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What a difference 20 years make in crude oil prices
Matthew R. Simmons, World Oil
I began writing World Oil’s annual Crude Oil Outlook article on New Years Day, 13 years ago, when prices had just fallen below $14/bbl for the first time since 1986. At the time, conventional wisdom was certain that the world market had entered a new paradigm of ample, diverse supply. This was deemed to have removed a $10 “fear premium” that had been a structural aspect of pricing since the 1973 Oil Shock. Hence, most observers felt that prices ought to trade within a $10-to-$13/bbl range for the foreseeable future, bringing prices back to levels only briefly experienced in 1986, when a genuine supply overhang existed.
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Had deepwater oil not come of age in the last decade, conventional oil would have passed peak output. Even as deepwater drilling created several million bpd of added oil, non-OPEC supply outside the FSU has struggled for half a decade to stay flat, and now seems clearly in decline. The North Sea is in steep decline, and Mexico, China, Argentina, Oman, Syria, Egypt, Yemen and Colombia seem to be experiencing irreversible declines.
Non-conventional oil from Canada’s oil sands and Venezuela’s Orinoco region makes up about half of both producers’ output. Non-conventional oil is now commercial, but it remains extremely energy-intensive to turn into usable form. Most new oil found globally is either heavy or sour, or both. What seems to have passed peak supply is light, sweet oil – the easiest oil to produce and the simplest to refine into light, finished product.
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Also, 2005 will go down in history books as perhaps the poorest year for exploration success for both oil and gas since World War II. This dismal success was not for lack of effort. Record amounts of funds are being plowed into E&P capital spending, which is why all the world’s rigs are now in use.
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For oil markets, 2006 will be challenging, unless global economies quickly enter a steep recession.
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What Peak Oil Really Means
Like it or not, 2006 will be eventful for oil. It will also be the year when the Peak Oil topic intensifies into a debate on the scale of climate change/ global warming. So far, this Peak Oil debate has been muted to a very separate, small group of “extreme optimists” battling a small group of geologists, petro-physists and, on occasion, energy analysts or economists.
Optimists often do not properly understand what “peak oil” means. They dismiss any worries by saying the world is unlikely to run out of oil in the next 30 to 75 years. Instead, these optimists need to grasp the simple fact that peaking does not mean running out. It means that supply no longer can grow, and it generally means the pending arrival of a production decline.
Depending on the oil field type and the manner in which it has been produced, this decline can be either gentle or so steep that it resembles a production collapse. Optimists who scoff at peak oil also argue that new oilfield technologies will come to the rescue and make new supplies easy to create without realizing that there are few new technologies being invented today. This “embrace technology” group fails to appreciate that this same technology created the steep decline curves occurring in most oil provinces.
Many leading peak oil advocates assume that this event is still a decade away, but they argue that steps to mitigate peak oil’s arrival take so long to implement that the world must create a mitigation plan today. In my opinion, the most important peak oil aspect is defining peak as “a level of oil output that can safely be produced for at least a half-a-decade or more.” Whenever an oil-producing field or region begins to approach this sustained peak productivity level, the safest formula to avoid a pending steep decline is to lower field production rates. Based on this definition, the world might now have exceeded sustained safe production.
How the peak oil debate unfolds will likely shape the next 20 years of markets as profoundly as the many analytical mistakes about supply and demand that shaped the past two decades.
(Feb 2006)
More at the original article.
Natural Gas Demand Destruction
Ron Patterson, EnergyResources e-group
US natural gas gross production peaked in 2001 at 24,500,779 million cubic feet. This past year it was down to 23,410,226 million cubic feet. That is down 1,090,553 million cubic feet, or 4.45 percent from the peak in 2001. Just about half of this drop was due to hurricanes Katrina and Rita (561,000 million cubic feet).
However the important thing is that though gas production dropped dramatically last year, inventories, for this point in the season, are at their highest point in decades and prices are dropping like a rock. There is a very good reason for this phenomenon, demand destruction. Gas prices in the range of $15 have driven many commercial users out of business. Some have moved overseas where gas is much cheaper and some have simply gone out of business altogether. And now that gas prices are down again, most are not likely to come back. Henry Hub NG spot closed at $6.60 yesterday.
Weekly Natural Gas Storage Report:
tonto.eia.doe.gov/oog/info/ngs/ngs.html
Natural Gas Withdrawals and Production:
tonto.eia.doe.gov/dnav/ng/ng_prod_sum_dcu_NUS_m.htm
Gross Withdrawals History (monthly):
tonto.eia.doe.gov/dnav/ng/hist/n9010us2m.htm
Gross Withdrawals History: (annual):
tonto.eia.doe.gov/dnav/ng/hist/n9010us2A.htm
(2 Mar 2006)
December the peak?
Ron Patterson, EnergyResources e-group
December is the peak month so far. December all liquids totaled 84,783,000 barrels per day. That is 63,000 barrels per day higher than the previous high month, May 2005. December crude plus condensate totaled 74,411,000 barrels per day or 431,000 barrels per day higher than the previous high month of May 2005.
The big gains was from Russia, up 290,000 bp/d, the US, up 239,000 bpd, UK,up 102 bp/d, Canada up 97,000 bp/d and Mexico up 77,000 bpd. The big loser was China, down 101,000 bp/d. OPEC was down 100,000 bp/d, half from Iraq and half from Iran.
Early figures for January show that world production will be down anywhere from 135,000 to 500,000 bp/d depending on the source. Perhaps Deffeyes is correct and December was the peak.
The above data is from the EIA’s International Petroleum Monthly:
www.eia.doe.gov/ipm/contents.html
(3 Mar 2006)
ASPO-USA response to ExxonMobil peak oil advertising
ASPO-USA
Last week, ExxonMobil ran a Peak Oil Advertisement in The Washington Post and The New York Times which claimed that peak oil is “decades” away and attempted to discredit what it called the “theory” of peak oil. ExxonMobil may be the world’s most profitable energy company, but it is important to recognize this ad as being both innaccurate and misleading. ExxonMobil’s own production statistics tell the story.
Since 1997, oil prices have quadrupled, yet ExxonMobil, the world’s largest and most profitable private oil company, has not increased production at all. In no other industry, would a quadrupling of prices yield no increase in supply…
The world may not be at global peak oil production today, but informed people do not need the binoculars shown in ExxonMobil’s cartoon in order to see the peak from where we are now. Perhaps ExxonMobil needs them because their vision is clouded by recent record profits.
As a final note, in 2005 the Congress tasked the U.S. Department of Energy to study the peak oil issue. DOE appointed the National Petroleum Council to do the work. As of late last year, the NPC was headed by ExxonMobil’s CEO, Lee Raymond.
The Secretary of Energy should cancel his request to the NPC, and select an impartial objective group to study this tremendously important question.
(3 March 2006)
Dr. Robert L. Hirsch joins ASPO-USA advisory board
ASPO-USA
ASPO-USA is pleased to announce that Dr. Robert L. Hirsch, principal author of the DOE funded SAIC report “Peaking of World Oil Production: Impacts, Mitigation, & Risk Management”, has joined the board of advisors. Dr. Hirsch will work with Matthew R. Simmons, Dr. Albert Bartlett and other prominent board members to advise ASPO-USA on important matters in the future.
(27 February 2006)
Everybody’s an expert: putting predictions to the test
Louis Menand, The New Yorker
…It is the somewhat gratifying lesson of Philip Tetlock’s new book, “Expert Political Judgment: How Good Is It? How Can We Know?” (Princeton; $35), that people who make prediction their business-people who appear as experts on television, get quoted in newspaper articles, advise governments and businesses, and participate in punditry roundtables-are no better than the rest of us.
When they’re wrong, they’re rarely held accountable, and they rarely admit it, either. They insist that they were just off on timing, or blindsided by an improbable event, or almost right, or wrong for the right reasons. They have the same repertoire of self-justifications that everyone has, and are no more inclined than anyone else to revise their beliefs about the way the world works, or ought to work, just because they made a mistake.
No one is paying you for your gratuitous opinions about other people, but the experts are being paid, and Tetlock claims that the better known and more frequently quoted they are, the less reliable their guesses about the future are likely to be. The accuracy of an expert’s predictions actually has an inverse relationship to his or her self-confidence, renown, and, beyond a certain point, depth of knowledge.
People who follow current events by reading the papers and newsmagazines regularly can guess what is likely to happen about as accurately as the specialists whom the papers quote. Our system of expertise is completely inside out: it rewards bad judgments over good ones.
…Tetlock notes, sadly, a point that Richard Posner has made about … public intellectuals, which is that most of them are dealing in “solidarity” goods, not “credence” goods. Their analyses and predictions are tailored to make their ideological brethren feel good-more white swans for the white-swan camp. A prediction, in this context, is just an exclamation point added to an analysis.
(20 November 2005)
A thought-provoking discussion, which may interest people trying to predict the future of peak oil and global warming. In submitting this article, Shepherd Bliss wrote:
My intention is not to argue against careful thinking about the future and prudent planning. It is more to offer data against cock-sure predictions. I have a strong faith in free will and that the choices we make today will greatly influence the future in which we and our children live.
– BA
