<The Connection Between Financial Markets and Energy - Open Thread The Oil Drum DrumBeat: September 16, 2008>

31 comments on Nate's Reality Report Interview - Hurricanes, Financial Markets and Peak Oil

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Sam Foucher on September 16, 2008 - 9:03am Permalink | Subthread | Parent | Comments top

About the true value of the average decline rate, there are a lot of estimates flying around probably because there are talking about different definitions of the decline rate, is it:
1. the average decline rate of fields in decline
2. the decline rate of the resource base (i.e. without new supply additions)
3. the average decline rate of new supply additions
I would say that 3 is probably around 12-15% because new supply is mostly offshore (think Norway), decline rate 2 is probably moderate and is probably around 3-4% because it includes some production growth, 1 is probably higher around 5-6% . Also, the decline rate of a sum of declining productions is not necessarily equal to the average of the decline rates of the individual productions so the way decline rates are estimated is important.

Consumption (i.e. satisfied demand) is flattening and supply is still increasing, unless there are long term structural changes in demand (e.g. more efficient cars are used), consumption will probably go back up as soon as oil prices settle around $80 and below. We are entering now an extremely non-linear regime where feedback mechanisms between supply growth, economic slowdown, demand structure and oil prices will dominate.

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Sterling925 on September 16, 2008 - 9:27am Permalink | Subthread | Parent | Comments top

Can you expand on what you mean by "extremely non-linear regime" as opposed to linear regime and how that effects feedback mechanisms? It's a little esoteric for me...Tx

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Sam Foucher on September 16, 2008 - 9:59am Permalink | Subthread | Parent | Comments top

A linear system is when a response y (e.g. oil supply) can be modeled as a linear function of a set of independent predictors x (e.g. price, demand, GDP growth) using usually a generalized least square approach. Interactions between predictors and feedback from the response to predictors make it impossible to use that simple approach. When a system is stable, you can assume that some predictors are known and set them to a fixed value with a good confidence (e.g. demand growth humming at a constant 2% per year).

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Sterling925 on September 16, 2008 - 11:30am Permalink | Subthread | Parent | Comments top

OK...Would it be fair to say that because of turmoil like we're experiencing now...supply disruptions from hurricanes and military conflicts (nigeria, iraq, georgia...ad nauseum), capital market chaos, changing patterns in consumer spending and other stuff that modeling of any kind made today would be highly complex and results suspect?

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Angantyr on September 16, 2008 - 10:24am Permalink | Subthread | Parent | Comments top

"Consumption (i.e. satisfied demand) is flattening and supply is still increasing"

Key poins here are that ww oil consumption is increasing. Sure in OECD oil demand is decreasing and has been now for quite some time. In Sweden as an example oil consumption is reduced almost by half since 1975. In the developing world however the increse is significant not to say aggressive in oil producing countries. Combine OPEC with Russia and Mexico and this today is the worlds second largest oil consumtion market second only to the US larger than Western europes and some 60% larget that Chinas oil consumtion. They are developing their economies in a very, very aggressive manner today. Russia today is Europes largest automarket and they prefer large american cars like e.g the Hummer. Saudi Arabias uses it's oil domestically for all sorts of industrial projects e.g. like aluminium production but also desalination.

Regarding production of crude OPECs been unable to increase it's crude production and last 3.5 years ALL production increases in fact has been related to natural gas. Russia that earlier provided for some 80% of all production increases in Non OPEC now is unable to increase it's production.
Nigeria is way of it's target to produce 3 mbpd and in fact today is able to produce less than 1 mnpd due to what now in fact is a civil war in that country.

Even worce is the situation when you then look at the ability to export. The worlds largest oil exporters today (Saudi Arabia, UAE, Iran, Norway and Russia) will be unable to export any oil already by 2030. For the US the situation is quite seriouse as two of it's largest providers of oil, Mexico and venezuela now are down some 19% YOY on oil exports.

The possible increases in new Saudi Arabian oil production will be as times goes by offset by Ghwar future decline and the Sudies domestic oil demand indreas.

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31 comments on Nate's Reality Report Interview - Hurricanes, Financial Markets and Peak Oil

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