Opec set to win battle against US shale oil

[GURPS]

Opec set to win battle against US shale oil


Bank says prices could go to $20 a barrel

Saudi Arabia gained the whip hand yesterday in its battle against America’s shale industry as new figures showed oil production by non-Opec members is set to crash next year by the largest amount in 24 years.

Sharply lower oil prices are set to trigger a slide in production of half a million barrels from outside the Opec cartel to 57.7 million barrels a day in 2016, the International Energy Agency said in its monthly report.

 

[Gilligan]

They can't "knock it out". The resource is and will still be there, only the production will drop or cease for a while. Lots of shorter-term pain for US producers but in the long term we've still got this.

My own oil royalties ceased already...not that they were much to talk about even when the boom was on. But the infrastructure is still in place, so it can be started up again in the future.

 

[BigBlue]

Opec set to win battle against US shale oil


Bank says prices could go to $20 a barrel

Saudi Arabia gained the whip hand yesterday in its battle against America’s shale industry as new figures showed oil production by non-Opec members is set to crash next year by the largest amount in 24 years.

Sharply lower oil prices are set to trigger a slide in production of half a million barrels from outside the Opec cartel to 57.7 million barrels a day in 2016, the International Energy Agency said in its monthly report.

Would you like to elaborate.

 

[Larry Gude]

How come this doesn't say "US consumers finally on winning side of energy geo-politics after 15 years of being used like rented mules"?

 

[Larry Gude]

They can't "knock it out". The resource is and will still be there, only the production will drop or cease for a while. Lots of shorter-term pain for US producers but in the long term we've still got this.

My own oil royalties ceased already...not that they were much to talk about even when the boom was on. But the infrastructure is still in place, so it can be started up again in the future.

Seems so simple yet, I guess not?

 

[GWguy]

How come this doesn't say "US consumers finally on winning side of energy geo-politics after 15 years of being used like rented mules"?

Speaking of which...... have you bought your oil yet? I need a fill up but want you to buy first. It always goes down after you do a big buy.

 

[Gilligan]

Speaking of which...... have you bought your oil yet? I need a fill up but want you to buy first. It always goes down after you do a big buy.

Good point. Let us know, willya Larry?

 

[Larry Gude]

Speaking of which...... have you bought your oil yet? I need a fill up but want you to buy first. It always goes down after you do a big buy.

Not yet.

 

[Tilted]

There are different aspects of the consideration, so I'm not sure we can say they won or they didn't win without fairly arbitrarily defining what constitutes a win. It was always going to be a matter of degree when it came to whether or not they were successful. There's not doubt that lower oil prices would (and will) affect U.S. production in particular. The question is how much. It's beginning to look as though prices got lower enough to have quite a bit of affect on U.S. production. Not only has the rate of increase in overall production slowed (which would have represented a degree of OPEC success), overall production has declined over the last few months - about when we would have expected the effects on total U.S. production to start being significant. So I think it's fair to say that OPEC is having some success (i.e. from not cutting its own production to offset the building the supply glut). And there are other indications that it is having a good bit of success on that front.

The question now is how lasting the effect will be as oil prices rise in coming years (assuming they will). This lesson learned will certainly affect decisions going forward at the margins - some projects won't happen that otherwise would because the companies (especially the smaller ones) that develop oil assets here now realize that an oversupply can happen and that prices can quickly fall so much that those projects no longer make sense (and that overextending themselves when it comes to capital expenditures can leave them on the verge of bankruptcy). At one point there was an expectation that prices could never fail as low as they have recently. That expectation has been shattered and it having been will weigh on decisions in the U.S. oil industry for a while. So we'll no doubt produce less oil in 2 years than we would have otherwise (i.e. if prices had never fallen so much) even if prices go up considerably in the meantime. But how much less? That's the aspect of OPEC's success that remains, at this point, pretty hard to gauge. I've heard people from various energy companies express quite different expectations in that regard.

 

[Tilted]

How come this doesn't say "US consumers finally on winning side of energy geo-politics after 15 years of being used like rented mules"?

Because much lower oil prices today isn't a categorical win (in the long-term) for U.S. consumers, and they certainly aren't a categorical win for the U.S. oil industry which has some effect on the U.S. economy and thus those same consumers. What is happening now with oil prices, and what has happened with them over the last year, will effect U.S. oil production in the future. So the price we - even as consumers - pay for much lower fuel prices today may be somewhat higher fuel prices (than we would have had otherwise, not as compared to what we have today) in the future. Those lower prices today mean some lost production 2 years and 5 years from now, so they likely mean slightly higher (or maybe significantly higher, it's hard to gauge right now) prices in the future. The question would be, do much lower prices for however long we'll enjoy them now represent more a greater benefit than the detriment that slightly (or possibly significantly) higher prices for some period of time in the future will represent? And then what about the decreased energy independence that will come from us producing less oil (i.e. than otherwise, not than today) domestically in the future?

 

[Larry Gude]

Because much lower oil prices today isn't a categorical win (in the long-term) for U.S. consumers, and they certainly aren't a categorical win for the U.S. oil industry which has some effect on the U.S. economy and thus those same consumers. What is happening now with oil prices, and what has happened with them over the last year, will effect U.S. oil production in the future. So the price we - even as consumers - pay for much lower fuel prices today may be somewhat higher fuel prices (than we would have had otherwise, not as compared to what we have today) in the future. Those lower prices today mean some lost production 2 years and 5 years from now, so they likely mean slightly higher (or maybe significantly higher, it's hard to gauge right now) prices in the future. The question would be, do much lower prices for however long we'll enjoy them now represent more a greater benefit than the detriment that slightly (or possibly significantly) higher prices for some period of time in the future will represent? And then what about the decreased energy independence that will come from us producing less oil (i.e. than otherwise, not than today) domestically in the future?

My comments are in response, more or less, to both of your recent posts on this.

Of course it's not a categorical win and for the reasons you state. Pretty much all my comments about most anything are rooted in a 'promotion of the general welfare' mindset. I don't see how in any way, shape or form the acceptance of $100 oil for more than a decade, handing the Saudi's and Iranian's TRILLIONS of dollars was good for the US in general. But, it's what we did.

Oil energy is a unique field, for now, as it is a natural resource, ostensibly belonging to we, the people, generally speaking, allowing private interests to exploit for the supposed general welfare. I don't have much of a 'grand' answer what to do other than to begin a national energy policy.

 

[PeoplesElbow]

A lot of the US shale oil producers are very small compared to OPEC so "big won". There are a lot of small related businesses affected, shortline railroads, oil field services and supplies etc.

 

[GURPS]

There are different aspects of the consideration .....

when it is no longer cost effective to recover oil from THOSE Sources .... its a win for OPEC / SA :shrug:



I could see the OIL Companies maintaining the equipment, beyond that, there is no profit

my wife has a friend who's husband is a pipe fitter in the last 10 yrs they have gone from Texas [several sites] to Kansas - working on new projects
when the OIL prices began to fall, they canceled the project in Kansas and sent everybody home

 

[Gilligan]

A lot of the US shale oil producers are very small compared to OPEC so "big won". There are a lot of small related businesses affected, shortline railroads, oil field services and supplies etc.

Sure..but at the end of the day, the resource isn't going away. The oil and gas will sit there until it is economically feasible to recover it again.

The drop in oil prices has hurt other countries too..Norway, for example...that have high(er) costs of production for other reasons.

 

[Larry Gude]

when it is no longer cost effective to recover oil from THOSE Sources .... its a win for OPEC / SA :shrug:



I could see the OIL Companies maintaining the equipment, beyond that, there is no profit

my wife has a friend who's husband is a pipe fitter in the last 10 yrs they have gone from Texas [several sites] to Kansas - working on new projects
when the OIL prices began to fall, they canceled the project in Kansas and sent everybody home

More reasons for a national energy policy.

When I was a kid there were various mil contractors all around the area and it was the era of $400 toilet seats. I never had a problem with that because I understood it to be keeping a lot of little players in business so that, should a need arise, we were not starting from 0 or just one or two major players. Call it corporate welfare. Call it sound reasoning. Call it crazy. Whatever you call it, those sorts of skills, the engineers, the process's, the people and institutional memory provided a constant, albeit, low pressure of competition and innovation whereby the skills, while not maintained on a large scale, at least maintained at core. You consolidate that, it all goes away.

Same thing with energy. Just as soon as these guys have gotten up to speed these past decade or so, equipment, engineering, skills, innovation and competition, now it's gonna go away absent some sort of welfare program or system whereby the talents are maintained.

If we simply can be more honest with one another, it makes these sorts of things a good bit more sensible rather than these wild swings of 'free market' that is anything but given we're talking about a natural, collective resources on the one hand and providing for the common defense on the other.

 

[Gilligan]

More reasons for a national energy policy.

When I was a kid there were various mil contractors all around the area and it was the era of $400 toilet seats. I never had a problem with that because I understood it to be keeping a lot of little players in business so that, should a need arise, we were not starting from 0 or just one or two major players. Call it corporate welfare. Call it sound reasoning. Call it crazy. Whatever you call it, those sorts of skills, the engineers, the process's, the people and institutional memory provided a constant, albeit, low pressure of competition and innovation whereby the skills, while not maintained on a large scale, at least maintained at core. You consolidate that, it all goes away.

Same thing with energy. Just as soon as these guys have gotten up to speed these past decade or so, equipment, engineering, skills, innovation and competition, now it's gonna go away absent some sort of welfare program or system whereby the talents are maintained.

If we simply can be more honest with one another, it makes these sorts of things a good bit more sensible rather than these wild swings of 'free market' that is anything but given we're talking about a natural, collective resources on the one hand and providing for the common defense on the other.

?? You are advocating a Federal subsidy and price controls on an internationally fungible commodity?

 

[Larry Gude]

?? You are advocating a Federal subsidy and price controls on an internationally fungible commodity?

You say that as though it's a free market and I'm advocating against it. Oil is a geo-political tool and we pretend it's not and I think that is, strongly, to our own detriment.

We used our military as a 'price control' and 'subsidy' since 1991 and what is the net effect of that over the last 24 years? Whether we used our military wisely or not is a separate conversation. Sticking to oil, we 'subsidized' Iran and Saudi to the tune of several trillion dollars over that time and, in the mean time, at least partially to make up for those lost dollars, we took it right out of workers pockets via cheap immigrant labor.

So much for our 'policy' :shrug:

 

[Gilligan]

You say that as though it's a free market and I'm advocating against it. Oil is a geo-political tool and we pretend it's not and I think that is, strongly, to our own detriment.

We used our military as a 'price control' and 'subsidy' since 1991 and what is the net effect of that over the last 24 years? Whether we used our military wisely or not is a separate conversation. Sticking to oil, we 'subsidized' Iran and Saudi to the tune of several trillion dollars over that time and, in the mean time, at least partially to make up for those lost dollars, we took it right out of workers pockets via cheap immigrant labor.

So much for our 'policy' :shrug:

so your short answer is "yes".

 

[Larry Gude]

so your short answer is "yes".

No. There is no short answer because the question you ask has some assumptions tied to it that make a short answer no answer at all. I used to buy into those assumptions, the free market fallacies that float around large issues that should be much more about public policy and much less about the illusion of market 'freedom'. On your level, on mine, small business, that's one thing. However, you go even a little larger and the governing federal purpose, the promotion of the general welfare, comes into play pretty quickly. Wildcatters, from getting financing, equipment, drilling rights, all of that, it has much greater relationship to public policy than, say, specialized marine applications or growing some flowers.