A picture is worth a thousand words — you may want to scroll through these presentations yourself.
Robert L. Hirsch. Peak Oil. Some Knowns & Unknowns.
Slide 6: Peak oil isn’t yet impacting oil prices — the “Peak Oil Price Signal” isn’t likely until the last minute. Now the price is affected by economic outlook, inventories, value of the dollar, Middle East situation, Weather, Politics, Speculation, Stock markets, cost of the marginal barrel, etc.
Slide 8: OIL is liquid energy, but ENERGY can be solid, liquid & gas. (Coal, wood, oil, gas, solar, nuclear, hydro, etc.)
- Machinery built to operate on liquid fuels cannot operate on other energy forms. We either have to retrofit or build new.
- Worldwide machinery operating on oil is valued at $50 -100 trillion. (Automobiles, airplanes, tractors, trucks, ships, buses, etc.)
Slide 10: A more meaningful definition of “oil” is World Transportation Fuels – Isn’t the onset of decline in world transportation fuels the disaster? [from another presentation Hirsch gave, he pointed out that the dire effects of peak oil will be felt when transportation oil declines]. World oil peaked starting in 2004-5 but transport fuel production was still increasing in 2011 (slide 12).
Slide 18: How fast is existing production declining? These rates require between 4 to 7 Million barrels per day of new production to STAY LEVEL.
% Who says so?
4 -6 ExxonMobil
5.5-6.5 Höök, Hirsch & Aleklett
8 T. Boone Pickens
Source: Höök, Hirsch & Aleklett. June 2009. Giant oil field decline rates and their influence on world oil production, Energy Policy.
Slide 19: Will OPEC expand production to meet world needs? Why should they — withholding oil is more income and the Saudi’s have said they want to save some for the future.
Slide 21: How big an economic impact will the decline in world oil production have? 1) It depends on the decline rate. 2) Public reaction will have a major impact. 3) Government actions / words will make things better or worse.
Slide 22: What happened during the BRIEF oil shocks in 1973 and 1979? Public shock & panic, oil shortages & gas lines, declining stock markets, rising unemployment, increasing interest rates, inflation and recession. This time it won’t be brief.
Arther E. Berman. Oil-Prone Shale Plays: The Illusion of Energy Independence.
What few people realize:
- Resources are not reserves, and reserves are not supply.
- Shale oil wells have high decline rates and require substantial capital expenditure to keep production flat much less increasing.
- Oil production from the Eagle Ford and Bakken shales will probably increase U.S. supply by 1-2 million barrels per day by 2020 depending on oil price.
Slide 4: Reserves are a very small sub-set of resources.
Reserves take years of development drilling to become supply.
Proved undeveloped reserves may never be developed.
Slide 5: the drilling treadmill never ends because of high decline rates. Demand destruction will limit oil price and, therefore, the long end of the unconventional production curve.
Slide 7: U.S. oil production is now flat at 6.3 mmbo/day.
U.S. crude oil consumption is 15.4 mmbo/day.
The gap between production and consumption is 9 mmbo/day.
It is unlikely that the U.S. will become energy independent.
Slides 8-10 Bakken shale stats:
- 236 rigs drilling in the Bakken.
- Second highest rig count.
- Oil production has increased to 573,000 barrels per day from 4874 producing wells.
- Average well is 118 barrels of oil per day.
- Well cost is $11.5 million.
- 38% annual decline rate.
- Must replace 182,000 bo/d each year to maintain supply.
- That means approximately 1,488 new producing wells/year at a cost of ~ $17 billion.
- 1130 new producing wells were added in last 12 months ($13 billion).
- Shale plays depend on constant drilling and most current production is from wells drilled yesterday.
- Decline rates are breath-taking.
- Shale oil production requires infinite capital at low cost of capital.
Bill Powers. Debunking the 100-year Natural Gas Supply Myth
The 100-Year Supply Myth:
Due to the commercialization and promotion of several shale plays in recent years, the importance of shale gas has become grossly overstated.
Shale gas now accounts for approximately 35 percent of total U.S. production.
Similar to offshore production, CBM, and tight gas, early results have inflated expectations.
Slide 12: EIA estimates 482 tcf, Powers 127 tcf
slide 13: why are prices so low? 1) Hedges: Many companies put in profitable hedges in 2008 and 2009. 2) Hold by Production Drilling (HBP): Thousands of uneconomic wells drilled last three years to hold acreage. 3) Technology: Longer laterals and more fracture stimulations per well. 4) Drilling for Liquids Rich Gas: Many wells drilled in Barnett, Eagle Ford and Marcellus for liquids recovery. 5) Joint ventures with Foreign Companies: Tens of billions of dollars in drilling carries spent in last five years from joint-ventures with foreign firms overpaying to learn shale business. 6) Lack of Perceived Scarcity (i.e. 100 Year Supply Myth): Current market view is that gas will remain abundant and cheap for decades to come.
Slide 15: where do we go from here?
- Dropping NG Rig Count: Rigs will continue to fall due to rising service costs and lack of hedges.
- NG will return to Historical 10:1 ratio with Oil: Gas is more than one standard deviation below 20-year norm.
- LNG exports/imports a Joke: Significant LNG imports will not materialize no matter how high gas prices rise.
- Declining Imports from Canada: Rising demand from oil sands and declining production will likely eliminate exports by 2020.
Natural Gas Deliverability Crisis begins between 2013 to 2015.
Slide 7: 93% of Barnett Shale is now from horizontal wells (fracking), Slide 8: 61% of all drilling is horizontal now, slide 12: graph of oil vs ng wells (about 3x more oil than NG looks like), slides 13 -16: shale gas by play Top 3 Plays = 66% of Total, Top 6 Plays = 88% of Total, slides 17-22 are about the largest play, Haynesville, and seem to imply that this play has reached peak production and that the best production is from a very small area of the overall shale, same for Barnett in slides 23-28 slide 29: predictions of growth or decline for the top 9 plays slide 30: 42 billion dollars a year to offset production declining Slide 31 quote “”We are all losing our shirts today.” Rex Tillerson [CEO of Exxon Mobil] said “We’re making no money. It’s all in the red.“ (Wall Street Journal, June, 2012)”
slides 33 and on are shale oil production. slide 33 seems to imply shale oil is peaking also. slide 37 chart of the top oil shale plays: Top 2 Plays (Bakken & Eagle Ford) = 81% of Total, Top 5 Plays = 92% of Total slide 44: prediction – Bakken oil will peak in 2017 if 1500 wells/year slide 45 peak in 2015 if 2000 well/year, in both cases, a sharp decline down to almost nothing by 2025 Slide 48: Summary and Implications: There are significant geological, environmental and economic challenges in continuing to grow shale gas supply. I expect significantly higher prices going forward over the next 12-24 months. •Almost all eggs are in the shale gas basket as a hope in meeting supply growth projections. •The hope that shale gas can make more than modest inroads on oil for transportation and coal for electricity is unwarranted, even if the EIA’s supply projections can be met. •Shale gas has been a “game-changer” in that it has averted a terminal decline in supplies from conventional sources, but requires continuous high levels of capital input for drilling and infrastructure. •Shale (tight) oil similarly has been an important new source of oil but suffers high decline rates and highly productive fields are not ubiquitous, as the hype would have us believe. It is limited by available locations which will impose a bubble shaped production profile when they are exhausted.
Mark Lewis. The Outlook for OPEC Demand and Implications for Global Exports. Deutsche Bank.
We believe there will be a rapid erosion in OPEC spare capacity over time.
This will be driven by a lack of investment in new productive capacity across the OPEC countries.
Indeed the Arab Spring has increased social spending and reduced efforts to end fuel subsidies for domestic consumers.
Prestige Economics. Economic Growth in a High Oil Cost Environment. Just one thing they said caught my eye: “The energy saved annually from telecommuting could exceed the output of all renewable energy sources combined.”
Charles A. S. Hall. Sustainability for the second half of the age of oil.
Hall’s book “Energy and the Wealth of Nations” is at the top of my booklist.
Slide 2: The dirty secret to wealth production: Use more energy – the chart shows energy production and GDP are directly related. slid 14: USA oil field sizes slide 45: history of booms and busts in beavers, gold, timber, etc
Robert Rapier. Imagining a world of increasing oil scarcity.
slide 11: 1. Oil exporters/OPEC „H83% of the world¡¦s remaining proved oil reserves are controlled by OPEC and Russia. Higher oil prices lead to higher revenues which generally leads to higher government spending. n 2009, Saudi Arabia required oil at $65/bbl to balance their budget; by 2011 their requirement was $80/bbl.
slide 24: Politicians do not understand the energy markets, so when they meddle they usually make matters worse. People will generally vote out politicians who force them to sacrifice (with allowances for emergencies)
Douglas-Westwood. Oil, Gas, and the economy. Last slide:
Global economy is supply-constrained for oil
Adjustment must therefore occur mostly on the demand side
Oil markets should find fundamental support around $105
Oil price increase 7% from here on out
Natural gas has passed low point
Will increase to $5-8 over next several years.
As transportation fuel, will be worth $18+ / mmbtu