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58 comments on On Low Quality Hydrocarbons (Part I)

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Dave Cohen on September 21, 2005 - 3:05pm Permalink | Subthread | Comments top
Totally excellent post.
The problem is that when you have a really big production stream (conventional oil), and a little tiny production stream (LQHCs), it takes very large growth rates in the latter to compensate for even modest depletion rates in the former. Are these outlandish looking growth rates likely to be feasible?
I think here that the situation is actually even worse because, of your four unconventional sources, only oil sands and heavy Orinoco crude have any chance of getting off the ground soon. Synfuels from coal are hard to pin down. People keep telling us it's coming but it never comes. Oil shale seems pretty hopeless in the time frame of your Required Annual Growth Rates in LQHC Production graph (and I would argue hopeless in the general case). And even for the Canadian oil sands, optimistic estimates are only in the range of about 4/mbd by 2020. So that leaves Venezuela, Hugo Chavez and Operation Balboa :)
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MichaelRobinson on September 23, 2005 - 3:15am Permalink | Subthread | Parent | Comments top
"Synfuels from coal are hard to pin down. People keep telling us it's coming but it never comes."

It's already here, and it's been here for a long time.  It's not here outside of South Africa (which achieved petroleum independence through Sasol's CTL technology) because the breakeven price for Sasol CTL is around $40/bbl, and international energy companies still have a $30/bbl breakeven ceiling on investments in new projects.

Even Sasol, which has experienced a tremendous windfall from current crude prices, uses the $30/bbl ceiling:

"GIULIETTA TALEVI: Getting back to that oil price - we�ve seen it spike up recently to $70 a barrel - can you tell us what the average price you achieved over the period was, and where you see that price going for example in the next year?

PAT DAVIES: The average price we achieved is $44.40 a barrel for the year. We believe it�s very high at the moment, and things such as Hurricane Katrina and other impacts have made it even higher than it normally would have been - so we expect it will stay fairly high in the next couple of months. But then, say, in a twelve-month period out it would be between $45 and $50 is our best guess, but it�s very difficult to estimate.

GIULIETTA TALEVI: You�ve got a much more conservative estimate when it comes to planning for future investments - you�re talking about oil being at $30 a barrel - can you explain why there�s such a big difference as far as the investment outlook is concerned?

PAT DAVIES: Yes. This is really just to be conservative - obviously oil prices have fluctuated quite a lot over the last 50 years, and when they�re high everyone believes they�ll stay high, when they�re low everyone believes they�ll stay low - so while we�re all pretty bullish that oil prices are going to stay reasonably high, not at the current $60 level, they�ll come off that. But for investment purposes - where one is investing large amounts of money into projects that need to run for 20 or 25 years - then one needs to be more conservative, and ensure that they�re profitable even at lower prices. That�s why we take a conservative $30 a barrel view at this point in time."
http://transcripts.businessday.co.za/cgi-bin/transcripts/t-showtranscript.pl?1126573326

Once the investment planning ceiling exceeds the breakeven cost for CTL, you'll see huge investments, and CTL will be everywhere.  Until then, publicly-traded corporations have a fiduciary responsibility not to build it.

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58 comments on On Low Quality Hydrocarbons (Part I)

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