Oil Makes the World Go Round (not Money)

Posted by Ed 14 mths ago
The Biggest Oil & Gas Discoveries Of 2019

Conventional oil and gas discoveries have fallen by the wayside since the shale boom and the subsequent oil price collapse. In fact, they’ve fallen to their lowest in 70 years

All in all, this year has seen new discoveries of nearly 8 billion barrels of oil equivalent, compared to 10 billion barrels of oil equivalent discovered last year.

But what’s most striking is that new discoveries aren’t even close to keeping pace with the loss of conventional resources.

According to Rystad, the current resource replacement ratio for conventional resources is only 16 percent. In other words, only one barrel out of every six consumed is being replaced with new resources.

So not only has our pace of discovery declined, but discoveries are also in much more challenging geological venues and typically offshore, which means it could take many years just to bring new resources online.


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Ed 14 mths ago
Let's do that math: 
The world consumes 35,442,913,090 barrels of oil as of the year 2016, equivalent to 97,103,871 barrels per day.
Call it an even 100M per day (pre Covid).
8B barrels = 80 days of oil.   Sounds like a big number ... but it isn't.
Even when oil was priced over $100 per barrel --- very little new oil was being found:

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Ed 14 mths ago
Fortunately shale (smashing up rock and sucking out the dregs) has helped to bolster the supply of oil however, all good things do end:

Jul 12, 2020 - Shale boss says US has passed peak oil. Parsley Energy CEO: 'I don't think I'll see 13m barrels a day again in my lifetime'.
It's amazing shale has lasted this long considering:  U.S. Shale Has Lost $300 Billion In 15 Years 
Fortunately, because of Covid, oil consumption has plummeted...  for example, with airlines barely flying we have reduced the global burn by close to 8%
The aviation industry represents 7.8% of final oil consumption worldwide, while maritime shipping accounts for 6.7%.Jun 20, 2019

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Ed 14 mths ago
There is much attention given to the frequent oil gluts creating the perception that we are swimming in oil.
While there are large pools of oil remaining, particularly in Russia and Saudi Arabia, the reality is that we are burning 6 barrels for every barrel we find.  So we are pumping the remaining pools of oil down rather quickly given we burn nearly 100M barrels of oil per DAY.
What causes a glut of oil?
These gluts tend to occur when the price of oil is falling.   The producers have bills to pay so they need to pump more volume out of the ground to make up for the lower price of oil. 
Of course this creates a race to the bottom as the major suppliers battle to sell ever increasing volumes of oil  but fortunately they generally find common ground and agree to control the amounts of oil they bring to market otherwise the price of oil would be in single digits.
Essentially this does not mean their reserves have increased rather it means that they are pumping their reserves faster thereby depleting them more rapidly.
If you had one large tank of petrol remaining and you knew there was no chance of refilling it, would you go on long, high-speed joy rides?   Of would you use the remaining petrol for essential trips only?
The vast majority of air travel involves joy rides to holiday destinations.   And that has mostly stopped.  Business travel has been slashed as well with most meetings now being held using video conferencing software.   
An added benefit is that the skies are clearer and bluer.   

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Ed 13 mths ago
A New Peak in Conventional Crude Oil Production

 June 8, 2015 

Since May 2005, global conventional crude oil + condensate production (C+C) has been constrained to a bumpy plateau of around 73.2 Mbpd. That limit was breached in December 2014 with a new high of 74.28 Mbpd (Figure 1, blue area is conventional C+C).
This comes on the back of a prolonged period of record high oil price. It seems likely that the reason for the new high is OPEC abandoning constraint rather than an actual expansion of global conventional C+C production capacity.
Figure 1 The EIA report various categories of hydrocarbon liquids production including a category for combined crude oil + condensate. This category includes Canadian syncrude (tar sands) and light tight oil (LTO previously known as shale oil).
Conventional C+C production is estimated by deducting the unconventional sources from the C+C total and shows a new peak of 74.28 Mbpd for December 2014. The chart is not zero scaled and is updated to December 2014, the date of the last report from the EIA. Data from [1, 2, 3, 4]. 

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Ed 13 mths ago
Suppose NASA scientists spotted a massive asteroid that is certain to strike Earth on October 10th 2025. 
Would we be told of this?
If yes then what are the consequences of informing 8 billion people that life ends in 5 years?
- epic levels of depression, hopelessness, drug and alcohol abuse, and suicide as people understand there is no future 
- difficulty motivating people to work, attend school or do much of anything 
- investment would plunge 
- the economy would quickly collapse
Would someone at NASA leak this info? 
Highly unlikely.
-  this information would be highly classified and a leaker would be imprisoned (Julian Assange is currently in a dungeon as a message to would-be leakers)
- why would someone want to leak such information knowing that if the masses became aware of it, it would collapse the economy.   There is zero upside to releasing this info.
- even if someone wanted to leak this information, the MSM would refuse to publish it (see collapse economy) --- in fact if the leaker approached the MSM the FBI would be called and the leaker would be put in chains.
-  if the leaker tried to post a presentation on Youtube or Facebook or any other social media, they would be censored for posting 'fake news'
- If the MSM and social media refuse to publish the leak, then how does the leaker expose the leak?  Does he stand on a busy street corner shouting 'the end is nigh - an asteroid will demolish the planet in 5 years!!! (repent...)'     Does he corner people at cocktail parties and explain to them the physics of the trajectory of the asteroid and how it is certain to hit Earth at a specific time?   He'd quickly be labelled a conspiracy theorist and crazy.
No, I do not think NASA would release this information nor would anyone leak it.   
That said, is there an 'asteroid' approaching Earth?   
If there was... and we could see it headed towards us.... would we be told?   Or would we be told not to worry, it will pass by harmlessly.   
And we'd go about our business without another thought of the asteroid (even though when we look at the sky that asteroid would appear to be on target for a direct hit). 

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Ed 12 mths ago
Resource Replacement Ratio From An Oil Supermajor's Perspective 
According to Rystad Energy, oil and gas companies have discovered 7.7 billion barrels of oil equivalent so far in 2019 year-to-date.
Which means that so far in 2019, the resource replacement ratio for conventional resources stands at 16% as we can see in Rystad's graph below:

However more importantly the resource replacement ratio has been below 40% since 2013 or about 28% for the past seven years on average. It is a massive amount of reserves that have been taken out.

It means that we have consumed oil and gas at a rate of 3.6 barrel of oil equivalent for only one barrel of oil equivalent discovered for the past seven years.

Worse, the trend is negative, which means without drastic measures to counter this negative trend, it will get more severe. As we all know, the demand for oil and gas is increasing and is estimated at 1.4 M Boep/d in 2020, going down a little to ~1 M Boep/d in 2024.

The world is consuming over 100 million Boep/d now or 36.5 billion barrels of oil equivalent per year. 

When you consume almost four times more than you can produce, there will come a time when there is no more to consume, and it is the end of the story.

We are not talking about dollars here and the ability for the US government to print more as needed. In the case of the oil and gas consumed, they cannot be replaced artificially by a "virtual spigot."

Oil and gas is a crucial part of our modern world, which is thirsty for energy, and without this essential energy source, we will be confronted with an existential dilemma.

It is difficult to draw any definitive conclusions concerning reserves and how long we can safely consume oil and gas before the specter of depletion starts to raise its arms and scream "danger." 

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Ed 11 mths ago
Perfect Storm: Energy, Finance, and the End of Growth
The economy is a surplus energy equation, not a monetary one, and growth in output (and in the global population) since the Industrial Revolution has resulted from the harnessing of ever-greater quantities of energy.
But the critical relationship between energy production and the energy cost of extraction is now deteriorating so rapidly that the economy as we have known it for more than two centuries is beginning to unravel.  

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Ed 10 mths ago


2020: The Year Things Started Going Badly Wrong
How today’s energy problem is different from peak oil
Many people believe that the economy will start going badly wrong when we “run out of oil.” The problem we have today is indeed an energy problem, but it is a different energy problem. Let me explain it with an escalator analogy.
The economy is like a down escalator that citizens of the world are trying to walk upward on. At first the downward motion of the escalator is almost imperceptible, but gradually it gets to be greater and greater. Eventually the downward motion becomes almost unbearable. Many citizens long to sit down and take a rest.

In fact, a break, like the pandemic, almost comes as a relief. There is suddenly a chance to take it easy; not drive to work; not visit relatives; not keep up appearances before friends. Government officials may not be unhappy either. There may have been demonstrations by groups asking for higher wages. Telling people to stay at home provides a convenient way to end these demonstrations and restore order.

But then, restarting doesn’t work. There are too many broken pieces of the economy. Too many bankrupt companies; too many unemployed people; too much debt that cannot be repaid. And, a virus that really doesn’t quite go away, leaving people worried and unwilling to attempt to resume normal activities.

Some might describe the energy story as a “diminishing returns” story, but it’s really broader than this. It’s a story of services that we expect to continue, but which cannot continue without much more energy investment. It is also a story of the loss of “economies of scale” that at one time helped propel the economy forward.

In this post, I will explain some of the issues I see affecting the economy today. They tend to push the economy down, like a down escalator. They also make economic growth more difficult.

[1] Many resources take an increasing amount of effort to obtain or extract, because we use the easiest to obtain first. Many people would call this a diminishing returns problem.

Let’s look at a few examples:

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Ed 6 mths ago
A 2010 Oxford University study predicted that production will peak before 2015. ... Phibro statistics show that major oil companies hit peak production in 2005. Fatih Birol, chief economist at the International Energy Agency, stated in 2011 that "crude oil production for the world has already peaked in 2006."

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Ed 6 mths ago
Shale binge has spoiled US reserves, top investor warns. Financial Times.

A fracking binge in the American shale industry has permanently damaged the country’s oil and gas reserves, threatening hopes for a production recovery and US energy independence, according to one of the sector’s top investors.

Wil VanLoh, chief executive of Quantum Energy Partners, a private equity firm that through its portfolio companies is the biggest US driller after ExxonMobil, said too much fracking had “sterilised a lot of the reservoir in North America”.

“That’s the dirty secret about shale,” Mr VanLoh told the Financial Times, noting wells had often been drilled too closely to one another. “What we’ve done for the last five years is we’ve drilled the heart out of the watermelon.”

Soaring shale production in recent years took US crude output to 13m barrels a day this year and brought a rise in oil exports, allowing President Donald Trump to proclaim an era of “American energy dominance”.

Total US oil reserves have more than doubled since the start of the century as hydraulic fracturing, or fracking, and horizontal drilling unleashed reserves previously considered out of reach.
But the pandemic-induced crash, which sent US crude prices to less than zero in April, has devastated a shale patch that was already out of favor with Wall Street for its failure to generate profits, even while it made the country the world’s biggest oil and gas producer.
The number of operating rigs has collapsed by more than 60% since the start of the year. US output is now about 11m barrels a day, according to the US Energy Information Administration, or 15% less than the peak.
“Even if we wanted to, I don’t think we could get much above 13m” barrels a day, Mr VanLoh said. “I don’t think it’s physically possible, because we’ve messed up so much reservoir. I would argue that what the US was touting three or four years ago, in theoretical deliverability, is nowhere close to what we think it is now.”
He said operators had carried out “massive fracks” that created “artificial, permanent porosity”, inadvertently reducing the pressure in reservoirs and therefore the available oil.
The comments will cause alarm in the shale patch, given the crucial role of investors such as QEP in financing the onshore American oil business.

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Ed 2 mths ago

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Ed 14 days ago
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Ed 11 days ago

“Oil explorers need to raise drilling budgets by 54% to more than half a trillion dollars to forestall a significant supply deficit in the next few years, according to Moody’s Investors Service Inc.

“Crude and natural gas drillers chastened by last year’s unprecedented collapse in demand and prices haven’t responded to the recent market rebound as the industry typically does by expanding the search for untapped fields.”


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Ed 6 days ago


“‘We are maxed out’: Qatar powerless to end global energy crisis…

“”We are maxed out, as far as we have given all our customers their due quantities,” said Qatar energy minister Saad al-Kaabi. “I am unhappy about gas prices being high.” Across the globe, the prices are pressuring governments and industry.”

Read More

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Ed 4 days ago

“Energy crisis: UK could run out of gas during especially cold winter ahead, industry boss warns.

“Sir Jim Ratcliffe, owner of chemicals firm Ineos, said a prolonged winter ahead could mean demand for gas outweighs supply, leading to widespread shutdowns.”


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