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Total’s de Margerie says oil output near peak
Carola Hoyos, Financial Times
The world will never be able to produce more than 89m barrels a day of oil, the head of Europe’s third largest energy group has warned, citing high costs in areas such as Canada and political restrictions in countries like Iran and Iraq.
Christophe de Margerie, chief executive of Total, the French oil and gas company, said he had revised his forecast for 2015 oil production downward by at least 4m barrels a day because of the current economic crisis and the collapse in oil prices.
… Mr de Margerie warned that the glut of oil caused by the dramatic reduction in demand would be short-lived and that, in spite of the economic crisis, in the long-term demand would remain constrained by supply.
… Meanwhile, Mr de Margerie now expects a faster decline in production at older fields, such as those in the North Sea. At lower price levels, companies will find it harder to justify the greater cost of keeping such fields pumping.
Total’s chief executive has long been an outspoken advocate of maintaining investment, rather than repeating the mistakes of previous cycles by cutting costs so much that the industry is unable to meet global demand when economies recover.
(15 February 2009)
The Economics of Volatile Oil Prices
Phil Hart, The Oil Drum: ANZ
Considering the fundamental nature of oil supply and demand provides a coherent explanation not just for the rapid rise in oil prices, but also the dramatic fall.
In recent years, I despaired when I heard economists on TV explain oil’s spectacular run up in prices by saying that ‘demand was exceeding supply’. How could trained economists, in just a few short words, contradict the basic grounding in economics that I was taught early in my engineering degree?
… On the way down, the oil companies are their own worst enemies, doomed to repeat the boom-bust cycle that has plagued the industry for decades.
The industry is capital intensive, hugely so, which is why it is dominated by big players. But once an oil field has been developed, the marginal cost of operating that field is relatively low. For most fields, the operating cost is still less than $40 per barrel. This means that most oil companies, despite the oil price collapse, are still producing today almost the same as they were twelve months ago at the top of the price cycle.
But demand has collapsed – the demand curve for 2009 has moved sharply left as economies unravel. So the oil price has to fall far enough to force some companies to cut production. If it weren’t for OPEC cutting a few million barrels per day from their production, the price would fall even further until the market actually cut below the operating costs for a large enough fraction of the world’s oil fields. Tar sands are feeling that impact already.
This price bust must eventually be followed by another boom. The impact of low oil prices is for oil companies to cancel their capital expenditure on new developments. The future supply curve is already being shifted to the left – the vertical asymptote on the supply curve will be at a lower production level in 2010 and following years than last year. Once demand recovers (shifts right), or just because supply begins to fall faster than demand, we will see prices rise again.
(17 February 2009)
German “Peak Oil Briefing” now in English (PDF)
Dr. Steffen Bukold, Energy Comment
This is the English version of Global Oil Briefing Nr.1. It provides a translation of the original German newsletter which you can download from www.energycomment.de.
Global Oil Briefing contains the oil market analysis (ÖMA), which has been published since December 2008, as well as selected events and trends in oil politics, the security of oil supply (including the OILRIX indicator) and the debate on peak oil. We do not simply duplicate agency news but seek to organize and comment information and ideas in a concise and user-friendly way. In particular, the oil market analysis will be expanded and improved in later editions. We also plan to develop the OILRIX risk indicator as an early warning tool.
Global Oil Briefing will be published bi-weekly with the exact date varying. The English version will be available shortly after the German version. If you want to be informed about new issues, please send an email to [email protected].
,,, Over the coming months, the impact of the worldwide financial and economic crisis will be a recurrent theme. The speed of the slump is dramatic indeed and without precedent since the Great Depression. A few highlights: Chinese exports decreased by 17,5% in December year on year. German industrial production contracted by 12%, new orders for German machinery even by 40% y/y. The US are losing 20.000 jobs every day.
Three interacting factors come together: The paralysis of the international banking system, a cyclical downturn, and the debt crisis of the US. These elements will undoubtedly change the structure of oil markets and oil trade, the prospects of oil producers and the trends in oil demand. The crisis of the Canadian oil sands industry (see page 14) is an early evidence. Another indication is the slump in international air freight which contracted by incredible 22,6% in December (see page 8).
The outcome of this contraction race between demand and supply is not yet clear. However, the large spare capacity could vanish quickly given the depletion rates of most fields and the reduction of investment. Low oil prices may be a short intermezzo.This newsletter will keep you well informed.
Explorations – Environmental collapse (interview with Richard Heinberg)
Michio Kaku, Explorations in Science interview with Richard Heinberg via KPFA
Environmental collapse, with Prof. Richard Heinberg, author of Powerdown and Eric Assadorian, of the World Watch Institute in Washington.
(17 February 2009)
The segment with Heinberg starts at about 6 minutes into the program. Michio Kaku is a “theoretical physcist, professor, bestselling author, popularizer of science.” His website: http://www.kpfa.org/archive/id/48501
UPDATE (Feb 18). EB reader Peter Steens points out that the interview is pretty old:
Apparently ‘Powerdown’ had just come out and Indonesia and GB were about to become net importers. I’m guessing it’s from 2006. You may want to add that there’s no new info to be had from the otherwise quite good interview.
I only listened to about 20 minutes of the interview and it did seem old. What I felt was newsworthy about it was that Michio Kaku doing it. He must have done the interview a while ago and only now decided to have it aired. -BA