Peak Oil?

[HenryTo]

Dear all,

I would like to start a discussion/argument on the validity of the Peak Oil theorists on this board. One of my subscribers had asked me to do this - and I believe it will be a very well worthwhile discussion!

I know there has been a lot of literature written about this - including recent books - but one thing that I find lacking is the fact that many of the commentators talk about the industry in VERY BROAD terms. That is, economists who are working with questionable data - questionable because of the lack of transparency in the oil markets, not because it is their fault.

I feel that Matt Simmons had done a great job in his efforts to focus on the Saudi oil machine. He spent an entire book just writing about the Saudi oil industry, and makes a very good argument which discredits the Saudis' claims that they can ramp up to 15 mm barrels a day in a few years. In all likelihood, he argues, Saudi oil output has peaked or is near peaking. We need similar analyses for the Russian oil industry, the North Sea, Iranian, and Venezuelan oil production.

Going forward, this author is bullish on the price of oil in the long-run, as I believe oil demand growth in both China and India will surpass the ability of the world to pump more oil - given current constraints and the lack of new, impressive discoveries.

I would definitely like everyone to chime in.

Best,

Henry

[BlueDaze]

Oil Prices About To Rise, Energy Expert Warns
Wed Nov 22 2006
By Murray McNeill

http://www.winnipegfreepress.com/subscriber/business/story/3784504p-4377294c.html

Consumers who have been feeling warm and fuzzy about falling oil prices had better brace themselves for a blast of cold air, according to one of Canada's leading oil and natural gas authorities.

Josef Schachter, president and chief investment officer of Calgary-based Schachter Asset Management Inc., said the recent swoon in oil and natural gas prices is temporary, spurred on by earlier forecasts of a warmer-than-usual North American winter and high inventories.

But with Old Man Winter beginning to settle in and U.S. inventories of crude oil, heating fuel and jet fuel dwindling rapidly in recent weeks, oil prices are about to start heading back up again, he predicted in an interview yesterday.

Schachter, who is in Winnipeg today to address a Jory Capital Inc. investment forum, said he expects oil prices to dip a little lower over the next week or two, to between US$54 and $57, then rebound to about $65 by the end of December and to more than $70 by February.

"We're still in the bull camp," he added. "We believe the average price will be $70 next year, compared to $66 or $67 this year."

As for natural gas prices, Schachter said they've already begun to recover from their late summer nosedive, when they plummeted from about $8.30 a gigajoule to as low as $4.35 over a six to seven-week period.

But since then, they've clawed their way back up to just above $8 again, he said, and he predicted they'll be above $10 by late January or February.

He also predicted natural gas prices will remain high through the spring because inventories are expected to be tight. He noted drilling and exploration work was scaled back dramatically last summer when prices were plummeting, "and that will set the stage for higher prices next summer."

Schachter said he expects natural gas prices to average about $9 a gigajoule for 2007, compared with about $6.50 this year.

While higher oil and natural gas prices mean higher pump prices and high heating bills for consumers, Schachter maintained they're necessary to ensure there'll be ongoing oil and gas exploration and development taking place in Canada.

"We're not running out of oil, we're just running out of cheap oil," he said, noting it costs big money to access natural gas reserves that are deep in the ground and to extract oil from the sea and from the northern Alberta tar sands. So what does all of this mean for investors?

Schachter said he'll be telling Winnipeg investors they should be investing in oil and gas stocks now, before prices take off again.

[nodoodahs]

Wow, it looks like the Safehaven crew just hijacked this thread!
_________________
He was wearing my Harvard tie. Can you believe it? My Harvard tie. Like oh, sure, HE went to Harvard.

[BlueDaze]

The Peak Oil Crisis: Picking the Peak
By Tom Whipple (Wednesday, 22 November 2006)

http://www.fcnp.com/index.php?option=com_content&task=view&id=522&Itemid=33

Last week Cambridge Energy Research Associates (CERA) who characterize themselves as "a leading advisor to international energy companies, governments, financial institutions, and technology providers," sent out a press release announcing that they had a new report on peak oil for sale. For some time now, CERA has been the leading debunker of the notion that world oil production might just peak in the near future, so their reports are always of interest.
They do say oil production will never peak, it's just that they want you to believe that the peak won't come until 2030 and after that production will decline so gradually that there will be plenty of oil right on out through the rest of the 21st century.

The occasion of a "new" report on peak oil from CERA always creates a great stir amongst followers of the peak oil story. This time was no exception. CERA is, of course, a profit-making entity that is used to selling their analyses to major corporations and rich governments for big bucks, so $1000 was set as an appropriate amount for a 16-page report debunking a subject as important peak oil.

CERA, or at least their PR folks, realized that at this price, "WHY THE PEAK OIL THEORY FALLS DOWN" was unlikely to make the best seller list, so they thoughtfully provided a tightly written four page press release covering the main points of the study. This of course allowed the world's press to write stories about the gist of the report with having to pony-up the $1000.

The purpose here is not to critique the CERA report's shortcomings for within hours of the press release's issue, numerous voices from the Internet had torn the CERA report, its logic, and argumentation into a thousand intellectual shards.

In case you are interested, there was nothing new in the report that CERA has not said many times before. The heart of their argument is that their parent company has a secret database of the world's oil fields. After studying this database, depletion rates, and likely new sources of oil or oil-like hydrocarbons, they conclude that world oil production will continue growing right on up to 130 million b/d by 2030. After that, production will bounce along on their famous "undulating plateau" for decades giving us plenty of time for future generations to go out and find some other source of energy. You should be aware, however, that several other individuals and organizations have done similar analyses and have come to far more alarming conclusions.

Now there is nothing intrinsically wrong in an organization examining a problem as complex as peak oil and coming up with an optimistic judgment that we have 25 years of plenty ahead. They start to get out of line however when they mischaracterize what serious students of peak oil are really saying and follow this up with dubious assumptions that technological advances in the near future will turn all manner of carbon deposits into affordable fuels.

This all leads to the question of just what is going on here? Why is CERA putting out the same old claims -- this time wrapped in some name-calling about the inadequacies of the people who believe that peak oil is imminent? Why is CERA ignoring reams of solid evidence that world oil production is indeed approaching a peak and that there is unlikely to be any technological quick-fix? Why are they doing this now?

There just might be a clue buried in the rather strange first paragraph of CERA's press release. "The peak oil argument is based on faulty analysis which could, if accepted, distort critical policy and investment decisions."

We might just be on to something; widespread acceptance of imminent peaking of oil production is "distorting critical policy and investment decisions?" What policies and whose investment decisions?

CERA, of course, makes a good living by selling advice about the future of energy to corporations and governments that can afford very expensive reports and consulting fees. There is also no question that many investments decisions made in 2006 are going to look brilliant or dumb depending on whether oil is cheap and plentiful or expensive and scarce ten years from now.

Moreover, there is no secret about peak oil and the path to the peak. It is all over the Internet in as much detail as one would like to know. It is highly unlikely that planners for large corporations are unaware of the concepts behind peak oil and do not know that the price of oil has increased three or four fold in recent years. The price spikes of last summer coupled with the problems that Detroit has had selling large cars should be enough to focus most decision-makers’ attention.

CERA is clearly hanging its credibility and future on the idea that worldwide oil depletion is still a long ways off. It is a popular message and probably finds a good market in corporate board rooms where a massive paradigm shift is highly unwelcome news.

Events of the last year, however, should give those accepting this optimistic view cause for concern. It is not much of leap to believe that CERA is coming under heat from those who recognize that a bad call on peak oil will be devastating. This CERA report, which is obviously an attempt to defend their position, may be a sign that the message of peak oil may just be getting through to the corporate world.

[BlueDaze]

World's Second Largest Oil Field Now Past Peak
Peter J. Cooper, Kuwait Times, 14 November 2006

http://www.stcwa.org.au/index.php?option=com_content&task=view&id=851&Itemid=134

It was an incredible revelation last week that the second largest oil field in the world is exhausted and past its peak output. Yet that is what the Kuwait Oil Company revealed about its Burgan field. The peak output of the Burgan oil field will now be around 1.7 million barrels per day, and not the two million barrels per day forecast for the rest of the field's 30 to 40 years of life, Chairman Farouk Al-Zanki told Bloomberg. He said that engineers had tried to maintain 1.9 million barrels per day but that 1.7 million is the optimum rate.

Kuwait will now spend some $3 million a year for the next year to boost output and exports from other fields. However, it is surely a landmark moment when the world's second largest oil field begins to run dry. For Burgan has been pumping oil for almost 60 years and accounts for more than half of Kuwait's proven oil reserves. This is also not what forecasters are currently assuming.

Last week the International Energy Agency's report said output from the Greater Burgan area will be 1.64 million barrels a day in 2020 and 1.53 million barrels per day in 2030. Is this now a realistic scenario?
The news about the Burgan oil field also lends credence to the controversial opinions of investment banker and geologist Matthew Simmons. His book 'Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy' claims that ageing Saudi oil fields also face serious production falls.

The implications for the global economy are indeed serious. If the world oil supply begins to run dry then the upward pressure on oil prices will be inexorable. For the oil producers this will come as a compensation for declining output, and cushion them against an economic collapse.
However, the oil consumers then face a major energy crisis. Industrialized economies are still far too dependent on oil. And the pricing mechanism of declining oil reserves will press them into further diversification of energy supplies, particularly nuclear, wind and solar power.

All this was foreshadowed in the energy crisis of the late 1970s when a serious inflection in oil supply by the year 2000 was clearly forecast. How ironic that those earlier forecasts now look correct, while more modern and recent forecasts begin to look over optimistic and out-of-date with geological reality.

Nobody can change the geology, and forces of nature that laid down reserves of oil and gas over millions and millions of years. Could it be that we have been blinded by technological advances into thinking that there is some way to beat nature?

The natural world has an uncanny ability to hit back at the arrogance of man, and perhaps a reassessment of reality at this point is called for, rather than a reliance on oil statistics that may owe more to political manoeuvring than geological facts.

[BlueDaze]

10 Warning Signposts of Peak Oil
by Randy Udall, Jeremy Gilbert & Steve Andrews

What evidence is there to suggest that a peak in global oil production is near? Here, ten reasons why this turning point is likely between now and 2015.

1. With some exceptions, (the North Sea, the United States, Indonesia, for example, and most of the minor producers who are long past peak) falling reserves are generally not the most important brake on efforts to increase oil production. There are numerous other constraints (including limits on financing, logistics, shortages of rigs and drilling ships, a lack of skilled manpower, extremes of weather, political or military conflict) that make it increasingly difficult to expand production.

These constraints, which sometimes operate synergistically, work to restrain and delay production growth which might otherwise compensate for declines elsewhere. Iraq, for example, has sufficient reserves to theoretically produce 5 million barrels a day. But wishing won’t make it so.

2. Globally, oil production is highly concentrated in a small number of countries and regions and is becoming more so. Twenty nations produce 83% of the world’s oil, and production in many has already peaked. As others in this top twenty gradually “roll over,” it will become increasingly difficult for the remaining members of this exclusive club to “up the ante,” increasing their own production to offset declines elsewhere. Indeed, in CERA’s forecast to 2015 published last summer, the authors acknowledge that conventional crude production will plateau around 2010, but forecast that the availability of natural gas liquids will continue to grow as global gas production expands.

3. Production outside OPEC is forecast by most experts to peak between 2010 and 2015. Once that occurs, there is no possibility that any combination of non-OPEC countries could offset significant production declines in other parts of the world. A wide range of analysts agree on this, including PFC Energy, ExxonMobil, Cambridge Energy Research Associates, and Woods Mackenzie. Their conclusions are supported by other studies carried out by Chris Skrebowski, Tom Petrie, Henry Groppe and others.

4. The overwhelming majority of remaining conventional petroleum reserves are concentrated around the Arabian Gulf. There, they are largely off-limits to the world’s independent oil companies which tend to have the best technology and the most highly trained engineers and geoscientists. This technology and these people are increasingly essential to efficiently extract the oil from the increasingly complex reservoirs which hold most of the remaining conventional oil.

5. The Middle East region is riven by religious, cultural, geopolitical and military conflicts. It is a cauldron for conflict. Muslim governments control about two-thirds of the world’s remaining conventional oil and are increasingly bitterly opposed to U.S. government policies. In most of these key nations, the ability to expand production is larger than the current desire to do so; they are unlikely to see any benefit in early production of their oil to slake an American or Chinese thirst.

6. Increases in production from the non-Middle East OPEC member countries are unlikely to compensate for production declines elsewhere. Nigeria's production has been undercut by insurgents; Venezuela's production is falling due to mismanagement and the "Chavez factor"; Indonesia’s production appears to be in irremediable decline.

7. Unconventional petroleum resources (Canada’s tar sands, Venezuela’s bitumen and U.S. oil shales) are very large and very misunderstood. All oil is not created equal. Although they total trillions of barrels in the aggregate, expanding unconventional production is expensive, technically arduous and slow. Because these resources can not be produced at high rates, they can do little to postpone the peak in global production.

For example, at forecast 2015 rates of production, it will take more than a century to produce Canada’s 175 billion barrels of tar sand reserves. With tens of billions of investment, Venezuela could expand its bitumen production, but Chavez is in no rush to do so, nor are the importing countries showing any indication of the investments in refinery modifications which would be required to deal with the increased proportion of very heavy oil.

As for oil shale, global production has never exceeded 25,000 barrels a day, has fallen by half since 1990, and now provides just 1/10,000th of global energy. Typical oil shales have the energy density of a baked potato. (In Colorado, Shell hopes to pull the sword from the stone using electricity: a dedicated 1,200 MW powerplant will be needed to produce 100,000 b/d, making this the world’s largest electricity consumer.) Other oft-heralded types of unconventional liquids, such as gas-to-liquids and coal-to-liquids, are very capital intensive and offer abysmal energy returns.

Biofuels, particularly Brazilian ethanol, will make an important contribution but only regionally. A breakthrough in the production of cellulosic ethanol would be welcome, but is unlikely to occur before oil production peaks.

8. Production decline from producing fields is inevitable and relentless, and trees don’t grow to the sky! Not all the world’s oil fields are in decline, but the majority are. No one knows what the average global decline rate is, but assuming CERA’s conservative 5% decline rate in mature fields, the existing global production base loses more than 2.5 million barrels per day/year. This means that by 2015 we may need 20 million barrels per day of new production just to maintain current world production.

Most of the world’s large fields, a few hundred of which are the main contributors to global production, have been on production for decades. Many are known to have increasing water cuts or gas-oil ratios, and are in decline. Examples of major fields which are thought to have gone into decline include Mexico’s Cantarell, Alaska’s Prudhoe Bay, Kuwait’s Burgan, and perhaps Saudi Arabia’s Ghawar. (If the Saudis wish to allay fears about the well-being of their major fields, they could do so by releasing data on their production histories. Their reluctance to do this, while perfectly understandable, is not particularly reassuring.)

9. Roughly 80% of the world’s remaining oil reserves are controlled by national oil companies such as Saudi Aramco, Pemex, Petrobras, ADNOC and NIOC. In the grand scheme of things, BP, ExxonMobil, and Shell are relatively small players and no longer have the ability to significantly expand production. (Exxon has spent $100 billion since year 2000 with no growth to show for it. Lee Raymond may not “believe” in peak oil, but his company’s recent performance doesn’t exactly refute the idea.) In evaluating whether to invest in increasing production, the NOCs rely on a different set of calculations and motivations than the IOCs.

National interests, which tend to favor ensuring that oil reserves will still exist for the current leaders’ grand-children, often trump what Westerners would define as rational economic decision-making. Recently, a number of these government-owned companies have unilaterally rewritten the terms of existing contracts, rejected joint-development proposals from IOCs, and taken various steps to further restrict access by the IOCs to their reserves. See Putin, who has recognized that energy is the original currency, and with it he can wage a new cold war.

In short, production expansions by the NOCs are likely to take place over longer periods and to lower levels than some analysts had expected.

10. Discovery rates are falling rapidly. We are now producing two to three barrels of oil for every additional one we find. New discoveries are also much smaller than those of a few decades ago. It has been 25 years since we discovered a field capable of producing 1 million barrels per day.

During the 1970s, at the time of the first Oil Crises, the North Slope, North Sea, and Cantarell were standing in reserve, ready to ride to the rescue. In contrast, today there are few, if any, large, untapped virgin fields waiting in the wings. The offshore fields that are being developed (primarily in West Africa, the Caspian, Brazil and the deepwater Gulf of Mexico) are smaller, more complex, and, in cases, nearly prohibitively expensive to develop.

[BlueDaze]

Does the Peak Oil "Myth" Just Fall Down?
- Our Response to CERA

http://www.theoildrum.com/story/2006/11/15/83857/186

[BlueDaze]

[HenryTo]

Cambridge Energy Research Associates "debunking" the Peak Oil Theory:

http://www.cera.com/aspx/cda/public1/news/pressReleases/pressReleaseDetails.aspx?CID=8444

[rffrydr]

By definition. It was certainly the case for whales at the cusp of industrialism. But price was only a factor for a short while.

As always a question of timing--take; a long enough time and the meaning is forgotton. We didn't leave the Stone Age because we ran out of stones!

There's always a strong, market ignorant, public reaction to oil price moves. It's just funny to hear shouts of 'conspiracy' on a large price DROP!! Starting to sound like a religion, no?

[HenryTo]

Like I mentioned before, the most bullish scenario for oil in the intermediate to longer-run is a further "dip" to $48 to $50 a barrel over the next 12 months - coupled with "a U.S. mid-cycle slowdown." Such a breather in both oil and the economy (not too hot, and not too cold, as they say) will get the potential SUV buyers all happy again (and which may damper VC funding for alternative energy projects). And as China continues to grow and as India continues to build its infrastructure (they will need to double their physical infrastructure spending from $50 billion annually to $100 billion annually in order to sustain a GDP growth of 8% or over), oil will most likely rise to the $80 to $100 level under such a scenario (by the end of this decade).

[diesel]

Peak oil is a reality in that eventually oil production will reach a point of maximum extraction and then begin to decrease whether it is through technological inovation such as electron based vehicles which dont require oil or for depletion related reasons. IMO it will come via the depletion path.

It is important to remember that the world has now not found as much oil as it has consumed for 20 odd years now which indicates that we are running down our worldwide inventory of oil. We currently find about 1/4 the oil that we use every year. In addition most new drilling is now in the deep sea and oil sands/shale i.e. the last frontier so to speak which to me indicates we are moving to an era where the oil we are going to get is going to be harder to find and more expensive to extract. IMO a high oil price is the enabler which will allow extraction of heavy oil.

In addition as Henry has mentioned before there is a huge new customer base for oil i.e. China and India that will be looking to import huge quantities of oil in the future.

Given the above I am structurally long term bullish on oil. The current bear market in oil should be short lived IMO unless we see a worldwide recession.

[rffrydr]

"Enthusiasts" are blaming Goldman Sachs for Republican election mandated price decreases: talk is of 'peak plateau' and recrimination againts 'hoarders':

http://www.fromthewilderness.com/members/100406_markets_react.shtml

[rffrydr]

another good debunking with plenty of links for this long-term issue:

http://www.ecoworld.net/blog/2006/07/12/there-is-plenty-of-oil/

[rffrydr]

Global warming will open up the new (last) frontier of oil exploration! Also, after centuries in the making, a "northwest passage."

Covers the issue pretty thoroughly:

http://economist.com/finance/displayStory.cfm?story_id=6823506

This really took hold, after a period of finally coming to terms with a declining Northsea, with Royal Shell amazing whoops, where did all our reserves go.

[HenryTo]

Following is an email that I just sent to a subscriber regarding Canadian Tar Sands:
----------------------------------------------------------------------
I came across this today and remembered your email:

http://www.fool.com/news/commentary/2005/commentary05101904.htm

I have not been as optimistic on tar sands simply because of the lack of investments. According to the article Canada currently has a tar sands production capacity of 1mm bpd, and is only projected to grow to "only" 2.7mm bpd by 2015 - definitely not enough of an increase to cover oil consumption growth in the U.S. for the next five years, let alone China's and India's for the next ten years.

Of course, these are only projections - my guess is that this projection will change quite dramatically once we see more price spikes (barring a major world recession) in the next few years. Even then, however, it will take some time for the Canadians to ramp up.