The Oil Drum | Outlook for 2006

40 comments on Outlook for 2006

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Luis de Sousa on January 16, 2006 - 4:59am

I guess the ultimate question is whether we peaked in 2005? My answer to that is I doubt it

That depends of what you're talking about:

Light Sweet Crude has peaked before 2005;
Regular Oil to 500m deepwater peaked in 2004 or 2005 (depending of the source);
All Regular Oil (including > 500m deepwater) has probably peaked in 2005 - at least is on a plateau since June 2004;
Non-OPEC all liquids is also flat since mid-2004, the likely outcome of this is a peak in 2005, we'll get sure by the end of 2006.

There are a lot of 'peaks' going on right now.

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Jack Greene on January 16, 2006 - 6:40am

Lads,

But we have not even dented tar shale and that is now just economically feasible and coming on line.

Nor are we including the potential for exploiting coal as a syn-fuel - a refinery for this is being build in Pennsylvania as we write.

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Oil CEO on January 16, 2006 - 7:03am

Do you have any idea how slow the ramp-up in production of non-conventional sources is? We are talking about 10's of thousands of barrels per day (at best). What we are discussing here is the need for between 1 and 3 million barrels-per-day of new production - every year.

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wkwillis on January 16, 2006 - 7:12am

We are just talking about oil. Battery cars and synfuels aren't oil.
Cheap oil is a low capital and investment cost way to make things like gasoline. Now we have to switch to high capital and investment cost ways to make things like gasoline. That and accept the kind of performance limitations of battery cars. Think of battery cars as being the equivalent of reducing gasoline consumption of your car by 90% at the cost of doubling the price. You have to buy two cars. The battery car for most of the time, and the regular car for when you have to drive farther than the battery will let you.
And by the way, the kind of thick steel needed for synfuel plants is also in short supply, in the form of iron ore, coking coal, steel blast furnace capacity, and tube and rolling mill capacity. Not to mention large valve forging capacity, large pump and motor capacity, and engineering, construction, and infrastructure capacity in general.
I expect that OLED wallscreen telecommuting will kick in around 2010 as resolution goes up high enough to overcome the psychological barrier to virtual environments and we progressively reduce commuting. This will probably be more important as a way of coping with peak oil than synfuels and battery cars combined.

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xironman on January 16, 2006 - 7:35am

Jack,

You probably have not had a chance to read Bubba's article on oil shale. I don't think oil shale, or one CTL plant will save us.

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Jack Greene on January 16, 2006 - 10:35pm

xironman,

Thanks for pointing me there. There has been progress made on this front. Yes, it is a high energy user (and the French have suggested Nukes to get the oil out). But my reading suggests that if oil is over $35 a barrel than you can make a profit on it. Canada is ramping up on the production from oil shales/sands.

But the points you guys made about scale is valid. And anyway, it needs to address greenhouse gases at some point as well.

We will have a lot of pissed off rednecks in this country if they can not put fuel in their Mustangs.

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SRSrocco on January 16, 2006 - 10:46am

Jack, don't you understand physics....you need an energy supply to make shale into gas. And the best source is natural gas....now that we are in a decline in natural gas...it becomes too expensive each year gas becomes more rare...so shale and tar sands will not be the miracle people are looking for in the future....because....within a few years...the natural gas that is used to produce this energy source will be 5-10 times the price.

Maybe if we built nuclear reactor plants by these shale and tar sands, can they be produced...but that would take 10 years. People need to stop this wishful thinking.

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Jack Greene on January 16, 2006 - 10:27pm

SRSrocco,

This is why I love the Oil Drum, as I can learn from it. And Physics is definitely not my long suit.

I am reminded of Germany and even Italy in World War II. Both built syfuel refineries and very quickly. Did it solve their fuel problems, no, but if Italy, the least of the Great Powers, could get a plant up by 1942, it should not take ten years to get more than a couple of plants going.

But the point is valid that for the immediate future it will take more effort, and of course we are not even talking about greenhouse gases.

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Oil CEO on January 17, 2006 - 3:00am

How much oil was that plant producing in 1942?

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Jack Greene on January 17, 2006 - 7:17am

I do not know and checked around for Italy. Pirelli had the plant.

Germany started in 1938 to push sythetic fuel production. In 1939 it produced 2.2 metric tons.
1940 - 3.3
1941 - 4.1
1942 - 4.9
1943 - 5.7 and than a decline after that.

Remember this was a Germany that used 600,000 horses for its army when it invaded the Soviet Union in 1941.

Standard Oil helped get this working back in 1938 with German industry.

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Jack Greene on January 17, 2006 - 8:41pm

Opps, the German figures are correct but the Italian synthetic plant was for rubber and for Pirelli to build it makes good sense.

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Oil CEO on January 18, 2006 - 7:10am

roger that

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Bubba on January 16, 2006 - 9:42am

I am not one who buys into segregating types of oil and then saying "we peaked on X type oil". Liquid hydrocarbons that can easily be converted into transportation fuel and brought to market are what matters. Oil has always come from many sources. Deepwater production is only an extension of offshore production that started many years ago (I am not sure right now when, but I think it was before the '50's). Part of what is produced in the Canadian Oil Sands is conventional production, part needs to be assisted by reducing the viscosity of the fluid (through heating) and part needs to be mined. In nature their is a continuum between these types of oil under the ground. I don't believe in segregating them for accounting sake.

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Fletcher on January 16, 2006 - 11:58am

We may have a better sense in a few days and another statistically dense post by Stuart, whether April or November 2005 will serve as a peak. Given that crude oil prices are holding up around $64/bbl, notwithstanding the remarkably mild winter in Northeast and Midwestern North America, I suspect the 2006 average of $65/bbl may be marginally too low. More like $70/bbl; with less demand destruction than one might surmise given the greater inelasticity of oil use than we currently realize.

(For what it's worth: I may be one of the few non scientific types/non-economists posting here - I am an attorney in Downeast Maine, (wearing a flame retardent asbestos suit),fascinated by the subject, and burning copious amount of heating oil and gasoline.)

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Halfin on January 16, 2006 - 2:29pm

I've been wondering why crude oil prices have continued to climb even as nat gas prices have come down. I don't think heating oil is that big a factor.

Today I am reading that the markets are nervous about Iran. With them re-starting their nuclear program and the possibility of UN sanctions, it could lead to a reduction or even embargo of Iranian oil exports. That would cause major shortages.

The odd thing is that the recent run-up in oil prices started a good two or three weeks ago which I think was well before the Iranian situation got as serious as it has. I wonder if this reflects insider knowledge of the upcoming political crisis. Markets are supposed to be good at eliciting that kind of inside information and putting it out for public view in the form of price changes, but I don't know how often it really happens.

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Nate Hagens on January 16, 2006 - 6:16pm

On a BTU basis, natural gas accounts for 5 times the amount of home heating in the US as does heating oil.

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Essex Land Rover Man on January 17, 2006 - 1:15pm

I am guessing that trends account for the increase. If you follow the price trends last year, they increased, possibly for slightly different reasons. I think that winter demand started the increase in oil price and then Gazprom etc carried on and increased the trend. I am wondering if the oil market will follow the trends of the past couple of years and increase in price 'till around May time, fall a bit, then pick up from June onwards till Octoberish, then fall 'til late December. I am sure better predictors than me reading this site will comment on this.

There was an article in the Sunday Times about a psychological analyst. He said to concentrate on a couple of relevant facts. You can have too much information; increasing information leads to overconfidence rather than increasing accuracy. Also ignore forecasts, as they tend to be wrong.

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Nate Hagens on January 17, 2006 - 3:42pm

I totally agree with your psychology comment.

With regards to home heating, there is switching ability from nat gas or oil to electric or wood but not much in the way of nat gas to oil or vice versa, unless someone chooses to buy a whole new furnace.
Nat gas has been roughly 5 out of 7 quadrillion BTUs for past 5 or 6 years with oil being 1 quad and the balance being electricity and wood. (so actually NG is more than 5 quads as there is more electricity created from NG than oil.

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