Peak Shale Will Send Oil Prices Sky High

[Bob D + 562]

1 minute ago, Tom Kirkman said:

 

 

Some good, intellectual debating going on in this thread.  Above is just a sample of members submitting their viewpoints along with their reasoning, and other members submitting alternative viewpoints along with their alternate reasoning.

No name calling, nobody being a pain in the butt, nobody being obnoxiously disruptive.

Wonderful to see this, as a moderator.

Carry on, all and sundry.

Shut up Tom!    LOL

Just couldn't help myself

[Tomasz + 1,608]

Shale is indeed finally slowing down 

https://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=MCRFPUS2&f=M

2019

11,856 11,669 11,892 12,123 12,113 12,060 11,823 12,385 12,479 12,674 12,863 12,779

From December 2018 to December 2020  production growth of only  741.000 barrels per day

2018 more than 2 milion barrels

IMHO 2020 is already lost due to coronavirus and US Presidential Election in November but I think already 2021 and next couple of years might be very interesting with artificially  higher oil prices if there is no global recession.

 

Quote

 

Growth in U.S. shale oil production will slow sharply over the next two years, the chief executive officer of U.S. oilfield services giant Schlumberger said on Tuesday.

Olivier Le Peuch told Reuters on the sidelines of a conference in Riyadh he expects growth to slow to 600,000 to 700,000 barrels per day in 2020 and to 200,000 bpd in 2021, down substantially from roughly 1 million bpd in 2019.

Lower oil prices and investor demand for higher returns have forced U.S. shale producers to scale back investment after output surged over the past three years to total 13 million barrels per day, making the country the world’s biggest crude oil producer.

“Next year it will be 200,000 barrels per day,” Le Peuch said, adding that was his estimate for now.

U.S. shale growth should then plateau and will not return to the expansion of the past three to five years unless new technology to lower costs attracts another wave of investment, he said earlier in a panel discussion at the conference.

“Shale production growth will go to a new normal ... unless technology helps us crack the code,” he said.

Schlumberger, the world’s largest oilfield services provider, last month outlined an aggressive cost-cutting plan for its North American business, which included idling equipment and selling certain units.

The company cut more than 1,400 jobs since the third quarter of 2019 and it aims to sell one unit and cease operations of another one in North America. It also laid out a plan to pare down its OneStim hydraulic fracturing business, which it expanded through a $430 million acquisition roughly two years ago.

Le Peuch on Tuesday told Reuters there were no additional asset sales planned at the moment other than those already announced.

While Schlumberger idles equipment in the United States, the company has played a role in developing fracking in Saudi Arabia and will be involved in the Gulf kingdom’s development of its Jafurah shale gas field, he said.

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Last week, Saudi Aramco said it had received regulatory approval to develop the Jafurah non-associated gas field with production expected to start in early 2024.

Saudi Aramco Chief Executive Amin Nasser described the project as the start of the kingdom’s own shale gas revolution.

Schlumberger’s CEO said it was unclear how quickly the kingdom could scale up shale production until full commercial development of the field had started.

 

 

Edited February 28, 2020 by Tomasz

[Geoff Guenther + 317]

2 hours ago, BenFranklin'sSpectacles said:

There's a lot working against a repeat of the $150/bbl oil scenario.  I grant that a massive war in the Middle East that took many MMbpd offline could cause that spike, but I doubt even a major Middle Eastern war would cause such a disruption - at least, not before the West weaned ourselves off their supply.  Barring that, would financial speculation really be enough to spike prices?  At this point, what would it take to surmount the overwhelming evidence that we're swimming in oil? 

I'll try one more time to defend my position, then give up (it's not that important a position anyway).

My reasoning is that oil and gas are the de-facto fallback positions during no wind days in Scotland or dust-storm days in the Sahara. While batteries provide excellent reactive storage today, we aren't there yet for dealing with wild fluctuations. We are, however, creating a world where it will be tough to justify financing oil/gas generation backup for a situation we haven't seen in our lifetimes.

Europe (and the UK) almost ran out of gas in March 2018 because of a winter storm that sent temperatures plunging and then brought no wind for three days.  This happened soon after the gas storage from Rough was reduced because Centrica couldn't justify the storage economically.  On top of this, two out of three of the UK's LNG ports froze up, and the UK had been relying on these for its emergency gas and there was an accidental pipeline explosion in Italy. So now the UK has insufficient storage, no wind, no LNG, record cold temperatures, few remaining coal plants, so the price of gas spiked to £300/Dth (compared to a normal of around £3).

The UK has continued to remove coal plants since then.  There are only 4 coal plants left in the country now and I expect those to go soon.

While people call this a once-in-a-century event, it could have been worse. A similar storm could have come through a month earlier and depleted all the storage and lowered the pipeline pressure already. Russia could have had its embargo in Ukraine gas again. The storm could have lasted a week.

While we are busy decommissioning current infrastructure, especially transport and storage infrastructure, we put ourselves at greater risk of an unexpected event causing short and extreme spikes in prices.  I don't expect to see oil trading at $150 for a longish period like back in 2008, but I can absolutely see the spot market spiking to $1000.

[Tom Kirkman + 8,860]

46 minutes ago, Geoff Guenther said:

While we are busy decommissioning current infrastructure, especially transport and storage infrastructure, we put ourselves at greater risk of an unexpected event causing short and extreme spikes in prices. 

     > agreed

I don't expect to see oil trading at $150 for a longish period like back in 2008,

     > agreed

but I can absolutely see the spot market spiking to $1000.

     > unrealistic, and it would devastate the oil & gas industry if it happened even once.

One of my old Oilpro articles from 2015:

Why Oil is Unlikely to Hit $200 in the Next Decade

 

[Rasmus Jorgensen + 1,169]

On 2/27/2020 at 5:38 PM, BenFranklin'sSpectacles said:

What does that snowball look like? 

First the oilprice will fall; then as marginal production starts to disappear and even fewer new conventional fields are put into production we are going to see spikes. As oil spikes EVs will be even more attractive. We will still need oil for petchem and my guess air and other heavy transportation, but large parts of society will electrify because cost on on par or cheaper and as the electric infrastructure builds out oils current infrastructure advantage will disappear.

[BenFranklin'sSpectacles + 762]

3 hours ago, Douglas Buckland 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.”

Unless, of course, the ‘perceived existential threat’ is shown to be just that, a perceived as opposed to a real threat. The world, as a whole, has not fallen for this green bullshit...yet. 

There is still hope that common sense can prevail.

I see your point, but I think the cat is already out of the bag on oil replacement: the technology is here, and it's cheap.  Most "green" technologies that replace oil are already cheaper than oil.  Companies are adopting them for financial reasons but advertising them as "green".  E.g. Amazon ordered 100,000 electric trucks from Rivian to save money - not because they care about the environment.  Another case is municipalities adopting "green" technologies because they have smog problems.  By the time these economical cases are exhausted, EVs will be cheaper than ICEs in most cases. 

Wind turbines and solar panels will eventually slam into the hard reality of grid reliability, but oil replacements will continue unabated. 

But again, I see your point.  Some of the "green" BS will collapse under the weight of its own stupidity. 

[BenFranklin'sSpectacles + 762]

3 hours ago, Tom Kirkman said:

 

 

Some good, intellectual debating going on in this thread.  Above is just a sample of members submitting their viewpoints along with their reasoning, and other members submitting alternative viewpoints along with their alternate reasoning.

No name calling, nobody being a pain in the butt, nobody being obnoxiously disruptive.

Wonderful to see this, as a moderator.

Carry on, all and sundry.

I appreciate the compliment.  Will continue refining my approach. 

[BenFranklin'sSpectacles + 762]

1 hour ago, Geoff Guenther said:

I'll try one more time to defend my position, then give up (it's not that important a position anyway).

My reasoning is that oil and gas are the de-facto fallback positions during no wind days in Scotland or dust-storm days in the Sahara. While batteries provide excellent reactive storage today, we aren't there yet for dealing with wild fluctuations. We are, however, creating a world where it will be tough to justify financing oil/gas generation backup for a situation we haven't seen in our lifetimes.

Europe (and the UK) almost ran out of gas in March 2018 because of a winter storm that sent temperatures plunging and then brought no wind for three days.  This happened soon after the gas storage from Rough was reduced because Centrica couldn't justify the storage economically.  On top of this, two out of three of the UK's LNG ports froze up, and the UK had been relying on these for its emergency gas and there was an accidental pipeline explosion in Italy. So now the UK has insufficient storage, no wind, no LNG, record cold temperatures, few remaining coal plants, so the price of gas spiked to £300/Dth (compared to a normal of around £3).

The UK has continued to remove coal plants since then.  There are only 4 coal plants left in the country now and I expect those to go soon.

While people call this a once-in-a-century event, it could have been worse. A similar storm could have come through a month earlier and depleted all the storage and lowered the pipeline pressure already. Russia could have had its embargo in Ukraine gas again. The storm could have lasted a week.

While we are busy decommissioning current infrastructure, especially transport and storage infrastructure, we put ourselves at greater risk of an unexpected event causing short and extreme spikes in prices.  I don't expect to see oil trading at $150 for a longish period like back in 2008, but I can absolutely see the spot market spiking to $1000.

Fair point.  I agree that local spot prices could reach exorbitant levels. 

Would global spot prices do the same though?  This seems like an oddly specific scenario where a limited number of people are affected.  E.g. if GB isn't importing LNG due to weather, there's more LNG available elsewhere.  Would the world, on average, end up paying more?

[Ward Smith + 6,615]

4 hours ago, BenFranklin'sSpectacles said:

This is a problem.  If we were talking about a generalized increase in economic activity, your method would make sense.  Because we're talking about transitioning a specific industry, we need to know that industry's oil intensity as well as the new technologies that will be implemented. 

Mining is "energy intensive", but that energy doesn't necessarily come from oil.  In particular, we're talking about new mines, which run newer technology.  If we don't know the oil intensity of new mines, specifically, then your estimates are useless.  For all we know, you could be off by a factor of 5. 

I could stop there, but there are more problems with your analysis.  First, there's a trend towards energy efficiency in mining.  E.g. "Highly electrified" means underground equipment that runs on electricity instead of ICEs.  This allows a cascade of changes through the mine's design, which slashes total energy consumption.  That's one technology.  Another is the introduction of renewables, which is happening now.  In general, mining companies are gunning for energy efficiency, and they'll have a chest of new technologies to accomplish it.  This alone could counter increased emissions from greater mining activity. 

Next, you're assuming that every dollar invested will be an additional dollar invested.  That won't be the case.  We're currently drilling for oil, mining minerals, building factories, and manufacturing things.  We don't need more things; just different things.  There might be a transient increase in activity, but it will be far more muted than you predict because, for every new thing we start producing, we'll stop producing an old thing.  That's true regardless of how quickly the transition occurs.  E.g. when VW created their electrification roadmap, they cannibalized resources from older programs.  E.g. Tesla didn't build the Fremont factory; they purchased it and installed new equipment.  E.g. major automakers won't build new facilities; they'll convert existing facilities to produce electric vehicles - which is barely different than converting them from one vehicle model to another.  Of all the "economic activity" that will be generated, most of it will cannibalize existing economic activity, and most of what remains won't be oil intensive.  There will be a few new mines.  The increase in oil consumption from those mines will be lost in the noise of fluctuating oil demand. 

Finally, let's look at the energy intensity of the minerals we'll need.  A vehicle needs a handful of things:
1)  Steel and aluminum:  no change here.  All vehicles require this. 
2)  Plastic: No change here.  All vehicles require this. 
3)  Battery-grade graphite: competes with thermal coal, and coal consumption is plummeting.  We should expect a continued decline of activity here. 
4)  Copper: motors require more, but new electrical architectures are dramatically reducing the amount of wires in vehicles.  The net effect is as yet unknown.  Also, aluminum can be substituted. 
5)  Misc. minerals in small quantities: demand for these will increase. 

Of all the minerals that go into a vehicle, the only ones definitely increasing are on the order of 1% of the vehicle's weight.  As Elon Musk once commented, lithium is like a salt you sprinkle on top of the battery; there's very little of it.  The same is true of rare earth elements in motors.  Why, then, is so much capital investment required?  It could be all the R&D, which isn't oil intensive.  Or it could be the specialized nature of equipment used for these minerals, which increases capital costs.  Again, not oil intensive.  Or maybe it's because they must be refined with electricity-intensive processes, which again, is not oil intensive.  Until we know for certain where all this money is going, your conclusion is suspect. 

On that note, your hypothesis fails to explain how oil demand has flat-lined in the US and decreased elsewhere even as GDP has increased.  Until you explain that counterexample, you're unequivocally wrong. 

 

Yes, you can displace oil demand before new facilities have been set up.  The supply chain already exists, and it's already being retooled.

These activities you claim must happen sequentially have already been happening simultaneously for years - which is how EVs, PHEVs, and CNG/LNG powered vehicles are already entering the market.  If the spike you predict is going to happen at all, then it's already happening.

E.g. you're assuming all new production requires new facilities, which requires an increase in construction activity.  This definitely isn't the case.  When companies need to increase production, capital investment is the absolute last thing they do.  When forced to resort to capital investment, greenfield development - with its massive construction activity - is a last resort.  First, they scavenge operations for greater efficiencies.  Then they pay overtime.  Then they run extra shifts, Then they upgrade equipment.  Then they implement new technologies.  Then they expand existing facilities.  Then, when all else has failed, they build a new facility.  Lithium, copper, rare earth elements - the world already produces these things, and the existing supply chain will absorb a surprising amount of demand before new facilities are required.  That means oil demand destruction begins immediately. 

All these options imply greater oil consumption though, right?  Yes, but far less than the greenfield development you're predicting - and all of it offset by immediate demand destruction.  In fact, when companies scavenge for efficiencies and implement new technology, oil consumption tends to decrease.  See my earlier comment about oil consumption decreasing as GDP increased.

To summarize all this:
1)  Your claimed sequencing problem is a mathematical artifact of how you modeled the transition, which is wrong.
2)  You're looking at the economy from an extremely high-level, low-resolution perspective.  To make any sort of useful prediction, you need to understand the details.

I think to start, you need to read @Geoff Guenther's post about demand spikes after replacement of the prior tech. 

You've lumped lithium above with rare earth metals. That's not how it works. Yes, the lithium isn't "that high" of a percentage of the li-ion battery, but it isn't "sprinkled like salt" either. Take a li-ion battery apart and see for yourself how it's done. 

Rare earth's are exactly that, rare. China is the world's largest supplier not because bigger quantities exist in China, but because China is perfectly willing to decimate hundreds of sqare miles (maybe thousands by now), effectively strip mining for elements like neodymium that occur in the milligrams per ton scale. Those are required for the high efficiency brushless DC motors that make EV's practical. BTW Tesla doesn't do their motors with BLDC and that's stupid of them, requiring multiple steps of AC to DC conversing and back. Smarter to keep it all DC after it's in the batteries no? 

While we'd like to believe all new production and mining is somehow "state of the art" magically out of the box, the reality known by every experienced person here is that it is nothing of the sort. New tech brings new, unforeseen headaches and the real efficiency gains you're talking about occur in mature industries where they've long since figured out all the ins and outs and can make huge gains by dealing with the friction points everyone has known about for decades, and which management is only now getting around to fixing. 

[BenFranklin'sSpectacles + 762]

48 minutes ago, Rasmus Jorgensen said:

First the oilprice will fall; then as marginal production starts to disappear and even fewer new conventional fields are put into production we are going to see spikes. As oil spikes EVs will be even more attractive. We will still need oil for petchem and my guess air and other heavy transportation, but large parts of society will electrify because cost on on par or cheaper and as the electric infrastructure builds out oils current infrastructure advantage will disappear.

What I read from this is that, once oil demand is declining, a price spike won't be enough to justify new investment.  Thus, prices will become volatile as demand destruction fights with decreasing supply, and there will be no incentive to temper the price swings.  Is that correct?

[BenFranklin'sSpectacles + 762]

2 minutes ago, Ward Smith said:

I think to start, you need to read @Geoff Guenther's post about demand spikes after replacement of the prior tech. 

You've lumped lithium above with rare earth metals. That's not how it works. Yes, the lithium isn't "that high" of a percentage of the li-ion battery, but it isn't "sprinkled like salt" either. Take a li-ion battery apart and see for yourself how it's done. 

Rare earth's are exactly that, rare. China is the world's largest supplier not because bigger quantities exist in China, but because China is perfectly willing to decimate hundreds of sqare miles (maybe thousands by now), effectively strip mining for elements like neodymium that occur in the milligrams per ton scale. Those are required for the high efficiency brushless DC motors that make EV's practical. BTW Tesla doesn't do their motors with BLDC and that's stupid of them, requiring multiple steps of AC to DC conversing and back. Smarter to keep it all DC after it's in the batteries no? 

While we'd like to believe all new production and mining is somehow "state of the art" magically out of the box, the reality known by every experienced person here is that it is nothing of the sort. New tech brings new, unforeseen headaches and the real efficiency gains you're talking about occur in mature industries where they've long since figured out all the ins and outs and can make huge gains by dealing with the friction points everyone has known about for decades, and which management is only now getting around to fixing. 

I know how Li-ion batteries are made.  Lithium is a remarkably small percentage of the battery by weight and volume, the remainder being carbon, polymer membrane, electrolyte, aluminum casing, and misc elements in small quantities. 

The current technology is to use REEs to make powerful motors.  That's not the only way to do it though; this problem is being tackled as we speak. 

Regardless, a certain amount of material must be moved to mine minerals.  Assuming the worst case for mineral demand, as you have, how much additional oil consumption would result?  My hypothesis is that that additional consumption would be lost in the noise, if not completely negated by the millions of EVs, PHEVs, and hybrid vehicles currently being produced. 

[Rasmus Jorgensen + 1,169]

1 hour ago, BenFranklin'sSpectacles said:

What I read from this is that, once oil demand is declining, a price spike won't be enough to justify new investment.  Thus, prices will become volatile as demand destruction fights with decreasing supply, and there will be no incentive to temper the price swings.  Is that correct?

100 % correct. You describe it a lot better than I did.

 

[Wolfgang Horn + 7]

??? sky high ??? forcing prices higher ??? - 20 days later we are hell low & forced down ... as I wrote these days: prepare for $ 25/b and maybe then price will stabalze again -

[Ward Smith + 6,615]

1 hour ago, BenFranklin'sSpectacles said:

I know how Li-ion batteries are made.  Lithium is a remarkably small percentage of the battery by weight and volume, the remainder being carbon, polymer membrane, electrolyte, aluminum casing, and misc elements in small quantities. 

The current technology is to use REEs to make powerful motors.  That's not the only way to do it though; this problem is being tackled as we speak. 

Regardless, a certain amount of material must be moved to mine minerals.  Assuming the worst case for mineral demand, as you have, how much additional oil consumption would result?  My hypothesis is that that additional consumption would be lost in the noise, if not completely negated by the millions of EVs, PHEVs, and hybrid vehicles currently being produced. 

I too know how they're made. This picture describes the process needed for them to chemically function. Yes you don't need a ton of lithium but its energy density is highest by far. For example the graphene in the drawing only has about 10% of the energy density that using lithium would, and graphene is quite expensive. 

Ree is more of a style of motor placement than motor system. Ree just puts the electric motor inside the wheel housing, like my 20 year old mountain bike did. Noting special to that. 

You should study up on BLDC motors so you know what I'm talking about. Tesla's use AC motors, which are less efficient even before you pay the conversion penalty. 

Given that strip mines are generally quite far from civilization by design, to electrify the mine you'd need to build a power plant right there, fueled by something more reliable than Tom's famous Fairy Farts. Those huge earth mover trucks deployed at the Canadian oil sands are actually electric 4 wheel drive vehicles. However the electric comes from a 1500 HP diesel generator where the "engine" would be on a normal dump truck. 

[Geoff Guenther + 317]

3 hours ago, BenFranklin'sSpectacles said:

What I read from this is that, once oil demand is declining, a price spike won't be enough to justify new investment.  Thus, prices will become volatile as demand destruction fights with decreasing supply, and there will be no incentive to temper the price swings.  Is that correct?

Geez, can I just hire you to write my posts?

[BenFranklin'sSpectacles + 762]

19 minutes ago, Geoff Guenther said:

Geez, can I just hire you to write my posts?

Get paid to argue with people?  Sure!  That's my dream job. 

[0R0 + 6,251]

9 hours ago, BenFranklin'sSpectacles said:

$150/bbl oil happened under different economic and geopolitical circumstances.  There was a credible threat of a massive war in the Middle East grinding world economies to a halt with no viable plan for replacing them. 

Today:
1)  Oil alternatives exist, and the world is rapidly transitioning to them.  Any price spike would trigger unprecedented demand destruction. 
2)  The Western world is rapidly approaching the point where it doesn't need Middle Eastern oil.
3)  Strategic oil reserves are at record highs. 
4)  Production in stable nations (US, Canada, Russia, etc) can be increased to plug supply gaps. 

There's a lot working against a repeat of the $150/bbl oil scenario.  I grant that a massive war in the Middle East that took many MMbpd offline could cause that spike, but I doubt even a major Middle Eastern war would cause such a disruption - at least, not before the West weaned ourselves off their supply.  Barring that, would financial speculation really be enough to spike prices?  At this point, what would it take to surmount the overwhelming evidence that we're swimming in oil? 

 

9 hours ago, BenFranklin'sSpectacles said:

This is a problem.  If we were talking about a generalized increase in economic activity, your method would make sense.  Because we're talking about transitioning a specific industry, we need to know that industry's oil intensity as well as the new technologies that will be implemented. 

Mining is "energy intensive", but that energy doesn't necessarily come from oil.  In particular, we're talking about new mines, which run newer technology.  If we don't know the oil intensity of new mines, specifically, then your estimates are useless.  For all we know, you could be off by a factor of 5. 

I could stop there, but there are more problems with your analysis.  First, there's a trend towards energy efficiency in mining.  E.g. "Highly electrified" means underground equipment that runs on electricity instead of ICEs.  This allows a cascade of changes through the mine's design, which slashes total energy consumption.  That's one technology.  Another is the introduction of renewables, which is happening now.  In general, mining companies are gunning for energy efficiency, and they'll have a chest of new technologies to accomplish it.  This alone could counter increased emissions from greater mining activity. 

Next, you're assuming that every dollar invested will be an additional dollar invested.  That won't be the case.  We're currently drilling for oil, mining minerals, building factories, and manufacturing things.  We don't need more things; just different things.  There might be a transient increase in activity, but it will be far more muted than you predict because, for every new thing we start producing, we'll stop producing an old thing.  That's true regardless of how quickly the transition occurs.  E.g. when VW created their electrification roadmap, they cannibalized resources from older programs.  E.g. Tesla didn't build the Fremont factory; they purchased it and installed new equipment.  E.g. major automakers won't build new facilities; they'll convert existing facilities to produce electric vehicles - which is barely different than converting them from one vehicle model to another.  Of all the "economic activity" that will be generated, most of it will cannibalize existing economic activity, and most of what remains won't be oil intensive.  There will be a few new mines.  The increase in oil consumption from those mines will be lost in the noise of fluctuating oil demand. 

Finally, let's look at the energy intensity of the minerals we'll need.  A vehicle needs a handful of things:
1)  Steel and aluminum:  no change here.  All vehicles require this. 
2)  Plastic: No change here.  All vehicles require this. 
3)  Battery-grade graphite: competes with thermal coal, and coal consumption is plummeting.  We should expect a continued decline of activity here. 
4)  Copper: motors require more, but new electrical architectures are dramatically reducing the amount of wires in vehicles.  The net effect is as yet unknown.  Also, aluminum can be substituted. 
5)  Misc. minerals in small quantities: demand for these will increase. 

Of all the minerals that go into a vehicle, the only ones definitely increasing are on the order of 1% of the vehicle's weight.  As Elon Musk once commented, lithium is like a salt you sprinkle on top of the battery; there's very little of it.  The same is true of rare earth elements in motors.  Why, then, is so much capital investment required?  It could be all the R&D, which isn't oil intensive.  Or it could be the specialized nature of equipment used for these minerals, which increases capital costs.  Again, not oil intensive.  Or maybe it's because they must be refined with electricity-intensive processes, which again, is not oil intensive.  Until we know for certain where all this money is going, your conclusion is suspect. 

On that note, your hypothesis fails to explain how oil demand has flat-lined in the US and decreased elsewhere even as GDP has increased.  Until you explain that counterexample, you're unequivocally wrong. 

 

Yes, you can displace oil demand before new facilities have been set up.  The supply chain already exists, and it's already being retooled.

These activities you claim must happen sequentially have already been happening simultaneously for years - which is how EVs, PHEVs, and CNG/LNG powered vehicles are already entering the market.  If the spike you predict is going to happen at all, then it's already happening.

E.g. you're assuming all new production requires new facilities, which requires an increase in construction activity.  This definitely isn't the case.  When companies need to increase production, capital investment is the absolute last thing they do.  When forced to resort to capital investment, greenfield development - with its massive construction activity - is a last resort.  First, they scavenge operations for greater efficiencies.  Then they pay overtime.  Then they run extra shifts, Then they upgrade equipment.  Then they implement new technologies.  Then they expand existing facilities.  Then, when all else has failed, they build a new facility.  Lithium, copper, rare earth elements - the world already produces these things, and the existing supply chain will absorb a surprising amount of demand before new facilities are required.  That means oil demand destruction begins immediately. 

All these options imply greater oil consumption though, right?  Yes, but far less than the greenfield development you're predicting - and all of it offset by immediate demand destruction.  In fact, when companies scavenge for efficiencies and implement new technology, oil consumption tends to decrease.  See my earlier comment about oil consumption decreasing as GDP increased.

To summarize all this:
1)  Your claimed sequencing problem is a mathematical artifact of how you modeled the transition, which is wrong.
2)  You're looking at the economy from an extremely high-level, low-resolution perspective.  To make any sort of useful prediction, you need to understand the details.

 

There is a huge difference between producing 1% of the world's new autos as EVs and approaching near 100% in the compressed transition. One is a trickle, the other is a torrent.

Mining companies are indeed trying their best to reduce their carbon footprint and costs. The electrification of mines is due to the need to remove exhaust gasses downhole. The second issue is the great torque you can get with a Neodymium motor, or using a field coil motor (consumes far more electricity but can run higher torque). The renewables are indeed coming in where possible. Where possible is very narrow, Nevada mining districts sure, Grassburg mine, not really possible for a 100% transition quite yet, as it is in the tropics and you don't get that many sunny days in a row. Mines in the North have little solar conversion potential and are not generally where the wind corridors are, not that it stops managements from trying. 

The cannibalizing of existing auto plant for EV and renewables production is a marginal issue. The bulk of the cost and energy demand is new tooling for the drive trains and battery compartments. They can't really close the redundant motor factories till the throughput of the EVs is actually there to replace it. It isn't even on the drawing board yet. What is, amounts to 4-5% of auto production 2-4 years from now. The big deal is trucks. They are not yet on the road. So no electrical trucks will be involved in the renewables transition till it is 1/3 through. 

The renewables and EV transition is purely additive activity at the ramp up. Thus no savings will be had till there is substantial output in the sector. The fact that you are taking orders for the electric truck line of 2025, does not mean that in the interim there would be fewer diesel truck sales. At this point, even Tesla doesn't have a working prototype out of the lab. Just a spec sheet and designs and non-production prototyping for parts and assemblies. 

Renewables require enormous transmission lines as demand centers for electricity are not located where the renewables can be produced economically. I am assuming that the long distance transmission will be aluminum. But the quantities involved are enormous as the mileage being spanned is not large scale, but enormous. Where you need the copper is in the distribution, EVs and point of use since aluminum connections are unsafe and difficult to use at the small scale. 

Decarbonization of mining has potential for 40-53% reduction of carbon. But the trucks are still diesel as the energy density of batteries is not yet in the ballpark of what they need to carry onboard for a days' work.  

https://rmi.org/sunshine-for-mines-a-brighter-vision-for-sustainable-resources/

https://www.festanks.com.au/blog/renewable-energy-mining/

Diesel will stay in the mine till we have reliable hydrogen motors and high density storage (e.g. adsorbed H2) is workable. If you use electric mining trucks then their batteries are going to be bigger than their hauling chamber and would contribute to a 30-40% increase in weight. 

The renewables volume requirements for key metals/elements at full bore run rates is a 10 fold increase from 2019 levels. 5 fold for a 20 year transition. There is a problem that of the marginal new mining projects, China owns a controlling equity stake in 60% and has no intention of letting anyone other than itself have access to these materials. It is the same policy it took towards Cesium, where Chinese companies (SOE and related) bought all 3 major mines and their inventory. (Cs is necessary for drilling, precision electronic clocks, and much more) the Chinese owned miners only sell to China and you can only produce the products using it in China. Minor producers are not capable of filling the gap yet. Thus for the West, any acceleration of the rate of renewables adoption requires NEW mines that are not Chinese owned. 

The notion of displacement and cannibalization of resources into renewables can only happen by a substantial outbidding of existing users. Meaning that it can only happen if you are willing to spend as much as 4 times as much in order to accelerate the transition to 1 decade. 

The proportions are not linear. Mining of the key materials other than Al and Li requires that you go down the ore grade hierarchy to low grade mines, where the concentrations are 10% or worse than in the best resources that are currently being mined and in many of which, Chinese state sponsored companies own equity control in Africa and S. America. IT DOES NOT SCALE LINEARLY. It is an exponential price to throughput relationship. 

The minuscule amounts of key rare elements are mined from say 500-1000 ppm resources now. Increased throughput  requires that you mine 100-200 ppm resources (or worse) - meaning that you are moving 5 times more rock to get the same marginal output. Some of the key metals are at <100 ppm concentrations, even single digits or are produced from byproduct of other metals so don't have their own dedicated mining capacity at all. 

Right now we have a lithium glut due to over-investment. That is one of the main reasons battery storage costs so much less than it did just 10 years ago. That is when EVs and electric storage are just 1-2% scale relative to autos and FF electricity. When you go beyond that existing throughput capacity you need to build new mines, so no glut pricing, but full price is in your future including a coverage of profit and capital costs.  

Yes, the EV and renewables investment is happening in parallel. No problem at 1-2% of global auto production and electrical production per year. It is a problem as you scale up demand for inputs and thus the investment in mining them. Again, you are drawing a less than straight line assuming efficiencies of scale while ignoring the inefficiencies of impatient demand. Hiking the displacement rate from the "natural" transition of 20 years ramping slowly to finish at a 9-10% rate, to 10 years means you have to ramp to >10% replacement rate within a year or two. Meaning that you need to immediately have production from low grade ores at a throughput that is far greater than existing capacity.

Your analysis is typical academic wishful thinking. Do some engineering analysis. The tiny amounts of key rare minerals translate into moving enormous amounts of rock. Which is only possible with diesel powered trucks and moving equipment. The faster you want the product, the more expensive it is to produce, the relationship is between exponential and a power ratio. Nothing is linear in this world of minerals. This is not iron ore bauxite and coal. Rare means 10 to 100 fold smaller ore concentrations and many of them far worse. Those for CdTe  thin film solar which leads in commercial solar conversion efficiency. They are already responsible for consuming 50% of Te, which is a byproduct of copper mining. Its price in the prior spike went  from $10-20 pre 2005 to $200s at peak 2011. Having yet no alternative source, Firstsolar bought a "high grade" gold tellurium mine Teloro with a once in a lifetime ore grade averaging 2500 ppm Te. There are no others like it. The ore sample grades 100-20000 ppm. 

https://www.greentechmedia.com/articles/read/first-solar-owns-a-tellurium-mine

 So if you want to get the mine fully developed, you need to raise the price to cover all the costs a rapid production ramp up would require going forward. Otherwise, you just hope that copper miners and metal refiners will manage to produce your Te requirement. That would get you back to $200/lb or worse and the project economics would likely fail as that would be a 50%-100% cost increase in your thin film solar panels. Not that of the current 470 tonne production China refines 290 tonnes, which is what dropped prices 5 years ago. 

Competing solar minerals are copper Iridium gallium selenide is the other non silicon thin film. 

Note that iridium is a critical metal for processing lithium (crucibles). It finished 2019 at $1500/ozup from $544 in 2015. It is a byporduct of Palladium and Platinum - the combustion catalysts for gasoline and diesel, respectively. and from refining of copper and nickel. There are no sufficiently iridium rich deposits that can be developed on their own, the supply is dependent on demand for the other metals, at least for now. If Iridium crosses $3k/oz then perhaps a couple of low grade PGM mines with relatively high iridium might make it to production. Typical single digit PPM concentrations in commercial ores. 

 

I think the scale up you are imagining is illusory. The world would have to be put upside down to make it happen, the required associated consumption of energy - namely diesel, would not make you happy and would easily drive oil prices (Brent) up to recession inducing levels. 

WITHOUT accelerating the timetables, the future you seek would happen, but only in 2030 would you start having enough EVs and renewables to actually displace the resource consumption required to put more of them in place without increasing other resources. Till then their implementation is entirely ADDITIVE to general resource demand. 

Edited February 29, 2020 by 0R0

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1 hour ago, 0R0 said:

On that note, your hypothesis fails to explain how oil demand has flat-lined in the US and decreased elsewhere even as GDP has increased.  Until you explain that counterexample, you're unequivocally wrong. 

 

There is a general demand decline due to demographics in OECD+China. The US portion is set to rebound out of the downtrend to an uptrend as Millennials go up the income ladder. Everyone else in the Industrialized world and newly industrialized China is experiencing a declining active age population and fewer children every consecutive year. That is one of the major inhibitors of Europe's growth and without export growth to China and its commodity supplier economies and the US, the EU would not have recovered from recession at all after the crisis. Germany would have looked just like Italy and Span. Only France has a decently balanced demographic. 

China has been the driver of energy consumption growth directly or through its commodity supply chain. US and Europe had peaked in 2007-8 and earlier for some EU countries - as early as 2000. 

The EV and hybrids have only had a marginal effect.

 

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On 2/9/2020 at 2:52 AM, James Regan said:

Much of the cheap oil has been produced, and the oil industry is increasingly relying on costly reserves. While the world is awash in supply right now, the market may begin to tighten up in the next few years, forcing prices higher.

But the global economy will begin to sputter as a result of higher crude prices. “The current economic system cannot sustain oil prices above $100 a barrel, and engage in genuine growth in the real economy for very long,” warned the report, authored by Dr. Simon Michaux and published by the Geological Survey of Finland. “Alternatively, producers cannot sustain oil prices as low as $45 a barrel and still make a profit.”

That’s especially true of U.S. shale. Wall Street is taking an increasingly critical view of shale, an industry which has never been cash flow positive for any meaningful period of time. As investors, banks and other forms of finance distance themselves from unprofitable shale drilling, the rate of bankruptcies is on the rise. Clearly, at least a portion of the global oil industry needs much higher prices in order to sustain growth. The production gains of the past decade were possible via cheap credit and an overcapitalized industry in North Dakota and Texas.

U.S. shale could be nearing a peak, or, at least a plateau. There isn’t a consensus on this, by any means, but a growing number of analysts and even some within the industry are eyeing such a possibility. For example, John Hess, CEO of Hess Corp., recently said that production in the Bakken could peak within the next two years and the Permian will peak in the mid-2020s. But others have said that the Permian peak may arrive sooner. Steep decline rates mean that any slowdown in the pace of drilling will quickly impact production.

The financial stress sweeping across the shale industry may bring forward the peak in shale production. But the precise date is not all that important. The problem is that the plateauing of U.S. shale, and the resulting increasing in prices, could spell trouble for the global economy. Michaux, author of the Geological Survey of Finland, cited the 2008-2009 global financial crisis as an example. Saudi oil production stalled out in the years preceding the crisis, precipitating a massive price spike in 2008, which contributed to the financial market meltdown.

The report – which was recently analyzed in an excellent article by Vice – notes that about 70 percent of the world’s oil supply comes from fields discovered before 1970, and the bulk of that comes from 10 to 20 enormous fields. The pace of discoveries has slowed dramatically in the past decade. In fact, conventional oil production largely plateaued in 2005. Since then, U.S. shale and Canadian oil sands accounted for most of the new supply. But as the number of bankruptcies in the shale patch reveal, the new forms of oil are more costly to produce.                                                                                     

The report concedes that the oil market is currently oversupplied. But Michaux takes a dim view of peak oil demand, instead predicting that demand growth will once again begin to exceed supply growth, putting a lot of pressure on spare capacity, which will shrink to ever-smaller levels. “Oil demand is still growing by ~1mbd every year, and no central scenarios that have been recently assessed see oil demand peaking before 2040,” Michaux warns.

Roughly 81 percent of existing production is already in decline. Given that the average decline rate bounces around between 5 to 7 percent per year – which translates to lost production of about 3 to 4.5 million barrels per day (mb/d) each year – the world will need to come up with an extra 40 mb/d just to keep output flat, Michaux predicts.

In other words, the market will need the equivalent of four additional Saudi Arabia’s just to replace depleted fields by 2040. But, as previously mentioned, the major source of supply growth in the past decade – U.S. shale – is running on fumes, and needs higher prices in order to grow.

To be clear, this flies in the face of lot of conventional wisdom in the industry (newfound conventional wisdom, it should be noted). For instance, Suncor Energy just announced a C$2.8 billion write-down on its newest oil sands production facility, due to the expectation of low long-term oil prices. “When the price went down in 2014, I don’t think people realized that we literally were going to go (down) year over year over year,” Suncor CEO Mark Little said Thursday on a conference call. "We’re literally bouncing around, but trading sideways. When we look at the markets we think, 'hey we’re sitting in this same range going forward for foreseeable future.'”

Many industry analysts see oil prices remaining “lower for longer,” or even permanently lower. The prospect of peak demand plays into this, and the shift away from fossil fuels would relieve pressure on the global economy and prevent oil prices from spiking.

But Simon Michaux wrote in the Geological Survey of Finland that the energy transition may not be fast enough. As slowing supply growth runs into ongoing increases in demand, the result could be much higher prices in the years ahead, and a major risk to the global economy. “Money supply and debt have grown faster than the real economy. Debt saturation and paralysis is now a very real risk, requiring a global scale reset,” Michaux warned. That’s a nice way of saying that an oil price spike could cause another financial crisis.

Written by an OP Journalist NC but being sited on many other sections of the global media.

https://www-nasdaq-com.cdn.ampproject.org/c/s/www.nasdaq.com/articles/peak-shale-will-send-oil-prices-sky-high-2020-02-07?amp

We haven't seen the damage that Shale will do in the future in comparrison to what it already has done, shocking.

I am more worried about oil prices that are TOO LOW threatening the global economy. Already happening and set to get a lot worse.

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On 2/16/2020 at 2:53 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.

 

 

On 2/16/2020 at 2:53 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 disagree that dollar index will fall, that is exact opposite to what happened during GFC during ZIRP + QE? Corona Virus will have same effect? Everybody will turn to USD haven again?

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On 2/26/2020 at 5:22 AM, 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. 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. 

Great response, but it is the out-going deliveries that will be whacked, and that still gonna hurt US.

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On 2/27/2020 at 6:18 AM, Old-Ruffneck said:

I am pro NG and nuclear. Solar arrays are damaging the desert southwest and natural habitats for many living creatures are getting destroyed by the placement of all the panels, then the massive shade on the desert floor is cooling the earth. Getting rid of nuclear waste is getting better because able to use more of the material thru tech. Waste now is half of what 70's reactors are. Or we could drop it in Chernobyl. 🙂

Or Maralinga, if you pay the right price!

[0R0 + 6,251]

5 hours ago, BenFranklin'sSpectacles said:

I know how Li-ion batteries are made.  Lithium is a remarkably small percentage of the battery by weight and volume, the remainder being carbon, polymer membrane, electrolyte, aluminum casing, and misc elements in small quantities. 

The current technology is to use REEs to make powerful motors.  That's not the only way to do it though; this problem is being tackled as we speak. 

Regardless, a certain amount of material must be moved to mine minerals.  Assuming the worst case for mineral demand, as you have, how much additional oil consumption would result?  My hypothesis is that that additional consumption would be lost in the noise, if not completely negated by the millions of EVs, PHEVs, and hybrid vehicles currently being produced. 

First, non-REE motors are about 50% as efficient, so would require double the battery capacity to have the same range. 

it is not "a certain" amount of material. It is 5 to 10 fold the material in order to produce a 2 fold jump in throughput. The millions of EVs and and PHEVs are mostly in China. Notably NONE of the trucks scurrying about installing the renewables, mining their rare material inputs or exploring for them are EVs of any sort. At least not yet. 

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12 hours ago, BenFranklin'sSpectacles said:

These activities you claim must happen sequentially have already been happening simultaneously for years - which is how EVs, PHEVs, and CNG/LNG powered vehicles are already entering the market.  If the spike you predict is going to happen at all, then it's already happening.

 

EVs and PHEVs are not used in mining yet, and likely will never be till a non-Li battery is available with way better energy density than diesel. LNG, less so CNG can be used instead of diesel with a not too great fuel storage size and weight penalty for big earth movers on the mine. The problem is that managements don't like LNG from a carbon footprint perspective though it reduces carbon by 30-40%. They do very much like the cost savings.

They would love it much more if they could use renewables to charge up their mining equipment and earth movers and mega trucks without having to lug around batteries larger and more costly than the vehicles/equipment. 

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43 minutes ago, Wombat said:

Great response, but it is the out-going deliveries that will be whacked, and that still gonna hurt US.

How so?

Restrictions on importing US product?