Peak Oil- what it is and how it will impact your life

interesting.

 

There is. You can't come home to lunch with your kids everyday of their lives until they leave for college as a company man on a drilling rig, and being able to do that is priceless.

I started in MWD, moved to LWD, and became a directional driller. That is on the list. I quit and took a 60% pay cut to get back onshore, and into production operations and completions. The industry pays for the reduction in quality of life that comes with working on the rigs. You can keep the money.

Frac densty itself is an issue. As any production engineer will tell you, the production profile from differing densities of interfering completion stages leads to differing calculations of NPV (net present value), each stage in current Utica/Marcellus development is running about $150G-$200G per stage. As density increases, production expected per stage drops, but initial production is enhanced. You've got to run the well economics making an estimate as to how this one non linear decline per stage balances against a higher initial starting point.

I think I will change my prior position, and stipulate that just as I am familiar with the jargon of the industry, MM is as well. And neither of us learned it as a roustabout.

So I have one question related to peak oil.

What is MinuteMan's opinion on the quality of the old PetroConsultants database (now IHS EDIN) on existing oil and gas fields around the world? How has his experience drilling within some of those fields matched up the recoverable numbers calculated by the reservoir engineers and petroleum geologists, and then entered into that database?

Well how about the facts then? I've posted the cost to surface numbers of the Bakken, what might MM's be? I've posted how to empirically determine that the old wives tales of the mid and late 80's were bogus, I didn't see an MM response to that? TPTB have been predicting the end of oil since 1886, I am curious why those doing it now are expecting a different result? MM said that there would be rationing by the end of the decade (2010) and instead we are currently experiencing lower oil prices, and I can buy a tanker truck of fuel just as he can. Those of us who experienced rationing in the NE during the energy crisis of the 70's saw far more disruption than the claims of modern peak oilers (starting with Colin Campbell's claim from 1989). Why have we had so many peak oil claims, and so few peak oils? Why have we had peak oils (1979) and then decreasing production, and then increasing production? And the President telling us we are going to run out by the late 80's. Can MM tell us how many peak oils we can have before we finally get around to the one that matters?

All of these strike me as reasonable peak oil questions, yet most peak oilers avoid them like the plague. What are MM's EUR calculations for the resource plays, certainly that information is needed to be able to claim that a well is, or is not, profitable. How many reserve or resource studies has he completed, and put his name and credentials on the line for? Has he done wells? Companies? Countries? The entire world? Certainly the EIA link MM provided did not validate his point at all, and was about a completely different topic. Are we allowed to notice, or is that considered aggressive? Does MM have his own stochastic methods for calculating his reserve and resource estimates from the wells he drills, or does he follow the SPE PRMS to the letter?

Legitimate questions? Yes, no, maybe?

 

Could be either. An examination of peak oil literature reveals the possibility of both. Just the focus on Hubbert's approx. 1970 peak oil in the US call, while ignoring/avoiding his 1950 US peak oil claim, being just one example.

And not one I've brought up. I would prefer to stick to the facts of the matter, revolving around the engineering, geology and economics involved.

Well...we'll see how that goes then. Facts and peak oilers don't always get along, but I'm as game as anyone.

 

This is just a reaction to peak oil back when it was declared by Deffeyes on Thanksgiving, 2005. Took 9 years to get through it, come out the other side, and let demand destruction finally begin to bring down the price more than the 30%+ it has dropped since peak price in 2008.
Good news in the long run, particularly considering this was what peak oil was SUPPOSED to look like, circa 2005.

Peak oil in a nutshell - Here comes the nutcracker

 

This was an interesting book I read: $20 Per Gallon: How the Inevitable Rise in the Price of Gasoline Will Change Our Lives for the Better: Christopher Steiner: 9780446549547: Amazon.com: Books
Book Description
Imagine an everyday world in which the price of gasoline (and oil) continues to go up, and up, and up. Think about the immediate impact that would have on our lives. Of course, everybody already knows how about gasoline has affected our driving habits. People can't wait to junk their gas-guzzling SUVs for a new Prius. But there are more, not-so-obvious changes on the horizon that Chris Steiner tracks brilliantly in this provocative work. Consider the following societal changes: people who own homes in far-off suburbs will soon realize that there's no longer any market for their houses (reason: nobody wants to live too far away because it's too expensive to commute to work). Telecommuting will begin to expand rapidly. Trains will become the mode of national transportation (as it used to be) as the price of flying becomes prohibitive. Families will begin to migrate southward as the price of heating northern homes in the winter is too pricey. Cheap everyday items that are comprised of plastic will go away because of the rising price to produce them (plastic is derived from oil). And this is just the beginning of a huge and overwhelming domino effect that our way of life will undergo in the years to come. Steiner, an engineer by training before turning to journalism, sees how this simple but constant rise in oil and gas prices will totally re-structure our lifestyle. But what may be surprising to readers is that all of these changes may not be negative--but actually will usher in some new and very promising aspects of our society. Steiner will probe how the liberation of technology and innovation, triggered by climbing gas prices, will change our lives. The book may start as an alarmist's exercise.... but don't be misled. The future will be exhilarating.

Amazon.com Review
Q&A with Christoper Steiner, the author of $20 per Gallon: How the Inevitable Rise in the Price of Gasoline Will Change Our Lives for the Better

Steiner, an engineer-turn-journalist, explains how the simple but constant rise in oil and gas prices will change our lifestyle, but not necessarily for the worse. Read this Q&A to find out more about this revolutionary theory.


Gas prices are going up again this summer, but are you really suggesting prices might rise to $20 a gallon?
That figure lies far ahead in the future; it's hardly an imminent thing. But most people don't require much convincing to know that $2 gas isn't sustainable for the long term. Oil is a finite resource that the whole world demands--a world that grows more gasoline consumers every day. It's important to understand that this book isn't about oil statistics, it's about our lives and the ways in which we live will change.

What do you hope readers will gain from reading your book?
Readers should gain an appreciation for the kind of change that lies behind the growing price of gas. Weaning ourselves from gasoline isn't a scary thing, it's an exciting thing. We're talking about cleaner environments, more walkable lives, better public transportation and more vibrant cities.

What are some of the surprising ways you think rising gas prices will change our everyday lives?
I don't think people realize how close our airline industry is to an all-out collapse. The book details a massive airline extinction at $8 per gallon, and in fact, serious change could take place even before then. It's certainly not something that should be celebrated, but the collapse of that industry will open the door to new ones, such as widespread high-speed trains in America, a phenomenon that won't take serious root until plane tickets become luxuries rather than conveniences. Beyond the airlines, I think people might be surprised to think that their future may not include Wal-Mart, and that their food world may condense, ruling out things such as sushi, but introducing things such as local organic fruit, vegetables and meat.

Is this pure speculation and fantasy or what kind of research did you do?
I consulted experts in a bevy of industries throughout the whole book, so this is not a random exercise, far from it. That said, it can be hard to forecast exactly at what gas price each change will happen. There are many unforeseen factors that can accelerate or forestall a certain change, such as government involvement in building high-speed train networks. If the government funds trains aggressively, change will be effected quicker, obviously. But I do feel that all of the changes represented in the book will happen eventually, whether they take place at gas prices of $10 per gallon or $12 per gallon.

So how scared should we be of the changes to come?
There is little to be scared of. The rising price of gas will unlock countless doors to innovation, opportunity and change.

Why does your book's subtitle say rising gas prices will change our lives "for the better"? How so?
We've grown used to engorging ourselves on the back of cheap oil and it has lead to all manners of problems. As the price of gas goes up, we'll live closer to work, school, eat healthier foods and even be skinnier and safer. The book profiles research that connects cheap oil to America's obesity rate and to the daunting numbers of people that die on our roadways. As the price of gas goes up to, say, $6, we'll save more than $30 billion on obesity-related diseases, 10,000 fewer people will die in car crashes and thousands of people will be spared heart attack deaths related to air pollution. Those kinds of effects will only be magnified as the price of gas rises further. And that's just a sampling of the benefits.

In what ways will rising gas prices improve our economy and job market?
America has lost much of its manufacturing mojo during the last 20 years. A green revolution, fueled by a search for alternative energies and technologies, could change that. Not only will there be need to produce things such as solar panels, electric cars, and new city infrastructure, but the power of globalization will be blunted by higher gasoline prices. The advantages of, say, making a computer in China decrease as the cost of fuel increases and the cost of transporting things all over the earth rises-that will lead to manufacturing jobs returning here, to home soil.

In what ways will the rising cost of gasoline boost innovation?
The innovation game is one that many people anticipate as oil's grip on the world ebbs. New technologies will be needed in all arenas that oil touches, including cars, trains, our homes, the plastic we use and the roads we drive on-and those are just a few examples. The opportunities for inventors in a world with less oil will be prolific.

What kind of places did you visit for your research and why was it necessary to visit them?
Good books need good stories, and it's hard to tell a good story from just talking to people over the phone, so I got out there and did things. I worked on an electric UPS truck in Manhattan for a day; I spent some time on a fishing boat hauling in Asian carp; I descended into one of New York's new train tunnels currently under construction; I rode our nation's fastest train to meet the Amtrak CEO in Washington. I'm not anointing my book or my stories as good--that's up to the reader--but creating an enriching storyline within a nonfiction book was my goal, so I'm hopeful I did that.

So now that we know this, what should we do in the here and now?
Preparing for the future isn't about buying the latest gadgets or the car with the best mileage. Those things help, of course, but they're mere pings in a coming cacophony. People who will do the least amount of adjusting in the future are those who already live more sustainable lives. Where you live largely determines how you live. Buying solar panels for a house at the far edge of the suburbs, for instance, won't alter how the future affects you. Moving to a walkable neighborhood where groceries, your kids' schools, your office or a train are all within several blocks-that's a change you'll profit from and a place where the future will be kinder.

From Publishers Weekly
Starred Review. According to Steiner, senior staff reporter at Forbes magazine, surging fuel prices will transform Americans' daily lives almost beyond recognition. With traditional energy sources disappearing and global demand soaring, the U.S. will confront gas prices rocketing to $6, $8, $14 and beyond—prices that will compel sweeping changes in everything from urban planning to food production. He reveals the consequences of each incremental hike in gas prices: at $8 per gallon, air travel will essentially vanish; at $14 a gallon, Wal-Mart stores will become empty “ghost boxes”; when gas hits $16 a gallon, sushi will become an extravagance only for the extremely wealthy. While many changes will come at tremendous social and economic cost, Steiner envisions a better future, where human ingenuity will spur greater efficiency and less waste. Although it's unlikely all the author's predictions will come true—he goes so far as to forecast the order in which airlines will go out of business—the surprising snapshots of the future (where rising gas prices might revitalize Detroit) make for vivid and compelling reading.

 

#13 The average cost of producing a barrel of shale oil in the United States is approximately 85 dollars. Now that the price of oil is starting to slip under that number, the "shale boom" in America could turn into a bust very rapidly.
Source: 19 Very Surprising Facts About The Messed Up State Of The U.S. Economy
If The Oil Plunge Continues, "Now May Be A Time To Panic" For US Shale Companies | Zero Hedge

Over the past 5 years, the shale industry,fabricated or real reserves notwithstanding, has been a significant boon to the US economy for four main reasons: it has been the target of billions in fixed investment and CapEx spending, it has resulted in tens of thousands of high-paying jobs, its output has been a major tailwind for the US trade deficit, and has generally been a significant contributor to GDP (not to mention various Buffett-controlled or otherwise railway corporations). And perhaps, most importantly, it has become a huge buffer to the price of global oil, as the cost curve of US shale is horizontal, with a massive 10,000 kbls/day available within pennies of $85/bl.

Goldman's explanation:
We believe that the vast reserves that have been opened for development through shale oil in the US have flattened the cost curve meaningfully, at around a US$85/bl Brent oil price. We estimate shale reserves from the top three fields in the US onshore (the Permian, Bakken and Eagle Ford) at around 91bn boe, which to put it in context, is equivalent to roughly one third of Saudi Arabia’s current stated reserves(ZH: this number may be vastly overstated). Most of this resource has become available in the past five years, with few barriers to exploiting the reserves. Production in the US as a result is growing strongly, by more than 1mbpd currently, and we expect this pace of growth to continue over the coming three years as capital continues to be drawn in to these developments. The consequence is that costs of production and E&P capex/bl should stabilise as the marginal cost of production remains stable. We believe that shale oil has become effectively the marginal source of supply, providing the bulk of non- OPEC production growth. This is also the key driver of our oil price view: we continue to expect Brent oil to stay at c.US$100/bl for the coming few years.

For once, Goldman is spot on (even if their Brent price target may be a bit off): with shale oil profitable only above its virtually horizontal cost curve, it means that a whopping 11,000 kbls/day are availableas long as Brent is above $85, a clear "red line" for all OPEC producers.

The red line is conveniently shown on the chart below:





Furthermore, in the following chart, it is clear how lower rates of Fed-sponsored cheap-funding have enabled more and more mal-invested wells to drill chasing 'only-increasing' shale oil... if rates rise (high-yield credit spreads broke 400bps today - the highest in 13 months) then the breakevens become even more expensive and that cost curve even more compromising to the marginal producer.





However, should the price drop below $85, and very bad things start to happen, not the least of which is what we warned about in May that "Shale Boom Goes Bust As Costs Soar." That was when Brent was $110. It is now at $85 and sliding lower.

As a further reminder, we noted two days ago that shale is now in a bear market:





But that is nothing compared to the no bid market the (very, very levered) shale companies will find themselves in if and when, for whatever reason, Brent drops below $85 to a price where only Qatar is profitable on the global Brent cost curve.

So while we understand if Saudi Arabia is employing a dumping strategy to punish the Kremlin as per the "deal" withObama's White House, very soon there will be a very vocal, very insolvent and very domestic shale community demanding answers from the Obama administration, as once again the "costs" meant to punish Russia end up crippling the only truly viable industry under the current presidency.

As a reminder, the last time Obama threatened Russia with "costs", he sent Europe into a triple-dip recession.

It would truly be the crowning achievement of Obama's career if, amazingly, he manages to bankrupt the US shale "miracle" next.