GNN: Energy Statistics from Britain

  • Total indigenous UK production of crude oil and NGLs in the third quarter of 2005 decreased by 12.8 per cent compared with 2004 to 19.3 million tonnes. Seven new fields started production after September 2004 but production from these fields was insufficient to make up for the general decline in production from older established fields.

  • The UK was a net importer of oil and oil products in the third quarter of 2005. This was because there was a large amount of planned maintenance work on North Sea oil platforms that coincided with the shutdown of the large Schiehallion field because of a fire and the prolonged planned maintenance shutdown of one major oil refinery.

  • Overall primary demand for oil products in the third quarter of 2005 was 2.2 per cent higher than last year.

  • Deliveries of unleaded motor spirit fell by 8.2 per cent. Deliveries of Derv fuel and aviation turbine fuel increased by 6.9 and 15.6 per cent respectively.
(link, as found at Keep this piece by Stuart in mind as you are reading over this.)
Just think, if the USSR could have held out for another 15 or so years now they would have a chance to win the cold war! As it is, the UK looks like a tough place to be for the forseeable future.
Has anybody considered how sizeable the buffer in actual world oil supply is?

Let's do some quick math. The world consumes 85 million barrels per day, of which Americans consume 22. That means every day, day-in and day-out, we are drilling for, pumping, pipelining, shipping, and refining 85 million barrels.

 But most oil is not used where it is found. How does it get where it needs to go? Mainly by supertankers. Supertankers come in basically two sizes, or capacities - 1 and 2 million barrels, with smaller versions to allow transport through some of the world's shallower, narrower waterways. Let's say that the average tanker holds 1 million barrels of crude to make things easy.

Now let's assume that there is a refinery complex on the east coast of the United States that receives and refines or forwards (via pipeline) 1 million barrels-per-day of the US's imported crude. That would be roughly(only) 10 percent of our daily imported usage and 5 percent of our total usage.  That is, on average, one supertanker per day. Maybe it takes three days to offload a tanker, but there are three berths in the port, so there are always at least two offloading. My point is that we don't need to be really exact here, we just need the basics.

But remember, this particular oil is coming from the Persian Gulf. Let's make it the huge Saudi oil terminal at Ras Tanura, so frequently mentioned in discussion of this topic. At least half of Saudi's oil is being exported from Ras Tanura which is in close proximity to the Ghawar field. That is 5 million barrels per day, or 5 supertankers which are being filled and leaving port - every day.

But it takes a ship 3 weeks to get from the Persian Gulf to the US. This means that for that one simple "million barrels-per-day" being loaded in Saudi Arabia and offloaded on the East Coast, there are approximately 21 million barrels (or 21 tankers) en route. This is quite a large "buffer" factor.

Remember, we are only dealing with one small portion of the world-wide oil market. Who knows how long it takes for the other 84 million barrels-per-day to reach their destinations? To be sure, some trips are much shorter - but some may also be longer. Add to this the various holding and storage facilities around the world.  The US Strategic Petroleum Reserve is, I believe 600 or 800 million barrels. I had always envisioned this as a rather small amount if in fact there was some catasrophic failure of supply - and it is.

However, if we look at all this oil between source and destination in terms of a "buffer," it is not hard to see how it creates quite a significant lag between supply and demand.

When we talk about supply and demand, we might for instance notice a steady 2% month-over-month increase in usage and therefore begin to worry about a theoretical possible shortfall in supply. In reality, any temporary/moderate shortfalls in supply can be "weathered" by the system.

As an example, 2 million barrels of Iraqi crude and another million of Venezuelan suddenly dissappearing from the supply chain would certainly be problematic in the long-run, if the deficit were not made up somehow. But in the shortrun, this buffer of (I'm estimating) 500 million barrels en-route, plus various strategic and logistic amounts in storage worldwide amounting to probably another  (Again, I'm guessing) 2 Billion barrels make that 3 million barrels lost seem insignificant. In the mid- to long-term, the system reacts and makes up the deficit.

Again, I am not talking about peak-oil and depletion here - theories which I both acknowledge and support.  My point is that I'm not sure how successful we are going to be matching recent historical charts of supply and demand. The oil we are extracting today (supply) doesn't become the oil we use (demand) until at least three months down the road - maybe more like six. Demand for distilled products - gasoline and jet-fuel - involves yet another lag.

The mechanism we use to smooth the system out, or provide a stable price guide for the corporations, countries, and entities that operate in this environment, is of course the Futures markets for oil contracts.  The availability of financial derivatives for commodities allows for speculation which has been blamed for recent increases in oil prices, however, these same derivatives also allow for hedging and preparedness against possibly (almost certain,in my estimation) even higher future prices.

The steady, relentless increase in oil prices from $20 to $60 over the last three years is a reflection of the "expectation of tightness" between supply and demand.  Real concern  over "peak-oil" is certainly a major factor contributing to this.

I'm just an amateur, but wouldn't a 500mb buffer amount to only about 6 days of world use?  And even so, I'm not sure it makes sense to look at it like a buffer. We also have eight minutes of sunlight "buffered", but that wouldn't really help us much.  

I guess the oil buffer would help a tiny bit if at the first hint of trouble we drastically cut demand (e.g., by forbidding non-emergency automobile use).

yes, it is roughly 6 days use, but that isn't the point. We aren't at any one time losing all 85 million barrels for 6 days. Only, at most, 3 million barrels (say Iraq, part of Venezuela, and a severe GOMEX hurricane). My point is that when you view this 3 million in the context of at least 500 million en route, the sysytem is a lot more inherently stable than one would believe listening to some of the doomsayers.

There is usually plenty of time to reroute oil that might have been intended for less-critical usage to the critical points. Temporary price adjustments help facilitate this.

I, for one, don't view Iraq as lost production. If you look at Iraq long-term you'll see what I mean. Iraq was pumping 2 million bpd in 1973. 1973! That is roughly what they pump today. I would use BP's numbers back to 1965, but BP doesn't even list them.

Iraq has always been problematic. Always. They have the second largest conventional reserves after Saudi. They should be pumping at least 6 million barrels per day. Put simply - count on Iraq for nothing in the short term. View them as having a potential upside of 6 mbpd. Prior to our 2003 invasion, the BEST you could say about Iraqi production was that it was erratic and subject to the whims of a single lunatic. Now all of a sudden it is a problem and cause for concern? I don't think so.

There are always going to be disruptions - both on the high and the low side. Look at 1997 and 1998. The fact that the price has remained between $10 and $90 for the last 30 years is a miracle as far as I'm concerned. For starters, $90 is cheap. Call me crazy, but for most of the recent past, the price has been both cheap and stable.

We just saw the highest gas prices ever in the US. Didn't cause many problems, did it? I'm not talking about local severe shortages, I'm talking about average price spread across the nation. People barely blinked.

I know Stuart will disagree, but there is no data to show that $3 gas changed people's behavior. Simply because the phenomenon was too short-lived. Any perceived reaction may have been due to initial shock. A dollar increase in gasoline only translates to $500 for your average driver over the course of a year. The vast majority of Americans would fail a simple quiz on the history of gasoline prices over the past 5 years. They simply have no idea of the capacity of their tanks, their EPA mileage, or anything else related - they only get outraged because they see their local newscaster saying something about it. They spend more everyday on coffee. The people who visit this site are the few who have a clue.

I am not as optimistic as you are about Iraq.  I think they permanently damaged their reservoirs with the things they did during the sanctions era.  They'll never get that oil back.    
Prior to the invasion Iraq was pumping about 2.5 mbpd; the past 2 months production has collapsed to between 1.1 and 1.2 mpbd; that's a fairly significant difference in a tight market.

Whilst I understand the geology behind peak oil, global supply constraints are all rooted in long-standing geopolitical issues that have impacted 2 key ME produccers - Iran and Iraq.

No it's not.

I implore you to look at the history of Iraqi production from 1973 to the present.They have pumped as much as 4 million barrels per day and as little as zero. And these are not one-time deals. Start of Iran-Iraq War, Gulf War I, UN Food-for-Oil, Saddam just deciding to stop (circa 1998-2001, I forget). I'm not kidding either. And I know. I went down the month by month list before I wrote my first post, so I wouldn't look like a complete fool - I don't make this stuff up.

Yeah, you could call it 2.5 mbpd, or whatever. But it's hard to say what would make your number better than mine. Catch my drift.

This situation has existed since at least 1973. Try taking all your models, all your assumptions, all your theories, all your everything - and removing Iraq from all of them. Step 2 - rethink everything. Now, did anything change? I don't think so. You may think so, but if I showed you graphs - one with Iraq, one without, with no labels - you wouldn't be able to tell the difference.

Iraq doesn't appear on BP's 2005 World Oil review total world oil production spreadsheet which covers 1965 to the present. Has anybody else noticed this? A lot of people on this site use that as source. I just noticed this today, maybe I deleted the line by accident. I'm waiting for someone to tell me I'm hallucinating.

Maybe you are hallucinating. The Iraq numbers are in this pdf version of BP statistical review 2005 (oil production)
This is an interesting and useful perspective, but I don't think it's accurate to consider all oil in transit as buffer stock. The Strategic Petrolem Reserve, or an onshore tank farm, are true buffers. They can absorb extra oil when there is a surplus, hold it in reserve, and release it when there is a shortage so the flow is not interrupted.

A lot of the oil in transit is more like a pipeline or just-in-time delivery situation. If you speed things up so tomorrow's tanker arrives today, you'll still need to find another tanker to deliver tomorrow. There is flexibility, but not all of it is buffering. We certainly didn't have enough in-transit buffer to cover our Katrina problems--that required drawing stocks from the SPR and the EU.

Actually, you are quite definitely wrong. We did have enough buffer to handle Katrina. As far as I know, we didn't use the SPR. We only announced that we would use it, which is exactly what happened during Gulf War I, and I believe a few other instances in the last 10 years.

But aside from that, and more importantly, look what happened to the price of oil.

Look at the daily closing price of oil on the NYMEX. It was roughly $65 a week before Katrina hit New Orleans - just to rule out any pre-storm effect. (To be absolutely sure - it was $65 a week before that, and $62 a week before that).

We then have a HIGH closing price of $69.47 on September 1st - that was probably the same day it pushed past $70. Two weeks later the price is back down to $63 - lower than before the storm. If you use 4-week moving averages, it looks even less dramatic - in fact, you wouldn't be able to see the storm on a graph. This was in the face of a 10 percent cut in supply. I would say the buffer worked just fine. Maybe you'd like to argue some more.

The real reason oil moved past $70 in late August/early September was peak oil. You came to the right place if you want to understand that.

Oil just began it's next assault on $70, we will be there shortly. April at the latest. Have you seen the latest gasoline demand numbers? 9.3 million barrels per day this week. Holy Jesus. That's like July in a normal year. Of course demand usually drops off January through March, but I wouldn't bet that way - not this year, at least.

you are wrong about us not using the SPR:

"In its 30-year history, the 700-million-barrel reserve, which was recently authorized by Congress to expand to 1 billion barrels, has been tapped only three major times: 21 million barrels were released at the onset of the Persian Gulf war in the early 1990's, 30 million barrels in September 2000 and 24 million barrels last year after Hurricane Katrina struck. Those releases were so small considering the size of the reserve that one wonders why politicians are so dead set on having a billion barrels"

granted it wasn't much, but it was used.  it will be used more and more in the future as spare capacity dwindles and more "shocks" occur.  

an another note, do we have two Oil CEO's arguing with each other under the same nom de plume?  or perhaps Oil CEO may have a dissociative personality disorder...

I stand corrected. 24 over 600 million. I get 4%. How about you? Thanks for that 4% correction. What is your point, BTW? That I missed that awesome example of how 24 million barrels saved the western world? Maybe if you had read the rest of what I had written, you would understand.
On second thought(and this is Evil Oil CEO this time) you are wrong. You specify that it has been used only 3 "major" times. What constitutes major? And why is "major" important? I will surmise that "major" means it was suggested by the president and authorised by congress in some type of "crisis." The point being that "major" in this case is not really major at all - but at most 4% - and for all intents and purposes - irrelevant.

If one reads history, or other sources than your "unsourced" source, you will hear different things. Certainly transfers into and out of the SPR happen all the time to tide certain refiners/users over until better times.

Am I wrong? Has my bigger point about a relatively stable system with a large buffer supply sunk in yet or am I still full of **. Looking forward to your reply.

my point was that your facts were wrong.  i understand fine what you said.  i actually agree to a large extent.  i don't appreciate your arrogance or condescension, however.  

what is your point?  that buffers will save us in the long run?  

in case you didn't notice, that was a quote from the NYT, not my own writing.  they're called "quotes", see?  or maybe you don't consider the NYT a "source"?  take it up with them if you think they are spouting sh*t that hurts your precious ego.  

only the President can authorize a release from the SPR, as far as i know.  

arrogance or condescension? You accused me of having a personality disorder. What is that? Just being friendly?

There was no source in your text.Period. You would have had to have clicked on the link which did not specify itself as a link. It was hidden. No I didn't notice.

The article only verifies everything I've said so far.

I just like replying to myself on this thread because everthing I say is warmly seconded by Davdh's reply (below) to the thread above. Or so I think.

My "point," my Dear Isaiah, has been stated several times. If you don't get it, and I know you do - because you said you generally agree with me, then I really don't know what to tell you except,"Buy Halliburton at$60, sell it at $85, sell your Ford Explorer, construct a bunker under your backyard, stock it with MRE's and 5-gallon jugs of gasoline, buy a gun, and - for God's sake! - learn to swim."

you are quite hilarious, CEO.  i make some joke about a personality disorder because you reply to yourself with a very different tone, and you go off.  yeah, real mature; or maybe just insecure.  i fear for your employees, if you have any.  

and who taught you how to use the internet: your grandma?  it's called a hyperlink, and you should know by now what the default formatting and style is for one (at least the SOP for TOD). otherwise, you're going to be very lost in cyberspace...

although i agree with your point that we have large supply buffers built-in, in reality it's not beneficial.  precisely because, all these buffers promote complacency.  the longer we depend on internal buffers to smooth out the rough spots of supply, the longer it will take for people to wake up.  to start thinking about changing their lifestyles, pressuring for political energy reform, and searching for alternative energy sources.  

these disruptions should be warning signs of the approaching flood, not reasons to just buy more insurance and rebuild on the floodplain.  what we need is action, not docile cows strolling out to pasture.  without so much buffering there would be the chance for effective stimulus pre-peak, while there is still time, instead of the false sense of security that currently pervades public opinion.

Are we joking or not? You don't seem the type to take a joke very well. I tried a couple. I'm not sure if you laughed. Your tone seems very serious. All doom and gloom.
You wanna joke? Or you wanna talk about oil? You tell me. Just make up your goddamn mind. I'm tired of trying to figure you out. You're not worth it. I'd rather spend my time figuring whether El Paso is worth $12 bucks a share. So far, they've been worth it. You gonna give me more heat?
it's usually a little late to start joking after you overtly ridicule someone.  my joke may have been ambiguous, but your mockery was not.  it's also tough to joke with someone who needs to be right (and others who disagree to be wrong) all the time.  just a word of advice, no "heat".  
Please cool it with the personal insults guys. Debate is an excellent thing, but personal attacks lower the tone of the site. Thanks.
  1. IMHO, price is not a perfect indicator of supply vs. demand--there is a lot of emotion, large scale speculation, and vague information that roils the oil markets. And don't forget that the EU was also sending refined product to make up for the US shortfall.

  2. I seem to have missed your response to my main conceptual point:
A lot of the oil in transit is more like a pipeline or just-in-time delivery situation. If you speed things up so tomorrow's tanker arrives today, you'll still need to find another tanker to deliver tomorrow.

Yes, there can be a buffering effect, but only if you can refill the beginning of the supply chain promptly. If there is an oil embargo, or natural disaster, then less buffering can occur. The only way this seems to work is if there is 1) spare production capacity in the grades of oil the market demands and 2) spare transportation capacity to get it there. Aren't we seeing reduced spare capacity, especially of light sweet grades, and tankers being retired faster than replacements are being built?

Could you please explain how robbing Peter to pay Paul works? If Peter has more oil than he requires right now, then partially robbing him to fill Paul's needs works just fine. Otherwise, there is a problem.

I appreciate your consideration of my thoughts.

I hadn't thought about the Peter-Paul analogy, however it is very much what is happening on a short term basis.

I didnt know you had to explain how the Peter-Paul analogy works, I thought that was the point of an analogy - it is doing the expaining :) But basically - well, you Rob Peter to Pay Paul. Hopefully by the time Peter finds out he's been robbed, he won't care, because you have Paul on your side to help smooth things out.

Another, maybe simpler, analogy is that of credit. Same thing really.

Or in this case, I just thought of a buffer effect. If you don't fill the buffer back up in a timely manner, you are in fact in trouble, yes - but the whole point of the buffer in the first place was to mitigate an immediate onset of syptoms following a crisis for which the buffer exists (conciously created or not).

I just thought the whole tanker, pipeline, storage issue was interesting, because in years of following the whole oil issue, having read every major work on the topic, whether it had to do with logistics, financial, or strategic concern - I have never seen the issue given more than a brief mention.

I presented the math as concisely as I could. I started investing in a couple of tanker companies a few years ago, and have done quite well in this regard - that's where I started to see the data.

When I incorporate what I know into the whole "scheme" of things I see quite clearly how this immense amount of en route oil which we never really discuss actually effects the "numbers" that we all spend a lot of time here debating.

I just think it deserves more thought.

A million barrels of interrupted production is not what it used to be. Why? What I would call oil inflation. We used to use 60 million barrels per day. Now we use 85. So any number you choose as lost production is going to be less of a percentage of 85 as 60. So although we may be use that much more oil than we used to, and are therefore that much more dependent, we are also that much more insulated from a disruption of x amount. Am I making any sense?

I agree with your premise that the hurricanes did not last long enough to really change public habits.  It certainly had a noticeable effect for a time, but I think it's fading already.  Monitoring SUV sales as a percentage of autos sold might be a good indicator, although it is heavily influenced by general economic health.  Miles traveled and gasoline used are also good of course.

And the oil in transit is going to act to smooth out transient disturbances.  It will essentially reduce the amplitude and spread the effect over time - think of a flywheel, or and electrical inductor.  Smaller effects will become almost unnoticeable.  Of course this says nothing about the overall capacity of the system.  Real physical systems can also become oscillatory or unstable, and it would be interesting to consider if the oil supply system could mimic that too.  I'll have to put some thought into that analogy when I'm not being paid to think about other stuff.

Oh - maybe less caffeine? ;-)

exactly. you said it.
About the use of tankers as buffers. If a tanker motors along at 20 knots, it uses eight times as much fuel and gets to it's destination in half the time as if it motors along at 10 knots.
You are going to have to do more work on the math to make this mean anything. How much does a tanker use for fuel in the first place?

A tanker on the tanker spot market can go for as much as $100,000 per day. So at a million dollars plus for the trip, do we really care about fuel efficiency?

Remember, depending on the price of oil, the cargo alone is worth between 30 and 60 million dollars.

The cost of the fuel is not important as the cost of the lease rate of the tanker. If we lose Suez or Panama or Malacca, lease rates spike because the tankers have to go longer distances around the Cape or Sumatra or the Horn. So we burn more fuel to make the tankers move faster so we can conserve scarce tankers. When tankers are cheap and fuel is expensive (because expensive fuel decreases demand for fuel, which decreases demand for tankers), we run the tankers slower or lay them up, or both. Mostly the tankers just run along at the most efficient rate for the engines because they were designed to be as economical as possible for a given route. But we can turn up the wick on the tanker engines if we have to.