The contents below are paid advertisements. Their appearance does not imply an endorsement by The Oil Drum.
“The infrastructure of suburbia can be described as the greatest misallocation of resources in the history of the world.”
—JH Kunstler
Search The Oil Drum with Google
User login
Contact
- Content: editors at theoildrum dot com
- Tech support: support at theoildrum dot com
Personnel
- Editors: Prof. Goose, Heading Out, Stuart Staniford, Nate Hagens
- DrumBeat Editor: Leanan
- Contributors: ace, Engineer-Poet, Gail the Actuary, jeffvail, JoulesBurn, Khebab, Robert Rapier
- TOD:Local: Glenn
- TOD:Europe: Chris Vernon, Euan Mearns, Francois Cellier, Jerome a Paris, Luís de Sousa, Rembrandt, Rune Likvern, Ugo Bardi
- TOD:Canada: benk, Libelle
- TOD:ANZ: Big Gav, Phil Hart, aeldric
- Technician: Super G
Recently on TOD:World
TOD:Local
- Summer Streets a Success!
- Plan for Hydro-Fracture Drilling for Unconventional Natural Gas in Upstate New York
- Enjoying Life Close to Home: Fun Streets
TOD:Europe
- UK Energy Flow Chart 2007
- Brown pretends to be tough on Russia
- Russian gas and European energy security - a reprise
TOD:Canada
- Compressed Air Energy Storage - How viable is it?
- Oil Megaproject Update (July 2008)
- Weekend Energy Listening: Wind Power with Paul Gipe
TOD:ANZ
Peak Oil Primers
Blogroll
Energy Sites
- The Coming Global Oil Crisis
- Die Off
- Dry Dipstick
- Energy Bulletin
- From the Wilderness
- Life After the Oil Crash
- Peak Oil Crisis
- Peak Oil News and Message Boards
- Powerswitch
- Rigzone
- Matthew Simmons
- Wolf at the Door
Environment & Sustainability Sites
- The Daily Green
- EcoGeek
- Eco Street
- Green Car Congress
- Green Options
- green.alltop.com
- Gristmill
- RealClimate
- Sustainablog
- Treehugger
- WorldChanging
Blogs
- The Big Picture
- Casaubon's Book
- Cleantech Blog
- Clusterf
k Nation (Jim Kunstler) - The Cost of Energy
- Ecological Economics
- David Strahan
- Econbrowser
- The Energy Blog
- Entropy Production
- Environmental Economics
- European Tribune
- GraphOilology
- jeffvail.net
- The Mess That Greenspan Made
- Mish's Global Economic Trend Analysis
- Mobjectivist
- Peak Energy (Australia)
- Peak Energy (USA)
- R-Squared
- Resource Insights
Organizations
License
This work is licensed under a Creative Commons Attribution-Share Alike 3.0 United States License.
GAIA Host Collective
One NY Stock Exchange guru this weekend argued that oil will be down to $35 a barrel in 2009.
I wonder if Venezuela and Nigeria are cutting production because their production has fallen . . .
It would seem to indicate that oil, at US$35 in 2009, would be essentially worthless in the face of a global glut of US dollars.
It seems that case for $35 oil is impossible if the US is printing enough money to deflate the dollar relative to the basket of currencies of oil buying countries. This doesn't seem to be happening at this point.
It is true that a weakening dollar could make the dollar price of oil higher in dollars, even if it did not go up in purchasing power terms for other countries.
The original calculation could be modified by using 2009 dollar values from the futures market, but this would probably not have a huge impact. It would also be a bit of a tricky calculation to figure out the basket of currencies that oil prices trade against.
The Feds are printing money like reckless thieves, but who knows, they won't tell us any longer how much they are actually printing.
This will certainly devaluate the dollar.
Add in the rate of inflation... and who knows what that really is either. Its either what the feds tell us, or more likely, it really is about 7 percent.
Now, imagine oil selling for half the price than it did several weeks ago, 3 years from now!
Right, and actually if you look at option prices (I had to go to 2010 because it is more liquid, being a round number) the prices of $35 and $90 options imply about a 20% chance that the contract price will be outside that range - either less than $35 or more than $90.
I'm sure many people here don't find that too surprising; they're probably all sure that the price will be over $90. But the smart money says that below $35 is equally likely as over $90 - about 10% in each case.
Our best guess is that the pattern will continue, but we cannot predict the chance that the pattern will be broken.
Again, the 20% outside, is the chance given the past pattern.
If we believe that they will deliberately cut production in order to boost or support prices, then that implies that they think that
- the Saudis will go along with that, rather than flood the market for oil to counteract it, or
- the Saudis are holding a busted flush : i.e. don't have the spare capacity to keep/drive prices down. If we believe this, then we are at a major turning point indeed! Bye bye swingin' Saudis! Venezuela and Nigeria are the new hep cats.
On the other hand, it's quite plausible that they are making a virtue of necessity, trying to talk prices up by claiming they will withhold supply that they couldn't actually produce anyway...Place your bets, gentlemen.
"OK, so who's bluffing : Nigeria/Venezuela, or Saudi?"
I am assuming that's a question only asked as a joke, right?
Yeah, I would bet on Nigeria/Venezuela against the Saudi's about like I would bet for my local high school football team against the Pittsburgh Steelers.
I may love the local kids, I may root for them, but I ain't stupid....
I have learned that the Saudi's always seem to take the old military advice, THE 5 P's...Proper Preperation Prevents Poor Performance, and ALWAYS have a contigency plan.
I don't trust 'um. I hate the U.S. being relient on them. I would watch them like a hawk, and confirm EVERYTHING about them. I know they don't really like or trust us. But, I do admire them. They are damm clever, and I am certain of almost nothing, but if I had to bet I would bet on this:
They still have not even gotten close to revealing their best hand, the aces in this game are are still hidden, and the Saudi's certainly still have some of them. What they have to go with them is what will decide much of the economic fate of the world over the next two to three decades.
Roger Conner known to you as ThatsItImout
If the Saudis really do have spare capacity, and Ghawar isn't watering out, then logically they will have been uncomfortable with $75 oil, which demonstrably dampens demand and accelerates substitution. So they would be pissed off at anyone withdrawing oil from the market to tighten it. They will presumably feel obliged to increase their production to assert control.
If, on the other hand, they are struggling to maintain output, or in decline, then they must be relieved to see the pressure come off, as prices and demand slacken. So they would be more than pissed off, completely apopleptic, at anyone withdrawing oil from the market to tighten it.
It's also possible that both sides are bluffing, in which case the current easing will soon be over.
Mathematically, the world (based on crude + condensate) is at the same point at which the Lower 48 and the North Sea peaked and declined, and who among us is willing to predict rising world production when we have credible reports that the four largest producing fields in the world are declining or crashing?
Yesterday, I pointed out that the Saudis were celebrating over reportedly getting the Ghawar water cut "down" to about 35%. Note that this is after redeveloping the field with high tech horizontal wells.
From yesterday's open thread:
So the question is, is Ghawar producing one barrel of water for every two barrels of oil, or one barrel of water for every one barrel of oil?
IMO, Ghawar and Cantarell are beacons--burning brightly in the night sky warning of the onset of Peak Oil.
These two fields account, or accounted, for 10% of world crude + condensate production. In both cases, the remaining oil is in rapidly thinning oil columns in carbonate reservoirs, between rising water legs and expanding gas caps.
BTW, the Saudis earlier this year complained about not being able to find buyers for all of their oil--even light, sweet oil--so, they "elected" to cut back their production. Note that light, sweet oil prices traded in the highest (nominal) price range in history during this period.
For all we know, the most recent decline may have been from 4 mbpd to 3 mbpd. There is also the possibility that they are draining their inventories.
westexas
The problem is, and I quote from the excellent paper of Morton's (great maps too!) you link,
"Unfortunately for the world, few know the actual state of Ghawar."
And this is considering that everyone in the business had tried to beg, borrow or steal information about the condition of the field....imagine how little we know about the less studied Saudia areas, including Saudi offshore oil.
The problem is that sooner or later, this lack of oil would have to start showing up in a big way. If Ghawar really is done that much, combined with Bergen, combined with Canterell combined with the known large drops in the North Sea combined with Norway, combined with China's field, then...?
Where is the oil coming from? Are refiners having any difficulty getting supplies? Are contract prices rising to lock in supplies? Is any serious effort at diversification being made, to nat gas and propane, which for now we seem to up to our eyebrows? Are drillers of gas and oil jumping back in in a big way?
These would be confirmation signs. In the short range, we can find no one in the industry itself showing signs of panic or need for expedited action. In fact, the trend in the short terrm is running the other direction, with countries talking of reducing production to protect price, investment firms running scared after the derivitives in natural gas collapse (a collapse brought on by falling, not rising, natural gas prices), and gas drillers out west now delaying action on drilling of known assets to "store the gas in the ground".
There are however some confirmations, in the Saudi's march to more complex and expensive fields (remote ones which require pipeline water to inject and expensive pipeline to get the oil out) and high tech drilling to boost production, and into the offshore area in a bigger way (this to me is always a sign that gas/oil is getting difficult to find onshore....otherwise, why go through the pain in the azz that is the nature of offshore drilling....and the deeper they go, the more it signals that onshore oil is getting hard to find and develop, for whatever reason.
There is one more thing I have to mention, even though I don't want to go too long.....these so called "oil insiders" or "a Mexican oil worker has leaked" or "an unnamed Saudi oilfield insider said" type stories are completely useless.
There is no way I can know that this is not some guy who saved up a couple of thousand bucks, bought oil futures on the long side and then started making a few phone calls to back up his bet and pick up some extra money.
It could be a PEMEX or ARAMCO secretary or janitor for all I know....with no attribution or confirmation, that is National Enquirer type stuff....
Roger Conner known to you as ThatsItImout
I'm developing new (small) oil fields in Texas, decades after we peaked.
The problem in Texas, the Lower 48, the North Sea and now the world is replacing the production from the old, large oil fields.
There appears to be no dispute regarding Cantarell, Burgan and Daqing.
The estimated worst case decline rate of 40% per year for Cantarell came from an internal Pemex report. In any case, Pemex has confirmed the Cantarell decline
The only question regarding the top four is Ghawar. Morton refers to the problem with recent data regarding Ghawar. A lot was known about the field before the Saudis took over operations. What we do know is that cumulative production is getting close to the same stage of depletion, as a percentage of OIP, at which the Yibal Field--same reservoir, also redeveloped with horizontal wells--started declining.
Since the net decline (or increase) = older declining production + rising new production + workovers and infill wells, the initial decline can be quite subtle, e.g., the 0.6% Texas decline the first year after the peak year. Worldwide, we are also seeing production from non-conventional sources.
However, historically, we have not seen production increases when the largest fields are all declining, and despite the highest (nominal) oil prices in history, world crude + condensate production is still down from December, as predicted by Deffeyes' HL work, just like the Lower 48 and the North Sea.