Guest Post: About That Shale Oil & Gas Miracle

Tyler Durden's picture




 

Submitted by Jim Quinn of the Burning Platform blog,

Not a day goes by without a story in the MSM by some industry shill like Daniel Yergen about the imminent energy independence of the Great American Empire. Shale oil and gas will revolutionize the American energy prospects. We have hundreds of years of oil and gas under our feet. We will be a net exporter in the next few years. A glorious future awaits. Politicians tout the billions of barrels to be extracted from Bakken, Eagle Ford and the hundreds of untapped shale formations across the country. Wall Street puts out glowing investment analysis papers promoting the latest IPO. There’s just one little problem. It’s all hype.

Royal Dutch Shell is one of the biggest corporations in the world, with financial resources greater than 99% of all the organizations on earth. Their CEO probably knows a little bit more about oil exploration than the Wall Street systers and CNBC bimbos. His company has poured $24 billion into shale exploration in the U.S. It has been a huge failure. They have already written off $2.1 billion. They are trying to sell huge swaths of land in the Eagle Ford area. They are losing money in the shale oil and gas business. If Shell can’t make it profitable, who can?

The flow rates are too low. The extraction costs are too high. Companies will only invest in ventures where they have a reasonable chance to make money. Shell is a rational company, led by a rational man. He says they can’t make money. Of course, if oil prices reach $150 and natural gas prices reach $8, then companies can make money. All of the cheap easily accessible oil and gas have been accessed. Only the expensive hard to access oil and gas are left. The shyters never mention these facts when they tout our future energy independence.

Reality is a bitch. The truth will set you free.

   

Peter Voser says he regrets Shell’s huge bet on US shale

By Guy Chazan

Peter  Voser said the failure of Royal Dutch Shell’s huge bet on US shale was a  big regret of his time as chief executive of the company.

Speaking to the Financial Times three months before he is due to step down,  Mr Voser also described the technical setbacks Shell has suffered in its  exploration campaign off the coast of Alaska as one of his greatest  disappointments in the job.

Shell has invested at least $24bn in so-called unconventional oil and gas in  North America. But it is a bet that has yet to pay off. Its North American  upstream business has struggled to turn a profit and in August Shell announced a  strategic review of its US shale portfolio after taking a $2.1bn impairment. “Unconventionals did not exactly play out as planned,” Mr Voser said.

He will be replaced next year as head of Europe’s largest  oil company by market value by Ben  van Beurden, the company’s current head of refining and marketing.

A Swiss national, Mr Voser was part of the executive team that steadied Shell  in the aftermath of a reserves misreporting scandal in 2004 that rocked investor  confidence in the company.

As CEO from 2009, he is credited with overhauling the company’s notoriously  complex structure and delivering some of the largest projects in Shell’s  history, including a $19bn gas-to-liquids plant in Qatar.

He also reaffirmed Shell’s status as one of the leading  innovators in the oil industry by moving ahead with the world’s first  floating liquefied natural gas project.

But his last months in the job were tarnished by Shell’s setbacks in the US.  Like other majors, it entered the American shale sector late in the game and was  accused by some investors of overpaying for assets. Its earnings were then hit  when a supply boom pushed US gas prices to 10-year lows.

As well as its $2.1bn  writedown, mostly related to its US tight oil assets, Shell also said its US  exploration and production business was lossmaking and would likely remain so to  the end of the year and possibly beyond.

Just last month, Shell said it had put its acreage in the  Eagle Ford shale in Texas up  for sale, as part of a strategic review of its US shale portfolio.

Mr Voser said Shell’s Upstream Americas business was in the red because of a “strategic decision to slow down” on shale in the face of low gas prices. “Therefore you are hit with more than $3bn of depreciation whilst you don’t have  the revenues against it,” he said.

He also acknowledged that exploration results in the US shales had been  disappointing. “We expected higher flow rates and therefore more scalability for  a company like Shell,” he said.

Shell’s US unconventional oil and gas operation was an “emerging strategic  business which needs attention, needs fixing over the next two, three, four  years”. He said an expected increase in the company’s tight oil production in  the US “will help us get into a more reasonable profit and cash position in the  future”.

Mr Voser also said rhetoric about the US shale revolution being exported to  other countries was “hyped”, and that the rest of the world was in an early “exploration phase” which could yield “negative surprises”.

He singled out China, where Shell has drilled 22 wells, as one of the most  prospective countries for shale gas, but warned that costs there were higher  than in the US.

Mr Voser acknowledged problems in Alaska, where Shell has spent nearly $5bn  on an offshore exploration campaign but has yet to complete a single well, amid  regulatory and technical problems.

He pointed to the failure of a containment dome, a piece of equipment  designed to catch any oil leaking on to the seabed, which was damaged during  testing last year.

“That was a big disappointment to me personally,” he said. The incident  forced Shell to delay its drilling plans, and Mr Voser said the company still  didn’t know “if we’ll go back [into Alaskan waters] in 2014 or 2015”.

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Mon, 10/07/2013 - 14:02 | 4031111 TheMayor
TheMayor's picture

He should have invested in North and South Dakota, not Alaska.

There, problem solved.

Mon, 10/07/2013 - 14:08 | 4031122 hedgeless_horseman
hedgeless_horseman's picture

 

 

There’s just one little problem. It’s all hype.

 Really?  The crude oil coming from shale plays in Texas and North Dakota seems real enough.

Mon, 10/07/2013 - 14:12 | 4031149 Flakmeister
Flakmeister's picture

You do understand API>45 condensate coming out of the EFS is not oil, do you?

Mon, 10/07/2013 - 14:21 | 4031158 hedgeless_horseman
hedgeless_horseman's picture

 

 

Definition of Crude Oil for chart data.

Honestly, though, I don't care.  I am making money off the steel going into the ground, not the stuff coming out.

 

Check the date--------------------------------------------------->

Wed, 11/17/2010 - 13:48 | Link to Comment

hedgeless_horseman

hedgeless_horseman's picture

Hey man, I am peak oil aware.  Check my history on this blog. 
Nevertheless, you do know that producers in Eagle Ford are using
horizontal drilling and fracking technology to produce oil, not gas? 
They are having success all the way up to Dallas county.  I know this
only buys a few months of global demand, but Kunstlers statement re
shale requiring huge investment is false.  This I do know, and with this
knowledge has come some excellent returns.

Mon, 10/07/2013 - 14:28 | 4031194 Flakmeister
Flakmeister's picture

Fine, but I didn't realize that you were merely talking your book...

http://www.rbnenergy.com/too-wrong-for-too-long-the-eagle-ford-crude-condensate-challenge

The liquids are counted as oil, but they ain't...    They only have ~67% of the energy density of crude....

Edit: here is another article

http://www.rbnenergy.com/dont-let-your-crude-oil-grow-up-to-be-condensate

Mon, 10/07/2013 - 14:28 | 4031216 MiguelitoRaton
MiguelitoRaton's picture

1. The large companies like Shell have a very high-cost business model developed around more traditional (low-intensity) drilling. This model does not apply to high-intensity shale drilling.

2. Don't confuse the ROI (eROI) or net energy between shale oil and oil shale, VERY different in every way!

3. It is costly, but it is plentiful and we have only begun to tap the opportunity (although it is larger in Russia, Brazil, China and other areas than in the US.

In other words, you are wrong about everything...

Mon, 10/07/2013 - 14:38 | 4031230 Kirk2NCC1701
Kirk2NCC1701's picture

And fracking requires only Benny Bucks, Labor and Energy, right?  No vast amounts of H2O needed?

Just want to make sure people are doing the NPV equivalent of drilling, by calculating the TCO (TOTAL Cost of Ownership).  Otherwise, it's a.... "shell" game, propagated by snaky oil salesmen.

Mon, 10/07/2013 - 14:40 | 4031274 MiguelitoRaton
MiguelitoRaton's picture

A typical golf course takes 51M gallons per year (much higher in the desert). the typical oil fracture process takes 2MM gallons (down from 5MM). So the water for a single year of watering a golf course equates to fracturing enough wells to provide the gas for cooking, space heating and water heating for 500K homes or about the population of Houston (although their space heating requirements are low). Houston has 165 golf courses. So in other words the water usage is a red herring that only works on the uninformed.

Mon, 10/07/2013 - 15:17 | 4031421 Tall Tom
Tall Tom's picture

Right now the Shale Wells are producing 2M Barrels per day. That production is expected to grow. Of course Water usage will grow along with the new wells. We use roughly 18M bbl of Oil per Day in a Depressed Economy. That usage will also increase IF there is ever an Economic Recovery...which is doubtful.

 

Furthermore Shale Oil Wells deplete at a rapid rate. This encourages more drilling and increased water usage as a result. The Water used now with existing wells is a static point.

 

What you are not considering are the DIFFERENTIALS when projecting the growth of production into the future. In order to grow production to what America uses CURRENTLY it will take at least 9 Times as much water if it were a linear relation. But because of the rapid depletion rates of Shale Oil Wells the water usage will grow EXPONENTIALLY just to maintain a constant production level.  All growth is Exponential.

 

Exponential Growth leads to Exponential Collapse. Thus it is both unsustainable and unfeasible.

 

You may make money in the short term. But it is just like any other Ponzi Scheme. The first "investors" get paid while the rest of the suckers will lose.

 

So what is the Red Herring argument for the uninitiated really? Aren't you the one providing the Red Herring by comparing Today's minute water usage comepared to Houston Golf Courses?

 

Knock yourself out. If you buy into this you are buying into a false panacea. Fresh Water is a limited resource as well as Shale Oil. Exponential Growth in limited resource environment is destined for failure. That is the inherent outcome.

 

Of course you may not care as it is all about you, you and your personal profits, your greed, right?

 

You will reap what you sow and the next ten generations will pay the price. So much for morality.

 

Go ahead. Justify it. Don't think about this. And by all means give it a Red Disapproval. By all means never learn Math. That is only for nerds.

Mon, 10/07/2013 - 16:20 | 4031709 SRSrocco
SRSrocco's picture

By the way, for all those who were putting a great deal of faith in that OIL SHALE, Shell drops another Hammer:

Shell Abandons 800 Billion Barrel Deposit, Beaten by the Regions Geology

Looks like Shell is abandoning its 800 billion barrel OIL SHALE deposit in Colorado after 31 years of experimentation to focus on more PROFITABLE projects.  Furthermore, Chevron pulled out of its OIL SHALE project last year.

That chart that Jim Quinn put in his article I put together a few years ago in my PEAK SILVER ARTICLE.  OIL SHALE's EROI is worse than SHALE OIL.

OIL SHALE EROI = 1.5-2/1

Yeah, the Tight Oil plays will add a bit more oil so the United States can continue driving SUV's going to Starbucks for a cup of coffee for a few more years.

I would like to add, that even though some of these smaller Shale Oil Companies are making money, it looks like they don't really care about putting in much of the way of FUNDS to help repair and maintain the roads that are being destroyed by Fracking & Oil Transporation Fleets.

I have seen figures in the $billions for road repair in Texas and the local govts have only received a fraction of that amount.

Yeah... SHALE OIL & GAS is a GOOD DEAL if you can get in quick make some profits while refraining to pay external costs to infrastructure and etc.

Mon, 10/07/2013 - 16:54 | 4031821 Flakmeister
Flakmeister's picture

Pretty much on target....

The 800 billion was boe OOIP so the number was always hyped beyond belief, sort of like saying that 500 million tons of Tater Tots have the equivalent of 500 tons of enriched Uranium as a fuel input to reactor...

The Green River deposits Shell are walking away from are properly referred to are kerogen, the geological precursor to oil. It is a rock that may feel a bit waxy if the organic content is great enough... 

There are some bitumen deposits in the area but that cannot be mined like in Alberta and given the water required to extract them, they might as well be on the moon....

Mon, 10/07/2013 - 18:37 | 4032163 SRSrocco
SRSrocco's picture

Flak... agreed.  Tater Tot Uranium Equivalent... good laugh. It's always nice to find some humor in society that is about to collapse.  Yeah, OIL SHALE or KEROGEN RESOURCES is siimlar to stating "Water Reserves contained in all the paved cement in all the U.S. Interstate Highways."

One more tidbit... some of the larger Shale Oil Companies may be stating positive NET INCOME, but they got serious NEGATIVE FREE CASH FLOWS.

According to the ENERGY POLICY FORUM:

EnergyPolicyForum stated:

“Free cash flow of Continental Resources, a big player in the Bakken, has dropped from a loss of ($430M) to a loss of ($2.4B) since 2010. And Continental is not the only one. Devon Energy’s free cash flow has dropped from ($1.2B) to a significant ($3.5B) over the same time frame. Range Resources, who are drilling primarily in the Marcellus, booked a negative free cash flow of ($556M) in 2010 and this has deteriorated to ($1.0B). Kodiak Oil and Gas, another Bakken player, had negative free cash flow in 2010 of ($170M). It has now deteriorated to ($1.0B)

----------

This kind of reminds me of a line by ole George Carlin... FOLKS, THERE'S A LOT OF BULL SH*T OUT THERE AND IT AINT GOOD FOR YOU."

Mon, 10/07/2013 - 21:52 | 4032764 James_Cole
James_Cole's picture

This kind of reminds me of a line by ole George Carlin... FOLKS, THERE'S A LOT OF BULL SH*T OUT THERE AND IT AINT GOOD FOR YOU."

Yeah, the shale dream was / is financed by wallstreet and is about as reality based as your average twilight movie. 

The good news is, in 20 yrs all this stupid shit will be nothing but a bad memory starring mostly forgotten greedy morons.  

http://solartribune.com/wp-content/uploads/2011/07/nrel.gov-solar-cells-...

Mon, 10/07/2013 - 18:44 | 4032213 883dave
883dave's picture

Out of the typical Frac of 2MM gallons, 10% to 30% comes back to the surface with the gas. This leaves 1.4 to 1.8MM gallons of water that is absorbed into the formation.

At the golf course the water is kept in the ecosystem, we get to use it again.

Water usage is the red herring of the uninformed, the real problem is the 70% to 90% of the usable potable water that we take from the surface of the planet and leave underground. 

This water will eventually migrate up to the surface so we can use it again, but what is the time frame? hundreds, thousands, millions of years.

 

 

Mon, 10/07/2013 - 19:33 | 4032391 AGuy
AGuy's picture

"Water usage is the red herring of the uninformed, the real problem is the 70% to 90% of the usable potable water that we take from the surface of the planet and leave underground. "

Water that is sequestered permanently underground isnt the problem. The World surface is 70% water. The issue is that fracking demands a lot of water, which is outstriping the available supply in these regions. Most of the regions where fracking occur have insufficent water resources before fracking. At some point Fracking will consume 100% of the avail water supply preventing further expansion. The only solution is to build expensive piplines that may be hundreds of miles long to bring in more water. This of course drived up costs even when fracking is already very expensive compared to conventional drilling.

The Second issue is that may of the Well casing are done piss poor as the workers are paid on how quickly they can complete a well. So they end up doing shoddy work that permits the water to seep around the casing and contaminate ground water systems, making it useless of drinking and irrigating crops.

Mon, 10/07/2013 - 20:01 | 4032489 Kirk2NCC1701
Kirk2NCC1701's picture

Sounds like the the only true winner in Fracking -- w/o any "unintended consequences" -- is the drilling industry and its suppliers. 

Bullish for Dick Cheney & Friends.  And the brokers/traders who trade their stock.  Just so we're clear who the beneficiaries and the shills are.

"Where your treasure is, there will your heart be also." - Jesus (Matthew 6:21)

Mon, 10/07/2013 - 22:23 | 4032837 MiguelitoRaton
MiguelitoRaton's picture

And your PROOF on the leakage around casings is....well...non-existant. 

Tue, 10/08/2013 - 09:29 | 4033476 883dave
883dave's picture

Yes 70% of the world surface is water, 2.5% of this is fresh water. 70% of the 2.5% of fresh water on the planet is stored in ice and mountian snow pack.

Fracking uses fresh water, and yes it is outstripping the available water in some regions. 

So once we sequester 1%, 2%, 10% or ?% of the available fresh water underground, do we start to use salt water to drink?

 

Mon, 10/07/2013 - 14:34 | 4031236 CrashisOptimistic
CrashisOptimistic's picture

The chart says shale oil for the EROI number, not oil shale.  They are very different.  The number is for shale oil.  Oil shale is far worse.

Mon, 10/07/2013 - 14:43 | 4031281 MiguelitoRaton
MiguelitoRaton's picture

True on eROI. It doesn't show Corn ethanol, which depending upon who you ask ranges from 1.3 to .8 and uses FAR more water AND leaches pesticides and fertilizer into the water table.

Mon, 10/07/2013 - 19:35 | 4032403 AGuy
AGuy's picture

"True on eROI. It doesn't show Corn ethanol, which depending upon who you ask ranges from 1.3 to .8 and uses FAR more water AND leaches pesticides and fertilizer into the water table."

I think you mean -1.3 to .8. Corn enthanol has a negative return on energy. They don't use ethanol to distill it, they use NatGas or Coal. The only reason it produced for fuel is because of a gov't mandate.

 

Mon, 10/07/2013 - 20:42 | 4032599 Cloud9.5
Cloud9.5's picture

What happens to the sour mash after it comes out of he still?  My grand pa fed his to his pigs.

Mon, 10/07/2013 - 14:37 | 4031264 Flakmeister
Flakmeister's picture

There are two oil shale plays that have been demonstrated to be profitable, they respresent about 3% of world liquids production adn both are on course to peak out and crash after about ~25% higher rates within 5 years. This is a revolution?? This is the global equivalent of scraping your hashpipe for a hit...

So put down the hopium pipe and plan accordingly... 

Finally, don't fucking dare put words in my mouth, show me where I discussed EROEI or ROI...

Mon, 10/07/2013 - 19:35 | 4032395 BigJim
BigJim's picture

Did you hear that, sonny? Don't you DARE put words in The Flakman's mouth!

Just get him onto the subject of AGW and you won't have to...

Mon, 10/07/2013 - 19:54 | 4032460 Flakmeister
Flakmeister's picture

You might enjoy this, but I feel it is above your pay grade....

http://www.nature.com/nature/journal/vaop/ncurrent/full/nature12534.html

Ta ta....

Mon, 10/07/2013 - 20:22 | 4032548 phaedrus1952
phaedrus1952's picture

Greetings, Flak. I always enjoy reading your input on the Hedge, even though I disagree with about 110% of your views. Gotta call you on this one, though.  If one of your "profitable" shale plays is the bakken, well ... I'd be prone to being somewhat cautious prognostication-wise.  The field has yet to be delineated (the outer geographical limits, that is.  Chesapeak just lost 60 million "finding"  the southwest boundaries).  Most significantly, the underlying formations (the various benches of the Three Forks and the Tyler formation to mention just two, have completely unknown potential ... although Hamm recently speculated the Three Forks may hold as much recoverable hydrocarbons as the Bakken formation.

As relevant as anything in these discussions, imho, is the phenomenal pace of innovation in this industry. The Initaial Production as well as improving  extraction processes are producing far, far more product than even imagined a year or so ago.  Look up ANY output predictions regarding the Bakken from 2010 or 2011 and you can see how they have been stunningly surpassed.

I sure appreciate the passion you all bring to these discussions, Flak, but, damn, Sam ... like the guy once said "You are entitled to your own opinions, but not to your own facts."   Best regards,  Gerard

Mon, 10/07/2013 - 21:53 | 4032772 CrashisOptimistic
CrashisOptimistic's picture

"I am loathe to predict the output of the Bakken because in 2009 and 2010 I didn't think it would amount to much, and now it's approaching 1 mbpd."

Reply was:

"In 2009/2010 the price of oil was $65/barrel.  If it still was, it would be producing nothing and you would have been right."

There's no real new technology there.  Fracking and horizontal drilling were used in Texas in the 1990s and shut down because uneconomical.

This oil is coming from price, not tech.

Mon, 10/07/2013 - 23:14 | 4032940 phaedrus1952
phaedrus1952's picture

Hey Crash, This is the kind of statement that makes me prone to  discontinue discussions with people holding different perspectives from me. I truly seek out informed, hopefully high integrity  people who see things from a different slant. Debating with the motherfucker looking back at me in the mirror as I shave is not a productive use of my time. HOWEVER ... to use the phrase "there's no real new technology there" is both accurate and grossly misleading.  Horizontal drilling and fracking certainly have been utilized for some time now, but there have been significant advances in just these past ten years or so.  Multi well drilling per pad as well as multi level lateral drilling are exponentially lowering the cost of operations.  Multi stage fracking enables much higher and more complete extraction of the hydrocarbons.  As I've said elsewhere on this thread, the real game changer may well be waterless fracking, even using the targeted wells own gas as the liquified, carrying medium.

To say this technology is not new is, I think, disingenius. Of course, higher pricing will spur more activity, but I truly do not get your point in saying that.

Tue, 10/08/2013 - 00:15 | 4033040 Flakmeister
Flakmeister's picture

In the oil patch, price and technology are interchangeable. If he price is high enough, technology can coax flow but only at the price of a steep declines....

No matter how you cut it, you are running out of Bakken that is worth drilling, 

http://www.reuters.com/article/2013/05/08/column-kemp-us-oilwells-idUSL6N0DP2LW20130508

tie that in the Hughes analysis in "Drill Baby Drill" from the post-carbon inst...

Crash does tend to overemphasize EROEI. The decline in the metric is telling us we are are going to hit the wall very soon but in the mean time is is party on as long as liquids are the outcome of your BTU arbitrage. So while I think that EROEI is not a real factor yet, it will be... 

And people being overly enamoured of EROEI beats the hell out of wingnuts touting abiotic oil as manna from heaven....

Mon, 10/07/2013 - 22:13 | 4032812 James_Cole
James_Cole's picture

I sure appreciate the passion you all bring to these discussions, Flak, but, damn, Sam ... like the guy once said "You are entitled to your own opinions, but not to your own facts."   

http://peakoilbarrel.com/bakken-update-july-production-numbers/

Tue, 10/08/2013 - 11:49 | 4033991 IrritableBowels
IrritableBowels's picture

"The big jump was caused by a record number of additional wells in the Bakken. There were 206 additional wells in the Bakken in July, the exact same number as as in all North Dakota."

Mon, 10/07/2013 - 14:52 | 4031314 Nothing but the...
Nothing but the truth.'s picture

An even bigger problem is that when all the prospectors finally come to the same conclusion our environment will already be fooked.

Mon, 10/07/2013 - 16:07 | 4031344 epwpixieq-1
epwpixieq-1's picture

"It is costly, but it is plentiful"- clearly misunderstanding of the physical reality.

A simple "similar" statement "Gold is costly, but it is plentiful" and is absolutely true. There is so much gold in the world Waters and Soil too, but is PROHIBITIVELY costly ( hint, it requires A LOT of ENERGY ) to extract. And by the way when you speak about cost better speak in energy terms because otherwise nothing makes sense ( to an inquisitive person ), and everything is diluted.

On (implied) thing in the above statement that is not mentioned loudly, although it is true, it does not require changing big part of the underlying infrastructure for fuel distribution, and this is where the big benefit ( or problem if you look from alternative energy stand point ) is, for it will not require changing/shifting the power structure in the society.

The problem is extremely deep and complex, and simplisitc wrong (even stupied) statement like this can only confuse some of of the readers that do not have knowledge of the energy dynamic and associated with it wealth dynamic of the world. For one thing is sure. All wealth in the world, is ( more or less ) tied to the Energy we can control.

 

Mon, 10/07/2013 - 14:35 | 4031242 Herd Redirectio...
Herd Redirection Committee's picture

"Kunstlers statement"

Talking your own book...

Dodgson, we got Dodgson here!

Mon, 10/07/2013 - 19:44 | 4032422 Jumbotron
Jumbotron's picture

but Kunstlers statement re
shale requiring huge investment is false.  This I do know, and with this
knowledge has come some excellent returns.

 

Bullshit Hedgeless.  It takes oil over 80-90 dollars a barrel to justify the cost for the return.

It's your right to flip shale plays like your flipping houses.  But you're still a douche for doing so.   For you are propping up with your money not with the sweat of your brow a failing dream of eternal cheap energy and the bullshit economic system and lifestyle that it has brought and was promised to us all in perpetuity.

Fuck you and your excellent returns.  They won't be worth shit much longer with a QEternity fueled blowup the likes of which will make Tugunska look like a bottle rocket.

Mon, 10/07/2013 - 14:22 | 4031191 prains
prains's picture

there's so much bullshit and sell side spin surrounding Shale Oil that it's virtually impossible to know what the fuck is really going on.....except for one thing....big oil is involved.... and big oil would fuck a dead donkey for a dollar, that is a certainty y'all can take to the bank, they've been fucking that donkey for decades and they ain't stoppin now

Mon, 10/07/2013 - 14:31 | 4031228 bagehot99
bagehot99's picture

This is not to say, and Voser doesn't say, that shale is a not better and profitable play for smaller, specialist firms. That is how you make money in Shale. People who own refineries and operate at that scale cannot operate a scattered site production infrastructure, which multiple small companies can. 

Mon, 10/07/2013 - 14:33 | 4031233 Harbanger
Harbanger's picture

"Shell is a rational company, led by a rational man. He says they can’t make money. Of course, if oil prices reach $150 and natural gas prices reach $8, then companies can make money."

At the pace that we're monetizing debt, I don't see those prices as far fetched.

Mon, 10/07/2013 - 14:35 | 4031251 CrashisOptimistic
CrashisOptimistic's picture

Irrelevant. Oil hit $147 in 2008, long before QE was a phrase even in the lexicon.

Recognize the meaning of that table of EROIs.  It defines the future.  Not money.  Money is an imaginary item.  Joules are not.

Mon, 10/07/2013 - 14:53 | 4031312 Kirk2NCC1701
Kirk2NCC1701's picture

+1.  Note that one does not need a degree in physics or math to sell stuff (Oil, Financial 'Products', Services, Newsletters...)  You just need better math skills than you 'mark'.  ;-)

But it helps to have a real degree, if you intend to plan an Energy future that has... 'legs'.

Mon, 10/07/2013 - 19:10 | 4032314 AGuy
AGuy's picture

"Irrelevant. Oil hit $147 in 2008, long before QE was a phrase even in the lexicon."

GreenSpan dropped rates to 1% and told everyone listening to go by a home or a second home using an ARM. You could call that QE-light since it had the same effect by driving up asset prices. If Greenspan didn't drop rates, the price of oil would have risen considerably slower than it did.

 

 

Mon, 10/07/2013 - 18:35 | 4032168 11b40
11b40's picture

My thoughts exactly.

Prices will rise as suply tightens.  As prices rise, conservation/innovation will kick in.  We will adapt over time.  There are still huge savings to be had in right-sizing, insulating, and general energy effeciency.  Solar, wind, and battery technology continue to improve and will keep getting more competitive as prices rise.  One day, we may even find a way to truly clean up coal energy, and if that happens, America is off to the races.

Technically, if you can afford the start-up now, you can make your home an energy profit center over time.  You can also trade in the SUV for something that gets you 40-50 mpg.

There is nothing to replace the bang you can get from refined petroleum at this point.  As it gets more expensive, it will be used much more conservatively and for the things that absolutely demand it.  Heating water for your shower or central heating unit with petroleum products is a waste.

We will adapt; we will survive.  If we had a brain, we would already have been taxing it and using those taxes to jump-start green enrgy companies & garage mechanics tinkering around on their own, unique ideas.  The country was on a rapidly growing trend-line in the late 70's & early 80's when we had all the tax credits for insulation, winterizing, and solar, but the Reagan revolution put a stop to all that non-sense.  After all, this is the American Empire.  Get out of my way, bitchez, or I will run you over with my Hummer!

Mon, 10/07/2013 - 20:02 | 4032495 Jumbotron
Jumbotron's picture

"Prices will rise as suply tightens.  As prices rise, conservation/innovation will kick in.  We will adapt over time.  There are still huge savings to be had in right-sizing, insulating, and general energy effeciency.  Solar, wind, and battery technology continue to improve and will keep getting more competitive as prices rise.  One day, we may even find a way to truly clean up coal energy, and if that happens, America is off to the races."

Are you serious or high?  That is the MOST assinine statement to date.  All of your high tech magical advances came about not because of higher prices....but through cheap energy.  What you say about adapting is true.  But not to ever higher technological achievements in solar tech and batteries which are coming about, once again, not because of higher prices....but through huge industrial economies of scale made possible due to cheap energy.  Take away the magic and most innovations of the high tech sort will begin to starve and dwindle. 

We have had battery technology ( at least drawings showing crude chemical battery designs for nearly two thousand years).  Yet the best we can do for long term storage are banks of heavy lead acid.....or light weight but short life lithiums prone to explode.  Or NiCad's which are chemical nightmares.  Don't EVEN get me started on hybrids or Tesla's.

We've NEVER spent more money on all of this green tech (and I think we should), however, let us do ourselves a favor and not blow sunshine up our ass with a wind turbine about how we get there.  It SURE as hell will not come from scarcity of cheap energy and higher prices.  That only makes the even more expensive Green Tech viable for personal use.  It WILL NOT fuel future innovations.  That takes LOTS and LOTS of cheap energy......which we do not have any more of.

Mon, 10/07/2013 - 14:57 | 4031338 surfersd
surfersd's picture

What does that mean? As Crude API moves to condensate it means that there are less heavy ends in the barrel and so less need for refinement. All refiners have to do is increase the heavy crude mix to offset the condensate's lack of heavy ends.

The refiners are not crying about this problem believe me. Particularly the fact that that this oil is being produced 100 miles from their refineries. Look to the Platts report that shows the massive pipeline and terminal  infrastructure that is being put in place around this non-crude.

 

 

 

Mon, 10/07/2013 - 15:20 | 4031439 Flakmeister
Flakmeister's picture

They are.... the money is to be made in the distillates, not the light end....

http://www.rbnenergy.com/the-ethane-asylum-big-time-ethane-rejection

Mon, 10/07/2013 - 19:02 | 4032284 surfersd
surfersd's picture

Distillates are the light end. Butanes/Gasoline/Distillates are the light end. Residual fuel, bunker fuel, asphalt and petroluem coke is the heavy end.

Mon, 10/07/2013 - 19:58 | 4032477 Flakmeister
Flakmeister's picture

I was referring to diesel...  mea culpa, the heavy part of the light end... 

Mon, 10/07/2013 - 14:13 | 4031153 The man with po...
The man with pointy horns's picture

How much of this increase in production is because of exponential expansion of shale gas and shale oil? Given these rapid depletion rates how soon will it be when that North Dakotan and Texan crude oil production comes plummeting down?

Mon, 10/07/2013 - 14:52 | 4031324 firstdivision
firstdivision's picture

I would wager quite soon as there are some big boys trying to sell off the mineral rights they bought, without even placing a platform on the land. 

Mon, 10/07/2013 - 20:42 | 4032600 phaedrus1952
phaedrus1952's picture

While only the future will show how this plays out, I feel highly confident, based on the most recent - ie. last few months published figures -  that the depletion rate will be far more acceptable from a business perspective, as well as the rapidly improving initial production rates.  The accompanying chart to this article shows a 1,000 barrel IP well still generating $10,000 a day revenue (@$100/bbl) ten years down the road.  The Bakken is now regularly producing wells with 3 to 5 thousand/day IP wells.

As waterless fracking technology - still in its infancy - becomes the norm - worldwide shale production is apt to explode.

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