Cheap Oil?

[Art Eatman]

I just got my new issue of "Strategic Investment".  I noticed a reference to a Matthew Simmons and his prediction of a decline in world output of oil from today's roughly 80 million bpd to 20 million bpd by 2020.

So, Google time.

Simmons is no lightweight.  Bossman of an investment banking outfit for the Big Oil folks.

This URL appears to be of his reminder/cue notes or slides for a talk at an energy conference.  Scary:

http://www.simmonsco-intl.com/files/Energy%20Conversation.pdf

Doesn't really look like it matters whether Bush lied or not.  By comparison, Iraq is a chump change affair.

Art

[The Rabbi]

Art,
Arent you old enough to remember all this?  Remember Paul Ehrlich?  He made a bet with Julian Simon in 1980 about the price of metals.  Ehrlich, a "limits to growth" guy bet that metal prices would increase as supplies became exhausted.  He lost, big.
Economics really does work.  As commodities become more expensive manufacturers find ways to do more with less or find substitutes.  People have been saying for 30 years that the US was running out of energy.  I remember Richard Nixon in 1973 proclaiming a program to make the US energy independent by 1980 or something.  Never happened.  And gasoline is cheaper today, comparatively and adjusted for inflation, than it was in 1975, probably than it was 1965.
No one knows exactly how oil gets in the ground.  Nor how much is there.  We just opened a new major field in Gulf of Mexico.

[MechAg94]

I wish I hadn't had to scroll through half that stuff before finally starting to get to the point.  

It seems that he is speculating quite a bit and most of it is focused on Saudi Arabia and the middle east.  I am certainly in favor of using as much of the Middle East oil as possible.  Use it up.  

[drewtam]

Never mind the fact there are ways to synthesise deisels and gasolines. Using retail electricity I estimated that it would cost about $3/gal to create synthetic fuel.
Or using solar panels on a roof one can make between 5-20gals/week of fuel (depending on the size of your roof and efficiency of panel) with a return on investment of about 10yrs (@ $4/gal).

What this shows is that crude is still cheaper for now, but there is also technology that can help to create a price cap on transportation fuel. At the end of the day when all crude is used up, we can all continue driving cars and still be paying less per gallon than what europeans are paying right now (due to taxes). Because the two possible power sources for synthesising will be around for millions of years (the sun and nuclear).

[Art Eatman]

There's a reason I titled the thread "Cheap Oil".

For instance, look up Chevron's "Jack #2" in the Gulf of Mexico.  It's in 7,000 feet of water; 21,000 feet of drilling.  Production is tested at 6,000 bbl/day.  But, the capital investment cost per barrel of oil produced is estimated to be somewhere around 30 times the cost of nearshore wells.  Nearshore wells take more captal investment than on-land wells of 2,000 to 5,000 feet.

Hurricane Rita ate a Chevron offshore rig in the Gulf of Mexico.  That was a capital loss of some $600 million.

IOW, whether or not anybody agrees with the "Peak Oil" concept or not is irrelevant.  The easy, cheap stuff is gone.  Sayonara.  Adios.  No "Farewell"; farewell means "Until we meet again."  We ain't gonna meet again.

Simmons is not the only petroguy who believes that the Saudi fields are on their way out.  And recall Simmons' comment about "sour" vs. "sweet".  Do some reading about the uses of each, and the relation to motor fuels.

There's nothing magic about alternative fuels.  Production is off-the-shelf.  Alcohol, coal, tar sands, shale, even direct conversion of natural gas if you really want to waste that raw material.  But none of them can equal light crude's gasoline in terms of BTU per dollar of cost of production.  What's not off-the-shelf is economical production.

Art

[Antibubba]

As high as the cost of production may become, I doubt it will ever be greater than the cost of non-production.  Meaning, we are so utterly in the thrall of hydrocarbons that we will pay any price-until we have something truly better.  It helps that a few alternatives are out there, but not because they relieve the system, but because they show the possibilities.

[Art Eatman]

I see that gasoline inventories are up.  Part of it is the end of the tourist season and the start of school.  But through this last summer, the numbers of RVs and travel trailers on the highways was way down compared to previous years.  Now, that was at (roughly) $3/gal gas.

That reduced travel meant less income for those serving the travelling public.  (the higher gas costs also meant less disposable income for commuters.)  Given how much of economy is "service", as in restaurants and tourist-frou-frou shops, there has to be some ripple effect.

So, right now, demand is down, inventories are up and gas prices have dropped some.

But I don't think I'm gonna buy a Bluebird...

The cost of non-production?  No such animal, really.  There will always be some sort of transportation fuel.  The real question is the cost per mile for Joe Sixpack.  And if we're stupid enough to keep using natural gas to generate electricity, Californians will long for the return of Enron's "cheap" electricity.

Art

[AJ Dual]

Does this report take Wyoming shale-oil and Canadian Tar-Sands into account? Estimates there show about 100 years of oil in reserve, and that's at the current rate of consumption, with reasonable growth factored in too.

The heat needed to extract these rock and sand locked deposits makes the net energy gain about 3 to 1 whereas drilling averages about 5 to 1. But with a new ceiling established for oil over the past summer, these deposits will become economical to extract when we need them.

Then there's also the theroy that the majority of oil and natural gas does not come from ancient crushed sea-life, but was naturaly imbedded in the earth during it's formation from methane and cometary hydrocarbons as the earth collapsed out of the protoplanetary solar disk. Either that, or it comes from deep rock archeo-bacteria, which arguably is Earth's largest bio-mass.

 It's an "out there" theroy, but then again so was continental drift just 40 years ago. If it's  true, there's enough hydrocarbons in the Earth's crust for thousands of years.

[charby]

Does this report take Wyoming shale-oil and Canadian Tar-Sands into account? Estimates there show about 100 years of oil in reserve, and that's at the current rate of consumption, with reasonable growth factored in too.

The heat needed to extract these rock and sand locked deposits makes the net energy gain about 3 to 1 whereas drilling averages about 5 to 1. But with a new ceiling established for oil over the past summer, these deposits will become economical to extract when we need them.

Then there's also the theroy that the majority of oil and natural gas does not come from ancient crushed sea-life, but was naturaly imbedded in the earth during it's formation from methane and cometary hydrocarbons as the earth collapsed out of the protoplanetary solar disk. Either that, or it comes from deep rock archeo-bacteria, which arguably is Earth's largest bio-mass.

 It's an "out there" theroy, but then again so was continental drift just 40 years ago. If it's  true, there's enough hydrocarbons in the Earth's crust for thousands of years.

Some scientists theorized that oil can be found near meteor impact sites because the force of the impact pushes oil up from deep.

http://ff.org/centers/csspp/library/co2weekly/20060323/20060323_13.html

[AJ Dual]

Makes sense if the "deep earth" theroy for the origins of oil are true.

Just look at Saturn's largest moon Titan. The whole moon's atmosphere is full of "natural gas" rain and snow, ethane, methane ice, black hydrocarbon sludges and tars, and I'll wager there were never dinosaurs there.

[Monkeyleg]

Oil is now down to ~$60 a barrel.

If I were still trading commodities, I'd be looking for an opportunity to go long.

[The Rabbi]

Oil is now down to ~$60 a barrel.

If I were still trading commodities, I'd be looking for an opportunity to go long.

Why would you buy into a declining market?  What event short term will cause demand to increase or supply to contract?  I have been short gold mining stocks for a while and look for them to decline further.
People are anticipating a "soft landing."  Nonsense.  The real estate boom lasted 5 years.  It takes a while for a bubble like that to unwind, with unforeseen consequences.

[Monkeyleg]

Rabbi, I never bought into declining markets. I bought when I saw signs of an upturn.

I traded very conservatively, so I never lost much, and didn't win much. I'm not saying to buy now, but I'm certain we're going to see oil prices headed back up.

As for the metals, I wouldn't be buying at these levels. Gold was depressed for years. There has to be a reason for that from a manufacturing standpoint.

But, I don't trade anymore, so it's pretty much a moot point.

[Art Eatman]

Rabbi, you reckon our own demand will decline by any notable amount?  Or that the growth in use by both China and India will flatten?  There are other countries that are industrializing and seeing rising wages--and have a rising rate of oil consumption.

Sure, short-term, the US demand is doing its usual September drop-off, but "next year" always comes back--along with summer.  

We're sure not decreasing in population.  What I don't have data on is whether or not the market price of gasoline has affected people's notions about travel to the extent that our own rate of increase in usage will flatten or (hopefully) decline.

AJ Dual, aside from the BP (Shell?) experiment with underground heating of the shale "in situ", previous methods have mandated the use of a lot of water.  The oil-shale area is very low in availability of water--which could mean long-distance transportation of the crushed material.

Sure, the Athabasca tar sands contain a lot of oil, but think "tar".  Aside from the mechanical and chemical difficulties of getting it separated from the sand, the percentage of a barrel of this material which is suitable for transportation fuel is probably on the low side.  I'm guessing it's mostly petro-chemical feedstock.

Art

[mfree]

Art,

You've got to remember though that use is use ans supplicant supply is still supply. A pound of heavy tar that's suitable for use as petrochemical feedstock frees up that much (figuratively here, real numbers unkown) light sweet for fuel use.

As for in situ heat and cracking, I don't see why anyone's not sought to create a little enviro-weenie confusion and use mirror solar collectors as a heat source :-D It's oil! But it's solar! Bwahahaha....

[The Rabbi]

Rabbi, you reckon our own demand will decline by any notable amount?  Or that the growth in use by both China and India will flatten?  There are other countries that are industrializing and seeing rising wages--and have a rising rate of oil consumption.

Sure, short-term, the US demand is doing its usual September drop-off, but "next year" always comes back--along with summer.  

We're sure not decreasing in population.  What I don't have data on is whether or not the market price of gasoline has affected people's notions about travel to the extent that our own rate of increase in usage will flatten or (hopefully) decline.

Prices have been going down across the board for some reason.  I strongly suspect our own demand is down for a variety of reasons, high gas prices being one.  Demand is slacking in China.  I posted elsewhere about them raising rates to cool inflation in their country.  I firmly think we are in a global cooling market in demand.  We are seeing this in metals as well as oil.  It is cyclical so I dont know what 18-24 months down the road will look like.  But until then prices will go down.

[charby]

Makes sense if the "deep earth" theroy for the origins of oil are true.

Just look at Saturn's largest moon Titan. The whole moon's atmosphere is full of "natural gas" rain and snow, ethane, methane ice, black hydrocarbon sludges and tars, and I'll wager there were never dinosaurs there.

Okay so we need to exploit Titan. NASA/BP/Mobile-Exxon space venture?

[AJ Dual]

AJ Dual, aside from the BP (Shell?) experiment with underground heating of the shale "in situ", previous methods have mandated the use of a lot of water.  The oil-shale area is very low in availability of water--which could mean long-distance transportation of the crushed material.

Sure, the Athabasca tar sands contain a lot of oil, but think "tar".  Aside from the mechanical and chemical difficulties of getting it separated from the sand, the percentage of a barrel of this material which is suitable for transportation fuel is probably on the low side.  I'm guessing it's mostly petro-chemical feedstock. Art

Yes, that's why tar sands are an estimated 3-1 net energy gain, (for every barrel of oil you burn to dig, drill, transport and refine, you get three&) Current drilling exploration averages out to around 5-1, however in the beginning of industrialized oil exploration it was more like 10-1, so unless geologic exploration, or drilling techniques take a quantum leap, it'll soon be breaking even with the tar sands and shale oil.

Even if the "deep earth" theroies about the origins of oil (megatons of trapped methane and hydrocarbons from the earth's formation instead of "baked organic matter") are true, it does us no good if we can't get to it.

However, the difficulties of refining the sludgy tars from the landlocked oil deposits may not be insurmountable. The Thermal Depolymerization Process where they turn garbage and turkey guts into oil also works to refine low grade sludgy long-chain hydrocarbons as well. There's already talk they're going to hiook TDP plants up to refineries to further refine the sludge that the refineries can't crack.

TDP has been known since at least WWII when the Germans were desperate to create synthetic and alternative fuels, especialy after losing the Romanian oil fields. However it was always a net energy loser because it took more BTU's to cook the water out of the feedstocks before depolymerization could take place than you ever got from the oil you produced.

The new secret that makes TDP a promising net energy gain is that you use a pressure vessel and leave the water in, where it actualy helps break down the feedstocks more efficiently, and when done, you pop the lid, so to speak, and the steam drives itself off on it's own, drying out the product. Depending on the feedstocks the TDP plant can even fire itself from the captured methane.

What would really be great is if TDP can be improved to the point that we can just put a TDP plant in place of every garbage dump in the U.S. Yard waste, diapers, plastic shopping bags, newspaper, it could all become oil...

[Art Eatman]

More about awl that seems pertinent:

"By conventional petroleum, I mean the rock oil that can be made to flow from pores in a rock formation and into a bore hole in the ground, and from there be lifted to the surface of the Earth. This is the substance for which most of the worlds liquid-fuel plumbing has been installed -- and through this plumbing, the worlds extraction and use is currently close to 85 million barrels per day. Conventional petroleum is the substance for which most of the worlds exploration, production, transportation, refining, marketing, delivery, and end use is geared. And conventional petroleum is the substance that Peak Oil predicts will be available in lower and lower quantities, starting at some time in the future, sooner or later, depending on whom you care to believe.

Conventional petroleum is a different substance entirely than so-called tar sands or oil shale. Tar sands and oil shale require quite different methodologies, certainly to extract or produce, but also to transport, refine, and deliver. The world has very little in the way of plumbing for these types of substances. Aside from the lack of infrastructure, nonconventional hydrocarbon sources have quite different, and far more negative, economies than do conventional hydrocarbons, of both energy use (energy return on investment -- EROI) and monetary metrics (return on investment -- ROI)."

When I run across this sort of explanatory comment, and run across real-world $$$ numbers, I'm reasonably confident that my comments about low-cost energy of whatever sort are correct.

Athabasca Tar Sands:  How many months per year can you work?  What's the cost per ton of "ore", and the ensuing cost of refining, per barrel of oil equivalent?  The reasons for which it is seriously considered that they be used for production is that it is believed the costs will be competitive with high-priced crude, and the Chinese government (among others) believes that crude oil is finite.  If not such reasons, why bother?

If the underground heating of oil shale does not prove productive, then transportation of the "ore" to a place with ample water supplies will be part of the process.  Add to that the cost of cleanup of the process liquids and waste effluents of whatever sort.

TANSTAAFL.

Art