280 comments on Why oil costs over $130 per barrel: the decline of North Sea Oil
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280 comments on Why oil costs over $130 per barrel: the decline of North Sea Oil
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Huh? Thought I said $100B+ for "exploration"; as in, searching for more. They must be somewhat confident in finding "something".
Mustn't they?
I can guarantee you that they will find "something." The problem is whether it will make a material difference. Hubbert found more than 50 years ago that a one-third increase in estimated URR for the Lower 48 only postponed the projected Lower 48 peak by five years.
But, but, but (stammer, stammer)...
Why do the newspapers, the TV heads, radio commentators, presidents of motoring bodies, MS in general rarely talk about this - particularly given recent fuel spikes? And when someone does phone in and drops the line, "the world is running out of oil", why is such a comment never expanded upon? Why don't other listeners phone in and ask, "Did that guy just say, 'the world is running out of oil'? What did he mean?"
Why, after nearly NINE MONTHS of first seeing the doco, "A Crude Awakening" do I still seem to be the only one in my immediate circle who is asking questions?
And, and, and (more stammering)...
Man, I thought marriage was frustrating!
Well,
Honestly it seems to be a variety of things IMO. Politicians are generally very ignorant people, who either haven't heard of peak oil, don't understand it or are in completely denial of it. Many politicians and the MSM have been talking about the falling dollar and speculation mainly. Today on C-Span, Michael Greenberger
http://www.law.umaryland.edu/faculty/profiles/faculty.html?facultynum=059
did a good job of being ignorant of the oil markets in front of the senate who regarded him as an expert. He stated 50-60% of the current price could be speculation, and then Senator Olympia Snow R-Maine, proclaimed this is not a supply and demand issue. When you have lawyers, Politician and Businessmen, trying to mess with energy policy and grasping energy markets, you are bound to worsen the problem. Most people as I have seen many a time again, are simply not willing to sit down and do a small amount of research over the subject. America has two emotions and only two, complacency and panic, we won't do hardly anything till we are on the downside of the curve. It's kind of sad, but as days go by I have a less and less hope for the future seeing our ignorant politicians and stupid people. Good for you though, you sat down and did some research, and you know the future, which 99.9% of people do not, that's an advantage right?
Thanks for the reply, Swords and hello again. Still haven't decided if it's an advantage or not (perhaps if I had shares in Woodside; but a definate NO at parties - "Please, no more red wine for the crazy guy in the corner asking gloomy questions!").
Then again, my dad, who's turning 68, and myself are booked in to get our motorbike licenses in July. Guess that's a start.
Regards, Matt B
Dear Joe,
you can do one of two things at this point:
1. Prepare yourself and your family for the Tsunami (i.e. get off the beach)...
2. Run around on the beach asking why everyone is still sun-bathing while its 'obvious' that the white crispy froth on the distant horizon is "not right"...
I've tried 2 for a while, I'm leaning more and more towards "1 Mode" now...
To get a decade perspective multiply direct fossil fuel cost inputs to your life by a factor of 5 {transport, heat, electricity, food) and determine the effect... Is your life changed? Only the very rich will answer "No".
Nick.
Thanks Nick and you're probably right... Though, I would have flapped my arms about for at least a few minutes before grabbing the kids; and probably would have shouted, "there's a tidal wave coming", in the days before people knew what a tsunami was.
BTW, that's one of my complaints about the term "Peak Oil" (someone once replied, "P Coyle? Who's that?"). A term like, "The world is running out of oil", or something more mainstream should be discussed further.
As for running around on the beach first, I sent the following off this morning to one of the local so-called TV current affair shows, along with an intro, just for the hell of it. But as you say, doubt I'll get a reply...
True or False?
• An estimated 100 tons of organic material must be cooked for millions of years under ideal conditions to produce a single barrel of crude oil.
• Each year, mankind consumes more than 30 billion barrels of crude; or around 160,000 litres every second.
• We use crude for the majority of transport, rubber and plastic (mostly non-recyclable and toxic), bitumen, pesticides, crop farming, to name a few.
• In the last 30 years, few significant new oil fields have been found to replace the aging ones. This year alone, oil companies will spend over 100 billion dollars in exploration, with no guarantee of success. Nonetheless, they will want to recoup their costs.
• Significant fields that have been discovered are deep beneath the ocean and very expensive to get to.
• Within the next decade, most of the 500 largest fields will near their use-by dates for cheap and affordable oil.
• Mother Nature created a limited amount of liquid energy. Man-made alternatives (on a massive scale) are decades away and will cost trillions.
• By 2050, the world population is expected to be around 9 billion people. To get there, on average an extra 75 million births (that’s on top of those that cancel out deaths) must occur each year. That’s around an extra 200,000 births each day – mouths to feed, clothe and shelter.
So…
Is the world running out of “easy” (affordable) oil?
What will a litre of petrol cost in 2020? Or a plane ticket to Sydney?
Will there be enough liquid fuel to go around?
Is life as we know it today sustainable for decades to come? Or a mere few years?
If there’s a problem with how much affordable oil is left (no-one really knows how much remains!), shouldn’t we be discussing this in a little more depth?
Or are the above points and questions not A Current Affair?
Around 4 years, if you are not too picky about 'as we know it today' would be my estimate.
ACA is far too busy one-upping Today Tonight, defending convicted drug-runner Corby, and castigating single mums, dole bludgers, and dodgy used car salesmen moonlighting as Home Removators who are killing our fat kids to be bothered with such a piddly little item such as Cheap Oil running out.
No, much easier to do an 'expose' on petrol stations ripping off 'working families' by putting the price up the day before a Long Weekend. Damn you, Big Oil! :p
In late 2005 I bought the website: www.megatrends2020.com with the intention of defining the major themes that will impact our lives to 2020. I chose to research Energy first as it seemed to me the single most important theme (I had heard somewhere that the oil price accounts for ~40-50% of GDP swings so that sounded like a reasonable backdrop to the rest of the trends).
So off I went researching...
I got into this one thread so much I never finished the others. The more I discovered the more I realised that none of the others really mattered. This was the one 'trend' that would define the shape of our lives in the decades ahead. The problem was that it wasn't a trend, it was a trend reversal!
Rather than continue I decided last summer to write up all I had learned -I called the result: Peak Oil Joining The Dots:
http://www.megatrends2020.com/Peak_Oil__Joining_The_Dots.doc
I have updated the specualtive timeline and it is now available online:
http://www.flickr.com/photos/8745365@N04/2504887199/sizes/o
Personally I have a very rough 5 year plan that basically involves going 'off grid'/Home food production/no debt and I am now in the process of downsizing to prepare (selling my Thai Penthouse -I live in London, UK). I don't think most airlines will last the next decade, airlines that operate business traveller level fares with passengers packed in like sardines might just survive...
My 'best guess' at when things start to get 'really sticky' -i.e. major amounts of demand destruction kick in- is around 2012 +- a year or two, so not long really...
Regards, Nick.
I'd go along with most of that - fine job, Nick!
Where I differ would be mainly in moving some of the events forward in time.
What would be useful if you have time would be a greatly expanded view for 2008-15.
A lot of 'interesting' things should happen in this time frame.
I would suggest for one that this winter should see an emergency budget in the UK as the balance of payments widens towards infinity and the budget deficit spirals with rising unemployment and low or nil growth.
Long distance tourist destinations should get a huge hit together with property prices there and tourist airlines in the following summer.
Nick, I am thinking that we are about at the stage that a sector by sector forecast could be attempted, although it would be patchy as none of us are full-time on these matters.
To take one example, it seems to me that the age of the Football mega event may be on the wane.
In the UK, major clubs are highly leveraged, with Manchester United, for instance, having large debts after a £790million takeover, requiring an interest payment of £62million pa.
Wages to turnover is over43%:
http://news.bbc.co.uk/1/hi/business/7180767.stm
BBC NEWS | Business | Success boosts Man Utd finances
I would expect that business model to rapidly unravel, with the most highly leveraged clubs having to sell players to reduce the wage bill, as recession means falling ticket sales and prices and reduced sales of replica kit etc.
Nationally backed teams like Real Madrid should do relatively well, as the politicians try to keep the circuses part of bread and circuses going at all costs for a depressed population.
By 2010 I would expect distress sales of large British clubs, and re-negotiation of players salaries downwards.
American football should do even worse, I assume, as large distances are regularly covered to play matches across a much greater area.
Hi Nick,
Are you going 'off grid'/Home food production in London? Would be interested in where and what you are planning to do.
Thai Penthouse sounds like a good central location for a TOD party.
Let's do it! :o)
http://www.knightfrankphuket.com/sale/RS0174.htm
noutram
I think your "joining the dots" document is a nice compilation.
The only thing I think you might want to reconsider is that the current reserves of Uranium should not be considered a constraint on future production.
There is a few orders of magnitude more out there once we bother to look for it (no one has in the past ~15 years due to the Russian nuke decommissioning flooding the market).
Other than what I consider an overly pessimistic view on the future potential of fission, I think you are spot on with the energy analysis.
"the world is running out of oil"
And has been since the first day oil was pumped.
And that's the problem. I'm 40 too. Don't you remember the '70s, when everyone knew that we were running out of oil? Just like Daniel Yergins loves to say: the world has run out of oil five time in the last 150 years. We've gotten an incredibly thick skin to the whole concept. Til, of course, the day it starts to really hurt.
The day I lose my job because of it.
The day I don't get any unemployment..
The day I wait in line two hours to get into the store and don't come home with anything to show for it.
Forget the deap analyses here. Look at perspectives (thanks for bringing it up Westex):
During George W.'s presidency, the world will have used 20% of all the oil IT WILL EVER USE...
Cheers, Dom
A correction regarding total oil consumption during the reign of George Bush the Second, it's about 10% of conventional oil that we will ever use (based on Deffeyes' HL estimate).
In round numbers, we are using about 25 Gb of of C+C per year. Through 2005 we had used about 1,000 Gb, and Deffeyes gave us another 1,000 Gb of remaining conventional. So, during the first four year term we used 100 Gb, or 10% of all oil ever used. And during his second term, we will have used 10% of all remaining conventional reserves (according to Deffeyes). However, this is 200 Gb in 8 years, or 10% of Deffeyes' estimate for world URR (C+C) of 2,000 Gb.
So, pursuant to Deffeyes, in the first term we used 5% of total conventional URR, during second term, 5% of total conventional URR.
...if that increase came early enough to substantially increase the peak flow rate.
If, on the other hand, today's oil production rate is more-or-less as high as it'll get, then increasing URR by 1/3 would enormously slow the post-peak decline rate, making the transition to other energy sources much easier.
Indeed, huge-but-slow resources, such as the oil sands, are great for post-peak mitigation, as they simply can't be drained dry in short order. Not only does that mean they'll produce for a long time, it means they can't make oil cheap again, and hence can't derail price-motivated efforts to switch away from it.
If we assume that we can get another 1000 Billion barrels (about half the total) at $100 that's 100 Trillion dollars.
The total value of the Worlds stock markets in 2007 was 51 Trillion or about half the in-ground value of the oil.
If we are at or near Peak Oil the value of the in-ground oil will climb remorselessly in the years ahead making the 100 Trillion a lower estimate...
Result1: we will go 'to the ends of the Earth' to get this resource out the ground.
Result2: SWFs (Sovereign Wealth Funds) of NET oil exporters are going to 'own' Wall Street...
...and can anyone tell me 'if electricity is our future' why the total market cap of the Uranium miners is just 30 Billion US??
Nick.
For the same reason water was, until recently at least, 'free'.
The only commodities valued are those in short supply.
The price of uranium has halved in the last year - with just a little exploration, vast new finds were made, enough so that even with much expanded plans for nuclear energy production it is darn near a free good.
Dave,
Do you have any sources on the Uranium story ?('scuse the lame pun).
Not that I doubt you, but Anti nuke types spent (again , 'scuse the lamer pun..) most of the last three years telling us that there wasnt enough U for the nuke plans anyway.
Here is the source of my claim that uranium prices have halved:
http://www.business-standard.com/common/storypage_c_online.php?leftnm=10...
Here is the position paper by the World Nuclear Association:
http://world-nuclear.org/info/inf75.html
Bill Hannaghen extensively lists sources and resources amongst the information here:
http://www.nuclearcoal.com/energy_facts.htm
Energy Facts
And Charles Barton deals with the issue here:
http://nucleargreen.blogspot.com/
Nuclear Green
For the EROI and a rebuttal of Storma nd Smith which has been the source of most of the rumours about uranium shortages see here:
http://nuclearinfo.net/Nuclearpower/WebHomeEnergyLifecycleOfNuclear_Power
Nuclear Power Education - Energy Lifecycle of Nuclear Power
If needs be, the basic technology of uranium from the sea has also been tested:
http://jolisfukyu.tokai-sc.jaea.go.jp/fukyu/mirai-en/2006/4_5.html
4-5 Confirming Cost Estimations of Uranium Collection from Seawater
Obviously it is not worth the bother at present uranium costs.
Finally, it is not very difficult to massively increase the efficiency of burn:
http://nextbigfuture.com/search/label/thorium
Scroll down to the Fuji design.
That's the spot price. The long term contract price varies. Reactors tend to be built after you have signed a thirty year contract or the equivalent. It helps with the financing if you can reassure the bondholders that you aren't going to run your reactor for only a few years and then shut down after you run out of fuel.
It also helps to have a contract to sell the electricity as well...
Fuel costs a tiny proportion of the costs of a reactor, less than 1%. Processing is a lot of that, so the raw material costs are even less.
As a percentage of total costs this will be small item.
You can also buy from France, in a deal which includes uranium, as China recently did.
Of course they expect to find oil and they will. At tomorrow's prices they should make money for awhile yet. However, it doesn't change the point made here, which is that ongoing finds are not large or plentiful enough to prevent the declines stemming from the depletion of the older and larger fields. This makes the smaller amounts found just that much more valuable.
Joe, the easy way of looking at it is to imagine that for a given amount of money spent exploring and developing, to keep it simple let's say $1million, you got an extra so many barrels of oil, say 20,000, and you sell that at $50 plus your margin.
Oil gets tougher to find, so in a couple of years for the same $1million you only get 10,000 barrels.
However, the price has doubled so you make the same!
The oil company gets just as much money, and obviously carries on looking for more oil, but the poor old customer only gets half as much oil for the same money.
So long as the oil price keeps rising, the oil companies keep looking for more oil.
This over-simplifies things, but not enough to alter the broad picture.
You get less and less oil for your money.
Thanks, Dave. Get it! You guys (and gals?) just need to keep whacking me over the head 'til this stuff sinks in.
Now for the other 6.35 billion AJ's...
Regards, Matt B
Of course they will continue looking and all Oil Majors budget for Exploration.
One or two things must be born in mind though.
A modern , deepwater hpht semi-sub or drill ship rents out at circa $500, 000 per day. Thats about 1.5 billion US per operational year.
A less modern offshore rig goes for less, but they too are in short supply.
An Exploration programm is usually 2-4 wells per year , depending upon sea depth and final drilling depth.
So, $100 Billion doesnt actually amount to a massive exploration pulse in real terms. A dollar doesnt go quite as far as it used to.
Compared with the Halcyon days of the 80's, 100 Billion is not translated into a grat deal of new exploration wells. - Admittedly, fewer wells need to be drilled because of advances in Seismics and other techniques, but 100 billion sounds like a lot but it isn't.
100 Billion US = 50 Billion Sterling = Labour's bail out of a half assed mortgage company called Northern Wreck.
The problem for Western Majors is: Where to look? If you want to spend money on exploration, you want to go where you will find an elephant, be able to develop it and not see it nationalised after you have done all the hard work. This too is a limiting factor.
Thanks Mudlogger (and thanks to others for answering my very basic questions in simple terms).
I guess it's the "scale" I'm still trying to get my mind around (like the 200,000 extra humans coming into the world each day to make up the expected 9 billion by 2050); and which of those seemingly huge numbers can be explained away, which can't.
I'm sure I'll get there eventually!
Regards, Matt from Melbourne, Australia
Joe,
Just to emphasize what the Mudlogger said about exploration costs. Last year I worked on a Deep Water well that cost $148 mm. Just one well. And not only did it not find hydrocarbons it did a good job of condeming any future drilling in the immediate area. Of course the operator was optimistic about the potential and all the new technology (very expensive technology) helps. But in general exploration success runs around 10% to 20%. But when the payoff can be huge the players will make the bets. The growing problem now is the diminishing number of places to make the bet. Besides fighting mother nature the fear of nationalization is quickly becoming a dominant factor. All the oil companies in the world now control only 15% of the production. The national oil companies (the governments) control the other 85%. As government revenue drops due to depletion they will be even more tempted to redo the trade and take more of the production stream regardless of the terms of the original concession.
This is a very good example of why you don't invest in the prospectors, but invest in those supplying the picks and shovels--they MUST be paid whether or not the prospector strikes its lode.