Peak Oil

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ralfy
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Apr 8 2014 08:10
ocelot wrote:
And just on this:

Here is the definition from the EIA glossary:

Quote:
Unconventional oil and natural gas production: An umbrella term for oil and natural gas that is produced by means that do not meet the criteria for conventional production. See Conventional oil and natural gas production. Note: What has qualified as "unconventional" at any particular time is a complex interactive function of resource characteristics, the available exploration and production technologies, the current economic environment, and the scale, frequency, and duration of production from the resource. Perceptions of these factors inevitably change over time and they often differ among users of the term. For these reasons, the scope of this term will be expressly stated in any EIA publication that uses it. For example, see International Energy Outlook, Table E4 for the list it currently uses for unconventional oil and natural gas production.

Which makes S. Artesian's point that its an economic category.

But if you look at the other points, you will see that it is also one that involves "resource characteristics," etc. In short, no matter how much money is expended to get oil that is deeper or requires more processing, the energy return will still be low.

That's why crude oil production has been in a 73.4 Mb/d plateau since 2005 and shale oil has taken over. That's also why U.S. oil production peaked back in 1970.

ralfy
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Apr 8 2014 08:48
S. Artesian wrote:
The average daily global oil supply has exceeded the 2005 so-called peak every year since 2009. It makes no sense to claim that the peak occurred in 2005 if we discard the output of the shale fields. Either those fields are part of the total "endowment" of reserves, the endowment being one of the key parameters for Hubbert to make his calculations, or there is no basis for making the calculations of peak.

The reason for this is that we are using shale oil, as shown in the first article I shared, and the data comes from the EIA. The fact that we are using shale oil while crude oil has been in a 73.4 Mb/d plateau is proof of peak oil.

The IEA gives more details in its 2010 report:

https://www.iea.org/publications/freepublications/publication/name,27324,en.html

Quote:

The "oil endowment" includes the estimated oil resource (resource being a "concentration in or near the earth's crust in such form and amount that economic extraction of a commodity is currently or potentially feasible") plus all the oil that has already been extracted. A "reserve" is a portion of a resource that can be economically extracted or produced at the time of discovery.

What's important is not oil reserves but production rate:

"The only true metric of energy abundance: The rate of flow"

http://www.resilience.org/stories/2013-04-28/the-only-true-metric-of-energy-abundance-the-rate-of-flow

In fact, the effects of peak oil can take place even before oil production drops. That is, when demand exceeds production.

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Clearly, we can the basis for the changing estimates of reserves, and resources-- they are economic functions,not geological. That there exists a finite supply is not the issue. Everyone agrees that there is a finite supply. The issue is economically and thermodynamically can the extraction process yield a surplus? If the answer is yes, then the next question, "for how long" depends not solely on the resource or the reserve, but the technology and social organization of extraction

That's exactly the reason why we should not look at reserves.What needs to be studied is historical flow rates and capital expenditures. There are more details in the lecture shared earlier.

Quote:

Hubbert made various projections for the global peak of production, with the last ones centering around the year 2000. His "heirs" Campbell, Deffeyes, Laherrere have all made predictions that haven't come to pass, and of course, many of the Hubbertists have revised their estimates of the oil resource.

From what I remember, he argued that crude oil production would peak in 1995+10 years due to the '73 oil shock:

"1976 Hubbert Clip"

https://www.youtube.com/watch?v=ImV1voi41YY

In 2010, the IEA confirmed what Hubbert argued:

"International Energy Agency says 'peak oil' has hit. Crisis averted?"

http://www.csmonitor.com/World/Global-Issues/2010/1111/International-Energy-Agency-says-peak-oil-has-hit.-Crisis-averted

Quote:

As for "unconventional sources"-- here is the criteria utilized by the USGS:
The oil and natural gas resources that exist in geographically extensive accumulations.
[nothing different there]
The deposits generally lack well-defined oil/water and gas/water contacts and include coalbed methane, some tight sandstone reservoirs, chalks, and auto-sourced oil and gas in shale accumulations.
[what of this is a specific geological category?]

Consider the EIA definition.

Quote:

The assessment methodology and production practices vary from conventional resources.
[Finally, we get to the nitty gritty-- which is a function of technology; and technology is a function of economics]

But economics is affected by energy cost. That's why oil production cost for unconventional oil is high.

Quote:

Finally, Ralfy should check the reports filed by the major oil producing companes-- which provide the average cost-price for the company of a barrel of oil. $10, not $85, is the number. Certainly, that is an increase-- from the $2.50 it was not so long ago; but it's not that much of an increase given rates of inflation.

Given a global survey, as of 2013 it was between $50 and $90 a barrel for crude oil and $70 to $90 for Bakken and others:

https://en.wikipedia.org/wiki/Unconventional_oil#Extra_heavy_oil_and_oil_sands

Quote:

Now we need to examine the notion that the shortage of "cheap oil" has driven the price upwards-- the usual evidence cited for this is the fact that the application of greater investments in the technological apparatus of production are required to access the less accessible supplies, and because oil is a limited resource, we have the classic Ricardian rent syndrome, where the most expensive producer determines the price of the commodity for all other producers.

That's part of peak oil and also proves my argument. See the lecture shared earlier for details on capital expenditures.

Quote:

First, let's ask ourselves, if this is the case, what has been the experience with other limited fossil resources that have required greater applications of technology.......like coal (the "approaching peak" in coal production was also a concern of Hubbert). Has the production of coal been driven by a "bell shaped curve" and if not, why is coal different from oil? Fossil fuel, under the ground, so what's the difference. Has the depletion of fields and the introduction of new technologies driven the price of coal relentlessly upwards? Not hardly.

Logically, what affects oil should also affect coal. See, for example,

"Peak Coal Passed in 2008 as Mining Costs Rise, Group Says"

http://www.bloomberg.com/news/2013-10-30/peak-coal-passed-in-2008-as-mining-costs-rise-group-says.html

What should be considered is increasing resource and energy demand worldwide, especially given a growing global middle class:

"The rise of the global middle class"

http://www.bbc.com/news/business-22956470

According to the IEA, in order to meet global economic growth, the equivalent of one Saudi Arabia every seven years will be needed. In order to meet that and a growing global middle class, even more will be required.

Quote:

I would argue that the price spikes and collapses of oil have nothing to do with supplies or "ease of extraction." Let's remember, fixed capital, increases in the application of fixed capital do not and can only be passed along over the life of the apparatus, and tend to reduce the cost of unit production. BUT what can occur is that profit, value, gets distributed according to the size of the capitals deployed. There is no greater mass of capital concentrated in a single sector of capitalist production than the mass concentrated in petroleum. And that massive capital demands a share of the profit proportionate to its size. This distribution is accomplished through the price mechanism.

That's assuming that production rises significantly, but that's not the case, as shown in the EIA data for crude oil production. See the lecture shared earlier, which looks at production and capital expenditures.

Quote:

Short version: If OPEC didn't exist, the bourgeoisie would have had to invent it. OPEC did exist, and the bourgeoisie still had to invent it.

It won't matter, as this does not change the physical limitations of oil production.

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We might ask ourselves what is the basis for Hubbert's analysis-- that there is a finite quantity of oil available, and that extraction of that oil follows a predictable path which reaches a limit that cannot be overcome. Well who can argue with that? I mean after all, what's he arguing really? Nothing but the laws of thermodynamics; the law of entropy. The issue is are we at the edge of the cliff now? Soon? In the near future? All available evidence is that that answer is no.

It's irrelevant to ask when oil production will drop as the effects of peak oil can take place even before that happens. That's why the price of oil has tripled, and oil production cost is catching up.

Quote:

What is evident, however, from the writings of Hubbert and his followers, is the strong Malthusian bias to the analysis (with at least one or more of these Hubbertist followers likening human beings to a "virus" on the body of the earth) which uses predictions of catastrophe to make an indeterminate process appear as an immediate threat.

The point that oil is finite is not based on bias. Also, Hubbert was not predicting catastrophe as he thought that nuclear energy could replace. See his first report for details.

ralfy
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Apr 8 2014 08:53

This lecture was mentioned earlier:

"Oil Supply and Demand Forecasting with Steven Kopits"

http://www.resilience.org/stories/2014-02-25/oil-supply-and-demand-forecasting-with-steven-kopits

Also, "Interview with Steve Kopits"

http://peakoil.com/production/interview-with-steve-kopits

See also "World Energy Outlook 2010"

https://www.iea.org/publications/freepublications/publication/name,27324,en.html

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ocelot
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Apr 8 2014 09:47

This is that 9/11 thread all over again. Different conspiracy, same methodology. Can't make your own argument? No problem - just spam 'em with links to a rake of video lectures, partisan journalism and random reports. Job done.

The conspiranoid's insistence of the shining truth of their chosen conspiracy in face of all countervailing evidence, is inversely proportional to their (in)ability to explain what useful understanding it really adds to the critique of capitalism.

Also William Jevons believed Peak Coal was upon Victorian Britain back in the 1870s and would bring about the downfall of the Empire. It didn't - world wars and anti-colonial struggles did, however. Jevons is the middle link between Malthus and Hubbert

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AndrewF
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Apr 8 2014 13:08

The EROEI (energy return) has been in steep decline since the 1920's, not the mid 1990's. When the mass use of oil started the first sources used were close to or on the surface, in some cases you could extract the oil with bucket chains. They had super high EROEI of 100 or more. By the 70's that had fallen to 20. Yes unconventional sources mean a fall of a similar magnitude again but as w saw from 1920-1970 that actually tells you nothing beyond that the number has fallen.

I wrote a fairly long dismantling of the Peak Oil scare back in 2007 that has survived the seven years since pretty well that looks at the EROEI argument in some detail - its at http://anarchism.pageabode.com/andrewnflood/the-politics-reality-peak-oil-scare

S. Artesian
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Apr 8 2014 15:54

Ralfy wrote (referring to the supposed Ricardian rent basis for peak oil):

Quote:
That's part of peak oil and also proves my argument. See the lecture shared earlier for details on capital expenditures

Ralfy misses the point. Ricardo was wrong-- as is the nonsense about peak coal.

Ralfy also wrote:

Quote:
It's irrelevant to ask when oil production will drop as the effects of peak oil can take place even before that happens. That's why the price of oil has tripled, and oil production cost is catching up.

Then why is he telling us that output from "conventional sources" is back to 2005 levels? Why is he telling us that production in 2009 was below previous estimates for that year? Why is he telling us that and ignoring the impact of the greatest economic contraction since the great
depression on output and consumption?

As for bias-- Hubbert was a technocrat; literally-- thought the technocrati should run society. You don't call that a bias?

S. Artesian
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Apr 8 2014 16:07

Regarding oil production costs-- This from the EIA might help:

Quote:
"Lifting costs (also called production costs) are the costs to operate and maintain wells and related equipment and facilities per barrel of oil equivalent (boe) of oil and gas produced by those facilities after the hydrocarbons have been found, acquired, and developed for production. 15 Direct lifting costs are total production spending minus production taxes (and also minus royalties in foreign regions) divided by oil and natural gas production in boe. Total lifting costs are the sum of direct lifting costs and production taxes.

Reversing an almost decade-long upward trend, worldwide total lifting costs for the FRS companies fell $1.19 per boe, to $11.51per boe, in 2009 (Table 10). Total lifting costs also fell in each of the FRS regions, except Canada, where they rose $2.49 dollars, probably reflecting the inclusion of oil sands there in 2009. 16 The FRS regions with the largest decline in total lifting costs, the U.S. Offshore, the Middle East, and the Other Eastern Hemisphere, sustained declines of $3.83, $2.91, and $2.61 dollars, respectively.

Production taxes were the major contributor to the decline in total lifting costs. Worldwide they declined $0.84 per boe in 2009, which is 70 percent of the decline in total lifting costs (Table 9). Production taxes typically rise and fall with changes in the prices of oil and natural gas, both of which fell in 2009. All FRS regions except Canada, where the increase was small, had declines in production taxes in 2009,

Lifting costs are usually averaged over a three year rolling period to account for changes in taxes, unusual circumstances, one-offs, etc.

Needless to say, $11-$12 bbl in 2009 might or might not be what the lifting costs are today, but it's clear that such costs are nowhere near the $80-90 range that Ralfy quotes. Even if you add "finding costs" which are an estimate based on the anticipated size of the reserve discovered, you get costs per barrel of around $45 dollars, and.......I don't believe there's an oil field in history that hasn't produced over its production life more oil than originally estimates thought likely.

ralfy
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Apr 9 2014 06:44
ocelot wrote:
This is that 9/11 thread all over again. Different conspiracy, same methodology. Can't make your own argument? No problem - just spam 'em with links to a rake of video lectures, partisan journalism and random reports. Job done.

The conspiranoid's insistence of the shining truth of their chosen conspiracy in face of all countervailing evidence, is inversely proportional to their (in)ability to explain what useful understanding it really adds to the critique of capitalism.

Also William Jevons believed Peak Coal was upon Victorian Britain back in the 1870s and would bring about the downfall of the Empire. It didn't - world wars and anti-colonial struggles did, however. Jevons is the middle link between Malthus and Hubbert

Peak oil is not a conspiracy but a physical phenomenon. That's because oil is a finite resource. Given that, it is obvious that production will peak and drop.

What I presented is not "spam" but facts about the issue.

To find out about peak coal, read the peer-reviewed report mentioned in this article:

"Study: World's 'Peak Coal' Moment Has Arrived"

http://www.nytimes.com/gwire/2010/09/29/29greenwire-study-worlds-peak-coal-moment-has-arrived-70121.html

According to the article, the report is challenged by governments and industries. From what I read, the same mistakes are being made, such as referring to reserves and not production rate vs. expected demand.

ralfy
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Apr 9 2014 06:54
AndrewF wrote:
The EROEI (energy return) has been in steep decline since the 1920's, not the mid 1990's. When the mass use of oil started the first sources used were close to or on the surface, in some cases you could extract the oil with bucket chains. They had super high EROEI of 100 or more. By the 70's that had fallen to 20. Yes unconventional sources mean a fall of a similar magnitude again but as w saw from 1920-1970 that actually tells you nothing beyond that the number has fallen.

I wrote a fairly long dismantling of the Peak Oil scare back in 2007 that has survived the seven years since pretty well that looks at the EROEI argument in some detail - its at http://anarchism.pageabode.com/andrewnflood/the-politics-reality-peak-oil-scare

The EROIs are given in a chart presented here:

"Why EROI Matters (Part 1 of 6)"

http://www.theoildrum.com/node/3786

That is, from 1:100 in 1930 to 1:30 in 1970 to less than 1:20 today. That's peak oil.

The EROI for crude oil is now similar to that of shale oil. For tar sands and biofuels, the returns are even lower.

The energy requirement for industrialized countries like the U.S. is around 1:40. But if more people join the middle class, as shown in the first chart of this article:

"Peak Oil Demand is Already a Huge Problem"

http://ourfiniteworld.com/2013/04/11/peak-oil-demand-is-already-a-huge-problem/

and this article:

"The rise of the global middle class"

http://www.bbc.com/news/business-22956470

then even more oil will be needed. How much more? According to this article:

"Former BP geologist: peak oil is here and it will 'break economies'"

http://www.theguardian.com/environment/earth-insight/2013/dec/23/british-petroleum-geologist-peak-oil-break-economy-recession

we will need one Saudi Arabia every 3-4 years.

ralfy
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Apr 12 2014 12:00
S. Artesian wrote:

Ralfy misses the point. Ricardo was wrong-- as is the nonsense about peak coal.

How do you explain increasing capital expenditures? Please refer to the Kopits lecture and state which point is incorrect.

Also, in reference to peak oil, please consider the journal article "A global coal production forecast with multi-Hubbert cycle analysis" and point out what is incorrect.

Quote:

Then why is he telling us that output from "conventional sources" is back to 2005 levels? Why is he telling us that production in 2009 was below previous estimates for that year? Why is he telling us that and ignoring the impact of the greatest economic contraction since the great
depression on output and consumption?

I am giving two points:

Peak oil has taken place, and the drop in conventional production and the flat average at 73.4 Mb/d is proof of that. The same goes for using shale oil to make up for the lack of production.

However, the effects of peak oil can take place even before total production drops. That is, if oil consumption for the rest of the world continues rising, then prices will go up, and shortages are inevitable.

ralfy
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Apr 9 2014 07:04
S. Artesian wrote:

As for bias-- Hubbert was a technocrat; literally-- thought the technocrati should run society. You don't call that a bias?

I don't understand this point. Are you looking for a non-technocrat to discuss this issue? If so, then why not give some examples?

ralfy
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Apr 9 2014 07:39
S. Artesian wrote:
Regarding oil production costs-- This from the EIA might help:
Quote:
"Lifting costs (also called production costs) are the costs to operate and maintain wells and related equipment and facilities per barrel of oil equivalent (boe) of oil and gas produced by those facilities after the hydrocarbons have been found, acquired, and developed for production. 15 Direct lifting costs are total production spending minus production taxes (and also minus royalties in foreign regions) divided by oil and natural gas production in boe. Total lifting costs are the sum of direct lifting costs and production taxes.

Reversing an almost decade-long upward trend, worldwide total lifting costs for the FRS companies fell $1.19 per boe, to $11.51per boe, in 2009 (Table 10). Total lifting costs also fell in each of the FRS regions, except Canada, where they rose $2.49 dollars, probably reflecting the inclusion of oil sands there in 2009. 16 The FRS regions with the largest decline in total lifting costs, the U.S. Offshore, the Middle East, and the Other Eastern Hemisphere, sustained declines of $3.83, $2.91, and $2.61 dollars, respectively.

Production taxes were the major contributor to the decline in total lifting costs. Worldwide they declined $0.84 per boe in 2009, which is 70 percent of the decline in total lifting costs (Table 9). Production taxes typically rise and fall with changes in the prices of oil and natural gas, both of which fell in 2009. All FRS regions except Canada, where the increase was small, had declines in production taxes in 2009,

Lifting costs are usually averaged over a three year rolling period to account for changes in taxes, unusual circumstances, one-offs, etc.

Needless to say, $11-$12 bbl in 2009 might or might not be what the lifting costs are today, but it's clear that such costs are nowhere near the $80-90 range that Ralfy quotes. Even if you add "finding costs" which are an estimate based on the anticipated size of the reserve discovered, you get costs per barrel of around $45 dollars, and.......I don't believe there's an oil field in history that hasn't produced over its production life more oil than originally estimates thought likely.

I think more recent data is needed, with transport and recovery costs included. For example, according to a report mentioned in this article:

"Oil sands crude not as expensive to produce as it used to be"

http://business.financialpost.com/2013/08/19/oil-sands-crude-not-as-expensive-to-produce-as-it-used-to-be/

Worldwide supply cost is around $90, i.e., minus 10-pct return on capital. For oil sands, it's around $70, and $80 for shale oil.

The numbers are similar to those presented here:

"The cost of new oil supply"

http://www.smartplanet.com/blog/the-energy-futurist/the-cost-of-new-oil-supply/

Similar data can be seen in the IEA 2010 report.

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ocelot
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Apr 9 2014 09:16
ralfy wrote:
Peak oil is not a conspiracy but a physical phenomenon.

That's the reactionary core of this whole anti-politics right there. It's the idea that the productivist crisis of capital, that manifests simultaneously as an energy, ecological, economic and social crisis, is physically based, rather than a product of the historically specific social relations of capitalist production.

I say reactionary on a number of levels.

First by obfuscating the actual dynamics of capitalism, and claiming that these are irrelevant to the crisis.

Second by claiming that the crisis is purely technical, and therefore has no connection to the exploitation and oppression of people - and its solution is therefore not to be found in people's struggles for emancipation from wage slavery or political oppression. Further that these struggles are a diversion from the "real problem".

Third, by siding with the enemy - i.e. the bosses of the petro-industrial complex - who claim that "there is no alternative", i.e. renewables, nuclear*, etc are all a waste of time and not worth investing in. This aids and abets the enemy by obfuscating the fact that there is no technical reason why we cannot transition to renewables, the blockage is political-economic - i.e. there are structurally less opportunities to sell units and extract surplus value from renewables and the more efficient use of combustion products in Combined Heat & Power generation (engineers in particular don't get why CHP is not part of any new build project - precisely because they don't understand the political-economic dynamics of capital). All existing power generating processes release at least 50% of extracted energy as heat. With centralised power generation that heat is just vented directly into the atmosphere. CHP - i.e. using that heat energy to heat homes rather than the sky - makes unarguable technical sense. But it doesn't make capitalist sense. And the oil barons want you to think that is a "physical fact". And the peak oil conspiranoids support them in this.

Fourth, by a catastrophism that claims "nothing can be done", which tells people to remain passive and cynical and asserts their lack of power to change the situation.

Finally, I want to add in a quote from a recent position paper by the Confederation des Groupes Anarchistes (CGA) of France, which although targetted at Degrowth, applies also to the anti-historical peak oilers:

Quote:
If we share the foundational analysis of Georgescu-Roegen that says that the global economy has a level of utilisation of natural resources beyond their speed of regeneration, we think that degrowth is an imperfect concept as it does not allow the exclusion of authoritarian social models nor of explicitly the institution and development of social structures and socially useful economic activities. The concept of degrowth says nothing about the political organisation that it presupposes. Hence certain ecologists can from their wishes call for a sort of ecologist "dictatorship" supposed to enforce a respect for the environment. More generally, the concept of degrowth could also be called for by people carrying a racist, theocratic or fascist vision of society.

Currently the internal contradictions of capitalism and the apparent absence of a credible revolutionary perspective cause most of the ecologist discourses and movements to oscillate between two poles, each as utopian as the other: "sustainable development" (more correctly, sustainable growth) and degrowth without an exit from capitalism. Ultimately if the capitalist system aims for growth for growth's sake, it is no more pertinent to counter it with an "alternative" consisting of degrowth for degrowth's sake.

The challenge is rather to bring back the level of global production under the limit of the renewal rate of natural resources, all while guaranteeing equal access to the goods and services produced. Thus, the fundamental question to ask ourselves to have a hope of overcoming the ecological crisis is to know who decides what is produced, and the way it is produced.

The necessary lowering of the level of production thus imposes on humanity the need to take up the challenge of direct democracy, as only populations and not private actors in competition with each other, will really have the interest of overcoming the ecological crisis. But this equally involves taking up the challenge of equality as the only way to reduce the level of production without injuring anyone is to cover people's needs in an egalitarian way.

Thus, rather than degrowth, we demand the socialization of production and decision-making power in society to at last rationalize the economy and meet our needs in accordance with available resources.

The peak oil conspiracy is entirely compatible with a fascist politics - and in fact Technocracy is, imo, an engineers fascist fantasy.

* disclaimer: not that I'm advocating nuclear, n.b.

S. Artesian
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Apr 9 2014 13:53

Ralfy,

I'm not going to review your literature and provide you with a checklist of what's wrong. Increasing capital expenditures are inherent in capitalism-- kind of why it's called advanced capitalism. Capital expenditures are in the US railroad industry are 15x the level of 20 years ago. That doesn't mean unit prices have increased; real freight rates are well below what they were 3 decades ago.

You want transportation costs figured in to lifting costs-- swell, except producers don't pay the transportation costs-- the purchaser does as those are folded into market prices implicitly, or charged to the purchaser directly.

You want to claim production costs are 90% of market prices, go right ahead, but don't pretend that has anything to do with the real production costs of the product, and don't spew nonsense that tries to obscure the real lifting costs by stating: "Worldwide supply cost is around $90, i.e., minus 10-pct return on capital. For oil sands, it's around $70, and $80 for shale oil." That's utter nonsense. You're simply using market prices minus the return on capital, and calling the remainder "production costs." Rates of return are not calculated that way; production costs are not calculated that way.

Your argument about production costs is simply incorrect. Your argument that the oil peak has arrived depends on excluding from production new, and profitable production methods. You claim that the effects of peak oil are manifested before production declines, which is a meaningless argument. The impacts of declining production are felt before production declines? Even when production is expanding? That's very cosmic of you but it makes no real sense. Does entropy exist? Is there eventually going to be heat death of the universe? Sure thing, there are laws of thermodynamics. But are the impacts of a contracting universe felt when the universe is expanding?

Were the impacts of peak oil felt in the 1990s when 3D seismic imaging and horizontal drilling extended the life of practically every field, and brought the production costs back to the level of around 1949?

Hubbert based his analysis on a single, critical assumption-- that all oil production would follow the pattern of a single oil field. The critical assumption has been taken over, uncritically, by the little Hubbertists. But the history of production has not followed this single field pattern.

Indeed, even the US, with its previously steadily declining production did not show the same steady decline in proven reserves and proved recoverable amounts. Between 1977 and 2002 US cumulative production increased 68.2 billion barrels, 56 percent, to 189.6 billion barrels. Proven reserves, which measured 33.6 billion barrels in 1977 declined only 25 percent to 24.0 billion barrels in 2002. Proven ultimate recovery increased in this period from 155.0 billion barrels to 213.6 billion. Proven reserves actually increased between 1998 and 2002.

The disparity between cumulative production and remaining reserves is itself a product of replacement at the drill-bit-- where production has led to more accurate estimates of remaining reserves. This is the pattern that is being repeated right now in Russia, Colombia, Mexico, Nigeria, Sao Tome.

In Mexico proven reserves over time have declined by about 70%, a decline which if we follow the Hubbert curve should have eliminated Mexico as a producer years ago. That has not occurred-- why? because proven reserves are an economic category, not geological. Proven reserves declined as production increased, and funds for further exploration and development of Mexico's major and minor fields declined.

And I would point out that during this period, the Hubbertists were hard at work telling everybody not only that the end was near, the end had begun, and the peak had occurred.

factvalue
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Apr 9 2014 15:49

Ocelot wrote:

Quote:
After all, once you've built renewable generating plant, the power it produces is free - and where's the profit in that? Sustainable capitalism is a pipe-dream, as is any idea of a transition to a post-fossil fuel economy that doesn't pass through the overthrow of capitalism.

I fully agree with the second sentence but the first one obviously depends on what you mean by ‘you.’ If there is private property in the means of production in the great majority of installed renewable energy systems and 'you' are a capitalist, then for example by building and owning large offshore wind farms or huge solar electric power plants, then the fact that the sun doesn’t shine enough for small standalone PV to supply all domestic electricity, in combination with the fact that due to turbulence small scale wind doesn’t currently work in most areas of cities, ‘you’ would simply be carrying on business as usual by controlling electricity, one of the current means of survival for any modern civilisation.

Ocelot wrote:

Quote:
Until we end the law of value/capitalism, the profitability of fossil fuel exploitation looks set to continue to crowd out any investment in renewables.

I agree fully with the spirit of this but a fact is a holy thing and its life should not be laid down on the altar of a generalisation. For example, according to the Global Wind Energy Council Global Wind Report, wind energy is still the fastest growing source of electricity in the world. In 2012, nearly 45,000 megawatts (MW) of new capacity were installed worldwide, a 10 percent increase in annual additions compared with 2011.

From the opposite perspective, in the Ralfy-Artesian exchange I tend to agree with one of the thrusts of AndrewF's article that in the case of Peak Oil one person's impartiality is another person's bias, even if everyone (as is rarely the case) is striving to be objective. People who find this subject to be of great importance, both positively and negatively, to themselves and to class struggle, seem also very often to have made up their minds that humans always turn on each other in times of scarcity.

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ocelot
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Apr 9 2014 16:27
factvalue wrote:
Ocelot wrote:
Quote:
After all, once you've built renewable generating plant, the power it produces is free - and where's the profit in that? Sustainable capitalism is a pipe-dream, as is any idea of a transition to a post-fossil fuel economy that doesn't pass through the overthrow of capitalism.

I fully agree with the second sentence but the first one obviously depends on what you mean by ‘you.’ If there is private property in the means of production in the great majority of installed renewable energy systems and 'you' are a capitalist, then for example by building and owning large offshore wind farms or huge solar electric power plants, then the fact that the sun doesn’t shine enough for small standalone PV to supply all domestic electricity, in combination with the fact that due to turbulence small scale wind doesn’t currently work in most areas of cities, ‘you’ would simply be carrying on business as usual by controlling electricity, one of the current means of survival for any modern civilisation.

From "first principles" your argument is correct - but only insofar as the players in the energy generation market operate a cartel and abstain from competition. Then rents can be extracted from divvying up a monopoly over a vital section of the means of production.

However, and this is a derail, but hopefully still marginally relevant, I have a lot of time for Michael Perelman's thesis (in e.g. "The End of Economics", "Railroading Economics") that marginal production price costing is not just an abstract falsity of neoclassical economics, but actually represents a concrete problem for capitalism in sectors with a relatively high level of fixed costs - the US railroad industry boom and bust of the turn of the 19th & 20th centuries being the exemplary case. The argument goes that as competing enterprises in a high fixed-cap industry run into a periodic downturn, the pressure of their debt repayments forces them to drop prices to the actual marginal operating costs, to gain or retain market share, and this eventually leads to ruination across the industry as prices drop to below the capital-sustainable level of marginal cost + fixed cost debt amortization.

If there's one contemporary industrial sector that is glaringly biased towards fixed costs over marginal operating costs, it's renewables. This is why the petro-industrial complex is so keen on keeping a very close eye on the state of the art in renewables, without actually pushing its development - while at the same time propagandising against its viability as an alternative.

From their point of view, the only way they could gain money from renewables is if they could use them to generate the barrels of oil equivalent (boe), energy input into mining fossil fuels. Because the input energy in the EROEI formula is equivalent energy, rather than like for like material ratio, certain commercially profitable oil operations already run at an EROEI less than 1, as they use associated gas reserves that are not economical, given the rig location, to capture and transport (gas from oil rigs is still often just burnt off) to provide the input power.

In summary, if Perelman is right on the problems of high fixed cost/low marginal cost industries in a competitive context (and I think he is), then oil companies may be very reluctant to see the development of renewable technologies in case they undermine the conditions of their existing cartel - which is ironically based on the barrier to entry imposed by the same high fixed costs that are the source of the problem in a competitive context.

Ocelot wrote:

Quote:
Until we end the law of value/capitalism, the profitability of fossil fuel exploitation looks set to continue to crowd out any investment in renewables.

I agree fully with the spirit of this but a fact is a holy thing and its life should not be laid down on the altar of a generalisation. For example, according to the Global Wind Energy Council Global Wind Report, wind energy is still the fastest growing source of electricity in the world. In 2012, nearly 45,000 megawatts (MW) of new capacity were installed worldwide, a 10 percent increase in annual additions compared with 2011.

Well, factually true when taken in isolation. But the bigger context is that a 10% increase of sod all is still sod all, on the big (unholy) picture scale.

S. Artesian
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Apr 10 2014 22:44

About that economic category of proven reserves:

From the EIA:

Quote:
Proved reserves of oil and natural gas show divergent trends reflecting large decline in natural gas prices

Crude oil reserves highest since 1976
Largest annual increase in crude oil reserves since 1970
Average natural gas prices fell 34% between 2011 and 2012, reducing estimate of recoverable volumes of natural gas under existing economic conditions
Pennsylvania's Marcellus becomes largest natural gas shale play in 2012

U.S. crude oil proved reserves, led by reserve additions in Texas and North Dakota, increased at a record pace in 2012 according to the U.S. Crude Oil and Natural Gas Proved Reserves, 2012 report released today by the U.S. Energy Information Administration (EIA). Despite notable gains in the Marcellus and Eagle Ford shale gas plays, low natural gas prices drove down natural gas proved reserves in 2012, ending a 14-year run of consecutive increases in gas reserves.

Proved reserves are estimated quantities of energy sources that analysis of geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions. Significant year-to-year price changes can directly affect the "existing economic" metric.

Read the full report at: http://www.eia.gov/naturalgas/crudeoilreserves/

Ablokeimet
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Apr 11 2014 13:03

An interesting discussion, in which a fair amount of the debate consists of people talking past each other - despite copious quoting. I wish I had come across this thread earlier.

At the outset, let me say I am an adherent of the Peak Oil theory. I have also, among Peak Oilers, been arguing with the Malthusians amongst them. In the Peak Oil community, they are known as doomers and comprise about half the contributors to the Peak Oil discussion sites I have been watching over the years. Most of the rest are green reformists of some description, with a smattering of political radicals.

The basis of the Peak Oil movement comes from the re-discovery of Hubbert's observations around the turn of the 21st Century. It takes the unarguable fact that there is a finite endowment of liquid hydrocarbons in the world and adds Hubbert's basic argument that production will follow a bell curve as first, discoveries will peak and slow down and then production will peak later as rising demand runs into geological constraints on supply.

Subsequent history has demonstrated the limitations of Hubbert's predictions, but has not invalidated the underlying theory. First of all, the date of Peak Oil is sensitive to the size of the overall natural endowment, called in the industry "Oil in Place". Secondly, it is affected by changes in technology, which affect the Ultimately Recoverable Resources. While there hasn't, to my knowledge, been a large unanticipated increase in the estimate of the world's total endowment of liquid hydrocarbons, there have been some unanticipated and relevant changes in technology. In particular, technology has becme available to release the oil trapped in shale formations. This is often called shale oil, but many people prefer to call it tight oil, in order to avoid confusion with oil shale, which produces kerogen and has not been able to be exploited commercially on a large scale.

The Peak Oil doomers are, almost universally, political conservatives. They accept the logical argument of the Peak Oil theory, which has as a conclusion that the material underpinnings of capitalist society are unsustainable, but the only civilised society they can imagine is the one they currently live in. Therefore, they conclude that "all is lost" and there will be a reversion to, at best, the Middle Ages. They quote an alleged Saudi Arabian saying:

My father rode a camel. I drive a car. My son flies a jet plane. His son will ride a camel.

The doomers dismiss the possibilities of renewable energy, often by reference to the immense capital investment that will be needed to convert global energy systems, supplemented by observations of some genuine and some alleged limitations of wind and solar power.

The wrong-headed Right wing, Malthusian politics of the doomers, however, do not invalidate the basic Peak Oil theory. Once you strip them away, we are left with what is basically a geological constraint on capitalist economic growth, one which is separate from, but related to, ecological constraints like climate change.

It is at this point that I need to refer to previous discussion. As pointed out, Hubbert's prediction of Peak Oil referred to "conventional oil", something which did, indeed, peak around the time of his final predicted date. Total production has continued to increase, however, due to unconventional oil. Debate between Ralfy, on one side, and S. Artesian and Ocelot on the other has revolved around whether unconventional oil is different from conventional oil. I believe that it is different, in a number of ways, but these ways affect Peak Oil predictions differently and that we need to understand them in order to know what's going on.

There are several categories of unconventional oil:

(a) Deep water oil;
(b) Heavy oil (e.g. Canadian tar sands & Orinoco ultra-heavy oil);
(c) Polar oil;
(d) Tight oil;
(e) Oil shale (kerogen).

Categories (a) & (c) are not especially large and have no great impact on Peak Oil theory. Their difference from conventional oil arises not from the physical properties of the oil produced, but from the considerably different and more expensive technology required to find and extract it.

Category (b) is very large, but there appears to be a strong limit on the rate at which oil from the Canadian tar sands and the Orinoco deposits of ultra-heavy oil can be extracted. The date of Peak Oil depends quite significantly on whether this limit is real or apparent. At present, it looks pretty real to me, at least when the Canadian tar sands are considered. The limiting factor there is the supply of water, something which is necessary in the production process. My estimate is that heavy oil will not delay Peak Oil, but will be significant in providing a buffer on the downward slope in production. The very fact that there is a strong limit on the rate of production of heavy oil will ensure that it remains a factor for a long time - 100 years or more. Note also that these oils, while being expensive to produce, are also very expensive to process, requiring much more catalytic cracking than even the heavy grades of conventional oil.

Category (e) is hardly produced at all. i think the only commercial use is in one of the Baltic States, courtesy of investment by the Soviet Union back in the days of Stalinist central planning. The basic problem it runs into is EROEI (energy return on energy invested), which I will discuss later. It is notable, however, that people interested in exploiting this resource have consistently found that they can't make the economics work. Whenever they do their financial analysis, they've always found that it requires an oil price 20-50% greater than the current one.

We are left with category (d), tight oil. This is the one which has been increasing rapidly lately, so we need to look at it to see whether it will continue to increase and, if so, how far and for how long.

Tight oil deposits have been well known for a long time, but they were considered uneconomic until very recently. Two things have changed that. One is the rising price of crude oil and the other is technological change - in this particular case, the development of horizontal wells and fracking. Production of tight oil has been rising rapidly in the US and there is much interest in exploring for it in similar geological formations in other countries.

Now, it's not called "tight oil" for nothing. It has that name because the oil adheres quite closely to the rock in which it is embedded and doesn't flow easily like conventional crude oil does. Getting a commercially viable amount of oil out of the ground depends on fracking, which creates fissures through which oil can be extracted and pumped to the surface. The long term effect of tight oil on the date of Peak Oil depends crucially on the proportion of Oil in Place that can be recovered with known technology. If it's 10%, it will delay Peak Oil significantly. If it's 1%, it will peak itself very shortly and dash the hopes of the cornucopians (as Peak Oilers call those who deny the validity of the theory - a favourite saying of theirs is "The Stone Age didn't end because we ran out of stones").

From what I've seen, and I must admit to being an interested observer rather than a petroleum geologist, recovery rates of tight oil look being a lot closer to 1% than to 10%. A key consideration, and one which definitely merits separating tight oil from conventional crude in energy analysis, is that the decline rate is much higher. The decline rate is the rate at which production from a given well declines over time due to depletion of the resource and the consequent drop in pressure in the well. Conventional oil wells tend to have decline rates in the region of 2%-10% per annum. Tight oil wells have decline rates from 30%-70% per annum.

The high decline rates of tight oil wells mean that production can only be increased by a continual and exponential increase in the number of wells. This exponential growth in wells must sooner or later (and I believe sooner) run into some limits. This ie especially because the oil companies which have been drilling them have naturally drilled the most prospective locations first and average returns from wells drilled recently haven't matched the very attractive returns from those drilled in the first few years of the technology. I believe that tight oil production in the US will peak in the next year or two and, because of that, total US oil production will peak.

Tight oil production is only a substantial feature of the US at the moment, because of the legal framework. In the US, natural resources are the property of the landowner. In the rest of the world, natural resources below a certain depth from the surface (e.g. 10 or 20 metres) are the property of the State. As a result, royalty payments in the US go to the landowner, while elsewhere they go to the State. The effect of this is that landowners in the US are much more amenable to resource development than elsewhere, becausse they have a financial interest. In the rest of the world, there is no financial incentive for a landowner to ignore negative environmental effects.

And this is where fracking comes in. Its environmental drawbacks and dangers are well known, so I won't discuss them. What is relevant, however, is that the resulting community opposition has so far prevented production taking place outside the US. While opposition will probably eventualy be overridden by governments in the service of corporations, it will delay and obstruct development of tight oil so that it won't expand quickly and, quite possibly, will impose limits on the level of its economic viability. The effect on Peak Oil will, therefore, be similar to the effect of heavy oil. It won't delay the peak, but it will provide a buffer on the downward slope.

OK. We've discussed the various types of unconventional oil. I believe that the only category which is relevant in delaying Peak Oil is US tight oil and that it will only continue to delay the peak for a couple more years. What's left to discuss is the following list:

1. Production costs.
2. EROEI.
3. Alternatives to oil.

1. Production costs. Ralfy and S. Artesian have been talking past each other on this. Ralfy's figures are the ones wiith which I am familiar, so I was wondering where S. Artesian was getting the much lower figure he/she was quoting. Then I read post #38, which defined production costs as "lifting costs". Ralfy's figure includes not only lifting costs, but also capital amortisation, which is these days the single largest expense in the industry.

Once upon a time, oil could be obtained by drilling down a relatively short distance, a couple of hundred metres or less, and just taking off the oil as the pressure in the well forced it to the surface. This was dirt cheap and required very little capital investment. The vast majority of the cost of production was lifting it to the surface and putting it into a barrel, a tanker truck or a pipeline. Today, however, it's different. To find oil, you have to drill kilometres into the Earth. And then you need to drill sideways, at multiple points, in order to get the most oil you can out of the well. This requires much more complex technology in order to prevent things going wrong, especially considering the high temperatures and pressures deep below the Earth's surface. If the well you're drilling is under the sea, you have the added complication of floating rigs and preventing sea water contamination of the drilling machinery. On top of all this, you have to allow for the fact that many exploration wells are dusters - they come up with nothing. A few years ago, a joint venture being led by Chevron spent over $US100m on two exploration wells in a new field off the coast of Western Australia - and found nothing. Ouch. Not even Big Oil is prepared to continue in the face of results like that. The field was abandoned - but to stay in business, Chevron has to recoup the exploration costs of dry wells from the profits of its other wells.

S. Artesian's perspective is relevant to how an oil company will react in relation to its existing production fields - exploration & development are sunk costs, so under pressure, they'll maximise production as long as they can cover lifting costs. Ralfy's perspective, however, is more relevant to the long term. A corporation won't drill unless it expects it can recover the entire cost - capital amortisation as well as lifting costs - from the well under consideration. And, given decline rates from existing fields, wells need to be drilled just to keep production up, even before considering any increase. Therefore, Ricardo's theory applies - the price will be determined by that which is required to bring the most expensive oil to market and meet the demand. As, over time, the remaining oil becomes more difficult to find and develop production wells for, the price on the oil exchange will increase. Any remaining low cost producers will make a mint.

2. EROEI. In the long run, EROEI counts. In the short run, what counts is the money cost. EROEI counts in the long run because it underlies the money cost, with a time delay.

If you want to use oil by burning it (e.g. inside a car engine), it makes no sense to do so if you get less oil out of the ground than you have to burn getting it. You'd be better off putting your present stock of oil in your car instead. That's the basic point of EROEI - how much energy you get back in return for what you're spending.

In the real world, however, that basic point is subject to a number of complications. The first is that there are different sources of energy, which are partially but not totally substitutable for each other. You can, for example, run a car on LPG - and, in Australia, many do. I think all taxis in Australia now run on LPG. There is also electricity, which if it doesn't come from a diesel generator, can be used as an input to oil production instead of oil itself. This demonstrates that, while the EROEI of oil itself is significant, it is the EROEI of the wider energy industry which is the fundamentally determining factor. You really only want to use one form of energy to produce a lesser amount of another form if there is a definite advantage from doing so (e.g. you can carry petrol around in your car's petrol tank, but you can't get a good enough battery to make it worthwhile carrying electricity around).

AndrewF above argues that a falling EROEI is meaningless. This is a mistake. It's a measure of how much effort has to go into producing the energy society needs. The fall from 100:1 to 20:1 hasn't had much of a visible effect, because we can still have most work in society being devoted to other pursuits, while the increase in the social resources devoted to acquiring energy has been hard to divide into the part coming from increasing energy production and the part coming from declining EROEI. Once the EROEI ratio declines past 10:1, though, we will find a rapidly increasing number of people will have to work in the energy industry and thus we will have fewer social resources available to produce other goods and services.

Another complicatiing factor is time. The machinery used in the oil industry has been produced using energy sourced with a particular EROEI, which is built into the price. This means that a project with a bad EROEI can look good financially, since its capital costs are determined by the higher EROEI that prevailed previously. In the long term, however, this won't prevent EROEI having its effect. It will only delay the inevitable. Eventually, the poor EROEI of a project will mean its projected income will be less than its projected costs, so it won't go ahead.

3. Alternatives. Doomers in the Peak Oil community can't imagine any alternative and therefore imagine impending disaster. When you first discover Peak Oil, they can be persuasive, since the more intelligent of them are good at spotting the blockages (economic, social and technical) in the road of the alternatives. If you hang around a Peak Oil web site for a few years, however, all it takes is a reasonable memory for you to be able to see that there is something wrong with their methodology. If the doomers were right, you see, the collapse would have happened already. Since there's been no collapse, they must have made a mistake somewhere along the line.

In fact, the doomers' predictions are riddled with errors, all of which can be laid down to a failure of imagination. They didn't see tight oil coming. I didn't, either, but I wasn't predicting doom as a result. They don't see the ability of society to adapt through higher energy efficiency*, they don't see the ability of renewable energy to become a large and reliable resource, and they don't see the ability to change society so that ingrained consumption patterns (and the institutions that drive them) are eliminated.

What is necessary, therefore, is to make a clear distinction between a rational analysis of oil supply and an analysis of the economic and social consequences. Ocelot's contribution at #44, for example, is not an argument against Peak Oil. It is, rather, an argument that Peak Oil will (or at least, can) have economic and social consequences very different from those that the Peak Oil doomers predict. On that point, and since this is already a long post, I'll just say that I agree with that position.

* As a side note, Jevons' Paradox only applies in circumstances where the resource in question is abundant. Increased efficiency in use of abundant resources will lead to increased consumption, as you can achieve more in the way of useful results from such consumption. On the other hand, in situations of constrained supply, increased efficiency serves as an alternative to price rationing. You can achieve the same useful results from a diminishing supply.

P.S. While Peak Oil will interfere somewhat with the IPCC's predictions of global energy consumption and therefore greenhouse emissions, there is more than enough coal to fry the planet. We'll need to stop consuming it well before we reach geological Peak Coal.

S. Artesian
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Apr 11 2014 16:36

On the economics, amortization is indeed a production cost-- gradually writing down the assets over time is exactly what Marx evaluated in his analysis of fixed capital which is depreciated, "ideally," as it transfers its "sunk" value incrementally to the product during its lifetime. Realistically, depreciation also occurs when the socially necessary time for reproduction of the commodity is reduced due to technical innovation, economies of scale, etc. and then the previous value embedded in the means of production cannot be recovered through the price of the commodity.

If we're going to argue that amortization costs are the driver of production costs, I for one would like to see the data, because the data from the US Economic Census Bureau's Quarterly Financial Report shows that depreciation, depletion, and amortization of property plant and equipment amounts to between 2 and 3 percent of total operating expenses in 2013, a rate that stands below the approximate 4 percent rate of 2002.

The QFR database is available at https://www.census.gov/econ/qfr/historic.html.

And just to put the grit next to the nits-- when Iraq was soliciting bids for development and operation of its oil fields, the first round or two didn't go so well-- lack of interest by some, but also Iraq rejected most of the bids as the operators were requiring a payment rate from the government of about $1.25-1.50 per barrel of oil extracted. Following rounds did better as the government accepted bids where the price demanded per barrel extracted. As far as I was able to determine that was NOT $1.50 or $1.00 in addition to the costs of production, but per barrel produced.

ralfy
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Apr 12 2014 12:07
ocelot wrote:

That's the reactionary core of this whole anti-politics right there. It's the idea that the productivist crisis of capital, that manifests simultaneously as an energy, ecological, economic and social crisis, is physically based, rather than a product of the historically specific social relations of capitalist production.

I say reactionary on a number of levels.

First by obfuscating the actual dynamics of capitalism, and claiming that these are irrelevant to the crisis.

I don't think the point of seeing peak oil as a physical reality is to see other factors concerning capitalism as irrelevant. Rather, it it is understand one of those factors, i.e., that which involves energy and material resources.

Quote:

Second by claiming that the crisis is purely technical, and therefore has no connection to the exploitation and oppression of people - and its solution is therefore not to be found in people's struggles for emancipation from wage slavery or political oppression. Further that these struggles are a diversion from the "real problem".

The point is not to see peak oil as merely technical but to see that in light of oppression and other factors.

Quote:

Third, by siding with the enemy - i.e. the bosses of the petro-industrial complex - who claim that "there is no alternative", i.e. renewables, nuclear*, etc are all a waste of time and not worth investing in. This aids and abets the enemy by obfuscating the fact that there is no technical reason why we cannot transition to renewables, the blockage is political-economic - i.e. there are structurally less opportunities to sell units and extract surplus value from renewables and the more efficient use of combustion products in Combined Heat & Power generation (engineers in particular don't get why CHP is not part of any new build project - precisely because they don't understand the political-economic dynamics of capital). All existing power generating processes release at least 50% of extracted energy as heat. With centralised power generation that heat is just vented directly into the atmosphere. CHP - i.e. using that heat energy to heat homes rather than the sky - makes unarguable technical sense. But it doesn't make capitalist sense. And the oil barons want you to think that is a "physical fact". And the peak oil conspiranoids support them in this.

There are two views that question peak oil. The first is that peak oil is a hoax or won't happen because we have lots of reserves available. Unfortunately, reserves is not the same as production rate. That's why we're now using more unconventional oil even with lots of crude oil still available.

For the second view, renewable energy can easily replace fossil fuels. The problem is that energy returns for renewable energy are much lower and oil is still needed for renewable energy.

Finally, in order to prove that peak oil is not a fact, one needs to show that oil is an infinite resource.

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Fourth, by a catastrophism that claims "nothing can be done", which tells people to remain passive and cynical and asserts their lack of power to change the situation.

My view is the opposite. By showing that something can be done, people will be complacent and assume that someone will come up with a solution easily.

Quote:

Finally, I want to add in a quote from a recent position paper by the Confederation des Groupes Anarchistes (CGA) of France, which although targetted at Degrowth, applies also to the anti-historical peak oilers:

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If we share the foundational analysis of Georgescu-Roegen that says that the global economy has a level of utilisation of natural resources beyond their speed of regeneration, we think that degrowth is an imperfect concept as it does not allow the exclusion of authoritarian social models nor of explicitly the institution and development of social structures and socially useful economic activities. The concept of degrowth says nothing about the political organisation that it presupposes. Hence certain ecologists can from their wishes call for a sort of ecologist "dictatorship" supposed to enforce a respect for the environment. More generally, the concept of degrowth could also be called for by people carrying a racist, theocratic or fascist vision of society.

Currently the internal contradictions of capitalism and the apparent absence of a credible revolutionary perspective cause most of the ecologist discourses and movements to oscillate between two poles, each as utopian as the other: "sustainable development" (more correctly, sustainable growth) and degrowth without an exit from capitalism. Ultimately if the capitalist system aims for growth for growth's sake, it is no more pertinent to counter it with an "alternative" consisting of degrowth for degrowth's sake.

The challenge is rather to bring back the level of global production under the limit of the renewal rate of natural resources, all while guaranteeing equal access to the goods and services produced. Thus, the fundamental question to ask ourselves to have a hope of overcoming the ecological crisis is to know who decides what is produced, and the way it is produced.

That's exactly the purpose of discussing peak oil. To argue that something can be done means that we can replace oil with something else and allow the same global capitalist economy to continue. To argue that nothing can be done shows that the same global capitalist economy cannot continue.

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The necessary lowering of the level of production thus imposes on humanity the need to take up the challenge of direct democracy, as only populations and not private actors in competition with each other, will really have the interest of overcoming the ecological crisis. But this equally involves taking up the challenge of equality as the only way to reduce the level of production without injuring anyone is to cover people's needs in an egalitarian way.

I agree! The problem is that if we think that peak oil won't take place or won't take place after a long while, then this challenge will not take place.

Also, all of the evidence that I've presented shows that peak oil has taken place.

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Thus, rather than degrowth, we demand the socialization of production and decision-making power in society to at last rationalize the economy and meet our needs in accordance with available resources.

Exactly! Peak oil shows that that resources are limited. By doing so, we come up with the means to prepare accordingly.

In addition, even with resources are shared equally, there will still be not enough, simply because resources are limited:

https://en.wikipedia.org/wiki/List_of_countries_by_ecological_footprint

That is, bio-capacity will be limited by available resources and population, and the earth has a particular carrying capacity. At the same time, that bio-capacity can be decreased by increasing population combined with environmental damage.

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The peak oil conspiracy is entirely compatible with a fascist politics - and in fact Technocracy is, imo, an engineers fascist fantasy.

* disclaimer: not that I'm advocating nuclear, n.b.

Why do you keep referring to it as a conspiracy? Crude oil production peaked in 2005. Oil discoveries peaked in 1964. U.S. oil production peaked in 1970. Per capita oil production peaked in 1979.

Finally, keep in mind that technocracy for this topic can work both ways. That is, one can argue that peak oil hasn't or won't take place because technology can be used to easily find more oil. Or in case this is not possible, then technology can be employed to find other sources of energy to easily replace oil.

ralfy
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Apr 12 2014 12:10
S. Artesian wrote:
Ralfy,

I'm not going to review your literature and provide you with a checklist of what's wrong. Increasing capital expenditures are inherent in capitalism-- kind of why it's called advanced capitalism. Capital expenditures are in the US railroad industry are 15x the level of 20 years ago. That doesn't mean unit prices have increased; real freight rates are well below what they were 3 decades ago.

Capital expenditures are going up because bringing in new oil is becoming more expensive. The reason for that is that the easy oil is gone. That's peak oil.

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You want transportation costs figured in to lifting costs-- swell, except producers don't pay the transportation costs-- the purchaser does as those are folded into market prices implicitly, or charged to the purchaser directly.

Exactly.

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You want to claim production costs are 90% of market prices, go right ahead, but don't pretend that has anything to do with the real production costs of the product, and don't spew nonsense that tries to obscure the real lifting costs by stating: "Worldwide supply cost is around $90, i.e., minus 10-pct return on capital. For oil sands, it's around $70, and $80 for shale oil." That's utter nonsense. You're simply using market prices minus the return on capital, and calling the remainder "production costs." Rates of return are not calculated that way; production costs are not calculated that way.

Please provide sources other than an FAQ from the EIA referring to 2009 data showing the production cost of oil sands, shale oil, and crude oil.

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Your argument about production costs is simply incorrect. Your argument that the oil peak has arrived depends on excluding from production new, and profitable production methods. You claim that the effects of peak oil are manifested before production declines, which is a meaningless argument. The impacts of declining production are felt before production declines? Even when production is expanding? That's very cosmic of you but it makes no real sense. Does entropy exist? Is there eventually going to be heat death of the universe? Sure thing, there are laws of thermodynamics. But are the impacts of a contracting universe felt when the universe is expanding?

Please give more details on these profitable methods.

About the effects of peak oil taking place before production drops, that's very obvious. When you have a drop in oil production while demand continues to rise, then you have higher oil prices. When you have an increase in oil production while demand rises faster, then you have higher oil prices. Higher oil prices is one of the effects of peak oil.

How is production expanding? Crude oil production has now dropped to 2005 levels and the average production rate has been in a 73.4 Mb/d plateau since 2005. Do you have evidence that crude oil production will soar in the future?

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Were the impacts of peak oil felt in the 1990s when 3D seismic imaging and horizontal drilling extended the life of practically every field, and brought the production costs back to the level of around 1949?

It wasn't felt then because oil demand did not rise as much. Now, we have a growing global middle class, such that we will need one Saudi Arabia every seven years to maintain economic growth, and more to meet the needs of the same middle class.

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Hubbert based his analysis on a single, critical assumption-- that all oil production would follow the pattern of a single oil field. The critical assumption has been taken over, uncritically, by the little Hubbertists. But the history of production has not followed this single field pattern.

Please present another forecast that works contrary to what Hubbert said.

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Indeed, even the US, with its previously steadily declining production did not show the same steady decline in proven reserves and proved recoverable amounts. Between 1977 and 2002 US cumulative production increased 68.2 billion barrels, 56 percent, to 189.6 billion barrels. Proven reserves, which measured 33.6 billion barrels in 1977 declined only 25 percent to 24.0 billion barrels in 2002. Proven ultimate recovery increased in this period from 155.0 billion barrels to 213.6 billion. Proven reserves actually increased between 1998 and 2002.

Focus on production rate rather than amounts produced or reserves. Then see that in light of consumption rate and demand.

Better yet, consider production per capita globally. I gave one link concerning that involving several data sets.

Quote:

The disparity between cumulative production and remaining reserves is itself a product of replacement at the drill-bit-- where production has led to more accurate estimates of remaining reserves. This is the pattern that is being repeated right now in Russia, Colombia, Mexico, Nigeria, Sao Tome.

That's assuming that most of the reserves are nearer the surface and are as easy to obtain as what was extracted initially. This, of course, cannot be assumed, which is why U.S. oil production peaked in 1970.

Quote:

In Mexico proven reserves over time have declined by about 70%, a decline which if we follow the Hubbert curve should have eliminated Mexico as a producer years ago. That has not occurred-- why? because proven reserves are an economic category, not geological. Proven reserves declined as production increased, and funds for further exploration and development of Mexico's major and minor fields declined.

For peak oil, focus on production rate rather than on reserves.

Quote:

And I would point out that during this period, the Hubbertists were hard at work telling everybody not only that the end was near, the end had begun, and the peak had occurred.

I don't understand the point about the end being near, but the point about the peak taking place has already been proven. Or do you evidence showing that crude oil production did not drop to 2005 levels, or that it will rise significantly in the near future?

ralfy
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Apr 12 2014 12:11
S. Artesian wrote:
About that economic category of proven reserves:

From the EIA:

Quote:
Proved reserves of oil and natural gas show divergent trends reflecting large decline in natural gas prices

Crude oil reserves highest since 1976
Largest annual increase in crude oil reserves since 1970
Average natural gas prices fell 34% between 2011 and 2012, reducing estimate of recoverable volumes of natural gas under existing economic conditions
Pennsylvania's Marcellus becomes largest natural gas shale play in 2012

U.S. crude oil proved reserves, led by reserve additions in Texas and North Dakota, increased at a record pace in 2012 according to the U.S. Crude Oil and Natural Gas Proved Reserves, 2012 report released today by the U.S. Energy Information Administration (EIA). Despite notable gains in the Marcellus and Eagle Ford shale gas plays, low natural gas prices drove down natural gas proved reserves in 2012, ending a 14-year run of consecutive increases in gas reserves.

Proved reserves are estimated quantities of energy sources that analysis of geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions. Significant year-to-year price changes can directly affect the "existing economic" metric.

Read the full report at: http://www.eia.gov/naturalgas/crudeoilreserves/

Focus on production rate rather than reserves. The reason for that is explained here:

"The only true metric of energy abundance: The rate of flow"

http://www.resilience.org/stories/2013-04-28/the-only-true-metric-of-energy-abundance-the-rate-of-flow

Thus, for production, one can look at the ff:

http://crudeoilpeak.info/world-crude-production-2013-without-shale-oil-is-back-to-2005-levels

The second chart comes from the EIA. World crude oil production peaked in 2005. The article also contains charts referring to production in various regions.

For the U.S., Mexico, and others, try

http://crudeoilpeak.info/us-peak

again with information from the EIA and other sources on U.S. crude oil, tight oil, etc. Take a look at production per well, U.S. oil production peaking in 1970, etc.

there are more regions discussed in various pages. For example, for Russia,

http://crudeoilpeak.info/russia-peak

with data from the EIA, the IEA, and others.

Also, why refer only to the EIA? There are more sources of data to consider. For example, try

http://cassandralegacy.blogspot.com/2013/07/peak-oil-what-peak-oil.html

which looks at per capita production using data from the EIA, the IEA, and more.

For world oil production, consider the IEA report from 2010:

https://www.iea.org/publications/freepublications/publication/name,27324,en.html

One article about the report:

http://www.resilience.org/stories/2010-11-10/iea-world-energy-outlook-2010-now-out-preliminary-look

ralfy
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Apr 12 2014 07:24
S. Artesian wrote:
On the economics, amortization is indeed a production cost-- gradually writing down the assets over time is exactly what Marx evaluated in his analysis of fixed capital which is depreciated, "ideally," as it transfers its "sunk" value incrementally to the product during its lifetime. Realistically, depreciation also occurs when the socially necessary time for reproduction of the commodity is reduced due to technical innovation, economies of scale, etc. and then the previous value embedded in the means of production cannot be recovered through the price of the commodity.

If we're going to argue that amortization costs are the driver of production costs, I for one would like to see the data, because the data from the US Economic Census Bureau's Quarterly Financial Report shows that depreciation, depletion, and amortization of property plant and equipment amounts to between 2 and 3 percent of total operating expenses in 2013, a rate that stands below the approximate 4 percent rate of 2002.

The QFR database is available at https://www.census.gov/econ/qfr/historic.html.

And just to put the grit next to the nits-- when Iraq was soliciting bids for development and operation of its oil fields, the first round or two didn't go so well-- lack of interest by some, but also Iraq rejected most of the bids as the operators were requiring a payment rate from the government of about $1.25-1.50 per barrel of oil extracted. Following rounds did better as the government accepted bids where the price demanded per barrel extracted. As far as I was able to determine that was NOT $1.50 or $1.00 in addition to the costs of production, but per barrel produced.

From what I know, increasing capital expenditures concerning this topic involves higher costs in extracting new oil. More details are given in this presentation:

https://www.youtube.com/watch?v=dLCsMRr7hAg

Points about the presentation are shared here:

"Beginning of the End? Oil Companies Cut Back on Spending"

http://www.resilience.org/stories/2014-03-04/beginning-of-the-end-oil-companies-cut-back-on-spending

radicalgraffiti
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Apr 12 2014 12:38
ralfy wrote:

That's exactly the purpose of discussing peak oil. To argue that something can be done means that we can replace oil with something else and allow the same global capitalist economy to continue. To argue that nothing can be done shows that the same global capitalist economy cannot continue.

to claim that capitalism can't replace oil and carry on is quite absurd, its contrary to the history of capitalism where multiple sources of energy have been replaced and ignores the fact that replacements already exist. I thought we had seen the end of this bullshit, i thought people would have noticed the increase in things like franking and the steady increase of renewable generating capacity and realized that the forecasts of the end where vastly over stated. But no instead you claim we should base our ideas about the world on how the think people will react, rather then the reality of the situation.

Ablokeimet
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Apr 12 2014 14:46
S. Artesian wrote:
If we're going to argue that amortization costs are the driver of production costs, I for one would like to see the data, because the data from the US Economic Census Bureau's Quarterly Financial Report shows that depreciation, depletion, and amortization of property plant and equipment amounts to between 2 and 3 percent of total operating expenses in 2013, a rate that stands below the approximate 4 percent rate of 2002.

The QFR database is available at https://www.census.gov/econ/qfr/historic.html.

Sorry, but I couldn't find the info for the oil & gas industry in the URL supplied. The tables I found were for much broader industries. Maybe I didn't look in the right place. Any chance of some more detail?

What I did find, however, was the BP 2013 Annual Report:

http://www.bp.com/en/global/corporate/investors/annual-reporting.html

Without printing everything out & poring over it, I can't get all the information I'd like to see, especially since I'm used to looking at reports put together on the basis of Australian Accounting Standards. What I did find, however, was interesting.

BP Upstream Sales & Other Operating Revenue (AR pp150-152):
2013 $70,347m
2012 $72,225m
2011 $75,754m

Selected Expenses (AR pp 150-152) ($m): 2011 2012 2013
Depreciation, depletion & amortisation -
. US ...................................................... 3,201 3,437 3,538
. Non-US ............................................... 5,540 6,918 7,514
Impairment Losses ................................. 1,443 3,046 1,255
Impairment Reversals .............................. (146) (289) (226)
Total ................................................ 10,038 13,112 12,081

% of Sales ............................................ 13.3 18.2 17.2

Note that this does not include exploration expenses, which I found discussed at p28. The discussion is unclear, because two different sets of numbers are quoted. The larger one is described as "Exploration and appraisal costs" and includes capitalised expenses (which, if you're counting depreciation & amortisation, you should exclude to avoid double counting). The smaller set is described as "Exploration expenses" and looks like it is what would have been charged directly against the Profit & Loss Account. The figures there are:

2011 $1,520m
2012 $1,475m
2013 $3,441m

Adding these in, you get the following "pre-lifting" costs:

........................ 2011 .......... 2012 ......... 2013
Pre-lifting ..... $11,558m ... $14,587m ... $15,552m
% of Sales ........15.3 ............ 20.2 ...........22.1

These figures are very much higher than the "lifting costs" that S. Artesian is quoting and thus support my contention that the price of oil is driven primarily by the need to be confident of recovering sunk costs, which are rising as oil gets harder to find and extract.

It should be noted that these figures are for BP's entire upstream portfolio, which these days is split around 60/40 between production of oil & gas, when compared on a "barrels of oil equivalent" basis. A final point to note is that the figures quoted above are averages for the whole portfolio and include old fields with much less capital equipment and capital expenditure to amortise. What counts in terms of getting new oil coming to market is what it costs for the wells they're drilling now. I won't adjust the figures above, because though they're obviously going to be higher, any adjustment I make would be completely arbitrary. More digging in the report may reveal what they're having to spend in order to replace their reserves - I've seen discussion on Peak Oil sites about industry CapEx going through the roof in recent years, but getting results that are mediocre at best. If I find anything useful, I'll post it.

S. Artesian wrote:
And just to put the grit next to the nits-- when Iraq was soliciting bids for development and operation of its oil fields, the first round or two didn't go so well-- lack of interest by some, but also Iraq rejected most of the bids as the operators were requiring a payment rate from the government of about $1.25-1.50 per barrel of oil extracted. Following rounds did better as the government accepted bids where the price demanded per barrel extracted. As far as I was able to determine that was NOT $1.50 or $1.00 in addition to the costs of production, but per barrel produced.

It's late and I have to get to bed, but I have to say that these figures don't make sense to me. I can't see how they'd even cover lifting costs.

P.S. A word about "proved reserves". Movements in this figure aren't the same thing as discoveries, because in order to meet stock exchange reporting requirements, they have to have a high level of confidence that the oil is there and can be extracted commercially. Doing this, however, costs money, so the oil companies only prove up as much oil as they need to at any one time. There are wider categores like "probable reserves" and "possible reserves" and the usual course of events is for the resources to be moved from "probable reserves" to "proved reserves" in order to replace production, while "probable reserves" get run down (though I must admit that I'm far more familiar with this operating in the coal industry, where I've studied some firms' Annual Reports in depth). If I find some data on that, I'll post it as well.

S. Artesian
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Apr 12 2014 15:30

Ralfy:

Quote:
Capital expenditures are going up because bringing in new oil is becoming more expensive. The reason for that is that the easy oil is gone. That's peak oil.

Really? Capital spending for petroleum and coal production in the US tripled between 1937 and 1970. Significant right? Must have been the pre-impacts of peak oil, right? Except you know what? Capital expenditures for all manufacturing in the US increased 22 fold in that same period. So what? Correlating increased capital expenditures with ease or difficulty of production is a bogus endeavor. What counts is profitability, and the allocation of profits among producers.

The easy oil is gone? Why? Because in the classic Ricardian (non)sense-- "the most fertile land is farmed first" or the "easiest minerals are extracted first"??-- which assumes some sort of linerar progression of production and technology. Except that's not how it has actually worked. Capital costs per barrel of oil extracted in the US were higher at the outset of production than in later years because while the oil may have been closer to the surface, the overall development of the productive apparatus was not "easier."

Accessing the "easiest" sources is dependent upon the level of technological development. Accessing Pennsylvania oil in the 1870s was not easier or cheaper than accessing Spindletop in 1901.

The point being there is a relationship between supply, reserve, and the technology of accessing the supply, which is to say the economics of accessing the supply.

Capital expenditures are not determined by the finiteness of supply, but by the profitability of production. Same reason US production peaked in 1970-- profitability; the rate of profit had turned down for the US oil majors in 1969.

SA:

Quote:
You want transportation costs figured in to lifting costs-- swell, except producers don't pay the transportation costs-- the purchaser does as those are folded into market prices implicitly, or charged to the purchaser directly.

Ralfy:

Quote:
Exactly.

Exactly what? Are you now arguing that peak oil determines transportation costs, rather than market conditions, tanker operating costs, tanker capacity, rail capacity, pipeline availability?

Ralfy:

Quote:
Please provide sources other than an FAQ from the EIA referring to 2009 data showing the production cost of oil sands, shale oil, and crude oil.

Nope. Not until you provide the data directly, with the reference cited, for your claims about production costs. Including amortization.
expanding?

Quote:
Please give more details on these profitable methods.

You can find discussion of these in the annual reports of the petroleum majors, or on the EIA website. Help yourself.

Ralfy:

Quote:
About the effects of peak oil taking place before production drops, that's very obvious. When you have a drop in oil production while demand continues to rise, then you have higher oil prices. When you have an increase in oil production while demand rises faster, then you have higher oil prices. Higher oil prices is one of the effects of peak oil.

Huh?? If you have a drop in oil production and that's an effect of peak oil, that means it cannot have occurred before the peak, since the approach to the peak is a consistent upward move in production.

If production is increasing, but cannot keep up with consumption, that is not an impact of the peak, that's an impact of the allocation of capital.

Ralfy:

Quote:
How is production expanding? Crude oil production has now dropped to 2005 levels and the average production rate has been in a 73.4 Mb/d plateau since 2005. Do you have evidence that crude oil production will soar in the future?

This sort of comment makes the value of further discussion questionable. Petroleum production is at or near 89 million barrels/day. You want to eliminate tight oil, deep water oil, tar sands production from that number? Peak oil is supposed to represent an insurmountable obstacle to hydrocarbon extraction. PERIOD. No amount of investment, no amount of "unconventional sources" is supposed to be able to offset the immediate, imminent, already evident (pick one or more) arrival of the peak. Oh... and check out the spare capacity among OPEC producers-- I think it is at or near 10%-- that's conventional production spare capacity.

SA:

Quote:
Were the impacts of peak oil felt in the 1990s when 3D seismic imaging and horizontal drilling extended the life of practically every field, and brought the production costs back to the level of around 1949?

Ralfy:

Quote:
It wasn't felt then because oil demand did not rise as much. Now, we have a growing global middle class, such that we will need one Saudi Arabia every seven years to maintain economic growth, and more to meet the needs of the same middle class.

Really? You think. Well here are the total oil supply WORLD average daily figures for various eight year periods:

1993-2000-- 67.6 million bbl/day to 76.8 million/day, equal to 11.4% increase
2001-2008-- 77.5 million bbl/day to 84.7 million/day, 9.3% increase
2005-2012-- 84.1 million to 89.4 million, 6.3% increase

Total 1993-2012- 32.2% increase in consumption

Rate of increase is slowing, as is the increase in the absolute quantities, so obviously if we are feeling peak oil now it's because of...........absolute limits, right? So let's see if there's a decline in production not proportionate to the slowdown in consumption.

1993-2000 67.1 million/day to 77.7 million, 15.8% increase
2001-2008 77.7 million to 85.4, 9.9%
2005-2012 84.5 to 89.3 5.7% = 33% increase in production

So for a 20 year period, production matches or exceeds consumption. So where's the peak here? Remember, you're claiming we are past the peak.

Quote:
Please present another forecast that works contrary to what Hubbert said.

Sure thing. The USA, for one, the rest of the world for the other. See Chapter 4 of Gorelick's Oil Panic and the Global Crisis, "Counter-Arguments to Imminent Global Oil Depletion."

I'll start you off:

Quote:
The headline of the March 16, 1956, issue of Petroleum Week read, "Is Oil Nearing a Production Crisis?" and stated in bold lettering, "A prominent Texas geologist predicted last week that the upward spiral of US production may end about 1965, to be followed by a decrease of from 5% to 10% a year thereafter." The prominent Texas geologist was M. King Hubbert

The peak of course occurred not in 1965, but 1970, and Hubbert had underpredicted the peak value, production per year by 25%.

And after the peak? Hubbert predicted production in 2008 would be .5 billion barrels when real production was about 1.55 billion barrels.

And we could go on and on-- but this about sums it up: "Departing from the exponential trend of the Hubbert curve through 1980, the actual trend of oil production has since been replaced by a linear one that has been fairly consistent over that last 26 years. It turns out that oil production from 1983 through 2008 has growing simply in proportion to the global population increase."

Do not forget Hubbert's peak is based on a curve, a bell curve where production rates increase at a non-linear rate. The difference? The difference is according to Hubbert's prediction, world production should have been at 50 billion barrels per year in the current period, which corresponds to his peak period. Production has not matched that curve, and now stands at about 32 billion per year.

So those who support Hubbert's peak, his methodology, his curve, and claim he was right in calling the peaks, have to account for that the curve has not been accurate, predicted production rates have not been accurate; predicted declines in production rates from so-called peaks have not been accurate. Other than that, Hubbert got it right, I'm sure.

S. Artesian
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Apr 12 2014 20:11
Quote:
Sorry, but I couldn't find the info for the oil & gas industry in the URL supplied. The tables I found were for much broader industries. Maybe I didn't look in the right place. Any chance of some more detail?

You go to the page. See the hypertext where it says "Historical QFR data PDF format"? pick a quarter of year. Then since the QFR combines petroleum and coal, go the page that has the balance sheet data for that classification. Check depreciation, amortization, depletion vs. total operating exprenses. Do that for 2002, do that for 2013, (you might have to go to the page that has the link to the current data. It's there.

What you did not provide in your citing of the BP report is the relation of depreciation to operating expenses.

As for finding costs-- those are not production costs. Nevertheless I identified the increased finding costs and even with that added in the costs are about half of what Ralfy says they are.

You have not provided any reference or any data to support your claim that amortization is the largest cost the oil producers incur, nor that those costs are driving the price of oil.

S. Artesian
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Apr 12 2014 20:14

Re Iraq: How does $1-$1.25 cover lifting costs? That's because lifting cost in Iraq are less than $1 /barrel. That's how much oil there is and how easy it is to get to it.

S. Artesian
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Apr 12 2014 20:28

Here's an article I found re Iraqi oil leases. Apologies for my poor memory-- the dispute over price was with those demanding more than $5 barrel, not $1 barrel, but as you will see Exxon and Shell have agreements with Iraq where they get less than $2 per barrel:

Quote:
The latest round of Iraqi oil lease auctions landed with a thud on Thursday, with only three of 12 exploration blocks sold, and none of them to a major U.S. or European driller, which industry watchers say are tired of settling for small fees for the oil they find while market prices push $100 per barrel.
Officials had hoped the auction, Iraq's fourth since 2009 and first for undeveloped fields, would attract foreign companies with the technology and risk appetite to explore untapped oil and gas reserves. Instead, they got a no-show from big western drillers, which experts say are leaving for more lucrative contracts elsewhere in Asia and Africa.

The winning bidders were Pakistan Petroleum Ltd.; a joint venture of Russia's Lukoil OAO and Japan's Inpex Corp.; and a partnership of Kuwait Energy Co., Turkey's state-owned driller and Dubai-based Dragon Oil PLC. They will get between $5.28 and $6.34 per barrel of oil they produce.

But nine other blocks were not awarded, and at least one negotiation broke down when a British-Vietnamese consortium demanded twice the $5-per-barrel fee the government was offering, according to sources familiar with the talks.

It's the latest sign that giants like Royal Dutch Shell PLC, BP PLC and ExxonMobil Corp., which jockeyed to gain footholds in Iraq after the U.S. invasion, are balking at more risk without better guarantees of returns, experts said.

“These companies are drillers and refiners and marketers. They’re not in the service business, and they don't make money on $2 a barrel,” said Fadel Gheit, an oil analyst with Oppenheimer & Co. “With the added country and exploration risk … there's simply no compelling reason to be in Iraq at all.”

That leaves Iraq in a tight spot, experts said. The country relies on oil profits for two-thirds of its federal budget. And after two decades of international sanctions, most of its state-run oil companies don't have the expertise to run a major oilfield without help from a global firm, experts say.

“The risk you run as a government is that the oil majors will just up and walk away,” said John Roberts, an energy economist with Platts. “Countries [like Iraq] could end up with a lot of oil in the ground and no good way to get it out.”

Exxon, Shell and others rushed into Iraq's early lease auctions to make connections and get a leg up on future petrochemical or refining projects, said Jay Park of Norton Rose LLP. And if Iraq ever switched to more lucrative production-sharing contracts, the thinking went, they'd be first in line.

But Iraq has stuck with so-called service fee contracts, and layered on hefty taxes and a 25 percent cut for the state-owned oil company partner. Exxon, for example, gets $1.90 per barrel it produces at its West Qurna field in southern Iraq, while Shell gets $1.39 at the Majnoon field.

A joint venture of China National Petroleum Corp. and BP gets $2 per barrel, but takes home just 98 cents after taxes and fees. That's a 99 percent take for the government — the highest in the world, Park said.

Drillers can get more money elsewhere. In Indonesia, for example, Australia's AWE Ltd. has production-sharing contracts for a massive untapped oil field that could hold 76 million barrels of oil. At today's market prices, that's more than $7 billion in oil revenues, a percentage of which — likely between 8 and 15 percent, experts said — flows directly to AWE.

Shell has a similar setup in Malaysia, where it splits profits from the Kinabalu Oil Fields with state-run Petroliam Nasional Berhad. Exxon has production interests in the Congo, eastern Russia and Kurdistan, where it gets between 8 and 12 percent of profits.

Only a handful of countries, mostly in the Middle East and central Asia, use service fees. And all are for oil and gas fields that have already been proven, Park said. The Iraqi leasing round offered service-fee terms for unexplored land, with no guarantees that the drillers would strike oil.

“These companies just went from fishing in an aquarium to fishing in a lake they can't see and don't know anything about,” Park said. “A dollar per fish isn't going to cut it. They're going to want a percent of what they find.”

The latest round of bids also included other terms that may have discouraged bidders. A provision bans contractors from signing exploration agreements with the semiautonomous Kurdish government, which Iraq claims is part of its territory.

Iraq's oil ministry has taken an increasingly hard-line political stance over Kurdistan, banning Exxon from this round for signing a Kurdish exploration deal in October and firing warnings shots to Korean driller SK Innovation Co. Ltd. and France's Total SA.

There are still benefits to being in Iraq, experts said. The country has the world's fourth-biggest oil reserves, and its wells tend to be cheap to run. It can also serve as a stepping stone to more lucrative projects in the region, which is planning huge petrochemical, power plant and refinery projects.

Exxon, for example, landed a $10 billion project to inject seawater into wells in southern Iraq, then parlayed its presence in the country to new, more lucrative contracts in Kurdistan.

“When the geography is as good as Iraq's is, there's going to be interest,” Park said. “And once you're there, other opportunities tend to follow.”

ocelot's picture
ocelot
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Apr 15 2014 15:22

EIA: AEO2014 EARLY RELEASE OVERVIEW

Quote:
[...]
Major highlights of the AEO2014 Reference case include:
.
Growing domestic production of natural gas and crude oil continues to reshape the U.S. energy economy, with crude oil production approaching the historical high achieved in 1970 of 9.6 million barrels per day
.
Ongoing improvements in advanced technologies for crude oil and natural gas production continue to lift domestic supply and reshape the U.S. energy economy. Domestic production of crude oil (including lease condensate) increases sharply in the AEO2014 Reference case, with annual growth averaging 0.8 million barrels per day (MMbbl/d) through 2016, when it totals 9.5 MMbbl/d (Figure 1). While domestic crude oil production is expected to level off and then slowly decline after 2020 in the Reference case, natural gas production grows steadily, with a 56% increase between 2012 and 2040, when production reaches 37.6 trillion cubic feet (Tcf).The full AEO2014 will include cases that represent alternative oil and natural gas resource and technology assumptions.
[...]
With strong growth in domestic crude oil and natural gas production, U.S. use of imported fuels falls sharply
.
In the AEO2014 Reference case, U.S. domestic energy production increases from 79.1 quadrillion Btu in 2012 to 102.1 quadrillion Btu in 2040, and net use of imported energy sources, which was 30% in 2005, falls from 16% of total consumption in 2012 to 4% in 2040. In the AEO2013 Reference case, domestic energy production reached a total of 98.5 quadrillion Btu, and energy imports is projected to decline as a percentage of consumption to 9% in 2040. The larger increase in domestic energy production in AEO2014 is primarily a result of higher projections of production of natural gas and biomass/other renewables. Crude oil production (including lease condensate) increases from 13.9 quadrillion Btu in 2012 to a peak of 20.5 quadrillion Btu in 2019 before dropping to 16.0 quadrillion Btu in 2040.

Of course this is for the USA alone. But then again I believe it is an article of faith amongst peak oilers that peak oil happened in the US in 1970, no?