The Megaproject update

Thanks to Matt for pointing to the Sydney peak Oil site where the latest Megaprojects list from Chris Skrebowski has been made available. This is an upgrade from last October and shows some fairly significant changes. I haven't finished reviewing all the projects yet, since he now carries the projections forward past 2010 in more detail, and has also included more OPEC information. The latter is due to a more open attitude from OPEC, and a more detailed list from them. Their site is worth a visit. As a result Chris's list, for example, has seven new projects for this year alone that were not on the last list. His numbers now also reflect the anticipated increased production from the Athabasca sands in Canada, and also NGL and condensate production that can be anticipated from mainly natural gas wells.

To give a very rough number his overall projected increase in production, if all the projects now scheduled come on line on time and at current targeted capacities, is that production will go up by something less than 1 mbd a year over his last projection. To put this in context, back last October, estimating a 5% decrease in existing well production, and an average of around 1.75 mbd of increased demand per year would give an annual shortfall in production of around 3.2 mbd relative to anticipated demand in each of the next four years. He had anticipated that oil demand for 2005 would be 83.5 mbd, increased demand would be 1.4 mbd, while there would be an increase in supply of 2.4 mbd, of which non-OPEC would provide 1.5 mbd. Depletion would be at 4.2 mbd.

Chris's list is well worth getting hold of, and perhaps at some future time I can go through the anticipated projects in a similar way to that we did for the CERA list last year. Incidentally the first project on that list Bonga came on stream last December and has now reached 120,000 bd on its way to a target of 225,000 bd.

Of course the big problem, and this is not really addressed in the update, comes from the actual depletion rates, and the steps that are being taken to compensate. With Saudi Arabia admitting to a level of up around 800,000 bd/year in existing wells and then stating that this will be overcome by increased in-field drilling (ie not a new project) the numbers for offsetting production do not appear and we are left with trying to estimate changes based on rig numbers and the like.

Just to run over my own pet observation one more time, I do note that the list now includes Manifa to come on line in 2011 at 300,000 bd, and in 2012 at 700,000 bd. The reason I keep mentioning this is that Saudi Arabia list it as part of their available oil that no-one buys so "demand cannot be that critical". However, because of its composition that oil requires a special refinery and the Saudi's have only recently recognized reality and planned to build one. Thus the appearance of the oil on the projected market of the future. But it also recognizes that current Saudi projections of capacity are still about 1 mbd high.

Note that the gap between the most recent four week moving average of US crude oil imports versus a comparable period last year is widening--we are now down 4% year over year.  

Khebab and I predicted this in our article on the Energy Bulletin.  Following is an excerpt:

"We are deeply concerned that the world is probably facing an imminent and catastrophic collapse in net oil export capacity because of declining production and increasing domestic consumption in the top exporting countries. Figure 4 predicts that the combined oil production by the current top four net exporters will be reduced by 50% by the year 2028, which would probably equate to a reduction in net oil exports of at least 75% over the next two decades."

Great analysis. However, when projecting domestic oil consumption of exporting countries out to 2028, the relative wealth of the local consumer market is relevant. If the price of oil is high enough (driven up by importing countries) the level of domestic consumption in the exporting countries might drop (unless the exporting countries firmly dedicate a % of production to their local market at a below-market price).  
This assumes that market price is the sole deciding factor in choosing how much to export. However, as we are seeing in Indonesia, rising fuel prices can cause political unrest and instability. Various governments might opt for keeping some portion at home regardless of world price precisely to maintain that stability. In particular, long term hereditary monarchies (like Saudi Arabia) have great incentive to keep the local populace reasonably happy in order to ensure their own place in that society.
I agree with Greyzone.  I predict that we are rapidly headed toward a world with negligible net oil exports, at least compared to current export levels.  
Hello Westexas,

I agree with your assessment.  If one assumes that nuclear war with Iran can be prevented by covert CIA/MI-6/Mossad action to foster an internal Iranian revolution to overthrow the current ruling powers, it still portends bad news for Iranian export amounts.

Consider the first graph in this link found at Energybulletin:

Notice how much total Iranian production fell during the last revolution: ONE SIXTH of former output!  The production recovery, although accomplished in a quick time period, only rose to 2/3 of former output.  So even if we never go to war with Iran: the internal revolution will probably permanently remove any possibility of future Iranian exports as the remaining energy will be kept inside the borders!  Those countries dependent on Iranian exports are probably screwed either way.

Bob Shaw in Phx,AZ  Are Humans Smarter than Yeast?

There is a possible way to prevent having to use nukes on Iran. To generate regime change, all you need is to distribute those cartoons the Danes developed using a B-52 dropping pieces of paper, 60 tonnes worth. 4 cartoons per copier sheet but it pre-cut, the paper-bombing would result in massive unrest. Iran's government couldn't contain it. The result is severe instability.

A second idea I dreamed up is an upgrade of the Vietnam "Puff the Magic Dragon". For this, get an Airbus A380 and outfit it to carry and spray VX. You, the driver/pilot will have to wear a space suit. as you sit at its yoke. Drive/fly said plane over that road leading to Mecca during the annual pilgramage and LET THEM HAVE IT! That'll rile up EVERY moslem and generate regime change due to extreme unrest. Drive at about 300 feet up (OK, 100 metres) and spray away as you have your iPod going in your A/C helmet. Besides generating enough unrest to overwhealm Arab governments, you get to take out a bunch of terrorists.

Both cases end up being a case of "careful what you wish for, as you might just GET it!". In reality, there are really no easy solutions, like so many cases in Engineering but a lot worse off.

There are other reasons besides oil to expect turmoil and unrest in middle eastern societies. The Saudi market recently fell 28% in two and a half weeks and Dubai is down 53%.

The chief investment strategist for a major Wall street firm termed Dubai's 53% collapse "an adjustment phase" and told a Dubai daily newspaper, "We believe that Dubai is the Shanghai and Hong Kong of the Middle East." He'd better hope not. The Shaghai Stock Index remains down 42% from its bull market peak nearly five years ago, while Hong Kong's Hang Seng index is still down 13% from a peak in March 2000. Tuesday's Wall street Journal reports, "Analysts say the selloff in the Gulf shows few signs of spilling over broadly." It's a global "What, me worry?" in a mad world.

In an effort to prop their markets up, powerful interests appear to be borrowing their talking points from 1929. On Oct 29, 1929, as the firt wave of selling was crushing stock prices, John D Rockefeller issued the following statement: "Believing that fundamental conditions of the country are sound and that there is nothing in the business situation to warrant the destruction of values that has taken place on the exchanges, my son and I have for some days been purchasing sound common stocks." On March 15, 2006, Prince Alwaleed bin Talal issued a statement that implies even higher authorities are on the side of rising Saudi stock prices in 2006: "His Highness said that the Saudi economy is strong and fruitful and is backed by the Custodian of the Two Holy Mosques who supports the small investor. Buy and participate in companies that are respectable."

Like Rockefeller in 1929, Alwaleed bin Talal said he is getting in with a $2.7 billion investment in the Saudi market. Should investors take this as a bullish sign? In April and May 2000, after the initial fall in dot-com stocks, the same prince made the same bold $2 billion play - on internet stocks!...

...A quick outbreak of palpitations is already giving many investors heartache. A Saudi newspaper headline, "Hospitals on Bull Run as Markets go Down," hints at the hidden vulnerability behind many investors' confident exteriors. "A horde of Saudi investors have ended up in hospital with high blood pressure and acute stress after being unable to digest their losses," says the dispatch.

EWI, Mar 2006 (sorry, no link to subscription service)

It appears that investors may be on the verge of taking a bath in emerging markets, including the Middle East, as a series of bubbles peak and burst. I would expect the contagion to spread like the Asian Flu in the nineties, only more widely this time.

another example appears to be venezuela.
Virtually all oil-exporting countries subsidise oil usage for internal consumption. The exceptions I can think of are UK and Norway and these are expected soon to turn to oil-importers themselves.

I don't see reasons this practice not to continue with rising of oil prices - quite the opposite actually. Of course there will be some pressure on domestic consuption but it will be nowhere near the pressure on oil exports.

In fact, the subsidy the oil exporters give to their domestic consumers grows bigger with any increase in the international oil price.
So paradoxically, the internal absortion (consumption) rate will increase over time, as this subsidy makes their internal economies grow more energy-intensive. And as the difference between internal oil prices and international market prices grows bigger a growing chunk of oil is smuggled abroad for the profit of neighbours and smugglers.
So this factors add.. to a bigger, and increasing,(that is second derivative positive) growth in oil consumption in the producer countries.  
Norway is nowhere near a net importer.
Average production 2005:-  2.5mbpd
Average consumption 2005:- 0.17mbpd

As was pointed out to you yesterday, you need to add product imports before this "4% decline" becomes meaningful.  Part of what we're seeing is a shift from crude imports to product imports and you're ignoring this effect.  You're also also pointing out the number at one particular point in time, when the larger trend doesn't, at this point, look that alarming.  It's starting to come across as unfounded alarmism if you ignore important effects in order to make the number sound worse.


Fundamentally, crude oil prices represent what refiners will pay for the feedstock for the refineries.  

Light, sweet crude oil prices are up year over year, while total (heavy, sour + light, sweet) crude oil imports are down 4% year over year--and the shortfall is growing as time goes forward.

What does that tell you about the supply of net oil export capacity?  

Granted, some of the supply may be and probably is being diverted to the refineries in the exporting areas, but it's a circular argument.  Any way you slice it, the markets are sending a price signal that the US needs more crude oil imports, especially light, sweet crude oil imports.  

Furthermore, as domestic demand--especially in Russia and Saudi Arabia--goes up, I expect that slightly falling product imports will start showing major declines.

As I said last year, I expect that by the end of 2006 we will be in the teeth of a ferocious net oil export crisis.

Can you help me understand why, if the prices are going to be escalating with a dropping supply, that the expectation is that countries will KEEP their domestic usage intact and not be selling this precious commodity?  I tend to look at this like the adage about 'The Cobblers kid doesn't have shoes'..  What'll be more in demand, the energy, or the cash?

Other trends might also be precluding this market change, like the increase in Countries Nationalizing their fields, as the clear National Security importance of this resource makes itself more obvious to each state.

Hello Jokuhl,

I think what will be the key postPeak determinant in export amounts is how self-reliant or self-sustaining each country is in a purely biosolar domain.  Don't have the facts at hand, but it seems Venezuela's natural habitat should be able to water & feed its population with very little oil, versus Saudi Arabia's massive requirements to desalinate drinking water and import food.

If Chavez is smart, he should be encouraging voluntary birth control and Powerdown in Venezuela; to maximize biosolar sustainability, then they can sit on their reserves to use internally far into the future, or dribble out for export later at a vastly higher price.

Saudi Arabia, which has a very low quotient of natural bio-sustainability due to rapid and continuing pop. Overshoot and the parched desert climate, is therefore forced to export energy to import ever-increasing amounts of food and desalinization equipment in a fruitless effort to avert eventual political revolt when depleting exports cannot match basic lifeneed requirements.

Each countries' individual depletion rate colliding with its population's minimal sustanence needs determines when TSHTF.

This is the basic formula that Jay Hanson and Jim Kunstler use in warning us how the American Southwest will basically be ghost towns in the future.

Bob Shaw in Phx,AZ  Are Humans Smarter than Yeast?

Totoneila: You summed it up very well. Exports will continue if the exporting country has a dire need for the cash (greater than the need for the oil internally).

Thank you very, very much. Your insights are (close to?) indispensable (if this is not correct: sorry I'm a native Dutch)

HO hits the nail:
"To put this in context, back last October, estimating a 5% decrease in existing well production..........actual depletion rates, and the steps that are being taken to compensate.  With Saudi Arabia admitting to a level of up around 800,000 bd/year in existing wells"

If there is any place to find out we passed Peak Oil, TOD will be the first. So we did.

Thanks again Westexas for hammering the net export capacity subject, and especialy your advise to become a net food- and/or energy producer which you have been firing at us all the time.

Note to other TODers: advise like this usualy comes at a premuim only. Take note.

So how high do you think oil prices are likely to go in 2006?
Crude inventories rose again this week (but gasoline inventories fell again). That situation can't continue for too much longer without putting some downward pressure on prices in the short term. Longer term, we might see $80 oil later in the summer.


Kind of depends on what kind of oil was in those crude inventories.  If there's very little light sweet crude, we could very well see the NYMEX price go up more. (I'm starting to sound like W.TX)
There's plenty of light sweet crude in there, because the number represents all commercial stocks of crude oil. They are at all time high levels, almost 26% higher than this time last year.


I think fear is the only thing propping oil prices up in the short term.


No,stocks are not 25,7% higher than a year ago.
 25,7 million barrels higher than a year ago, or less than 8%.
Actually 8,3% :-)
Doh! Yeah, you are right about that. I got those numbers in my inbox this morning, but I didn't pay much attention to them. I thought 26% sounded like an awful lot. Thanks for the correction.


Actually, around 10mm.  15mm loans from SPR have yet to be repaid. It would be nice for somebody to list all the crude and product loans still outstanding, and when they are supposed to be repaid to lenders.
Re:  Oil Prices--back to basics

The Lower 48 and the North Sea are two large producing regions that have been thoroughly exploited by private companies using the best technologies and data available.   There were no political disruptions.   The Lower 48 peaked at 49% of Qt.  The North Sea (based on my plot of crude + condensate) peaked at 52% of Qt.  In other words, slightly less and slightly more than 50%.  

Khebab and I (my idea, Khebab did the heavy lifting) used the Hubbert Linearization (HL) model to predict post-peak Lower 48 production.  The method, using only 1970 and earlier data, accurately predicted 99% of post-peak Lower 48 cumulative production.

Deffeyes puts the world halfway point at December 16, 2005.   Based on Deffeyes work, at current rates of consumption, we will consume 10% of all remaining recoverable conventional reserves in the next four years.  

The top four net exporters are at around 55% of Qt, farther along the depletion curve than the world and increasing cash flows are driving up consumption in some exporting countries, e.g., car sales in Russia are up 15% year over year.  This is why I view declining world net export capacity as a mathematical certainty.

I have suggested that Peak Oil websites put a Peak Oil "Clock" counting down remaining recoverable conventional reserves at the rate of about 833 BO per second, starting from 1,000 Gb (crude + condensate) on 12/16/05.    The production rate per second could be reset every January 1st.  

How high for oil prices?  All we know is that $60 to $70 has not dampened demand.  I agree with Simmons that we are probably headed toward $200 or more, in 2005 dollars, by 2010.

Nice dodge. One post up, you're saying: "As I said last year, I expect that by the end of 2006 we will be in the teeth of a ferocious net oil export crisis."

Then you backpedal and say: "This is why I view declining world net export capacity as a mathematical certainty." We all agree that declining world net export capacity is a mathematical certainty. That's a truism which requires no mathematics at all to demonstrate. The point at hand is not the eventual decline of world net export capacity. It's the ferocious crisis you are predicting to occur within the next 9 months.

Khebab and I (my idea, Khebab did the heavy lifting) used the Hubbert Linearization (HL) model to predict post-peak Lower 48 production.  The method, using only 1970 and earlier data, accurately predicted 99% of post-peak Lower 48 cumulative production.

This isn't right either. Prediction is something you do before the fact. Unless you did the "prediction" prior to 1970, it wasn't a prediction at all. It was an exercise in ad hoc curve fitting. It is very easy to manipulate the HL method to "predict" the right answer after the fact.

Deffeyes puts the world halfway point at December 16, 2005.

This is revisionism.

From New Scientist vol 179 issue 2406 - 02 August 2003, page 9:

I am 99 per cent confident that 2004 will be the top of the mathematically smoothed curve of oil production," says Kenneth Deffeyes, a geophysicist at Princeton University.

Furthermore, when this prediction fell through, Deffeyes switched to Thanksgiving 2005. And when that prediction fell through, he switched to Dec. 16, 2005. And as recently as a few days ago (at the EGU meeting in Vienna) he was waffling yet again, saying the halfway point may be as late as April 2006. Deffeyes' method isn't scientific at all. It consists of taking a series of pot-shots, and then sweeping his failed predictions under the carpet.

Of course, you'll claim that these discrepancies are small, but that's not the point. The point is that:

 a) The statement "Deffeyes puts the world halfway point at December 16, 2005" is a flat-out lie.
 b) Deffeyes' method has already been shown to be inaccurate by the fact that his prediction of peak oil in 2004 failed.

So now, let's try again. At what price will oil sell for during the ferocious crisis you are predicting before the end of 2006? Don't worry about your ego. This isn't about you. It's a test of your theory.

I agree that Jeff has dodged Stuart's pointed question, and I am not satisfied that his model should not include refined products.  

That said: 1) Deffeyes's first prediction of 2004 looks remarkably precient given the subsequent "bumpy plateau" documented by Stuart, so it seems to me pointless to quibble about various points along a relatively flat line; 2) WesTexas and Khebab's theory needs more numbers to substantiate it, but on an a priori basis it makes simple sense - growing oil exporting economies will export less oil if production remains flat or begins to decline even modestly. As with determining peak - or even global warming, one's comfort level with the adequacy of the statistical information will vary.

So now we are left with teasing out what "ferocious decline" means and when that becomes important. As for predictions: last Fall I didn't think gas prices would go below $2.50/gal, because of the lack of refinery capacity. I was wrong. Given the increased volitity in the market, I think it's foolish for me and most non commodities traders to make predictions, (beyond my simple prediction, of course, that the front contract for oil will not retreat lower than $55/bl after May 1, 2006).

That said: 1) Deffeyes's first prediction of 2004 looks remarkably precient given the subsequent "bumpy plateau" documented by Stuart, so it seems to me pointless to quibble about various points along a relatively flat line;

I think you mean a relatively flat line SO FAR. It is not known yet whether the current plateau is the ultimate peak. What we do know for sure is that Deffeyes' prediction of 2004 is already wrong, and has the potential to get a lot wronger as time goes on. We won't know exactly how wrong until we know the date of the actual peak. You can't say he did pretty good yet because we don't know the actual peak date yet. You're just assuming that the peak is now, and that's not legitimate. You may be wrong.

More importantly, I'm not quibbling about the date. I'm quibbling with the fraudulent notion that Deffeyes has a prediction.

Well, he has made several predictions. Subsequent data has allowed him to revise his previous predictions.  His latest prediction is consonant so far with Stuart Staniford production number for December 2005, arrived at (I believe) by averaging EIA and IEA production reports. Deffeyes made his most recent prediction before the final revision to the December numbers, if memory serves.

Yes, I am increasingly satisfied that "peak is about now." Time will tell. Can you point to any other time when the production numbers have been flat for seventeen months coincident with dramatically rising oil prices? How long does one wait until one realizes that the production numbers are not going to go significantly (>1%) above 85 mbd?

Can you point to any other time when the production numbers have been flat for seventeen months coincident with dramatically rising oil prices?

Yup. Late 2001 thru early 2003.

In early 2003, first Venezuelan and then Iraqi oil were out for months.
Resolution too fine, data swamped by noise.
This doesn't negate the fact. Data is swamped by noise a good deal of the time. There is always something that is "out."

We're looking for a parallel to the current situation. What could be more swamped then now. Iraqi oil is out, Nigerian oil is out, and price is being influenced by non-events like Iran. The talk on this website alone probably adds a dollar to the price of crude.

You're correct in a narrow technical sense, but it wasn't a very analagous situation.  Prices (very roughly) fell from $30 to $20 through 2001, and then retraced their steps from $20 to $30 again through 2002.  Production bottomed out after the reductions following the tech-crash and were flat before starting to rise again in 2003.
Of course. That is why I refrained from any comment(only to do so now). Fletcher was building his case against JD on the assumption that this situation hadn't occurred before. I was just trying to inject some evidence. You can use it anyway you like.

I agree, there are problems here "analagous"-wise.

But be careful. The price run-up I'm looking at in the period I mention is actually from $20 to $40 (100%) and greater than that of the current period.

Also, the tech-crash and other events are localized. The price and production scenarios we are discussing here are global. Granted the US situation is relatively large and influential. However it still only accounts for roughly 25% of the world energy situation at most.

For the record, I believe JD's logic here is correct and his comments regarding the oil-gurus' predictions valid. If we are going to pride ourselves on technical detail and accuracy, then we need to be critical of numbers that are tossed about and to set an example ourselves.

At the same time, Fletcher makes good points and Westexas and yourself are doing the hard work. Good to see the analysis/debate on this level. And of course a bit of emotion is always good for entertainment's sake at least.

At the same time, Fletcher makes good points and Westexas and yourself are doing the hard work. Good to see the analysis/debate on this level.

Good point. I am putting Westexas on the spot, but please understand that it's not personal. It's about theory and methods. Westexas is doing lots of good work  relating to peak oil, and I respect that. I very much agree with his ideas on gas taxes etc. However, I'm dead serious about being honest with predictions and numbers.

If memory serves, there were other times as well. If you look over too narrow a range, one could get a false impression. Right now, there are still some 300,000 barrels shut in by the hurricanes, 500,000 barrels shut in in Nigeria, and over a million in Iraq. That is contributing to the flattened production.


Yes, I am increasingly satisfied that "peak is about now."

In 2003, Deffeyes was increasingly satisfied that the peak had already occurred in 2000. From the New Scientist article:

And he [Deffeyes] believes the highest single year may already have passed. "2000 may stand as a blip above the curve and be in the Guinness Book of World Records."

Or, as was written in the ASPO newsletter:

This may substantiate the view, voiced by Ken Deffeyes, at the Paris ASPO  Meeting [May 2003], that peak oil production may turn out to have been in 2000 as much from falling demand as  supply constraints.

That's a huge goof, as you can see by referring to Stuart's Plateau graph. Deffeyes seriously thought that 77mbd (2000, EIA) was it, and here we are today pushing 85mbd. That's a major screw-up and it makes his methods suspect. His superficial focus on production trends leads him into error. He's not paying attention to things like bottom-up analysis, or geological data (like the USGS). Those factors are very important.

Here's another data point: In his book "Hubbert's Peak", Deffeyes claimed that the numbers pointed to the year 2003 as the peak. So, if we were to be honest, that is the year we should use to evaluate the accuracy of Deffeyes' method.

Can you point to any other time when the production numbers have been flat for seventeen months coincident with dramatically rising oil prices?

1979-1983. Production was worse than flat. World oil production dropped by 15% over 5 years, amid the highest real prices ever. Did that prove that oil was peaking? Obviously not -- although some people at the time apparently said it did.

I think one issue mistake that Deffeyes is definitely making is that the error bars on the method are quite significant and he doesn't seem to recognize that.  (My estimate for a similar linearization to his was that the two sigma error bars on the smooth curve peak were 4.5 years either way IIRC).  All his various revisions are within that size error bars AFAIK.

However, one thing to note is that I believe Deffeyes is working off the time series of field crude from the OGJ.  I haven't checked that any time recently, but it's possible it has a somewhat different answer.

I also think that when making predictions in public, if they prove wrong, it's appropriate to do a little public reflection on the fact and improve the methodology in some way before moving on.  Just making new predictions using the identical method with no public acknowledgement seems unsatisfactory.

I don't think Deffeyes's  is really serious about any dates he prognosticates he is only trying to provide a little comic relief for a very serious problem.  Also it assists him with additional data that could go missing if it wasn't for all the folks trying to search out information to prove him wrong.  If there is one guy that has written a book that I would like to take on my fishing boat and help me finish off a six pack it is he.
I personally don't find predictions of death, famine, war and disease all that comical.
What do you suppose sustains a soldier before and after a battle or fire fight he has survived.
Having seen one of his talks, I'd describe Deffeyes manner as darkly sarcastic.  He makes these predictions, based on limited data, to warn us off a dangerous path, but sees that few are listening.  Perhaps he takes that attitude to protect whatever optimism he still has left.
Re: JD's comments

(1)  In regard to oil prices, I was deliberately a little vague because as several people have pointed out, a significant drop available oil and a subsequent oil price spike to $100 or more could conceivably cause a subsequent short term oil price decline back to the current level or lower.  Longer term, as production continues to fall, I think that we will see the $200 level.  So, I expect to see $100 oil this year, but I don't think that it will stay there--in the short term. Long term, yes.

(2)  In regard to the HL technique.  As I'm sure we all know, in 1956 Hubbert did predict that Lower 48 production would peak between 1965 and 1971.  He also suggested that world oil production would peak within 50 years or so, i.e., before 2006.   In regard to "curve fitting" allegation, this is simply not true.  In effect, we pretended that the post-1970 Lower 48 production data did not exist.  We used the 1970 and earlier data to predict post-1970 cumulative production.   There no mathematical way that one can "curve fit" the data set.  It is mathematically impossible.  Actual Lower 48 production was 99% of what the HL model predicted.  My point is that Hubbert predicted the peak in advance, and using only the data through 1970, the data set was right on the mark for post-peak cumulative production.  The point of this excercise is to apply the model to Deffeyes' prediction.   The Lower 48 model indicates that Deffeyes' prediction of 1,000 Gb of remaining conventional recoverable crude + condensate reserves should be taken very seriously.

I'll bite Stuart.  I made a 260% profit in commodity investing in the past year, so I have some feel for the markets.

In the absence of serious hurricanes, economic collapses, or new wars, maximum single day 2006 NYMEX WTI oil price could be about $80 with the average for the year closer to $70.  Much of this price increase would be due to gradual US dollar devaluation.  Sellers will want a higher US$ price to keep up with general inflation.

Any nonlinear events could drive the US dollar much lower or oil higher depending on how one looks at it.

I like this kind of prediction! Price won't go above $80 unless there is an event (or events) that drives it higher.
Can't argue with that;-)
LOL, Don, there are those that argue the price will drop to $30 in the absence of adverse events. $80 seems a high guess in comparison, but I think I know which you and I would bet on. May I tempt you to do a forensic analysis of my predictions? Second comment here, I do hedge but quite specifically:
I stick by my fearless unchanged and invincible forecast: The price of oil will fluctuate.

Silver is an interesting speculation; both Bill Gates and Warren Buffet like silver, and they are both way smarter than I am. Following my principle of learning from VSP (Very Smart People) I bought some shares of Pan American Silver a couple of years ago at around $6 a share. I suppose they have gone up, but financial markets and making money in them is boring to me now, compared with more interesting challenges, such as teaching BSYW (Beautiful Single Young Women) to sail.

By the way, another DUET: All women are beautiful young and (so long as they wear no ring) single. Sailors have known this for a long time;-)

My yearend predictions (posted here January 2nd) are looking on track:

"Oil is close to a cusp, I think. It has increased in price by over 30% in each of the last 3 years. That has spurred just about all possible rapidly available production to come onstream. Some biggish new projects are due to come online in 2006 so there is a possibility that there will be a slight oversupply in the near term. The two critical factors are: will decline rates in the current major fields in production (FIP) be higher than current fairly optimistic predictions; will there be a significant reduction in demand (currently expected to be 1.9% increased demand) due to a global slowdown? A few months back I coined "Agric's law of oil price" which is: the average price of oil in a calendar year will be within 5% of the maximum price for the previous calendar year (Nymex light sweet, next month quote). This has been true the last 3 years, I expect it will continue to be so until prices go haywire. That gives an average price in 2006 of $70.

I expect the oil price to creep up to $70 by mid march. Thereafter I predict a spike to about $95 in response to some external event, it could happen by mid April. Will $100 oil happen in 2006? Maybe not based on current supply and demand but there is a significant probability that geopolitical or supply disruption events do cause a $100+ spike. I do not expect the oil price to drop to $40, even $50 is unlikely since a key support level at $56 has held well in recent months."

I'm now more confident that the oil price will hit $100 in 2006 (maybe a 50% probability), the current price of about $68 is based on high US crude stocks and relatively little supply disruption / geopolitical angst, there is considerable scope for upside price moves. I do not expect the price to drop below $55, the average for 2006 should be between $65 and $75 unless things go quite awry. Something fairly serious (supply disruption or geopolitical wise) would probably need to occur for the price to exceed $125 anytime in 2006.

It is a bit silly that oil prices have been moving up on declining gasoline stocks. The gas stocks were bound to decrease due to refinery shutdowns (some of which were delayed due to hurricanes) and changed gas formulation legislation. The recent sharp growth of imports in refined products to US is much more important than the minor reduction in crude imports, look out for some nasty trade numbers in the next few months.

It would have been better if the US economy had slowed a bit more already. Now, when the slowing hits, it will be sharper.

My gold prediction was good "I expect gold to make a jump to near $600 by April before pausing". Note that gold will correct downwards soon-ish before making its next serious push up (guess: drop from peak of perhaps $620 to between $550-$570). US$ accurate too: [till mid year] "the US$ should remain in the 88 to 92% range of its index". Copper has beaten me, I never expected it to get as high as $2.60: "I expect the price to drop from current level of about $2.00 to below $1.60, probably by March to May, then climb back to above $1.80."  US stocks have remained a function of Fed liquidity pumping so are 10% higher now than I predicted, but that will change - when you sense it happening go short, a drop of 10%+ does happen in the next few months but beware, there is yet scope for further upside in stocks (though not much, lol).

Tis a peculiar world, and likely to get more so.

I second Stuart. Can you give us a price figure so we can get a better sense of how bad "ferocious" is, versus say "ferocious"?
Westexas, I believe you hit the nail on the hammer.  It's common sense to realize oil producing nations will export less on the downside of the curve then they did on the upside.  What is even more scary is the possibilty of production collapse of the large producers: Saudi Arabia, Russia, Kuwait, Iraq and etc.  The U.S. had a somewhat symmetrical downslope of their bell curve due to the fact that water injection came late to the 48 states.  Unfortunately, because Saudi Arabia, Russia,  The North Sea, Kuwait, Iran, Mexico, and etc took advantage of the wonderful world of WATER INJECTION...we will witness depletion rates unheard of just 10 years ago.

It was the very nature of the super large fields from the countries mentioned above that made the water injection system so attractive.  Because most of the oil production came from just a few super large fields, these countries were able to utilize water injection effectively.  If the U.S. was able to incorporate water injection in our oil fields back in the early day...we would not have the small decline rates that we have today. I guess we can count our lucky blessings that sometimes we are better off without certain technologies.

Unfortunately, collapse rates of these large fields will cause terrific problems for our Shake and Bake society.  Today, one is still able to drive through the 48 states and stay in any hotel ya like and eat at any restaurant.  But in the future, many of these Interstate Cities with 20 different hotels and 30 restaurants will be only a mere fraction of the size. You might see only 3-4 hotels and maybe a half dozen restaurants.  And if you take it even a few years later....most of the 3-4 lane interstates will be only at most 2 lane.  The government will have to let the other inside lanes go, or either plow them under, due to the fact that the tax money will not be there or even the asphalt.  So for a while, we may still have the interstate highway system...but with less lanes.

I believe as available energy becomes harder to find, the next so called "NICHE" industry will be in the dismantling and recycling of our major cities...structures, underground services, and concrete. Even if Nuclear makes a big comeback, we will not have much use for skyscrapers, when a large percentage of people will be out in the fields producing food to eat.  Wealthy and keen individuals will have the insight to purchase these once spectacular commercial real estate skyscrapers and buildings, for pennies on the dollar, and turn them into remanufactured goods for those who have moved back out to the more rural areas and small cities.

Its probably wise to take advantage of the few years of FAT left in the economy, to save money, purchase a place in the country, and hoard some silver and gold...probably more silver.  I would not want to be in a large city when social services, police, and public works goes to hell.

Have a nice day...and don't take any wooden nickels.

Nah, when the grass starts growing in the cracks on the free-ways, they can provide the right-of-way for lite -rail transport.
I hope you are realistic about the 'few years of FAT left in the economy' and realise they will be 2 if lucky. Otherwise I think you are close to spot on, SRSrocco.
Saw this blip today:

"In trading Wednesday, shares of BP (BP:NYSE - commentary - research - Cramer's Take) were rebounding after the oil giant said production in the first quarter will be lower than last year because of lower volumes in Russia. BP expects output of 4 million barrels, compared to 4.1 billion during the same period last year. "

Westexas: We are now down 4% this year

Typhoon: Imports are much lower than last year

Total Net Imports (crude + products) are UP 3.8% (4 wk average, year on year). Source EIA.

Oops! Dyslexia at work. 4 wk av is up 3.4% (not 3.8% as advertised above), 89 day av is up 4.8%.
Total net imports are up only because net product imports are way up (the four-week average is up 38.4% from last year).  We were just talking about crude imports.
The "Decoding the IEA" article in the new ASPO newsletter is worth a look.  Some interesting info on depletion rates.
Which ASPO newsletter are you referring to? Link?
This response to another comment comes from a thread about 2 topics before, where the study was already discussed to a limited extent. My read, as shown below, is that he is looking at new production and depletion on a country basis. He uses historical data for decline, so if a country doesn't have a decline history, I believe it doesn't become part of the forward analysis. If you read it differently, I would be interested in your interpretation.

"Right, I've had time to review in more detail his past and present analyses and clearly he is not talking about field in place but country-based production.
I still wonder, however. First, while he acknowledes the peaking of Mexico and other countries now and in the very near future, he doesn't go into any detail about how he factors them in (while in his analysis new production is very detailed). Some have suggested that Cantarell by itself would take up to 2 mbpd off the market by the end of his study. He also only subtracts world capacity from countries/regions clearly past peak (N. Sea, etc). However, the peaking and decline of Ghawar and Burgan (producing together equivalent or more than the entire North Sea) have profound implications for the whole world that I do not believe are reflected at all in his analysis, since he's not considering S.A. or Kuwait as declining producers. I believe we are at a great historical discontinuity in the production of the largest of the megafields, with most peaking last year or this, meaning historical data will not adequately reflect the impact of their decline.  I don't have the answers, I just think these are clear concerns that are not taken into account in his numbers.

Overall, I think his work is a very fine and valuable contribution."

I already hailed this update in a previous thread. It may be useful to list all the countries promising more than 0,4 mb of additional capacity, with the date by which, on optimistic assumptions, more than half of it should have come on line.
  1. KSA. 4,3mb, 2008.
  2. Canada. 2,3mb, 2010.
  3. Brazil. 2mb, 2008.
  4. Iran. 1,3mb, 2010.
  5. Qatar. 1,3 mb, 2009.
  6. Nigeria. 1,3mb, 2008.
  7. Iraq. 1,2 mb, ??
  8. Russia. 1 mb, 2010.
  9. Kazakhstan. 1 mb, 2012.
  10. Angola. 0,9 mb, 2007.
  11. Azerbaijan. 0,8 mb, 2007.
  12. UAE. 0,6 mb, 2006.
  13. Kuwait. 0,6 mb, 2010.
Speaking of depletion, I found it striking how casually PO is referred to (albeit not by name) in the mainstreeam financial press.

E.g. in this Reuters article:

Crude oil is set to rise above the $80 a barrel level in the next few months as output tails off, maintaining energy's role in a continuing commodity bull market, a hedge fund manager said on Wednesday.

Benchmark U.S. light sweet crude oil futures for May delivery were around $66.33 by 2:12 p.m. Oil hit a record $70.85 a barrel in late August 2005.

"In the next few months we will see oil above $80, as it has passed the peak of the production cycle," David Murrin, chief investment officer at UK-based Emergent Asset Management said at the Reuters Hedge Funds and Private Equity Summit on Wednesday.

Yeah, that surprised me too. David Murrin [chief investment officer at UK-based Emergent Asset Management] acted as though it were no big deal. Just a price prediction for investors. the next few months!!!

That's kind of funny terminology, to talk about a "production cycle". By definition, a cycle is something that repeats. The rise and fall of oil production would seem to be a one shot deal. I guess traders are so used to looking at their charts and finding patterns, many of them cyclic, that they get into the habit of using the word even when it doesn't apply.

I don't put a lot of credence into these kinds of predictions. Most studies have shown that typical analysts quoted in the media do not out-perform the market. The market sees more like $70 oil in the next few months and I'd say that's a more plausible prediction than $80. Looking at option prices for August oil, the imputed odds are only about 10% for hitting $80 or above. Even out to December the odds only go up to 22%. So this guy's prediction looks like it's still considered a long shot by the markets.

Option prices are based on implied volatility.  If a market prices in a certain probability of oil moving up by a given amount, it must also price in the same probability of oil moving down by that same amount.  This is due to the possibility of arbitrage between a futures position and its synthetic equivalent with options.  Besides, if more people thought that oil would go in one direction than the other, shouldn't the current market price be different?  The current market price represents an equilibrium.

Thus, if the market was to "think" that there are good odds of surmounting $80 this fall, it would have to "think" that there are similar odds of falling below $60.  (October futures are just about at $70.  The contango peaks in April 2007 at $70.29.)  How many people at this point really think that oil is headed back to the $50's?  Not very many.  There has been a shift in perception, but this means that implied volatility has to be rather low.  If you are a believer in the secular bull market of oil, the calls might be a good gamble.  January 2007 $80 calls are priced at $2.72.  This means that you can capture all of the potential price appreciation above $82.72 with a maximum risk of only $2.72.

Let's put it this way.  A few years ago, did anyone really think oil would reach these levels?  Just because the market thinks something is likely doesn't mean it won't happen.  People are entitled to their opinions, regardless of what the market "thinks".

I think the "production cycle" comes from a certain perspective on the current crisis. I think the view is that since oil prices have been so low for such a long time, investment in exploration has lagged. Suddenly we are at peak capacity due to sudden increases in demand and so prices are high. They envisage that high prices will spur further exploration and finaly lower prices again.
Agreed Halfin, it is funny terminology, but folks often speak in odd terms, as in 'collateral damage'. I wonder, would you bet all or nothing on oil making, or not, a new high of $70.12 or more by 30th September 2006? I'm not offering that bet because I am 95% sure it will reach that price in the time.

You must be careful in paying too much attention to the markets' assessments, they are very often flawed. Checkout your interpretation of gold prices in response to my predictions just 3 months ago, here:

I do agree with you that a lot of the pundits do spout mostly crap. Once in a while one or two are correct, it could be chance, it could be fundamental understanding. I think there is a 50/50 chance of oil reaching $100 in 2006, hopefully only briefly. Guess-trapolating that is probably a less than 5% probability according to the markets - care to offer me a 10/1 bet?

I love this line:

"The world is becoming over-populated and under-resourced."

Which means only an opportunity to invest in commodities and get rich, of course...

Or... learn to feed and resource yourself in a fundamental way, or possibly... die.

The world is already overpopulated and is eating up virtually all its resources. We have barely begun to glimpse the brick walls of resource limitation.

It's also worth noting that Skerbowski extended his list to include fields producing at least 50/kbpd whereas before I believe his cutoff was 75/kbpd. This accounts for some of the new anticipated production.
... So using this technique of adding upcoming projects coming onstream and subtracting natural decline, was the predicted timing of PO occuring in 2007/2008 change with this new information?
As I read it, he seems to be predicting that there will be "Net net" production increases through 2010.
I did not plot this out, but Matt Mushalik in Sydney did and there is a graph at the site cited which shows a peak in 2010, or close to there, with a fairly rapid drop off thereafter.  But this is for incremental production increases and does not take account of depletion, so I don't have any reference yet to how this will affect when PO occurs.
Another take on Skrebowski at Petroleum Review's Megaprojects update for April cited at the Energy Bulletin.
Oh, sorry, this seems to have been already referenced if you're talking about Mushalik's graph.

Click to Enlarge
Amazing how the timing corresponds closely to ASPO's.
"He had anticipated that oil demand for 2005 would be 83.5 mbd, increased demand would be 1.4 mbd, while there would be an increase in supply of 2.4 mbd, of which non-OPEC would provide 1.5 mbd.   Depletion would be at 4.2 mbd."

As most of us now know, non-opec was just about flat as a pancake quarter by quarter all through 04 and 05, so 1.5mbpd increase did not even remotely happen. And total world supply was also flat in '05 over the 4thQ of '04. WHat gives? ALso, any one have any idea why crude inventories in the US are going up, while those of gasoline are going down? refinery issues? Demand just too damn strong(and we're barely into spring, let alone summer-yikes.)?

Routine refinery maintenance has caused utilization to fall a bit.  There have also been some problems with specific refineries.  The catalytic cracking unit at ConocoPhillips' Alliance refinery in Belle Chasse, Louisiana failed when it was started up.  That refinery has been out of service since Hurricane Katrina.
The Hovensa refinery on the island of St. Croix also had a problem with its catalytic cracking unit which has now been repaired.  BP's big Texas City refinery has finally started up after a six-month outage, but it is only producing paraxylene at the moment.

If refinery capacity utilization doesn't rise by a whole lot, it'll be a sign that light sweet crude is lacking.  It could be that all of the crude building up in inventories is low-quality.  Under this scenario, we could have a gasoline supply problem this summer.

If utilization rises, more gasoline and other finished products will be produced, but we will see crude inventory drawdowns.  Imports are much lower than last year.  The figures indicate that the import situation is only deteriorating.  It won't help that a lot of Nigerian production is shut in right now.  

It must be emphasized that the crude builds we've seen just aren't that impressive, considering the circumstances.

Accuracy on the "Latest Megaprojects list from Chris Skrebowski" is in question. I wonder how closely Chris checks the details of these numbers.

For example: New Onstream Production for 2006 puts
OPTI/NEXEN (Long Lake Project) at 70,000 bpd. Wrong for these reasons.

  1. Project's "first steam" starts in Mid 2006. No actual Saleable product until Mid 2007!

  2. As first years production is only 6mths worth of annual rates, you will only get 1/2 the name-plate plant capacity in 2007 not 2006. So first full year production rates, of the state 2006 wont be until 2008!

  3. The 70,000 bpd stated in the report is Bitumen production. Not net available for sale. The Long Lake Project processes into a net 58,000 bpd of Light Sweet Synthetic 39API.

Extrapolate that inaccuracy into the Megaprojects list and what do you get?
Sorry point 2. should read:

2.As the first year of production is only 6 months worth of the annual rates, you will only get 1/2 the name-plate plant capacity in 2007 not 2006. So first full year production rates, as stated for 2006 wont be a reality until 2008!

Please do help with pointing out any inaccuracies you are aware of and provide as detailed info and links as you can, OK, but don't be too hard on the chap - it takes an awful lot of effort to compile the data. There are bound to be inaccuracies, if only from newer data. I think Chris does a very, very worthwhile job with his megaprojects analysis, I'm sure constructive correction with be appreciated.
Thanks Agric, point taken and fair enough.
You have a nice way of explaining things