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    Crude oil time-spreads have completely dislocated from inventories. Historically, such dislocations have proved to be short lived. We expect that either spot prices will sell-off again or the back...

Peak Oil Revisited...

Tyler Durden's picture




 

Submitted by Brian Davey via FEASTA blog,

In a lecture to the Columbia University Center on Global Energy Policy in February of 2014 Steven Kopits, who is the Managing Director of the consultancy, Douglas Westwood explains how conventional “legacy” oil production peaked in 2005 and has not increased since. All the increase in oil production since that date has been from unconventional sources like the Alberta Tar sands, from shale oil or natural gas liquids that are a by-product of shale gas production. This is despite a massive increase in investment by the oil industry that has not yielded any increase in ‘conventional oil’ production but has merely served to slow what would otherwise have been a faster decline.

More specifically the total spend on upstream oil and gas exploration and production from 2005 to 2013 was $4 trillion. Of that $3.5 trillion was spent on the ‘legacy’ oil and gas system. This is a sum of money equal to the GDP of Germany. Despite all that investment in conventional oil production it fell by 1 million barrels a day. By way of comparison investment of $1.5 trillion between 1998 and 2005 yielded an increase in oil production of 8.6 million barrels a day.

Further to this, unfortunately for the oil industry, it has not been possible for oil prices to rise high enough to cover the increasing capital expenditure and operating costs. This is because high oil prices lead to recessionary conditions and slow or no growth in the economy. Because prices are not rising fast enough, and costs are increasing, the costs of the independent oil majors are rising at 2 to 3% a year more than their revenues. Overall profitability is falling and some oil majors have had to borrow and sell assets to pay dividends. The next stage in this crisis has then been that investment projects are being cancelled – which suggests that oil production will soon begin to fall more rapidly.

The situation can be understood by reference to the nursery story of Goldilocks and the Three Bears. Goldilocks tries three kinds of porridge – some that is too hot, some that is too cold and some where the temperature is somewhere in the middle and therefore just right. The working assumption of mainstream economists is that there is an oil price that is not too high to undermine economic growth but also not too low so that the oil companies could not cover their extraction costs – a price that is just right. The problem is that the Goldilocks situation no longer describes what is happening – another story provides a better metaphor – that story is ‘Catch 22’. According to Kopits the vast majority of the publically quoted oil majors require oil prices of over $100 a barrel to achieve positive cash flow and nearly a half need more than $120 a barrel. But it is these oil prices that drags down the economies of the OECD economies.

For several years however there have been some countries that have been able to afford the higher prices. The countries that have coped with the high energy prices best are the so called “emerging non OECD countries” and above all China. China has been bidding away an increasing part of the oil production and continuing to grow while higher energy prices have led to stagnation in the OECD economies. (Kopits, 2014)

Now lets put that in a bigger context. In a presentation to the All party Parliamentary Group on Peak Oil and Gas Charles Hall showed a number of diagrams on slides to express the consequences of depletion and rising energy costs of energy. I have taken just two of these diagrams here – comparing 1970 with what might be the case in 2030. (Hall C. , 2012) What they show is how the economy produces different sorts of stuff – some of the production is consumer goods – either staples (essentials) or discretionary (luxury) goods. The rest of production is devoted to goods that are used in production – investment goods in the form of machinery, equipment, buildings, roads, infrastracture and their maintenance. Some of these investment goods must take the form of energy acquisition equipment. As a society runs up against energy depletion and other problems more and more production must go into energy acquisition, infrastructure and maintenance – less and less is available for consumption, and particularly for discretionary consumption.

Whether the economy would evolve in this way can be questioned. As we seen the increasing needs of the oil and gas sector implies a transfer of resources from elsewhere through rising prices but the rest of the economy cannot actually pay this without crashing. That is what the above diagrams show – a transfer of resources from discretionary consumption to investment in energy infrastructure. But such a transfer would be crushing for the other sectors and their decline will likely drag down the whole economy.

Over the last few years central banks have had a policy of quantitative easing to try to keep interest rates low – the economy cannot pay high energy prices AND high interest rates so, in effect, the policy has been to try to bring down interest rates as low as possible to counter the stagnation. However, this has not really created production growth – it has instead created a succession of asset price bubbles. The underlying trend continues to be one of stagnation, decline and crisis. The severity of the recessions may be variable in different countries because competitive strength in this model goes to those countries where energy is used most efficiently and which can afford to pay somewhat higher prices for energy. Such countries are likely to do better but will not escape the general decline if they stay wedded to the conventional growth model. Whatever the variability this is still a dead end model and at some point people will see that entirely different ways of thinking about economy and ecology are needed – unless they get drawn into conflicts and wars over energy by psychopathic policy idiots. There is no way out of the Catch 22 within the growth economy model. That’s why de-growth is needed.

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Thu, 06/05/2014 - 19:20 | 4828427 Mark Urbo
Mark Urbo's picture

Peak Oil Debunked

http://peakoildebunked.blogspot.com/ 

It's all set forth in this article - peak oil alarmism is BS...

 

Thu, 06/05/2014 - 19:23 | 4828443 joego1
joego1's picture

Sorry, the page you were looking for in the blog Peak Oil Debunked does not exist.

Thu, 06/05/2014 - 19:23 | 4828447 Dick Buttkiss
Dick Buttkiss's picture

Exactly.

Thu, 06/05/2014 - 19:25 | 4828452 0b1knob
0b1knob's picture

One look at the chart shows the real problem.  Staples.   We are spending WAY too much on staples.

I suggest we switch to paper clips.  Reuseable on eco friendly.

Thu, 06/05/2014 - 19:34 | 4828472 Winston Churchill
Winston Churchill's picture

Do they come with pink slime ?

Thu, 06/05/2014 - 20:35 | 4828621 dryam
dryam's picture

Peak Cheap Oil is the key concept, not Peak Oil. 

We are clearly past Peak Cheap Oil, and this is the main reason why the world will be in a state of contraction into perpetuity no matter how much money the central banks around the world print.  Growth is over with.  Get over it. 

Thu, 06/05/2014 - 20:44 | 4828643 BringOnTheAsteroid
BringOnTheAsteroid's picture

It's ironic but the concept that cheap oil no longer exists sort of parallels that fact that your blog doesn't exist either.

Thu, 06/05/2014 - 21:41 | 4828773 That Peak Oil Guy
That Peak Oil Guy's picture

Goldilocks is staying for a week, and she ran out of "just right" after two days...

Fri, 06/06/2014 - 00:01 | 4829073 0z
0z's picture

This is from the "Peak-oil debunked" Page:

DISCLAIMER FOR IDIOTS: This site officially accepts that oil is finite, and will peak someday. 

That is funny! 

Fri, 06/06/2014 - 00:53 | 4829139 Flakmeister
Flakmeister's picture

Plausible deniability at its finest...

Fri, 06/06/2014 - 06:03 | 4829307 Postal
Postal's picture

I've been told that I'm "just right"--and I'm sure I can keep her satisfied for more than two days...

Thu, 06/05/2014 - 20:44 | 4828644 Anusocracy
Anusocracy's picture

The real peak is worldwide peak government interference and its drag on the private economy.

If the cost of government is 53% of the economy in the US, imagine what the total incurred cost of the world's 70+ trillion dollar economy.

The great waste that is government is a major driving force in the high price and diminishing availability of oil.

Thu, 06/05/2014 - 21:03 | 4828689 Jumbotron
Jumbotron's picture

Uh Huh.....so if the economy REALLY TAKES off when we deregulate everything it will require EVEN MORE OIL.  When demand skyrockets so does depletion and price.

If that's what it takes for you to believe in the physics of Peak Cheap Oil....I'd be willing to deregulate EVERYTHING just to see that happen.

Humans without boundaries.....THAT'S worked in the past. 

Thu, 06/05/2014 - 21:14 | 4828719 NidStyles
NidStyles's picture

Humans can exist without boundaries? Where and how?

I see boundaries all the time, I can't produce without having some dickhead being jealous. I can't say anything without having to worry about hurting your pussified feelings. 

 

Humans without boundaries, shut the fuck up you little bitch.

 

Thu, 06/05/2014 - 22:41 | 4828899 Jumbotron
Jumbotron's picture

Ok...I know you're a little sensitive now....I mean being ass raped and all.  That kind of pain must last a while and makes you grumpy to boot.  I was using sarcasm against the stupid notion that if we totally unfetter the economy and you producers that somehow we would get back to $30 dollar oil and $1.50 gasoline.  You know..."Drill Baby Drill" ?  But I'm not surprised you didn't get it.....seeing as how your itty bitty feelings are getting hurt everyday by all those mean 'ol politically correct liberals.  I guess it would be insensitive of me to ask you in your present state of butt-hurtness how's that voting thing working out for you and your side?

Fri, 06/06/2014 - 04:07 | 4829255 OldPhart
OldPhart's picture

Damn, Dude.  I don't know NidStyles political/economic views...but if he's liberal, should we be mocking those that are facing the guillotine?

What are the ethics of mocking those that are mere cannon-fodder...should we mock them, warn them, mourn them?  What would be the approved, government PC approach to this clash of ethics be?

How should we reply to the mind-dead zombies that make shallow questions that lead to such deep pools?

Fri, 06/06/2014 - 08:16 | 4829453 NoDecaf
NoDecaf's picture

"How should we reply to the mind-dead zombies that make shallow questions that lead to such deep pools?"

You could probably start by recognizing an AnCap flag and what it means.

Fri, 06/06/2014 - 10:07 | 4829837 Flakmeister
Flakmeister's picture

The flag is also a hint about the bearers grasp of reality...

Hey, it is easy to come up with a pretend world where everything is just so...

Fri, 06/06/2014 - 12:37 | 4830410 NoDecaf
NoDecaf's picture

I'm not AnCap but I like their rainbows and unicorns better than the statist variety.

Fri, 06/06/2014 - 12:45 | 4830443 Flakmeister
Flakmeister's picture

Fair enough, but the state is here to stay, it is a byproduct of human civilization...

Fri, 06/06/2014 - 15:05 | 4830892 Anusocracy
Anusocracy's picture

Wake up.

It is a "byproduct" of animal social organization.

Nature gave us sex, man created lingerie.

Nature gave us social hierarchies, man created government.

Fri, 06/06/2014 - 15:13 | 4830924 Flakmeister
Flakmeister's picture

The state was created by those wishing to project power. And history has shown us that there is no shortage of volunteers lining up to try their hand at projecting power or die trying...

Get used to it, the state is a product of our own advancement. Unless, you think the hunter gatherer thingie is for you. Just don't get on the wrong side of the Tribal Elders and the local Shaman....

You are a hopelessly idealistic twit... 

Fri, 06/06/2014 - 15:00 | 4830872 Anusocracy
Anusocracy's picture

You are a one trick pony.

My point was how much of a resource, oil, is wasted by government in its quest to steal, kill, and destroy, all without producing jack shit in terms of wealth in return.

What is the ROI on the government's use of oil?

It is NEGATIVE.

Fri, 06/06/2014 - 15:23 | 4830966 Flakmeister
Flakmeister's picture

Ever occur to you that one of the primary purposes of the US military is so that you can exchange fiatcos for easily accesible oil?

And that if you couldn't do so that your standard of living would drop by 50% or so.....

Thu, 06/05/2014 - 22:14 | 4828850 AGuy
AGuy's picture

"Peak Cheap Oil is the key concept, not Peak Oil. "

We are getting close to the Peak:

1. Oil prices have been stuck at 100 because oil companies can't increase the price because any higher, and it will trigger demand destruction

2. Oil companies have run out of new places to drill that can produce Oil below $100

3. The Low cost producers are reaching state three depletion. KSA is now using CO2 injection to keep Ghawar alive. They been using horizontal drilling for nearly a decade and its run its course.

4. Oil majors have cut Cap-Ex spending this year. They are abandoning long term projects that that 4 to 8 years to bring Oil to the Market and now are just focusing on projects already underway.

Peak make occure as soon as this year or within the next 4 years. If a global recession occurs that it might mask the peak.

 

 

 

 

Fri, 06/06/2014 - 10:08 | 4829843 Flakmeister
Flakmeister's picture

The peak is not an event, it is a process...

And we are well into that process, 4th inning or so...

Fri, 06/06/2014 - 13:28 | 4830544 UrbanBard
UrbanBard's picture

You are involved in Socialist thinking. Debunked Club of Rome "Limits of Growth" thinking.

1.Oil companies don't have the ability to raise prices; there are too many factors. Governments and environmentalists have this ability by restricting places where companies can explore. LOL

What is demand destruction? Is it market information which would lower profits and taxes for oil companies? Or is it that this would damage the FED's ability to prop up equity values? That is, it would ruin the Keynesian con game?

I would appreciate a crash, because it would end manipulation and we would finally learn the true cost of everything. (Oil in terms of gold has never been lower.)

2. Many places to find oil have been placed off limits by the US Dept of the Interior and the Environmentalists: both American coasts, ANWR, the Colorado River shale deposits which are large enough to supply America for a hundred years, the Monterrey shale deposits in California, most exploration on public lands, etc.

3. It is a natural process that fields will decline until a new technology arrives to make production cheaper. Most the oil (90 to 95%) is still in the ground. Time will replenish most fields as it draws oil from local Shale deposits, but not fast enough to maintain a low price.

4. The Oil majors are incompetent at finding new oil, because they have no expertize in Fracking. Let them die.

New technologies always shake up the majors in any industry. Enormous amounts of natural gas are locked in Methane Hydrates on America's coasts, but the technology is not there to cheaply tap it. Japan will be inventing this technology in the next decade, because it needs energy for which it does not pay foreign exchange.

This is just markets in process. It is how people find substitutes.

People like you never expected the Shale oil and gas boom. You were unable to prevent this energy source from coming to market, because the exploration has only been on private lands. There may be much larger deposits on public lands which we are not allowed to explore for. Then you say that the lack of finding new fields means that we are running out of oil. Nonsense.

Fri, 06/06/2014 - 15:28 | 4830904 Flakmeister
Flakmeister's picture

Hee, hee, hee....

Clearly you are fool that has bought the standard lies hook line and sinker, or worse yet, a paid shill....

This ain't about ideology or the projection thereof...

BTW, the price oil in gold is much higher now than anytime between 1986 and 2000 (aside from the Gulf War I spike) and the correction in 2008-2009 is clearly over...

Taking todays Brent/Gold fix, i.e. 2.75 gr per barrel, one sees that before 2000, this was only exceeded during the Tanker War and the mid-70s....

So quit making shit up...

Thu, 06/05/2014 - 21:57 | 4828814 Mark Urbo
Mark Urbo's picture

Sorry - not sure why that link wouldn't work.

http://www.peakoildebunked.blogspot.com

Fri, 06/06/2014 - 08:08 | 4828886 prains
prains's picture

it didn't work because you're a fucking .gov tool you fucking loser!!!! propoganda only needs to be in one place...up your ass.

 

 

if we haven't reached peak fucking oil why are my buds stripping millions of metric tons of earth a few hours away from where I live to dredge up a pile of shit sand that has been soaked in the worst grade of hydrocarbon. Cleaning it with what little is left of our drinking water, piling the waste in giant fucking ponds of shit that will never disappear!! If we're not scraping the bottom of the barrel to get at this shit then YOU ARE A FUCKING R'TARD and there's no more Chablis for you

 

 

edit: Oh and I forgot.....they pile those giant mounds of shit right beside the Athabasca River. I'm not sure who's the bigger r'tard you or the fucking dumbass who dreamed up that idea

Thu, 06/05/2014 - 22:43 | 4828896 Dick Buttkiss
Dick Buttkiss's picture

Yep, no problem . . . as long as the cost to secure the flow of oil from the Middle East doesn't show up at the pump. (And this was eight years ago, when the price of oil was $60 a barrel, not $100.)

http://www.evworld.com/news.cfm?newsid=11520

 

Thu, 06/05/2014 - 22:42 | 4828901 FeralSerf
FeralSerf's picture

It worked for me. Maybe Big Oil is fucking with them.

Thu, 06/05/2014 - 23:45 | 4829042 malek
malek's picture

It doesn't work if you are using a referrer blocker.

Klick on the "Go to blog homepage" link on the lower left, and then it works as the error page in on the same domain as the target: your referrer blocker allows the referrer in that case.

Fri, 06/06/2014 - 04:12 | 4829256 OldPhart
OldPhart's picture

WTF?  "your referrer blocker allows the referrer in that case."

Too intenetal for me...(typing in www.spankwire.com)

 

Sat, 06/07/2014 - 13:47 | 4832731 malek
malek's picture

same domain allows referrer, usually:

going from http://www.zerohedge.com/news/2014-06-05/peak-oil-revisited to http://peakoildebunked.blogspot.com/ is to a different domain, so referrer (the URL you were before) is blocked (or given blank?)

going from http://peakoildebunked.blogspot.com/ to http://peakoildebunked.blogspot.com/ (crazy but really!) is same domain, so referrer is transmitted.

For unknown stupid reasons the peakoildebunked.blogspot.com website checks for a set referrer, otherwise gives you that "page not found" error.

Thu, 06/05/2014 - 19:23 | 4828444 NOTaREALmerican
NOTaREALmerican's picture

Well, the article is really about peak cheap oil, not peak oil.

Thu, 06/05/2014 - 19:33 | 4828467 Matt
Matt's picture

I think you are misunderstanding. Higher prices means less demand, so total production will be less.

Peak is about maximum flow rate (production) and has nothing to do with running out of supply.

With some serious changes to our economy and way of life, oil production may be able to increase for the next 30 years; however, it is a mathematical certainty that there will be a point of maximum rate of oil production, and after that point, total production will decline.

Thu, 06/05/2014 - 20:57 | 4828675 BringOnTheAsteroid
BringOnTheAsteroid's picture

You do realise the world uses around 90 million barrels of oil per day or 32 billion barrels a year based on a population of 7 billion. The worlds population is forecast to rise to 9 billion by 2050. As once third world countries become more and more prosperous and non-industrialized ones become industrialized the rate of consumption will go up logarithmically. The last major massive oil field to be dicovered was Bakken as far as I am aware.

Watch professor Allan Bartlett's lecture on the "The most dangerous thing facing the human race is our lack of understandning of the exponential function". It spells out all you need to know, crystal clear with simple mathematics. The worlds population is poised for a cataclismic fall which really shouldn't come as a suprise to anyone.

The bottom line is this. The only thing supporting the rate of growth of the human population is cheap oil. The rate cannot be sustained any other way. either the abundance of cheap oil increases as the population grows or the population falls. Once the population falls the problem of cheap oil will be resolved.

We are going to see it in our lifetimes I think.  

 

Thu, 06/05/2014 - 21:20 | 4828725 NidStyles
NidStyles's picture

consume =/= use

 

Using would imply something productive being done with it. I see all sorts of wasted applications thanks to the fed and the gubermints. Nothing a few low yield nukes can't solve though right? Wonder how many barrels those took to build and maintain... 

Fri, 06/06/2014 - 10:11 | 4829861 Flakmeister
Flakmeister's picture

So you should be arbiter of what productive oil use is?

Not that I don't agree with your premise, but who the fuck are you to tell anyone what to do? Especially given your political ideals....

And that in nutshell, is why you are an intellectually bankrupt blowhard...

Thu, 06/05/2014 - 21:27 | 4828746 SelfGov
SelfGov's picture

...and the Bakken isn't all its cracked up to be.

To supply its neighbor state with enough oil for 1 year North Dakota would have to drill and frack at least 116 shale oil wells and let them produce for 30 years.

 

Fri, 06/06/2014 - 12:48 | 4830458 Flakmeister
Flakmeister's picture

Don't be so hard on the Bakken, it is a great field....

But great fields are not game changers....

Thu, 06/05/2014 - 19:48 | 4828469 Thorny Xi
Thorny Xi's picture

If you had been paying attention for the past 7 or so years, you'd know that's what peak oil has been trying to communicate.  Our western ecology has been based on cheap oil.  Since 2007, that's been over.

Thu, 06/05/2014 - 20:38 | 4828581 ElvisDog
ElvisDog's picture

I would modify what you wrote slightly - the ecology of perpetual growth has been based on cheap oil, and not only cheap oil but ever cheaper and more plentiful oil. The North Sea and Alaska kept the party going for awhile, but the era of cheaper oil and perpetual growth is over.

Fri, 06/06/2014 - 13:13 | 4830521 Harbanger
Harbanger's picture

What happens to the growth in demand from 3rd world countries in the East as they catch up to our living standards.  I don't expect less global demand even considering the west is in decline and may use less energy in the future.

Mon, 06/09/2014 - 14:15 | 4837785 mkkby
mkkby's picture

They'll never get to our living standards.  There isn't enough oil. 

For a while, their highest profit uses will be able to afford the higher prices.  But as the price ratchets up, more and more uses will become unprofitable and go bankrupt.  That will keep the game going for a long time.  They'll never be able to waste it like we do -- everyone having huge SUVs and inefficient heating.

Fri, 06/06/2014 - 07:15 | 4829373 Element
Element's picture

 

 

Really? 2007?

Late 2008 into Q1 2009 oil fell to an anti-peak oil of $32 USD ... which seemed rather peak-cheap at that time ... http://www.forecast-chart.com/chart-crude-oil.html ... and which resulted in an explosion in global economic activity and massive renewed industrial minerals demand that followed particularly within Asia (where overwhelmingly most of humanity live). Energy supply has never been a story of ever-rising prices, it's always been an extremely dynamic and adaptive feedback and the adaptation options are and will remain immense, for the rest of this century. So stiff upperlip old boy.

Fri, 06/06/2014 - 12:49 | 4830464 Flakmeister
Flakmeister's picture

And just how long did that did last?

Thu, 06/05/2014 - 19:34 | 4828471 ebworthen
ebworthen's picture

And peak humanity, one way or another.

Thu, 06/05/2014 - 19:36 | 4828477 Winston Churchill
Winston Churchill's picture

TPTB have a app for that.

Do NOT follow this link or you will be banned from the site!