The Bakken Boom - A Modern-Day Gold Rush
Posted by Jonathan Callahan on December 12, 2011 - 10:39am
This is a guest post by Derik Andreoli, Senior Analyst at Mercator International LLC (dandreoli@mercatorintl.com)
“That men do not learn very much from the lessons of history is the most important of all the lessons that history has to teach.” Aldous Huxley
In 2009, U.S. oil production began to climb after declining for 22 of the previous 23 years. The shale oil production of the Bakken formation, which straddles the Montana-North Dakota border and stretches into Canada, has been a significant contributor to this temporary uptick in oil production.
The Bakken boom has inspired a number of prominent commentators to resurrect the energy independence meme. Daniel Yergin was first at bat, asserting in an essay published by The Wall Street Journal that rising prices and emerging technologies (especially hydraulic fracturing) will significantly drive up world liquid fuels production over the coming decade(s). Ultimately, Mr. Yergin argues that tight supplies lead to high fuel prices, and high fuel prices will bring previously inaccessible oil to the market. The trouble with this line of thinking is that high prices aren’t merely a symptom of the supply problem; high prices are the problem.
After Mr. Yergin stole first base through this apparently convincing display of contortionist logic, the next up to bat was Ed Crooks who recently penned an analysis piece for the Financial Times. In this piece, Mr. Crooks declares that “the growth in U.S. and Canadian production from new sources, coupled with curbs on demand as a result of more efficient use of fuel, is creating a realistic possibility that North America will be able to declare oil independence.”
Mr. Crooks thus ‘balances’ rising production from shale oil and Canadian tar sands against declining consumption, which he mistakenly chalks up to efficiency gains rather than the deleterious effects of the greatest recession since the Great Depression. Beyond this obvious blunder, Mr. Crooks manages an even greater and far more common gaffe by neglecting to integrate decline rates of mature fields into his analysis.
But in a game where the media is the referee and the public doesn’t know the rules, Mr. Crooks manages to get on base by knocking a foul ball into the bleachers. With Yergin on second and Crooks on first, Edward Luce steps up to plate and takes a swat at the energy independence meme, directing the ‘greens’ to look away as “America is entering a new age of plenty”. And while the greens looked away, Mr. Luce took a cheap shot at clean energy through an attack on the federal government’s support for the now bankrupt solar panel manufacturer, Solyndra. Luce thus willingly employs the logical fallacy of hasty generalization to sway his audience. Of course the Solyndra bankruptcy is no more generalizable to the solar energy industry than BP’s Macondo oil spill is to all offshore oil production, but in a game of marketing one-upmanship one should not expect a balanced and rigorous evaluation of the possibilities.
With the bases loaded and oil prices remaining stubbornly high as tensions in the Middle East and North Africa persist, the crowd is getting anxious. And the crowd should be anxious. After all, tight supplies and rising oil prices strain personal finances and threaten to send our fragile economy back into recession. It is, therefore, unsurprising that the public is as eager to consume the myth of everlasting abundance, as they are eager to consume these scarce resources.
While the Bakken boom offers a hopeful story in which American ingenuity and nature’s endless bounty emancipate us from energy oppression and dependence on evil and oppressive foreign dictators, musings of energy independence are premature, misguided, and misleading. The problem with the Bakken story as told by Crooks and others is that it lacks historical context. Referring to recent developments as an energy revolution implies that there are no lessons to be learned from history. But as Mark Twain put it, “history doesn’t repeat itself, but it does rhyme.”
Lessons from the California Gold Rush
In 1848, John Marshall discovered gold while constructing John Sutter’s sawmill in Coloma, California. Sutter and Marshall attempted to keep the discovery secret, but savvy newspaper publisher and merchant Samuel Brannan soon learned the news. Brannan hurriedly set up a store to sell prospecting tools and provisions and began promoting the discovery in much the same way that the media has been promoting the Bakken. As the news of Marshall’s discovery spread, the California Gold Rush grew to international proportions.
Forty-niners rushed to The Golden State in search of riches, and California’s population exploded from 8,000 in 1848 to 93,000 in 1850, a quarter of a million in 1852, and 350,000 by 1860. With the majority of the influx of humanity employed in prospecting, precious few engaged in support activities. But with the rapid accumulation of mineral wealth, imports were easily acquired. Timber, for instance, was sourced from the Pacific Northwest, and the small town of Seattle, which was only settled in 1852, entered a sustained period of rapid exponential growth.
Despite the low productivity of the labor-intensive process of gold panning, annual production grew from just over 1,400 ounces in 1848 to more than 3.9 million ounces by 1852. To put this into perspective, prior to 1848, cumulative U.S. gold production amounted to just over 1 million ounces.
The rapid growth in output was driven not by the backbreaking extraction of gold dust so much as by the discovery of colossal gold nuggets like the twin 25-pounders found in Downieville (1850) and on the banks of the Mokelumne River (1848). By comparison, one could spend decades panning and toiling over rockers and sluices manually sorting flakes of gold from stream sediments and never accumulate such an amount.
Of course nuggets are easier to find than flakes, and the great majority were discovered in the first few years. By 1852, only four years after gold was first discovered, California gold production began a rapid descent. Production declined 50% by 1862 and 80% by 1872.
The decline was only barely checked by the adoption of ‘hydraulic mining’ – a process by which massive amounts of water under intense pressure is used to disintegrate entire hillsides. At the North Bloomfield mine, for example, 60 million gallons of water per day eroded more than 41 million cubic yards of debris between 1866 and 1884. (http://www.sierranevadavirtualmuseum.com/docs/galleries/history/mining/hydraulic.htm)
The runoff from ‘hydraulicking’, as it was called, was directed to sluice boxes where dense gold dust was separated from the other detritus. The displaced earth eventually came to rest in California’s fertile valleys in massive quantities. It has been estimated that hydraulicking generated eight times the amount of ‘slickens’ (tailings) than was removed during construction of the Panama Canal, which, by the way, employed the same process.
The redirection of such massive amounts of water generated conflict. “Legal ledgers dating back to the early years of the California Gold Rush record complaints that existing water rights were being impinged by the diversion ditches for, and the resultant pollution from, mining operations, especially hydraulic mines.” (http://centerwest.org/wp-content/uploads/2011/01/Graduate-There-sGold.pdf)
These challenges were consistently defeated on the basis of the 1857 California Supreme Court decision that gold production provided a greater good for the leading interest of the State and its citizens than would have been achieved had water not been diverted.
This all changed in January 1884 when Judge Lorenzo Sawyer issued the nation’s first environmental injunction after presiding over the case of Woodruff v. North Bloomfield. Judge Sawyer was swayed by Woodruff’s claim that not only was gold production from the North Bloomfield mine not the leading interest of the State, but that the 1857 decision did not supersede laws that protected agriculture and property owners. And with the scratch of a pen, hydraulic mining operations around Marysville were ordered to halt the discharge of tailings into the Yuba River. Other areas were soon to follow.
During California’s successive gold rushes more than a few prospectors became rich, but the vast majority spent more cash purchasing claims and supplies than they earned from the gold dust they sold. The main beneficiaries were the businessmen who profited from the search for gold, rather than the discovery of gold; men like Samuel Brannan and Thomas Craig, the manufacturer of the ‘Monitor’ nozzles used in hydraulic mining.
Lessons from the Klondike Gold Rush
A half-century later, a similar story unfolded in the Yukon. In 1897, the nation was suffering through the Long Depression, which, ironically, was in large part the result of the decision to revert to the gold standard upon the conclusion of the Civil War. As ‘greenbacks’ – notes which were not explicitly backed by gold – were pulled from circulation in order to bring the number of dollars back to par with gold reserves, deflation set in. Deflation hit laborers and farmers the hardest and proved to be a significant force behind the populist call for bimetallism.
As a result of the Long Depression, people were desperate for work, but even more desperate for a reason to maintain hope in the face of despair. Much as the Bakken has provided hope for contemporary society, the SS Portland provided hope when it arrived in Seattle in the summer of 1897 with a half a ton of Yukon gold on board. The conditions were primed for an outbreak of gold fever, and just as Samuel Brannan advertised the discovery of gold at Sutter’s mill, the Seattle Post-Intelligencer eagerly hyped the Klondike ‘prospects’ to not only sell newspapers but the entire town as the launch site for stampeders.
The next day the Klondike gold rush commenced as the steamship Al-Ki departed with a full deck of stampeders and 350 tons of supplies, including foodstuffs, pack animals, prospecting equipment, and clothing, like C.C. Filson oiled canvas jackets and pants. These garments, which were impregnated with a mixture of paraffin wax and other oils, proved to be as waterproof as they were stiff – the stiffness resulting from the fact that the paraffins, which are solid at ‘normal’ temperatures, are nearly impenetrable under arctic conditions.
The Klondike Stampede caused demand for steamships to mushroom and Seattle quickly rose to become one of the nation’s preeminent ship building communities. And as the demand for steamships spiked, so too did demand for timber and coal, two of the Puget Sound’s most dominant industries. To this day, Alaska depends almost exclusively on the Puget Sound for the delivery of groceries, consumer goods, manufactures, and other commodities.
As was the case in California, Klondike gold discoveries fell just as quickly as they had climbed. Between 1896 and 1900, annual discoveries rose from $300,000 to more than $22 million, but by 1904 production had fallen to less than half the peak value, and by 1907 production had declined more than 80%. And just as the new and ecologically disruptive technology of hydraulic mining failed to arrest or reverse declining production in California, the introduction of hydraulic mining and large scale dredging failed to maintain the pace of discovery made by the first few waves of stampeders who employed far less technologically advanced and capital intensive processes.
After studying dredging operations in the Klondike, mining engineer J.P. Hutchins concluded, “The most satisfactory returns were from a dredge working an unfrozen area in the flood-plain of the Klondike River; this was installed before the large corporation, now so prominent in the Klondike, became interested. The dredges installed since that time have been very disappointing in returns. Three powerful dredges began operation on the lower Bonanza Creek, but the experience there has been most discouraging.” (J.P. Hutchins, January 4, 1908, “Klondike District”, Engineering and Mining Journal on January 4, 1908)
While dredging was not able to arrest declining production, the process certainly made an impression on the landscape. Tailings moraines provide a lasting visual testament to the efforts made by dredge operators, who quite literally left no stone unturned.
The similarity in California and Klondike gold production curves was not lost on Mr. Hutchins who further wrote, “[Klondike] figures reveal a marked similarity between this and other placer districts not only in respect to the rapid increase of the annual output to a maximum a few years after the discovery of the placers, but also in the rapid decrease in the output after the maximum figure had been reached. It is of passing interest to note that in both California and Klondike, the annual production reached a maximum the fourth year after discovery. These figures were more than $80,000,000 for California and more than $22,000,000 for Klondike.”
As historian Pierre Burton put it, “The statistics regarding the Klondike stampede are diminishing ones. One hundred thousand persons, it is estimated, actually set out on the trail; some thirty or forty thousand reached Dawson. Only about one half of this number bothered to look for gold, and of these only four thousand found any. Of the four thousand, a few hundred found gold in quantities large enough to call themselves rich. And out of these fortunate men only the merest handful managed to keep their wealth. The Kings of Eldorado toppled from their thrones one by one.”
While gold production continues to this day, the Klondike gold rush ended in the summer of 1899, when over the course of a single week, more than 20,000 ‘sourdoughs’ left the Yukon on news that gold had been discovered on the beaches of Nome, Alaska. The Nome gold rush, which was similarly short-lived, is widely cited as the last gold rush of importance, but only by those whose narrow definition excludes black gold.
The Rush for Black Gold on Alaska’s North Slope
In 1902, Alaska produced its first barrel of oil, and in 1953, the discovery of oil in a small town West of Fairbanks ushered in the modern era of oil production. In 1957 oil was discovered on the Kenai Peninsula, and in 1959, one hundred years after Colonel Drake produced the first barrel of oil in Pennsylvania, British Petroleum (BP) began prospecting for oil along Alaska’s expansive North Slope.
BP was soon joined by Atlantic Richfield Company (ARCO), who in 1968 discovered Prudhoe Bay, the oilfield equivalent of a 25-pound gold nugget. The Prudhoe Bay field is estimated to have had 25 billion barrels of crude before extraction commenced in 1977, making it the largest field in North America. Another major US field, Kuparuk with reserves of 6 billion barrels is also on the North Slope and was discovered in 1969 by Sinclair Oil.
In order to transport oil from the remote North Slope, the Trans Alaska Pipeline System (TAPS) was proposed, but construction did not begin until 1974, after 515 federal permits and 832 state permits were approved. Construction was completed in 1977. At peak construction, in October 1975, 51,000 direct and contract employees were at work on various aspects of the 800-mile pipeline. With construction costs totaling roughly $8 billion, small fortunes were made long before the first barrel of North Slope oil was produced, and once again the Puget Sound economy benefitted as nearly all equipment and supplies were shipped through Washington’s seaports.
Production from the Prudhoe Bay field peaked in 1988, and production from the Kuparuk field peaked in 1992. With these two fields dominating North Slope production, the black gold flowing through the TAPS then fell into decline after only 11 years of operation.
Eleven years after the peak, North Slope production had declined to less than half the peak volume. To use Mr. Hutchins’s words, it is of passing interest to note that in California, the Klondike, and Alaska, production had declined to roughly half the maximum value within the same period of time it took to reach the peak. Today, production is only slightly more than 24% of the peak, and it continues to decline. Through June this year production was 35,000 barrels per day less than the average production rate in 2010.
Without some type of North Slope game-changer, production will by decade’s end decline to the minimum TAPS operating capacity of 350,000 bpd.2 Currently, it is believed that a flurry of new projects including projects that are already under development and those that are under evaluation will significantly slow the rate of decline.3
One such project is BP’s Liberty project, which is currently a couple of years behind schedule and delayed indefinitely. If or when the Liberty project comes online, North Slope production will be goosed by an estimated 40,000 bpd, which will essentially add one year to the operating life of the TAPS. There is a danger associated with making hasty generalizations from the performance of just one field, but if the technologically challenging Liberty project is indicative of challenges that will be encountered elsewhere, it stands to reason that other new projects may encounter similarly long delays. And if this is the case, production will decline more quickly than is currently being anticipated.
The problem of declining rates of North Slope production is compounded by the engineering specifications of the pipeline system. At lower flow rates, the length of time required for a barrel of oil to make the trip from Prudhoe Bay to Valdez lengthens. In 2008, the trip took 12.9 days, and the temperature of the crude, which entered the TAPS at 110 degrees Fahrenheit, fell to just over 55 degrees by the time it reached Valdez. Longer transport times subject the oil to low ambient temperatures for longer periods, and as the temperature of the crude in the pipeline falls, paraffins begin to precipitate at ever increasing rates. The paraffins, which were once used (and still are used) to waterproof Klondikers’ jackets, behave much like arterial plaque when they precipitate in pipelines.
Longer transit times also allow emulsified water to separate from the crude. As the water separates it collects in low spots where it greatly accelerates pipeline corrosion. Under the right/wrong circumstances the water can freeze, thereby constricting flow, or worse yet, breaking free and damaging pumps.
Additionally, the Low Flow Study Project Team hired by Alyeska Pipeline Service Company explains that, “Lower crude oil temperatures will permit soils surrounding the buried portions of the pipeline to freeze, which will create ice lenses in certain soil conditions. Ice lenses could cause differential movement of the pipe via frost heave mechanisms. Assuming no heating of the crude oil, ice lens formation is predicted to occur at a throughput of 350,000 BPD. Unacceptable pipe displacement limits and possible overstress conditions in the pipe would be reached at a flow volume of 300,000 BPD.”4
If the long-term rate of decline remains fixed at 35,000 bpd, and it makes financial sense to re-engineer the TAPS to handle lower volumes, only 239,000 bpd will be produced in 2020. If it does not make financial sense, and the decline is not significantly slowed by production from new fields, North Slope output will fall to zero. Under this worst case scenario, the annualized rate of decline would be roughly 70,000 barrels per day.
Consequently, in order for U.S. oil production to remain flat in the face of North Slope declines, which have persisted for 22 years despite the fact that no fewer than nine significant fields have been brought online over this period, production elsewhere in the U.S. needs to increase by 35,000 or 70,000 bpd. This will be a challenge because the oilfield equivalents of colossal gold nuggets have, by and large, already been discovered.
There are exceptions, of course. It was estimated that the 1 billion barrel Thunder Horse field in the Gulf of Mexico would produce at a maximum rate of 250,000 bpd. Unfortunately, production peaked within 10 months and then fell into rapid decline.
The Rush for Shale Oil
The Bakken formation is estimated by the USGS to have an impressive 4 billion barrels of technically recoverable oil in place. (3 to 4.3 Billion Barrels of Technically Recoverable Oil Assessed in North Dakota and Montana’s Bakken Formation—25 Times More Than 1995 Estimate—) While this is a significant amount, it should be pointed out that the Prudhoe Bay field was more than 6 times the Bakken’s size, and Kuparuk was 1.5 times larger. It also bears mentioning that the Bakken oil is trapped in two layers of impermeable shale and a layer of ‘tight’ sandstone. In order to extract oil from the middle sandstone layer, producers utilize the process of hydraulic fracturing pioneered by natural gas producers. The process of hydraulic fracturing should not be confused with hydraulic mining, though similarities abound.
Hydraulic fracturing, or fracing, involves pumping millions of gallons of fracing fluid (a mixture of water, propants, and chemicals) per well into the earth under pressures great enough to fracture rock and release the oil. As a consequence of the process, flow rates from shale oil wells are low compared to the high flow rates of wells tapped into large conventional fields.
Whereas conventional wells like those in the Thunder Horse reservoir produce at a rate of 40,000 bpd, only 14 of the nearly 9,000 wells in the Bakken produce more than 800 barrels per day, and the average well produces only 52 bpd. Even at 800 barrels per day, 50 Bakken wells would need to be drilled for each Liberty/Thunder Horse size well, and nearly 800 of the average size Bakken wells would be required.
In order to arrest North Slope declines, 700 average size Bakken wells will need to be completed each and every year.
Due to the massive quantity of water required by the hydraulic fracturing process, the chemical cocktail that is added to the water to create fracing fluid, and the massive amount of dangerous wastewater generated by the process, environmental activists, or ‘fractivists’ as I like to call them, oppose hydraulic fracturing. Thus far, fractivists have turned a blind eye to Bakken production, choosing instead to focus on natural gas fracing in the far more populated areas along the Marcellus Shale formation that runs along the East Coast.
Fractivists have attained some level of success in New York, Pennsylvania, and France. The fractivists’ success has engaged the oil and gas industry’s fight or flight response, and elicited a relentless pro-fracing propaganda campaign. It appears as if this campaign has successfully enlisted prominent boosters who hold court in the Wall Street Journal and The Financial Times.
Regardless of whether or not fractivists target the Bakken, there is no escaping the fact that the Bakken wells are merely flakes of gold dust, and Prudhoe Bay and Kuparuk are the oilfield equivalents of colossal nuggets. And history teaches us that replacing nuggets with dust is at best a stopgap measure. While gold production in California continues to this day, production will never climb to anywhere near the peak reached in 1852 despite the fact that gold now trades at $1,800 per ounce and extraction technologies have improved by leaps and bounds.
Within this historical context we can sift the Bakken hope from the hype. The good news is that Bakken output rose from 130,000 bpd in June 2003 to over half a million barrels per day today, and is well on its way to producing a 750,000 barrels per day of high quality shale oil. Of course an analogous statement could have been said of California gold production in 1853, Klondike gold production in 1899, and North Slope oil production in 1987, so the danger of extrapolating past trends into the future is clear. That said, the growth rate is impressive.
Every silver lining has a cloud, and the bad news is that Montana production peaked in December 2006 and has already declined to 62% of the peak volume. This decline in Montana’s production indicate that what is commonly billed as a homogeneous geologic formation is in fact heterogeneous. The pattern of production suggests that the region of economically viable and productive wells is not ubiquitous, but rather concentrated in a few important areas. (Link for more on this topic)
The Bakken narrative being constructed by the likes of Yergin, Crooks, and Luce is hopeful, yet incomplete. Production from North Dakota is climbing rapidly, but production in Montana and, more importantly, Alaska’s North Slope is declining. When taken together, a picture resembling the shadow of truth emerges. The Bakken boom has simply hidden a much more troubling trend; it has nearly perfectly balanced out the decline in North Slope output.
Parting Thoughts
George Orwell wrote that, ”He who controls the present, controls the past, and he who controls the past, controls the future.” There is more than a nugget of truth in this statement. The future is guided by the stories which shape our imagination and our perception of what is possible, and therefore what is pursued.
Just like Samuel Brannan marketed the California gold rush and the Seattle Post-Intelligencer marketed the Klondike gold rush, the Bakken boom is being boosted by those that stand to benefit from production, namely the oil and gas producers, oil field services companies, and the producers of inputs consumed during the process. These entities recognize their vulnerability to fractivism, and I suspect that they are behind the recent surge in boosteristic promotion of the energy independence meme.
The Bakken narrative being constructed by its proponents thrusts forth two main points. First, recent technological advances have opened the door to bountiful energy supply, so much so, that talk of energy independence has re-emerged. Second, alternative/renewable/clean energy requires subsidies that we (i.e. the U.S.) can’t afford, that the public doesn’t want, and that go against the free market ideology that Milton Fiedman chipped into the impenetrable stone walls that fortify the Chicago School. From these propositions it is concluded that shale oil and gas are not simply the best option for our non-negotiable way of life, they are the only option.
This narrative is enticing to many politicians and much of the public because it fits into a greater national narrative that holds at its core the primacy of market-led American ingenuity. When faced with a challenge, American entrepreneurs always emerge victorious, resource limits be damned! Or so the thinking goes.
A sober reading of history, however, suggests that the Bakken success story fits a well-established pattern in which every natural resource boom is followed by an inevitable decline.
Sometimes history provides us with lessons that we don’t want to learn. Gold dust can’t replace colossal nuggets, shale oil can’t replace giant conventional oil fields, and wishful thinking and ideological fortitude is no substitute for dispassionate analytical rigor.
- USGS National Assessment of Oil and Gas Factsheet: Assessement of Undiscovered Oil Resources in the Devonian-Mississippian Bakken Formation, Williston Basin Province, Montana and North Dakota, 2008 [↩]
- Low Flow Impact Study. FINAL REPORT. June 15, 2011. Prepared by the Low Flow Study Project Team at the request of Alyeska Pipeline Service Company [↩]
- Duvall and Molli, February 16, 2010, “Oil and Gas Production Forecasting: Presentation Given to the Senate Finance Committee, Alaska Department of Revenue” [↩]
- Low Flow Impact Study. FINAL REPORT. June 15, 2011. Prepared by the Low Flow Study Project Team at the request of Alyeska Pipeline Service Company [↩]
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Thank you Jonathan and Derik for an excellent post and a fascinating historical perspective on how intractable a problem resource depletion really is and how unyeilding it can be to even the best, so called, technological solutions...
Unfortunately it has made me thoroughly depressed!
I wouldn't get depressed, it's just another of the resource booms that North America has been through, and I worked in the oil industry long enough to be through several of them. You learn to go with the flow.
The take-away message for Americans is that the steeply rising production of the Bakken Formation is not a steeply rising hyperbolic curve that will go on to infinity, it is just the first part of a typically bell-shaped curve that will peak and start to decline in the not-too-distant future.
People who get involved in these resource booms tend to get overly exuberant at the start of them, get into it at the top, and lose their life savings as boom turns to bust. There are a lot of predictions in the media that this boom will go on forever and all of America's energy problems are solved, just like all of the previous booms have been overhyped, dating back to the California gold rush.
A secondary point is that the Bakken boom is masking the reality that the much bigger Alaska North Slope boom has turned to bust. The Trans-Alaska Pipeline is approaching minimum operating levels and will have to be shut down and abandoned if they don't find more oil in the high Arctic within the decade. Odds are they won't. (That's just a personal opinion based on the fact that I used to work for a major oil company which drilled billions of dollars worth of wells in the high Arctic, and which no longer exists.)
That's the part I find depressing. We just can't seem to find a way to accept reality as it is. We want the party to continue and refuse to do what we really need to because of it. Making our long term prospects all the worse.
I find in my reading very mixed signals, reading under the news sound bites, on oil and energy. I definitely think the price is going up, and I do think that will bring online additional supply, but this has an economic cost and will lean hard on demand in developed countries.
Regarding TAPS, there was a court settlement this past summer regarding property taxes for TAPS. To determine property taxes on the asset, its value had to be established in the court. This is the resulting decision:
http://aws.state.ak.us/officeofadminhearings/Documents/TAX/TAX06SARB%20A...
There is a lot of crazy stuff in this document and is a must read for any pedantic oil bug, particularly if you follow US or ANS oil production. Basically they taxed it on the finding of the court that it would continue to operate for several more decades. The court even found that if TAPS didn't exist today, it would be built from scratch to develop the proven reserves as of the property tax date.
Consider all the north Arctic oil fields will flow through TAPS for the same reason Prudhoe did not ship oil and instead chose to build a pipeline.
I have no doubt the rear view mirror of TAPS shows the declines everyone expects, but in this case there is only one conduit for any new fields in the north slope, ANWR, the Naval Reserve, and/or off shore in the Arctic; TAPS.
This also coincides with a huge tax debate on oil revenue/taxes in Alaska this year. Something I have been keeping a very close eye on.
I would very much entertain informed opinions of all stripes on the subject.
Regards,
Cooter
Alaska is going to be in deep financial trouble once the Trans-Alaska pipeline is shut down and abandoned, because that will strand all the remaining oil on the North Slope.
Unless oil companies make some major finds in the next few years, that is going to happen. The pipeline, as noted in the article, is approaching minimum operating levels, since you can't operate a pipeline at low flow under Arctic conditions - it freezes up. The Prudhoe Bay field, the biggest oil field ever found in the US, is nearly exhausted and there's not going to be enough production from it to keep the pipeline operating.
What are the chances of oil companies making big finds in Northern Alaska in the next few years? I don't know, but I did work for a company that spent billions of dollars on the Canadian side of the international boundary, including the Beaufort Sea, and we didn't find much oil there. Lots of natural gas but not much oil. Actually, we did some drilling on the US side and we didn't find much oil there, either.
I googled across this paper about delaying the shutdown of TAPS by doing a North Slope Gas to Liquids facility.
http://www.netl.doe.gov/kmd/cds/disk28/NG7-2.PDF
The 300,000 barrel per day GTL facility discussed would be very large.
Hi RMG,
I am of course a complete amateur when it comes to oil, having never worked in the business except to drive a truck loaded with it on a few occasions.
But it seems to me that it ought to be profitable, considering that everything else is in place already, to burn some of that oil along the way to keep it hot enough to flow.
Has this idea been considered, to your knowledge?
This would obviously involve tapping the line and building some sort of heating stations at intervals along the length of the pipeline.
I can think of a number of ways that this might be accomplished-for instance a six inch flue a hundred yards or so long could be installed inside the main line, and air and ng fed in one end, cool air exhaust well enriched with co2 of course out the other end
It also occurs to me that it should be possible to simply add a thick layer of insulation covered with a metal skin for resistance to the elements to the existing line, considering the cash value of the amount of oil that will be stranded otherwise.
I'm willing to bet that a bunch of motivated engineers could invent (if necessary) a system that would allow this to be done with only a few men and still apply miles of insulation every day.It would be expensive as all get out of course, but a few hundred thousands of barrels a day at a hundred bucks per barrel ain't exactly chicken feed.
Furthermore it might well be possible to salvage all the materials involved after five years or so if this scheme could be implemented and it kept the line open that much longer.
It also occurs to me that it should be possible to simply add a thick layer of insulation covered with a metal skin for resistance to the elements to the existing line, considering the cash value of the amount of oil that will be stranded otherwise.
from a page of general specs you might find interesting.
The foam insulation is 3.75 in thick in above ground sections and 3.2 inches thick when buried. The shiny skin you see at mile 522 (in the picture in the main post) is a metal sheathing aroung the insulation. More insulation would probably be better. I'm betting lots of low flow design alternatives are being kicked around these days, including adding heat as you suggest. If you skip to the near the end of the comments I've a blockquote and a link to an Alyeska low flow study you might find interesting.
Of course anything retrofit would have to be able to stand up to a 7.9 quake as well as the current system has (736 KB pdf).
This winter is the busiest exploration season the North Slope has seen in a very long time--we'll see if it bears fruit. But of course the pipe is still getting older every day and worn with every passing barrel.
Thanks for that drawing & link, it explains a few things I was wondering about.
NAOM
How come the minimum operating level of the TAP has not been used as a powerful excuse to drill ANWR? Or has it been used but it wasn't deemed persuasive enough?
I could be wrong (here to learn!) but my understanding is much development is blocked at the federal level by permitting, safety approvals, design/documentation review, and so on.
I am not saying safety and environmental concerns are not serious nor important (they are very important), I am just saying that its been stalled at the "approval" stage (i.e. federal) for a long time. My read is the stalling is more political than scientific.
A good example recently in the news is Shell off shore arctic exploration. They bought the leases (billions) but were not given air quality permits to being actual exploration. This is coupled with the short summer window to get in and get the work done.
This kind of stop and go seems very much the norm.
Regards,
Cooter
Great article! I really enjoyed how the author tied those two resource stories together. That graph of the combined oil production speaks volumes. It should be the background image when those Peak Oil Deniers speak in public. Then again, most Americans have no idea how to read a graph. I guess the smart thing to do is find and take advantage of the opportunities that decline brings, while others flail around panning for those flakes.
Thanks for a great report! I find it interesting that I had the opposite reaction, this makes me hopeful.
The sooner the myth of oil abundance is squashed, the sooner we can direct our labor towards policies which might mitigate the looming energy shortages.
Now the true believers would not be convinced by this post, they would move on to Tar sands/ heavy oil and keragen (oil shale) and use the resource numbers to paint a bright picture.
I cannot understand why the distinction between resources and reserves is so poorly understood by the main stream media, most of the general public seems to think the "R" words are synonyms.
DC
Jonathan - Nothing to add about the Bakken...not my area. But I will update a bit of the CA gold rush history you offered. In 1980 I went to work for a company (Natomas North America) founded by Mr. Sutter (owner of Sutter's Mill). One of the oldest US corporations. After many decades of gold mining the company reclaimed one of its mined out areas and built a planned community thus becoming a real estate power in CA. Along the way they also picked up the American President's steamship company. Many folks see their containers as they wait for the train to pass. Easy to spot: the containers carry at big red logo that looks a lot like the German Luftwaffe symbol. Watch for them net time.
Now the oil patch connection and the ultimate "bubble" tale. A group had been drilling one dry hole after another offshore Indonesia. One partner gave up and sold their interest to Mr. Sutter's new oil company...Iapco. New in that they had no one in the company with any oil patch experience. I was told it was just one of those country club handshake deals. So with no understanding of the exploration biz at all they participated in the next wildcat. And that well discovered a 1+ billion bbl oil field. Who says you have to be smart to make it in the oil patch?
Now that the company was a "proven oil finder" they decided to open up ops in the US. And that's who I handled operations for...Natomas North America...named after a N. CA Indian tribe. I'll make a long and painful story short: at the height of the post-embargo boom they spent $550 million and developed $40 million worth of reserves. They followed the concept of "if we build it (spend it) they (the oil/NG) will come". They were very wrong. I could go on for 10,000 words about the incompetence/corruption from the top down. So bad 2 FBI agents showed up unannounced a few months after I quit. But I won't. Eventually they liquidated the company to pay off the debt. Somewhat ironic that a commodity boom created and destroyed the same company.
Obviously neither the Bakken or any other shale play will bust on such a breath taking scale. But it does indicate the danger of basing future expectations on current stats...for a very short time NNA was the most successful oil company on the planet. In fact, unless there is a crash in oil prices I don't expect any of the oil-rich shale plays to bust. But they will peak for two good reason: relatively short significant production lives and they will eventually run out of locations to drill. Almost 3 decades ago one of the hottest plays in thw country (much hotter than the Eagle Ford or Bakken today) was the Austin Chalk... essentially a fractured shale made of carbonate (limestone) material. One big factor in the boom: frac'ng. As I've pointed out before fracs are not a new game changer. I did my first 500,000 lb frac over 32 years ago. And neither is frac'ng horizontal wells "new" technology...that was being done in the AC towards the end. But the end did come in Texas: nearly all the viable AC locations had been drilled within 10+ years.
Since the AC boom many companies have tried to develop other shale plays in Texas including the Eagle Ford. I drilled and frac'd my an EFS well over 25 years ago...poor results. The problem with all the other shale plays in Texas was pricing: it wasn't high enough to justify much development. Two major factors have changed. First, obviously oil prices. Second, not obvious to many outside the PO world, is the inability of public oil companies to drill enough conventional wells to survive. IMHO without the fractured shale plays most public oils would be looking at significantly lower share prices. And that'sonly for the ones still in business. The Bakken appears to somewhat straddle the fence between conventional and non-conventional plays. But eventually it will come to an end. Temporarily if oil prices fall or permanently when there are no locations left to drill. No prediction when such events might happen.
My old man has some oil royalties he got from his father. Being a geek with an interest in this stuff, we talk about things to some degree (he used to work for the Railroad Commission in Texas as an auditor). So, very different views on the subject, but not always in disagreement.
One of the "gut feelings" I have with shale/fracking plays is that (1) the capital costs are very high to drill/frack and (2) the production curve is pulled forward in time so it spikes sooner and declines faster. This lead me to the opinion that fracking is dangerous in terms of debt accumulation/speculation; a company can put out great numbers, but only with significant capital inputs, creating a ponzi kindle pile waiting to burn to the ground.
Is this completely off base? I know its not this simple, but looking to validate the observation for at least some of the volume of activity going on ... because I expect a big fat debt bust at some point.
The conversation turned, last we talked about it, to the big boys picking up the lease pieces after the fact, but I digress. :-)
Regards,
Cooter
I think that is what Arthur Berman has been saying about shale gas for a while. Check out his writings.
Great article! I especially liked how you presented the correlation to gold mining. Those in the trade likely have a mental picture of a 'field'. To many it is some spring fed underground lake we suck oil out of, and declining production does not mean 'out of oil'. The gold mining correlation puts an undeniable economic 'limit' to what can be expected. Very well done!
The Alaskan pipeline flow/mechanical problems, there must be an economic point where you just turn it off? Like the gold dredges stuck high up those streams in Alaska, they are not worth dismantlement and removal. They dredge uphill and then are economically stuck. Will the pipeline be the same?
I would think that a news blip about permanently turning off the Alaskan pipeline would send a collective tremor throughout our society. On the other hand maybe by then we will have other much more urgent problems.
I am not an industry professional, but my understanding is that as the flow rate goes down, the operational cost goes up. This is due primarily to corrosion related to reduced flows. I think the current "cut off" is a point on a cost/benefit curve where costs become rapidly more significant.
Regards,
Cooter
The problem with the Alaska pipeline is temperature. The oil is hot as it goes into the pipeline, but the temperature falls as is moves down the pipeline. The less oil moving down the pipeline, the more the temperature falls. If the temperature falls below the freezing point, the water in the oil will freeze and block the pipeline. Then they will have to wait for summer for it to thaw out.
It's actually more complicated than that because the wax in the oil will congeal before the water freezes. They can run a "pig" down the line on a regular basis to clean the wax off the walls, but as the volume decreases and the oil temperature falls, they have to pig the line more often. As volumes drop the wax problem gets worse and worse, they can't keep up, and the wax blocks the pipeline.
If they had built a smaller pipeline, they wouldn't have as many problems, but they assumed that Northern Alaska would produce 2 million bpd for decades, and that didn't happen. It produced over 1.9 million bpd for two years, and then production went into decline. There's not enough oil up there for the size of pipeline they built.
Would a "pipe within a pipe" technique extend the useful life enough to be worthwhile?
Probably not. I'm sure they've gone through all the alternatives. The problem is that new construction would be uneconomic at probable current and future production rates. The fields are at the end of their productive lives, after all.
In the lower 48 states they can keep old fields running almost indefinitely because it costs almost nothing to operate them and take the oil to market after the up-front costs of drilling the wells is paid. The same is not true of Northern Alaska or deepwater offshore.
RMG
Do you know if it is feasible to convert the 48" oil line to transport gas, in the meantime a smaller, more suitable sized oil line could be built in parallel. This could solve he stranded gas and oil problems in one hit with a lower CAPEX.
Obviously a gas pipeline extension to the US or a LNG plant would also have to be built.
The big push now is to build a natural gas pipeline, dubbed the "Alaska Pipeline Project", which would parallel the TAPS down to Delta Junction where it would branch off towards Canada. The alternative would be to follow the TAPS all the way to Valdez, thereby requiring an LNG facility, port calls, etc.
Here's a link to the map (http://thealaskapipelineproject.com/project_map)
My understanding is that Alyeska's preference is to bring more oil online to keep the flow high. If that doesn't work, plan B, would be to heat the oil at one or more spots along the route to Valdez.
Also, if they do shut it down, they are required by law to dismantle the entire thing. OHHH>>> think of the cost (energy, financial, etc.)!
Dandyone,
Thanks for the feedback, I hadn't seen any Plan B options being discussed, except for turning the gas to methanol and sending it down the oil line. A few heat exchangers down the line seem a simple quick short term solution than may need to be for the long term.
When / if the gas is finally sent south and not reinjected into the formation then the well head pressure will drop at an increasing rate and will lead to lower oil production than the current decline rate indicates and thus compounding the problem without other discoveries being brought online.
An excellent post.
I was just wondering if they couldn't ship the oil from the north coast? If the arctic seas are becoming less iced up this surely might be feasible, particularly if there isn't the huge volume of oil. Obviously I'm missing something here though?
I think you missed the most relevant boom 'n bust story of all: Spindletop.
When I first moved to Texas in 1999 a neighbor told me that life in many Texas communities could be summed up as:
"Before the oil boom, during the oil boom, and after the oil boom."
One of the ironies of the current Lower 48 renaissance is that global conventional crude oil production is at about the same stage of depletion at which the Lower 48 and the North Sea respectively peaked in 1970 and in 1999 (HL models). So, the current plateau in global crude oil production and more importantly an ongoing decline in Global Net Exports of oil (GNE) and in Available Net Exports (ANE, i.e., GNE less Chindia's net imports) have contributed to global crude oil prices rising at an average annual rate of 15%/year from 2002 to 2010, which has supported the US Lower 48 drilling boom.
Incidentally, I estimated that the average net rate of increase in total US crude oil production, after depletion, from 2009 to 2011 was 170 bpd per drilling rig (drilling for oil) per year.
Global crude oil (C+C) production in 2005, in black, lined up with North Sea production 1996 (different vertical scales):
And a related essay:
http://www.energybulletin.net/stories/2011-12-02/de-constructing-wsjs-front-page-story-“us-nears-milestone-net-fuel-exporter”
De-constructing the WSJ's front page story, “U.S. nears milestone: net fuel exporter”
About this graph - I may be mistaken, but it seems odd to compare both of these peaks on a 26 year basis. Seems like a more accurate representation would be had with estimates of total recoverables in North Sea, and Global, and showing time frames proportional in ratio to that quantity: say 26 years for North Sea, and 100 for Global - that's just a WAG, but you see my point. Otherwise it seems to easy to point out that these curves' resemblance could be incidental, not relational.
Based on the HL plots, conventional global crude oil production in 2005 was at about the same stage of depletion at which the North Sea peaked in 1999, but as noted above, the North Sea peak was really more of a seven year plateau. I was basically asking a "What if," question, to-wit, what if global conventional crude oil production is on a similar multi-year plateau?
Here is a "Yergin Gap" chart showing where we would have been in 2010, at the 2002 to 2005 rate of increase in global C+C production:
wt
I don't dispute the fact of it or this here yergin gap. I just wonder what the other graph looks like corrected for time proportional to total estimated recoverables. just curious, because the 'features' of the longer term peak can look like anything - they can look like North Sea, or Jesus Christ - it's arbitrary, unless the measure is consistent - at least that's my understanding, correct me if I'm wrong.
Interesting how the author compared early gold mining to shale oil. Today we are way past mining gold flakes, rather its down to gold dust. The same can be said about silver in the U.S. if we factor in the by-product factor of gold, copper, lead and zinc.
U.S. SILVER MINING STATISTICS
In 1935 36.1 million total tons of ore were mined in the U.S. (including copper, zinc, lead, gold and silver). Silver production was 48.9 million oz at an average ore grade of 1.35 oz/t.
In 1979 252.2 a total million tons of ore were mined in the United States. Silver production was 52.7 million oz at an average ore grade of 0.77 oz/t.
In 1993 (last complete records) a total of 483.7 million tons of ore were mined and silver production was 52.7 million oz at an average ore grade of 0.11 oz/t.
Just like shale oil, mining silver takes a great deal more energy to mine than it did when higher quality ore grades were available.
Furthermore, the aspect of GNE and ANE will be impacting gold and silver export in a similar fashion. With the ongoing collapse of the Fiat Monetary System, gold and silver will behave more like a monetary metal and exports will decline due to domestic increased consumption used in backing a monetary system.
Unlike oil, silver has both a monetary and an industrial dual demand. I would not be surprised to see the big exporting silver countries like Mexico, Peru and China keep a larger percentage of their gold & silver production in the next several years when the 4 decades of Fiat Money Amnesia finally wears off.
Would love to talk offline at some point. My email address was in the header.
-Derik Andreoli
In the long run, i.e. 10 years, I think you will be correct. In the near term, however, supply/demand issues along with the need to generate income may keep at least Mexico and Peru exporting. (China is acting with very long term interests in mind.)
Interestingly, as recently as 2003, 1/3 of US silver consumption was used in photography. From the US Minerals databrowser:
I think it is safe to assume that the amount used in photography is much closer to zero today. I wonder what US total consumption of silver was for 2010? I also wonder what the current global breakdown by usage is?
Curious,
Jon
Jonathan... I don't want to spend too much time on the subject of silver in this thread as it is a bit off topic. That being said, according to the 2009 USGS Silver Yearbook we had the following:
TOTAL SILVER USAGE = 5,110 tonnes
Industrial = 3,000 tonnes or 59%
Coins & Medal = 1,050 tonnes or 20.5%
Photography = 680 tonnes or 13.3%
Jewelry & Silverware = 360 tonnes or 7%
---------------------------------------------
Photography has fallen significantly as the consumption has moved into electronics such as digital cameras. What to take notice is the huge increase in Coin & Medals. In 2003 total US Mint Silver Eagle sales were 9.1 million. In 2009 there were 28.7 million and this year it looks like we will see nearly 40 million Silver Eagles sold.
According to my calculation U.S. silver production is going to decline 3-4 million oz in 2011 to about 35 million oz. Thus we are producing less silver domestically than our own demand for US Mint silver eagles.
Lastly, your 10 year timeline for the this sort of change over may be a bit optomistic. I see this occuring much sooner... maybe 1-3 years.
Going to keep my thoughts on this simple, and I have read a great deal on this subject, but silver is an inter-generational gift. By this I mean if you are older and want to buy something cheap today and have it be dear when your grand kids get it, buy silver and will it to them. Otherwise, don't bother with the get rich quick scheme.
With that said, I am full aware of current industrial demand, mining output, investor demand, COMEX issues, re-hypothecation, leveraged paper, and above ground supply. I own silver. I think it has value. But I wouldn't go nuts on silver unless you plan to barter with with during a collapse or you intend to give it to descendants.
For the record (and to illustrate my point), I put together a money game, built around Richard Maybury's book "What Ever Happened to Penny Candy" where the game included an envelope for each chapter where each envelope had a silver dime, quarter, half dollar, or peace dollar in addition to a fiat note from around the world. Only one money could be kept. I also promised silver eagles for the reporting on specific books which I prescribed. The envelopes had choice quotes and history bits, from the likes of Will Rogers, the founding fathers, and so on; good stuff you can experience young, remember, and appreciate as you experience life over the years.
If you are old, think of silver like this, and don't be afraid to keep a little extra to will away. I had a lot of fun putting my game together for my oldest nephew. I plan to do the same for all of my nieces and nephews.
Regards,
Cooter
RE silver use in photography
As I understand, about 60% of silver used in photography was able to be reclaimed by extracting the silver from the photographic chemicals. This had the effect of reducing the actual consumption of silver in photography as illustrated by the pie chart above.
It should also be noted that a lot of photography is industrial and has not been replaced by digital yet, think X-Rays, and these tend to be large area plates.
NAOM
X-rays are going digital pretty quickly. If your dentist hasn't gone digital...they're behind the times.
It is not just dental X-Rays but it is true that there is a move to digital. We have a lot of pretty new and high quality medical facilities around here, we are big in medical tourism, and people are still seen carrying around the big snaps. It is not just the USA but the rest of the world too. There are still many areas where plates have an advantage, think curved for example, but overall the move has not been so sharp. The other point with industrial is that the plates are often a lot larger.
NAOM
I suspect the big snaps are old images for comparison from elsewhere - new medical facility radiology facilities are completely digital.
Yes, I've seen a few large-format applications where film is hanging on, but I think that's a very small niche.
Thanks for the detailed historical comparisons and commentary.
It seems to me what the Yergins of the world constantly forget or conveniently neglect to mention is that high oil prices, the kinds of prices that justify going after resource plays like the Bakken, oil itself is uncompetitive with alternatives (read: rail and transit-oriented development), and high prices will ultimately crush demand, at least assuming the market has the capacity to make decisions that allow the natural course of events to follow. But you better believe as oil stays at levels of $100 and above, more and more people in more and more places are going to start taking a MUCH harder look at transit. Sure there will be plenty of obfuscation and demagoguery around the issue, as there always is, but ultimately nothing is going to be able to obscure the facts, which will plainly show continuing down the path of depletion to be the expensive and unsustainable option that it is. Money talks, BS walks, and there's no shortage of BS coming out of these shale plays, in fact I would say the term aptly describes the entire endeavor, since all we're really talking about is sinking money into a hole in the ground, never to be seen again.
The reason they don't talk about this part, and instead say higher oil prices automatically lead to continuing growth in supply, is of course that the people who pay for their consultation "services" will be put out of business by these perfectly natural developments.
My understanding, and I would love reading to the contrary, is that demand will crush in developed nations who have the discretionary diet. In developing countries, the per capita consumption is so low and the utility value so high, they will pay the price and want more.
Given the growth rates in developing countries and flattening world production, that is a scary realization. I think the high prices are here to stay and will only be going higher as a long term daily moving average regardless of market crashes (i.e. decoupling).
Living close to work is about to be a hard asset.
Regards,
Cooter
I don't much like comparing things that are different. Clearly mining gold and fracking shale for oil/gas are different even though both occur in a bell shaped curve.
The big difference of course is that gold once mined is not consumed.
Most of the gold ever mined still exists today. Whereas oil/gas are used up shortly after production.
Gold at the time of the gold rush was money. So as more gold was produced the money supply increased.
To my mind comparing gold mining to oil production leads to overly optimistic scenarios. So the Bakken causes a little pimple on the back side of Hubbert's curve which some interpret as the beginning of a mountain.
But the mountain is illusory as the article points out. In the case of gold a pimple on the back of the bell curve adds to the total supply of gold ever mined and to what is available for use. With oil the pimple adds nothing but a delay in the decline.
The Bakken buys time which is no small thing at this point, but it does not really add much to the total supply as is the case with gold mining.
Both gold mining and the Bakken are ruled by depletion, but the gold mined a hundred years ago is still with us today. Not so with oil. It is gone in a short time.
true, and gold was never the hard platform of our supply chain including the creation and transport of food, except in the abstract sense of currency. Likewise, when the gold rush dried up, dreams of wealth were simply packed in. It won't be so easy to pack in the expectation of cheap food and water. We'll tear this place apart looking for energy in ways that make the Yukon trailings look like chicken scratch - and we already are.
x, i do so enjoy your perspective, and adopt it as my own from time to time.
i hope you don't mind,
ryan
Oh yes, The Bigga Bakken Boom is also like the music to the ears that somehow eventually manages to gather dust.
Excellent, much appreciated post!
These "gold rushes" are resource-wreckers. If you take a good look at any mining district - you'll get the idea. It's a hodgepodge of staked claims, some patented some not, various ownerships from serious miners to land grubbers, competitors, villians, etc. A real mess. you can have more than one operator/miner on one vein for instance.
In terms of petroleum extraction, there are many operators within the same rock unit/formation all using "propriatory enhanced recovery methods" of extraction. Who the hell knows whos method is working well, whose is working poorly and whos f****ng up the formation? let alone the land issues, which in my mining district are a cluster f***.
Sorry everybody, but the author's thesis gets thrown way off because he is using hopelessly out of date information about the estimated recoverable oil in the Bakken. The number used by the oil companies involved is 24 billion BOE and growing, which already puts it on the same scale as Prudoe Bay. A bias towards peak oil seldom results in accurate articles or credible websites. Try going to contres.com and doing your own research on the Bakken from the people, who know what they are looking for, and where and how to find it. If you don't know who Harold Hamm is you very likely have no idea what's going on in the U.S. onshore oil industry these days. I dare you all to start to educate yourselves by clicking on that link, rather than mindlessly repeating your peak oil mantras.
The chemistry of the fluids and the physical properties of the rock units are completely different.
Thats OK, it looks like he needs some help.
Prudhoe bay:
http://www.d.umn.edu/~hoef0049/prudhoe.html
Bakken:
http://en.wikipedia.org/wiki/Bakken_formation
Bakken:
http://www.ags.gov.ab.ca/publications/wcsb_atlas/a_ch31/ch_31.html#exshaw
Re: Carl Martin: Member for 40 min 40 sec
I am reminded of Chesapeake's estimate that their DFW Airport lease would have cumulative Barnett Shale gas production of about one TCFe, with late 2011 production of about 250 MMCFGPD. The last numbers I looked at suggested late 2011 production would be down to around 25 MMCGPD, one tenth of what Chesapeake predicted (with cumulative production projecting to be about one-tenth of Chesapeake's estimate), and the kicker is that the last numbers I looked at suggested an accelerating decline rate. And of course the permeability relative to gas is higher than for oil.
But one can show aggregate increasing production,from a group of wells and leases showing rapid decline rates, for a while.
The author's primary thesis is that the Bakken is not going to earn the U.S. oil independence.
The U.S. consumes roughly 20 Mbd, or 7.3 billion barrels per year.
Even if the Bakken is 24 billion barrels in size, if we divide 24 billion barrels by 7.3 billion barrels we get 3.3 years of 'oil independence'.
Now, that isn't very long, and I'd really like to see Mr. Hamm or anyone else, for that matter, explain how the Bakken is going to produce 20 mbd. Even if average well productivity quadruples, that's still 100,000 wells, and at the current average, 400,000 wells would be required.
So, the author's primary thesis stands. As do his secondary and tertiary arguments that the Bakken will be hyped by those that stand to benefit from the search for oil, and that the environmental impact will be lasting.
-The Author
True. Try breathing through a straw.
Say, I like that, don't recall having heard it.
The other day folks were asking for useful peak oil metaphors; that's a great one.
Yes! Thank you!
thats what an asthma attack feels like!
As noted up the thread, I estimated that the average net volumetric rate of increase in total annual US crude oil production, after depletion, from 2009 to 2011 was 170 bpd per drilling rig per year (excluding rigs drilling for natural gas).
What I see is a land rush.
You people are blanket-claiming HUGE areas of LAND in HOPES of extracting as much Oil Equivalent as you can. This says NOTHING for the RATE. You have no good plan, you just blanket claim the formation and make it up as you go. OK?
Of course, it's commercial. Money in money out. That's why they know what's going on. Experience. You sure didn't spend much time there.
Well, there's your problem right there: you do not understand the difference between money and energy.
PDV, Did you educate yourself at contres.com yet??? If you don't think oil is black gold, than you have just revealed that you sure don't know much about the oil business. Why don't you just educate yourself, first? Then comment. You are still caught in my time trap.
Black gold, huh? Hmmmm. But you are right about the time trap thing.
There will be lots of oil produced in the Bakken for sure.
Please explain how production rates in the Bakken are going to achieve North American energy independence in the face of declines elsewhere?
How much water will it take? Where will the water come from? Where will it get treated? How will you get 20 mbd of oil to the U.S. refineries? And if it doesn't go to the U.S. refineries, how can it be earning us 'independence'? And how long will production last at 'independence' levels?
Gimme a break!
-The Author
May I assist?
lots of oil produced/time = rate at which the gasoil is produced
The RATE is EVERYTHING.
To rephrase that last statement: the rate at which we can make energy available to do work matters alot.
Dandyone, All your questions are for the oil companies to answer over time. All you have to do is to educate yourself about these matters by going to all the websites of the oil companies doing all the work. Then you will see how things are taking form, otherwise you won't, as you have quite well proven in your article. The Bakken is not the only shale oil play in the U.S. or the whole world for that matter, and CLR is obviously not the only company involved. But, it is now very obvious to all that have gotten this far in the thread, that you do not access oil companies for information on the oil industry. That's what throws you off track, and into the peak oil camp. Meanwhile, you are still caught in my well devised time trap. So, we all know that you are so far refusing to further educate yourself on the oil industry. You would rather inform others of what is not true, rather than inform others of what is true. This clearly indicates the workings of a biased mind.
Please indicate what *exactly* I have written which is *not* true.
I have argued, in fact, that production from the Bakken will increase, most likely it will increase significantly. But that's not the point. You can argue until you are blue in the face that production is going to go up. I don't, won't, and haven't argued that it is not going to increase.
As for referencing the websites of oil producers, I can guarantee you that I won't find anything about North Slope decline rates on a shale oil producer's website. Nor will I find long range plans regarding where they are going to source water, etc.
So, again, please tell me what I've written which is *not* true.
As for my questions, what kind of blind faith are you high on? If the industry can figure all problems out, why has North Slope production been declining for 23 years? And don't say because of regulation, because regulation is a problem just like water, workers, pipes, and energy.
- Derik Andreoli
In the mining industry we call this "promotion" and the people who engage in it "promoters". Just lettin ya know...
I certainly don't see the US getting energy independence from the Bakken or similar shale oil plays, as the author of this excellent article highlight those shale plays are nothing more then gold dust; however in regards to water usage for fracturing, there are alternative waterless fracking technologies such as LPG fracking (using gelled propane or gelled butane) which eliminates a lot of the pollution and water problems associated with hyrdofracking; Gasfrac out of Canada has done over a 1000 fracks using this technology and with better production results then water based fracking.
Regards,
Nawar
The people pushing mortgage backed securities, prior to 2008, had a pretty good story too.
In any case, one can show aggregate increasing production,from a group of wells and leases showing rapid decline rates, for a while.
Carl - OK...you've done your good dead for the day and educated all the TOD fools. I, for one, don't think you're stupid. I think you understand the situation perfectly and don't really believe the implications you're throwing out. And thus think you will impress folks here. But what you don't appreciate is that you've walked into a group of folks who have been well educated in the type of BS you're spewing. Most here know that it has no bearing on PO whether there is 24 bbl, 24 billion bbls or 240 billion bbls of URR from the Bakken or any other play. PO is all about production rates. And reserve volumes in the ground are not relevent.
You can go on all you want about URR and very few here will care. When you want to talk drilling rates, decline rates, capex/logistic demands, etc. then we can have an honest/intellectual discussion. Until that time you will remain an unuseful mammal in my eyes and warrent no further replies.
ROCK and others above,
I don't think it is appropriate to use terms like "industry shill" or "unuseful mammal" in a forum that discourages ad hominem attacks. I'm going to give Carl the benefit of the doubt for a moment. He pointed us to the contres.com site claiming that it had useful information. Unfortunately, he didn't take the time to point out the technical paper they provide on that site.
In that paper we have:
There is also a table:
Carl's point was not that the Bakken would make the US energy independent. His point was that the 4 billion BOE esimate is too low by a actor of six or more.
Now that I've dug up the information he was apparently referring to can all of you oilfield smarty-pants quit throwing darts at Mr. 42 min 29 sec and put your energies to more useful work -- explaining to the rest of us why the Continental reassessment is so wrong.
Yes, I know to be skeptical of estimates by those who stand to benefit financially. But that by itself doesn't make them wrong.
Please, educate me.
Who care how much there is? It is the rate at which you produce that matters, you can't simply count or more correctly ESTIMATE the number of molecules in the ground. For example, how much oxygen is there? Alot, right? Well, try breathing through a straw. The way this society is arranged, people are mortally dependent on a certain rate of production.
Pretty soon, the people will hold those who claim to be expert accountable for their public remarks. It matters. The accounting is shoddy at best see above comments regarding mining claims and I worry that at the worst, outright deceptive. One can not just count molecules.
The people are DEPENDENT - absolutely dependent on a certain rate of production. Should the production rates fall precipitously, there will be hell to pay. Surely, one as an expert, would NOT want to encourage increased consumption in light of decreasing production rates?
Jonathon:
This is a pretty dodgy 2-pager, not written by anyone inside the business.
It's what's called a teaser sheet.
I'm off to a meeting for the afternoon, but for you, for starters:
1. In the heading, the Continental Resources "technical paper" refers to the "Bakken field", but it's a play,
2. Assumptions #2 .... 500,000 Boe per reservoir (this could mean per well?),
3. This report is unsigned,
4. This report is not apparently written by an Independent Engineering Evaluation Company,
I very strongly recommend you look at USGS FS2008-3021 on their website, on the Bakken.
Then look at Figure 1 and Table 1.
And think ... where are the sweet spots ...
I have a shale gas play in Sudan that has Sudapet pulling their hair out, if you want to take a chance.
What do you mean you "have"? Did you discover or map a "shale gas play"? Really, I am wondering.
Johnathan, Thank you for your support. The wise people in Ancient Greece observed that Ad Hominem attacks were always made by the parties that felt they were losing the argument. In fact, they took these attacks, in themselves, to be an admission of defeat. I see no reason to disagree with them.
I'm amazed by the assumption of some of your fellow travelers at this site that the amount of time I've been a member here is of any relevance at all. I've actually been coming here for years, mostly when I needed a good laugh or two, but just never bothered to become a member until about an hour ago. One thing that has always struck me about this site is "The Bakken Blindspot," where not one single author has come up with anything even close to reality about this formation and it's effect on the whole oil industry. And, this article is a classic example.
Thanks for putting that info out there, but if you dig a little deeper you'll know that it too is getting out of date, and the numbers will soon be revised upward. That info is from about March 2010, or so, and apparently no one at the oildrum was even aware of it until now. Yet, millions upon millions of oil investors have been aware of this all that time. Why do you people think that theoildrum is on the cutting edge of the oil industry?
The fact is all you people are really out of touch with reality, because you are all way behind the curve. More and more oil is becoming available in all the world's shale oil formations, because of almost daily improvements in technology, plus new discoveries. That's why CLR is going to up their estimates again, a combination of new technology and new discoveries. If you keep an eye on their website, you will know when they update their info.
Carl,
I think that the wise people of Athens would have recognized a Trojan posing as an Athenian, pretending to present viable information, for example generalized reassurances as to the relative safety of the city from attack, and they would have called him out for what he was.
Personally I don't mind the 'hijacking' of a thread sometimes because I think that a troll has value in a debate - it challenges the fundamental reality of an argument to have to face down the most obstinate and hard headed of opposition, and this is good practice in developing a solid point of view. After all, stuff talked about here at TOD is against the status quo of business as usual, and what good is it to stand in a circle agreeing with each other if we can't spread the word to the less engaged. It's what this site is about after all.
It's absolutely essential that skeptics and disbelievers, (like you, maybe) get a reasonable response at TOD, and in general in the outer world as well. The trouble is understanding your motives. If you show up here, and jump into the comments by declaring that 'you people are really out of touch with reality', then you'll end up being flamed as a troll and ignored. Had you started with your best data, and asked some questions, people would have been more than willing to reply in good faith.
Had Cassandra been a master of fact, and had she been eloquent, maybe the Trojans would have defended their city. Instead she stated the truth simple and obviously and was ignored by her fellow citizens. You Carl, seem exactly like one of these Trojans to me. You seem to have your head planted in the sand, firmly and resolutely. You don't respond to the facts that people present in good faith, in answer to your links and references. You don't want a good debate on the subject, you simply want to "have a good laugh or two". Well, laugh it up, you might as well - the city will burn with you in it.
You made one mistake: it's posters here at TOD that are the Cassandras, and there is no degree of eloquence or factual mastery that could pierce the din of information assailing the general public.
that was my point :)
I think a key point here, and a cause of much talking past each other, is the conflation of reserves and production. Continental's "numbers" and "estimates" are almost exclusively reserves, which have little to do with peak oil. Peak oil is about production RATE, and so far the growth in Bakken production has only just managed to offset declining domestic production elsewhere.
Time will tell how big a bump the Bakken will make on the production chart, but I for one do not expect it to make the USA the world's leading oil producer again, as some articles predict.
This may suggest the purpose of the document. Investors are aware of it because it was circulated in investment circles. Are you sure it is not dog food hyping the Bakken for investors for the profit of Continental Resources? You seem to think a company trying to sell you something is a credible source of information.
On their legal page is a disclaimer:
Translation: the information on their webpage is all lies.
Jonathan - Sorry if my playful use of "unuseful mammal" offended you. I thought it was a gentle way of expressing my opinion that Carl didn't understand the basics of PO. In fact rather gentle given what I took as his rather insulting tone towards the TOD collective. But IMHO the point is still valid: Carl's apparent misunderstanding of the basics of PO made further discussion pointless.
As far as educating you I'll just offer you my view FWIW of those estimates of URR of the Bakken or that of any other play: I couldn't care less whether the estimates are accurate or not. I consider it an waste of time to debate any URR number with regards to PO or "energy independence". As others have repeated pointed out PO is about production rates. Energy independence is about production rates vs. demand. It doesn't matter if God proves there are 10 gazillion bbl of recoverable oil in the lower 48. If the US is importing more oil in the future than we are today it doesn't matter if we have 90% of the proven URR left in the world under our country. If we have 100 billion bbls of proven Bakken reserves that oil is worthless until it's produced. The economy doesn't run on proved in the ground reserves. It runs on what comes out of a well head or is imported from another country. As I said earlier: a discussion from knowledgeable folks with regards to reasonable expectations of Bakken production rates in the future would be valuable. IMHO how much oil the Bakken or any other play produces in the next 100+ years is meaningless. I'll agree with any number for URR anyone puts out since it has no bearing on the future of our economy or society in general.
As far as the term "induistry shill" goes I don't consider that an insult. I consider myself TOD's resident industry shill and view it as a badge of honor. LOL.
ROCKMAN,
I just wanted you to know that you're my favorite "industry shill". ;-) And if I'm ever in Houston I intend to invite myself over to see a drilling rig and have a drink with its crew.
I agree with you about the Big Picture -- Bakken oil will make only a small difference to our annual oil production. But I am quite interested in "a discussion from knowledgeable folks with regards to reasonable expectations of Bakken production rates in the future". That's why I want to hear from the optimists as well as the pessimists. Each probably has some aspects of the truth.
I would honestly like more detailed and credible information on the Bakken that would help give an estimate of potential daily production levels a few years down the road. I also want to understand better why this well argued TOD post of April, 2008 was so off the mark with this comment:
I go out of my way to practice the art of skepticism and that means that I also apply that skepticism to some of the commonly held beliefs at TOD.
Best Wishes for a Wet Hole! (Doesn't sound right but you know what I mean. ;-)
Jon
Jon,
No meanness intended, but it would be quite interesting to me to see someone "invite themselves over to the rig" and have a "drink with the crew" if they were not known very well to said "crew" and driller!!
I understand your exuberance, Just be careful out there.
All the Best, TS
Yes, drilling crews have been known to send uninvited visitors for a swim in the mud tank. It's not really the most inviting environment for casual visitors. Their biggest concern is that visitors will get themselves killed by the machinery or the poison gas, or set the rig on fire by lighting a cigarette, and then they will have a legal liability problem on their hands.
Thanks both for your concern. I don't intend to be foolish and was merely angling for an invite. ;-) But I do appreciate people who do "hard work" and have learned enough from TOD to be interested in the technology. I would enjoy seeing for myself what an operation looks like. But there's not much drilling going on in Western Washington.
Continental. hah! my Dad is keen to invest in continental... and all it has shown me is how insiduous the starry eyed spongebob squarepants abundance myth really is.
Carl:
Some of us remember Amalgamated Bonanza and the Austin Chalk play, which is still a dirty word in Calgary ... only as far back as 1978.
You write like you work in ye olde boiler shoppe.
Rockman, As an investor in the companies that I research, I only care about the amount of money (black gold) gotten out of the ground over a given amount of time, relative to the costs of getting it out. The amount of recoverable oil anywhere in the world is only of academic interest to me. I have merely pointed out that the author has very obviously done very little research on the Bakken formation, as he uses very out dated numbers, that do not come from the oil industry. Sorry, if it doesn't make your day by supporting your preconceived beliefs, but I happen to be right. You can always start researching the goings on in the U.S. oil industry on your own, then let me know if you agree or disagree with their findings. contres.com is an easy and excellant place to start. I'll be watching the clock.
Carl,
It would help tremendously if you would provide links to the specific information you are referring to.
Jon
You are a promoter drilling peoples pockets.
.... and that's where the "sweet spot" is HAHAHAHA~
PDV, you don't determine what I am. Only I can do that. But, you do determine what you are. Only you can do that. So, what have you determined yourself to be, so far? We all know by reading your comments. Your intentions are as clear as day to us all, by now.
You are not trading fox pelts, or silver or even gold. What you are pedling is absolutely essential to the lives of millions of people. If you run low on fox pelt production you may be able to substitute with racoon, whatever. Crude is unsubstitutable. Is that a word? Anyway, just letting you know....
Best get out while the getting is still good, then. Publicly traded oil companies working in the shale plays are in for a hard fall sooner or later, as is prone to happen (100% of the time, in fact) in bubbles.
Carl, I am following a US plc that is involved in the Bakken. They have been their for a long time. Nevertheless, after many years in the Bakken their Bakken Gross Revenue is equal to their Capex. (I am using an 80$ per barrel) assumption for the revenue in 2011. So for me there is good evidence that Rockman is quite accurate on his view of the plcs involved in the shale plays. They are there for reserve replacement and for the profit.
Carl - Since you're new to TOD - FYI: I'm a petroleum geologist with 36 years of experience. I'm sure I've drilled more wells then you have researched public companies. Which isn't to say you don't know more about playing the stock angle more than me. I'm sure you're right about your investments. But understand I've said nothing about the value of your investments nor the profitability of any of the companies involved. But I do know a little bit about promoting a stock. As old time members of TOD know: about 15 years ago I drilled 4 horizontal wells for a very small public oil. Spent $20 million and didn't add $1 worth of reserves to the books. But did increase company-wide production rate by 400%. Wall Street rewarded us by increasing stock price from $0.75 to $3.50. Not bad when you consider we actually decreased the net present value of the company by a significant amount. And all very legal: never misrepresented what we did...laid it all out in black and white in the annual report.
You've got to love those "market makers". For the TODsters who don't know what a market maker is: they are a small brokerage house that promotes little known stocks that would never be handled by the big houses. Thus no one would ever hear about such a company and thus no buy demand. So the marker maker takes a position in a small company (usually very cheap if not free) and then uses what hype is available to get folks to buy. As they love to say: "We don't sell the steak...we sell the sizzle". Thus by creating a demand where one did not exist prior the stock price goes up. And that's where the market maker rolls in the big $'s. It sure isn't collecting brokerage fees from their customers although that's what many unsuspecting folks don't realize: often the stock they are buying at the new high price is being sold by the market maker.
BTW TODsters: does this sound familiar to anything you're heard in these parts lately?
So you see Carl I do know a little about turning chicken sh*t into chicken salad. But as you and I know so well: you got to have some chicken sh*t to work with in the first place. Thankgoodness some of us know where the chickens poop.
+10**2 (or 10^2)
Thanks. Tells us all we need to know.
24 Gb is Harold Hamm's estimate. Ho hum...................wake me up when cummulative reaches.........yawn......1 Gb................yawn.
Banned-
That is my thinking, everything else is just talk. I want real production numbers, not future predictions. I leave that to Nostradamus.
Cumulative oil production from the ND bakken was 0.217 Gb, 2010 year end. 2010's production was 0.085 Gb....Long nap.........real long nap.
2010 was .113BG, and 2011 will be about .151 (assuming November and December equal to October):
10 Jan 236,199
Feb 261,179
Mar 277,332
Apr 284,389
May 298,060
Jun 314,477
Jul 321,127
Aug 330,019
Sep 343,200
Oct 343,901
Nov 357,036
Dec 344,504
11 Jan 343,196
Feb 349,218
Mar 360,097
April 351,228
May 363,548
June 384,811
July 424,992
August 446,397
September 463,888
October 488,068
https://www.dmr.nd.gov/oilgas/stats/historicaloilprodstats.pdf
You are quoting total ND oil production. Production for the bakken can be found here year by year:
https://www.dmr.nd.gov/oilgas/stats/statisticsvw.asp
2011 production for the bakken will be available about March 2012.
Interesting - thanks.
Fascinating to see the 1992 peak, and 2004 low point. Anyone looking at that and stopping in 2004 would see a classic peak, just as described in the gold analogy above. We see also, however, that the current level is far above the peak, which the gold analogy wouldn't predict.
As Piccolo says: forecasting is hard, especially about the future.
The lesson here: prices and market responses are still important, even for oil. If the price rises, supply will respond in a significant way.
Well, there are some charts at www.contres.com/operations/charts. The captions on the charts are a little too ambiguous for a person to be sure what they show. However, the "Production Growth" chart appears to show a projection of 21MMboe estimated for 2011, or about 60Mboe/day. Now, of course, that's considerably more than I need for my car, so in that sense it's a large amount. On the other hand, it's not exactly making a big dent in roughly 20MMb/d US consumption, and it would have to double, say, 5 or 6 times before it began to do so. By eyeball it might take 20 or more years to double enough times - assuming the graphed trend continues, plus enough water, enough places far enough apart to drill separately, and enough other things that the real oil experts here can surely list.
Now, if the key post author's charts are any guide at all, we might expect that production chart to peak out and perhaps start tailing off long before it ever really got to that making-a-dent stage a couple of decades from now. Of course, it's not precisely the same play, so the author's charts don't prove it will happen that way. But on the other hand, there is nothing, at least nothing easily found, at the site claiming anything to the contrary (perhaps owing to pesky SEC regs.)
I'm left to suppose that the sales folks might conceivably desire that I mentally extrapolate the rising charts indefinitely even though they themselves apparently don't do so. An amusing little game, isn't it?
Carl:
Harold Hamm is a proud member of the Koch billionaires club with a heavy hand in promoting today's extreme right-wing ideology of the tea party. From where they stand, public enemy number one is any type of environmental protection that impinges upon their ability to maximize short-term cash flow (I would say profit, except that shale plays are not profitable, and the cash is coming from their investors -- hence he must build up his reserve claims in order to effectively lead the folks who play these games to overvalue his stock). He attended their summit over the summer, the one where Charles Koch declared we are in a war for the soul of America. So you can take that for whatever it's worth. He was interviewed by hack "journalist" Stephen Moore of the WSJ (actually the founder of the Club for Growth, so this is really one tentacle of the Kochtopus interviewing another, masquerading as news). Before you go accusing others of ignorance or closed-mindedness, you might be interested to note that the 24B number is Hamm's assertion based on what he thinks is there, but he is upset about the fact that SEC rules prevent companies like Continental from claiming what he says is there as proven reserves. Shall we accept his assertion of 24B URR at face value, or do we think maybe there is some reason the SEC will not allow him to use the number he wants?
But in any case, suppose he's right, that he and those reporting his proclamations, who share the same ideology, have somehow managed to avoid letting it color their characterization of the Bakken. Then what? Then you have one unconventional or "semi-conventional" play of the same size as Prudhoe Bay in terms of URR, but with vastly higher extraction costs. If the most optimistic assessments are in fact accurate, this play could add as much as 1-2 mmbd (same as Prudhoe Bay) to U.S. domestic production, which would of course be more or less entirely offset by the declines in conventional oilfields, Alaska and the deepwater GOM. Does this get us to "energy independence"? If the costs of producing the oil are high, does this do anything to alleviate the squeeze on U.S. consumers? And what will happen when it runs out? Do we cross our fingers and hope for another bonanza to offset the inevitable eventual decline of this boom? Can we keep going on like this indefinitely, or at some point will continually rising costs of extraction and difficulty of finding new oil force us to do something different?
How about this: Instead of issuing dares, a better course of action might be to start by taking a step back and looking at the big picture and what even the most optimistic assessments of the Bakken might mean in terms of the overall U.S. and global energy picture. And I suggest you'll find that by and large, the posting population here at TOD is far from uneducated and, in fact, quite familiar with the points you raise, quite far from having "no idea what's going on in the U.S. onshore oil industry these days." You might have better luck posting comments on a WaPo or WSJ article, where demagoguery is the rule and substance the exceptoin. Over here, people generally don't take too kindly to those who play fast and loose with the facts, unless of course they show an openmindedness to discussion that is visibly absent from the post to which I am replying.
Wastedenergy, you sure do know how to waste your energy. Try going to yahoo finace and write CLR into the little box. Then look up EPS (earnings per share) $2.82, and the number of shares, 11.90 billion. Then multiply the one by the other and that's how much profit CLR earns in one year from oil and gas production, not from the stock price. Try actually educating yourself before writing all that trash. No one wants to waste their time reading it.
I agree, too wordy. I do have to say, though, if the public gets wind of what you guys are doing they're going to be pissed, as somebody is making alot of money and the all the people have to show for it are higher energy costs degraded land and depleting reserves. This is a good time to be driving a beat up subaroo or something, isn't it? Hat's off to Westtexas.
Have one other suggestion to make-
perhaps it should be a requirement that somebody be a member for 7-10 days before they are allowed to comment. Perhaps that will give them the opportunity of understanding the decorum of this site.
That's what Zerohedge does -- doesn't seem to be hindering membership!
crazyv-
Exactly. Carl is just spewing trash at this point, no reason to even respond. Save your time.
Carl wrote; that's how much profit CLR earns in one year from oil and gas production
Carl, what trajectory do you see these profits taking at the currently price? Ok, to answer that, you really need to identify the drilling rate this would be based on, and the product profile rollup in the aggregate. How are you calculating these? Are you assuming a continual rise in production, and if so, at what rate and for how long? When will the Bakken peak?
You seem to be basing your outlook on standard business E\P projections, though seemed to have entirely missed the carefully thought-out and supported thesis of this article. Or you already know this and are trying to dissuade investors with little oil field acumen from understanding the agenda of "the man behind the curtain"...
Please spare us with attempts on your part to 'educate' us with scam PR script sheets and hurrah cornucopian speeches. I wonder how long your investment is locked in - if not for very long, you better dash for the door while there is still a line of suckers waiting to get in. Otherwise, the exit will be jammed when the firesale of worthless junk stock is dumped on the market...
As an investor I went to yahoo finace (sic) and wrote CLR into the little box. As an investor what do I have to write next to see what dividend the highly successful CLR pays out?
CM - where'd you get 11.9 billion shares?
http://finance.yahoo.com/q/ks?s=CLR+Key+Statistics
says 179.46 Million outstanding, with 77.29% held by insiders (float is 56.07 million)
(wow - nearly 17% short).
cross check: last trade at 67.19 $/share, market cap of 12.06 Billion $.
12.06 Billion dollars / 67.19 $/share = 179 million shares.
so $2.82 ttm eps x 179 million shares = $505 Million earnings ttm.
Burning money like crazy though, 2010 1 B$ capital expenditures vs. 168 M$ net income.
I'd check their annual reports, but the investor info part of their site goes to page not found...
You're wrong about your numbers, and wrong to tell someone stating facts they're writing trash.
Nice, fact-based response. Thanks!
Kudos, exposing shyster activity means the world is a little better...
Unfortunately I do not have any professional experience in geology, but I do know how to analyse financial statements as I have done that for nearly 10 years now. What you write shows you have no clue about understanding a company's financial statements. Unfortunately I have no time to go into detail and have only very briefly looked at CLRs numbers but just the raw numbers you quote are wrong, let alone the logic. If all else fails remember: cash never lies (so look at the CF Statement (and learn to properly read it) and the balance sheet, specifically the cash and cash equivalents).
Disclosure: I have no clue how drilling equipment is depreciated in US GAAP but in light of the rest of the numbers that shouldnt make too big a difference.
Harold Hamm is a proud member of the Koch billionaires club
Do you happen to have links for this?
Certainly do:
http://motherjones.com/mojo/2011/09/koch-brothers-million-dollar-donor-club
Thanks!
Thanks for the tip Mr. Martin - I went to the Continental Resources website and downloaded the pdf entitled "Bakken 24 Billion BOE Technical Paper" (despite the name, it's only two pages long - maybe you should rename it a technical brief). The paper assumes:
So, if there are 24,000,000,0000 barrels of oil equivalent recoverable in the field, that's only [24,000,000,000 (BOE)/500,000 (BOE/well)] = 48,000 wells to go. Elsewhere the paper states:
The paper was based on an announcement made in October 2010 - that's about 40 months from June 2007 to October 2010, so the number of well installations per month has been about 1,680 wells / 40 months = about 42 wells per month. So, at this rate, only 48,000 wells / 42 (wells/month) = 1,143 months or 95 years to fully exploit the Bakken. If you double the rig count, only 47.5 years!
The paper also assumes:
100% risk factor means no risk in the technical paper, so those seem like mighty fine assumed odds. Where do I sign on? I've got my check book ready!
The gentleman said that he was trying to waste our time. However, it does provide a good platform for further discussion, who knows which direction it may take as this encompasses everything from sound geology to estimations, models, predictions, statistics, sociology and ethics.
Drilling close to 130 (200+ rigs * 2/3 actually drilling new wells) new 1280 acre spaced wells, every month now in ND.
This site may actually give some "real" numbers, if you know what you're looking for.
>https://www.dmr.nd.gov/oilgas/<
1280 acres = 2 square miles. 70,704 square miles = ND. Let's say half of that could be producing Bakken acreage (I'd guess it's closer to 1/3). So 35,352 square miles, for example's sake. With the above rig count drilling year round that's 3,120 square miles drilled a year. Cowboy math (which is what we're quite fond of in ND) puts that rate at 11.33 years to drill out the Bakken acreage.
This play isn't brand new, it's been developed for a few years now, so... if all things remain constant (which they don't), how long do you think it will be before they run out of places to spud? Not to mention, in ND we're probably at the peak drilling of the "best" (highest production) wells. In my non-professional, yet professionally involved opinion, I'd say at best, you have another 5 years max drilling in ND, for new Bakken wells.
Obviously there are numerous other factors, which the above main article touches on. I can tell you this though... there's no "big oil" company exec who believes that there's another 5 years to this play. What you hear is mostly fluff. This play will decline quickly. That's if the feds don't shut it down first.
The ND portion of the Bakken, within the 'thermally mature' and 'expulsion threshold' areas(see fig. 1 above), amounts to an area of roughly 24 townships (north to south) by 15 ranges(east to west) or 360 x 36 , maybe 13,000 square miles.
There is a small area along the southwest edge of the thermally mature area, labelled Elm Coulee-Billings Nose AU, where oil was evidentally expelled from the bakken. The bakken is not present in this area, but oil is being produced from the three-forks.
Well I educated myself on contres.com. Seriously, it's ridiculous for you to be trying to pass that off as legitimate information. It's a blatant corporate sales pitch, that's all, and a pretty nice looking one. And I can come up with any number of my own numbers and pretty charts too, explaining how I am going to ride my bicycle to the moon and how I need investors to help back me, but that doesn't mean my numbers have any credibility.
I can understand your motivations if you are trying to swindle investors into getting involved with your company but I can't understand why you are here peddling this. Do you honestly think you are going to convert the readers here? You're wasting everyone's time. If you are just here cause you want to push a few buttons, well I guess we all need to let off steam sometimes. As someone said before, it's good to have trolls around now and then to force people to re-analyze many of the facts they hold to be true, so I guess in that sense you have contributed to this forum.
Sobering. I saw yergin being interviewed by Zakaria on CNN Sunday. Essentially a 15 minute plug for the gas industry with not a serious question in the mix. Remarkable.
Great article, very informative and interesting pics, thanks for that.
And indeed going from fig 14 to 16 really impressive.
That steamships pic also really impressive, wasn't the work pretty much already "Taylorized" to build those ships ?
I was wondering if this scenario (forcing a rise in oil $) is coming into play now:
I'm not sure exactly what he means by forward drilling (but this sounds convincing to me)
http://seekingalpha.com/article/280195-oil-supply-constriction-is-fast-a...
As demand increases quicker than expected, the market is still facing the results of a prolonged decline in forward drilling. For each month the price of crude oil declined from August 2008 through the first three quarters of 2009, followed by a sluggish level into 2010, we lost about two and a half months of forward drilling volume. That translates into us being more than two years behind when the demand (and the pricing) began accelerating. That "production deficit bubble" moving through the system has now intensified the impact of that added demand.
Separate reservoirs ?
Mathistad Communication Testing
http://www.nd.gov/ndic/ogrp/info/g-018-039-df.pdf
Stacked...
Certainly stacked, but certainly not separate.
The Mathistad No. 1 has produced 167,671 barrels through October, 2011. No. 1 is producing about 75 bopd with an annual decline of ~ 50 %.
The Mathistad No. 2 has produced 113,390 barrels through October, 2011. No. 2 is producing about 60 bopd with an annual decline of ~ 42 %.
How in the world is the No. 2 going to produce an additional 400,000 barrels over the base case ? How are the two combined going to produce 400,000 barrels ?
An example of the voo-doo math-istad Harold Hamm uses to arrive at the 24 Gb ?
Thank you for that link....
Regarding Yergin & CERA, you have to decode what they are saying, but they have significantly downgraded their projections for the rate of increase in total liquids "Capacity." It appears that CERA/Yergin hit Peak Optimism in 2005:
http://www.energybulletin.net/stories/2011-10-24/daniel-yergin-massively...
CERA, et al tend to focus on the total liquids data while ignoring the Global Net Exports (GNE) data. Since Yergin is now calling for less than a one percent per year rate of increase in total liquids productive "capacity," which is similar to what we saw from 2005 to 2010 in the EIA total liquids data (+0.5%year), it seems to me that Yergin is, almost certainly without realizing it, in effect predicting a continued decline in GNE & ANE:
Actual Versus Projected Available Net Exports (GNE less Chindia’s net imports):
http://i1095.photobucket.com/albums/i475/westexas/Slide08.jpg
This article is simultaneously funny, predictable ... and pretty sad.
Back in April 2008 we were told by TOD that ....
... which would be 150K to 225K bpd.
Now that that estimate has become nothing less than a complete and total joke, 3+ years later TOD has to come up with some other way to explain the whole thing away.
BTW, I dare TOD to invite Hamm or maybe a senior reservoir engineer from Continental Resources to publish an in-depth write-up on how they got their 24 gigabarrel estimate here on TOD. That is, unless you only want to post one side of the story.
To be clear, I made no predictions or forecasts of future Bakken production, saying only that it is well on its way to 750 kbd.
The article does not contain a Bakken forecast, either. The article challenges the idea that the Bakken can bring about energy independence. So far, the strong growth of production, as amazing as it is, has merely canceled declines in Alaska.
If a North Slope game changer does not materialize, production will continue to drop to the point that the pipeline gets shut down. And at that point, the Bakken will need to bring another 300-350 kbd overnight just to maintain flat aggregate production.
I have never made any predictions regarding the Bakken production, and TOD certainly did not come to me asking for the article. TOD and I are independent.
But thanks for reading.
This is a straw man. Almost nobody (except maybe a few from the lunatic right fringe) are claiming the Bakken will bring about energy independence.
You have now lumped Daniel Yergin, Ed Crooks, and Edward Luce in to the lunatic right fringe, and by association, the Wall Street Journal and the Financial Times are lunatic right fringe papers.
The only flaw in logic that I see being made is you attacking this article for something that was written over three years ago by someone else.
The only thing that even comes close to a forecast was my statement that: "The good news is that Bakken output rose from 130,000 bpd in June 2003 to over half a million barrels per day today, and is well on its way to producing a 750,000 barrels per day of high quality shale oil."
-Derik Andreoli
Where did Daniel Yergin say the Bakken would create energy independence?
Apologies, I was not very clear there.
Ed Crooks wrote “the growth in U.S. and Canadian production from new sources, coupled with curbs on demand as a result of more efficient use of fuel, is creating a realistic possibility that North America will be able to declare oil independence.”
Daniel Yergin never said the U.S. would be energy independent. He simply has been stumping that there is nothing to worry about because high prices stimulate technological improvements. But he is firmly planted on the Bakken bandwagon. He, in fact, is very careful about picking his words so that the message is a soothing one, and that peak oil is nothing to worry about, while not committing to ridiculous propositions.
Ah, "North America," not just "the Bakken." Now we're talking.
It just so happens that even ExxonMobil more or less agrees with them:
Indeed, imports from Mexico are declining, but not for the reasons Exxon would like you to believe...
That's not what they said.
Perhaps you mean, that's not what they intended to spin...
If only you had read what I wrote as diligently as what others wrote.
When taken as a whole, the Bakken narrative that is being constructed and disseminated is misleading, especially to the vast majority of the public who doesn't know the difference between shale oil and oil shale. To the majority who are impressed by big numbers (and apparently 4 billion is no longer big enough, so make it 24...) and do not understand what reserves are and how to interpret R/P ratio. A majority that either does not understand the concept of limited resources and carrying capacity or believes that we are no where near reaching those limits. This discourse relies to a great degree on the carefully worded pronouncements made in respected publications which grant an appeal to authority.
This discourse is cheating future generations, and is doing so in a malicious way by attacking sustainable alternatives.
So, instead of bickering over the size of the Bakken, which is a straw man argument, why don't you just describe to me what you *want* the future to look like. Do you want an environment which provides free ecosystem services?
Alternatively, why do you *want* the Bakken miracle so desperately? Is it because you have a vested interest, a profit position?
As I've come to expect in discussions on peak oil websites, the main reason why the people shouting "Peak Oil! Peak Oil!" continue to do so is because they want oil production to peak - and the sooner, the better. The quote above is a classic example. This is blatant dishonesty: You do not actually care about how much oil the Bakken will eventually surrender, in spite of efforts, bending over backwards, claiming it will only produce such-and-such amount of oil. The truth is, you do not want much - or any - of that oil to be produced at all! Period. This is why you're writing long essays trying to convince yourself and others that it's akin to a gold rush which will go bust sooner than everyone thinks. You want it go bust - and the sooner, the better. It would be nice if people like you, instead of writing misleading articles trying to explain why there's only such-and-such amount of oil in the Bakken - when in fact you don't actually care - would instead be more honest and write long essays with titles such as:
"I Don't Give a Crap About How Much Oil There is in the World, Nor do I Give a Crap About Whether it can be Extracted at Rates Sufficient to Meet World Demand. I Just Want People to Stop Using the Stuff Altogether."
See how much easier that is? No fake arguments about how much recoverable oil there is in such-and-such formation. No fancy (and likely wrong) formulas showing that depletion is occurring faster than expected. No hoping that Saudi production is about to fall off a cliff - only to learn a year or two later that it ramped up to multi-decade highs. You can ignore all these phony arguments if you would just be honest about what you want.
As for what *I* want, I do not "want" the future to look like anything in particular. Since the 70's I've been reading doomsayers tell us we're running out of oil, we would all be drinking polluted water, that the world was going to hell in a handbasket, and so on, and so forth, ad nauseum. Still waiting! Seeing as how things have more or less worked themselves out in the past 30 years, I suspect the same will happen over the next 30 years - and whatever that future "looks like" is fine with me.
And no, I don't remotely profit from the Bakken's success, I do geographic information systems for an Indian tribe in Washington state.
I am not speaking for the author of the article, but your reply is typical of those who can't stomach a finite world. I have been doing research in the silver mining industry and have to say what is taking place in gold and oil is occuring in silver as in declining ore grades.
The falling EROI is everything as well as implications from the Land Export Model. Just because shale oil and tar sands have added more supply recently and probably for the following years, does not mean it will be able to allow our standard of living to continue much longer.
The US economy and most of the western world is built on fiat currency system that is based on growth to support this ponzi. This to me this is the most critical aspect of peak oil.
I expect the world will change significantly in not 30 years but more like 1-5 at most. There is a high degree of possibility that the United States will resemble more a third world country in the next several years than it does as the once mighty empire it is currently.
Abundance Concept.....
I am confused about your position here?
If its all overwrought and things will work out why bother even contesting the issue? I mean the status quo is in your favour and the conservators need to change the world as opposed to your position. which is basically BAU..... and as you say 30 yrs of doom mongering has resulted in nothing much and has not derailed BAU.
So it follows that if you are right and you at least suspect you are the next 30 yrs of bleating on about PO will make no difference either.
I suppose you cant even complain about the PO arguments being distorting as you maintain that since the 1970's they have changed nothing.
"The truth is, you do not want much - or any - of that oil to be produced at all!"
This is absolutely false. I don't want the oil to *have* to be produced because we've not done anything to bring about alternatives or otherwise reduce our dependence. That is different than not wanting it to be produced. I do, in fact, want the oil to be produced precisely because I understand that we need oil for the economy to function.
I hope this isn't too nuanced, but I don't want to produce and consume oil now just so the can can be kicked a year or two down the road. We need to lessen our dependence on oil period, not only because it is not a finite resource, but because the atmosphere and oceans can only absorb so much carbon before potentially dangerous feedback loops emerge.
I want the U.S. to lead the world in transferring to alternatives (especially conservation), and so long as we have folks yelling that there's nothing to worry about, that will not happen. This is why I wrote the long essay.
Now, would you *please* quit insisting that I'm making forecasts. I'm not. The closest thing I've done is say that the Bakken is well on its way to producing 750,000 bpd, which would be an increase of roughly 50%. This hardly qualifies as
"bending over backwards, claiming it will only produce such-and-such amount of oil."
You can keep your accusation of "blatant dishonesty", and the lessons of the gold rush analogy stand.
1) There will be boosters who promote the Bakken for self interested reasons.
2) It is increasingly difficult to imagine how wells producing on average 50 barrels a day is going to continue to arrest declines of wells producing 40,000 barrels per day, and ignoring declines elsewhere in articles that are disseminated far and wide is bad practice if not intellectually dishonest.
3) The environmental impacts increase as we attempt to arrest declines, and for this reason, there is a not-insignificant risk that the laws of the land rather than the laws of physics will call an end to production in some places. We have already seen this with hydraulic mining in California and elsewhere and, more recently, natural gas fracing.
And to be quite frank, the phrase 'peak oil' does not even appear in the article, so I am hardly in the group shouting "peak oil! peak oil!" And to the extent that I warn about tight markets it is hardly because I want peak oil to come! It is simply a concept that everyone should be aware of. You simply can't expect for production of a finite resource to grow ad infinitum! That is the lesson of peak oil.
And finally. The 'doomsayers' of which you speak were correct. We are running out of oil (because it is a finite and non-growing resource), most of us are drinking polluted water, and if you look around, you might notice that there are many parts of the world which are rapidly deteriorating (not sure what counts for 'going to hell in a handbasket',though).
If oil is as finite as you believe, why are you worrying about its impact on the atmosphere? If we're near or at peak oil, oil consumption by necessity will decline really soon, and thus you will get the decline in carbon emissions you wish without having to say a single word about whether the Bakken is a gold rush or not.
If that's what you actually believe, there's little point in us discussing the matter further because my observations of the world over the past 30 years are the opposite of yours, and we're unlikely to find any common ground.
"If oil is as finite as you believe, why are you worrying about its impact on the atmosphere?"
Finite is a nominal level of measurement. It is either finite or it is not. You will not find very many folks who estimate world oil reserves to be infinity because it is finite.
I happen to believe that there is a lot more oil in the world than has been produced to date. I don't believe that we've reached the halfway mark. But the problem is, the carbon remains in the atmosphere far longer than it takes to get there, so a decline in emissions, unless *very* dramatic would only slow the rate of growth of atmospheric carbon. It is ridiculous to think that consuming 70 million barrels per day of oil would result in a reduction of atmospheric carbon! Yet 70 mbd would represent a significant decline in global consumption!
Beyond that, however, being close to peak oil or past peak oil does not mean that rate of carbon equivalent emissions growth goes into decline. You may or may not be aware of the EROI concept, but you should research it. As EROI continues to decline, each gallon of gasoline consumed requires more energy to produce, ergo the carbon equivalent emissions rise. The well to wheel emissions of tar sands production are far greater than the well to wheel emissions of oil produced from Spindletop. And if we don't figure out a real alternative, we'll be converting coal to liquids and natural gas to liquids. Add an energy intensive step, and your emissions go up.
As for running out of oil, we are. This is an incontrovertible truth. We are running out at the rate of production.
As for water quality, research growing dead zones. Or take a dip in the Yangtze. Or read about the levels of antibiotics in the water. Here's a good place to start: http://www.circleofblue.org/waternews/
Water quality has in some places gotten better. I'll give you that. I guess it depends on who you consider to be 'us'. If us includes students in the Seattle schools which were found to have unsafe levels of lead in their drinking water, then, most of 'us' have a problem. If you happen to live in the enormous slums of the developing world, then most of 'us' have a problem.
This is something we actually agree on.
most people here think that. or at least I think they do
Really? Other than reading comments, I don't have any special knowledge of TOD opinion, but I would not have guessed that. Most of the expert opinions I have encountered seem to say that so far we have used about 1 trillion barrels of earth's oil, and that we have roughly another 1 trillion barrels to go.
But this ~1 trillion barrels remaining is an amount that is always dropping (by ~1,000 barrels per second 24x7x365) despite the nearly constant, "fish and loaves"-like oil reserves reported for many years (with straight faces) by Saudi Arabia et al, and dutifully rolled-up into the 'reserves' stats that buttress much of cornucopian opinion. Not surprisingly, we've used the "easiest, best and cheapest" trillion barrels of oil first. And that's exactly the kind of oil that is very quickly coming to an end, being replaced daily by what's left of the most difficult and expensive trillion barrels.
The very fact that the Alberta oil/tar sands are being aggressively produced today, plus high oil prices concurrent with a leveling off of world oil production, is all fairly convincing proof for the arrival of peak oil, and for a massive shift into a less selective, more frantic survival mode for our industrial civilization. But there are many people who simply do not want to believe this. And I myself HOPE that it is not true, but I fear that PO is very true and potentially catastrophic.
The discrepancy may be explained by what one includes as oil. The approximately 1 trillion barrels of oil left to be extracted refers to light, heavy and sour crude oil. It might not refer to extra heavy crude oil and certainly does not refer to tar sands (bitumen) and oil shale (kerogen). The current trend suggests humans will extract the bitumen and convert it to synthetic crude oil (likely with a slower rate of extraction than light sweet crude oil) but there is some doubt about the kerogen because its ERoEI is less than 1.
``If oil is as finite as you believe, why are you worrying about its impact on the atmosphere? If we're near or at peak oil, oil consumption by necessity will decline really soon, and thus you will get the decline in carbon emissions you wish``
Unfortunately that`s not how it works. You don`t use gold to get more gold out of the ground, but you do use fossil fuels to get more fossil fuels out of the ground. The problem is EROEI, which is why today we are currently aggressively scrounging around 20,000 leagues beneath the sea looking for oil deposits with an EROEI of 3 (like the 180 billion barrels in Alberta`s oil sands -- you have to put in 1 unit of energy to get three out), and the Bakken oil shales which arguably are no better. This compares with historical EROEI`s of over a hundred for squirty oil wells like those in Saudi Arabia.
If there was plenty of oil left then we would not be fighting over the last crappy reserves with EROEI`s of 3. And 3 is awfully close to 1. When you get to 1, you have no more energy. So as we continue to spiral downward from 3 to 1, we will find that we need exponentially increasing amounts of external energy to get an additional amount of oil out of the ground. That external energy will primarily come from coal and natural gas. This means that while many say that we have centuries of natural gas and coal left, this is misleading because when oil runs out (it has already peaked -- we haven`t increased global oil production in 10 years -- I don`t know what more evidence of Peak Oil you need than that), then our remaining coal and natural gas will be wasted to remove oil with an EROEI of 1.5. This will release tremendous amounts of greenhouse gases and deplete the coal and gas reserves quickly. Fossil fuels aren`t going out with a whimper, they are going out with a bang -- that`s what the EROEI concept entails.
Oh I see dandyone explained the EROEI problem, I guess I should have read it first!
And I could take my gold analogy a little further since you do sort of use gold to pull more gold out of the ground -- in the form of money to run the mining operations. In this respect it`s a good analogy to the EROEI situation with oil. As the quality of the gold reserves declines, it takes ever greater quantities of existing gold (money) to extract a single unit of new gold. And when you have to spend an ounce of gold to pull a new ounce of gold out of the ground, it isn`t wothwhile anymore. But at a ``gold returned over gold invested`` ratio of 1.5, you are going to be wasting a hell of a lot of gold to keep up total gold production at levels seen at the early discovery phase when people were finding nuggets on the beach, in other words, finding new gold with a GROGI of 100.
There was a recent story where a child laborer digging for gold was paid with a bag of dirt from the mine, any gold found in that dirt used to feed the laborer so he can work and be paid with more daily bags of dirt. Gold does pull more gold out of the ground.
If oil is as finite as you believe
I stopped reading here.
I suspect non linear dynamics, chaos theory, ecological overshoot, catastrophic climate change, and feedback loops, to name a few, are not topics that you have examined in any serious in depth manner, am I correct?
Even unscientific economists generally seem to understand that past performance is no guarantee of future results... and a realistic assessment of future risks might be in order as well.
http://en.wikipedia.org/wiki/Risk_Matrix
And for the record, WHATEVER that future "looks like" is definitely NOT fine, at least with me!
``Since the 70's I've been reading doomsayers tell us we're running out of oil, we would all be drinking polluted water, that the world was going to hell in a handbasket, and so on, and so forth, ad nauseum. Still waiting! Seeing as how things have more or less worked themselves out in the past 30 years, I suspect the same will happen over the next 30 years - and whatever that future "looks like" is fine with me.``
I`m going to explain a very important concept that has been lost on 99% of the analysis out there, and I hope you put some effort into understanding it and how it relates to the near future of the world, because I can pretty much guarantee that you will not be ``fine with whatever the future looks like``.
It is by no coincidence that you note that the last 30 years since 1970`s have ``more or less worked out for themselves``. This happens to coincide with two pivotal events in the history of economics -- the abandonment of the gold standard in 1970 (40 years ago), and Volcker`s jacking of interest rates up to 20% in 1980. He had to do this to end the stagflation of the 1970`s where the value of the dollar was continually sliding as as unbacked fiat currency.
The abundance you have enjoyed in the US over the last 30 years has been a mirage. It had nothing to do with any inherent competitive advantage Americans had (well, the tech sector has benefitted from a culture openly fostering innovation ... until fairly recently, where now alternative energy developments are often demonized). Rather, that abundance has been the result of currency manipulation to keep the US dollar as the world`s reserve currency. The dollar is formally an unbacked fiat currency, but informally it backed by two forces -- oil, and the US war machine. That is why America goes to such extreme lengths to maintain oil consumption, because without it the dollar is dead. The US war machine has enforced the global empire of the dollar by requiring all uncooperative nations to accept dollars in return for oil, as well as any other natural resource produced elsewhere and consumed by the US. This has allowed 30 years of overconsumption and underproduction in the US. 25% of the world`s resources are consumed by 5% of its population.
Now here`s the kicker: interest rates have continually dropped from 20% 30 years ago to 0% now as liquidity has been progressively eased to further stimulate continual economic growth and increased resource consumption -- it`s required of the system. Interest rates cannot go below zero. The reason inflation is now about 12%, yet interest rates are near zero is because the Federal Reserve buys US government debt (``quantitative easing``). This is simply money printing. The $1.5 quadrillion derivative ponzi scheme that has been inflating over the last 15 years is hiding $1.5 quadrillion of rising prices, which will soon become evident when the bubble bursts.
http://gregor.us/economics/how-the-european-endgame-will-be-the-death-kn...
As you may have noticed, the global monetary system is on the brink of collapse. The US dollar will almost certainly hyperinflate at some point in the near future once the dust settles after the initial deflationary collapse when Europe crashes and burns. This means that Americans will not be able to buy oil internationally anymore, except for what you can trade it for with exports of food. This means your oil consumption will drop by about 60 something percent. And your domestic production is falling fast. Any new development will merely delay the inevitable by a few years.
What is America going to do when it has no more oilÉ That is a very real possibility within about 10 years.
Please tell us exactly which currencies in today's world are NOT fiat currencies (as you describe it)? In reality, the American dollar is backed by the GDP of the US economy, which (all things considered) is still one of the most productive, flexible and dynamic economies on earth.
BTW, who designed and manufactured the CPU in the computer you are now using to access the Internet? What about the operating system? And for that matter, who invented the Internet itself? Please enlighten us! It couldn't be the tired old USA, could it?? What amazing technology has your golden-currency nation created lately...?
The ironic thing is that as the Euro falters, the US dollar suddenly looks like a good enough deal for many world investors after all.
josserand... The US Dollar is now a Federal Reserve Note. A note is a debt instrument. The Dollar is not backed by the GDP of the U.S., but rather by the US Treasuries. Basically all the fiat currencies of the world are backed by their respective bonds.
The US Treasuries that back the US Dollar are in fact backstopped by $100's of trillions of Interest Rate Swaps that have as much value as MBS, CMBS and CDS (which is very little).
Without these Interest Rate Swaps and the massive buying by the Fed, the US Treasuries would be as worthless as Greek and Italian bonds.
The financial situtation in the United States is extremely grim. I give the US Treasury House of Cards 1-3 years before it goes the same way as Bernie Madoff.
So you think that US Dollars are "debt instruments"? Ok, let's say that you receive $1,000 for performing your job for X number of hours. Is this $1,000 an amount that you have to repay to someone? Is it a debt? NO, of course it's not a debt! You earned the $1,000 by way of your work, which in theory contributed $1,000 worth of goods or services to the American economy. In return, you are now able to "withdraw" $1,000 worth of goods and/or services from that economy. In this way, the US Dollar is obviously backed by the GDP of the US economy. You may want to read some basic economic theory, instead of whatever nonsense you've been reading.
You will have to pay a certain amount in taxes, which you could say is a debt to the government, but the remainder is yours to spend as you like, or to save, or to lend to someone else, or to repay a previous debt you incurred.
Yes, there are various derivative financial instruments available and they have now been extensively critiqued since the problems starting in 2008. As a result they are now viewed with much greater suspicion (and rightly so) meaning that their appeal has been greatly reduced. They were like any other "bad deal" and those who held them have been punished with declines in their value.
If a government "prints" too much currency for the value in the economy, then clearly the value of that currency will decline over time (also known as inflation). Are we suffering from inflation? Yes, we are to some extent, but it's hardly out of control in the way that Germany was in the 1920s. In our case, it is probably more to do with the ripple effects of higher energy prices as they pass thru the economy, rather than an oversupply of currency. In any event, the current rate of inflation is generally within historical norms.
josserand... I don't think the Federal Reserve Note is a debt instrument, it is. Do you not see the word N-O-T-E on the bill? I am sorry, you do not know what money is. I don't blame you, it's not taught in school or college. Gold and silver are money... the Federal Reserve Note is a fiat currency. Right now you can take a one oz Gold Eagle and exchange it for $1625 Federal Reserve Notes. Just a few years ago the same piece of gold was worth only $300 Federal Reserve Notes.
You say there is no inflation? I see you believe the US Gov statistics. Let me give you the real price of copper in 2002... It was $0.74 lb. Today it goes for $3.40 lb. Furthermore, the US Govt has distorted the real inflation rate by hedonics and other adjustments. If you want to see the true rate of inflation check out John Williams of Shadowstats.com. John has some big corporate clients because they realize they can't count on the US Govt figures. They have to build things that take years... so its important to them to know what it will really cost them in say 3-5 years.
Lastly, I am not going to convince you of anything. I am just putting out the information. What I say will be proven in time. I have patience on my side.
So what if it says "Note" on a dollar bill? The word "Note" has multiple meanings - and I don't see the words "debt instrument" on any of my dollars. But if you write the word "Gold" on your dollars, you may feel better about spending them in exchange for real goods and services - as I'm sure you do nearly every day (thereby lending support to my point about US dollars being backed by US GDP).
You misquoted me on inflation. I did not say there is no inflation, I only suggested that it is within historical norms, and far from being out of control like Germany in the 1920's (and there are various other such examples). You say that copper and gold have gone up in price recently. Ok, so if the main items you buy each month are copper and gold, then you are suffering from severe inflation. But what percentage of the average person's budget is comprised of copper and gold? (for most people it would be way less than 1%, if not 0.0%). Nearly all mined minerals are now going up in price because (like oil) they are gradually becoming relatively more scarce, as the best and easiest deposits are depleted, and the world is forced to turn to lower and lower quality deposits of metals, rare earth elements, oil, etc.
BTW, why are Gold and Silver so exclusively qualified to be money? You can't eat them, you can't wear them (except as jewelry) you can't live in them, have sex with them, or burn them to power a car. Gold is a very soft metal, so it's not very good for building tools, machines or structures (like steel is). They are valuable only because there has been widespread agreement around the world thru most of history that they have special value. And it doesn't hurt that they are very attractive metals visually (but stainless steel is also quite attractive visually and far more useful as an industrial metal, so why is that not "money"?). What if most people agree that US dollars are "money"? In fact, nearly everyone on earth does, including anyone who accepts US dollars as valid payment - and no doubt you and everyone you know does this! Or do you always demand to be paid in gold?
So is the Gold standard beneficial? Historically, it has often been a cause of economic downturns, by sudden restriction of demand in an economy. Some economists now blame the Great Depression of the 1930's primarily on the Gold Standard:
http://isites.harvard.edu/fs/docs/icb.topic467999.files/October%2022%20a...
josserand... If a person had a gambling problem and they needed to bring more assets or money to the table these would be options:
Deed to House
Title to a Car
These, on the otherhand would not work:
Mortgage Papers of a House
Note for a Car
One set are paper assets representing a real asset, while the others are NOTES, or debt instruments. What do you think the card players would do if you signed over your Mortgage Papers to them instead of the title to your car? If a person was dealing with the Mob, they would end up with a few broken body parts.
A U.S. Airforce pilot has an emergency packet with him/her if they crash land in a foreign land. In this packet is an oz of gold. Why not a Federal Reserve note? Because, gold is considered money in almost all of the world. You can't eat a Federal Reserve Note either... but at least gold and silver have intrinsic value. A Federal Reserve Note is backed by over $15 Trillion in Govt Debt. And we must remember all fiat currencies end (normally very badly).
The only reason why I continue this debate here with you (something I rarely do) is due to the fact that the US Dollar has very little time left. Maybe someone who reads this blog will get some value out of it.
Derivatives have been designed to siphon money away from phyiscal assets and into financial ones. This has distorted the real price of things and has understated inflation tremendously. Currently, silver is trading 500 to 1 paper contracts (of all forms). The lower the price of silver or gold goes, the more buying comes in on the physical side.
At some point in time, the Dollar will be dead and all the so called ASSUMPTIONS on money will go down the toilet along with pension plans, IRA's, 401K's, CD'S, Bonds and etc. When this takes place, people will realize what MONEY really is... and unfortunately for the majority, it will be too late.
The word "note" on the federal reserve bills is just shorthand for promissary note on the possibly silly assumption that everyone knows what that means.
I prefer James Gleick's definition of money. Money is just information - information about how much wealth you are holding. It doesn't matter whether it is inscribed on a gold bar in a vault, or printed on a banknote, or stored in digital form in a database, it's just information. It's just a number. Debt is negative wealth - you just have to change the sign on the number.
When central banks create money in the modern world, they just enter a number into their databases. Then they can electronically lend it to their government - so the government has to enter a negative value into its database - a debt. A central bank could just give it to the government which would create no government debt, but in general central banks don't do that.
Well... silver could be construed as having intrinsic value since it has industrial uses, uses that relate to providing basic human needs like food, clothing, shelter, medical care, education, etc. Gold, however has little intrinsic value unless you consider its aesthetic value as intrinsic. Gold as money is just as much a fiat money as paper.
Just thought I'd point out that going back to the gold standard post-Civil War was accompanied by long discussions of value.
One argument that was put forth was that the value of gold represents the underlying labor content. Thus, as the traded value of gold went up (as in you could trade a unit of it for more goods), demand for gold would go up, and more efforts would be made to dig the stuff up. And since each marginal unit of gold required more effort (declining GROLI gold; labor), the value of the gold would increase.
The argument was never 'solved' one way or the other, but there is a learning moment in there somewhere...
Now the labor content of gold mining activities pales in comparison to the capital equipment... and the capital equipment, of course, is fueled by black gold. Perhaps I'm stretching this one a bit to far, but wouldn't the previous statement lead one to conclude that the underlying value of gold reflects the amount of energy (human+fossil) required to get the stuff?
OK. Back to work. I'm sure the smart folks that are still following this thread will beat this down. I only put it up as an interesting aside.
Yes, I see a problem with that: human and fossil (extrasomatic) energy are very, very different. They are fungible at times, but translating the value of knowledge and knowledge work into energy terms is a perilous project.
What do you think the card players would do if you signed over your Mortgage Papers to them instead of the title to your car?
If they're smart, they'd take it faster than the deed. A mortage is a promise to pay: that's a stream of income. A house, on the other hand, is a pain in the a**: you have to sell it or rent it to get any money.
If the borrower doesn't pay, then the lender could foreclose, and have the annoyance of selling the property. Either way, the value of what you're handed depends on the property. But...the note is a promise of convenient income, which is more valuable.
I appreciate all the comments on money here in this thread. I agree with dandyone that there is energy cost and labor locked into each ounce of gold and silver.
That being said, I got a deal. You folks can hold onto your Federal Reserve Notes and all the other paper assets, and I will take gold and silver bullion.
Let's wait around a few years and see who got the better end of the stick.
I doubt if gold will go up as fast as ammo and fertilizer when tshtf.
The usefulness of gold depends on a minimal level of stability so that trade can be carried on over time and distance.
I have seen a few things written by people who lived thru real twenty four carat disasters, and some of them traded a gold piece for a day or two's food.
In that sort of situation,I expect I could trade a twelve dollar(current cash and carry at WalMart) carton of buckshot for a lot more food that I could get for a gold coin currently valued at several hundred dollars.
Buckshot doesn't store as well as gold, but it stores well enough!
Gold does have some very important uses such as plating switch contacts in critical machinery and filling cavities in teeth.If it weren't so expensive, it would have dozens of uses.
If anyone is interested in having a beautiful half inch gold plated marble:
You can have it free for the taking by removing it from the airbag crash sensor switch on many cars built within the last fifteen years or so.
You should only rob the switch from a scrapped, inoperable car of course.
You will need a hammer and heavy pliers or a hacksaw and vice to break open the switch housing.
The amount of gold on the marble is not worth the labor even at current prices, but it IS a very pretty conservation piece.
Newer cars may not have a gold plated marble in the switch, get one out of as old car with an airbag..
you didn't read the mortgage paper part very carefully. He was signing over his promise to pay his mortgage or his car note--don't think it works that ways as the lone shark would need to then sign his willingness to pay, which is exactly what he isn't going to do. Of course that makes SRs comparison bogus. Your point is quite valid but SR got turned all about when he gave the example. The treasury notes work the same as if the bank holding the mortgage or car note put them on the card table not like when the guy who promised to pay the bank put his promise to pay the bank on the table.
[edit for clarity..,sort of]
Of course when the guy paying you is paying you with promises to pay that are backed by more promises he made to pay someone else (or even to you if you are a T bill or savings bond holder) things get a bit more confusing--how much of the economy is fueled by federal payments which are payed with notes that are promises to pay which are backed by even more promises to pay...and to make it even more confusing all the promises to pay can and will only by paid with more promises to pay...
All NOTES are promises to pay. A NOTE is a NOTE is a NOTE. A Federal Reserve Note is not redeemable, it is fiat currency. Gold on the other hand, is not a PROMISE TO PAY, it is payment in full. There is no counterparty risk in owning a gold coin. The public today is clueless about money. Again, we can't blame them as it is not taught in school or college. So it does not surprise me that someone would choose a mortgage paper (debt) over a deed (asset) in the example above.
The Chinese govt purchased a record amount of gold in SEP and then purchased even more in OCT to make another record. Here in the United States on the other hand, have added more Derivatives and debt. We have allowed the big banks to 'Mark to Model" their assets, which many are toxic and worthless. If these assets were "marked to market", these banks would all be bankrupt.
So we play this game that "Everything is fine" while other countries buy gold and get ready for a gold-hard asset backed currency. Here in the Oidrum, we should realize that the peaking of oil and the falling EROI plus the implications of the Land Export Model make a very bad situation for the huge US Treasury Debt... a debt that can never get paid back.
In light of this, I find more of the public (family & friends included) defending the very monetary system that is bleeding them dry. Unfortunately in the end, the system will more than likely wipe out a huge percentage of their supposed "Paper Wealth". If a person feels fine with that choice and at the same time enjoys rebuking the merits of gold and silver... its fine in my book.
We live and die by the choices we make. So be it...
Gold on the other hand, is not a PROMISE TO PAY, it is payment in full.
This seems to confuse the idea of money. Gold can be considered money, but that simply means that someone else is likely to accept it as payment for something else.
You can think of gold as an end in itself, but most people don't. It's nice as jewelry, and if you're Scrooge McDuck you might swim in your piles of coins, but mostly it's a medium of exchange.
Really all you're saying is that you think that other people will trust gold as currency more than "fiat" money. The idea that gold is somehow more "real" than a dollar bill is...unrealistic.
There is no counterparty risk in owning a gold coin.
Of course there is. Someone might refuse to accept it for something of equal value. Heck, is your drycleaner going to accept a gold coin? If so, at what discount??
it does not surprise me that someone would choose a mortgage paper (debt) over a deed (asset)
They're both paper. One gives the bearer the right to receive an income stream, backed by a legal right to foreclose and gain ownership of the property. The other gives the bearer a right to the asset directly. I'd go for the income stream, myself.
Well I don't know if governments stocking up on gold is the answer you think it is. OFM mentioned
I doubt if gold will go up as fast as ammo and fertilizer when tshtf.
For better or worse the US has been investing in ammo and ammo delivery systems (GI through carrier) at a rate higher than the rest of the world's combined if memory serves. And for the moment we have plenty of good land to put fertilizer on--even if most of the fertilizer plants are now offshore--Trinidad/Tobago aren't all that far offshore.
What does that tell you?
It tells me to hope the promises to pay promises system keeps the faith for a good long time--gold will do little good if it breaks down completely, and some of the steps that would unfold before complete financial breakdown might not be very pretty at all. I have never felt the American makeup would allow going down quietly as the USSR did--but I could be wrong.
Reminds me of my paternal grandfather.Poppa would not park his last car-a cherry 2 door 62 Chevy anywhere except under an oak tree that shaded his driveway.
He outlived the tree.
Couldn't be persuaded for love nor for money to either park someplace else or let us cut the tree.Too old, too set in his ways.
Eventually a windy thunderstorm brought it down and totaled a one owner classic car with nay a scratch whatsoever and only twenty thousand miles on it.My Dad and uncles drove it after he had to quit driving for no other reason than to take their Momma and Papa shopping and too the doctor.
If you could bother yourself to read a little history you would know about resources depleting and people migrating or going to war as a result;and you would know that there were always a few serious thinking types around who realized the truth of this matter.
If you would read a basic high school geology text book, you could figure out peak oil pdq- if only you are were to think a little for yourself.
I simply fail to understand why you continue to post here, but maybe the Newt can find a spot for you on his campaign staff doing energy issues propaganda.
dandyone -
may I make an observation?
It is perhaps unwise to bring questions of the environment into a debate on production rates etc.
This is why I have such admiration for Chris Martenson. He has never, to my knowledge, spoken about 'ecological degradation' or 'climate change' as he believes (correctly) that they will only swing the debate off into 'boo-ya-shucks politics'.
btw, good article!
That's a fine observation/suggestion to which I don't object.
I happen to have an ecological view of the process, and believe it to be important that others understand that the process is unsustainable on both ends: the gas tank and the tail pipe.
It's a conservation of mass thing, which I'm sure you understand.
The question is whether selective filtering would be more effective. Get the climate change/ocean acidification folks with the tailpipe issue, and the profits of irrational abundance folks with the gas tank issue.
Perhaps you are right.
At any rate, I will give this due thought in the future.
Thanks for reading!
HAcland, you make a good point that I have noticed myself. Chris M. does not touch the ecological aspect. He is a very smart man and I don`t think this is because he doesn`t understand the link with ecology. I also noticed that the section on global warming was surgically removed from his Crash Course after the Climategate fiasco. He seems to selectively avoid these topics, because they have become demonized; greenies have become the convenient scapegoats for everyone out there watching the destruction of the economy but not understanding why. Peak Oil is easier to wrap your head around -- if the glass is three fourth`s empty, it`s not three fourth`s full!
It`s a delicate issue. On one hand, if he delves into global warming and ecological degradation (and the inevitable global Malthusian Collapse which this entails with an end to fossil fuels) he risks alienating a lot of people from the reality of Peak Oil. But in the end, if we deal with Peak Oil then we also deal with global warming (as best as could be expected given the circumstances), and to some extent we also address overpopulation. So this may be a smart strategy.
I personally can`t separate the ecology from the economics, since our economies are completely dependent on ecology -- that`s where oil comes from! But then again, I`m not actively trying to educate millions of people as a last ditch effort to save humanity from self destruction.
http://markbc.wordpress.com/thermodynamics-for-economists/
"The highest function of ecology is understanding consequences."
Hacland, I might agree with you on that point if production rates for oil and the attempts to maintain them while also maintaing BAU had no implications on the future quality of the global environment.
However, environmental degradation is directly caused by human population overshoot which in turn has real world economic costs and thus can not be ignored if one takes into consideration the simple fact that this is indeed directly related to future production rates which are one of the fundamental causes of said human population overshoot!
In my view all of this is very much interconnected and I find it disingenuous to attempt to ignore all the feedback loops involved.
As for 'boo-ya-shucks politics', unfortunately that is what we all need to get past and start dealing with our rather intractable dilemmas as rational intelligent adults. Not that I expect that to happen anytime soon but one can at least hope.
Cheers!
Fred
I totally concur that once one looks with 'eyes wide open' at the Big Picture, then the ecological and climate factors are of paramount importance.
However, sad as it is, most people do not see things holistically. Most people only see the petrol at the pump - in fact, they don't even see that! The problem with throwing all issues together in one broadcast is that the salient point is missed and nothing gets through. A bit like attempting to teach geometry, algebra and calculus all at once. I am forever amazed at the inability of otherwise intelligent, educated people who's internal wiring simply blocks any attempt to think the unthinkable outside of their comfort zone.
The environment and climate change is just such a hot potatoe. Frankly, I have all but given up trying to convince people that science should trump ideology. Alas, science is becoming just another 'belief system' to many. 'You may believe that the Earth is warming, but I don't'.
Anyway, the point I was making is that it is best to focus attention on a specific area, one by one, rather than offer a smorgasbord.
Ok! Point taken. I sometimes tend to lose sight of the fact that we still need to be teaching the basics of geometry, algebra and calculus to the vast majority, before we can hope to broach topics in advanced physics with them >;^)
I just love this tapdancing around the facts. Note that they are predicting a decline in imports to 7 million barrels per day. At the same time they are predicting a decline of 20% in consumption.
US consumption of crude oil currently is around 14.5 million bpd, so a 20% reduction means that it will be consuming 11.6 million bpd. If 7 million bpd of that is imported, it means that by 2040 the US will be producing 4.6 million bpd of oil - less than it does now.
On the import side, by 2040 Mexico will probably be a net importer, so it means the whole 7 million in imports will come from Canada.
So, what it implies is that in 2040 the US will produce 4.6 million bpd, and import 7 million bpd from Canada. That means that Canada will have to produce at least 8 million bpd, or nearly twice as much as the US.
It's technically feasible, assuming very aggressive development of the oil sands, but its probably not what Americans assumes when they hear someone say, "the growth in U.S. and Canadian production from new sources, coupled with curbs on demand as a result of more efficient use of fuel, is creating a realistic possibility that North America will be able to declare oil independence."
Technically true, but highly misleading. The US would still be importing 60% of its oil, albeit from a secure supplier. OTOH, Canada would probably be the world's largest oil exporter.
Since Canada has 180 billion barrels of oil (including oil sand) then to supply 8 million barrels a day this would last 61 years. This leaves no oil exports to other parts of the world and presumes that the US would be able to maintain 4.6 million a day indefinitely which is highly unlikely.
To supply the world at 30 billion barrels a year Canada would last 6 years. And Canada supposedly has the largest oil reserve in the world...
Yes, the numbers are misleadingly rosy.
From 2005 to 2010, Colombia and Canada are the only two net oil exporters* in the entire Western Hemisphere that showed increasing net oil exports.
Combined net oil exports from Canada, Colombia, Argentina, Brazil**, Venezuela and Mexico fell from 5.1 mbpd in 2005 to 4.0 mbpd in 2010 (BP, total petroleum liquids).
*Of the top 33 global net oil exporters in 2005
**Brazil is a net importer of petroleum liquids, but the MSM seems to believe otherwise, so I generally include Brazil on this list
Fact checking the basics is not appreciated Abundance. Get with the program...everything has peaked and is declining, stick with only the standard examples please, and don't EVER compare old statements with reality.
To be clear, I said that Bakken output is growing and has not peaked. I said that U.S. production is growing.
I am not responsible for previous production forecasts, current forecasts, or reserve size estimates.
I quoted the USGS. Is their estimate correct? Most likely it is not. The URR may be significantly more or significantly less than their estimate.
Multiply it by 6. I don't care. The lessons of the gold rush remain the same.
And, BTW, gold is still produced in California and the Klondike. Production is just far below the record highs set by manual labor picking stones out of stream sediment.
-Derik Andreoli (the author)
As far as the lessons of the gold rush, I'm not sure it is as applicable as you believe, for the reasons others have mentioned. But the history of the gold rush in California was fascinating.
The point Abundance was making is that around here, peaks are always being declared, seen in advance, predicted and hypothesized on to no end. And then they don't happen, are reversed, or turns out they just don't matter because they happen and no one cares, the world has moved on. This is the whale oil example.
If you wouldn't mind. I would very much appreciate it if you could elaborate the important ways in which the Bakken rush is different than the gold rushes (read: consequential to the lessons that I drew from the analysis).
> Are there not boosters selling the story?
> Did gold production not peak and decline despite the introduction of new, technologically advanced, capital, energy, and resource intensive processes?
> Did not the conflict over water resources cause the process of hydraulic mining to be banned in certain areas? And is this all that different from the moratoriums that have been imposed or proposed for natural gas fracing (which employs the same process and equipment)?
Clearly yellow gold and black gold are different, but the point of making analogies is not to draw similarities between things that are identical, but rather things that are alike in some meaningful way. I've presented three. Which do not apply and why?
As for seeing peaks in advance, predicted, and hypothesized... yes, this is what contributors to the oil drum do, and what most readers are interested in. The peak oil theory is on solid foundations. If you produce a non-growing resource, production rates will at some point be forced to decline. If we are talking about something meaningless like bellybutton lint, who cares?! But we're not. We are talking about one of the most critical resources in the world. Quite literally the fuel that motivates the global economy. I don't expect models to predict the future production rates with great accuracy, but at the same time, they do educate, and hence they serve an important function. Hubbert linearization is fraught with problems, and is unreliable. Hubbert hit the date of the peak right, but he was simply lucky.
At any rate, I like to say, "Don't confuse the model for the theory." Highlighting the faults of hubbert linearization does not discount the theory that production of a limited resource must at some point fall into decline.
I am in logistics and infrastructure consulting. I would bet that the vast majority of folks in this industry don't know about peak oil theory, and many of those that do simply don't believe it to be true. But, what they do care about is the price of bunker, jet fuel, and diesel. And the industry went through a serious convulsion during the run up to the 2008 price spike. The recent increase in U.S. production didn't help them keep their companies and their jobs. The point being, that even non-ultimate peak events matter. The ultimate peak most certainly will matter unless we find an alternative or restructure the global economy. And if we let Bakken boosters blow smoke, there will be little comprehension of the problem, and the vast majority of folks will be caught unprepared.
Boosters are available to sell every story, not just gold and oil. Real estate, for example.
Gold production peaked and declined, sure. Bakken oil production also peaked (back when it was initially developed back in the late 50's), declined...and then is in the process of peaking....AGAIN. A history of the Bakken is incomplete without mentioning the original Bakken discovery in Saskatchewan, 1956 or thereabouts. Did gold production peak after initial discovery, and then peak again some decades later in your California history?
Conflict over water isn't usually what causes people to stop hydraulic fracturing, fear is.
The peak oil theory is on sound foundations based on the fact that production in any finite system generates a maximum rate. Certainly the profile of production isn't required to be bell shaped, or whatever the current fascinating profile might be. You are correct that Hubbert was lucky. About once. He was also wrong. Look at his predictions for natural gas production in the US, for example.
What the amateurs of the world believe is mostly irrelevant to the issue. As industry delves deeper into the resource pyramid, the results of the economics of this process are unpredictable.
Certainly Bakken boosters may blow smoke, just as peakers preach Doom. Yin and Yang. Mostly irrelevant to what the world believes as well. But still not related much to gold booms in California I think.
"The point Abundance was making is that around here, peaks are always being declared, seen in advance, predicted and hypothesized on to no end. And then they don't happen, are reversed..."
Feel free to elaborate on that. I'd be quite interested in enough links so that I could draw my own conclusions on how the oildrum's consensus or predictions has/have converged or not over time. From what I've seen so far everyone here is quite careful to define exactly what they are talking about, and to flag things with disclaimers such as "while overall production may have increased over time, the thing we are discussing here did in fact behave in the manor we are discussing, and here is the raw data". I'd certainly say that I don't believe anything here to be absolutely accurate, but I'd say at any given time we likely do better than the EIA or IEA, and I'd guess that the predictions although changing over time have varied significantly less than the official ones. I will state right now, I have made no numerical comparisons myself (that would certainly be an interesting meta-analysis as well). I simply think people here proceed with more caution and forethought than official channels, and they would appear to have less at stake (in the political/economic sense) in the outcome of their predictions. Daresay the pitch of argument here largely stems from the realization of just how much higher the stakes are than political/economic.
Best hopes for radical transparency & data-mining,
Steve
I wasn't referring to just TOD predictions of peak, but more of the history of peak declarations, actual peaks later reversed, and all the nasty details which are best left undiscussed.
The comment above by Nawaralsaadi re-ignites my curiosity regarding the future of propane in North America:
"... in regards to water usage for fracturing, there are alternative waterless fracking technologies such as LPG fracking (using gelled propane or gelled butane) which eliminates a lot of the pollution and water problems associated with hyrdofracking..."
So will enough propane be diverted to fracking that its cost will rise significantly and its availability for residential use suffer?
With regards to using propane in fracturing a well: idea is to use a liquid that will be dissolved in the oil then be easily recovered when the oil comes out. Water that is used in fracking has many contaminants and is hard to reuse, but the propane can be reused, left in the oil mix (if temp is low enough and pressure high enough), or flared at wellhead.
Yes this will raise price of propane locally, causing some ND users of propane to experience higher cost of heating (rural homes and smaller grain elevators not near nat gas lines). Will not likely raise the price of propane nationally as propane can be easily imported. Most propane moves about the country in 20,000+ gallon RR tanks cars.
dandyone,
Thank you for this terrific post. Well thought out and very informative.
Let me 'fess up. I wrote two posts in 2008 and 2009 about the Bakken, including one cited above that was way too conservative in its estimate of production. I should have had my head examined for even attempting to make a prediction like that. Apparently somehow I did accumulate a tiny bit of wisdom because by the time I did the second post (The Bakken Shale - Has it Moved the Oil Needle?)I was a bit more circumspect in my conclusions, and didn't make any hard predictions. I will be the first to admit that I way underestimated what is happening in the Bakken.
So, I'm out of the prediction business for the foreseeable future. (Was it Mark Twain that said something like "Predictions are really difficult, especially when they are about the future"?)
In spite of my lousy prediction, I do have a bit of background - 28 yrs in the oil patch as a reservoir engineer. Since 2009 I have been more of a lurker, enjoying the really high quality posts that TOD puts out on a regular basis, including this one.
Based in that experience, the document cited on the CLR web site seems to lack a sound basis. Many of those points are discussed above. Let me add two more.
- Pretty much every field in the world has sweet spots and poor areas (affectionately known in some circles as "goat pasture"). The sweet spots might be 10% or 20% of a field if you are lucky, and the rest of the field has poorer wells. Another way to say the same thing is that well productivity is very often log-normally distributed. The Bakken is unlikely to be an exception. On the CLR map, you can clearly see Elm Coulee field in Montana. There is a concentration of wells over a relatively small area and then they thin out. There is usually a good geologic or reservoir reason for that. Technology is already extending the developable area, but assuming 500 MBO per well means that the sweet spots need to produce an average of maybe 1 or 1.5 millon barrels per to make up for those areas that are not sweet spots. Maybe . . . . but it seems like a stretch. Doesn't mean it couldn't happen but . . . . .
- One of the unwritten chapters for most shale plays is downspacing. Going from 1280's to 640's to 320's, and assuming a robust reserve for all of them is a bit risky. In most shale plays nobody has a very good idea about how much communication between wells there will really be in downspaced wells. I recently read a well written SPE paper purporting to show that 500 ft. well spacing in certain areas of the Marcellus was OK. But there was less than a year's production and the tail end of production curve seemed to me to show that the wells were likely in fact to be in communication. Time will tell. Back to the Bakken, giving reserves of 500 MBO per well and risk factors of 100/70% in one case and 90/60% in the other case just seems crazy when applied willy nilly over nearly 15000 sq. mi. Anyway, it's just one opinion. I like to be right but for the sake of the country's future oil import's etc., let's hope that I'm wrong and Harold Hamm is right. . . . . .
Thanks for the compliment. The thing with predictions, is you are most likely going to be wrong. But we still need to do them. I make predictions all the time. Not for oil production, but other things.
It has somehow been lost on some readers that I didn't make any predictions, and only referenced the USGS report to give an order of magnitude estimate of reserves. When I talk to the average, educated person interested enough to know about the Bakken, they are all aware that it is a huge field, but they don't realize it's size in relation to other fields. At 4 Gb, it is relatively small. At 24 it is large. As large as Prudhoe, which brought about a secondary peak in U.S. production and pushed the decline back a decade or so.
Folks are talking about the Bakken like its a five pound fruit cake - the gift that will keep on giving. They miss all the capital and labor that go into producing a well, and they certainly don't understand that the wells are far from gushers.
Thanks for the thoughts. I think in the future, I'll direct the more vitriolic responses to you ;)
Wells drilled 500' apart with no communication are the exception. Wells can also be drilled 660' apart, 1/2 mile apart, more than 1 mile apart and several miles apart with immediate communication. These examples are from the ND bakken.
Its all based on probablilties. A comparison of the Parshall field with the Sanish field demonstrates that more wells means faster depletion. Whether these additional wells will result in significantly higher recovery remains questionable.
Parshall peaked in 2009, Sanish peaked about a year ago, both are showing relatively steep declines despite ongoing drilling in Parshall and seemingly frantic drilling in Sanish.
I suspect that a lot of people don't understand that rising aggregate production, and very rapid individual well declines, are not incompatible, at least for a while. I frequently cite the example of Chesapeake's DFW Airport Lease in the Barnett Shale Play. Cheseapeake claimed ultimate cumulative production of about one TCFe, with projected late 2011 production of 250 MMCFGPD.
The last data that I looked at suggested an accelerating decline rate, with production on track to be around 25 MMCFGPD, in late 2011 (around 250 MCFGPD per well). Cheseapeake's lease cost per well, exclusive of all other costs, was about $1.8 million per well.
Just as this lease showed--for a while--increasing production from a group of rapidly declining wells, a play can show increasing production--for a while--from a group of leases with rapidly declining production. The problem is that operators sooner or later can't drill fast enough to offset the underlying decline, and/or they hit personnel/infrastructure/lease constraints.
This was a TOD tour de force. Thanks for writing.
Great article, loved the analogy and the details. Made my day...
What is the current definition of oil as opposed to say 2003? Does it include vegetable oil biodiesel and corn ethanol? Does it include bitumen from tar sands extraction? If you start including sea water as fresh water we have no water problems at all either.
Is it just my imagination? Or has TOD begun over the past year or so to attract the attention of more trolls?
It used to be that I could count on TOD for well educated discussion and the best available data regarding oil production, but lately there seems to be a tendency towards "flame threads". "Flame threads" are a cancer on some other posting forums of which I have been a member, and a primary reason I end up abandoning those sites. What tends to happen IMV is that useful information gets shunted onto a siding while the agenda becomes monopolized with rebuttals to spurious assertions. This seems to be the destructive intention of some people.
Hope that isn't starting to happen here, now.
Jabberwock, This latest blowup started with me, but I'm no troll, I just know a mistake when I see one, and I think it is appropriate to point mistakes out, and give the author the chance to agree or disagree with what I have pointed out. If you look at his latest comment, you will see that he has finally admitted his mistake. As of December, 2011 it is widely agreed in the oil industry, and now also at TOD, that the Bakken offers at present at least 24 billion recoverable BOE, not 4. So, the circle has gone all the way around. Mission accomplished! By the way...What was everyone's problem?
In the deal everyone got an alternative website (contres.com) to access relevant up to date information on the Bakken from a very reliable source for future reference. Another very important website for everyone to get aquainted with is (gasfrack.com) This company has been mentioned a few times in this thread, but no one seems to understand what it really does, and why it will have such a huge effect on the Bakken, if it's technology is used there, also. They claim to increase oil output by 40% on hydro fractured wells. If true, that puts the 24 billion barrels up to about 35 billion overnight. Yes, I do own stock in this company too. No, I'm not pushing this stock or any other stock. I just know how to change knowledge into money. So, what's everyone's problem?
Buying wholesale into industry numbers is a problem. As Banned has mentioned elsewhere, there are already examples of wells which cannot be configured without interference issues. And neither of those wells come anywhere near the well results claimed. Do you see the problem now? Things are being claimed, which you are cheerleading, which aren't a given in the real world.
Its called promoting. By deciding to choose only big numbers, without understanding how they are flawed, you are perpetuating the practice.
CORRECTION : website is gasfrac.com
Again, Carl.
Please extract a quote from my article that is factually incorrect.
And again, it is about production rates, not reserves size!
We don't know how much oil is in the Bakken, but we all know it is a large field. The problem is that the wells are tiny. If you take the average well, multiply its output by 2, and total up how many new wells need to be drilled to counter Alaska N. Slope declines, you get 350. This is akin to replacing gold nuggets with dust.
Now, where is the incorrect information in my article?
Dandyone, sorry for my tardiness. I'm also not used to dealing with such levels of craziness from so many people all at once, so I'm just letting a lot of comments just ride. There really isn't much in your article that I think is factually incorrect, but I'm not very willing to try to fine comb it to find anything, anyway. I pointed out one, already. While that one was factually correct, it was so out of date that it was off by a factor of six, and therefore very misleading. That unfortunately undermined much of your article because in typical PO style, you presented your readers with a suggestion that oil must peak because gold peaked, and oil is like gold, so oil must therefore peak. Otherwise, why did you even bother to bring gold into it. To me it's an admission that you can't prove that oil already has or will peak...someday soon. You simply very skillfuly set up your readers to jump to that conclusion all on their own, and that's exactly what they all did...until I came along. The whole PO agenda is based upon exactly the same kind of circumstantial evidence, that you have presented. This of course would never wash in a court of law, and I am only interested in the truth, the whole truth, and nothing but the truth.
But, doing a bit of minor nit picking...the following sentence is worth considering. "This decline in Montana’s production indicate that what is commonly billed as a homogeneous geologic formation is in fact heterogeneous." This sentence is also factually correct, but highly misleading. Montana was at one point in time considered to be the hot spot in the Bakken. So, it got developed relatively early. Later, it was N.D. that was considered the hot spot, so many of the rigs were moved across the state line. This is what caused the decline in Montana production. Fewer wells were being drilled there because better profits were to be made in N.D., the early ones were not very efficient, anyway, and all Bakken wells decline at a rather alarming rate right after their first one day wonder performance.
But, the Montana adventure is not over. Latecomers will come in and buy up land at inflated prices and try to re-start the earlier boom with more advanced technology. Other companies will just let their land sit and wait. But, that's only in southern Montana. The "new" Montana "boom" is in the north near the Canadian border. Check out NFX and ROSE for more info on that play, but they ain't saying much because everything is still secret, and everyone is still buying land. Yes, I own very small amounts of those two companies, too. No, they probably are not wise to invest in at this point.
I well know that PO is all about production rates, not reserves size. You are the one who brought up the 4 billion in reserves, not me!!! I merely corrected you.
You just don't get your own gold nugget analogy. You first tried to say that the Bakken was like gold dust, small, 4 billion barrels, and Prudoe bay was like a gold clump, large, about 24 billion. So, I pointed out that the Bakken was also like a large gold clump 24 billion, and growing!!! That turned your whole analogy right upside down, and in fact disproved the thesis of your whole argument, as in your words "we don't know how much oil is in the Bakken." I wonder if your argument really is with me, or merely with yourself?
Your latest trick is to now compare the number of wells needed to be drilled to eventually match the output of Prudoe bay. It will be many, but so what? Aren't you the one who said, "It's all about production rates." ???? So, is it all about production rates, or is it all about the number of tiny wells? Please let me know who the eventual winner is in this ongoing argument between you and yourself.
"There really isn't much in your article that I think is factually incorrect, but I'm not very willing to try to fine comb it to find anything, anyway. I pointed out one, already. While that one was factually correct, it was so out of date that it was off by a factor of six"
To summarize: You found a net total of zero factual errors
You quoting me, "' This decline in Montana’s production indicate that what is commonly billed as a homogeneous geologic formation is in fact heterogeneous.' This sentence is also factually correct, but highly misleading.
No, it is not misleading. What IS misleading is sending folks to a site that doesn't say how the per well reserves were estimated. Did they pick and choose the wells? We don't know. In a technical paper, this would be discussed.
"Montana was at one point in time considered to be the hot spot in the Bakken. So, it got developed relatively early. Later, it was N.D. that was considered the hot spot, so many of the rigs were moved across the state line."
Yes, this is true. And the fact that they are going to go back to Montana as you say, further supports the 'go for the nuggets first' analogy. Nuggets - flakes - dust - molecules. Get it?
"You first tried to say that the Bakken was like gold dust, small, 4 billion barrels, and Prudoe bay was like a gold clump, large, about 24 billion. So, I pointed out that the Bakken was also like a large gold clump 24 billion, and growing!!! That turned your whole analogy right upside down, and in fact disproved the thesis of your whole argument..."
Not true. Go back and read the section. To quote myself, "The Bakken formation is estimated by the USGS to have an impressive 4 billion barrels of technically recoverable oil in place." I go on to describe the challenge of extracting oil from tight sands, thus correctly drawing the analogy to hydraulic mining and dredging. I then describe the environmental impact, again correctly drawing the analogy to hydraulic mining and dredging. Finally, I discuss flow rates of WELLS, thus correctly drawing the analogy between nuggets and dust.
You say that you are searching for the truth. Well THE TRUTH IS THE WHOLE, and it is described in a few paragraphs paraphrased above.
"Your latest trick is to now compare the number of wells needed to be drilled to eventually match the output of Prudoe bay. It will be many, but so what? Aren't you the one who said, "It's all about production rates." ???? So, is it all about production rates, or is it all about the number of tiny wells? Please let me know who the eventual winner is in this ongoing argument between you and yourself."
This is not 'my latest trick'. This is clearly stated in the article, "Whereas conventional wells like those in the Thunder Horse reservoir produce at a rate of 40,000 bpd, only 14 of the nearly 9,000 wells in the Bakken produce more than 800 barrels per day, and the average well produces only 52 bpd. Even at 800 barrels per day, 50 Bakken wells would need to be drilled for each Liberty/Thunder Horse size well, and nearly 800 of the average size Bakken wells would be required. In order to arrest North Slope declines, 700 average size Bakken wells will need to be completed each and every year." The point is that just like getting gold dust takes more work, capital, energy, and labor, so too does extracting the gold dust equivalent in oil fields: shale oil like that from the Bakken!
And, yes, I am the one that said it is all about production rates. And I said it in the article. "there is no escaping the fact that the Bakken wells are merely flakes of gold dust, and Prudhoe Bay and Kuparuk are the oilfield equivalents of colossal nuggets." Emphasis added... because apparently you need the important words to be highlighted.
" Please let me know who the eventual winner is in this ongoing argument between you and yourself."
The argument is not between me and myself. It is between you and me. AND - I - WIN!
Please move along now. I am finished my interaction with you.
What about the fact that world crude oil production has been stuck in a range of roughly 72-74 million barrels per day for the last 7 years despite new technology, shale oil reservoirs, deep water extraction, and record prices during this time period? I call this real evidence that peak oil may be happening right now.
Excellent article!
Thanks.
See, this is not a site for promoting or sharing stocks or "turning knowledge into money," as you say. This is a site for discussions about energy and our future, as you will notice from the ribbon at the top of the page. It's fine to come to the table with an alternative viewpoint, but instead of simply peppering posts with links, then insisting that anyone who responds is obviously a fool because they haven't grasped the info in the link, the onus is on the poster to extract the relevant information and bring it into the discussion here. Speaking for myself, I have neither the time nor the inclination to attempt to extract and interpret all the information in every link posted by anyone and try and figure out exactly how it's relevant to the discussion. This is especially true when it comes from someone accusing me of being stupid for not having read the web page in question.
So to answer your question: Everyone's problem is with the way you've presented your information (or not), disregarded the contrary points you found inconvenient, and then took a disrespectful tone with those who disagreed with you. Surely these are good points to be debating, and people have strongly held opinions, no doubt, but escalating the discussion into personal attacks through the use of rude language is neither necessary nor beneficial. Do you expect that is going to help people here take you or your points seriously?
WastedEnergy, My point about the stocks is simply proving that my money is exactly where my mouth is. It shouldn't be necessary to say that only a fool would invest their hard earned money in a sector or company, that one had very little understnding of. Having skin in the game forces me to get all my facts straight. No one else here seems to operate under those conditions. All of you can afford to be dead wrong. I can't! So, just try understanding exactly what that means.
It's not my mind that's bent all out of shape. I'm used to all this. Investors are trained to see both sides of every issue, or else we risk losing badly. Amatures can afford to be biased. You regulars at TOD are obviously not used to discussing oil issues with people of differing viewpoints. That's why you are all so hopelessly caught up in your own. The only issue here is whether you think the Bakken only has 4 billion barrels to offer, as the article states, or if it's more like 24 billion, as Harold Hamm states. The author seems to have admitted his discrepency. He therefore admits that I am right, (actually Harold) Now it's time for your admittence. Where exactly do you stand on the issue, that so divides this forum, and why? Then we will all know whether you take my points seriously, or not, and why. All you are doing is beating around the bush.
I think this is where you are having issues. You need to learn how to differentiate between money and energy. In addition, you are clearly under the impression that you can eat money.
Be sure to write back when you get rich, but don't let the lumpenprole know about it...
Carl, I suggest that if you look around a bit more, you'll find a much greater diversity of viewpoints on TOD than you give credit for. The purpose of the site is to promote in-depth discussion, not to enforce uniformity of opinion. If there is any particular viewpoint that is largely shared by posters here, it is one of a healthy skepticism towards any claims, especially those that appear to be overly bold, and a desire to review the best available facts behind them. I think this is abundantly evidenced by the fact that many posters have engaged in a thorough debate regarding the substance of your claims. You may wish to engage this discussion on a deeper level, rather than continually engaging in surface-level refutation and reassertion of your own correctness. There may be some good data behind what you are saying, but it's impossible to tell unless they are presented in the context of analysis.
As for the question of "where do I stand" -- I do not feel it is incumbent on me to make predictions one way or the other on the size of the Bakken play. I will leave that to the geologists and oilfield engineers. My background is in the social sciences, so I am much more qualified to chime in on the political and economic aspects that impact upon the discussion. As others have pointed out in this thread, there is a lot more to it than just the size of the URR. What does it mean in the larger context of U.S. domestic and global oil and energy picture? How long will it take to produce 24B barrels? How much will it cost? Does the size of the play even matter in the end? These are all relevant questions that cannot be fully addressed without considering political and economic factors.
So what I am doing is making the case for said skepticism, in this case just by trying to add some context to the discussion by pointing out that there is reason to believe Hamm's claims, and those of the media outlets who trumpet them, are potentially tainted by political or financial considerations. Just as an example, he dismisses SEC standards for proven reserves reporting out of hand. My inclination, not being an expert on the subject, is to believe perhaps there is a reason such standards are in place and that we cannot take the industry's own claims at face value. Since you seem to believe you are an expert, perhaps you can explain to me why Hamm is right and the SEC is wrong. The ability to make such a point is likely to serve you well in advancing your arguments and will certainly serve to educate me better than just making dismissive assertions. I think trying to force this into a discussion of simply 4B vs. 24B does a disservice to the community by shutting down discussions of the many nuances and details with the potential to color the debate.
As of December, 2011 it is widely agreed in the oil industry, and now also at TOD, that the Bakken offers at present at least 24 billion recoverable BOE, not 4.
I don't think too many experienced oil men would accept that without seeing a lot more data from a lot more wells, including core samples and well logs. We've seen too many overhyped plays go south when people actually started drilling up the prospects. We've also seen too many people lose their life savings investing in them.
4 billion barrels is the USGS estimate, and the USGS has a long track record of being overoptimistic.
I would be more inclined to accept Mr. Hamm's opinion if he had a degree in geology, or a degree in petroleum engineering, or a degree in anything, for that matter.
Hamm doesn't have a B.S. degree, but he does have a Phd in B.S., imo.
Regarding discussions with shale promoters, I am reminded of the famous Upton Sinclair quote, "It is difficult to get a man to understand something when his job depends on not understanding it."
But I thought those who were personally invested couldn't afford to be wrong!
I don't know, jabberwock, but I can tell you that my patience was certainly tested by the personal attacks from trolls quoting reserves estimates made by vested interests to counter claims I never made.
These types of claims/attacks/exchanges disincentivize authors like myself from writing and publishing here.
I personally have a fairly thick skin, and such responses will not dissuade me from submitting another article at some future date, but the decision to spend many hours writing and researching often happens on the margin in today's busy world, and others may not be as willing to invite abuse.
At another level, the neotrolls should be taken as a compliment by the editors and contributors. TOD is no longer so fringe. This and the previous article that I published here were both picked up by Business Insider. Reaching a new crowd with a powerful message is sure to attract the ire of those that don't like the message.
The real question, is what to do. The answer, of course, is up to the individual. But I'm not ashamed to say that I learned some things from the folks that put the trolls' arguments to rest. So, while they may detract from the conversation, they do inspire responses which are thoughtful and educating.
dandyone... your work on the subject was excellent. The so called "Trolls" have been around for the millenium. We must remember that crap Galileo went through with the church back in his day.
There seems to be a great deal of Cognative Dissonance out there. People just don't want to face up the fact that "Everything is not Fine". To prove my point... here is the latest news from the middle east:
It's On: Iran Closes Straits Of Hormuz, Oil Explodes
Iran has closed the Straits of Hormuz for military training as was expected yesterday, according to RanSquawk. Oil, and all other commodities, are outtahere.
-------------------------------------------
It's not just geology and peak energy we have to worry about... its also the clowns up in govt and business who are making a bigger mess of things than they already are.
SRS, your link didn't seem active, so I searched a bit and found more info on rumors about this Strait of Hormuz story:
Iran closes the Strait of Hormuz
Oil prices go nuts as Iran closes the Strait of Hormuz
Iran Army declines comment
Sounds as though this rumor that Iran had closed the Strait was just that, a rumor, but it sure is interesting if the mini but "immediate" spike in the price of oil does turn out to be of the cause-and-effect type of oil spike, in hindsight.
If nothing else, it's an interesting story to follow this week.
Petrographer... Yes, I have been watching CNBC, and they don't even know what is going on. It does look like a rumor, but there have been threats in the past week from Iran that they would close the straights. We will see how this plays out.
If Iran does decide to close the straights, this throws all supply/demand models out the window. Funny that Obama announced that he wants his "Military Drone" back. What an arrogant statement after Iran has had numerous attacks on bases and plants in the past several weeks.
It is actually rather amazing how comforting the otherwise grim models are when confronted by reality.
OK, I'll take my turn at this:
Carl, this statement of yours is one of several that you've written that sums up YOUR biases, while at the same time you are making yourself out to be the only one who takes the high road.
Nobody here on TOD cares if you don't "believe" in Peak Oil, because Peak Oil is about geology and flow rates, not about what a landman, or CEO of Continental Resources, "believes".
Myself, I've looked at lot of core samples in thin section over the years - including several for Continental Resources - and I've also looked at more than a few investor prospecti. Of course there's a lot of money to be made in our industry, good for you to work at making even more.
I'll bet that you've looked at, and maybe written, a prospectus or two along the way, but how much geology do you know? How much do you REALLY know about reservoir characteristics? About porosity and permeability? About reservoir heterogeneities? About why the Bakken is only now being produced instead of in the late 1950s? About EROEI? About the the scientific method itself as it applies to petroleum geology and petroleum engineering?
Your comments, FWIW, are coming off as arrogant and condescending. I could care less, I'm just telling you how they sound. As several others upthread have already pointed out to you over the past 24 hours or so, this blog welcomes fact-based discussions of all types, backed up with rational analyses. Good for you to insist that H Hamm's 24 billion barrel estimate be recognized. Good for you to point it out to the author more than once. But I haven't seen YOUR reply to comments above - all worthy of reply, IMHO - from Will Stewart, sunnnv, NullHypothesis, Jonathan Callahan, bannedonsomewebsites, and of course several from dandyone (the author), which directly address some of your prior statements, assertions, and comments.
I've read over each of your comments this fine morning, and I'd say that if you only come to TOD "once in awhile for a laugh" about us good 'ol boy know-nuthin' Peak Oilers, well good for you that we've made you laugh.
I'm very interested in this comment from your post:
(my italics)
Seems to me that you already know one of the major reasons the Bakken won't be able to replace Prudhoe Bay's production even if there are 24 billion barrels in the Bakken. The production RATES are not the same, and they are very very unlikely to ever be the same based on the reservoir properties of the two, as currently understood, and our (by that I mean petroleum geologists and petroleum engineers) understanding of them is QUITE good.
If and when you decide to lighten up on your high-handed attitude toward this site and its posters, and by that I mean that when you're ready to stop insisting that only you are right and everyone else is wrong, and that only you can recognize the truth, and everyone else has a problem, and that only you can "prove" Peak Oil or not, and everyone else is just wasting time by blathering on about the issue, and that a well-thought out, well-researched article such as this one comparing yellow gold and black gold from a historical perspective is just wrong because you can't wrap your brain around it, and instead keep insisting that we "go educate ourselves" at the website of Continental Resources until we "understand" the oil industry, then your comments will be better received by the TOD crowd.
Hopefully the consensus is that we don't let the trolls starve, just to keep us honest, but we don't force-feed them either. We've all seen plenty of "we'll you're just wrong" comments and raised voices on both sides, I'm afraid, but we're human. The number of people here who take the time to dig up numbers and links in their replies is staggering, and it's worth reading a few flames. Hopefully anytime someone argues with a previous comment or the article, they will continue to add information with each post, I'll even take a hundred cornucopias with numbers. Thus far they all seem to get poned pretty quick though... Clearly the Bakken and Canada are on the up & up, which is great, cause that puts them in a real exclusive club of late...not too excited by those cauldrons of boiling clathrates in the arctic though...
You have put a lot of effort into replying to the troll, dandyone. It is likely not good for your health and beyond a few initial responses, not very useful. It may be wise to move onto other things.
I don't take kindly to the personalized nature of the attack... but I've now said all I need to say, as Carl has admitted, finally, that he could find no factual errors in the article. In fact, all the errors were made in his reading what he wanted to read rather than what was written.
But, this has been good fun, and as I put it in my last post, I'm done with this conversation.
Cheers from sunny Seattle.
I am a primary care physician ( MD practicing for 43 years) who has NO knowledge about oil industry. I read TOD al least 4-5 night a week only to learn. I have no investment in oil stocks. In fact, i am not in stock market at present. I am very much interesed in PEAK OIL because our society depend on it. I learn a lot from all wonderful people on TOD with amazing knowledge about PO. Carl, Please respect their opinions because people like me are not on TOD for investment. Thank you
http://www.undeerc.org/price/
click on 'text version'
Thanks for posting the link.
That is Leigh Price's 'non peer reviewed' paper many have wanted to see.
Thanks very much, that looks very interesting, especially the 15 pages of conclusions.
Was this a draft for a USGS Professional Paper?
Something to read over the holidays.
Dr Leigh Price died before the peer review was completed. Dr. Price deserves credit for the research that led to this bakken boom.
Reading through his paper, it is clear that Dr. Price wanted the oil that happened in the bakken to stay in the bakken. I don't see the big deal. The conclusion that oil migrated through horizonatal fractures is plain goofy as is the conclusion that faults are rare in the WB.
1) a lot of oil was generated.
2) proponents of the 24 Gb EUR want everyone to believe recovery can be estimated pseudo-volumetrically as if this were a pseudo-conventional reservoir.
3) performance does not suppport the pseudo-conventional recovery estimates.
Volumetric calculations of EUR for a conventional reservoir are straight forward: oil in place x recovery factor. Recovery factor is usually easy enough to come by based on analogy with similar reservoirs with the same drive mechanism. Of course these calculations are preliminary and will need to be adjusted based on performance.
Volumetric calculation of EUR for a fractured reservoir is all but impossible. Fractures account for a small fraction of oil in place and most of recoverable oil. Intergranular porosity accounts for most of oil in place and very little of recoverable oil.
Applying a bulk recovery (i.e. pseudo-volumetric) factor to a fractured reservoir is useless, imo, recent SPE articles from U of ND notwithstanding.
Thank you for the link. Compared with high temperature hydrothermal and magmatic ore deposits, thats some mighty boring geology HAHAhahaha..... but I could get excited about it....
More geochemistry than geology, really. And way too long.
Derik, Jonathan
I've never heard of this discovery
in 1953, the discovery of oil in a small town West of Fairbanks ushered in the modern era of oil production
and I've been in Fairbanks better than twenty years. The web hasn't turned it up for me either. Kattala, west of Anchorage, produced oil from 1902 until fire crippled the refinery in 1933, but you referred to that locale yourself.
On September 20, 1953 a local group, the Alaska Oil and Gas Development Company, started exploratory drilling in the upper Cook Inlet and they were followed in 1954 by Phillips, Ohio, Humble, Richfield, Shell, Texas, Union and Standard Oil of California. As far as I know all these efforts were in south central Alaska (where Anchorage, not Fairbanks sits), some may have been operating more to the southwest as Iniskin Unit Operators did drill on the Alaska Peninsula in 1954. True all that work was "West of Fairbanks" but that is a rather unusual way to describe locales better than 300 miles to the south.
In the north there was Navy sponsored exploration of NPR-4 (Naval Petroleum Reserve Four, now National Petroleum Reserve in Alaska or NPR-A) from 1945-1952. It was terminated in 1953. Oil and gas had been discovered but not in commercial quantities. That area is also technically west of Fairbanks but as it is 400 miles to the north "West of Fairbanks" would be a very unusual way to describe that as well.
Anyway if you can come up with the small town "West of Fairbanks" where oil was discovered in 1953 I'd love to know the name. Generally the resumption of drilling in the Cook Inlet region in 1953 is considered the beginning of the modern oil era in Alaska. Interestingly Fairbanks itself sprung up as a gold town founded by accident when a load of supplies headed up river in late summer 1901 on the way to supply hopefuls headed to the Klondike (taking the new Eagle-Valdez trail) was unceremoniously set ashore due to low water in what became downtown Fairbanks. A prospector had just found good color in the area and a couple years later thousands of miners descended on Fairbanks from the Klondike. So Fairbanks really was first gold rush in Alaska after Nome. In 2008 Alaska produced 800,000 ounces of gold with two of the larger mines in the general proximity of Fairbanks. Not a bad trickle after all these years, but not close to Nevada's flow.
Luke,
Thanks for the comments. As for the 'modern era' statement, this Eureka discovery shows up on a couple different Alaska timelines, but given that the same phraseology appears in more than one of them, it is certainly possible that the first to make the claim is incorrect and that the others simply perpetuated the inaccuracy. Try googling "oil well eureka alaska 1953". You'll get a couple of pages that say the same thing.
As far as claiming that this particular well ushered in the modern era... well, who knows. You are right that the ARCO Kenai field is far more visible. I guess we need a more stringent definition of 'modern era' to settle this discrepancy.
Cheers from misty Seattle,
Derik
Well that explains things. The Eureka well was drilled near the Glenn Highway which runs northeast from Anchorage to Glennallen.
Fairbanks is about 250 air miles NNE of Palmer (around the bottom of the "K" in the small state map inset in the upper left), Anchorage is about 35 miles to its SW. Don't know if the Eureka Summit & Lodge has anything to do with the Eureka well, not much detail came up on the first sites I hit. We could be talking about the same well from the vagueness of the info I've found. I've a feeling the well was drilled somewhere around the Anchorage/Palmer stretch as there are gas plays in the area now.
I was pretty sure you were in Seattle from the post. It was an enjoyable read. On the way back from Kauai around Thanksgiving last year we stayed at a B&B a few blocks off Broadway--figured we'd acclimatize ourselves some before heading to the deep freeze. Wrong, wind and blowing snow in 25 F Seattle (the buses stacked up spinning their tires at the bottom of the hill) while it was above freezing and raining in Fairbanks (that lovely thaw gave us thick packed snow turned to ice that didn't wear off parts of the roads until breakup in April).
Oh... My mistake, I just went into Google Earth and found Eureka. Not being from AK (or ever having visited), I made the classic rookie error! (In the words of Homer Simpson, 'Doh!') You gotta love the fact checking that only TOD readers can accomplish (with the exception of Carl... whose name will be etched in my psyche forever... or at least until Christmas).
I used to live within a couple blocks of the B&B that you probably stayed in (and now live about 1/4 mile down the hill). I bet you spent some time in Joe Bar given the conditions. A friend of mine runs that little cafe, which has been written up in the Washington Post among other places, and I like to brag that I was the first customer.
As for the snow in Seattle... well, yeah, we make lots of rookie mistakes when the pineapple express delivers frosty flakes! Being fiscally minded, the city opts for 'Road Closed' signs in lieu of salt trucks. Sand doesn't cut it on the steep hills!
Nicely done, the relationship between the rise of Bakken to the fall of TAPS oil flow has been one I mentioned more than once on these boards and in replies to emails from friends and family that hyped the Bakken 'solution.'
A couple points on North Slope Oil. BP did not discover most of the North Slope oil but they did to a heck of job of squeezing everyone else off the plays over time. Independents who would be more active were essentially frozen out by the high access fees to the collection facilities. These old facilities are pretty beat up as well. The only access to the TAPS has been through the now fully BP operated facilities (Conoco is half owner). The exorbitant tariff for using them was meant to discourage other players and it worked marvelously. The decline did not need to be as steep as it's been. I hear the rates have come down some of late.
There is new Bakken type player in town with lots of big plans, but no holes in the ground to show--yet. That may soon change, but I do wonder just what the economics of tight shale operations would be north of the Brooks Range. I'm listening pretty hard to hear the Bear-Halliburton team's spinning bits, but so far I just get Duncan's spin. We will see.
One other small point on the temperature of the oil going through TAPS. Koch Brother's refinery in North Pole actually runs about a third of TAPS flow through it cooking off mostly jet fuel while then returning about two thirds of volume they originally took but what is by then somewhat depleted partially cooked off crude back into TAPS. This raises the temperature of the oil in the line by about ten degrees F if memory serves. Of course the refinery cuts back operations some in winter because of higher operating costs, that is of course when TAPS could use even more heat. Well that's the free market for you.
Great points. I did not know of the 'BP box out', but I'm not surprised.
As for the oil temperature... if I recall correctly, the TAPS is tapped for the military base. Good point. As for the temperature, this is another good point. The numbers I quoted were from an Alyeska document.
I don't know why I didn't think about adding this graph sooner. What happened in gold also took place in silver. Of the top eight silver producing states in the United States, six of them peaked before 1937.
Colorado had the highest annual silver production of all 50 states with 25.8 million ounces produced in 1893, almost 120 years ago. New Mexico peaked in 1885, Montana in 1892, California in 1921, Utah in 1925, and Arizona in 1937. Even though Idaho had its true peak in 1966 at 19.8 million ounces, it surpassed its previous record by only 200,000 ounces, which occurred in 1937.
Nevada peaked late in the game due to two factors: 1) it has recently become the largest gold producer in the country currently, providing nearly 75% of nation’s gold. (with gold mining comes by-product silver), and 2) due to the McCoy/Cove Mine, which single-handedly mined 11 of the 27.4 million ounces Nevada produced at its all time peak in 1997.
So when you think about it, the majority of silver producing states peaked in silver production over 75 years ago even with new technology.
There are two adjacent refineries in/near North Pole, Alaska, about 12 miles from Eielson AFB. The smaller of the two, Petro Star, is a 17,000 bpd facility that supplies jet fuel to the air base. The larger, Flint Hills, rated at 220,000 bpd, can ship as much as 200 railcars a day (usually half that) of jet fuel to Anchorage where the air carriers refuel on their northern routes (allowing them to carry more revenue generating freight weight). The two refinery capacities may be a bit of apples and oranges with the former referring to refined product and the latter referring to total crude pass through, I'm too lazy to track it down.
from the June 15, 2011 Alyeska report.
Gents, your 'breathing through a straw' analogy just made me think of my own: the Icee/Slurpee analogy (don't know that it applies well globally, but here in the states, I think even kids are icee-aware [for the rest of you, it's a cup of finely ground ice with flavored sugar water in it]).
So you're drinking an icee - big cold gulps of icy goodness. Suddenly, about half way down, the music stops. You've still got half a slurpee, but now to get your icy goodness out, you've got to bang it on the table. You've got to take the straw out, and poke holes in all over the place instead of just leaving it in the middle of the cup and sucking contentedly. Worse yet, even though you've got half a cup left, it probably isn't tasting as good anymore - it's the equivalent of low grade ore or tar sand, cause you've sucked alot of the sugary liquid up, and suddenly you're getting alot more ice as a percent of the mix than sugar water. Sound familiar? Further, it doesn't matter if you have a small, medium, or large icee on your hands - about halfway down the cup, you're still doing the bang it on the table routine, and you find yourself less satisfied - your ability to extract icee per unit time is no longer meeting your demands for it, *but you've still got half of what you started with*. You've reached the dreaded Peak Icee!
What do y'all think? I'm gonna try it out on my daughter. My wife found it pretty compelling (though she's already in the know)...
That's a good analogy. Effective for the layman.
Of course, the gasoline still flows with just as much perceived ease to the driver filling his/her tank... but the price goes up because he/she has to pay for the producers' troubles.
I agree that we need to kick our addiction to oil:
1) N. American oil independence isn't nearly good enough: imports from Canada and Mexico hurt the balance of trade just as much as Saudi imports.
2) US oil independence isn't nearly good enough:
a) import dependence for many other countries makes their economies vulnerable to oil shocks - that leaves the US almost as vulnerable as it is now.
b) import dependence for many other countries makes them militarily vulnerable - that's unacceptable to the US (that's realpolitik).
c) The US would still be vulnerable to the disruption of oil shocks.
3) oil is too expensive, even if it's domestic.
4) oil is polluting.
------------------------------------------
That said, I think intellectual rigor/honesty demands that we reject the gold analogy as misleading:
Bakken oil's production hasn't behaved like gold at all: it peaked in 1992, and reached a low point in 2004. Anyone looking at that and stopping in 2004 would see a classic peak, just as described in the gold analogy above. We see also, however, that the current level is far above the peak, which the gold analogy wouldn't predict.
https://www.dmr.nd.gov/oilgas/stats/statisticsvw.asp
The lesson here: prices and market responses are still important, even for oil. it's not all geology: if the price rises, supply will respond in a significant way.
It's not all that bad an analogy Nick. Fort Knox gold mine north of Fairbanks is producing more gold than has been mined in the region for a good long time but the tons of earth that need to be moved to get that ounce of gold are orders of magnitude greater than the tons that had to be moved when men were melting holes with steam points and pulling buckets of dirt up with hand and later steam powered windlass.
That is his point. The Bakken is producing lots of oil but it takes a huge amount of drilling--lots of pipe and energy to get it out. The Bakken oil is much more like the gold 'dust' we are mining in Fort Knox (.o24 ounces/ton) now than the nuggets they pulled out of the creeks near Dawson City, Yukon--that is the point of the analogy. I'm not going to dig up Fairbanks gold production peaks but we've had three I know of--each represented a new technology taking hold and each required more capital and energy to extract the gold. Of course because gold prices were fixed by the fed for some of that time the peaks are completely cross comparable.
Remember there is a huge amount of gold 'dust' out there but its awful thin pickings. A good enough price and a lot of dirt can be moved to get gold--a similar situation for drilling oil. It would take a much more comprehensive analysis than this rather pleasant story teller styled post to show whether high gold prices effect on the gold standard money supply economy had an effect at all comparable to what high oil prices have on a fossil fuel fired economy. The gold/oil analogy is good enough to make the main points 1.nuggets to flakes to dust 2. Bakken prodution increases are only taking up the slack created by TAPS flow decreases (not strictly year on year but in general). Don't try and take it too far.
...the tons of earth that need to be moved to get that ounce of gold are orders of magnitude greater than the tons that had to be moved when men were melting holes with steam points and pulling buckets of dirt up...
...Fairbanks gold production ...each required more capital and energy to extract the gold.
The Bakken...lots of pipe and energy to get it out.
I'd like to see numbers. I'd be curious to see how the inflation-adjusted dollars per ounce and gallons of diesel per barrel has changed. Until we have those numbers we don't really know how much it has changed.
Again, Bakken production has risen dramatically from it's first peak.
Just as important, Bakken production is very profitable.
Bakken prodution increases are only taking up the slack created by TAPS flow decreases...
That's not really a useful pairing. It's a way of saying that we can't raise US production, and that's not really true. Overall US liquids production has risen pretty significantly from it's bottom several years ago.
Again, I agree with the main thesis of the article: we need to transition away from oil ASAP. Recent increases in domestic production don't change that at all.
That's not really a useful good pairing. It's a way of saying that we can't raise US production, and that's not really true. Overall US liquids production has risen pretty significantly from it's bottom several years ago.
I beg to differ, emphatically. The average person is clueless about how much oil Alaska produced in the very recent past. It is a reminder of how far and fast our production has fallen lately--I consider a couple three decades lately, could be why I'm not in politics or a quarterly profits oriented board member.
The hype about the Bakken solution for US oil independence circulates email and has been blasted by the Limbaugh type media for years. The pairing is to give those capable of holding on to more than a single thought at a time a bit of sense of balance. Nothing about the North Slope/Bakken pairing suggests we can't raise production, everything about it shows what a monumental task it is.
I'd like to see numbers. I'd be curious to see how the inflation-adjusted dollars per ounce and gallons of diesel per barrel has changed. Until we have those numbers we don't really know how much it has changed.
I really can't tell what you want here as there are still 42 gallons in a barrel of diesel.
I'll just throw a few numbers out your way for you to hash around. As I said the current Fort Knox ore contains about .024 ounces of gold/ton. That does not count overburden. On the other end of the scale the best pays in the Fairbanks area in the early 1900s could be as rich $136/pan. That was $20/ounce gold so we are talking near 7 ounces a pan. Lets say a pan holds four pounds ore for ease of calculation. That would be 500 pans to the ton or around 3400 ounces per ton. Again Fort Knox comes in at .024 ounce per ton so the very best pays were about 140,000 times as rich. The easy stuff goes first, just like oil ?- )
Fort Knox produced at a loss when gold was around $240/ounce but the investment had been made and so they mined anyway--the cash flow was positive but the investment just wasn't paying for itself. That is very much how it works for oil and gas wells when the price drops. Operations like Fort Knox need a huge capital infusion to begin--magnitudes greater than needed to build gold dredges which needed magnitudes greater capital outlay than pumps and hydraulic monitors did, which needed magnitudes greater outlays than was needed to buy pans, buckets, shovels, wheelbarrows and windlass--. The Fort Knox mine draws 35KW off the grid and has backup generators. There is a 10.5 million gallon/year diesel use figure given but I can't tell if that is for all phases of the operation or just the backup generators. It's producing about 370,000 ounces a year now, though before it started the heap leaching it had to use slightly higher grade ore and did about 220,000 ounces a year. The pay area is expected to be mined out by 2017 with the heap leaching finish by 2021. Even the gold dust accumulations become too dilute.
That's not to say small operations can't make money these day. A few miles down the hill from my house a local outfit is mining the tailings piles the gold dredges left in the pre WWII gold boom. They were just scraping by when gold was under $300/ounce but have expanded a bit since then--but these type operations max at the thousands of ounces per year level and are often in the hundreds of ounces per year category.
In conclusion: if you have to move way more dirt per ounce and don't get gravity to do a lot of the work for you like it did with river and stream bluff devasting hydraulic mining I know without any study it will take more energy to get an ounce of gold. Granted its hard to get a more blatant example of cherry picking than my $136/pan above but with a factor of 140,000 to play with I'm certain fairer numbers still would work out that far less energy per processed ounce was needed early in the Yukon/Tanana gold days than at Fort Knox now. Note, I never said it took more capital per ounce to mine gold here now than in the past. That would take a much more detailed study than I have the inclination to pursue--I might drop by the mining dept. at the U out here on my way to the Cold Climate Housing Research Center someday and ask around about that, but I probably won't.