Oil is back under $70
- Thread starter Tilted
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Larry Gude
Strung Out
Tilted
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Gas and oil trade as different commodities. There is certainly a strong link between their pricing, but changes in the former tend to lag changes in the latter.
We'll probably see some decline in pump prices over the next couple of weeks, though that decline might be mitigated somewhat by the naturally inflative effect of moving into the summer driving season.
Tilted
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Wake me when it is where it BELONGS; under $30
I see that someone is still in denial of fundamental oil market realities.
Though we might like the feel of $30 oil for a bit, we would pay severely for it in the long run. We don't want $30/barrel oil - we need it to be more like $50 - $80. That said, we'd only see $30 oil as a short term temporary overcorrection to very overpriced oil (like we saw a couple years ago) or as a result of the global economy collapsing such that we found ourselves back in the dark ages.
Oversimplified for the sake of brevity (and due to having too many balls in the air at the moment): While it is true that the planet still has plenty of oil left to give us (likely more than enough to last until such time as we've transitioned away from the need to use it in such large quantities in 20, 50 or 100 years), we are running out of cheap 'oil' - easy to find, easy to access, easy to produce oil. Additionally, it would seem that the majority of the 'cheap oil' that might be left is politically outside of our control. The days of poking holes in the ground any old place, and watching the oil spurt out of its geologic prison and into our barrels, are quickly passing into history. And, global demand for oil isn't exactly in massive decline. We can produce the oil we need, but I don't think we can't do it as cheaply as you would like us to be able to.
I'd say this - the prospect of $30/barrel oil well into the future would completely shut down oil exploration and the development of production capability in the Gulf - completely shut it down, and I mean even if such drilling was unencumbered by government regulation and prohibition. Even with future price expectations as they are, we've effectively had to subsidize the development of such oil production - by significantly limiting companies' liability exposure in case of accidents like the one we are dealing with now - in order to make it worth their while. At $30/barrel, the numbers just wouldn't add up - it wouldn't make sense to explore for and develop the oil sources that we need Exxon and BP to develop.
That said, tell me what your belief that $30/barrel oil is plausible going forward is based on. If I get a chance to consider it a bit, maybe I'll come around to your line of thinking on the matter. The realities that oil was much cheaper not too long ago, and that current prices don't feel right to us, are of little consequence to that consideration though.
Larry Gude
Strung Out
I see that someone is still in denial of fundamental oil market realities.
Though we might like the feel of $30 oil for a bit, we would pay severely for it in the long run. We don't want $30/barrel oil - we need it to be more like $50 - $80. That said, we'd only see $30 oil as a short term temporary overcorrection to very overpriced oil (like we saw a couple years ago) or as a result of the global economy collapsing such that we found ourselves back in the dark ages.
Oversimplified for the sake of brevity (and due to having too many balls in the air at the moment): While it is true that the planet still has plenty of oil left to give us (likely more than enough to last until such time as we've transitioned away from the need to use it in such large quantities in 20, 50 or 100 years), we are running out of cheap 'oil' - easy to find, easy to access, easy to produce oil. Additionally, it would seem that the majority of the 'cheap oil' that might be left is politically outside of our control. The days of poking holes in the ground any old place, and watching the oil spurt out of its geologic prison and into our barrels, are quickly passing into history. And, global demand for oil isn't exactly in massive decline. We can produce the oil we need, but I don't think we can't do it as cheaply as you would like us to be able to.
I'd say this - the prospect of $30/barrel oil well into the future would completely shut down oil exploration and the development of production capability in the Gulf - completely shut it down, and I mean even if such drilling was unencumbered by government regulation and prohibition. Even with future price expectations as they are, we've effectively had to subsidize the development of such oil production - by significantly limiting companies' liability exposure in case of accidents like the one we are dealing with now - in order to make it worth their while. At $30/barrel, the numbers just wouldn't add up - it wouldn't make sense to explore for and develop the oil sources that we need Exxon and BP to develop.
That said, tell me what your belief that $30/barrel oil is plausible going forward is based on. If I get a chance to consider it a bit, maybe I'll come around to your line of thinking on the matter. The realities that oil was much cheaper not too long ago, and that current prices don't feel right to us, are of little consequence to that consideration though.
I will grant you exploration is expensive. I will grant you building a highway or an electrical grid is expensive. I will grant you building one car, one radio, one tire is expensive.
However, once you are up and running, other than M & R, stuff gets real, real cheap to operate. What's a $100 million or even $1 billion when that investment can produce a billion barrels?
We operate under the illusion that all the oil in the world was made a billion years ago and it is all dinosaur juice and there were only so many dinosaurs thus we only have X number of rotted T rex's yielding Y gallons of oil. If you consider this even superficially, it is laughable.
Oil is, obviously, being made all the time. How fast? Not sure. How much, at what rate? Not sure. Given the shear enormity of the planet and the forces we are dealing with in terms of heat and pressure within the earth, we're not talking about just a little. I do know older wells, long capped, have shown to have 'new' oil in them.
Consider diamonds, an absolute scam. The illusion of scarcity fed by the near absolute control of the supply. What benefit is it to OPEC, to the US, Mexico, Canada, Russia, any producer, for it to be known that we have 100's of years of supply? None. What benefit is it to them to balance the idea of scarcity along with this alleged scarcity being the absolute back bone of the modern world? Enormous.
I mean, it is a simple matter to find volumes of reading supporting the central contention that the ONLY way to better profitability in oil is the restriction of supply. It is a mature industry that has set a foundation of economic success that simply has NO interest in anything but restricting supply in order to protect the price.
Why do we have so few refineries? About to run out of oil? No. The existing production capacity pretty much handles the demand and when one breaks, there is the opportunity to make a few extra bucks while it is being fixed.
There is NO incentive to have an over supply. There is no incentive to have oil steady like the price of electricity or bread or water. Far too much effort has gone into the industry, globally, to allow the actual supply to do to prices what WalMart has done to the price of a shirt or a TV even though the cost to get a barrel of oil out of the ground and on a tanker in Saudi is about $12. It costs about $50 in the US but it has nothing to do with the actual supply and demand and everything to do with everything and everyone that more expensive oil supports.
Another analogy; big time college football. It pays for everything else in the school.
Oil isn't a commodity, not a real one. You can't control a wheat harvest all that much. You can very much control the price of oil, diamonds, gold. Just control the supply.
SamSpade
Well-Known Member
Well, not dinosaur juice. More like algae, plant, and rotting detritus from oceans collecting on an ancient sea bed floor. That's fairly good established science. As I've said before, good science allows you to predict the unknown, and this knowledge is vital in looking for new sources of oil.
Not ironically, one of the newer ideas in creating oil is to accelerate this approach on purpose, from plant, algal and organic materials. While successful, it fails on several levels, mostly in the area of having sufficient biomass to produce a decent supply. When you're talking billions of barrels of oil, you really can't compete with millions of years of rotting seaweed.
Not really. I've read about those. The volumes are usually very small and almost always a consequence of drainage and pressure from deeper or nearby deposits. Kind of like what you'd expect when a well for water goes dry and miraculous "gains" a few gallons of mysterious water a few years later, thereby proving it's "creating" new water. Oil is NOT being created in the earth the way you are intimating. It takes an incredible amount of time, and we are depleting it fast enough it might as well be a zero rate.
I read about Gold's theory of abiogenic oil about thirty years ago, and although it sounds nice, it's quack science.
Larry Gude
Strung Out
As I understand it, that is right. That's part of why I used quotes on 'new'. As I understand it, it is partly 'newer' meaning younger, only 150,000 years old vs. 200,000 or what have you and part oil that came from elsewhere, from a harder to get spot into an easier to get spot.
As for abiogenic vs. biogenic, it doesn't seem to me fair to call it quack. It does sound fair to debate how significant it is economically.
As to what you believe or don't in terms of how much oil there 'is' and how finite it is or isn't, whenever I fly, I typically end up amused at just how big the earth is, the tiny little part I may fly over in 4 or 5 hours, and the mind just wonders at how much oil may be down there, how much room there is to grow fuel crops or even how much room for square miles of solar collectors.
When I see oil companies, oil nations, moving away from their buggy whips and whaling infrastructure, so to speak, then I think we'll have a much clearer picture of how much oil THEY think there is left.
Toxick
Splat
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SamSpade
Well-Known Member
I said quack as a euphemism for what it really is. BS. Significant economically is what we call it if we could all survive by photosynthesizing like plants do, because it would save us so much money to just sit and never eat food. But like a lot of such ideas, it's almost too ridiculous to discuss.
There's enough markers in oil to demonstrate that it begins its life as organic material, principally, algae. (Actually, that's why I think algae fuel, which IS being developed, holds such great promise, because we have the ability to do on purpose what nature did accidentally over eons). At some characteristic of pressure and heat, oil is formed - another, natural gas. Under similar conditions, coal. But at some level, it's kind of the same process.
People (I think the Russians - I'd have to look it up) investigated Gold's idea about twenty years ago, and the only oil they found was almost certainly a tiny collection of oil used to drill the hole they made. His idea was basically, oil is formed by heat and pressure of hydrocarbons in the mantle, and thus should be able to be found anywhere on the planet, if you just drill deep enough. Not only didn't they find anything, there's nothing in his claim that would point to a legitimate location - he couldn't say "oh, there's BOUND to be oil there", unlike geologists who can look at data and say, there's a fold here which will likely hold an oil deposit, and voila (or as Larry says, viola) there it is. (As I've said, good science predicts the unknown).
While it's true that often the consensus of science is sometimes wrong, I tend to believe them when the ONLY dissent comes from a place like Russia, where scientists often tend to believe in stuff because they want to.
Tilted
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I will grant you exploration is expensive. I will grant you building a highway or an electrical grid is expensive. I will grant you building one car, one radio, one tire is expensive.
However, once you are up and running, other than M & R, stuff gets real, real cheap to operate. What's a $100 million or even $1 billion when that investment can produce a billion barrels?
We operate under the illusion that all the oil in the world was made a billion years ago and it is all dinosaur juice and there were only so many dinosaurs thus we only have X number of rotted T rex's yielding Y gallons of oil. If you consider this even superficially, it is laughable.
Oil is, obviously, being made all the time. How fast? Not sure. How much, at what rate? Not sure. Given the shear enormity of the planet and the forces we are dealing with in terms of heat and pressure within the earth, we're not talking about just a little. I do know older wells, long capped, have shown to have 'new' oil in them.
Consider diamonds, an absolute scam. The illusion of scarcity fed by the near absolute control of the supply. What benefit is it to OPEC, to the US, Mexico, Canada, Russia, any producer, for it to be known that we have 100's of years of supply? None. What benefit is it to them to balance the idea of scarcity along with this alleged scarcity being the absolute back bone of the modern world? Enormous.
I mean, it is a simple matter to find volumes of reading supporting the central contention that the ONLY way to better profitability in oil is the restriction of supply. It is a mature industry that has set a foundation of economic success that simply has NO interest in anything but restricting supply in order to protect the price.
Why do we have so few refineries? About to run out of oil? No. The existing production capacity pretty much handles the demand and when one breaks, there is the opportunity to make a few extra bucks while it is being fixed.
There is NO incentive to have an over supply. There is no incentive to have oil steady like the price of electricity or bread or water. Far too much effort has gone into the industry, globally, to allow the actual supply to do to prices what WalMart has done to the price of a shirt or a TV even though the cost to get a barrel of oil out of the ground and on a tanker in Saudi is about $12. It costs about $50 in the US but it has nothing to do with the actual supply and demand and everything to do with everything and everyone that more expensive oil supports.
Another analogy; big time college football. It pays for everything else in the school.
Oil isn't a commodity, not a real one. You can't control a wheat harvest all that much. You can very much control the price of oil, diamonds, gold. Just control the supply.
Since Sam has aptly taken up the issue of the earth's ongoing creation of oil, I'll leave that aspect of the conversation between you two. For clarity though, I would ask you one question. When you speak of 'new' oil being found in older reservoirs (you said wells, but I suspect you mean reservoirs), do you mean that the oil is 'new' as in (1) it has formed as oil since the wells have been abandoned, or (2) it has entered or seeped into the reservoir since the wells have been abandoned, or (3) a well started producing (i.e. yielding, not creating) oil again, either naturally or as a result using enhanced extraction techniques?
As I've said many times, the most pressing issue is not whether there is plenty of oil in the earth (or whether it is creating it fast enough to keep up with our consumption of it), the issue is our ability to get it out of the ground, the rate at which we can get it out of the ground, and the cost of getting it out of the ground. We've been living off of the easy-to-access and cheap-to-produce oil for quite some time - naturally, that's the stuff we've used first. It has facilitated incredible productivity and helped us to realize great prosperity over the last century or so.
However, new sources of that kind of oil are not presenting themselves at the rate they used to. Are we still producing oil from such sources? Yes. Are we able to restore productive capacity to some such sources with the use of only modest-cost enhanced extraction techniques? Yes. Are we still bringing some new sources of the like online? Yes, even to that question. All those things being true, there is no question that the rate of production from such sources - low relative cost of production sources - is slowing. Allow me to make an uncomfortably obvious assertion: BP would not be drilling $100 Million wells in the middle of the Gulf of Mexico if there were sufficient sources of oil accessible via $1 Million wells. It's not as though they can sell that deep sea Miocene-age oil for lots more money. Though it would be overly-simplistic to suggest that oil is oil, market price variations are certainly not significant enough to justify the allocation of huge additional resources, trying to get at the difficult to produce oil, if there's plenty of the easy to produce stuff left for the taking (that is, even if the expensive to produce stuff were the better stuff).
Even within the context of Gulf of Mexico oil drilling, producers are having to move into deeper water and drill to deeper depths to find meaningful productive capacity. What portion of the Gulf's un-produced, proved reserves do you suspect is in deep water as opposed to shallow water? For contrast, what portion of the oil already produced from the Gulf do you suspect was from shallow water?
The earth has oil for us, but we are quickly using up the stuff she had laid out to tempt us. Now that we're addicted - and because we aren't going to beat that addiction anytime soon - we are going to have to work harder and harder to find and bring home the stuff that we need.
Before we get too deep into this, I'd throw out a few more questions for you to consider for yourself - as I think I know what the crux of the disconnect, as relates to costs, is. How much oil do you think the average Gulf well produces? How much do you think it costs to drill and complete one - leaving aside the other operational costs? Obviously, the answer to the second question depends and can vary a great deal. That's a part of the point - while existing production capacity may have smallish costs attached to it, new production capacity is coming at significantly greater costs.
One last question, according to the DOE, what was the total upstream cost per BOE for newly developed U.S. off-shore reserves from 2006-2008? Though I'd acknowledge that metric is somewhat fickle and imprecisely formulated, it is still fairly telling.
This is a good conversation, we should take it a little further. I apologize for my participation being sporadic.
Tilted
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:fixed:
Though I realize that's a common perception - perhaps because humans' tendency to make note of detrimental things is greater than their tendency to make note of beneficial things - I'm not sure it is born out by reality. In fact, the last time I tried to put quantitative definition to the notion (using DOE data), I found the opposite to be true - declines in the oil price were more likely to be immediately followed by declines in the price at the pump than increases in the oil price were to be immediately followed by increases in price at the pump - though my sample size wasn't large enough to make sufficiently meaningful conclusions.
Tilted
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That's true - at least, when all you are talking about is digging a relatively simple hole in the ground.
The story changes somewhat when you have to build a billion dollar structure that costs a half million dollars a day to run, send it a hundred miles out to sea, drill 12,000 foot deep wells into earth that's a mile below sea level to begin with, pony up $20 million, $50 million or even $100 million for each hole - hoping they'll get completed successfully and produce good yields, build another superstructure to collect the oil from those wells, be on the hook for billions of dollars in liability when the inevitable mishap happens, etc., etc., etc.
SamSpade
Well-Known Member
There's that - but there's also the fact that oil is energy-dense and - being a liquid - is easily transportable.
You can't do the same with wind, solar or hydro.
Tilted
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Oh sure - we use oil because it's such a great battery, and as such, it travels. We've managed to design and build energy extraction mechanisms for it that are relatively inexpensive and small, thus plentiful and mobile.
What we need are better batteries. Lacking them, we use the natural batteries created by the earth to store the extra energy it didn't want to use at the time.
Larry Gude
Strung Out
Yes, reservoirs, and 'all of the above'. To clarify the first, I am not arguing or even suggesting oil is created as fast as we use it or even remotely close to that. However, it is at some rate and it may be at a meaningful rate.
As to (2) it seems obvious that new/other oil will move into the space provided as oil is removed. My over all argument is against the perception of this finite, limited resource that is in giant gas tanks, so to speak, and there is only X gallons and that is it.
As for (3) as I understand it, the easy oil you mention, estimates suggest that old methods removed around 20% of the potential of given reservoirs. It seems to me that reservoirs tapped 40-50 years ago in Texas and written off as no longer productive could very well be 'refilled' by now, nature abhorring a vacuum and all, in addition to new technology allowing us to use the 'new' 20% and a whole lot more if we go back to them.
So, in addition to the perception of the great buried gas can that only holds X gallons, it serves the interests of oil producers and governments that this is a finite resource. As you and Sam are discussing, wind and solar and fantasy batteries are technological leaps away from competing with a gallon of oil so, let them have at it.
As I say, I'll get interested when I find that BP and others are taking dramatic steps away from oil. In the mean time, forcing every more difficult exploration, if that is at least part of the equation, does one of the things big corporations like; get rid of competition.
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