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220 comments on Half a trillion barrels more than we thought? (Or, "The Tupi Field, the Pre-salt, and the Very Distant Future")
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220 comments on Half a trillion barrels more than we thought? (Or, "The Tupi Field, the Pre-salt, and the Very Distant Future")
Comments can no longer be added to this story.
| Show without comments | PDF version
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How will they know when to develop deep offshore oil if one month the price is $120 and six months later its back down to $70, then six months after that back to $140?
Oil producers can lock the price in at any time they want with futures.
Unless who ever holds the futures goes bankrupt and goes to Argentina...
Buster -- Locking ina price doesn't guarentee a profit...just the price that you'll sell th oil for. For every $ made on an hedge a dollar is lost by someone. Long term develoment projects are judged based upon a price model for the price of the project. Granted accurately predicting such a model is damn near impossible but that's how it's done regardless.
Not just that, but to do any selling (or buying for that matter) beyond the first couple of months out is going to be hard. The liquidity simply isn't there.
One contract is for 1000 bbls
If you produce 100,000 bbl/day you have to sell 100 contracts per day / 3000 per month. When you go past May 2011 you would be the entire open interest--> severely depressing prices.
Hedging works if it is relatively close to the current date and if your quantity to be hedged is relatively modest compared to the outstanding hedges.
Rgds
WeekendPeak
All of the preceding comments from Nate's onward illustrate the failure of the current cash- flow pricing model. It simply doesn't work any more.
At $90 a barrel, all profit resides with the producer, the refiner is underwater, the retailers and other users who kick small profits to the refiner (or producer if it is an integrated company) are squeezed out. Economy of scale cannot take place; there is no downstream income for marginal participants. Right now, these are going under @ prices far less than $80 a barrel. $40 a barrel is fatal for businesses whose productivity is structured around a lower price.
Oil will sell @ two hundred dollars a barrel, but not as motor fuel, or for recreation, for convenience, for waste and 'cruising' and the other uses that are economic only at a very low wellhead price.
Oil will be a chemical feedstock and high quality lubricant. It might be priced at $500 - 1000 a barrel and be a bargain. Oil might contain a cure for cancer or propel a space ship to Mars. It won't fuel jalopies in Ukraine or SUV's in Kansas ... or in Brasil. It will be too expensive. Welcome to the new oil age.
At the same time, oil at high prices cannot equal an economy. France's economy is not supported by wine at high prices, but by the productivity of its citizens leveraging cheap crude. Brazil (and other high- cost producers) have what else to offer besides (potential) crude, exactly? ...
Exactly, not much, and that is a big problem for Brazil ... and Canada and others stuck with the high cost oil. A high price use might not materialize. Even lower cost producers are in the 'price vice', including Saudi Arabia which is blowing through its legacy of accessible crude; breakneck depletion will leave it with little but regrets.
The auto age is dying right at our feet. If I didn't have to work tomorrow I would run out and buy a bottle of wine!
Brazil is the world's #2 agricultural exporter, it has some high tech (Embraer aircraft), a variety of raw materials and it's electricity is about 90% hydroelectric.
Best Hopes for Brazil,
Alan
Brazil is also a prime location for growing sugar which produces a good EROI compared to other crops when converted to fuel.
Thanks to it employing uneducated native indian labour at near slave wage rates. It high EROEI comes at a large social cost.
The wage rates may actually be worse than slavery-as the former owners of draft animals, we provided them with food and shelter in the off seasons and had a powerful incentive to take good care of them in all respects-horses and mules represented a considerable investment.
There are so many desperate people in places like the sugar country of Brtazil that there are apparently people willing to work for less than slave wages-a slave's "wages" in food and shelter cover the entire year, not just the busy season.
An injured horse or mule almost always got some health care, even if only very crude , in hopes of saving it for further work.
This said,what else can all those people do in the short term?Except maybe use thier machetes on the ruling class someday?
In the US when we make ethanol from corn we count the fuel for the machines that plow the fields and harvest the corn as part of the EI. In Brazil the cane is harvested by hand and the food calories to run those human machines is not counted in the EI, thus creating an unfair comparison of ERoEI. The workers cut as much as 12 TONS of cane a day. http://www.oilcrisis.com/BR/SugarCaneWorkers.htm
It is my belief that we should count the caloric EI of every human worker in every type of energy project as part of the EI for ERoEI. When you count the EI to ER of a cheeta chasing a gazelle the food calories are all that matter. When a subsitence farmer grows food he better grow at least as many food calories as he expends growing them and staying alive.
We have had our lives subsidized by cheap high ERoEI oil and thus have forgotten that humans are machines as well that need energy. Paying for stuff in dollars disconnects us from reality and makes it hard for us to think in terms of energy needed to do work. We put gas in machines and money in workers palms and think that those are different transactions, but money is just a way of paying the worker energy to feed himself, clothe himself, transport himself, house himself etc.
Think of it this way, if all those Brazilian workers were replaced by machines that used diesel wouldn't you count that diesel as part of the EI. If so why not count the energy needs of the Brazilian workers?
Sure,
I can see the injustice of how workers are treated in 3rd world countries but that wasnt my point. Pound for pound sugar will always give a better EROI than corn no matter how it is harvested. This combined with their deepwater oil finds means Brazil will, from a financial perspective, withstand any downturn in the world economy better than most.
Plus they are six time world soccer cup champions and there is always Carnaval!
I keep reading here that petroleum will have all sorts of uses after the "end of the automobile age" but according to the EIA something like 95% of the petroleum processed in the US goes to transportation fuel (gasoline, diesel, aircraft kerosene) or asphalt:
http://tonto.eia.doe.gov/dnav/pet/pet_pnp_wiup_dcu_nus_w.htm
"Locking ina price doesn't guarentee a profit...just the price that you'll sell th oil for."
That sounds simple but is actually great words of wisdom ROCKMAN. When you lock in a price, your essentially saying, "I can live with energy at this price" IF (and here is the big IF) you are buying the oil (or nat gas or coal or whatever) for use, not as a speculation on higher prices!
It is almost EXACTLY comparable to buying a home. Most folks who bought a home to live in, not as a speculative investment, have not been hurt by the recent "collapse" (unless, and this is a big UNLESS) they bought the home on very unfavorable terms (some call it usury).
If there is another half trillion or more barrels that can be accessed at any price below $150 per barrel (inflation adjusted, mind you) it completely "re-rolls" the dice...but I will deal with that in a post at the bottom of this string...
RC