More technical answers?

Because of the worries about meeting fourth quarter demand, the major oil producing countries are all currently pumping at full capacity. The current extra production is going into storage so as to be available next fall when supply cannot match demand. By using this stored oil, and adding it to imports it is hoped that the two will be able to meet, what is recognized to be an increasingly high level of demand in the latter part of this year. Unfortunately the use of the stored oil is a one shot deal, given that demand is unlikely following this winter to drop back far enough to be matched by supply, without some demand destruction.

But as the story in Bloomberg notes, we are now reaching the limits of storage capacity in the US. So if our current suppliers, plus this reserve, should fall short towards the end of this year then we will be in serious trouble. This is because there is a lead time for most things in the oil supply world. If you need to get more oil, it has to be brought to the surface, treated, shipped, refined and then made available to the public. Not complicated, just time consuming. So that a shortage in country A cannot immediately be made good by company S, it will take some time to bring the additional supplies to where they are needed. Provided they are available.

But if the entire world is already pumping at full capacity they won't be. This also goes a way to explaining why the prices you see quoted are not for delivery today, but for some future time. And in that regard note the little item in the story
gasoline for November delivery on the Tokyo Commodity Exchange, Asia's biggest energy futures market, rose as much as 990 yen to 43,700 yen a kiloliter ($65.80 a barrel). The contract traded at 43,590 yen ($65.63 a barrel), up 880 yen or 2.1 percent, as of the 11 a.m. close of morning trading.
I am, however a little confused by the statement
Saudi's state-owned oil producer Saudi Aramco has informed customers in Asia it will supply them for a second straight month the entire volume of crude oil agreed in annual contracts, said refining company officials who asked not to be identified.
And to end in a way that will, I am sure, give you lots of confidence for a calm and inexpensive fall
`The key this week will be the IEA's monthly report early Wednesday,'' said Kyle Cooper, an analyst with Citigroup Inc. in Houston. ``An increase of their demand forecast, which I think is likely, will have a significant effect on the market. It doesn't appear that the market cares one iota about the inventories right now. Demand is the key.''
In other words, if I am reading the entrails correctly demand is likely to exceed the current projection of 2.2 mbd over what is was in the fall last year. And, er, I do not see us coming close to the original projection let alone a higher one.

I see that a new combatant has entered the fray against Matt Simmons. The Energy Bulletin has the introduction to A.H. Cordesman's review of Saudi Arabian production and prospects and suggests that
these (Simmons) points are more a thesis, based on an analytic "chain of negatives" than a definitive proof. They pull together a chain of negative indicators and possibilities that deserve Global Demand and Capacity Building in Saudi Arabia's Petroleum Sector 5/2/05 Page 7 serious consideration. However, much of their validity depends on the Saudi managers Aramco being wrong or covering up massive risks and development problems, and virtually all of the other analysts examining world oil reserves and production potential being wrong about both the size of the world's oil reserves and the ability of modern technology to provide future significant gains in ultimate recovery.
And there is that blind faith in modern technology again. I just wish, as a modern technologist, that someone would give some hint as to what this wondrous new concept is.
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Let's let history speak about this.

How many countries and companies have DOWNGRADED their reserve numbers in the last 24 months?

How many giant oil fields have been discovered in the last five years?

I don't know who this guy is, but apparently he is some think-tank wizard. Well, I doubt (but he can correct me freely) that he went to the trouble Matt Simmons did in his researching, as in GOING to saudi and actually pressuring them for information.

I wonder if the guy has even worked in the industry? It is very common for people to quote numbers and ideas concerning my industry who know absolutely nothing about how we work, what we have to deal with, and what is actually remotely possible. That is why they can be led by the nose - a little oilfield "techno-babble" and they are lost and will never admit the same.

I am with you, HO.

Where is all this magic technology? We can already monitor a drillbit in real time, monitor wells in real time, we use 4-D seismic, we can drill in ANY direction for miles if planned correctly and hit 25 foot diameter targets through 50,000psi rock at 35 feet/hour.

Everything in our industry has been made as a floating structure with dynamic positioning to enable lower costs and rapid response. Decades have been spent and untold billions (yes, with a "B") to try and refine seismic, gravimetric, tectonic, satellite and myriads of other ways to find oil.

We are now actually injecting before we drill to be sure and maximize the flushing of oil from new reservoirs using water flood, while monitoring the sweep in 4-D from floating platforms in 6500 feet of water, maintaining rig position via satellite and streaming real time data back to the home office on the other side of the world.

I don't know about the rest of you, but I feel that the expectation for some new "solves-every-problem" technology are out to lunch.

I don't think anyone is considering that my industry has almost collapsed under the weight of subsidized oil prices over the last 3 decades, and we are without 3 generations of college graduates, who went anywhere but into collapsing, dirty petroleum.

I would love to introduce Mr. Cordesman to a few friends of mine that work as roughnecks in the Middle East....

Or maybe I should just get out my oilfield dousing rod and beat him severely about the head and shoulders?


So J, you're saying O&G has reached peak technology? If one new "magic" device could be invented to provide the greatest gain, what would it do?

NYMEX 2005 NOV unleaded gas futures are trading in the low $59 region.

I imagine the cryptic comment relates to recent past when contracts were not filled.

I ran my electricy usage through the Orange County rate structure and found that it costs 300% more there than here in Oregon--my bill would have been in the $180 range.

Good item on oil and food security here, and provides some answers to questions asked in the previous blog.

If any magic technology is going to show up in the next ten years it must be around in a crude form right now. Cordesmann should be required to point it out.

Sorry karlof -

I just hate "oil pundits" and such that believe they actually know what is happening in my field. It is probably one of the most technically diverse and challenging things to do I know of. Petroleum engineers are usually 4-6 years until they are 'seasoned' simply because of the technical knowledge they must acquire to actually contribute significantly. Many of the technologies are unique to industry, and the others are a conglomeration of outside technologies taken to extremes.

If I could devise the "magic bullet", it would go into a sandstone or limestone and sweep the oil out of each pore space that remains attached to the sand grains or cracks.

How much oil is that? Well, I would have to figure the surface contact area for cubic miles of sandstone or limestone based on the size of the grains and their spacing and their approximate shape. Then multiply that by the volume of each field. It's a big number, basically the part of every field that we cannot produce because it is too small and discrete (discontinuous).

But maybe I should just wish most of the world wrong and hope for abiotic oil?

We are near peak technology now. The last couple of decades required us to become extremely innovative due to the artificially low priceing of oil. We went from the most bloated industry on the planet to what is probably the leanest. Many more people work in space exploration today than in the oil patch. All the things that people wished for 20 years ago have basically been developed. There is some new tech on the horizon, but it is not going to suddenly drop the cost of oil or reverse the curve.

Maybe this will help. All things being equal, the only way to save money when prospecting for oil is: to be sure you hit something profitable, and to drill as fast as you can without killing people or destroying the rig or the land around it. The rest of our costs are fixed by commodity prices worldwide. I would say that for 20 years we have basically focused on these two items and that the technology is very mature.

That's what I hear from others in O&G. I'm also aware that, generally, almost half the oil in a field cannot be extracted, so your wished for gizmo makes perfect sense. Unfortunately, I think most of the gizmos made to increase field life have already been invented and are currently in use, as you observe.


It really does not matter whether oil is abiotic or of biological origin. Whichever way, it is fairly obvious to anybody, that oil is not being replenished at the rates at which it is being pumped out. Depleted oil fields remain depleted, and not much new oil is being found. So where is all this abiotic oil? The abiotic folks would say that the replenishment is in thousands of years, and not millions -- so therefore it does not really matter from the perspective of companies that march to quarterly schedules, and governments that march to a two year schedule.

off topic, 9pm EST 5-11-05
Congressmen doing peak oil on CSPAN now
Ehlers (R-Michigan)
Gilchrest (R-Maryland)

Tony Cordesman is actually a quite good national security policy analyst. He has zero expertise in the energy field. The fact that he has decided to address the issue is in a sense a realization that energy is now a primary national security issue.

He has clearly done himself a disservice by putting his considerable credibility on national security issues on the line regarding a topic that is going to prove out in the near term. He has obviously listened to his sources and taken their council to heart. Unfortunately, his sources are the very people who have gotten us into this mess.

He would have been better served remaining agnostic on the issue while pointing out the implications of either scenario on our security position.

SW -

Boy - do I agree (see post #1)

Matt Simmons comments are under the eye of every major oil company, and he has been at this his entire life. He has considerable credibility, knows the ins and outs and tech, not to mention that the oil patch has become so small that most of us at least know each other by sight. The idiots were weeded out during the efficiency purge of the last 20 years.

The last thing anybody wants to do in the oilpatch is to announce the end of the oil age. I think Simmons realized this, and took the lead on it out of concern much more than a meager profit.

Never mind what everybody says. If it's not this year, it's going to be next year, or the year after.

Forget about people who say "it's not today". Tomorrow is another day, this is not going away (heck, that rhymes!)

Richard, Yokohama

INTERVIEW-White House wants oil price at $25 a barrel

WASHINGTON, May 11 (Reuters) - The White House wants to see oil prices fall by about half to around $25 a barrel although reaching that goal may take time, President George W. Bush's top economic adviser said on Wednesday.

In my dreams!

What planet do these guys live on?


I think that coverups at Aramco are pretty much a given, considering the way OPEC quotas work. Oil prices are going up, and staying up, once the year is out. Heating is going to be very expensive this winter...

J, I hear you about the technology. I briefly worked for a shop which made fancy downhole equipment, and the state of the art is a bit breathtaking.

The payoff for future technological investment is almost certainly in alternative energy sources and storage. I can think of several potentially revolutionary ideas with research budgets in the hundreds of thousands of dollars, which is diddly compared to the oil industry. But at this point, the policy makers just don't care. We'll have to wait for oil prices to double again before these bozos start paying attention.

Oil prices can easily drop below $40 provided the U.S. dollar keeps strengthening, as it has been lately. Just don't ask me why the USD is getting stronger.

The only things that make sense are: (1) there may be a the perception that U.S. interest rates will rise significantly; or (2) the 'intelligent' money knows about some untoward future world event that will drive money to the traditional safe haven of the world reserve currency, the U.S. dollar.

For example, maybe the credit system is wobbling under the covers, something that you or I would be the last to know about, or perhaps there is another foreign invasion being planned by the egomaniacs in power (something that would likely also drive the price of oil up, even if the dollar did strengthen).

I am certain, though, that oil and other commodity prices can easily drop if the dollar rises vis-a-vis other currencies. Commodity prices in general rose as the dollar declined, and will fall when the dollar rises. It's like walking on a waterbed.

With regard to the dollar's ups and downs, it's likely seasonal

What event happens to occur at the same time as the large changes in September? It's when the higher 4Q demand for oil kicks in.

The dollar is our Achilles Heel. It is the dollar hegemony that enables us to dictate and suggest things to other sovereign nations. And it is based squarely on oilo and our own ever-expanding economy.

Iran and Russia wish to trade oil in Euros, and China owns a large portion of our debt - the two items that could crash the dollar, which would plunge the US into complete chaos. The world would go with us, but other countries would fare much better than our own - for them it only involves a retrenchment, not a collapse.