Trying to stay afloat in deepwater

I found this little tidbit in the October 17th edition of the Oil and Gas Journal (p 32 of print version).

"Deepwater reserves [for the US] fell to 4.1 billion bbl of oil, down 9%, and 19.3 tcf of gas, down 14%."


"New field discoveries totaled 33 million bbl, and new reservoir discoveries in existing fields were 132 million bbl.  Most of the new field discoveries were small finds in gulf [of Mexico] federal waters."

I don't need to tell you all that this is not good news.  This is the area where reserves and production are supposed to be growing.  Now deepwater reserves and production potential in the US are further along the development creaming curve than in other parts of the world, but reserve declines of this magnitude do not bode well for the future of the deepwater in the Offshore US, and are likely the proverbial "canary in a coal mine" for deepwater reserves in other parts of the world.

Boys, Distillate demand is back with a bang. Jump from 3.9 to 4.25. I expect oil to close higher. Product supplied this week was higher than same week last year. We bouncing back.
Yeah, but that's not demand, it's supply. With the arrival of European gasoline it looks like the refiners have switched back to distillate to replenish those depleted retail stocks. It's clear that we now lack the capacity to supply total demand for both gasoline and distillate.  Murray
fireangel, where do you find the 4.25?  The most recent number for 10/21 I can find is 4.293.  The 4-week average ending 10/21 is 4.034, which is not higher than 2004 4-week average of 4.093.  

PRODUCT SUPPLIED 9/30, 10/7, 10/14, 10/21
Distillate Fuel Oil   4,034    3,909    3,900    4,293

Murray, please enlighten me if I'm mistaken.  The EIA appears to be including imports and stock changes in calculating the Product Supplied, the two factors that many of us here are looking at.  Why is this not a good estimate of demand?

EIA Definitions

Product Supplied : Approximately represents consumption of petroleum products because it measures the disappearance of these products from primary sources, i.e., refineries, natural gas processing plants, blending plants, pipelines, and bulk terminals. In general, product supplied of each product in any given period is computed as follows: field production, plus refinery production, plus imports, plus unaccounted for crude oil, (plus net receipts when calculated on a PAD District basis), minus stock change, minus crude oil losses, minus refinery inputs, minus exports.
I found this on www.f**

"Rumor has it Green Mountain Energy terminated 1/2 of its staff earlier this month, this after having pulled out of Ohio and Pennsylvania."

As the largest retail provider of less-polluting electricity to residential and commercial customers in the U.S., Green Mountain Energy Company offers electricity that is:

Cleaner - All of our electricity comes from less-polluting sources like wind, water, solar, biomass, geothermal, and natural gas.

Reliable - The source of the electricity you pay for changes, not how electricity is delivered.

Shouldn't alternative energy companies be doing well now?

Not necessarily. People fail to realize how truly "energy dense" fossil fuels are compared to alternatives. Of the non-fossil fuels, only nuclear comes close to the fossil fuels and just about all of the alternatives, including nuclear, tend to be higher at the current time.

Remember, we are either just at peak or approaching peak, not past the peak. And remember further, that we are not near the peak of coal, a far dirtier but still very cheap energy source if we choose to pursue it.

In the end, people talk about environment but when push comes to shove, when the choice is dirty power or no power, most people will choose fossil fuels first. This is precisely why so many observers believe that the energy situation must become far worse before alternatives begin to really take off.

I agree with your post and add these thoughts.

Non fossil fuel energy will require more smaller production sites to replace an equal amount of energy.  This means lots of capital investment.  To replace a large percentage of oil/NG/coal it will have to be a mix of alternative energies spread all over the country, rather than a relatively few refining sites.  Lots of small integrated wind, solar, hydro coordinated into the grid with some going to transportation.  This will require a huge building boom.  In a climate of cheap oil there is not going to be enough return on investment (compared to other uses of the money) for capital to flow to those projects in any meaningful way.  They will be proof of concept, or additional, rather than replacement of fossil fuels.

Without some incentive I don't see the market shifting away from fossil, even after peak oil.  There will still be more ROI bringing small oil fields online.  This will be true even as supply continues to drop.  No one has been able to beat the energy density of fossil fuels with any alternative source.

Not sure if this is part of the problem, but I have two friends working in major CA solar companies who tell me the silicon backlog has severely hurt their business. The wait for panels is in months, customers are unhappy and they can't market their product.
It may be product supplied but that may indeed underscore that we have been undersupplying for weeks and inventories at the retail level were drawing down.

It is good news. The sooner the peak, the less profound will be the damage to the climate. "Bring it on."

When I see people making these comments, I have to think that they haven't thought through what they say.  If the peak passes us by and the back side is steep there will be little time and money to convert to other energy sources.  

Unless you are someone who would sit around a bonfire, burning books, and chanting "bring on the apocalypse" I can't see how you would say this is good news.  And if you think that 6 billion poor and desparate people will be easy on the environment, you need to go spend some time in places like sub-Sarahan Africa.


You are absolutely right.  We need to wish for change not disaster.  Above
I indicate the infrastructure required to replace oil.  That takes energy.  No energy no construction.

But on the other hand the sooner we peak the more smooth will be the decline. It is the decline rate that can lead us to the most disastrous scenarious.

For me you are both right I'd just take another approach than Quickbeam - we don't really need the peak itself to move away from fossil; we need an energy scarcity or at least an indication of it. If for example Saudi Arabia announce that they will close down Ghawar in couple of years to preserve it for the future - this would do the job. Unfortunately it is hardly possible in the current world arrangement.

I guess I'm feeling low on hope these days. Yes, we should be investing every drop of oil in infrastructure for sustainable energy - but we aren't and there is no sign that this is about to change. Yes, six billion people is far too many: all world governments should be providing large incentives to lower the birth rate - but they aren't and the prospects are not good to say the least.

Climate change will make all problems vastly worse, though.

Thanks for pointing out these deepwater numbers, Bubba. This is not good news. Why do you think that reserves numbers were reported higher previously? Could you expand on your remark that similar mistakes might apply to other deepwater regions (Brazil, West Africa, Malaysia)?
As people who are familiar with my writing know, popping the deepwater-production myth is one of my pet projects.  The first discovered, most profitable, and most explored and understood deepwater basin in the world is the US Gulf of Mexico. The oil industry still sees this basin as a growth basin with lots of exploration potential.  I am staring at an industry 2004 report that indicates a "yet-to-find" volume of more than 25 billion barrels of oil and oil-equivalent gas by 2014 for this basin.

Contrast that with the numbers to come out of the O&GJ article indicating both the magnitude of decline of the currently-booked deepwater reserves (both oil and gas) in the US and the small volume recorded as new-field discoveries.  Thirty-tree million barrels in new field oil reserves is less than 2 days consumption in the US. The poor record of exploration success was not for lack of trying, as many deepwater exploration wells were drilled in the GOM in 2004 (trying to find the number, but probably more than 25 and less than 100).

It should be obvious that there is a major disconnect here.  However, there is a strong institutional bias to not acknowledge that the emperor has no clothes.  There are huge exploration groups, programs, and capital budgets all set up and in place to explore for oil in the deepwater GOM.  If history is our guide, many many billions of dollars will have to be spent failing at finding significant volumes of new oil in the GOM for those programs to be shut down and the resources directed elsewhere.

As far as the rest of the world is concerned, you really have Brazil and West Africa.  Everything else pales in comparison, and those two other areas have been heavily explored.  The easy volumes have been found.  Those are the ones that could be seen directly on seismic data.  Now we are just muddling around in the dark like the old days.

The biggest problem that I see is this waste of resources on a "dying patient" that could be spent, given an acknowledgement of the problem, on a transition strategy to alternative energy schemes.  You may think that oil companies are just greedy, money-making, environment-destroying machines, but they are really large bureaucracies that will work very hard to defend the status quo and internal balance of power, even at the expense of making money.

That's a really well-written post at the link.
Thanks for the compliment. Since you didn't specify which link, I will narcicisstically(?) assume you meant both.
Actually the second, which I hadn't read before. The first is good too :-)
I also enjoy your blog posts. The chilling message you're sending out ought to sound peak oil alarm calls everywhere.

Anyway, for completeness on this thread, I had posted We're In Deepwater about 3 weeks ago. There, I cite some deepwater reserve numbers for West Africa and Brazil that you are clearly calling into question.

It seems to me that the corporate culture you are describing is past its prime and in denial. Old habits die hard. "Muddling around in the dark" -- indeed.

For some reason I missed your excellent post on this issue.  It basically lays out clearly everything I see on a daily basis.  Sometimes I actually have to work for a living, which really cuts down on blogging time.

I know that I am not the sharpest pencil in the bunch and I know that people like to look at moving averages, NEVERTHELESS -

looking at the current This Week in Petroleum Gasoline Section and particularly the gasoline demand, I note that for the week of 10/21/05, gasoline was GREATER than the corresponding week last year.

Can someone explain to me how this in any way bolsters the argument that there has been any demand destruction after the huricanes?  From my viewpoint, if there were any SUBSTANTIAL demand destruction, then this year's demand should be consistently below last years, particularly since we are several weeks away from the two huricane periods.


It is still lower then the trend PRIOR to the hurricanes when demand was running substantially higher than last year. As several people have noted that this is product supplied and seeing the sharp drop in NYMEx prices retailers may be delaying their purchases. I think that ended in diesel and hence we saw a 10% increase over last week. I think the same will happen for gasoline at some point. That will enable to pinpoint where demand actually was. Also, Falling gas prices are gonna prevent further demand destruction if there was any in the first place. In my experience I think there has been a cut back although I cant quantify it.
Hey question for everyone. EIA says that total product supplied was 2.2% lower over last 4 weeks compared to last year. Ok I get that. Now look at product supplied 4 week average for week ended oct 22nd 2004. This shows 20412 or less than 0.5% more than last four weeks this year. How is that possible?
fireangel, the numbers for 4 weeks ending 10/21 (not 10/22) for 2004 and 2005 are below:

Table 1. Total Products Supplied  20,311    20,766      -2.2%

Comparing the two 4-weeks ending 10/21 total supplied leads to the correct 2.2% drop from 2004.  Apples and apples.

Yes. In todays release. GO to this link and compare.

Is the EIA up to something? 1 day difference can make an average difference of 300,000 barrels over 28 days. That doesnt make sense.

fireangel, you're right, that's a bit messed up.  I wonder if it's not an artifact of EIA's datakeeping.  For example, if daily data is kept, but an entry (say import) is undated so gets classified as 10/22/04 because that's the date of the report, then that number would be truncated.  Just a guess, but I can't think of another reason for change in 300,000 barrels per day average over 4 weeks...
Thanks for posting Peatey.People put so much importance on these numbers and there is so much discrepancy on the EIA website itself. Thats crazy. Hoping for someone to figure this out. I am lost.