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Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.


sculpin
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Incredible .We are now only "discovering 1 out of every 20 bbls of oil we use". This fact should be forefront in most people's minds as they think into the future for their living standards, choice of residence, employment & portfolio strategy to allow them to both survive and profit from this trend. Certain energy industry followers already believe current demand is greater than supply with oil being drawn down from non US inventories.

 

http://oilprice.com/Energy/Crude-Oil/Oil-Price-Spike-Inevitable-As-New-Discoveries-Hit-Seventy-Year-Low.html

 

Obviously this is not sustainable.  Thoughts on each scenario:

 

1. This will end very badly for civilization as we now know it. Modern humans are so fossil fuel dependent (& not just transport - heating, electrical related but agriculture, plastics and other modern derived products). Large price spikes will be need to encourage F&D and to curb ever growing WW demand.

 

2. There will be a renewable solution along with slow draw down on fossil fuels to offset most of a shock to the system.

 

3. A complete polyanna solution that is coming soon (ie fusion, breakthrough battery tech, EV breakthru etc) or future discoveries (ie shale) will quickly move to a higher replacement level.

 

Portfolio strategy to profit from potential soaring oil prices in the future? (ie long % allocation to oilsands/shale, short airlines/chemicals etc) Timing and sector allocations both short and long. My bet is currently with the first outcome that we will be going back to an oil price spike situation sometime in the next 2 years.

 

What is chance of loss of large producer suddenly (ie Saudi with 10.5mm bbls/d) like what has happened to Libya - immediate and devastating black swan type of event on world economy, investments etc. Good use of far out of money LEAP options both bull (energy producer call) and bear (general market put or sector?) as portfolio insurance?  http://oilprice.com/Energy/Energy-General/Yemeni-Rebels-Claim-Unconfirmed-Second-Strike-On-Saudi-Aramco-Oil-Facilities.html

 

 

some say supply could fall short by about 4 mb/d by 2018-2020 compared to previous estimates from 2014. For an oil market only suffering from a surplus of less than 1 mb/d currently – and only as much as about 2.5 mb/d at its worst – a supply drop off of that magnitude could be enormous. Sure, crude oil and refined product inventories will take time to get worked off, but once that buffer is gone, the global economy could find itself a little short on crude oil. Prices would subsequently spike because the projects that have been cancelled won’t come back online at a moment’s notice.

 

 

 

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The article mentions the threat of EVs but I can't see how current infrastucture would be able to carry this electricity demand in the near future unless we seem ridiculous technological advancement in the current renewables? In 10 years a lot can and will happen but in 2-3 years the impact will be small even if they find some breakthrough tomorrow.

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"New discoveries hit 70 year low."

 

It is no coincidence that this is occurring while oil prices are low and have been remaining low for a few years.  If oil prices hit $120/bl again you will see the discovery rate magically improve.  Supply and demand, it is all about incentives. Right now it doesn't make a ton of sense to spend a fortune looking for oil.

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Just making sure: are we talking peak oil/gas again? Fracking taught us nothing?

 

Yes it has lulled many people into the false sense that easy to access hydrocarbons are limitless.

 

What about the other 40mm bbl. p/d?

OPEC produces 33.5mm bbl. p/d, Russia produces 11.5mm bbl. p/d, the US 8.5mm bbl. p/d

and Canada 3.7mm bbl. p/d.. That totals 57.2mm bbl. p/d.. The world will use 97mm bbl. p/d

in the 4th qtr. or an additional 40mm bbl. p/d..

 

Many of the OPEC producers are in decline, all are having economic and financial problems.

The US is in decline and will continue to be so thru the 1H of 2017. Canada may be flat.

 

The 40mm bbl. comes from areas such as Mexico, Brazil and the FSU countries. All

are either in decline or not even close to meeting production expectations. Asia

led by China is down. The North Sea is in decline.

 

US shale will need 2 years to bring back production to its peak if possible. The

massive credit that had been available is no longer there. The majority are highly

levered and are planning to use additional C/F to reduce debt prior to additional

drilling. The majority of producers including the most aggressive PXD state they

need $60 or better to be C/F positive. The MSM makes shale look like it is the

majority of the worlds supply even though at its peak it only got close to 5mm

bbl. p/d. I do not believe any is full cycle profitable currently. The debt &

equity that was issued will not be returned by production at current prices nor

$70 for the majority of the producers.

 

Offshore is not profitable. Brazil has cut back to 10 rigs offshore as well as

the US. Infill drilling & EOR has been cut way back WW. The 40mm bbl. p/d that

the world will need in the 4th qtr. in addition to OPEC, Russia, the US & Canada

will not be there. Neither is the CAPEX for future additional production. The

production from past CAPEX is online much is already in decline.

 

The focus by the MSM & WS are on shale and OPEC. They have missed the big picture.

Neither OPEC or shale have any additional capacity & the ROW's 40mm bbl. p/d

is in decline and the CAPEX is not there to replace that declining production.

 

http://www.investorvillage.com/groups.asp?mb=19168&mn=47271&pt=msg&mid=16332663

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And this supply deficit will come as a surprise. Please take a look at the share prices of Frontline and Teekay Tankers. When you have record high worldwide demand is this what you should expect for major tanker companies?

 

What has been happening for 4 or 5 months now is offloading of tankers sitting at sea that were used by various players who were benefiting from a large contango that has now diminished and others who were simply investing into physical inventory. This has had a major dampening effect on inventory draws during peak driving season. As this comes to an end or slows down and with fundamentals improving, inventory draws should increase when people least expect it.

 

Cardboard

 

 

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I doubt very much that we will have difficulty finding oil in the near & medium term.

 

When the price of oil is low, exploration is curtailed...

 

Some years ago, I knew some petroleum engineers.  They said that there were huge deposits of oil just waiting to be found in around Africa.  Surprisingly, they also stated that there were huge un/underappreciated oil deposits in OPEC nations (Saudi Arabia, Iran).  They claimed that there were large areas of those countries that have NEVER been explored, OR were last explored in the 50's/60's.  That if a concerted effort with the latest technology was run, a LOT more oil would likely be discovered.  Why spend massive amounts on exploration when you've got a lot pumping right now?

 

They also stated that Venezuela & the Canadian Tar Sands have BILLIONS & BILLIONS of barrels of oil.  At $45/barrel, that oil is not profitable to extract/process.  At $120/barrel, it is entirely a different story.

 

There are other crazier stories that I heard...but I have no doubt that we generally will have enough oil for the next few decades.  100 years from now?  Harder to say....Will we have ups & downs?  Certainly!  Will we even have brief disruptions?  Maybe...but totally changing our way of life?  I don't see it....

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You might want to read up on the economics of fracking

http://www.theatlantic.com/business/archive/2013/08/shut-up-and-drill-why-fracking-could-end-the-age-of-gas-price-spikes/278494/

 

Fracked oil is very light crude requiring minimal refining, a single (larger) well will routinely deliver an initial 5,000-7,000 bbl/day, and can be drilled & producing in around 10 days (more likely 2 weeks today) - with delivery by truck. Its pretty easy to knock down a US demand driven price hike, by rapidly bringing on additional US supply.

 

There's also more than enough crude around the world, provided we're willing to pay the extraction cost.

A good chunk of it will also never be produced - as green energy & methyl hydrates will be cheaper to extract.

 

SD

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My bet is currently with the first outcome that we will be going back to an oil price spike situation sometime in the next 2 years.

Who is to say civil war doesn't break out in Saudi Arabia and the oil price shoots up to $100 in 3 months? Who is to say that demand remains weak and oil stays in the $40-$50 range for the next 10 years? There's a pretty wild range of outcomes when it comes to oil. At this stage, we can't discount the fact that oil might even become obsolete (2/3's of global oil demand is through transport).

 

If you want to invest in energy, then really, nothing has changed. You buy the lowest cost producer, or else you can identify a company that is under-priced by assets.

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Just making sure: are we talking peak oil/gas again? Fracking taught us nothing?

 

Yes it has lulled many people into the false sense that easy to access hydrocarbons are limitless.

 

 

Spindletop did that, too.

 

Fracking cost reductions + slow economies + global warming regulations + the rapid development of renewables and EVs does not spell a bright future for oil long term.  NB I'm not saying that renewables and EVs will change supply/demand overnight, but what they DO do is change the mindset of the Saudis, who can see that demand may well be much weaker in 2040 than one might have assumed 20 years ago, and therefore understand that the economics of leaving barrels in the ground doesn't look great anymore.  Their incentive to pump has grown.

 

Could the price spike?  Yep.  Is the price below the all-in cost of marginal capacity, and therefore likely to rise long term?  Not in my view.  The rate that costs are coming out of fracking is astonishing.

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They also stated that Venezuela & the Canadian Tar Sands have BILLIONS & BILLIONS of barrels of oil.  At $45/barrel, that oil is not profitable to extract/process.  At $120/barrel, it is entirely a different story.

 

 

This was true several years ago.  Not so true today.  Suncor is largely oilsands and comfortably cash flow profitable despite depreciating high cost mines.  I suspect building mines at today's Ft. McMurray prices is much lower and $45 isn't far from the breakeven point.  And anyway, oilsands are no longer the source of incremental barrels: look to fracking for that.

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They also stated that Venezuela & the Canadian Tar Sands have BILLIONS & BILLIONS of barrels of oil.  At $45/barrel, that oil is not profitable to extract/process.  At $120/barrel, it is entirely a different story.

 

 

This was true several years ago.  Not so true today.  Suncor is largely oilsands and comfortably cash flow profitable despite depreciating high cost mines.  I suspect building mines at today's Ft. McMurray prices is much lower and $45 isn't far from the breakeven point.  And anyway, oilsands are no longer the source of incremental barrels: look to fracking for that.

 

The point they & I were trying to make is that there is a LOT of oil that does not have to be looked for.  We know exactly where it is, about how much there is, and how to get it...Tar sands and Venezuela would be used before we went back to horses & walking again...

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Looking at the Oklahoma quake this week suggests to me that fracking is about to get more expensive.  The earthquakes are occurring in a geologic region that was previously pretty stable - previous to 2009.  The companies involved in fracking are going to have to address their wastewater issue in more expensive ways than just putting it deep underground.  The outcome of lawsuits against the fracking companies and the EPA will be telling. 

 

No insurer in their right mind will touch a liability of this magnitude.  Makes the oil samds look pretty good - and cheap. 

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Just making sure: are we talking peak oil/gas again? Fracking taught us nothing?

 

Yes it has lulled many people into the false sense that easy to access hydrocarbons are limitless.

 

 

Spindletop did that, too.

 

Fracking cost reductions + slow economies + global warming regulations + the rapid development of renewables and EVs does not spell a bright future for oil long term.  NB I'm not saying that renewables and EVs will change supply/demand overnight, but what they DO do is change the mindset of the Saudis, who can see that demand may well be much weaker in 2040 than one might have assumed 20 years ago, and therefore understand that the economics of leaving barrels in the ground doesn't look great anymore.  Their incentive to pump has grown.

 

Could the price spike?  Yep.  Is the price below the all-in cost of marginal capacity, and therefore likely to rise long term?  Not in my view.  The rate that costs are coming out of fracking is astonishing.

 

I think the potential development of alternative transportation and power supply is having a perverse effect on future long tail projects.  Companies, and countries, in oil production are hesitant to invest in the big projects with this backdrop.  If I were an Exxon, Shell, or Chevron CEO, I would be looking at slow diversification of my business away from fossil fuels.  Energy is energy and money is money.  You dont have to be just an oil company.  And I would be very uncomfortable investing billions in projects that may never bear fruit. 

 

 

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They also stated that Venezuela & the Canadian Tar Sands have BILLIONS & BILLIONS of barrels of oil.  At $45/barrel, that oil is not profitable to extract/process.  At $120/barrel, it is entirely a different story.

 

 

This was true several years ago.  Not so true today.  Suncor is largely oilsands and comfortably cash flow profitable despite depreciating high cost mines.  I suspect building mines at today's Ft. McMurray prices is much lower and $45 isn't far from the breakeven point.  And anyway, oilsands are no longer the source of incremental barrels: look to fracking for that.

 

The point they & I were trying to make is that there is a LOT of oil that does not have to be looked for.  We know exactly where it is, about how much there is, and how to get it...Tar sands and Venezuela would be used before we went back to horses & walking again...

 

Yes, agreed!

 

As Saudi's old oil minister said, the stone age did not end for a lack of stones and the oil age will not end for a lack of oil!

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Just making sure: are we talking peak oil/gas again? Fracking taught us nothing?

 

Yes it has lulled many people into the false sense that easy to access hydrocarbons are limitless.

 

 

Spindletop did that, too.

 

Fracking cost reductions + slow economies + global warming regulations + the rapid development of renewables and EVs does not spell a bright future for oil long term.  NB I'm not saying that renewables and EVs will change supply/demand overnight, but what they DO do is change the mindset of the Saudis, who can see that demand may well be much weaker in 2040 than one might have assumed 20 years ago, and therefore understand that the economics of leaving barrels in the ground doesn't look great anymore.  Their incentive to pump has grown.

 

Could the price spike?  Yep.  Is the price below the all-in cost of marginal capacity, and therefore likely to rise long term?  Not in my view.  The rate that costs are coming out of fracking is astonishing.

 

I think the potential development of alternative transportation and power supply is having a perverse effect on future long tail projects.  Companies, and countries, in oil production are hesitant to invest in the big projects with this backdrop.  If I were an Exxon, Shell, or Chevron CEO, I would be looking at slow diversification of my business away from fossil fuels.  Energy is energy and money is money.  You dont have to be just an oil company.  And I would be very uncomfortable investing billions in projects that may never bear fruit.

 

+1. 

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i think it's safe to say that the worries expressed in the OP are only held by the original poster and perhaps a few other very contrary minded observers. as such options that would pay off big if this actually happened are extraordinarily cheap right now. that probably means it's not a bad time to express this contrary view financially. the reason it's such a contrary view is because there is a lot of oil out there that would be viable in the $80 and up price. i follow a lot of companies whose stocks would really really do well were that to happen. and as a counter point, I would keep a close eye on the permian. apparently a very respected oil research firm has come out with a new report that suggests the success people are having finding cheap oil in the permian may totally offset the production declines in other parts of the NA. and don't forget that if the high price of oil does bring the world economy to its knees, with civilization itself at stake, the voters of California may ultimately say "ok fine, i need to put food on my table, you can go ahead and drill the Monterey Shale". and pot smoking slackers who protest every proposed pipeline in Canada may in the future alter their refrain to "drill baby drill!". this is why options on far higher oil prices are cheeeeep.

 

The US Energy Information Administration (EIA) estimated in 2014 that the 1,750 square mile Monterey Formation could yield about 600 million barrels of oil, from tight oil contained in the formation, down sharply from their 2011 estimate of a potential 15.4 billion barrels.[3][4]

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the stone age did not end for a lack of stones and the oil age will not end for a lack of oil

 

I think that just about says it all.  And I'm sure the solar power age will not end for lack of sun, the fusion age will not end for lack of fusible nucleuses, the antimatter age will not end for lack of matter and antimatter, etc...

 

The peak oil scaremongers are getting tedious.  Next up: How overpopulation is going to destroy us all!!!!!!!

 

 

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the stone age did not end for a lack of stones and the oil age will not end for a lack of oil

 

I think that just about says it all.  And I'm sure the solar power age will not end for lack of sun, the fusion age will not end for lack of fusible nucleuses, the antimatter age will not end for lack of matter and antimatter, etc...

 

The peak oil scaremongers are getting tedious.  Next up: How overpopulation is going to destroy us all!!!!!!!

 

Always find it incredulous that there are those who make such generalizing flippant statements with most likely little or complete lack of understanding of an industry. Especially one of such great importance as energy to modern civilization.

 

 

People that use this analogy are taking an example of something that had nothing to do with supply scarcity and using it to describe something that does (oil depletion) in a way to pretend that supply scarcity doesn't matter, or is something that will inevitably be dealt with easily. We'll get past real issues of scarcity by acknowledging that the issues are real, that they are serious, and that we have to plan accordingly for the future with those issues squarely in mind. We won't get to the future we desire by shrugging our shoulders, saying that "The Stone Age didn't end for lack of stones..." and claiming that things always work out in the end because it makes us feel good to pretend that they always have and always will. If you think Peak Oil has anything to do with "running out" then I'd suggest that you don't properly understand Peak Oil. Likewise, if you're using the Stone Age analogy, I'd suggest that you don't properly understand energy."

 

 

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the stone age did not end for a lack of stones and the oil age will not end for a lack of oil

 

I think that just about says it all.  And I'm sure the solar power age will not end for lack of sun, the fusion age will not end for lack of fusible nucleuses, the antimatter age will not end for lack of matter and antimatter, etc...

 

The peak oil scaremongers are getting tedious.  Next up: How overpopulation is going to destroy us all!!!!!!!

 

Always find it incredulous that there are those who make such generalizing flippant statements with most likely little or complete lack of understanding of an industry. Especially one of such great importance as energy to modern civilization.

 

 

People that use this analogy are taking an example of something that had nothing to do with supply scarcity and using it to describe something that does (oil depletion) in a way to pretend that supply scarcity doesn't matter, or is something that will inevitably be dealt with easily. We'll get past real issues of scarcity by acknowledging that the issues are real, that they are serious, and that we have to plan accordingly for the future with those issues squarely in mind. We won't get to the future we desire by shrugging our shoulders, saying that "The Stone Age didn't end for lack of stones..." and claiming that things always work out in the end because it makes us feel good to pretend that they always have and always will. If you think Peak Oil has anything to do with "running out" then I'd suggest that you don't properly understand Peak Oil. Likewise, if you're using the Stone Age analogy, I'd suggest that you don't properly understand energy."

 

Oil is finite. Sure everything is finite.  But we will never hit peak oil.  We are going to be using other sources for the majority of our energy needs long before we hit peak oil.  We will still always need oil for plastics, lubricants, etc, and some power applications as well, but humanity will not be relying on it as much as it does now indefinitely.  Yes I understand peak oil. If we can no longer ever produce enough supply to meet demand and this is a permanent state, we will have reached peak oil.  In my opinion this will never happen.  Like any commodities market demand may exceed supply temporarily causing price increases, but peak oil scare stories are simply fear mongering.

 

EDIT:  Peak Oil could also mean the highest oil production ever reached by humanity, and just like we hit peak whale oil sometime in the late 1800's we will hit that peak oil sometime in the first half of the 21st century.  Oil production will slowly start to fall and it won't be for lack of supply.

 

 

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I think it's worth distinguishing between oil as we know it today and liquid hydrocarbons that can fill in for oil, gasoline, jet fuel, etc. Even if we eventually run out of economically extractable oil, synthetic hydrocarbon fuels are well within our capabilities. For instance during WW2 Germany fueled its air force almost entirely with synthetic fuels due to a shortage of available oil. Synthetic liquid hydrocarbons can come from a lot of different sources whether it's coal gasification or biomass, or as the US Navy has proposed just using seawater and air for the respective hydrogen and carbon feedstocks. None of these methods are cheap at today's prices but then again none has ever really been attempted at scale since we do have relatively easy access to crude oil.

 

http://www.huffingtonpost.com/2014/04/09/seawater-to-fuel-navy-vessels-_n_5113822.html

 

We shouldn't equate our dependence on crude oil with our dependence as a society on hydrocarbon fuels. Hydrocarbons have a lot of advantages as a fuel source for transport applications in terms of energy density, advantages that there just aren't easy alternatives for - especially when weight/volume are limiting factors like in aviation. While we will probably continue to see a shift toward electric and hybrid vehicles for private use, some applications like aviation and shipping will likely be reliant on liquid hydrocarbons of some form for quite some time to come.

 

Heck, SpaceX uses kerosene to launch its rockets.

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Always find it incredulous that there are those who make such generalizing flippant statements with most likely little or complete lack of understanding of an industry.

 

The man who made that statement was the Saudi minister for oil for something like 20 years.  "Complete lack of understanding of an industry"?  He virtually was the industry.  And his point was: before we run out of oil we will move on to something else, just as stone gave way to metals for tools and just as wood gave way to coal which gave way to oil for energy.  Those resources were not infinite, and they have not been exhausted. 

 

I spent about 7 years studying peak oil in some detail and I understand the theory fairly well.  I am sure oil production will peak one day, but it is as likely to be due to lack of demand as lack of supply.  More importantly, it is worth thinking of what new supplies of lower cost production does to the supply curve.  Fracking is now lower cost than the oil sands and deepwater that represented the marginal capacity 5 years ago, and it is capable of growing fast and shoving those sources of supply off the end of the cost curve.  There is a lot more than just depletion going on.

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Oil is available at a price and at today`s price it is too low for fracking and most new sources.

 

Some here don`t seem to realize that U.S. production was 9.6 million barrels/day in April 2015 and is now 8.5 million barrels/day with most of that decline in Lower 48 States and due to fracking or lack thereof. And there is no sign of slowdown in that decline which has continued despite a few dozen rigs having been added in the fields over the past 5 weeks.

 

So some here should stop posting the non sense from the NY Times and other outlets and spend more time getting an understanding for decline rates and costs at various operations by reading MD&A`s of various companies.

 

Cardboard

 

 

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http://www.marketwatch.com/topics/organizations/american-petroleum-institute

 

U.S. oil inventories down 12.1 million barrels according to API in the last week. An enormous draw for this time of the year with refineries starting their August to October maintenance and changeover to winter fuels. Also the largest that I recall for all of 2016.

 

Of course Hermine was a factor but, this is much larger than expected by analysts who should have taken Hermine into account in their forecast for a 425,000 barrels build.

 

The tankers story may start to make sense after all.

 

Cardboard

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