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Introduction

This work is preliminary. It is a preview of part of a paper I am writing with Aude Illig. There are three main reasons I am making this post. The first is as a public service. There are many people reading this blog who are directly affected by oil prices and who have to make decisions based on future oil prices. Having a model to understand the dynamics of oil prices is of use to them. The second reason is that some people reading this blog model oil extraction. These models either omit price considerations or make assumptions on them. Our model is a large improvement on these assumptions so it should improve their extraction models. The final reason is that I consider the quality of the comments on this blog to be high. I believe that the feedback I get from this post will improve the quality of the final paper. Indeed, Dennis Coyne has already provided valuable feedback after previewing the post. This study has been a humbling experience. Get ready to throw out everything you thought you knew about oil prices.

The model does not by any means explain all oil price variation. What is remarkable is that with only one data set, it explains so much. Many factors may affect the price of oil. This model provides a base to which other variables can be added to find what explains oil prices.

I was asked to write a chapter titled “Strategies for an Economy Facing Energy Constraints” for a book last year which I wrote with my daughter. I do not think the book will be published but the chapter may be of interest to some. I have posted the pdf file on line and will refer to it often [2].

…click on the above link to read the rest of the article…

Peak Oil: Simplicity Has Its Disadvantages

March 15, 2016

Peak Oil: Simplicity Has Its Disadvantages

Few of us appreciate just how much we rely upon inexpensive, readily-available supplies of energy to live our lives.

[W]hat future awaits us if we cannot be courageous and honest enough to plan for that future with the full range and understanding of all the facts now at our disposal? [1]

While there’s surely some benefit derived in keeping things simple for readers and followers, I’m still unclear as to what the long-term benefits are for them [and the rest of us] when the full range of facts and considerations about our future energy supply are kept off of the discussion table. It’s a defining characteristic of the conservative personality that they tend to prefer closure quickly; and this is so for matters both simple and complex.

But latching onto to one or two pieces of information or opinions in matters of greater complexity and accepting them as the final say can lead to bigger problems down the road when the majority of facts and considerations are ignored—or worse, not disclosed at all to those without the means to collect details on their own.

The issues surrounding the concept of peak oil are not a contest between progressive views and conservative ones. Peak Oil is about the facts on and in the ground. No one denies the great advantages and production increases for which tight oil production in the past few years is responsible. But that’s just a factual statement. It’s not the sum total of energy considerations and concerns today and/or tomorrow, despite the fact it tends to be couched that way by some.

…click on the above link to read the rest of the article…

Energy Wars of Attrition: The Irony of Oil Abundance

March 9, 2016

Energy Wars of Attrition: The Irony of Oil Abundance

Three and a half years ago, the International Energy Agency (IEA) triggered headlines around the world by predicting that the United States would overtake Saudi Arabia to become the world’s leading oil producer by 2020 and, together with Canada, would become a net exporter of oil around 2030. Overnight, a new strain of American energy triumphalism appeared and experts began speaking of “Saudi America,” a reinvigorated U.S.A. animated by copious streams of oil and natural gas, much of it obtained through the then-pioneering technique of hydro-fracking. “This is a real energy revolution,” the Wall Street Journal crowed in an editorial heralding the IEA pronouncement.

The most immediate effect of this “revolution,” its boosters proclaimed, would be to banish any likelihood of a “peak” in world oil production and subsequent petroleum scarcity. The peak oil theorists, who flourished in the early years of the twenty-first century, warned that global output was likely to reach its maximum attainable level in the near future, possibly as early as 2012, and then commence an irreversible decline as the major reserves of energy were tapped dry. The proponents of this outlook did not, however, foresee the coming of hydro-fracking and the exploitation of previously inaccessible reserves of oil and natural gas in underground shale formations.

Understandably enough, the stunning increase in North American oil production in the past few years simply wasn’t on their radar. According to the Energy Information Administration (EIA) of the Department of Energy, U.S. crude output rose from 5.5 million barrels per day in 2010 to 9.2 million barrels as 2016 began, an increase of 3.7 million barrels per day in what can only be considered the relative blink of an eye. Similarly unexpected was the success of Canadian producers in extracting oil (in the form of bitumen, a semi-solid petroleum substance) from the tar sands of Alberta.

…click on the above link to read the rest of the article…

Peak Oil: The Underlying Reality

March 8, 2016

Peak Oil: The Underlying Reality

Sunrise092515A

Sir, Martin Wolf, in ‘Cheap oil puts humanity on a slippery slope’ (December 2) states: ‘The emergence of shale oil underlines what was already fairly clear, namely, that the global supply capacity is not only enormous but expanding. Forget peak oil.’ He is mistaken. Even the International Energy Agency acknowledges that conventional oil production peaked in 2005. Add other sources of liquid production, in particular tight oil (often misleadingly called shale oil) production from the US, and there has been a modest increase since then, giving a kind of ‘undulating plateau’ as Shell would have it. What the burst of unconventional production from the US has done is to mask the underlying reality of peak oil. This will become apparent as the tight oil potential itself proves limited in time. [1]

There are certain realities about the recent spike in U.S. fossil fuel production which can be masked or misrepresented in only so many ways. Tight oil production generated from hydraulic fracturing [fracking] has shown itself to be more expensive and not as energy “dense” or efficient, for starters. [No one can dispute what an impressive effort it proved itself to be in the past few years, of course.]

But current production and cost issues call into question the level of short-term production spikes we might expect from fracking efforts in the next few years. Fracking is a more expensive, time-consuming process. The production rate of fracked wells declines very quickly, so more and more wells must be drilled to keep pace. Prime locations are not infinite, so that limitation must refactored in. It requires high prices in order to supply the needed investment and effort Low prices are good news for consumers, but there’s a price to be paid there, too.

…click on the above link to read the rest of the article…

Peak oil in the South China Sea (part 1)

March 6, 2016

Peak oil in the South China Sea (part 1)

The recent deployment of missile launchers and jet fighters on Woody Island of the Paracel islands have put the spotlight on the South China Sea (SCS).

Fig 1: The 200 mile Economic Exclusion Zone claimed by China around Woody Island and the overlapping 108 nm range of the HQ-9 SAM system. Image via ISI. [Image Sat International] http://defense-update.com/20160218_woody_island_hq9.html

In this post, we focus on oil production around the SCS.

Oil production (crude and NGLs)

Fig 2: Black triangles denote country peaks, the red triangle shows the SCS peak

Oil production in 2015 was down around 14% from the peak in 2001.

Fig 3: China dominates all of South China Sea’s adjoining countries

Fig 4: China’s monthly production 2013-2015

Although production in 2015 was higher than in 2013 and 2014 it seems that production in the 4^thquarter will not be much different from the previous years. A 100 kb/d difference is just 1% of China’s 2015 demand of 11.2 mb/d (IEA January Oil Market Report, p 57)

Chart of the Day: No turning back for China’s oil production

21/11/2015
China’s domestic oil production likely peaked this year and is about to enter a long-term structural decline, according to Nomura.
http://www.scmp.com/business/commodities/article/1881188/chart-day-no-turning-back-chinas-oil-production

Fig 5: Production of 3 oil majors in China

…click on the above link to read the rest of the article…

Peak Oil: Just A Distraction Pt 3

February 23, 2016

Peak Oil: Just A Distraction Pt 3

… [T]here is no intellectually honest way to believe that the world can continue its near-total reliance on fossil fuels for much more than another decade — a paltry window of opportunity. We also know that we cannot wait until they go into decline before reaching for renewables and efficiency, simply because the scale of the challenge is so vast, and the alternatives are starting from such a low level that they will need decades of investment before they are ready to assume the load. The data is clear, and the mathematics are really quite straightforward. [1]

We’re not going to suddenly discover magical amounts of fossil fuel reserves though magical technologies because the Republican Party controls the House and/or because too many of its members are beholden to the industry. Energy resources don’t concern themselves so much with political ideology.

What’s left [and there are still substantial amounts left] is going to be harder to find, extract, and pay for. The quality and quantity will simply not be there in the manner we’ve come to expect. That’s the reality, and those are the facts.

What that means is that in time we’re going to have to make do with less just when we need it all more than ever, and just when millions more have asserted at this same time their needs and demands for the same finite amounts. Party affiliations shouldn’t be expected to change any of that.

The important issue is that no matter what words one uses or how the issues are characterized, the energy supply we’ve long relied upon to power our society to its impressive heights is no longer what it once was.

…click on the above link to read the rest of the article…

Foiled by Oil

February 18, 2016

Foiled by Oil

“Pemex revenues are down 70% in the past 18 months. That is what Peak Oil looks like.”

“Oil in the ground is wealth only on paper – you may own that oil, but it earns you nothing until you recover and sell it. Yet paper wealth is still wealth. It goes on your balance sheet as an asset that you can sell. You can use it as collateral to borrow cash and buy other assets.”

— Bill Mauldin

People do use their oil shares to buy houses, cars, planes and college educations. When crude oil prices hit $140 per barrel, pension funds and college endowments rejoiced.

Our 2006 book, The Post-Petroleum Survival Guide and Cookbook was published just as conventional hydrocarbons struck their all-time global production top and began to decline (a picture that emerged only years later). The book challenged readers to consider how they might cope with $20 per gallon gasoline and the absence of public transit alternatives.

It also described the undulating top we now see, where high price destroys demand, which crashes price, which boosts demand, which raises price, and so on. Think of this part as the whoop-de-doos after the roller coaster cranks its way to the top and lets gravity take over.

Lately there have been a spate of articles in the financial press beating up on Peak Oil theorists for being so widely wrong in their predictions. They point to charts showing global oil production rising from 86.5 million barrels per day in 2008 to 96 million in 2015. Of course, they are mixing apples and oranges. What peaked, right on schedule in 2006, was conventional liquids.

After 2006 Big Oil played its hole card, unconventional oil and gas. Those inside the sector had been telling the Peak Oilers about this all along, but it still caught some incautious prophets out on a hoisted petard.

…click on the above link to read the rest of the article…

Peak Oil: Just A Distraction Pt 2

February 16, 2016

Peak Oil: Just A Distraction Pt 2

In the end, does the choice of words really matter?
The “Yes, we’ve reached Peak Oil” versus the “No, we have not” is a distraction—and I’ve done my part to contribute.

But without recognizing and accepting the simple truth that we’re drawing down a finite and depleting resource which necessitates almost unimaginable adaptations and transitions to Plan B, the limits of human ingenuity and technological prowess will inevitably be reached if we keep tweaking the one finite resource mankind has relied upon more than any other.

And thus the heart of the matter.

The wells won’t run dry next week or next month. The sky is not falling. But the peak rate of conventional crude oil production was reached a decade ago. That’s an important fact glossed over by those disputing the message about our future oil supply. For all the Happy Talk courtesy of fossil fuel industry cheerleaders picking nits, that fact alone is an enormous problem.

The higher production totals of recent years are a genuinely impressive achievement, and should not be discounted. But shale production has shown itself to be what peak oil advocates said it would be: a costly, time-consuming, technology-intensive effort with a relatively limited shelf life.

Today’s low, low prices and declining demand owing to current economic conditions, when combined with a less than enthusiastic investment climate and the high debt levels carried by most oil producing companies, is squeezing that pipeline. The “glut” spoken of is a reflection of these factors much more so than a testament to how much oil industry can produce with just a snap of the fingers.

The diminished funding has resulted in severe reduction in exploration projects. They won’t start back up overnight if or when economic conditions improve.

…click on the above link to read the rest of the article…

A Market Collapse Is On The Horizon

February 13, 2016

A Market Collapse Is On The Horizon

1. Growth in debt
2. Growth in the economy
3. Growth in cheap-to-extract energy supplies
4. Inflation in the cost of producing commodities
5. Growth in asset prices, such as the price of shares of stock and of farmland
6. Growth in wages of non-elite workers
7. Population growth

It looks to me as though this linkage is about to cause a very substantial disruption to the economy, as oil limits, as well as other energy limits, cause a rapid shift from the benevolent version of the economic supercycle to the portion of the economic supercycle reflecting contraction. Many people have talked about Peak Oil, the Limits to Growth, and the Debt Supercycle without realizing that the underlying problem is really the same–the fact the we are reaching the limits of a finite world.

There are actually a number of different kinds of limits to a finite world, all leading toward the rising cost of commodity production. I will discuss these in more detail later. In the past, the contraction phase of the supercycle seems to have been caused primarily by too high a population relative to resources. This time, depleting fossil fuels–particularly oil–plays a major role. Other limits contributing to the end of the current debt supercycle include rising pollution and depletion of resources other than fossil fuels.

The problem of reaching limits in a finite world manifests itself in an unexpected way: slowing wage growth for non-elite workers. Lower wages mean that these workers become less able to afford the output of the system. These problems first lead to commodity oversupply and very low commodity prices. Eventually these problems lead to falling asset prices and widespread debt defaults.

…click on the above link to read the rest of the article…

GAO asks Congress to prepare for Peak Oil

February 13, 2016

GAO asks Congress to prepare for Peak Oil

[The Department of Energy (DOE) asked Robert Hirsch to come up with a peak oil risk management and mitigation plan which was published in 2005. Nothing happened, so in 2007 the Government Accountability Office asked Congress to prepare for Peak oil because of the many risks that could suddenly force a sudden and steep decline of oil in addition to geological depletion. The GAO states that “according to DOE, there is no formal strategy for coordinating and prioritizing federal efforts dealing with peak oil issues, either within DOE or between DOE and other key agencies. While the consequences of a peak would be felt globally, the U.S., as the largest consumer of oil and one of the nations most heavily dependent on oil for transportation, may be particularly vulnerable. Therefore, to better prepare the United States for a peak and decline in oil production, we are recommending that the Secretary of Energy take the lead, in coordination with other relevant federal agencies, to establish a peak oil strategy. ”

[It is easy to forget with the low oil prices we have today that Peak Oil hasn’t gone away. Low prices are actually alarming, it means that drilling and future exploration are stopping, setting us up for an even more dramatic oil shock in the future. Peak oil forces a shrinkage in economies, yet our system is predicated on endless growth of credit and debt paid back in an ever growing economy. Shrinkage is highly deflationary. Credit disappears, oil companies can’t borrow to drill, and customers are so poor that oil at any price is too expensive, and demand drops. The underlying biophysical reality is that the energy returned on invested is too low to run civilization.

Alice Friedemann at www.energyskeptic.com]

…click on the above link to read the rest of the article…

Peak Oil: Just A Distraction Pt 1

February 9, 2016

Peak Oil: Just A Distraction Pt 1

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Remember, peaking in production, by definition, means that you have plenty of oil left. It has nothing to do with running out.…[T]he only people who ever use the phrase ‘running out of oil’ are people who either don’t understand Peak Oil, or people trying to mislead an audience about Peak Oil. Because again, if you can successfully mislead an audience and frame the argument as ‘No more oil’ vs ‘We still have oil’ – you again set yourself up for an easy debate victory. [1]

The reality—difficult as acceptance of it appears to be for some—is that by whatever phraseology one prefers, readily available and affordable conventional crude oil is no longer readily available and affordable—from the production standpoint. The energy source of choice for decades is no longer as abundant and accessible as it once was [temporary “glut” duly acknowledged], and the fossil fuel industry has had no choice in recent years but to look elsewhere and at other and inferior supply sources. To the credit of industry efforts and technological prowess, recent years [at least until recent months] have seen an uptick in production from the shale formations here in the United States.

Yet that short-lived benefit highlights another failing of right-wing philosophy in the face of Peak Oil: Yes, we’ll need all of the marvels of “human ingenuity” and great technological inventions. But those factors alone are not the solution.

Conventional crude oil’s rate of production peaked a decade ago. Finite resources drawn down daily beyond that point possess no magic qualities. Continuing to draw them down means there will be less the next day and then even less the day after.

We’re not running out. There is a lot of fossil fuel left underground. But now it’s more difficult to extract. It costs more to do so.

…click on the above link to read the rest of the article…

Understanding peak oil theory, 2007 U.S. House hearing

February 5, 2016

Understanding peak oil theory, 2007 U.S. House hearing

House 109-41. December 7, 2005. Understanding the Peak Oil theory. U.S. House of Representatives.

[What follows are excerpts from the 95 page transcript of this hearing, the only one about peak oil and the possibility that peak production may happen soon. And also the only hearing where most of the speakers explaining peak oil, including Representative Roscoe Bartlett, were scientists. From now on think-tank experts and CEO’s of large companies, not scientists, promise peak oil production is decades away and that the U.S. has 100 years of energy independence. Has Congress only invited bureaucrats rather than scientists and engineers since 2005 so that after the next energy crisis they can say they knew nothing? Though of course they know we’re in deep trouble — see the March 7, 2006 “Energy Independence” Senate hearing. Alice Friedemann www.energyskeptic.com ]

RALPH M. HALL, TEXAS. We are having this hearing today to learn more about peak oil theory, to hear different opinions, and to learn what we can do about it, if anything. While some theorists believe that we have reached our peak, the point at which the rate of world oil production cannot increase at any time, there are others that tell us that we are not going to peak any time soon, and others who still believe oil is continuously being created and will therefore never peak. We have not been ignoring a possible peak in oil production and this energy bill that was signed into law in August had provisions that address oil usage by promoting conservation and conventional and unconventional production. Whether or not we are reaching our peak, it seems responsible to continue in the vain we are going in by continuing to work on ways to conserve energy while increasing our domestic supply of oil and using research to develop substitutes for conventional oil.

…click on the above link to read the rest of the article…

Whatever Happened to Peak Oil?

February 3, 2016

Whatever Happened to Peak Oil?

A few months from now, this blog will complete its tenth year of more-or-less-weekly publication. In words the Grateful Dead made famous, it’s been a long strange trip: much longer and stranger than I had any reason to expect, certainly, when I typed up that first essay and got it posted on what was still, to me, the alien landscape of the blogosphere.

Over the years since that first tentative post, the conversations here have strayed into some remarkably odd territory: the history of apocalyptic ideas, the nature of magic, the horror fiction of H.P. Lovecraft, and a good deal more. All through its vagaries, though, this blog’s central focus remains what it has been since shortly after its 2006 launch: the difficult but necessary task of facing up to the end of the arrival of hard limits to growth, and the collapse of all those fantasies of perpetual progress that so many people today still use to keep themselves from thinking about the future ahead of us.

That said, my longtime readers may be wondering about the relative absence in recent posts of one of the core themes of this blog’s earlier days. Yes, that would be peak oil.

For those who’ve come to this blog recently, it maybe helpful to point out that this simple phrase refers to a complicated concatenation of ideas. First, despite claims made by rap musician BoB and the few other flat-earthers out there, I think most of us are aware that the Earth is a sphere a little more than 7900 miles across. That means, among many other things, that the Earth contains a finite amount of petroleum—and this in turn means that each barrel of petroleum that gets pumped out of the ground brings us closer to the point at which there’s no more left.

…click on the above link to read the rest of the article…

Peak Oil: One-Sentence Problem-Solving

February 2, 2016

Peak Oil: One-Sentence Problem-Solving

As is still the case—unfortunately, for all of us—there remains a sizeable number of individuals, organizations, and other associations determined at all costs [literally] to preserve the primacy of fossil fuels to power us into the future. Facts: good when they can be massaged to fit the partial-truth narrative required to breathe life into an industry unwilling to bend to the realities of geology, economics, and … well, reality. Facts: not good when they address the broad range of issues and concerns best left neglected to further that Abundance-No Worries narrative.

One-sentence talking points seem to be the ideal. No concerns about having to delve into the complexities of ideologically-troublesome issues, for one thing. Summary statements suggest there are no worries, for another.

As for the harm caused by failing to properly inform those relying upon the assessments of those others presumed to know? Who has the time to explain all those facts and details and what-nots?

According to the U.S. Energy Information Administration, in 1998, when the article was written, global oil production was 75.7 million bbl/day. In 2014 it was 93.2, and our problem is too much oil.
It’s useful to remember such things when the ‘experts’ grandly tell us what’s going to happen. [1]

With the world awash in oil and prices falling toward $26 a barrel, Iran is set to add to the oversupply now that international sanctions have been eased.
It’s as if the whole world were conspiring to bury the tattered remains of the ‘peak oil’ thesis, so popular a few years ago. [2]

Economics and I have a gentlemen’s agreement: the less I discuss, the better. Notwithstanding, I do understand that when prices are as other-worldly low as they are now, few in the oil industry are eager to venture out and invest in production efforts they can ill-afford.

…click on the above link to read the rest of the article…

Collapse Of Shale Gas Production Has Begun

January 31, 2016

Collapse Of Shale Gas Production Has Begun

This is a guest post by Steve St. Angelo of SRSroccoReport.Com. All opinions expressed in this post are his and do not necessarily reflect those of Ron Patterson.

The U.S. Empire is in serious trouble as the collapse of its domestic shale gas production has begun. This is just another nail in a series of nails that have been driven into the U.S. Empire coffin.

Unfortunately, most investors don’t pay attention to what is taking place in the U.S. Energy Industry. Without energy, the U.S. economy would grind to a halt. All the trillions of Dollars in financial assets mean nothing without oil, natural gas or coal. Energy drives the economy and finance steers it. As I stated several times before, the financial industry is driving us over the cliff.

The Great U.S. Shale Gas Boom Is Likely Over For Good

Very few Americans noticed that the top four shale gas fields combined production peaked back in July 2015. Total shale gas production from the Barnett, Eagle Ford, Haynesville and Marcellus peaked at 27.9 billion cubic feet per day (Bcf/d) in July and fell to 26.7 Bcf/d by December 2015:

Steve 1

As we can see from the chart, the Barnett and Haynesville peaked four years ago at the end of 2011. Here are the production profiles for each shale gas field:

Steve 2

According to the U.S. Energy Information Agency (EIA), the Barnett shale gas production peaked on November 2011 and is down 32% from its high. The Barnett produced a record 5 Bcf/d of shale gas in 2011 and is currently producing only 3.4 Bcf/d. Furthermore, the drilling rig count in the Barnett is down a stunning 84% in over the past year.

Steve 3

The Haynesville was the second to peak on Jan 2012 at 7.2 Bcf/d per day and is currently producing 3.6 Bcf/d. This was a huge 50% decline from its peak.

…click on the above link to read the rest of the article…

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