Thought about throwing this in Science/Math/Philosophy forum, but then I thought a few people in particular might not ever see it, ... because they don't really believe in science. Nor math, often.

Oh bummer. ... If the oil majors are suddenly cutting investment some 20-30%, because they've finally admitted they can't make a profit with oil at $105, what is the real price of oil right now? What would the "free market" set it at? ... $125? How about $140? ... That is, in order for these guys to keep their heads above water, at least, with a bit of free cash flow ...

Now imagine the world today if oil had been $130-150 this whole time, where it perhaps belonged? Or what the S&P will shrink to if oil price spikes to where it "needs to be?"

Obviously the most important question springs to mind: What does that say about global production totals going forward? Still think we'll be maintaining that mind-boggling 91M barrels per day? Are we to believe that smaller companies will ride to the rescue? Will vast US reserves of oil and gas from shale rock under U.S. neighborhoods continue to fill the ever-widening gap left behind by flat conventional production? (9 years years running, now)... Not likely. There is far more evidence unconventional production is already tightening, not expanding as the industry and big media would have you believe.

Anyone confused or skeptical about why this matters is encouraged to listen to Douglas-Westward's managing director Steve Kopits recently at Columbia Univ.

Global Oil Market Forecasting: Main Approaches & Key Drivers
Steven Kopits, Managing Director, Douglas-Westwood

The developments presented in this presentation only confirm the model talked and mocked about 5-10 years ago:

the easy oil is in terminal decline
the moderate oil is growing exhausted and near decline
the tight oil is vast, yet far too expensive

Advanced societies already can not bear triple-digit oil prices. Yet those prices clearly need to be $120-$200 for oil giants to be free cash flow neutral. Otherwise, they dump investment and assets.

With investment suddenly scaled way back, it won't be long now before conventional production begins decline (1-2 years?). At that point, no amount of desperate hydraulics under U.S. neighborhoods will calm the markets.

Ah well. Heed it, and invest accordingly. Or don't. Your call.

Interesting info... Do you work in the industry? Or just an investor doing research?



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I work for an industry that monitors that industry.

Interesting.

So what's the play? I reckon you've thought about that? 90% cash?

People have been predicting resource-depletion driven doom for 50 years. It has yet to come, and not only that, we have hardly noticed anything when the free market made changes and adjustments. (Copper to plastic piping/etc)

You should listen to this segment on the famous bet that a economist made with a celebrity biologist on this exact issue - in 1980.

just because people have been predicting things that haven't yet happened doesn't mean they won't happen. i don't have an informed opinion on this subject matter but IMO your response doesn't add anything to the discussion without significant elaboration.

50 years?

Au contraire, dc_publius, this is a rare error on your part. People have been predicting the end of petroleum since at least immediately after Titusville in 1859. Daniel Yergin's The Prize does a very good job of illustrating how "Peak Oil" is a cyclical theory that rears its head every few years.

OP's entire argument is silly to anyone who knows much about oil and gas.

Expected price and sensitivity to risk drive CapEx.

i should add that i hope dc & others elaborate. didn't mean to come off as rude in my post so i hope it wasn't taken that way

Not that I buy into peak oil, but $50 billion to $260 billion move in capex, in combination with flattening or dropping production, should make you sit up.

The capex spending indicates that companies with the most knowledge about available reserves and extraction methods believe that price will go up, substantially, in order to make these hugely increased bets. Either that, or this is the price of staying of in the game, which indicates that oil extraction is becoming permanently significantly more expensive.

Which is basically OP's point. The only point of disagreement you could is that there is plenty of oil at higher (non economy killing) price levels, and it can be extracted in large volumes at those price levels (much larger volumes than today). If you believe this to be true, then ok, I'll listen to you, but so far OP has won this argument and you've backed him up.

didn't see any discussion of bakken, marcellus, etc.

We should just merge this thread with

http://forumserver.twoplustwo.com/41...briefs-701083/

Oil and coal are relics of the past. Clean energy is the way forward. It's not like we have a choice anyway, our planet won't handle many more years of the current energy sources.

Douglas Westwood also said this...So in the near-term it looks like the forecast for new drilling rigs is bullish?...don't know the breakdown on who is buying rigs though, Jigs is the multi-national's reduction is Capex being replaced by National Oil companies?

There is no such thing as clean energy that can come anywhere near meeting human demands at our current or medium term future technological capabilities. You are parroting nonsense fed to you by greenies. Nuclear & fossil fuels are the only viable power sources right now, and there is no alternative. That won't change without decades worth of accelerating technological breakthroughs.

Also nonsense.

I sure hope we start working on those decades worth of accelerating technological breakthroughs soon.

I really hope the capex to crude production graph includes gas and equivalents. If not the whole thing is garbage because much of the capex has been on gas plays.

Also tons of capex being spent on tight oil using horizontal drilling on a pad setup which requires higher capex dollars per barrel but it still profitable at today's prices.

Everyone has backed off capex budgets over last few years as gas prices have come down and resource plays are becoming more expensive. May mean oil goes a bit higher unless tech gains offset this but definitely not implying $130-$150 oil.

All about nailing the timeframes.

Will inflation get us near those 130-150 prices sooner than just the fundamentals of the industry?

I had to do tons of research on a train company and my focus was on frac sand, crude by rail, Nat gas impact on chemicals industry and train companies were very bullish about the future of the North American energy industry.

Even though coal has long since been considered a relic...it is still a major part of our energy economy. There's generations of money, corporations, interests etc... that have vested interests in letting these things linger around until all utility is depleted. How long coal will linger around, I think you can multiply that considerably when determining how long we will be dependent on crude oil.

I am not at all qualified to comment on the veracity of the reports in the OP, but I am somewhat familiar with the OP's posting history. He has been sensationalizing peak oil for as long as I was lurking/posting in Politics (pre-hack account), and it quickly became evident that any claim he makes re: peak oil should be taken with a grain of salt; and that is putting it charitably.

Having said that, the Oil and Gas Journal seems to disagree with the OP's premise that capex is being slashed in the oil industry. From 3.3.2014: (E&P means exploration and production)

In the absence of an expert on the matter, I am inclined to believe Barclays and the Oil and Gas Journal over a poster with a track record of sensationalizing peak oil. Take that fwiw.

There's nothing "sensational" about it.

Admittedly, I took some heat for acknowledging NYC had no evacuation plan in advance of Hurricane Earl. I also took some heat for losing a bet that at least one member nation would leave the EU by the end of 2012. Not being right 100% of the time, those are the pitfalls of someone willing to forecast the future and talk about it, unlike others who sit back and criticize while maintaining a desperate (and baseless) "no problem" outlook on world events.

But nothing that I've said about global net oil depletion has been "sensational" in the connotation you're attempting here. Sorry, but the extrapolated production data going forward, the the elevated price point, and the affects that price point is already having on the global economy are all easily verifiable.

It's not really worth much, considering 1) you're not really siding with OGJ over me, you're siding with OGJ over data from Bloomberg, Goldman Sachs, BP statistical review, and the independent assessment of all that data by Douglas-Westwood's managing director; 2) Your Barclays claim talks about E&P, not Capex. E&P is not Capex, and doesn't cover most refinery and delivery costs. Kopits addresses that distinction around the 42-minute mark.

You didn't watch the presentation? It's fine. It's an hour long, and not a lot of investment gumdrops and lollipops, like most people prefer.

Agreed, there is no alternative remotely close to being ready. Oil is king for a reason - efficiency and affordability (to this point, anyway). Green energy also won't move freight, nor run our global food conveyor belt and it's "just in time" delievery system.

That being said, I'm 100% in favor of a Marshall Plan towards expanding renewable infrastructure ... Even heating a few million additional homes with it takes us off the fossil fuel grid that much more. Beyond that, in the mid-term future, when conventional production begins it's long-predicted decline, renewables will be desperately needed, not just preferred. May as well have the infrastructure largely in place now while we have (kind of) the capital investment to pull it off.

"The Prize" is a fine novel about the history of 19th century oil production. But, Yergin is laughably off-base (and roundly dismissed) in his assessment that "plenty" in the ground means that "plenty" will easily be brought to market. Yergin is deeply mired in the belief that oil forecasting is a demand-constrained model. It isn't. It's supply-constrained, as Kopits shows here in clear demonstration.

As we always say:

We can pretend a trillion barrels of light crude exists behind the moon. Even prove it exists. But that says nothing of the logistics of bringing it to market, nor the consumer's ability to afford the price.

Are you the guy who has to change the numbers on the sign out front?

I agree. You should sit up and do some quick research:

http://www.eia.gov/dnav/pet/hist/Lea...s=MCRFPUS1&f=M

http://www.eia.gov/dnav/ng/hist/n9010us2m.htm

Scroll down to page 148 (although you should probably read the entire document): http://www.eia.gov/totalenergy/data/monthly/pdf/mer.pdf

They were expecting world demand to drive prices higher. They were wrong. They weren't expecting nat gas plays to drive world demand for oil lower. They were wrong.

http://www.eia.gov/dnav/pet/hist/Lea...PET&s=RWTC&f=D

http://www.eia.gov/dnav/pet/hist/Lea...ET&s=RBRTE&f=D

I mean, seriously, look at those charts and compare them to general inflation over the same time period.

They are now betting that maybe oil demand won't go through the roof.

He didn't make an argument. Gail Tverberg did http://ourfiniteworld.com/ Actually, technically, Gail didn't. Malthus did and Hubbert applied it to energy. What Gail** did was approximately the same as all doomsday cults do when a prediction goes awry.

What the argument doesn't take into account is that the economy doesn't give a rat's ass about the price of petroleum, or nat gas, or wind energy, or solar, or geothermal, or nuclear, or cow flatulence, or wee people on bicycles*. What it cares about is disruption if it overbets on one of them, or if they all blow up suddenly.

*I do not endorse converting sunlight to corn to electricity through child labor.

**I think that Gail is a fairly nice and concerned citizen of the world and she actually isn't a nutter.

I work in the oil business.

In my area of the country, oil can be drilled profitably at $56/barrel.

Newer places like ND need about $85/barrel to drill profitably.

Are you the guy who thinks - with time - oil from algae is a viable process on a mass commercial scale?

That's because the forecasting operates on a supply-constrained model, not demand-constrained as you're suggesting. We've known the unconventional gas and oil reserves have been there for quite some time. We're only turning to it now out of desperation. Doesn't change the equation.

Any way you slice it, the consumer eventually can't afford the marginal costs of oil, and demand is destructed. It has little to do with the consumer "preferring" NGPLs.

The problem is that Hubbert's core thesis hasn't gone awry, just delayed about 7-10 years. Conventional production still reached peak in 2005. And the refined and nuanced forecasts of the many analysts since then have been largely spot on as well:

Natural gas isn't oil, doesn't do most of the things oil does, and doesn't burn nearly as efficiently as oil. It's a petrol-dollar. Not a NGPL-dollar. Crowing that NGPLs resurgence (which are showing more signs of buckling rather than expanding into the mid-term) counters the general thesis behind peak oil is, well, flat wrong.

Actually, it kinda does, considering every oil price shock (cept one?) has been followed by recession.

Which is basically another way of saying it cares very much about the price of oil. Modern capitalism has always had to "bet" on oil. Ultimately, it's the only thing (the promise of more tomorrow) keeping the entire ponzi scheme in place.