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Say Goodbye to Peak Oil, for The Time Being

COMMENT: We’ve examined the Peak Oil propaganda phenomenon in several past broadcasts. Based on the notion that the world is running out of oil, it has been used as justification for casting aside environmental concerns, raising prices and imposing draconian social programs to deal with the “emergency.”

As we saw in FTR #506, the petroleum companies have been saying the world has been running out of oil since the 1920’s. (That was the justification for the development of the Fischer/Tropsch process to synthesize oil from coal.)

The epicenter for the Peak Oil ideology is HIS Energy Group, a subsidiary of Thyssen/Bornemisza industries, which draws its conclusions based on data fed to them by the very companies that benefit from the dissemination of the theory.

It is no coincidence that Thyssen/Krupp bought the Leuna hydrogenation plant, originally built by I.G. Farben during World War II to synthesize oil utilizing the Fischer/Tropsch process.

The fear mongering over Peak Oil has been used to propose a Nazi-linked social agenda.

For now at least, the oil companies and their amen chorus have relaxed their propaganda, seeing plenty of oil for decades to come.

It will be interesting to see how long this “Petroleum Propaganda Ploy” remains dormant. When prices get too low, or environmental restrictions too high for the liking of the oil barons, don’t be surprised to see it reemerge.

In passing, I will note that I am fundamentally critical of the fossil fuels industry–two thumbs down on oil. We should be going full speed ahead to develop renewal energy sources. Many pro-environment advocates have been suckered by the peak oil phenomenon, seeing it as a “green issue.” It is nothing of the kind.

“Peak Oil Scare Fades as Shale, Deepwater Wells Gush Crude” by Joe Carroll; Bloomberg News; 2/6/2012.

EXCERPT: When Daniel Lacalle, in his early 20s, took a job with Spanish oil company Repsol YPF SA in 1991, friends chided him for entering a field with no future. “They all said, ‘Why do you want to do that? Don’t you know only 20 years of oil is left in the whole world?'” he recalls.

Two decades and four energy crises later, the U.S. Geological Survey estimates that more than 2 trillion barrels of untouched crude is still locked in the ground, enough to last more than 70 years at current rates of consumption. Technological advances enable companies to image, drill and shatter subterranean rocks with precision never dreamed of in decades past. Trillions of barrels of petroleum previously thought unreachable or nonexistent have been identified, mapped and in many cases bought and sold during the past half decade, from the boggy wastes of northern Alberta, to the arid mountain valleys of Patagonia, to Africa’s Rift Valley.

“Betting against human ingenuity has been a mistake,” says Lacalle, who today helps oversee $1.3 billion as a portfolio manager at Ecofin Ltd. in London. “The resource base is absolutely enormous, so much so that we will not run out of oil in my lifetime, your lifetime, our children’s lifetimes or our grandchildren’s lifetimes.” . . .


10 comments for “Say Goodbye to Peak Oil, for The Time Being”

  1. Posted by Keith | February 23, 2012, 5:13 am
  2. Heh, the US is currently exporting so much oil that we now have Thomas Friedman asking the question “Should the US join OPEC?“.

    Posted by Pterrafractyl | February 26, 2012, 3:36 pm
  3. Peak Water, coming to a future war zone near you. Actually, there’s nothing to worry about…the water wars aren’t expected start for another decade. That should be plenty of time to prepare for the loss of a vital resource:

    Fights over WATER will spark this century’s wars, says U.S. (just like Bond film Quantum of Solace)

    By Daily Mail Reporter

    PUBLISHED: 21:03 EST, 22 March 2012 | UPDATED: 21:21 EST, 22 March 2012

    The struggle over access to water supplies could spark global war in the next few decades, according to a new report from U.S. officials.

    U.S. intelligence agencies said in a report released on Thursday that drought, floods and a lack of fresh water may cause significant global instability and conflict in the coming decades, as developing countries scramble to meet demand from exploding populations while dealing with the effects of climate change.

    An assessment reflecting the joint judgment of federal intelligence agencies says the risk of water issues causing wars in the next 10 years is minimal even as they create tensions within and between states and threaten to disrupt national and global food markets.

    But beyond 2022, it says the use of water as a weapon of war or a tool of terrorism will become more likely, particularly in South Asia, the Middle East and North Africa.

    The report is based on a classified National Intelligence Estimate on water security, which was requested by Secretary of State Hillary Rodham Clinton and completed last fall.

    It says floods, scarce and poor quality water, combined with poverty, social tension, poor leadership and weak governments will contribute to instability that could lead the failure of numerous states.

    Those elements ‘will likely increase the risk of instability and state failure, exacerbate regional tensions, and distract countries from working with the United States on important policy objectives,’ said the report, which was released at a State Department event commemorating World Water Day.

    The report noted that countries have in the past tried to resolve water issues through negotiation but said that could change as water shortages become more severe.

    ‘We judge that as water shortages become more acute beyond the next 10 years, water in shared basins will increasingly be used as leverage; the use of water as a weapon or to further terrorist objectives, also will become more likely beyond 10 years,’ it said.

    The report predicts that upstream nations – more powerful than their downstream neighbors due to geography – will limit access to water for political reasons and that countries will regulate internal supplies to suppress separatist movements and dissident populations.

    The unclassified summary of the intelligence estimate does not identify the specific countries most at risk.

    But it notes that the study focused on several specific rivers and water basins. Those included the Nile in Egypt, Sudan and nations further south, the Tigris and Euphrates in Iraq and the greater Middle East, the Mekong in China and Southeast Asia, the Jordan that separates Israel from the Palestinian territories, the Indus and the Brahmaputra in India and South Asia as well as the Amu Darya in Central Asia.

    This is one of those articles that’s a reminder that the collapse of the ecosystem may be bad for just about everything and everyone but it’s great for war-profiteersbusiness!

    Posted by Pterrafractyl | March 29, 2012, 10:27 pm
  4. @Pterrafractyl: Sad but true. One must wonder how soon these ‘water wars’ could start……..and just how bad terrorism could really get. Possibly even a nuke or two being exploded, over say, Tel Aviv or Cairo? Not pleasant stuff to think about. =(

    Posted by Steven L. | March 30, 2012, 11:06 am
  5. At least “peak-diamonds” shouldn’t be an issue for humanity any time soon:

    Russia reveals shiny state secret: It’s awash in diamonds

    ‘Trillions of carats’ lie below a 35-million-year-old, 62-mile-diameter asteroid crater in eastern Siberia known as Popigai Astroblem. The Russians have known about the site since the 1970s.

    By Fred Weir, Correspondent / September 17, 2012


    Russia has just declassified news that will shake world gem markets to their core: the discovery of a vast new diamond field containing “trillions of carats,” enough to supply global markets for another 3,000 years.

    The Soviets discovered the bonanza back in the 1970s beneath a 35-million-year-old, 62-mile diameter asteroid crater in eastern Siberia known as Popigai Astroblem.

    They decided to keep it secret, and not to exploit it, apparently because the USSR’s huge diamond operations at Mirny, in Yakutia, were already producing immense profits in what was then a tightly controlled world market.

    It will be interesting to see what, if any, impact this has on the price of diamonds because it’s not like there has been anything remotely approaching a “free-market” in diamonds for a long time.

    Then again…

    The Oppenheimers and De Beers are no more. Here’s a 30-year old article that predicted the cartel’s undoing
    Frik Els | March 29, 2012

    De Beers and the Oppenheimer family, one of mining’s most storied relationships, has come to an end after three generations.

    In March regulators gave the go-ahead to Nicky Oppenheimer (pictured in 2011) to sell his family’s remaining 40% in the empire which for most of its existence prospered by keeping an iron grip on the production and sale of rough diamonds worldwide.

    Cecil John Rhodes formed De Beers Consolidated Mines in 1888 in South Africa. Rhodes either bought up or squelched competitors but Ernest Oppenheimer who traded diamonds from the famous Cullinan mine north of Johannesburg refused to join the cartel.

    Ernest Oppenheimer’s Anglo-American, a company co-founded with US financier JP Morgan, eventually bought out De Beers and Ernest Oppenheimer became chairman of the diamond firm in 1927.

    The Oppenheimers continued the monopoly business model executed through its Diamond Trading Company throughout the 20th century but in the 1990s changed tack because it was becoming increasingly difficult to keep its grip on the global market.

    It stopped stockpiling rough diamond supply and moved into retail and jewellery manufacturing.

    The Oppenheimers took the company private in 2001 after a century-long listing on the Johannesburg Stock Exchange. The Oppenheimer family’s wealth is estimated at $6.8 billion.

    Here’s an excerpt from an in-depth article on how De Beers “invented” the diamond market that appeared in The Atlantic magazine in February 1982.

    The writer, Edward Jay Epstein, speculates how “An unruly market may undo the work of a giant cartel and of an inspired, decades-long ad campaign.”

    The excerpt centres on how the Oppenheimers pivoted the business during the 1970s to counter the threat of small Russian diamonds flooding the market.

    It is also presented as an example of how marketing can be used to create demand – essential in the diamond business – because the gems hold “little intrinsic value”:

    Almost all of the Soviet diamonds were under half a carat in their uncut form, and there was no ready retail outlet for millions of such tiny diamonds. When it made its secret deal with the Soviet Union, De Beers had expected production from the Siberian mines to decrease gradually. Instead, production accelerated at an incredible pace, and De Beers was forced to reconsider its sales strategy. De Beers ordered N. W. Ayer to reverse one of its themes: women were no longer to be led to equate the status and emotional commitment to an engagement with the sheer size of the diamond. A “strategy for small diamond sales” was outlined, stressing the “importance of quality, color and cut” over size. Pictures of “one quarter carat” rings would replace pictures of “up to 2 carat” rings. Moreover, the advertising agency began in its international campaign to “illustrate gems as small as one-tenth of a carat and give them the same emotional importance as larger stones.” The news releases also made clear that women should think of diamonds, regardless of size, as objects of perfection: a small diamond could be as perfect as a large diamond.

    DeBeers devised the “eternity ring,” made up of as many as twenty-five tiny Soviet diamonds, which could be sold to an entirely new market of older married women. The advertising campaign was based on the theme of recaptured love. Again, sentiments were born out of necessity: older American women received a ring of miniature diamonds because of the needs of a South African corporation to accommodate the Soviet Union.

    The new campaign met with considerable success. The average size of diamonds sold fell from one carat in 1939 to .28 of a carat in 1976, which coincided almost exactly with the average size of the Siberian diamonds De Beers was distributing. However, as American consumers became accustomed to the idea of buying smaller diamonds, they began to perceive larger diamonds as ostentatious. By the mid-1970s, the advertising campaign for smaller diamonds was beginning to seem too successful…”

    Posted by Pterrafractyl | September 18, 2012, 1:03 pm
  6. Peak oil…it’ll be here soon enough…any century now…

    Oil at $60 or $120 Doesn’t Prevent U.S. Supplanting Saudis
    By Asjylyn Loder, Anthony Dipaola & Grant Smith – Dec 13, 2012 8:58 AM CT

    Whether crude costs $60 a barrel or twice that amount, the U.S. is almost free of depending on imported energy and positioned to supplant Saudi Arabia as the world’s No. 1 producer of oil.

    Even if U.S. benchmark West Texas Intermediate oil drops 30 percent from the current $86 a barrel, oil companies will boost production as new technologies allow them to extract crude from shale formations, said Ed Morse, the global head of commodities research at Citigroup Inc. The nation, which was last self- sufficient when Harry S. Truman was president in 1952, met 83 percent of its energy needs in the first eight months of this year, according to the Energy Department in Washington.

    Saudi Arabia can’t afford a decline of that magnitude after the government pledged an unprecedented $630 billion on social welfare and building projects. The kingdom, which uses Brent crude to help set export rates, couldn’t meet those commitments if prices fell 25 percent from the current $109 a barrel, according to Samuel Ciszuk, an oil consultant at KBC Energy Economics in Walton-on-Thames, England.

    “U.S. shale oil producers can’t lose,” Leo Drollas, the chief economist at the London-based Centre for Global Energy Studies, which was founded by Saudi Arabia’s former oil minister, said in a Dec. 10 telephone interview. “The Saudis really need to balance their budget at about $95. For the U.S. producers, that is more than ample.”

    New Deposits

    U.S. average daily output will climb 14 percent this year, the most in six decades, according to the Energy Department, as Anadarko Petroleum Corp. and Chesapeake Energy Corp. exploit new deposits from North Dakota to Texas. Even though America’s 6.8 million barrels a day in November was 30 percent less than Saudi Arabia’s 9.7 million, the International Energy Agency says the U.S. will be bigger by 2020.

    West Texas Intermediate, or WTI, will rise about 15 percent through 2015, to $100 a barrel, according to the median of 13 analyst estimates compiled by Bloomberg. Brent, the benchmark for Arab Light and Arab Medium grades, may gain less than 1 percent, to $110, the forecasts show.

    WTI slipped 35 cents, or 0.4 percent, to $86.42 a barrel at 9:54 a.m. on the New York Mercantile Exchange. Brent for January settlement on the London-based ICE Futures Europe exchange fell 71 cents to $108.79 a barrel. The Organization of the Petroleum Exporting Countries yesterday kept its official production ceiling at 30 million barrels a day.
    Abdullah’s Pledge

    While Morse says U.S. producers break even with prices of about $72 to $75 a barrel, and will keep drilling new shale wells at $60 because they’ve already hedged future output, Saudi Arabia faces different challenges.

    Last year, as popular uprisings toppled leaders in Tunisia, Libya and Egypt and sparked a civil war in Syria, Saudi King Abdullah promised to spend $130 billion on extra subsidies for housing and benefits as well as $500 billion for previously announced infrastructure projects.

    The kingdom’s population of 28.4 million is growing 2.9 percent a year, according to the Central Department of Statistics and Information. At current rates, it will need all its own oil by 2032, leaving nothing to export, Citigroup said in a Sept. 4 report. The country uses about 25 percent of its fuel production domestically, more per capita than any other industrialized nation, the report said.

    Fuel Misuse

    Waste and misuse of fossil fuels threaten to double consumption by 2030, Saudi Oil Minister Ali al-Naimi said in a Nov. 24 speech in Riyadh. The kingdom consumes an average of 2.5 barrels of oil and oil equivalents to produce $1,000 of national income, twice the global average, he said.

    “The Saudis are trying to do two things: they want to keep prices from going too high to hurt economic activity and at the same time not let oil go below $100 a barrel,” Ciszuk, the KBC Energy consultant said in a telephone interview Dec. 5. “I would struggle to see the Saudis willing or able to take oil prices low enough to cut off U.S. shale developments since even they need oil in the $80s to balance the government budget through 2013 and 2014.”

    For all the growth in U.S. production, Al-Naimi told reporters at yesterday’s OPEC meeting he isn’t concerned by the burgeoning output from shale deposits, while United Arab Emirates Oil Minister Mohammed Al-Hamli said producers are “very concerned” and will protect their interests.

    Big Short

    The last time the U.S. rivaled Saudi Arabia proved a disaster for America’s oil industry and for the kingdom. U.S. production expanded 10 percent from 1976 to 1985, reaching the highest level since the Arab embargo in 1973.

    By late 1985, the Saudis were pumping more crude to defend their market dominance. WTI plunged to $10 a barrel in March 1986. U.S. output declined for 21 of the next 22 years and didn’t start growing again until 2009.

    Now, the U.S. may be producing too much oil and WTI may drop as low as $50 a barrel within the next two years unless policy makers scrap a law limiting exports, Francisco Blanch, the head of commodities research for Bank of America Merrill Lynch in New York, said in an interview.

    The relationship between the US oil-shale boom and stability in the Middle East is going to be something to watch going forward. If Saudi Arabia is going to be dependent on $80+ a barrel just to finance its own social spending projects and ward off its own “Saudi Spring”, what’s going to happen if the price of oil really does fall to $50. There are a lot of nations that rely on billions in Saudi foreign aid and they may respond well to peak aid

    Saudi’s foreign aid bill piles up
    By Una Galani
    May 28, 2012

    By Una Galani

    The author is a Reuters Breakingviews columnist. The opinions expressed are her own.

    Saudi Arabia’s foreign aid bill is mounting. Egypt Jordan, Bahrain, Oman and Yemen – the Arab spring has elicited a string of pledges of loans and grants from the oil-rich kingdom to its troubled, resource-poor neighbours.

    Charity is a key tenet of Islam and the kingdom is an established donor. The Saudi Fund for Development supports infrastructure projects, predominantly across the Islamic world. The Saudi central bank reported that foreign aid totalled $3.7 billion or 0.8 percent of GDP in 2010. That’s roughly in line with the United Nations’ target.

    The real cost of the foreign aid bill is likely to be much higher. That now includes bilateral pledges related to unrest that will come to more than $12 billion, assuming the Saudis contribute one quarter of the $20 billion package promised by Gulf countries to Oman and Bahrain. Outsiders have little knowledge about the timing and nature of such aid; economists treat Saudi’s helping hand as an off-balance sheet item.

    Saudi’s expensive foreign policy probably isn’t too unpopular at home. The aid is a clear expression of Arab solidarity while also shoring up support for the region’s club of kings. And while GDP per capita is lower in Saudi than in other, less populous Gulf countries, the kingdom has pledged massive domestic spending that should be sufficient to deal with its own chronic housing shortage and help tackle high unemployment. At the current oil price, and with low debt, Saudi can afford to be generous with its wealth.

    Keep in mind, though, that while “peak petro-aid” could lead to greater regional instability, that petro-aid wasn’t always for financing stability:

    The Perils of Saudi Arabia Bankrolling U.S. Foreign Policy
    Posted: 09/12/2012 3:10 pm

    Jonathan Marshall

    Almost everyone agrees that overdependence on Middle Eastern oil is bad for America’s economy and national security. So why don’t we recognize the similar dangers of overdependence on Middle Eastern money to achieve U.S. foreign policy objectives?

    Gulf State money helped pay for the overthrow of Libyan dictator Muammar Gaddafi and now is funding the armed opposition to the Assad regime in Syria. Both causes were backed by the Obama administration and applauded by some humanitarian activists, as well. But in each case — as in Afghanistan before them — such money has strengthened dangerous Islamist elements, transforming reformist political causes into dangerous jihadist movements.

    For more than a quarter century, Saudi Arabia and the United States have had a grand bargain: they sell us overpriced oil in exchange for virtually unlimited access to our advanced weapons. (Of the $66 billion in U.S. arms sales abroad last year, half went to Saudi Arabia.) In addition, Riyadh agreed to fund U.S. covert operations around the world with its surplus petrodollars.

    In 2007, Stuart Levey, the Treasury Department’s top expert on terrorist finances, testified that “wealthy donors in Saudi Arabia are still funding violent extremists around the world, from Europe to North Africa, from Iraq to Southeast Asia.” As Levey told an interviewer, “If I could somehow snap my fingers and cut off the funding from one country, it would be Saudi Arabia.”

    It should come as no comfort, therefore, that Saudi sources, both official and unofficial, have been pouring military supplies into Syria’s rebel movement for months. The New York Times reports that the Obama administration has encouraged such provisions to supplement its own “non-lethal” aid. “Administration officials say that outsourcing the supply of money and arms to the rebels maintains a crucial distinction that keeps American military fingerprints off a conflict that has already turned into a bloody civil war.”

    Efforts by CIA officers to steer the arms to non-jihadist groups appear to be of little avail. The resistance movement is increasingly turning Islamist, even joining up with fighters from al Qaeda. The consequences for human rights, especially for Syria’s minorities, have been terrible.

    In the words of one Indian journalist writing for the New York Times, “As Saudi Arabian arms and money bolster the opposition, the 80,000 Christians who’ve been ‘cleansed’ from their homes… by the Free Syrian Army have gradually given up the prospect of ever returning home… The seeming indifference of the international community… is breeding a bitter anti-Americanism among many secular Syrians who see the United States aligning itself with Saudi Arabia, the fount of Wahhabism, against the Arab world’s most resolutely secular state.”

    He is not alone in raising the alarm. Iraq’s Prime Minister Nuri al-Maliki warned that by “sending arms instead of working on putting out the fire,” Saudi Arabia and Qatar “will leave a greater crisis in the region.”

    Even some neocons, who for years have championed the downfall of Syria’s regime, now sound uneasy about the prospect of Saudi Arabian money dictating the outcome of what increasingly is turning into a regional conflict.

    “Washington must stop subcontracting Syria policy to the Turks, Saudis and Qataris,” declared Danielle Pletka of the American Enterprise Institute. “They are clearly part of the anti-Assad effort, but the United States cannot tolerate Syria becoming a proxy state for yet another regional power.”

    Surely we already have enough dangerous fires to put out, from Islamists attacking a nuclear air base in Pakistan to jihadists rampaging across Northern Africa in the wake of the Libya campaign. The Obama administration is right to resist foolhardy calls for direct military intervention in another sectarian conflict in the Middle East. But outsourcing our intervention to Saudi Arabia is an abdication of responsibility, an evasion of accountability, and a set-up for long-term disaster.

    Posted by Pterrafractyl | December 13, 2012, 9:09 am
  7. How to murder the future in one simple step:

    Step 1. Do nothing.

    All done!:

    We just can’t afford a future
    Sunday, April 14, 2013
    by digby

    If this is a problem, why isn’t it fixed?

    Let me say that when I’m talking to you here right now, my position on climate change was very moderate and actually very mainstream. And that is this: If you think that the science on climate change is settled, you’re simply overstating the facts. And let me give you an example of that. Two years ago, President Obama controlled the House and the Senate—the Senate by a 60-vote margin. They did not put forth a vote on human climate change. And do you know why? Why do you suppose they didn’t? Because they recognized that science behind this…

    Well, that’s not true, actually but considering that they were dealing with an economic catastrophe solutions for which the Republicans were determined to obstruct, it’s amazing they even got that done. But you have to love the logic that says “the Democrats didn’t fix it so it must not be real.”

    But this one’s a real doozy:

    There’s one final thought that’s really important in this, which is that even if you concede that climate change is real, even if you concede, there are no reasonable remedies that don’t absolutely bankrupt the West.

    So let’s party! Our kids and grandkids are gonna die anyway, amirite?

    The good news is that when we go down, we won’t be in debt so at least we’ll have that.

    I’m sure you’re wondering why I’m quoting some GOP back bench moron. Who cares what he thinks, right? Well, unfortunately this guy happens to be chairman of the House Subcommittee on the Environment. Yep.

    Posted by Pterrafractyl | April 14, 2013, 7:59 pm
  8. Just in time for a potential tar sand oil export boom to EU: The petroleum industry wants you to know it’s been systematically overestimating how much oil is down in those tar sands:

    Old Math Casts Doubt on Accuracy of Oil Reserve Estimates
    By Asjylyn Loder Apr 3, 2014 4:33 AM CT

    Jan Arps is the most influential oilman you’ve never heard of.

    In 1945, Arps, then a 33-year-old petroleum engineer for British-American Oil Producing Co., published a formula to predict how much crude a well will produce and when it will run dry. The Arps method has become one of the most widely used measures in the industry. Companies rely on it to predict the profitability of drilling, secure loans and report reserves to regulators. When Representative Ed Royce, a California Republican, said at a March 26 hearing in Washington that the U.S. should start exporting its oil to undermine Russian influence, his forecast of “increasing U.S. energy production” can be traced back to Arps.

    The problem is the Arps equation has been twisted to apply to shale technology, which didn’t exist when Arps died in 1976. John Lee, a University of Houston engineering professor and an authority on estimating reserves, said billions of barrels of untapped shale oil in the U.S. are counted by companies relying on limited drilling history and tweaks to Arps’s formula that exaggerate future production. That casts doubt on how close the U.S. will get to energy independence, a goal that’s nearer than at any time since 1985, according to data from the U.S. Energy Information Administration.

    “Things could turn out more pessimistic than people project,” said Lee. “The long-term production of some of those oil-rich wells may be overstated.”

    Calculate Reserves

    Lee’s criticisms have opened a rift in the industry about how to measure the stores of crude trapped within rock formations thousands of feet below the earth’s surface. In a newsletter published this year by Houston-based Ryder Scott Co., which helps drillers calculate reserves, Lee called for an industry conference to address what he said are inconsistent approaches. The Arps method is particularly open to abuse, he said.

    U.S. oil production has increased 40 percent since the end of 2011 as drillers target layers of oil-bearing rock such as the Bakken shale in North Dakota, the Eagle Ford in Texas, and the Mississippi Lime in Kansas and Oklahoma, according to the EIA. The U.S. is on track to become the world’s largest oil producer by next year, according to the Paris-based International Energy Agency. A report from London-based consultants Wood Mackenzie said that by 2020 the Bakken’s output alone will be 1.7 million barrels a day, from 1.1 million now.

    U.S. crude benchmark West Texas Intermediate fell 41 cents to $99.21 a barrel at 10:10 a.m London time in electronic trading on the New York Mercantile Exchange. It has risen 0.8 percent this year.

    Inherently Uncertain

    Predicting the future is an inherently uncertain business, and Arps’s method works as well as any other, said Scott Wilson, a senior vice president in Ryder Scott’s Denver office.

    “No one method does it right every time,” Wilson said. “Arps is just a tool. If you blame Arps because a forecast turns out to be wrong, that’s like blaming the gun for shooting somebody. As far as Arps being old, the wheel was invented a long time ago too but it still comes in handy.”

    Rising reserve estimates gives the U.S. a false sense of security, said Tad Patzek, chairman of the Department of Petroleum and Geosystems Engineering at the University of Texas at Austin.

    “We have deceived ourselves into thinking that since we have an infinite resource, we don’t need to worry,” Patzek said. “We are stumbling like blind people into a future which is not as pretty as we think.”

    The Arps formula is only as good as the assumptions a company puts into it, Patzek said. Estimates can be inflated when Arps is based on limited drilling history for data or on a few high-performing wells to predict performance across a wide swath of acreage. Forecasts can also be skewed higher by assuming slower production declines than Arps observed.

    Gas Pockets

    In 1945, oil production meant drilling straight down to hit pockets of oil and gas that had become trapped after migrating upward from deep layers of rock. Today’s drilling targets those deep layers, boring through thousands of feet of the earth’s crust, then turning sideways to chew for a mile or more through layers that are harder and less porous than a granite countertop. The rock is shattered by a high-pressure jet of water, sand, and chemicals to create a network of small cracks to allow the oil and gas to escape. The largest fissures are narrower than the width of a paper clip. The smallest are thousands of times thinner than a human hair.

    On a graph, these fractured wells appear to follow a different trajectory of decline than the conventional wells Arps studied, said Lee.

    To replace the Arps calculation, researchers are testing new formulas with names worthy of indie bands: Stretched Exponential, which Lee helped develop; the Duong Method, devised by Anh Duong, principal reservoir engineer for ConocoPhillips; and Simple Scaling Theory, which the University of Texas’s Patzek worked on.

    Rietz has made a well simulation model to predict production.

    “Come back to me in 10 years, and I’ll tell you how reliable it was,” he said.

    Could this be a legitimate revision? Is Peak Oil back, at least according to the industry? Did it ever leave? One thing is clear: The peak cost-to-benefits ratio for humanity’s energy addiction is nowhere in sight.

    Posted by Pterrafractyl | April 3, 2014, 8:17 am
  9. Here’s an article about how the plunging price of oil isn’t really threatening to drive the oil shale industry out of business, as is often suggested. It’s merely threatening to ensure that the North American oil shale industry is even more concentrated in the hands of the big boys with deep pockets once the shakeout is over:

    Bloomberg News
    Get Ready for Oil Deals: Shale Is Going on Sale
    by Bradley Olson
    11:00 PM CDT
    March 10, 2015

    (Bloomberg) — A decision by Whiting Petroleum Corp., the largest producer in North Dakota’s Bakken shale basin, to put itself up for sale looks to be the first tremor in a potential wave of consolidation as $50-a-barrel prices undercut companies with heavy debt and high costs.

    For the first time since wildcatters such as Harold Hamm of Continental Resources Inc. began extracting significant amounts of oil from shale formations, acquisition prospects from Texas to the Great Plains are looking less expensive.

    Buyers are ultimately after reserves, the amount of oil a company has in the ground based on its drilling acreage. The value of about 75 shale-focused U.S. producers based on their reserves fell by a median of 25 percent by the end of 2014 compared to 2013, according to data compiled by Bloomberg. That’s opening up new opportunities for bigger companies with a better handle on their debt, said William Arnold, a former executive at Royal Dutch Shell Plc.

    “In this market, there are whales and there are fishes, and the whales are well armed,” said Arnold, who also worked as an energy-industry banker and now teaches at Rice University in Houston. “There are some very vulnerable little fishes out there trying to survive any way they can.”

    Smaller producers with significant debt that depend on higher prices to make money are the most likely early targets for buyers such as Exxon Mobil Corp. or Chevron Corp., companies that have bided their time for years as the value of some shale fields soared to $38,000 an acre from $450 just a few years earlier.

    ‘Consolidation Game’

    The market crash is creating “a consolidation game,” Concho Resources Inc. Chief Executive Officer Timothy Leach said on a Feb. 26 call with investors. “It’s harder to be a small company today than it has been in the past.”

    In the pre-plunge days, acquisitions were dominated by foreign buyers overpaying to get a seat at the shale boom table. That buying frenzy was followed by an explosion in asset sales as companies pieced together their ideal drilling portfolios. Joint ventures were a popular way of funding what seemed like an unstoppable drilling machine.

    Now, an expected surge of deals is more likely to feature fire sales by companies unable to pay expenses, falling asset prices and a widening division between the haves and have-nots.

    Heavy Debt

    Sellers will be companies like Whiting, handicapped by heavy debt and lacking the cash reserves or hedging contracts that would have provided some insulation from the market crash. Among the three biggest producers in North Dakota — Whiting, Continental and Oasis Petroleum Inc. — the value per-barrel of reserves has fallen by about half since June, the data show, meaning those reserves would cost a buyer half what they were worth eight months ago.

    Exxon is the only major oil company with a AAA credit rating, which gives it unparalleled borrowing power for financing deals. More importantly, the company has $226 billion of its own shares stashed away from buybacks that it could use to buy other companies. That was how Exxon paid for Mobil in 1999 and XTO Energy Inc. in 2010.

    Chevron holds $43 billion of its own shares in its treasury alongside $13 billion in cash, and the company has ample ability to borrow.

    An analysis by Wolfe Research LLC’s Paul Sankey found the likeliest takeover candidates among major U.S. and Canadian producers included Continental, Apache Corp., Devon Energy Corp. and Anadarko Petroleum Corp. Those companies are big enough to help a buyer such as Exxon gain oil reserves at a cheaper price compared to peers, Sankey wrote Feb. 2.

    In the headiest days of the shale-buying spree, executives including Occidental Petroleum Corp. CEO Stephen I. Chazen swore off deal-making, saying it would be more profitable to focus on developing the assets they’d already acquired.

    Now they’re singing a different tune.

    Eyes Open

    For the first time in years, EOG Resources Inc. Chairman and CEO William R. Thomas said Feb. 25 the company was weighing larger deals to scoop up acreage at a bargain, departing from its usual preference for more incremental purchases. Exxon Chairman and CEO Rex Tillerson suggested last week at an investor presentation in New York that the global oil giant is keeping its eyes open for opportunities in the downturn.

    Whiting has reached out to potential buyers including Statoil ASA about a sale, people familiar with the matter said this week.

    The company took on $2.2 billion in additional debt for its $6 billion acquisition last year of fellow shale producer Kodiak Oil & Gas Corp., just as crude prices had begun a decline from more than $100 a barrel to less than $50 at the start of the year.

    ‘Stock for Stock’

    “Now is the time to do a stock-for-stock deal,” Bock said. “For the most part, it’s going to be unconventional players combining.”

    Since oil company shares have fallen alongside the market crash, an equity deal allows both buyer and seller to reap the upside when shares gain in a recovery, said Tim Balombin, an energy investment banker with Wells Fargo & Co.

    Whiting has fallen 54 percent since June, about the same as oil prices in that time. The Standard & Poor’s 500 energy producer index has declined 33 percent, according to data compiled by Bloomberg.

    As oil prices have stabilized this year, Whiting has climbed 13 percent.

    “The companies that have good currency in their stock are willing to deploy it aggressively,” Balombin said in a telephone interview. “The best companies that come out of these downturns come out of it bigger and stronger.”

    And here’s an article that highlights one of the driving forces behind the expected consolidation: While prices may be falling, the costs are falling too:

    The Wall Street Journal
    Exxon Mobil: Shale to the Chief
    Falling costs in U.S. shale drilling present a major headwind to oil price rallies

    By Liam Denning
    Updated March 5, 2015 10:21 a.m. ET

    Sometimes, it’s what doesn’t happen that really counts.

    The relentless rise in U.S. oil inventories continues. Indeed, tanks at Cushing—the big pipeline hub in Oklahoma—are two-thirds full already, according to Energy Department data released this week. Think of that as a giant bucket filling up above the heads of oil investors.

    But there is an even bigger bucket out there: Big Oil.

    On the same day the inventory figures came out, Exxon Mobil was giving its annual strategy presentation in New York. And Chief Executive Rex Tillerson had some pretty bearish things to say on oil.

    In particular, while he didn’t see a perfect parallel between shale gas and shale oil, he said there were “lessons” to be learned. The drop in oil prices has prompted 39% of U.S. oil rigs to be idled since October, stoking expectations of a rebound in the market.

    Yet Mr. Tillerson pointed out that the collapse in natural-gas prices similarly had led the number of rigs drilling for that fuel to drop to 280 from north of 1,600 in 2008. Gas output jumped 50% in that time, he said. That is what you call resilience.

    The more insidious message concerned what Exxon hadn’t been doing in recent years: namely, ramping up its own North American shale-oil output. In 2010, Exxon plunged into shale with the acquisition of XTO Energy. Back then, it had about 12 rigs drilling in three big shale basins, the Permian, the Woodford and the Bakken. Five years on, that has risen, but only to about 45, the company says.

    Why such gradualism? Rather than chase near-term cash flow, Mr. Tillerson said Exxon has been putting itself through shale class, learning “how to get the most out of these rocks in the most cost-efficient way.”

    That represents a bearish trend that will weigh on oil prices for years to come. Exxon says its costs in the Bakken have dropped by 20% to 25%. So, many prospects that made sense at $100-a-barrel oil still make sense now, the company says.

    This gives Exxon, along with its peers, a base of resources from which it can grow production profitably. That is even if, as now, lower oil prices force delays in advancing the big ticket, multiyear projects such as liquefied natural gas that the majors are usually known for. Indeed, roughly half the increase in output that Exxon targets by 2017 is expected to come from U.S. onshore wells.

    Inventories should be a concern for investors right now. But it is the marriage of shale resources with the likes of Exxon’s long-standing focus on cutting costs that presents the bigger headwind to oil rallies.

    “Why such gradualism? Rather than chase near-term cash flow, Mr. Tillerson said Exxon has been putting itself through shale class, learning “how to get the most out of these rocks in the most cost-efficient way.”

    That represents a bearish trend that will weigh on oil prices for years to come. Exxon says its costs in the Bakken have dropped by 20% to 25%. So, many prospects that made sense at $100-a-barrel oil still make sense now, the company says.“‘
    That’s all part of why we might expect to see quite a bit of consolidation in the oil shale sector the longer these prices stay low: when prices are too low for Exxon’s small competitors, but not too low for Exxon and its larger peers, consolidation is pretty much inevitable.

    So is the “wildcatter” phase of the great North American oil shale boom about to come to an end, with the ushering in the inevitable era of Big Oil domination? We’ll find out. But here’s a reminder that, while North American oil shale is clearly a growing segment of Exxon’s portfolio, North America is not where the future of Exxon’s growth lies. Oil shale, as a driver for Big Oil revenue growth, has competition:

    Bloomberg News
    Exxon Russia Exposure Surges as Long View Outweighs Politics

    by Joe Carroll
    6:00 PM CST
    March 2, 2015

    (Bloomberg) — Exxon Mobil Corp. shook off the chill of sanctions and continued to snap up drilling rights in Russia last year, giving it more exploration holdings in Vladimir Putin’s backyard than in the U.S.

    Taking the long view, Exxon boosted its Russian holdings to 63.7 million acres in 2014 from 11.4 million at the end of 2013, according to data from U.S. regulatory filings. That dwarfs the 14.6 million acres of rights Exxon holds in the U.S., which until last year was its largest exploration prospect.

    While U.S. and European Union sanctions against Russia forced Exxon to shut down an Arctic drilling project in October, there were no legal obstacles barring the company from staking claims to areas that could yield tens of billions of barrels in coming decades. The bet on Russia follows a string of drilling failures elsewhere and spending cuts that will likely be addressed in Chief Executive Officer Rex Tillerson’s investor meeting Wednesday.

    Exxon is “definitely looking at the longer-term opportunity,” Brian Youngberg, an analyst at Edward Jones in St. Louis, said in an e-mail. “Even before oil fell, it was going to be a longer-term play with no contribution until at least 2020.”

    Sanctions to punish Russia for supporting separatists in eastern Ukraine and for the annexation of Crimea prohibit companies based in the U.S. and EU from probing Russia’s deep-sea, shale and Arctic fields. They don’t bar activities such as seismic surveying or acquiring drilling rights, opening an avenue for Exxon’s bold campaign.

    Drilling Rights

    The producer, based in Irving, Texas, added drilling rights in the Laptev and Chukchi seas last year to holdings it already had in the Kara and Black seas under joint-venture agreements with state-controlled OAO Rosneft, the filings showed. The exploration rights have various expiration dates spanning from 2017 to 2023.

    Geologists have no estimate of how much oil is trapped beneath the acreage Exxon amassed. In 2012, Russian officials said the resources were so vast that they would require new airports to be built to handle thousands of roughnecks and scores of offshore platforms to manage crude production.

    The Kara and Black sea assets alone will cost as much as $350 billion to develop, Igor Sechin, the Rosneft chairman who was deputy prime minister at the time, said in April 2012.

    The work with Rosneft that was halted by sanctions in late 2014 may produce a maximum loss of $1 billion, Exxon said in a public filing last week.

    No Siding

    Tillerson is scheduled to brief a gathering of investors and analysts on the company’s growth outlook at the New York Stock Exchange on Wednesday. Exxon closed the transaction for the additional acreage in May, completing an agreement made 15 months before, said Patrick McGinn, a company spokesman. The May closing was about two months after the Russian annexation of Crimea that spurred U.S. and EU leaders to escalate sanctions.

    “We don’t take sides in any geopolitical events,” Tillerson said of the conflict in Ukraine in a meeting with reporters a year ago. “We have navigated these kinds of challenges before.”

    The company’s fourth-quarter output tumbled to a 15-year low, and its shares lost 8.7 percent of their value in 2014, the steepest annual decline since 2009.

    The U.S. oil explorer’s willingness to expand in Russia when western governments are working to isolate President Putin’s regime may indicate it expects sanctions to be short-lived, said Timothy Ash, chief economist for emerging markets at Standard Bank Plc in London.

    “They’ve got people much better at reading geopolitics internationally than anyone else,” Ash said. Still, the EU appears more likely to “extend, deepen, enlarge” sanctions rather than suspend them.

    Ukraine Situation

    Exxon has scant prospect of exploiting those holdings as long as Russia remains committed to separatists in eastern Ukraine and the annexation of Crimea, said Philipp Chladek of Bloomberg Intelligence.

    European leaders “cannot accept one country annexing another’s territory like that,” said Chladek, a petroleum analyst based in London and former strategist at OMV AG, central Europe’s biggest oil company. “Europe is very keen on not creating any precedents for similar moves.”

    “Taking the long view, Exxon boosted its Russian holdings to 63.7 million acres in 2014 from 11.4 million at the end of 2013, according to data from U.S. regulatory filings. That dwarfs the 14.6 million acres of rights Exxon holds in the U.S., which until last year was its largest exploration prospect.”

    As we can see, despite the low oil prices, there’s no shortage of new prospects for the big boys. Try to enjoy the good news.

    Posted by Pterrafractyl | March 11, 2015, 11:49 am
  10. FYI, if you’re living in one of the many regions of the world facing the growing threat of ‘peak water’ and just assume that you’ll be able to build a giant pipeline and buy the water from elsewhere, keep in mind that it’s going to be a seller’s market:

    UN warns world could have 40 percent water shortfall by 2030

    AP Environment Writer

    NEW DELHI (AP) — The world could suffer a 40 percent shortfall in water in just 15 years unless countries dramatically change their use of the resource, a U.N. report warned Friday.

    Many underground water reserves are already running low, while rainfall patterns are predicted to become more erratic with climate change. As the world’s population grows to an expected 9 billion by 2050, more groundwater will be needed for farming, industry and personal consumption.

    The report predicts global water demand will increase 55 percent by 2050, while reserves dwindle. If current usage trends don’t change, the world will have only 60 percent of the water it needs in 2030, it said.

    Having less available water risks catastrophe on many fronts: crops could fail, ecosystems could break down, industries could collapse, disease and poverty could worsen, and violent conflicts over access to water could become more frequent.

    In many countries including India, water use is largely unregulated and often wasteful. Pollution of water is often ignored and unpunished. At least 80 percent of India’s population relies on groundwater for drinking to avoid bacteria-infested surface waters.

    In agriculture-intense India, where studies show some aquifers are being depleted at the world’s fastest rates, the shortfall has been forecast at 50 percent or even higher. Climate change is expected to make the situation worse, as higher temperatures and more erratic weather patterns could disrupt rainfall.

    Currently, about 748 million people worldwide have poor access to clean drinking water, the report said, cautioning that economic growth alone is not the solution – and could make the situation worse unless reforms ensure more efficiency and less pollution.

    “Unsustainable development pathways and governance failures have affected the quality and availability of water resources, compromising their capacity to generate social and economic benefits,” it said. “Economic growth itself is not a guarantee for wider social progress.”

    Posted by Pterrafractyl | March 20, 2015, 3:17 pm

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