I wish we could be this optimistic about oil supply
Posted by Heading Out on May 18, 2005 - 6:35am
Michael Lynch is quoted as believing that the world is sufficiently supplied with oil that prices will drop to $35 a barrel by September, due to the amount currently stored in inventory, and the promise of OPEC to increase production by another 300,000 to 500,000 bd.
His remarks were made after the meeting between IEA and OPEC officials last Sunday in Kuwait. It was based on a current projection that the world is putting some 1.5 mbd into inventory at present and the IEA projection that growth, which was 3.5% last year, will be no more than 2.2% this year due to a lowered demand from Asia. (So that if you add the 500,000 and the 1,500,000 you get the 2 mbd that world demand is anticipated to go up between now and the end of the year).
The article also quotes OPEC's Shihab-Eldin as saying that OPEC will grow their current spare output capacity to between 3.5 and 4 mbd over the next five years.
Both statements rely on the easy passage through the "pipeline" as it were from oil well to gas pump. They neglect issues such as the availability of the tanker fleet or the lack of refining capacity (which is beginning to bother the Saudi government since they have dropped plans to build new refineries in the US).
They also still neglect the declining production from existing fields, and only count the additions. For example a quick check at the EIA shows that Venezuelan production dropped 100,000 bd last month, while the gains were in Algeria of 10,000 bd; Nigeria of 50,000 bd; Saudi Arabia of 100,000 bd; and UAE of 50,000 bd. Overall net gain therefore was 110,000 bd.
Life outside OPEC, however, appears to be getting worse. Last month The Scotsman reported that UK production was down 15%. This month's figures from the Royal Bank of Scotland show a 13% decline over last year. The question of course is as to who gets to make up the lost 300,000 bd gone from the world supply.
Norway (the world's third largest oil exporter) is now anticipating that production this year may be 100,000 bd less than anticipated. But that includes natural gas liquids, crude oil production alone is dropping at about 8%. Which works out to about 240,000 bd.
And, of course, mostly they fail to recognize the Chinese. I cannot always (or even usually) promise to be this prescient but it should be noted that the Chinese have just pointed out that their demand is continuing to grow. They are now importing 3 mbd, which is up 22.5% over this time last year. The IEA had forecast a total increase this year for them of 470,000 bd or a total of 7.4% on a total demand of around 7 mbd, while the EIA has forecast 12% growth in imports. (A tip of the hat to the Energy Bulletin.)
What their message may also be warning of is their wish to build a strategic reserve. Earlier in the year there was a mention of this, with an anticipation that China might be buying an additional 650,000 bd after August. That would clearly soak up any remaining excess. And given that this would be a perhaps good idea for them to have such a reserve, giving the world a little notice that they intend to build it might not be bad public relations.
Technorati Tags: peak oil, oil
His remarks were made after the meeting between IEA and OPEC officials last Sunday in Kuwait. It was based on a current projection that the world is putting some 1.5 mbd into inventory at present and the IEA projection that growth, which was 3.5% last year, will be no more than 2.2% this year due to a lowered demand from Asia. (So that if you add the 500,000 and the 1,500,000 you get the 2 mbd that world demand is anticipated to go up between now and the end of the year).
The article also quotes OPEC's Shihab-Eldin as saying that OPEC will grow their current spare output capacity to between 3.5 and 4 mbd over the next five years.
Both statements rely on the easy passage through the "pipeline" as it were from oil well to gas pump. They neglect issues such as the availability of the tanker fleet or the lack of refining capacity (which is beginning to bother the Saudi government since they have dropped plans to build new refineries in the US).
They also still neglect the declining production from existing fields, and only count the additions. For example a quick check at the EIA shows that Venezuelan production dropped 100,000 bd last month, while the gains were in Algeria of 10,000 bd; Nigeria of 50,000 bd; Saudi Arabia of 100,000 bd; and UAE of 50,000 bd. Overall net gain therefore was 110,000 bd.
Life outside OPEC, however, appears to be getting worse. Last month The Scotsman reported that UK production was down 15%. This month's figures from the Royal Bank of Scotland show a 13% decline over last year. The question of course is as to who gets to make up the lost 300,000 bd gone from the world supply.
Norway (the world's third largest oil exporter) is now anticipating that production this year may be 100,000 bd less than anticipated. But that includes natural gas liquids, crude oil production alone is dropping at about 8%. Which works out to about 240,000 bd.
And, of course, mostly they fail to recognize the Chinese. I cannot always (or even usually) promise to be this prescient but it should be noted that the Chinese have just pointed out that their demand is continuing to grow. They are now importing 3 mbd, which is up 22.5% over this time last year. The IEA had forecast a total increase this year for them of 470,000 bd or a total of 7.4% on a total demand of around 7 mbd, while the EIA has forecast 12% growth in imports. (A tip of the hat to the Energy Bulletin.)
What their message may also be warning of is their wish to build a strategic reserve. Earlier in the year there was a mention of this, with an anticipation that China might be buying an additional 650,000 bd after August. That would clearly soak up any remaining excess. And given that this would be a perhaps good idea for them to have such a reserve, giving the world a little notice that they intend to build it might not be bad public relations.
Technorati Tags: peak oil, oil
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Lots of discussion about a Chinese SPR took place amongst some very savy tanker and oil men at the beginning of this year; indeed, it still continues, but at a slower pace. (This occurs here, http://messages.yahoo.com/?action=q&board=SFL, but it takes time to learn who the real teachers are.) This maintained their bullish outlook for VLCC (very large crude carriers--2M barrel capacity) corps, like Frontline. The word is that the Chinese are going to buy many of the soon to be decommissioned single hull VLCCs and park them filled whilst building the onland storage facilities. (This makes sense because of the mandated phase-out of all singlehull tankers by 2010.) Projected size is 25% larger than US's SPR! Tanker mogul John Fredriksen, Norway's Bill Gates, in Frontline's 2004 Annual Report, said tanker rates and oil price will depend more on psychology than any other factor over the next 24 months or so, but he expects no meaningful decline in either. Fredriksen and the semi-insiders all know about Peak, too.
I read that wrong at first and thought it was some oil analyst at Merril Lynch. There is some downward market pressure, but Memorial Day is almost here in the U.S. How Michael Lynch missed "The Start of Summer Driving Season"(TM) is beyond me.
I dont know if you read this little tidbit from Khaleej Times.
If this is true, the Iraq war starts making sense (from the point of view of those in power currently!) and may be the source of the $25 barrel of oil expected by the White House.
http://www.khaleejtimes.com/DisplayArticle.asp?xfile=data/focusoniraq/20...
Quote:
According to Benito Livigni, a former manager of ENI and the United States Gulf Oil Company, Iraqis oil reserves are estimated at 400 billion barrels, far more than the known figure of 116 billion.
If true, this would make Iraq the largest oil producer in the world, ahead of Saudi Arabia, the report says
Well, OPEC may be able to boost output in the short term by drilling additional wells, especially high oil contact wells. But gentlemen, this only makes the backside steeper, makes the inevitable slide quicker. And looking to Iraq for anything in the next 36 months is very wishful thinking.
I believe that even if we pulled out tomorrow, the Iraqi people will have much more on their plate to deal with than drilling oil wells. Their health problems from spent DU rounds are beginning to become visible. I hope their is some type of outcry over this, as it is completely un-American to have used that ammunition. It is worse than anyone here suspects. Every other country in the world knows about it - our media here is overtly ignoring it, likely due to corporate pressure.
Outside of OPEC, we can expect a lot more of this: http://news.bbc.co.uk/1/hi/business/4558979.stm
This prospect was based on very high quality seismic and geologic studies. Even with this, we still cannot determine if the oil is commercial, only that there is some oil or gas actually there, in the ground. What they found is enough for the locals to make a little money with, no more. This has also turned out to be the case in a lot of the Middle East.
And to give you an idea of how small the oil field has become, I know the guy who drilled this well...
I am currently staring at drilling rig usage for offshore USA. EVERY SINGLE MODU (mobile offshore drilling unit) is working. Every single category of rig is at 100% utilization. It's a drilling boom without a doubt, but it is not going to have near the effect on resource depletion that the 55 MPH speed limit would.
I think it's entirely possible that we'll see $35 oil again this year. Not because of any Lind-ian optimism on my part, but because of how incredibly shortsighted the markets are. Big oil stocks and moderating demand increases could very well yield a big price drop, even with dozens of experts speaking out about peak oil and the need for serious energy policies in the US and elsewhere.
The problem is that if oil does indeed fall back to that level it will only reinforce the perception of many US consumers that the recent higher price was just a spike and not a harbinger. That perception would encourage precisely the wrong set of behaviors.
And then when oil prices run up again (possibly because of the true onset of peak oil), those same consumers will assume that it's just another spike, and more of them will choose to "ride it out" instead of making changes in their oil consumption.
This is why I'm convinced that the best thing that could happen for all consumers, everywhere, is for oil prices to stay no lower than current levels (about $50), and increase to $55 to $60 by the end of the year. That would send the right price signals and continue to trigger the kind of behavior that will benefit everyone in the long run.
J said:
"as it is completely un-American to have used that ammunition (DU)".
How about: "it is legitimate for America to invade another sovereign country on a false pretext (or as George Galloway said 'a pack of lies') but thousands of innocent people should be killed by conventional ammunition, rather than by those tipped with depleted uranium".
J, I'm pleased that you show concern.
I never said I agreed with the war.
You have no idea of my position about it - the position I took was with respect to using DU.
If you have something personal to say, then come to Houston, and say it to my face. All 6'3" and 280 pounds of this ex-roughneck will be most happy to hear your diatribe.
Otherwise, stop making ignorant assumptions and getting personal.
Grinzo -
I'm with you - keeping the price up is definitely in the best interests of everyone concerned with PO, and with alternative energies.
As long as the Chinese economy keeps booming their oil use is going to keep booming.
http://www.marketwatch.com/news/story.asp?guid=%7B01DD54AA%2D3864%2D436F...
As for Iraq, they can have more oil than God and if they can't keep the pipelines intact it doesn't matter.
Tim, I agree.
Iraqi oil is not going to be on tap any time soon.
However my point earlier was that without that extra oil, there was no way the Iraq war could be justified even in the warped minds of the "neocons." and of course could never have been sold to anyone.
Hey, can you explain this to us, please?
But you got to ask what this upgraded estimate is based on. Was it based on reservoir calculations within known fields or was it based on seismic reflections and inferred potential reservoir volumes?
And if it was based on existing reservoir calculations, how did they come up with such a massive increase? Just because the original numbers are old, doesn't mean the engineers who came up with them were stupid.
My guess would be the latter - it's based on seismic inferred potential. And that is a very dubious thing to base it on - look at the link in my earlier post.
Maybe there is some new quack-methodology being used? From 116 to 400 billion is a 70% increase in reserves. It is hard for me to swallow that kind of error in the original estimate - too many eager corporate people would have gone over the numbers. Getting it that wrong is just hard to fathom.
J
Remember that there has been a lot of "wishful thinking" in the Bush Administration regarding Iraq. With the nearness of PO, and with desperation setting in "wishful thinking" is very attractive indeed.
Lou says:
>>I think it's entirely possible that we'll see $35 oil again this year. Not because of any Lind-ian optimism on my part, but because of how incredibly shortsighted the markets are. Big oil stocks and moderating demand increases could very well yield a big price drop, even with dozens of experts speaking out about peak oil and the need for serious energy policies in the US and elsewhere.
continuing last post - stupid errors deleted part of my post: a perfect example of the shortsightedness of the market is what is happening to the price of crude today. Crude oil stocks are up, so all the economists conclude that all is well and that oil is overpriced. Never mind any inconvenient facts like seasonal demand variation, lack of spare capacity, or depletion - those don't matter in the world of classical economists.
praktike -
PDVSA holds all the cards, because they hold the resources and the money. They aren't supposed to hold the money. Those of us in the oil field have known for a long time that PDVSA ran Venezuela, regardless of the little local insurrections by the people, or any claims by Chavez. But you still had to appease the government before doing business there. Chavez people are now PDVSA, so they are making money at both ends.
Chavez cronies are likely skimming at PDVSA, people may eventually uncover it, and that may be very bloody. Chavez is probably lining his pockets as fast as he can. All the stuff you see in the media is mostly noise. The brains at PDVSA left when Chavez assumed leadeship - they had already filled their coffers or else got offers and saw the storm coming. Money is being funneled somewhere, by someones, at a very massive rate.
Many of the expat companies have left already - the business climate isn't very conducive right now. Having worked there multiple times, I can tell you that if your wheels are not tack-welded to your hubs, you will never keep them on your truck. Never bring a computer unless you plan on physically holding on to it 24 hours a day. I do not think honesty translates well into Venezuelan...MO, of course.
I have trouble believing anything any Venezuelan official has to say, because they will say anything if the price is right. Everything is for sale in Venezuela. Again, M"E"O (my Experienced opinion)...
I find it very interesting that all your posts confirm what Fredriksen said about price. I would also argue very stongly that oil's current price slide has more to do with the strengthening dollar v euro than with current supply and demand. Thus there is a perception of greater supply, which is what the agencies are touting, when in fact the price movement is based on oil being denominated in dollars. This will continue until we truly reach Peak and supply constraints dictate price regardless of what currency oil is denominated in.
Aramco's CEO claims the Saudis can double output capacity:
http://www.arabnews.com/?page=6§ion=0&article=63956&d=18&m=5&y=2005
karlof -
I have never said that we are peaked in production, but rather that we are at the Peak of Cheap Production. The move to $50 was the first in a long, yet-to-come series of plateaus in oil prices. There are ways to slow it down, put it off a bit, but the backside of the curve is inescapable, and I see no government or corporate official of consequence making any move towards restraining demand. And demand is the key, as we are at the end of cheap supply.
OPEC has loct control of the market price, and sooner or later will admit to that rather than price gouging. Far easier to blame the nameless, faceless avarice of commodity traders than to admit to a market that is out of control or that they are near peak production levels.
There will be fluctuations up and down within higher ranges from here onward, as traders make their money based on whose turn it is to take a dive. Trading is a club of rich guys, not a consortium of buyers and sellers. I know many who have retired at the ripe old age of 40. The above is their own description of their industry.
PocketRocket listed a doubling of Saudi capacity, so I will tie it in with this as well. Even if they could double their capacity, we could not ship it. The tanker fleet is 100% occupied with todays volume. Tankers are the key to when the real oil shortage is in play. When tanker activity tapers off and oil prices continue rising, what does that tell each of you?
I am not really worried about when the true peak hits. For relevant purposes, we are there - it is in play in the market, and in what is left of the free press in America.
I am much more worried about the problematic backside of the curve, and what "Mad Emperor George" and his neocons will leave us with, if he doesn't alter the constitution for another 4-year stretch under the terrorism pretext.
karlof, you've no doubt read "The Prince"....misdirection, misdirection, a small truth, and more misdirection.
The question of price relates to the question of why stocks have been built to record levels. If they are going to dump them on the market after Memorial Day then yes the price will fall. If they are holding them against the shortfalls of the 4th Quarter (4Q) then the price will stay up, while world demand moves over the supply as we transition 3Q to 4Q, and at that time they wil use the reserve.
The two questions are is it enough and will they do that? And neither address next year.
Dice anyone?
grin
J, I never said you had. We are far more on the same page than not.
HO, NYMEX futures for September through December are still bullish at over 50. What's interesting is where 2006, '07, '08, etc are currently at. I really like the Dec 2007, currently at 48.56.
I'm not a behaviorist, but when looking at O&G, it becomes clear that more can be learned by corporate behavior than its and governmental rhetoric. (Yes, The Prince is a handy tool.)
As for the contradiction I pointed to in another thread, I'm currently using the accumulation aspect to further what I see as my, and my community's, longterm sustainabilty needs.
karlof -
I wasn't irritated at all, I just wanted to be sure you understood my position, that we are not "at peak" just yet.
And you are right about the behaviorist angle - watch what we do. My industry is like every other - follow the money.
And what exactly is the, er, accumulation aspect? I confess ignorance..??
If I remember correctly I quoted a November Japanese oil price of $65, but they are more vulnerable than most.
It's interesting to view the parallel in actions between 1941 Japan and today's USA: Japan attacked the USA because it wanted access to oil, which explains the US's most recent invasions, too.
J, the comment is referring to a different thread. It relates to the contradiction that unless one is living only upon what is available for "picking" from nature at the current moment in time, to profit beyond that moment one must accumulate something (usually a tool of some sort). Thus, how is one to be sustainable if one is forced to accumulate. Another way of saying this is, how can one determine how much accumulation is possible before overshooting the carrying capacity? Which begs the question, how can a steady-state be maintained without tyranny (the film Logan's Run presented this question)?
THX - got it. But if it comes to that, I'm definitely a Runner...
I would think that for most of our species timeline, it has been overshoot and collapse. Any references outside of Japan for a sustained, closed culture?
thanks, J. That helps.
I don't think you could call their cultures truly closed, but I would look at the Pacific Islander cultures and those of Native Americans. Their ways are temporally much closer to the previous "solar age," some of which are still practiced (Hopi agriculture) and resonate in their folklore. These folks have knowledge that was shunned as "backwards," but as we are now beginning to realize is actually forwards.
karlof -
So, you are working on how to set this up without becoming the Flintstones?
I ask, because my explorations have led me to believe that the monetary system is as much of, if not the, culprit. Resource depletion is simply an extension of exponential growth required by the current money system. I note that the cultures you cited did not have the basic tenet of land ownership(?), the foundation or forerunner of our current monetary system.
I can deal with and handle the daily issues, such as food and water and the rest. Those are practical - it's these nebulous societal issues that need fixing I find more difficult.
Funny you should mention the Flintstones with their suburban lifestyles. Now the cultures I mentioned I happen to have studied somewhat, and I would say their cultures and lives were rich. In particular, I admire the Trobriand culture because there they grow their money, and the one who grows the most throws a huge party where it's all given (redistributed) away. Not even British imperialsim and Christian missionaries could change these proud people living off the NE coast of New Guniea.
So, the challenge is to somehow figure out the amount of accumulation (read tools) a steady-state economy can absorb, and what sort of rules/laws/mores would be needed to maintain it. One is reminded of the Star Trek NG film (Insurrection, I think) where they are observing a society that shunned most higher technologies in order to have a sustainable society. This is similar to the New Agrarianism proposed by the CommunitySolutions group of Ohio, a blending of hightech/low energy resulting in maximized carrying capacity. I suppose a good place to start is to look at our gadgets and determine just what is really needed and whittle the list down through debate. For example, do we really need the internet and all its related items given the energy and resources they consume? Another point to recall is for most of the world climate change is a greater threat than Peak Oil because they mostly still reside within their ecological footprint.
Yes - it was Insurrection. I took heart that I wasn't a total lone nutcase after seeing that film.
Community Solutions is a great start, but there isn't anything like it here in Texas.
Internet? Well, in my view, we should scrap the phone system and broadcast/satellite television in preference for the internet. This is simply because it provides the most flexibility in terms of data exchange. It can incorporate all it's predecessors nicely. However, to lower power consumption, it would need to be retooled.
Grow your own money and then party it away? Now THAT is a marked change!!