping its shale gas deposits massively from 2024 onwards. They don't believe oil demand will reach to available capacity long before 2030. 

We will have a temporary spike in demand after the China recovery due to the construction of a China bypass of supply chains. That will raise prices for a couple of years as I have argued before. Otherwise, we have probably reached peak oil demand already and will resume from the point of the new peak post China recovery (which may be 2-3 MMBbl/d higher than it was last year, but no higher). 

 

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3 hours ago, BenFranklin'sSpectacles said:

Why do you assume the transition to EVs will require a spike in oil consumption?

Mining materials at a high clip, shipping them, constructing new factories, constructing renewable+storage electricity, all rapidly. It is a throughput problem. Not a problem of size if the transition is done as economics allow over some 20 years. 

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3 hours ago, Old-Ruffneck said:

Well here's the issue with the TRRC. Cut all new drilling so as not to be flaring and keep supply at the 13mbd mark won't happen as too much gas and not enough pipelines. I would rather see a program of compressing the NG and associated liquids pumped right back in the hole it came out of. Won't happen but that's a viable plan as the alternative is to burn it off...which they are doing. So, slow the drilling or flare?? 

It is being done. The NGLs are great miscible mix components with methane, but you need to reduce the methane portion substantially. Huff n' puff proceses with those (vs. CO2) increase recoveries to as much as 20% and in the labe I saw some miscible gas runs with 55-60% recoveries from core samples, that I don't quite believe and 40% that looks real. .