Someone please call the English Department to come save the world’s oil analysts. Words are failing them.
On one side of the net are analysts looking at graphs of oil production and saying something along the lines of Boone Pickins’ recent summary of world oil: we need 87 but can only produce 85. I’m not sure where Boone gets his numbers, since last I looked (see below) the all liquids graphs were showing 87 mb/d being produced in recent months. But that’s not the point. The point is that a lot of people are running around saying “peak oil is here” because, the fact is, there has been more or less of a plateau in both light sweet and all liquids production since about mid-2006, give or take a little.
On the other side, looking at the same graphs, is a group yelling “it’s not peak oil, it’s speculators! speculators!!” Their point is that even though there has been a production plateau, that has nothing to do with the earth’s ability to yield higher flows of oil. In fact, they say, plenty more oil could be produced if it weren’t for hoarding, violence, and incompetence on the parts of various national oil companies…and speculators.
This is one of the few arguments that can be easily adjudicated. In fact, group number 2 is correct. As I pointed out recently, many oil exporting countries could produce more oil if it were not for “resource nationalism policies” - which I call “hoarding” - or violence or apparent incompetence. Is say “apparent” because some countries, like Venezuela, could be feigning incompetence to hide a deliberate strategy of hoarding. Moreover, many oil importing countries are hoarding in a manner called “strategic petroleum reserve.”
But the victory of group 2 in the “peak oil” argument should not end the discussion. Even though the Hubbertian “peak” is not yet here, we seem to have reached some other sort of peak. It simply has not been adequately defined and named in the public square, but puts a cap on the flow of oil that the world is going to produce just as surely as will ultimately be the case when we reach the geologically possible peak that Hubbert defined and named “peak oil.”
I’m not sure what to call the peak we have now reached. Maybe it should be called “Peak Practical Production.” Or “De Facto Peak Oil.” Or just, “Th..Th..That’s All, Folks.” It is a mixture of things. A lot of it is oil fields around the world that, in fact, have peaked. You know the names by now. The fields in some 38 or so countries have peaked in the Hubbertian sense. A lot of it is countries - or national oil companies - that have decided not to produce in certain fields. Some is countries that have adopted hoarding policies that effectively keep adequate exploration and production resources from being applied to reserves. Some is violence, particularly in Nigeria and Iraq, that physically prevents oil from being produced.
The mixture of all these human and natural phenomena which together result in an effective peak in global oil flow, as clearly defined in the chart above, needs a name. Let me call it De Facto Peak Oil. (If anyone has a better name please let us know it. We need one.) My sense is that the components of the De Facto Peak will change over time. Countries will change policies, some to encourage more production, others to stop it. More countries will reach the Hubbertian Peak of possible production and begin to decline. And to some extent I fear that as the price of oil stays high and probably goes higher, more countries with weak governments will become subject to violence and potentially to falling into the category of “failed states.”
This De Facto Peak is not as neat and clean as the Hubbertian Peak. Since human events are a key part and since they can and do change over time, sometimes for the better, there is no way to “prove” that as things change the actual De Facto Peak may not be further off. But my guess is that it is here now. One reason is that the Hubbertian Peak is inexorably drawing closer with more countries peaking every year. Just as important, though, is the fact that the increasing value of oil will bring increasing illegal force to bear on the ownership of oil in countries with weak central governments. In that way, violence against the oil production assets of various countries will become an increasing fact of life.
That’s just my opinion. But I offer this article from The Wall Street Journal as Exhibit A in my defense. It describes the increasing theft and violence surrounding oil assets in the United States. These events are not having a significant impact on U.S. or, certainly, global production. But they suggest that if violence against oil production assets can grow in the U.S., then no country is immune.
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This article has 17 comments:
- svkoho
- 95 Comments
My Website
Jun 02 10:13 PM- jegan ;-)
- 674 Comments
Jun 02 10:32 PMThx jegan ;-)
- Bernd_1964
- 1 Comment
Jun 03 02:21 AMCrude oil is the best and most useful form of fuel because it comprises a greater spectrum of hydrocarbon molecules than other fuels. The different hydrocarbon fractions of crude oil are sorted in refineries. These molecular fractions of crude oil have very unique properties and are indispensable for all kind of specific technical applications like cerosine for airplanes or gasoline for cars. In many cases they can't be replaced by other fuels such as liquified gases or ethanol.
- epoch
- 7 Comments
Jun 03 07:05 AM1) Greed increases global crude production (higher the oil price the more incentive to add production).
2) High oil price feeds greed (producing nations need more and more money to keep their people happy, new infrastructure projects).
3) NOC incompetence or lack of efficiency (poor business practices) limit global crude production during high and low price environments (just the way it is).
4) Hoarding occurs when the incompetence of a nation's NOC(s) and/or political system is so great that greed (the needs of their people) does not provide enough incentive to increase/stabilize production (it becomes their plan to save oil in the ground since it can't be produced anytime soon by NOC).
5) Politics are the root of all problems (NOC competence won't improve without a major change in political will).
6) International oil companies can increase production if given a chance/access and some resemblance of fair business practices (requires political will).
- Daniel Draffen
- 2 Comments
My Website
Jun 03 08:28 AM- Itsonlymoney
- 83 Comments
Jun 03 10:22 AM- desy
- 1 Comment
Jun 03 10:36 AM- Jack Yetiv
- 442 Comments
Jun 03 10:41 AMI would call it "Economic Peak", as opposed to Hubbert's "Geologic Peak."
I call it Economic Peak because I believe much of the "hoarding" or lacl of production is not due to violence or incompetence but rather due to deliberate decisions by the NOC's to simply not produce more.
Best example is the statement from the Saudi's saying exactly that ("we're going to leave the oil in the ground for future generations.")
I believe even some of the "incompetence&quo... may well be due to a deliberate decision to not sell "cheap" oil today at $130 if $200 can be gotten in 2 or 3 or 4 years from now, eg, Chavez in Venezuela, Libya in old days. As Libya demonstrates, however, these decisions can sometimes be reversed.
Therefore, I believe much of your "De Facto Peak" is due to deliberate economic decisions by sovereign states to forego production now in favor of future [production.
Jack
- green_cheeks
- 45 Comments
Jun 03 10:58 AM- The Stockaccumulator
- 42 Comments
Jun 03 11:40 AMStockaccumulator Jun 03 10:55 AM Good article, but a nice safe buy today on your issues of concern, would be PBR during this brief rare, mini-pullback in PBR...Read the below carefully researched article from "The street.com on Petroleo Brasileiro:
" (PBR - Cramer's Take - Stockpickr) shareholders have earned a 172% return on their investment over the last 52 weeks.
"If last week's positive earnings announcement is any indication, this Brazilian oil company has a lot more going for it than just good-looking charts (though the charts look good, too.)
PetroBras Returns Continue to Beat Oil and Brazil Investment Benchmarks
PetroBras boasts nearly a $300 billion market capitalization (its market cap just passed that of Microsoft(MSFT - Cramer's Take - Stockpickr)).
In fact, it now claims to be the third-largest publicly traded company in the Americas, behind Exxon Mobil(XOM - Cramer's Take - Stockpickr) and General Electric(GE - Cramer's Take - Stockpickr).
With a presence like that, it's clearly a bellwether stock both for the Latin American region and in the oil sector.
PetroBras does a lot: It explores for and produces oil and natural gas. It sells surplus production in Brazil and foreign markets. PetroBras operates oil tankers, distribution pipelines, marine, river and lake terminals, thermal power plants, fertilizer plants and petrochemical units. It is also building new pipelines for ethanol distribution and recently set up a separate operation to manage all its ethanol activities.
Here are three reasons I like PetroBras.
1. The recent oil and gas announcements are real.
In the last six months, PetroBras has discovered three super-giant oil fields in Brazil's offshore Santos Basin. The company also confirmed in January a major natural gas and condensate deposit in the Jupiter area.
If estimates of 33 billion barrels in reserve from another field (Carioca-Sugar Loaf) prove correct, then this ranks as the third-largest oil field in the world after Saudi Arabia's Ghawar (66 billion barrels) and Kuwait's Greater Burgan (46 billion barrels). "
Rudy Martin the writer ot this is the former director of research for TheStreet.com Ratings. Earlier he worked 25 years in investment research and management positions with Fidelity Investments, Lincoln National, Dean Witter Reynolds and Transamerica Investments. He began his career as a securities investment analyst at Duff and Phelps where he published equity and fixed income securities investment recommendations. Martin holds a master's degree in finance from Kellogg Northwestern University and is also a Chartered Life Underwriter. "
It is expected that PBR will have a huge number for this coming quarter's earnings announcement very shortly. Never has there been such a huge expected net profit number from any oil company, and due to the April and May record price of crude. The graphs show the accumulation going into and through each earnings announcement to be impressive, a solid safe investment... PBR will make you money safely next week/month, and expect $140 by next year this time for PBR... todays $70 is a brief temporary bargain... in a week or so PBR will be back to its all time high of $78... this is a rare opportunity... research it, look at the graphs... amazing for such a large well established company that is perhaps the microsoft of oil...
I may buy 20,000 more shares of PBR today or early tommorrow...
Warmest regards... the STOCK ACCUMULATOR
- Eric Fox
- 179 Comments
My Website
Jun 03 04:24 PMwww.eia.doe.gov/emeu/s...
No oil field in the universe has a bell shaped production curve, there are secondary peaks due to new technology, etc. There was a four year period in the 1980's where domestic oil production increased every year.
- Eric Fox
- 179 Comments
My Website
Jun 03 04:29 PM- ggbbppl
- 37 Comments
Jun 04 01:03 PM- misterchan
- 62 Comments
Jun 05 12:51 AM- misterchan
- 62 Comments
Jun 05 12:54 AM- A von Altendorf
- 23 Comments
My Website
Jun 05 02:27 AMWell, no. Chavez fired Pedevesa's senior scientific/technical staff and replaced them with party functionaries. He nationalized foreign assets and cancelled deals with U.S. e&p consultants. Deliberate brain drain, hatred of expertise as such.
I enjoy reading your articles.
- anaconda
- 36 Comments
Jun 05 12:52 PMThe price of oil was regulated -- some oil was mandated as cheap as three dollars a barrel. Much of it was mandated at $11 a barrel -- all this was mandated on a complicated formula of the age of the oil well and other factors -- America did not have a free market for oil until after 1980. Guess what? Production hit a plateau. It doesn't take a rocket scientist to figure out why.
Oil companies could make more money on foreign oil -- so they did.
Today, poiltics controlls oil production -- 75% of oil in the world is controlled by nationalized oil companies.
There is a long lead time from exploration to production to market for oil. Many projects are years in the making. What was happening eight to nine years ago? World oil prices dipped briefly under $10 a barrel. What do you get when it costs more to produce oil than you can sell it for? That's right, limited exploration for oil.
This plateau is the direct consequence of that period when little or no exploration for oil was being conducted.
T. Boone Pickens is a shill for higher prices -- it helps his investments, it's his preogative. But keep in mind his self-interested motives, too.
And there are dozens of shills just like him with the same self-interested motives. And, there are others, who have a political agenda for higher oil prices for a myriad of reasons.
The oil geology is not exhausted (reached its half-way point, definition of Peak).
Offshore, continental shelf oil is untapped in many parts of the world, even, here, in the U.S. the entire east coast is off-limits -- politics, again. The Carolina Trough is a virgin territory, and has excellent geological indicators of huge potential oil finds.
Today, oil is being found deeper and deeper in the geologic strata -- that's a fact. And, there are projects underway, which will give a very stong idea of just how deep oil discovery can go.
Massive investment in ultra-deepwater, deep-drilling ships is taking place. These rigs can drill 40,000 TVD . Somebody thinks there is oil down there and are willing to spend $750 million a ship to do it.
Will the oil be expensive? Yes. $70 a barrel to "lift" the oil on average. Energy will never be "cheap" again absent world-wide depression.
And, make no mistake, there are those, who bad-mouth ultra-deep drilling whether on land or sea because it goes against their deepest held beliefs. Even when the list is long, and growing longer, of successful ultra-deep drilling of over 20,000 feet deep, all over the world, not just in the Gulf of Mexico.
ExxonMobil announced this year they are concentrating on making existing assets more productive: Translation: drilling deeper into existing fields primarily in Texas, but in other places as well.
Those with a political agenda will continue their yabbering on Peak oil, no matter what -- the most radical want to de-industrialize America.
But those that are shills for higher prices, based on geology, have nothing to fear of expanded exploration and production -- there is too much pent up demand in the world, and the oil is too expensive to "lift," to sell it "cheap."
So, stop blabbering about Peak oil, before events (oil discoveries) overtake you -- and your beliefs are exposed as being false and your services worthless.
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