All of the oil (C + C) production data for the US state charts comes from the EIAʼs Petroleum Supply monthly PSM.  After the state production charts, an analysis of two EIA monthly reports that project future production is provided. The charts below are updated to May 2022 for the 10 largest US oil producing states.

U.S. May production decreased by 57 kb/d to 11,595 kb/d. The largest production decreases came from the GOM, Texas and New Mexico. The largest drop occurred in the GOM but was offset by the increase in North Dakota. May production was 195 kb/d lower than November 2021 which was producing at a rate of 11,790 kb/d. The production drop in all three Southern areas was affected by the May storms.

“May 23rd and 24th brought several rounds of thunderstorms, complete with tornadoes, damaging winds, hail and widespread rain, to the South Plains region of West Texas. The activity was fueled by returning Gulf of Mexico moisture following a strong May front that provided a relatively cool and dry weekend leading up to the stormy stretch. Moderate to strong instability developed across the western South Plains and eastern New Mexico Monday afternoon and evening (May 23rd) as the improving low-level moisture and temperatures warming into the 80s developed beneath an approaching upper level storm system”

While overall US production was down, a clearer indication of the health of US onshore oil production can be gleaned by looking more closely at the On-shore L48 states.  In the On-shore L48, May production increased by 95 kb/d to 9,542 kb/d. 

The blue graph, taken from the July 2022 STEO, is the production forecast for the US from June 2022 to December 2022. Output for December 2022 is expected to be 12,576 kb/d. From June 2022 to December 2022, production is expected to increase by 682 kb/d or at an average rate of 113.7 kb/d/mth.  

Listed above are the 10 states with the largest US production. These 10 accounted for 83.0% of all U.S. oil production out of a total production of 11,595 kb/d in May 2022. 

On a YoY basis, US production increased by 365 kb/d with the majority having come from New Mexico.

Texas production decreased by 52 kb/d in May to 4,965 kb/d from 5,017 kb/d in April due to weather.

In September 2021 there were 205 Hz oil rigs operating in Texas. By the last week of May 2022, 303 Hz oil rigs were operational, an increase of 98 rigs and production decreased from 4,982 kb/d in September to 4,965 kb/d in May, a drop of 17 kb/d.

May’s New Mexico production decreased by 11 kb/d to 1,497 kb/d due to weather. From January 2022 to the end of May, close to 92 rigs have been in operation in the New Mexico Permian. However in June and July operational rigs exceeded 100. The recent production increase is due to more wells being completed than drilled.

North Dakota’s May output rebounded from the April storm to 1,049 kb/d, an increase of 155 kb/d from April.

Alaskaʼs April output increased by 5 kb/d to 447 kb/d. Typically May production falls in between the red lines. Is this increase from a new production area in Alaska?

Coloradoʼs May production decreased by 5 kb/d to 430 kb/d.  A recent Colorado report estimates little oil growth likely in Colorado for 2022.

Oklahoma’s output in May increased by 9 kb/d to 425 kb/d. May’s’s output broke out above the 400 kb/d level it has been struggling with since September 2021. From January to April, close to fifty rigs were operating in Oklahoma. In May the rig count increased to 54.

Californiaʼs slow output decline continued in May. Output decreased by 4 kb/d to 339 kb/d. 

Wyoming’s oil production has been on an uptrend from the low of 220 kb/d in February 2021. According to this source, the increase is related to increased drilling. May’s output increased by 4 kb/d to 248 kb/d.

“Pete Obermueller, president of the Petroleum Association of Wyoming, told the Joint Minerals, Business and Economic Development Committee on Monday that the state’s drilling rig count is slowly increasing and reached 21 this week. (Baker Hughes, which tracks rigs differently, reported Friday that Wyoming had 18. (Note the difference between BH and local reporting as noted earlier by a few of our participants)

The current rig count “obviously is better,” Obermueller said. “Still not where we’d like to be, but we’re moving in the right direction.”

Utah’s production hit a new high in May. May’s production increased by 5 kb/d to 119 kb/d.  Utah had 9 rigs operating in May, an increase of 4 over January.

Louisiana’s output was unchanged in May at 103 kb/d.

GOM production decreased by 157 kb/d to 1,606 kb/d in May due to weather. If the GOM was a state, its production would normally rank second behind Texas.

The July 2022 STEO projection for the GOM output has been added to this chart and projects output will be 1,820 kb/d in December 2023. For June 2022, the STEO is projecting a rebound of 155 kb/d to 1,761 kb/d.

The Big Two states, combined oil output for Texas and New Mexico.

Oil production for The Rest

To get a different perspective on US oil production, the above two charts have segregated US state production into two groups, “The Big Two” and the “On-Shore L48 W/O Big Two” or The Rest.

May’s production dropped in the Big Two states by a combined 63 kb/d, with Texas dropping 52 kb/d and New Mexico dropping 11 kb/d. 

Over the past year, production in The Rest appears to be holding steady at close to 3,100 kb/d.

Since the beginning of April 2021 through to the week ending July 29, 2022, the US has been adding horizontal oil rigs at a rate of close to 3.85 rigs/wk, OLS line. From April 2021 to February 2022, 1.42 rigs/wk were added to the Permian. However, over the last 10 weeks only 5 rigs have been added. This slowing of rig additions in the Permian relative to the whole U.S. indicates the increase in U.S. rigs is occurring in the smaller basins, see next table.

In the week ending July 29 there were 330 rigs operating in the Permian, an increase of 2 over the previous week. In Texas 309 were operational, an increase of 4 over the previous week.

This table shows the horizontal rig count in the US basins starting from the beginning of June to the end of July. From the beginning of June to the end of July, a total of 23 (551 – 528) rigs were added in the U.S. Comparing the first column with the last, the biggest increase occurred in “Other” basins, 12. Over the same period, the Permian added 4 and Eagle Ford added 6, for a total of 22. Clearly 50% of the rigs are going to smaller lessor known basins/areas.

Over the last two weeks, completion activity has increased since 16 Frac spreads were added while over the previous 5 to 6 weeks, there was no net change since additions and deletions were offsetting each other. In the week ending July 22, 11 were added while 5 were added in the current week ending July 29 for a total of 295.

Since early February, the growth in frac spreads has not been keeping pace with the growth in rigs. In the week ending July 29, 295 frac spreads were operating, 5 more than the 290 operating in the week ending February 25. Now that summer is here, the frac spread count may begin to increase provided the hurricane season does not impact plans/operations.

As noted in the Rig count table, only 4 rigs were added to the Permian from the beginning of June to the end of July. Would that imply that only a few, say 1 or 2, frac spreads were added in the Permian.

Note that these 295 frac spreads include both gas and oil spreads.

This is an old graphic taken from this source. Throughout the period Q1-16 to Q4-2019, the majority of Frac spreads, over 50%, were located in the Permian. Is it safe to assume the same is true today?

Assuming that 50% is a good estimate for the number of Frac crews in the Permian, that means that close to 148 are operating in the Permian. In the DPR section below, it shows that 436 DUCs were completed in the Permian in May As a rough guide this means one DUC crew can complete three DUCs per month.

The July STEO provides projections for the next 20 months, starting with May 2022 to December 2023, for US C + C and other countries. 

The July 2022 STEO revised down its projected US oil output from May 2022 to December 2023. In December 2023 output is expected to reach 13,337 kb/d, 107 kb/d lower than reported in the June report.

Using only the projected data from June 2022 to December 2023 to fit an OLS line, the STEO is forecasting production will increase at an average rate of 69.7 kb/d/mth, lower than the average rate of 83.8 kb/d/mth estimated in the June report. If the December 2023 output is achieved, it will be 71 kb/d higher than the November 2019 record. The monthly rate of 69.7 kb/d translates into a yearly increase of 836 kb/d.

This chart compares the STEO forecast from the June report with the current July report to better illustrate how the output forecast for July 2022 changed. For the Lower 48, the December 2023 output has been revised down by 110 kb/d to 12.89 Mb/d.

The July output projection for the Onshore L48 states has also been revised down from the June forecast. For December 2023, output was lowered by 100 kb/d to 11.07 Mb/d.

The July 2022 STEO oil price forecast continues to show a steady decline from the EIA’s March peak of $108.50/bbl to $89/bbl in December 2023, blue markers. Essentially the EIA is continuing to forecast that the only direction for the price of WTI going forward is down to the $90/b range.  However what is different with their latest forecast is that the price of oil stabilizes in the $90/b area during the later half of 2023. The July forecast has been added to the chart to show how the STEO WTI forecasts from April to July have converged on a year end WTI price in the $90/b range.

The September WTI contract settled at $98.62 on July 29, $0.62/b higher than the EIA’s forecast average price of $98.00/b for the September contract. An incredibly great projection.

WTI on July 29 settled above the 200 day moving average after bouncing off it on July 22. It has now formed a triple bottom at $95/b along with bouncing off the 200 day moving average at $94/b. These are bullish indicators for WTI, over the near term, next three months.

This chart shows the STEO’s July forecast for OPEC crude output from April 2022 to December 2023. OPEC’s output is projected to increase from April 2022 to December 2022 by 570 kb/d to 29,160 kb/d, which is 200 kb/d lower than in the June report. After December 2022, production remains essentially flat at close to 29,350 kb/d out to December 2023. The July OPEC report indicates that the call on OPEC in Q4-22 is 30.46 Mb/d, which is 1.31 Mb/d higher than the STEO is forecasting for December 2022, 29,160 kb/d.

This chart shows the historical world supply/demand balance up to April 2022 and after that, the EIA’s forecast out to December 2023.  The surplus of over 1,000 kb/d between August and December is inconsistent with the current tight market and expected increase in demand heading into winter.

The Drilling Productivity Report (DPR) uses recent data on the total number of drilling rigs in operation along with estimates of drilling productivity and estimated changes in production from existing oil wells to provide estimated changes in oil production for the principal tight oil regions. The July DPR forecasts production to August 2022 and the following charts are updated to August 2022.

Above is the total oil production projected to August 2022 for the 7 DPR basins that the EIA tracks.  Note that DPR production includes both LTO oil and oil from conventional wells.

The DPR is projecting oil output for August 2022 will increase by 138 kb/d to 9,069 kb/d. Note that the chart now shows the April decline that occurred in the Bakken. From January’s output of 8,093 kb/d to August 2022, output in the DPR basins is forecast to increase by 976 kb/d or by an average of 139.4 kb/d/mth. Note that this monthly production rate is much higher than the STEO rate of 83.8 kb/d projected in the STEO section above.

Permian output exceeded 5,000 kb/d in April 2022 and continues to increase. August production is expected to increase by 78 kb/d to a new high of 5,445 kb/d. From March to August, production is forecast to increase by 397 kb/d or at an average rate of 79.4 kb/d/mth. If the Permian were part of OPEC, at 5,445 kb/d it would be the second largest producer after Saudi Arabia.

During June, 408 wells were drilled and 438 were completed in the Permian. The completed wells added 373 kb/d to June’s output for an average of 852 kb/d/well. The overall decline was 288 kb/d which resulted in a net increase for Permian output of 85 kb/d. The completion of 30 extra DUCs over the drilled wells contributed 25.6 kb/d of the 85 kb/d increase.

Output in the Eagle Ford basin has been showing an increasing trend since March 2022. For August, output is expected to increase by 25 kb/d to 1,205 kb/d. 

The DPR forecasts Bakken output in August to be 1,192 kb/d an increase of 19 kb/d from July. The April drop reflects the severe winter weather in April. According to the ND Department of Mineral Resources, Bakken production rebounded in May to 1,018 kb/d, which is much lower than shown in the DPR Bakken chart.

Output in the Niobrara is growing slowly. August output increased by 6 kb/d to 638 kb/d.

The number of DUCs available for completion in the Permian and the four major DPR oil basins has continued to fall every month since July 2020. Prior to July more wells were drilled than were completed. Also note how the monthly use of DUCs is slowing and stabilizing at a lower level .

In these four primarily oil basins, the change in the monthly completion rate of DUCs started to slow after peaking in March 2021 at 329. In June 2022, 31 fewer DUCs were completed, 2577 vs 2546, than in the previous month, see previous chart.  Similarly the change in monthly completion rate for DUCs in the Permian slowed. It dropped from 36 in May to 30 in June, 1,244 vs 1,214, see previous chart.  

This chart shows that the number of completions of DUCs has stabilized in the Bakken, Eagle Ford and Niobrara basins while they continue to drop in the Permian since of 30 of 31 fewer completed DUCs came from the Permian.

In the Permian, the monthly completion rate of wells has been showing signs of slowing since March. In June 438 wells were completed, 2 more than in May. During June, 408 new wells were drilled, an increase of 8 over May. To counteract the lowering use of DUCs, drilling has been increased.

Thank you Ovi for all the work you do. I appreciate your efforts greatly.

https://finance.yahoo.com/news/oil-markets-havent-yet-priced-121500759.html

“Oil prices tend to drop 30% to 40% in all recessions, the bank said.” says the bank. Of course, oil prices over the past couple months dropped by this much but then subsequently rose to, but the during a recession the lower prices last longer. While prices during a recession. the consumption much less in percentage terms.

Ovi, great job, thanks. One caveat, For the rest of the lower 48 less big 2, you have Oct-20, which I think should be Oct-19.

I think this is the most important chart you show. Since this group peaked in October 19, their production has dropped almost one million barrels per day or 25% of their total production and they show no sign of recovering.

I’ve wondered if this drop was caused by strippers shut in then not restarted? Can they be or is it supply/labor problem?

That may very well be the cause. However, I am not an oil man so I cannot say for sure. But one million barrels per day is nothing to sneeze at. They were higher in July 20 than in May 22, so they are not recovering.

Interesting that some frat spreads have been added recently. Without that I’d have said that the rig additions in the Permian and Eagleford last week meant all the four LTO basins are pretty much in balance between drilling and completions. They are also all pretty much at minimum working inventory for DUCs, with only EF possibly having a few spare. Therefore: 1) there is no more ‘cheap’ oil to be had where the drilling costs have already been sunk into a DUC, and 2) any increase in completions would need to be preceded by an increase of rigs by about 3 to 5 months, so it would be quite difficult to raise production quickly, even if the operators wished, which I think they don’t, if for no other reason than the continuing price volatility and recession risks, and had the human, capital and supply chain resources to do so, which they don’t. But the spreads may be in gas basins, until the final, adjusted completion numbers are in it’s difficult to tell for sure.

Ovi, What was the weather event in the GOM that caused production to be down?

Click on the Link “May Storms” in the paragraph under the first chart. I just took a guess that it was weather since all three were down and that link came up. It sounds like bad weather but with no name.

Ovi, Thanks. That weather may have impacted Texas and New Mexico, but I’m not sure that it impacted GOM production. It would not have impacted things offshore, but maybe the production coming onshore?, but not sure of that either.

Could some of the GOM platforms been doing maintenance by coincidence at the same time?

The drop was mainly because of a turn around by Shell at Mars-Ursa (the biggest single throughput in the Gulf). Na Kick has quite a big drop too. A bigger story might be how fast the Mars-Ursa production is falling, at about 15 to 20% per annum. The most recent tie-in there, PowerNap, was a downgraded from about 30 kboed to around 16 and the older big fields are well into late life. The platforms came back on-line in the first week of June.

There might be big weather outages to come as the Atlantic hurricane season fires up in the second half of August. The GoM is set up similarly to 2005 and could allow for rapid and large scale intensification of storms. I read somewhere, and can’t now find it but I think might have been from David Wallace-Wells, that the levees rebuilt and added after Katrina are not designed to cope with a category five hurricane and may not have been built or maintained to a high enough standard to be able to handle a direct hit from a category four.

What was your expectation for the rate of decrease in Mars Ursa output?

Average annual production for Mars-Ursa in kbopd 2018 – 202 2019 – 211 2020 – 162 2021 – 132 big Ida related outage – 155 prior to Ida 2022 – 143 through 5 months but shut ins in May, 157 prior to that

The big drop between 2019 and 2020 was at least partially due to the covid price crash.

It currently is hovering around 150 kbopd with interruptions from shut ins and storms. If you back out the shut ins and storms, the decline is pretty low – 5%?

Are the shutins due to maintenance/ equipment failures typically?

Yes, shut ins are typically due to maintenance and equipment failures. On big offshore platforms, usually, alot of preplanning goes into these. You may plan a shutin for a year or two. You want to maximize the shutin time to try to keep it as short as possible while still getting everything done that needs to get done.

BSEE just came out with their estimate of GOM production for May and it was 1.51 mmbopd, compared to 1.61 for the EIA estimate. This difference is bigger than normal. EIA data will line up better with BSEE data as the months pass. The BSEE data is that which is reported by operators and is what I have always considered the most reliable. BSEE data also changes slightly as operators do prior period adjustments.

Thanks again for the U.S. May Oil Production Update. I know it must take many hours to put together these posts. Interesting that the EIA Weekly Estimates for May at 11.9 mbd are 300,000 bd more than the 11.565 mbd shown in the Monthly data. Will this divergence continue? Or will the Permian and other shale fields finally begin to grow in the 2H 2022? That remains to be seen.

I just put out a new Public article on Peak Gold & Peak Oil… I believe we are at the ultimate plateau for both:

PEAK GOLD & PEAK OIL ARE HERE: Means Big Prices Moves Coming

With the world consuming five times more oil than it is discovering, Peak Oil and Peak Gold have finally arrived. However, the world hasn’t figured this out yet, but it will. And, when it does, we will see much higher prices for precious metals in the future. Why? Peak oil equals peak gold and peak silver production.

https://srsroccoreport.com/public/peak-gold-peak-oil-is-here-means-big-prices-moves-coming/

In that article, I posted this updated Rystad Oil & Gas Discovery Chart. With the world consuming 5 TIMES the oil that it is DISCOVERING, for whatever reasons, it won’t take long before we head down the OIL ENERGY CLIFF.

What are your thoughts on this article? This popped up on my iPad this morning. I assume they were trying to manipulate the short term price to make a quick profit. I don’t think they could influence the longer term price.

JPMorgan’s Gold Chief Not ‘Mastermind’ That US Claims, Lawyer Says

https://www.bnnbloomberg.ca/jpmorgan-s-gold-chief-not-mastermind-that-us-claims-lawyer-says-1.1799123

First… thanks for looking at some of the precious metals articles. While this is an Oil Blog, Gold & Silver are important as they still function as a form of money, even though institutions value them currently as commodities… based on the Cost of Production & Supply-Demand forces.

Secondly, I will make this brief as this is an oil article, but I wanted to reply to you here. The weakness in the gold and silver prices is tied to the Institutional Market that controls the price action via the futures exchanges and, more importantly, the Gold & Silver ETFs. Due to the Fed & Central Banks, deflationary policies, we are seeing huge outflows of metal from the top Gold & Silver ETFs. Thus, if we want to understand the price action of the metals, we need to look at the ETF flows.

There is a direct correlation between the metal flows of the gold and silver ETFs and the price action… see attached chart.

My analysis suggests that when we start to go over the ENERGY CLIFF, then most financial assets, stocks, bonds, and real estate get into serious trouble as the values-prices start to collapse. This is when it is important to hold some precious metals.

Why? Gold and Silver have been stores of ENERGY VALUE for 2,500 years, just as they were during the Ancient Roman Empire. A Federal Reserve Note performs as a currency currently, but it does not store Energy Value; rather, it is an ENERGY IOU, the same with stocks and bonds.

Lastly, I agree that the Spoofing of Gold via the JP Morgan traders DOES NOT manipulate long-term prices. The gold and silver prices have been based as commodities on their cost of production and supply and demand. Bankers cannot change that correlation.

CHART BELOW: Gold Line is Gold Price and Bars represent Gold Metal Flows in & out of top Gold ETFs. Chart dated June 2020 to May 2022.

The July 15 EIA Weekly estimates production at 11,900. Maybe that is a clue that they are hoping for some catchup. For July 22, production has jumped to 12,100. I wonder if they use a dart board sometimes.

As for Gold, you have added a new wrinkle that it is linked to oil. I used to think that an ounce of gold could buy 20 barrels of oil. That puts gold at close to $2,000/oz.

Then the economists convinced me that Gold and the dollar were linked and they moved in oppose directions. Below is a one year chart comparing the DXY to GLD. Up to April of this year both GLD and the DXY moved in the same direction. Then investors changed their mind and made them go in opposite directions for the last 3 months. Does this mean that economists are right 25% of the time?

We have participants on this board that say that dollar shortage will lead to oil going back to $25/b. I don’t believe that.

Steve, maybe you can find a unifying theory that will link the dollar, oil and Gold. The world would be grateful to you. Maybe its is simple as supply and demand.

As I understand, the main institutions buying gold are Russia, China, Switzerland and possibly some OPEC countries. Are these countries keeping the price of Gold up because they don’t believe in the $US.

Thanks for the link to your board. I also was glad to read “Setting the record straight, On gold and Silver Manipulation. I had a friend who always spoke of naked shorts and manipulation in the Gold and Silver markets.

My opinion on gold is you better own some and not the paper variety.

I said a week or so ago traders will try to ramp US stocks up off the way oversold conditions. Mainly the RSI reading. And this would be dollar negative. Until the oversold reading cleared up.

Might have a little further to run with this. I suggest selling into the rally because the dollar shortage is real.

Gold is also use a collateral. And when the collateral chains start breaking down further gold will get sold to meet margin calls. So a better buying opportunity for gold is coming.

Falling bond yields aren’t a positive for stock, gold or oil. Yields are falling because everyone is willing to pay a premium to get the collateral they need to borrow money in REPO. Collateral shortage not enough collateral. Avalanche of selling is on the way.

Another view of drilled and completed wells for major tight oil basins reported in Drilling Productivity DUC spreadsheet. This is Permian, Bakken, Eagle Ford, Niobrara, and Anadarko basins (only Appalachia and Haynesville are excluded because mostly shale gas is produced in those two basins). Data from page linked below (DUC data spreadsheet link is on the right side of the page)

https://www.eia.gov/petroleum/drilling/

Currently the DUC inventory is about 4 months at current drilling rate, back in 2014 (before first crash in tight oil completion rate in 2015) the average DUC inventory was about 2.25 months.

The average completion rate from Jan 2018 to Dec 2019 was about 1044 wells per month in the 5 major tight oil basins, in June 2022 the completion rate was about 804 wells, with 765 wells drilled. The increase in the drilling rate from Sept 2020 to Jun 2022 has been about 316 wells per year, if that rate of increase continues for another year we would reach the 2018/2019 average completion rate. The future rate may slow down, though if oil prices remain close to the current level (or higher) the rate might increase.

US tight oil data through May 2022, the annual rate of increase from March 2021 to May 2022 was about 537 kb/d (monthly average rate of increase was 44.75 kb/d). In 2021 the average Brent Oil price was about $71/bo and in 2022 the EIA expects average Brent price will be about $104/bo. Note also that there is typically a minimum lag between changes in oil price and changes in tight oil output of 4 months so we may start to see a higher rate of increase in tight oil output in the second half of 2022.

Data from spreadsheet linked below from US EIA

https://www.eia.gov/energyexplained/oil-and-petroleum-products/data/US-tight-oil-production.xlsx

Dennis, I know that Bakken tight oil and all North Dakota production are two different things, but for obvious reasons, they track each other with only a slight advantage for all North Dakota. However, the EIA completely missed the Bakken weather anomaly for April and May.

In view of this glaring omission, I would conclude that the the EIA’s estimate for the rest of US tight oil for April and May is not worth a bucket of warm spit.

My guess is that the tight oil estimate is imperfect, especially for the most recent few months.

Can you point to a better estimate? Note that the estimate looks pretty good through March 2022 and will be revised over time.

For the rest of US tight oil output, historically the estimates have been pretty good. Obviously they missed the April blizzards for North Dakota, but as far as I know Colorado, Texas, New Mexico, and other tight oil basins outside of the Williston basin were not affected.

So in the absence of evidence to the contrary, I disagree with your assessment.

Can you point to a better estimate?

Of course, I can point to a better estimate. That was the one published by the North Dakota Department of Mineral Resources. That EIA report was published in July, three months after the April weather problem and two months after the May follow-up problems. The data was there, available to the EIA, but they have a serious problem. Their data is only updated as history.

What about for tight oil basins outside of North Dakota? You specifically said the tight oil estimates besides North Dakota must be wrong. A bold claim sans any evidence.

The EIA was dealing with a serious server crash during Late June and early July, usually the data is pretty good imo.

I found this interesting analysis from Novi Labs, Bakken with about 5 to 10% of Tier 1 loctations left based on this 2020 analysis.

https://novilabs.com/blog/the-bakken-core-is-running-out/

The article linked below is also interesting

https://novilabs.com/blog/can-unconventional-well-productivity-predict-peak-oil-production/

Note that based on the March 2020 analysis of the Williston and the wells completed since March 2020, if we assume all completed wells from April 2020 to Feb 2022 were tier one wells, that would suggest only 500 wells are left to complete that are tier one. This may explain the low completion rate in the Williston basin. If we assume tier 2 wells are also completed, the total wells completed in the Williston would be about 26000. There are about 8600 tier 2 wells left to complete as of March 2020 in the Williston.

Surprisingly, my analysis based on economics, well profiles and USGS TRR estimates suggests 27000 total wells completed in the Bakken/Three Forks with about an 8.5 Gb URR, this is fairly close to the Novi labs estimate based on more sophisticated machine learning models with more extensive data and which is likely more accurate than my very rough guess based on more limited data.

The DPR July report shows the April Bakken drop. See chart in post.

The EIA missed the July LTO report which would have shown the April result. Maybe this week a new LTO report should show up with April corrected.

Yes, Ovi, the DPR gets it right through April. They miss May by a country mile. And of course, their estimates for June, July, and August are likely off even further.

They were told that May would be affected by the April weather event. Yet they ignored it and just made their wild-ass guess anyway.

The DPR is often wrong, but was updated more recently than the LTO data (last udated on July 7, 2022). Notice that the DPR was too low by a “country mile” from Feb 2021 to June 2021.

I don’t expect these estimates to be perfect. Note that the DPR was released on July 18 one day before the NDIC May data was available on July 19, the future is difficult to predict.

Notice that the DPR was too low by a “country mile” from Feb 2021 to June 2021.

Yeah, the DPR normally corrects their obvious mistakes. I have no idea why they failed to correct them for those five months. But I find it rather amusing that you would point out their mistakes in the past in an attempt to explain their mistakes this time around.

Dennis, five wrongs don’t make a right. 🤣

I guess I should have spelled it out more clearly, sometimes their estimates are too low, that was the point. In any case I have never thought much of the DPR estimates. Though they can usually predict the past pretty well.

The DPR Bakken region includes 5 counties in Montana. Does North Dakota include those 5 counties within their estimate in order that it is a head to head comparison as it appears on the chart?

No, of course not. The data does not include Montana. I thought I explained that. But it makes little difference because the Montana input is so miniscule.

The Montana output is relatively small and not changing very much lately so we would expect the difference between the two to be relatively constant over the recent 12 months. Notice how closely the two data sets track from Jan 2018 to Dec 2020, we would expect that to continue for the most part from Jan 2021 to the present.

from a few days ago Mike said “eliminating personal ICE vehicles because they all represent a “waste” of valuable resources is far-out extremism and divisive. Between the entitled left coast and the far left privileged coast, there is Middle America, where all the work gets done. We are decades away from economic, affordable use of renewables as transportation fuels.”

There is a lot of political angst here, which I will struggle hard to steer clear from, but there are also some very ill-conceived notions expressed. First- ICE vehicles are not about to be eliminated. Rather, they are going to fade off… primarily in response to global oil depletion. Most places in the world are not oil producers, in fact only a tiny portion of the worlds population lives within a hundred miles of significant oil production. To be reliant on purchase of oil produced elsewhere serves a massive global incentive to switch to EV, simply based on the reliance of purchase of a depleting resource. Depleting resources get very expensive, unless replacements are part of the scenario. This notion is not extremism- we are now in the early stage of a global mainstream transition in transport technology. If you don’t see it now, you will certainly find the trend impossible to ignore as this current decade unfolds.

Secondly. The view of a country where ‘all the work gets done’ in the middle is an incredible fallacy. This map shows where GDP is generated in the US. A big part of GDP comes from people working, even in this strange world. https://howmuch.net/articles/americas-economic-output-2018

Third, on being decades away from ‘affordable, economic use of renewables as transport fuel’, a few comments. We don’t have decades to get off petrol for general transport use- we have a short 10-15 years…the affects of depletion are already in the early phase. Regarding affordable transport my observation is that miles traveled by any vehicle are generally going to be more expensive than we have gotten used to in past decades, whether this is sticking with a tank fill at the gas station or switching to a vehicle that gets charged up. There are two possible exceptions to this. One is that a less expensive battery pack gets developed. Secondly, many people will find per mileage cost with EV to be much less than a ICE mile traveled when petrol is over $2/gallon.

If oil was indefinitely abundant and much more equally distributed on earth, this story would be less clear-cut, but even so would likely shift slowly in the same direction. The electric direction. Finally, consider the idea that the quicker most light transport is shifted to EV, the longer unrationed petrol will remain available for those with ICE, for whatever reason.

Nothing personal in any of this- focused on the subject matter.

You didn’t realize that people on the coasts just hang out at the beach all day? Clearly everything in the US is produced in Texas.

Many people see the country divided up in a simple way as Mike expressed. In reality it is a very complex mosaic. Downtown Omaha or Dallas has just as many office ‘workers’ per capita as does Sacramento or Hartford. Wheat grown in WA requires as much work as wheat grown in Dakota.

Many see things in terms of rural vs urban. And yes these are big differences, but the word urban encompasses a huge and varied world, filled primarily with working people. And horse country Kentucky is a whole different rural world than is sugar beet field Calif. And working in an urban or rural hospital is indeed work, just as is working at a manufacturing facility- urban or rural.

The country is not easily split into distinct provinces in any sense. It is a mosaic made with very blurry overlapping fragments.

Though I agree with much of what you say, I do have one remark:

A high cost share does not indicate that a sector contributes a great deal to economic production as neoclassical economic theory claims. Indeed, taking a simple derivative indicates that the dynamics of the cost share gives a better indication as to the importance of a sector in producing wealth. In particular if the derivative of the sector with respect to growth is negative, that is an excellent indication that the sector creates wealth. Thus, in a growing economy one expects a decreasing cost share in sectors producing wealth, and in a contracting economy one expects in increasing cost share. This is the case with energy production. See https://doi.org/10.1007/s41247-020-00081-4

from your link- “Our analysis indicates that the contraction phase of world oil extraction began in 2020 and that it will be characterized by relatively low oil prices. ”

Well, that is something that i just don’t comprehend., unless they mean that oil will be rapidly replaced by some other energy at a quick enough big enough scale to match depletion. I am skeptical that the job will get done.

“I’ll go out on limb and say that driving a personal vehicle around with an internal combustion engine falls into that category of extreme wasting of a precious resource, considering how lousy that mechanism is at utilizing the energy contained in the fuel,” is a incredibly radical statement and itself full of “angst.” mostly anti-oil angst, I suspect. If you feel the need to qualify that statement, I don’t blame you, but it wasn’t my statement. It was yours.

People that feel as if they they hold the moral or intellectual high ground over others are often miserably out of touch with reality. Retired urbanites, for instance, can afford to embrace expensive EV technology because they’re habitat is limited. No so for rural folks and particularly the common laborer who can barely make ends meet anyway and rather than buy a $60K EV to get to and from work would simply like to feed his family meat one day a week. That’s what I meant by “Middle America,” who by the way, is mostly fed up with having the financially privileged tell them what is best for them and for the country. For most of us folks it will indeed be decades before renewables can affect our standard of living in long term, meaningful ways. That is what I meant, you know what I meant; if you are through lecturing me about how complicated America is lets both move on. I am well aware of the different forms conservation of natural resources needs to take, including the realistic ones; thanks.

Dennis, If you don’t spend all day every day on the computer while lying on the beach, I’m sorry. Thats a bummer.

You folks don’t like conservative conservationists worried about oil and LNG exports and absurd stuff like long term energy security, I can tell. Got it. Adios.

“For most of us folks it will indeed be decades before renewables can affect our standard of living in long term, meaningful ways. “- Mike Well, Iowa got 57% of its electricity from wind energy in 2020. Their retail electricity rate is about 10% less than average in the country. Thats meaningful. And its the beginning of a huge story.

Hickory- “internal combustion engine falls into that category of extreme wasting of a precious resource, considering how lousy that mechanism is at utilizing the energy contained in the fuel,” ICE vehicles have tank to wheel energy efficiency of 28% best case scenario. This poor efficiency is on top of the crude oil energy losses that occur from the wellhead to refinery to endpoint delivery.

Regardless, once again I remind that we are having this discussion in the setting of global oil depletion. As you well know- there is no choice on that, its just a matter of time.

It was a poor attempt at humor. When you refer to the coasts of the nation (I assume you mean Atlantic and Pacific) and then say everything is produced by Middle America, I though you were talking about geogrphy, sorry for misunderstanding, so when you say Middle America you mean the middle class (or so it seems).

I think you are great Mike and like you a lot. Just because I don’t agree with everything you say does not have anything to do with liking you. Do you agree with all your friends on every topic?

Life would be pretty boring if that were the case.

I agree with many conservative political principles such as free trade. I also agree that we should conserve resources. We could stop producing 3.6 Mb/d of tight oil if most people think that is wise. I can afford the higher prices, but it is not clear that Middle America would be happy about the higher fuel prices that would be the result.

You are correct that EVs may not work for many in rural areas that have to tow a boat or trailer on long trips, ICEVs are better suited to those applications.

Many EVs are about $45k in price, similar in price to the average light duty vehicle. In my view it is up to individuals as to whether they want to purchase an EV.

The more people that choose to drive an EV the longer we can stretch out oil resources. Charging infrastucture will get built out and at $4.50 per gallon for gasoline an EV can be cheaper to own and operate, in addition competition among auto producers may lead to innovation and lower cost for EVs over time.

I agree it will take a long time before alternatives to fossil fuel will have a significant impact, but as fossil fuel depletes alternative sources of energy will help reduce demand for fossil fuel so that more can be conserved.

Am I correct that you would like to ban all oil and natural gas exports? The natural gas exports would be something new as far as I know.

The US government could stop approving new LNG facilities in the US which would limit a further increase in natural gas exports and may be a good idea. It seems unfair to restrict exports for facilities that are operating or under construction unless those firms are compensated for the change in the rules.

On conserving tight oil for future generations, about 4.4 Mb/d of tight oil can be handled by US refineries. If we stopped all exports of crude oil and let tight oil output decline to 4.4 Mb/d and id my 74 Gb URR estimate for tight oil is correct (not likely) we would have enough tight oil to last about 32 years at a constant output of 4.4 Mb/d (1.6 Gb per year) as we have about 51 Gb of US tight oil left to produce after May 2022 (cumulative production through May 2022 is about 22.76 Gb). This is not the policy I would choose, but I do not rule the world.

Ugh, Dennis. He comes here, willy nilly, and slaps you around and insults you to your face, and you respond this way:

“I think you are great Mike and like you a lot.”

I do think Mike Shellman is great. He expressed his opinion, fine with me, I have learned a lot from Mike and still do.

It’s not called the ‘splinternet’ for nothing. I’d pay good money to see Mike and Dennis hold a debate on any topic this blog covers. Make it a YouTube.

I personally believe that renewable energy and electric vehicles are going to have significant and possibly substantial positive impact on the cost of living for people who can’t afford them over the next five to ten years.

I’m basing this belief on the assumption that since new electric vehicles tend to be heavily used, and the assumption that they are going to sell quite a bit faster than anybody other than gung ho believers think they will………

We are likely to have five or possibly even ten percent less demand for gasoline per capita within that time frame. Given that the price of oil is obviously highly inelastic, this could easily mean electric vehicles will result in gasoline selling for quite a bit less than it would OTHERWISE.

Of course the demand for oil might nevertheless increase faster than electric vehicles can reduce it.

And shouldn’t there be a substantial tax on jet fuel?

I ask for the insights here from Shallow Sand, LTO Survivor, Mike S., George K and others on REFRACS in the Permian.

I am in the upstream sector and we are getting a fair bit of feedback from oil co’s discussing interest in refracking – most specifically in the Delaware Basin. Mentions of WPX success is a driver. Apparently (news to me) a fair number of Barnett Shale wells were refracked (especially the early ones).

Is there a way to mine the data on the number of refracs in Texas?

The RRC has a wellbore query form and I think one of the outputs is the number of recompilations. It may be a subscription service though. I find using the RRC site rather annoying. Part of the problem is that there are so many wells that you either get enormous data files that can’t be handled on a simple laptop or you have to spend hours filtering the requests to get many smaller files.

Drain that SPR…we don’t need it…

A longer view of SPR, data from EIA

https://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=MCSSTUS1&f=M

There may be people that believe that because the US now produces 11.6 Mb/d, that we don’t need as much oil in the SPR. In 1985 the US produced under 9 Mb/d of crude plus condensate.

I tend to agree with those that believe that drawing down the SPR to combat high oil prices is a very unwise policy move.

weekly stocks at link below

https://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=WCSSTUS1&f=W

most recent week (7/22/22) 475.5 million barrels.

Lowest level in >20 years…

Would SPR correlate with peak oil hubbert linearization?

Seems like it could but might not have to…

On current trajectory we’ll be at 1980 levels in a month or less…

I agree with Dennis and others of like mind that using SPR oil to keep prices down short term is a serious mistake, in simple black and white terms.

But given the well known tendency of the American public to vote for incumbents when the economy is doing well, and against them when they’re unhappy about the economy………

I’m personally happy to support this policy, with elections coming in a few short months.

Having Democrats in control, or at least having more instead of fewer Democrats in office is without any doubt whatsoever, as I see things, a guarantee that we will pursue more sensible energy policies in coming years.

You don’t have to pay a whole lot of attention to know that the R’s are the guys who tend to vote against regulations mandating higher fuel economy and against policies that will hasten the transition to electric transportation.

A very interesting 9-minute YouTube video on the oil hub of Cushing Oklahoma.

How Cushing Became the Most Important Place in All of the United States

Thanks Ron, nice video with great figures to put the geography into perspective.

Just looked at two drastically different time periods for US oil production:

For the the big shaleboom runup, September 2016 to November 2019 (little over 3 years) had production jump from 8.5 MBOPD to 13 MBOPD. Meanwhile, for the past ~2 years (July 2020 – May 2022) production has barely moved from 11 MBOPD to 11.5 MBOPD.

More recently, higher prices should have moved production up but looking at past 6 months a high of 11.79 MBOPD in November 2021 hasn’t been reached yet…

It seems that there is a production ceiling at 11.7 MBOPD that’s only been broken once in past 2 years…

Unless production really takes off I don’t see any of Dennis’ scenarios being remotely possible, I’m sure Dennis can tell me why they still work….

It takes about 6 months between rising oil prices and a change in oil output, it takes time to make the decision to invest, prepare the site, drill and complete the well, typically 4 to 6 months. We have data for tight oil output through May 2022, December oil prices were $72/bo and they have only been over $100/bo since March. In addition investor sentiment is for oil companies to keep output flat and return cash to shareholders so mostly privately held oil companies are investing enough to increase output significantly, publicly traded companies are increasing output more slowly. On top of that there are shortages of labor, equipment, and materials which makes it more difficult to increase output.

If my guess that the lag time between oil prices being above $95/bo and increases in output is correct, then by August we might see a more rapid increase in tight oil output. Note also that if rig count and drilling rate continues to increase at the rate of the past 24 months, we are likely to see the completion rate return to the Jan 2018 to Dec 2019 average level.

We will see, the likely coming recession, if severe, could change things. It is always difficult to make accurate predictions of the future, my best guess inevitably is incorrect.

A refresher, I believe Dennis’ model has LTO monthly production increases of ~0.17 MBOPD for next 3-4 years…

Dennis – looking forward to an updated model when you get a chance!

OPEC oil output rises in July despite outages

The biggest increase in production, of 150,000 bpd, came from top exporter Saudi Arabia, the survey found, although the kingdom continued to pump less than its target.

Output in Libya, which dropped sharply due to unrest in June, posted a slow recovery and by the end of the month had recovered to normal levels. Libya is one of the members exempt from making voluntary cuts.

The United Arab Emirates and Kuwait boosted supply largely in line with their quotas, while Iraqi output edged higher.

The biggest decline, of 70,000 bpd, came from Nigeria, where outages and maintenance curbed output. Production in Iran and Venezuela, the other two exempt producers, was steady.

https://www.reuters.com/business/energy/opec-oil-output-rises-july-despite-outages-survey-2022-08-01/

Saudi Arabia’s July commitment was 10,833 Kb/d. Their August commitment is 11,004 kb/d.

The table shows that SA’s July production was 10,750 kb/d, 83 kb/d below target.

I can see some fancy words from SA along the line of “Saudi Arabia will increase their production by 250 kb/d in August, 79 kb/d more than the required 171 kb/d required by the OPEC 10 DOC.

That would make the Big Guy Happy and SA would still be in compliance. 😁😁😁

Decline rate of LTO wells, plus an extra source comparison plot decline rate shown as the [?] graph.

note- years of operation for the unknown source vs months of operation for the LTO wells

Output is the convolution of the well decline profile and the number of wells completed per month.

See post linked below for a detailed explanation.

The output decline profile for the chart in the upper right corner is not for an oil or gas well. 92% of original output after 30 years

Hmm…how ever you slice and dice it the shale growth era is done:

https://daily.energybulletin.org/2022/02/oil-frackers-brace-for-end-of-the-u-s-shale-boom-wsj/

“U.S. oil production, now at about 11.5 million barrels a day, is still well below its high in early 2020 of about 13 million barrels a day. The Energy Information Administration expects U.S. production to grow about 5.4% through the end of 2022.”

It sounds like the ‘conservative estimate’ is no growth for US production above 12 MBOPD…

I continue to be thoroughly confused how anyone could project significant growth for US production…even with high prices…

This is my best guess for US tight oil.

My view: OPEC+ has waited a long time for the shale basins to fizzle out. Tier-1 shale has been, for all purposes of consideration, exploited. Tier 2,3 along with refracs will keep American oil at a reasonable level for a couple years. There’s some mopping up to be done: going back to rapidly exploited areas like the Granite Wash, Austin Chalk, etc, and putting in a few hundred wells. And then it’s done, this thing known in America as domestic oil. But it’s worse. Roughly 75% of global oil production is on the wane. The world will likely see $300+ oil just before we go over the Seneca Cliff. This is coming faster—in my opinion—than most people understand. Along the way, as globalization winds down because of transportation cost and carbon tax, the nature of civilizations will change and the fabric of the world as we now know it will unravel. Much of the discussion on this site assumes an orderly transition to renewables and EV’s, presumably with enough oil to satisfy the petrochemical feedstock. I doubt that. I see raging inflation for pharmaceuticals, fertilizer and thousands of common goods. I see famine. They don’t call it a Seneca slope, but a cliff. You don’t go over a cliff without a lot of damage. GDP has for well over a century correlated with energy. Every electricity shortage pushes us back toward the cave. To go thoroughly dystopian, there is no way in hell to switch to non-fossil fuels energy before we run out of relatively cheap oil.

I’m in agreement with the gist of your comments. Timing and severity of downtrend is debatable and unknowable. Humans are damn good at kicking the can down the road, but are also untrustworthy and tend to throw fuel on the fire of chaos. They often revert to authoritarianism first. Watch out. Benevolent and wise authoritarian is an extremely rare animal.

Wow Gerry…that was really depressing

“The world will likely see $300 oil just before we go over the Seneca Cliff.”

Coal-to-liquids. If you aint got no oil and aint got no coal…you are in BIG TROUBLE!

Gerry, I formed the opinion over 20 years ago when I stumbled to Jay Hanson’s dieoff site. I has been a long road to where we are now, but the trends are accelerating.

I’m also of the shark-fin persuasion, not just in oil but in all resources and even society in general. The reasons are numerous and endlessly rehashed but at root, it is income suicide for any politician to talk about what needs to be done in advance. Luckily global warming became fashionable and may accidentally help mitigate PO, to an extent.

But comparing now, to 25 years ago when I first began reading about and attempting to do something about PO in particular, I find now is much easier. In 2002 when I decided to bug out the first time there just weren’t any reachable, viable small scale alternative energy sources beyond ethanol or bio-diesel—and those only using plenty of manual labor as input.

Today I have put together a pretty good 12kw 240v PV system with 30kwh of LFP batteries for a small fraction of what it would have been 10 years ago, let alone 25. Though I have been working remotely for most of 25 years it is very typical to do so now and even VERY remote is possible with starlink and others to come. The reason to work remote is obviously no commute, the reason to live remote is simply that land is more affordable and if you think you may ever need to grow calories — like say proxy wars between the 2 of the biggest oil, grain and fertilizer exporters— then access to a little land is important.

Could be that LTO bought enough time for enough RE to scale, could be that the population curve will bend for good reason not bad, could be we learn to live within our means. Could be there is enough time to prepare on a personal level.

I agree we may run short on cheap oil and it will become more expensive. Higher oil prices sometimes lead to changes such as what happened in the OECD after 1973 and 1979 (two big oil shocks). See my comments linked below suggesting a Seneca cliff in oil output is not very likely (especially the two charts).

https://peakoilbarrel.com/us-may-oil-production-extends-dropping-trend/#comment-743787

Probably not likely to see this doomsday scenario… humans are too creative and resilient… they change the rules and adapt. Plus, we like comfort and pleasure way too much to let society unravel. All will eventually be well in the face of adversary, as it always has.

Helping this… Tier 1 shale and the great unknown future discoveries will carry us longer than we need for fuel transition. Northern Howard County, TX, for example…. originally drilled targeting the Wolfcamp A… now has the Lower Spraberry Hz play working very well and consistently on the same acreage and some places even have the Wolfcamp D now starting to contribute. This has effectively started this region over for shale production development. So, I disagree that Tier 1 shale has been “exploited”… Even Tier 2 plays like Fisher, Scurry and Dawson Counties are gaining momentum to help offset mature decline. Really cool exploration stuff going out there if you look close enough. I spend hours a day, every day looking at it and it has blown my wildest expectations. From my first glimpse of a vertical Barnett Shale rig up in Wise County to seeing acreage in remote Reeves County go from $200/acre to $20,000/acre overnight (with all minerals)…. has been a shit ton of fun to be along for the ride!

So, I don’t see a cliff, just a rolling transition where oil/gas has its place and persists much longer than expected while transport fuel is replaced much quicker by EV than expected. Enphase just revealed that in its latest quarter…. amazing company.

Some news from Russia’s new field coming on line, but not before 2027.

https://www.rcinet.ca/eye-on-the-arctic/2022/07/28/deep-crisis-looms-but-here-comes-russias-biggest-ever-arctic-oil-project/

I’m sorry if it’s depressing but it is what it is, which is very different than the rosy scenario that is frequently promulgated. Iraq possesses roughly 10% of the known oil on earth. Russia has its share and then there’s Saudi Arabia. Mr. Shellman is correct: properly marshaled the U.S. has enough oil to just about last for a smooth energy transition. But with aggressive export, we will soon—very soon—be forced back into the position we were in during the first major energy crisis, the Saudi oil embargo of the mid-70’s. Only this time the Saudis won’t be sitting on an endless supply—their fields are in fairly dramatic decline that is mostly hidden due to some astounding technology. You seem to be shocked by the $300/bll figure. What would you charge for a necessary commodity in precious short supply?

I agree. Oil and gas production will decline faster than the expansion of renewable energies. Everyone here knows that oil and gas are finite resources. But still think that the availability of mineral resources as they are needed for harvesting renewable energies, batteries, electrification etc. (copper, lithium, cobalt, nickel …) is far better. It isn’t. Prof. Harald Sverdrup and his System Dynamics Group have developed the “Global Integrated Assessment Models” WORLD6 and WORLD7 to analyze the resource availability of almost all important resources. It is shown that the production peak for almost all resources under BAU conditions are between 2030 and 2080. A large-scale study by the German Federal Environmental Agency can be downloaded here (pages 407 to 409 show the summarized results)

https://www.umweltbundesamt.de/publikationen/the-world-model-development-the-integrated

Here is an abridged version https://conference2020.r3-0.org/wp-content/uploads/2020/09/Harald-Sverdrup.pdf

In the case of copper, 2007 was the last year in which more copper was found by prospecting than was mined.

Copper discoveries – Declining trend continues https://www.spglobal.com/marketintelligence/en/news-insights/research/copper-discoveries-declining-trend-continues

In addition, the EROI or EROEI of photovoltaics and wind, assuming buffering due to intermittency, is by far too low to support an industrial society.

It is not clear that the 50 to 75 Gb of tight oil the US might be able to pull from the ground will make much of a difference. Let’s imagine that the US bans exports of crude oil and the rest of the world follows the lead of the US and does the same. The US input to refineries is about 5.8 Gb per year. The US produces about 4 Gb per year and if we cut back tight oil output as Mr Shellman suggests by about 1.5 Gb per year (no exports leads to this fall in tight oil output because we do not have the capacity to refine more than 4.1 Mb/d) we produce only 2.5 Gb per year. This leaves the US about 3.3 Gb per year short on crude oil to feed our refineries.

I agree we need to prepare for peak oil and if there is no transition to EVs as some believe we may indeed see $300/bo before 2028. I expect demand would fall quite a bit at that price either through transition to EVs, or just less driving by choice or lack of affordability.

Do you have a definition of a Seneca cliff? I often see it bandied about, but even very sophisticated people don’t have an answer when I ask. I will arbitrarily define a Seneca cliff as a prolonged steep drop in production of 5 years or more with average annual decline rates of 10% or higher.

I don’t think we will ever see that unless we have a nuclear holocaust or a major asteroid strike.

Here’s a revised Oil shock model that I believe is extremely conservative (this is about as low as is feasible for World oil output). Note that I don’t know why the extraction rate for conventional resources would decrease as in this scenario. The annual decline rate in World C plus C output remains under 5% for all years from 2030 to 2100 for this scenario. Cumulative C plus C output from 1871 to 2065 is 2282 Gb and is 2490 Gb in 2280.

The extraction rate shown on the right axis is for conventional C plus C resources only, unconventional resources are modelled separately. Also note that world extraction rates for conventional oil were 8% or higher from 1871 to 1984 and 2020 was the lowest annual extraction rate of all time at about 4.8%, it seems unlikely that the extraction rate will fall below the 2020 level unless demand crashes due to a severe recession or a transition to alternative transportation.

Dennis, from eyeballing your chart I cannot quite make out what you have for world average production for the years 2022,2023,2024, 2025, and 2026. Could you give me the figures for those five data points? I realize it is just a guess on your part but I would still like to know what you guess world production to average for those five years. Of course, I would then be glad to provide you with my best guess average for those five years as well.

I see you have posted another guess below. I only wish to have your most probable estimate.

Thanks a million in advance.

Data on chart below, the two scenarios are the same up to 2026. Year— 2021–2022–2023–2024-2025-2026 Mbpd 77.04 78.70 80.54 82.26 83.48 84.29

Here is my best guess along with yours.

Edit: Sorry, I got too many i’s in your name. I can edit content of the post but not the chart.

It will be fun to watch over the next few years. I think your guess is likely to be better for 2022 than mine, I think 2024 will be interesting where there is a 4.3 Mb/d difference in out estimates only 2 years in the future (though it will be a little longer than 2 years before we have the data for 2024, more like 2.75 years).

I think we will know before the end of this year whether or not the cornucopians are right. We can watch what happens to the total world production and get a very good idea. It all depends largely on two countries, Saudi Arabia and the USA. I would have included Russia but we now know Russia is in decline, even if sanctions are lifted.

Russia will be down 1 million barrels per day from her March 2022 production level next year. I doubt seriously that Saudi and the US can make up that difference plus make up the difference that the rest of the world will decline. As you can see from the chart below, World less Russia, Saudi, and the USA is clearly in a serious decline.

Click on the chart below to enlarge.

There are lots of oil producers, sometimes output increases when oil prices are high, though it takes some time for projects to be developed, difficult to know exactly how it plays out.

Ron I will note the cornucopian forecast is less than yours for 2022, so I would say we need to wait until at least the end of 2023 to see if output is 79 Mb/d or 80.6 Mb/d.

Ron – Denis is rubbing off on you, 74 in 2028! That’s basically flat production for the next 5 years…no way… Adding my guess, it’s the least optimistic…

Kengeo, I am probably very bad at guessing the decline rate. The important thing is there will be a decline rate and world oil production peaked in November 2018.

We are post-peak, end of story.

Thanks Dennis. A reason that global extraction could fall as you indicate here is producing countries moving towards failed state status and international relations breakdown. We have seen examples such such Venezuela and Libya in the past decade. No producing country is immune to sub-optimal internal operating conditions. These potential limitations are impossible to model, of course.

You could compress the timescale to make it look like cliff so as to appease those who like that steep cliff narrative [or those who use such a compressed chart for marketing purposes].

Does it seem a reasonable assumption that all oil producing nations would become failed states simultaneously? In the absence of a worldwide catastrophe (such as a major asteroid strike or a nuclear WW3) such an assumption seems far fetched imho.

Also note the Mr Maddox assumes crude oil will cost $300 per barrel, under those conditions some oil producing nations will have high income from oil sales, the high price of oil might be an incentive to increase rather than decrease extraction rates and also note that during a period of very low demand in 2020 extraction rates only fell to 4.8% (annual average), prior to 2020 the lowest annual extraction rate ever was in 2019 at 5.26%, in 2010 the extraction rate was 5.58%, in 2000 it was 6.06%, in 1990 it was 7.12%, in 1980 it was 10.17%, 1970 it was 10.8%, and in 1960 it was 8.3%.

Failed state status and thus failure to meet oil production expectations is very unlikely to be a simultaneous occurrence in the near future. And I suspect that in general you are right- high prices will be a big incentive for more production and this will help keep production going for longer than many here are expecting. Nonetheless I still think the odds are strongly in favor of big unsatisfied demand, with very volatile markets and economic damage.

I agree prices will be high and volatile and oil will be in short supply at least until 2030 and perhaps much longer (if those who believe an EV transition is unlikely are proved correct).

An alternative scenario where I assume the conventional oil extraction rate does not fall below 4.8%, the higher extraction rate after 2030 in this scenario compared to the previous scenario increases the URR by 500 Gb to 3000 Gb.

Dennis – See graph below. Blue dots are similar to your light blue line…but doesn’t peak in 2026. The green dots are an extrapolation of current rates of decline. Other dots are ‘seneca’ cliff scenarios…yellow is 5 year crash from 2027-2032. Brown dots are a 2-3 year drop until 2027 and then slow fall to 2055 then stable trend. I image some hybrid of the green, yellow, and brown dots will be reality. I don’t think your blue line or the blue dots are realistic…the economy wasn’t built for stability while running in reverse…

Oil is not the only form of energy. In 1973, people thought oil would need to grow at 7% per year for the World economy to function. From 1979 to 1995 oil output fell and did not return to the 1979 level for more than a decade. Over the 1983 to 2019 period oil has output has been growing for more slowly than before 1973.

Perhaps after 2028 when oil reaches its final peak, the World economy will adjust as it has done in the past.

We just don’t know the future.

The fact is we have never seen a sharp drop in extraction rates, extraction rates have dropped from 1979 to 2019, by about 5% over 50 years. If we see a severe economic downturn that is long term, then oil demand will falter.

I doubt we will see that occur before 2040, but again the future cannot be predicted.

I noticed you read my chart wrong, notice how your crash from 2027 to 2032 ends at 2039 on my chart, each minor gridline is 2 years not one. Also you could perhaps show your best guess scenario using the correct scale (make sure your end date matches the chart.)

My best guess data from 2021 to 2050 is above.

Would you call the yellow dots a Seneca cliff? Does that look realistic to you? Can you paint a scenario that corresponds with your yellow dot scenario?

Cumulative World C plus C output from Jan 1871 to Dec 2021 was about 1437 Gb, I did a scenario roughly similar to your yellow dots with a resulting URR of about 1720 Gb, this is pretty far from reality imho. I modified my unconventional scenarios so they are basically a plateau from 2022 to 2040 at about 12 Mb/d (8 Mb/d tight oil and 4 Mbpd extra heavy oil).

The extraction rate for conventional oil has to be cut in half every year after 2027 to make this scenario a reality. Can you explain why you would expect this to happen?

Dennis – Simple really, if globalization continues to decline, we can envision cuts in oil demand (less trade) as well as cuts in oil supply (less demand and less ability to pay)…

To make this play out, here’s an option: Russia’s war with Ukraine has only just begun to impact global energy supplies and trade. Russia exports majority of their oil. What happens if all of their supply evaporates from world trade? How do the dominos fall after this?

We can make different groups, the ‘Haves’ (Hs) and ‘Have-nots’ (HNs). Despite all the oil production in North America, we are barely in the Hs club (US is actually a HN). South America is actually just barely in the Hs club, but really should be considered neutral.

Asia Pacific is the biggest HNs by far, they import almost 30 MBOPD, producing only 20% (7/35). Next is Europe (still big), but 3 times smaller than Asia (10 MBOPD imports).

So in a nutshell, disrupting of oil imports/exports results in half of oil production and consumption drop.

There are so many scenarios that could knock out 40 MBOPD…at that point it’s safe to say that knock-on effects will likely drag other producers down.

I think there is a strong possibility that sometime soon we could see a breakdown in trade structure that sends oil prices down to $10-$20… If globalization fails at a large scale then we can expect major contraction across the board. If globalization keeps hobbling along then it will require high oil prices, but sooner or later it fails… Most of us agree Peter Zeihan has some really great insights (but gets oil picture wrong)…he fully expects globalization to fail on a massive scale soon, he sees a future of smaller regional trade partnerships (Canada-US-Mexico)…

So we have four visions of the future (Smooth Energy Transition [SET], Bumpy Energy Transition [BET], Steady Decline [SD], and Seneca Cliff [SC])…I’m split between the SD-SC group…The SET/BET options seems like a pipedream that completely/mostly ignores so many facets (Proven reserve ESTIMATES, hubbert linearization, EV growth outlook vs reality, etc).

It seems like most of us are in the SD group but have a bad feeling that SC is closer to reality…not sure who all is part of the SET/BET EV will save us coalition…even worse I think is a group I will not mention who think shale oil will save us, but they are going extinct like the dinosaurs…

Russia exported about 8 Mb/d of crude plus petroleum products in 2021 and World net exports of crude plus petroleum products was about 34.7 Mb/d in 2021. It is not very likely that all Russian exports will be removed from the market, likely it will be 1 to 2 mb/d at most. India and China and others will continue to purchase Russian crude and petroleum products. Recently Russian output returned to about 11 Mbpd (july estimate).

The decline in globilization that you foresee may be gradual. Clearly a fall in oil demand would reduce supply, but I doubt this occurs except in response to high oil prices leading to people choosing to consume less oil which will balance demand with limited supply. High oil prices may also lead to more investment and greater supply growth tahn would be the case in a lower oil price environment.

Well, this comment is REALLY stupid.

The US is the 3rd most populated country on the planet, has more internal combustion transportation and consumes more crude oil than any other nation in the world by a wide margin. If our nation’s politicians were to, for instance, overdose on smart pills and restrict crude oil and LNG exports, to increase future supply, including current inventories, want to replenish the SPR for the sake of our nation’s long term energy security, conservate, save, and keep America at a very real economic advantage over the rest of the world with its own secure, inexpensive supply of hydrocarbons…it doesn’t mean the rest of the exporting oil world will cease exports in retaliation. That’s dumb. Who gives a rats ass if they do? Since when does our great nation NOT do what it is suppose to for its citizenship because it’s terrified of the ramifications? Because we’re…scared? Here’s some big news for you, Dennis Coyne; OPEC doesn’t like America already, particularly YOUR current administration, and they are elated that the Permian tight oil industry is on a mission from God to drain our nation’s resources. They’re all holding back exports, plum giddy with being able to re-start those export to the US in a few years for three times the current price.

How many more excuses can you dream up to put America’s economic strength in the world in severe jeopardy with leveraged overproduction of tight oil, 1.5 billion barrels of annual oil exports and closing in on 7 TCF of natural gas exports annually? What do your dislike more, Texas, or your own country?

I can’t believe how hard a left turn this site has made; it’s gotten insane. You, Dennis Coyne, can’t even convince your own readership that EV’s are the answer to all of our energy future problems. You drive a penche EV but then brag about trips to Europe; did you row across the Atlantic in a little boat or spew forth a trail of jet fuel vapor in first class in entitled splendor?

I have only ever flown on coach and have been to Europe a couple of times, I imagine it is my “privileged upbringing” at public schools and a state university in the northeast that makes me such radical.

We can choose not to export oil, these exports are something that has been advocated by your industry, don’t complain to me that they were successful. Now if you believe many politicians are likely to support banning crude oil exports you will find them on the left, I think they are stupid to suggest such a policy as it will lead to increased gasoline, diesel, and jet fuel prices.

As I said, I can afford higher fuel prices, I don’t think many in Middle America would favor a policy that leads to increased fuel prices.

As far as a crude export ban, this simply extends the time that we might produce tight oil and perhaps it makes us more secure, I doubt this as I think EVs will replace a lot of oil demand and prices for oil will fall by 2035 (best guess) t that point produceing tight oil will no longer be profitable and there will be a large share of it that remains in the ground forever, if we choose to ban crude oil exports. If we choose to ban natural gas exports as well as you advocate, this will also reduce natural gas prices which is good for consumers, but will lead to lower profits for oil producers (as the associated gas will sell for less).

Hey we could go into full isolationist mode and not import or export anything so that we are secure and are “scared” about our security, but as most conservatives understand this would make everyone worse off.

Note that I like both Texas and the US and also Mike Shellman, but that does not mean that the US political system could not be improved. The founders were scared of too much power in the hands of the government and designed a system were the government would find it difficult to accomplish anything, they accomplished their mission where the US government is paralyzed and has difficulty passing any legislation at all. For that reason the US is behind our friends in Europe on many measures of well being, doubtful that anything will change in my lifetime.

EVs are not the answer to all problems, just a way to get from point a to b without using gasoline or diesel (at least not directly, no doubt diesel was used transporting materials used to produce and to ship the vehicle). Fossil fuels will deplete and we will need to use less of them, EVs, alternative energy (including nuclear power), greater efficiency in the use of energy, and greater conservation of resources in general are some of the ways we can mitigate this problem. Slower population growth and slower economic growth will also help, though this last one is not one most are willing to sign up for.

In any case I doubt crude oil exports will be banned and if they were it would make little difference, as you said we can pay high prices now or pay later, though later there might be fewer ICEVs on the road and more charging infrastructure reducing the financial burden on everyone.

We could run the planet on half the energy it consumes today, buy some time and reach an orderly transition. But not with capitalism or the traditional leftist alternatives. There’s too much debt in the system because debt is future energy that simply doesn’t exist. All those fancy money schemes will collaps and with them the Dollar and the Euro. What we need is a global debt relief and a market regulation that is not based on growth (maybe based on growth of non fossile energies only?) while we have to avoid totalitarianism, be it with its traditional military flavor or with that WEF high tech smell. Maybe a cliff will smash the bigger structures and will give room to smaller, more traditional units and Howard Kunstler will get his world made by hand. Just hope the fall off that cliff won’t cost too many lifes …

But not with capitalism or the traditional leftist alternatives.

Hell no, we need the rightest fascist alternatives. We need Donald Trump, Herschel Walker, Dr. Oz. the My Pillow Guy, Rudy Giulianti, Sidney Powell, and the rest of the Clown Car gang. We need Facism and a good dictator. Fuck leftist Capitalism and Democracy.

I interpret Westtexasfanclub differently. When he says traditional leftist I think he means Marxian, and when he says capitalist, I think he means the free market fundamentalist ideology of Friedman, Hayek and company. He might mean something like highly regulated and managed capitalism or something we have not devised yet, he does not suggest democracy is a bad idea nor does he seem to be a fan of authoritarian regimes.

Dennis, you know very well that when one uses the term “leftist” he is not referring to Marxism or Communism. He is referring to the opposite of “rightest” as it is used when referring to one’s political position. Trump is a rightest, Biden is a leftist. We have a majority of leftist in congress today. We do not have even one single Communist or Marxist in congress. Dennis, I know very well what the term means when it is used as referring to our government. So please, give me credit to having a little common sense.

In today’s political vernacular, a leftist is a liberal, a rightest is a conservative. Nothing more.

And we both know what the term “Capitalism” means. It means the type of government ane economy we have today. It is not perfect, it is just that all the other forms of government are so much worse.

We will see what Westtexasfanclub says, not everyone sees things as you do.

not everyone sees things as you do.

Damn, you could have fooled me. I thought everyone on earth saw things exactly as I do. 🤣

Dennis, if we do not have a normal understanding of the terms we use, then no one would understand a damn thing we were talking about.

In Alice in Wonderland, Humpy-Dumpty says, “Words mean what I want them to mean.” Of course, Lewis Carroll was being sarcastic when he wrote that. But we must have an understanding of the normal meaning of the words we use. And…. if you have a different meaning for the words you use, then it behooves you to give your definition for the word.

I try, as best as I can, to mean what the normal accepted vernacular means for the words I use. I am not Humpy-Dumpty, my words mean what you would normally think they mean.

View points vary on what left and right mean. To someone on the far right, everyone else is a leftist and to those on the far left the reverse is true, many think their personal political view is in the center or don’t give it much thought. Views are also very different in Europe than in the US. Biden would be center-right for many European nations, in fact I would say his policies are to the right of Angela Merkel who was a center right politician in Germany.

So from my perspective these things are far less cut and dried than you seem to believe.

Some of this may be your age, younger folks aren’t so afraid of Marxism.

Some of this may be your age, younger folks aren’t so afraid of Marxism.

Dennis, though I was in my teens, I very well remember the McCarthy-era red scare. It did not scare me then and it does not scare me now. Why on earth would you think I am afraid of Marxism? I have never even hinted that it bothered me at all. In fact, I have always argued that Marxism has never been a threat because it can only be enforced by the Iron hand of a dictator. And dictatorships always fail or revert to a form of capitalism.

I do fear the collapse of the world economy today, but it sure as hell is not because of Marxism. The world economy is on the verge of collapse because of a multiplicity of things including overpopulation, overextended credit, global warming, declining natural resources, and worst of all, the destruction of our environment. And all this may soon lead to the collapse of globalization. Very few people realize it but the US could never again exist in total isolation, nor could any other nation on earth.

Dennis, Marxism does not even register on the chart of the things I fear.

Sorry Ron if I stepped on your American boots, but as an European it was exactly my intention to keep the discussion out of political waters. So, yes, Denis is spot on: with the left (may you forgive me the -ist), I referred to marxism and with the concept of free market to something that in Europe is considered right wing.

But: both concepts have similar materialistic roots and give money a similar value. And this was the center point of my post: how can we move an economy without the extreme drive towards debt and growth, as both tendencies requiere enormous amounts of energy and money? The coming lack of fossile energy and the hidden costs of ecological destruction are a hidden wall which the world economy will hit very soon. And I certainly would like to find a solution WITHOUT fascism and totalitarism. I think I was very clear about that.

So what could be the incentives to make a not growth oriented economy work? Could the growth of renewable energy become a function as it actually is (or rather was) fossile energy? Because renewable have te potential to keep producing energy in the future and could pay back debt (which is, by definition, future energy).

Sorry WTFC, I had no idea you were a European. I just assumed you were an American and when an American talks about a leftist, he normally means someone who is not a MAGA Trumpite. All Trumpites are fascist and are too stupid to realize that obvious fact. That is, Trump is a fascist and that means all his stupid blind worshippers are fascist also.

Sorry about the misunderstanding. Nuff said, let’s move on.

Why Marx Was Right | Full Talk | Terry Eagleton

https://www.youtube.com/watch?v=tYktnB7j81o

Maybe I have made too many trips to Europe because I tend to think of this the way West Texas Fan Club does, or maybe its because I am from the north east US.

I think the political systems in much of western Europe are far more enlightened than the US, which is kind of stuck in the 19th century.

Perhaps one day things will improve, I am not holding my breath.

We could definitely use fewer 70 and 80 and 90 year olds in the legislature.

OPEC’s Gulf Nations Boost Oil Production to Relieve Tight Market

Saudi Arabia bolstered output by 180,000 barrels day to 10.78 million barrels a day in July, the highest since April 2020, and a level rarely seen in the kingdom’s decades as an oil exporter.

The United Arab Emirates and Kuwait also added substantial volumes, the survey showed. Abu Dhabi raised output to 3.24 million barrels a day, or 113,000 a day more than permitted under the OPEC deal. Libya appeared to be on a tentative path to recovery following an agreement to reopen its ports.

https://www.bnnbloomberg.ca/opec-s-gulf-nations-boost-oil-production-to-relieve-tight-market-1.1800291

Conflicting report out of Russia.

Russia increased oil and gas condensate output by 2 per cent m/m in July

MOSCOW: Russia increased daily oil and gas condensate output in July by 2 per cent from the previous month to 1.468 million tonnes, or 10.76 million barrels per day.

Number of Crude Oil Tankers Loading in Russian Ports Falls Sharply in July

The number of crude oil tankers at sea that loaded in Russian ports fell sharply in July, energy and environmental geo-analytics company Kayrros highlighted in a new report sent to Rigzone over the weekend.

This development came as news reports signaled more ship-to-ship transfers, meaning less time spent laden at sea, and as some countries in Asia, including India, were showing high demand for discounted Russian crude oil, Kayrros outlined in the report.

According to a chart included in the report, which contained data stretching back to just before March this year, the number of crude oil tankers at sea that loaded in Russian ports stands at just under 110. This figure was at well over 120 near the beginning of the month and near 130 back in June, the chart showed. The lowest figure in the chart can be seen around the end of March at just over 80 crude oil tankers.

“For most of us folks it will indeed be decades before renewables can affect our standard of living in long term, meaningful ways.” Many people hold a notion along these lines, and if we were back in 1980 when these notions were formed they would have turned out to be correct. But now it is 2020’s and that is simply out of date thinking.

Right now, 11am central time, the Texas grid (ERCOT) is being supplied by 40.5% of total electrical demand from wind and solar. And this is at a time when Texas has only taken baby steps to deploy S/W anywhere close to its potential as a giant. ERCOT dashboard- https://www.ercot.com/gridmktinfo/dashboards

The energy generated allows an offset of oil , nat gas and coal consumption. And as you all know that is of great benefit to any territory.

While it is true that Texas has added a great deal of Wind & Solar to their Grid, I would not agree that it was a WISE DECISION. Of course, it has cut fossil fuel demand in the short run, but the ERCOT Grid will get in serious trouble in the future when it cannot replace Wind turbines and solar panels that have reached the end of their lifespan.

The problem with the larger Wind Turbines that have taken over the market is that they have much larger breakdowns and maintenance issues than their smaller counterparts. Thus, typically in 15 years or less, these wind turbines operating & maintenance costs exceed the power revenue generated… hence the need to replace them.

So, the problem the Texas EROCT Grid and other grids will deal with as we head over the ENERGY CLIFF, or SENECA CLIFF, is that a lot of this Green Energy will start to malfunction and breakdown. So, we get a DOUBLE-WHAMMY of a nasty feedback loop with lower fossil fuel production and declining Green Energy production at the same time.

GOD HATH A SENSE OF HUMOR…

All energy systems require upkeep and maintenance.

Good post on wind power at link below

Unfortunately, that study, as they say in England… is pure BOLLOCKS. Why? No one outside the Wind Industry has done an extensive study to show quite different results.

Maybe you might want to check out the WIND POWER ECONOMICS Study by Prof Gordon Hughes:

Wind Power Economics – Rhetoric and Reality

https://www.ref.org.uk/ref-blog/365-wind-power-economics-rhetoric-and-reality

Wait until Governments will have to start to BAILOUT WIND FARMS in the future. That’s gonna be a LOT OF FUN.

Thanks, but consider other views.

https://www.carbonbrief.org/hidden-calculations-and-a-nonsense-scenario-countering-the-gwpf-wind-report/

I got a better idea. Why don’t we agree to disagree on Wind Power Economics and Rosey Shale Oil production forecasts for another 2-3 decades… and let’s see how things play out in the next 5-8 years. 🙂

A good investor looks at things from all sides to avoid confirmation bias.

Indeed…. IF THE SHOE FITS…

Steve- brief reply here “the ERCOT Grid will get in serious trouble in the future when it cannot replace Wind turbines and solar panels that have reached the end of their lifespan.”

Current solar panels like First Solar Series 6 CuRe (made in US) has depletion rate that is very good- “the module will retain at least 92% of its original performance over its 30-year warranty period.”

Tell us what will be the Texas oil (or nat gas or coal) output in 30 yrs compared to today. Will it still be 92%, or 60 or 20%?

Based on this simple reality, I assert that you are on paper thin ice with your line of thought. The quicker the solar and wind are ramped up the more gradual will be the pain. I know that this would make your marketing story a more difficult sell, but for everyone else it is a good thing.

[note- it is very important to keep Nat Gas electrical generating capacity online indefinitely to be a key part of energy production stabilizer, along with increased energy storage capacity, as I see it]

If oil and natural gas depletion was not a real phenomena this would be a very different scenario. But alas depletion is real.

We must also factor in that Natgas is being used to Offset the tremendous volatility in Wind & Solar power generation. While Batteries are being added to the grid to store some of this wind & solar power, the economics of batteries are STUPID ON STEROIDS.

Regardless… when U.S. shale gas production begins to decline, it will become increasingly difficult to offset the massive volatility of Solar & Wind Power. We are totally underestimating the negative impact this will have in the future.

And then there was this lil TIBDIT recently released:

US solar and wind projects stalled in Q2. What happened?

https://www.canarymedia.com/articles/clean-energy/us-solar-and-wind-projects-stalled-in-q2-what-happened

We can just do without electricity, but most would rather use it. You know oil and gas could never work because the wells deplete and we have to keep drilling for more, same thing for coal mines, obviously they could never power a functioning economy.

Steve-on the subject of grid battery storage -If you have plentiful/cheap nat gas and generating capacity, then batteries can be alower priority from an energy standpoint. -Currrently Nat Gas even in US is not cheap- Natural Gas (Henry Hub) $7.72 USD per MMBtu, having doubled in past year. We’ll have to see where this goes. To have the cheap prices of the last 5 years may end up being a brief pleasant moment in history.

Having electricity, as this decade progresses and global oil/gas supply and price becomes a bigger problem, is something people are going to be very thankful for- including the contribution to energy supply that comes from wind and solar.

As someone who likes to promote themselves as an energy investment salesman, you may want to consider learning about the big sector of energy beyond fossil fuel. Lots of growth missing out on.

I’ve worked on solar installations, and can attest to the fact that while those panels MAY make it 15-20 years, the batteries, charge controllers, inverters and other associated electronics have no such lifespan. Most of them make it about 5-10 years before they need to be replaced. The replacement costs of those items alone often drag out a putative 20 year repayment schedule to a never-repayment schedule; that is, with all factors properly accounted for, PV systems are actually a permanent cost sink hole from which they will never fully pay for themselves – at least, in terms of the hydrocarbon energy it took to build them in the first place. And to make matters worse, nobody ever talks about the 26,000 lbs or so of mining tailings left behind for each pound of lithium extracted, or the other similarly large mining wastes left behind when nickel, cobalt, cadmium, copper, silver, and other metallics are mined to make panels. How are those costs going to be accounted for? Currently, they are not included in the purchase price of a PV system, as far as I know.

I’ve also seen (but never directly worked on) the large gearboxes in utility-sized windmills that USED to blanket the landscape in wind-swept southern Alberta (around the Pincher Creek area). Those things wore out so quickly that they were never repaired or rebuilt, as the costs were too high to do so. I knew of people that leased storage lots – even hotel parking lots – to store the defunct gearboxes to the point of overflowing. Many of them complained that they couldn’t find enough room for storing the gearboxes on their properties, which ended up taking space in their machine shops that were supposed to be for other business operations. At the end of it all, the Alberta government quietly removed most of the windmills that were installed at great cost around Pincher Creek. I don’t think any of them generated enough power to pay themselves off, and more than a few of them never generated any significant power that was more than a rounding error. Certainly, the costs of maintenance were far exceeding what they were generating, and the Alberta government eventually saw the writing on the wall. From this experience, I had concluded that only offshore wind power is a worthwhile investment, and that onshore windmills generally are not. And this opinion whole-heartedly extends to PV systems as well.

Mr. Sutherland, Your comment may be amongst the ‘best’ contributions on this site in quite awhile. The ‘troubles’ associated with wind-generated electricity has been a major, long running, grossly under (mis?)reported aspect of this entire Renewables (sic) narrative. As this is, mostly, unrelated to oil matters, it may not be appropriate to quote several eye opening comments put forth in the Siemens Gamesa and GE recent conference calls describing the money hemorrhaging status related to massive onshore turbine failure. (Topic for a non oil, open thread post?) However, you may be mistaken, Mr. Sutherland, regarding the investment-worthy status of offshore wind. Their operational costs make the onshore whirleys look trifling in comparison.

I agree 100% with everything you wrote, and thank you for your response BTW. With respect to offshore wind, what I should have said was “only offshore wind power might be a possible worthwhile investment”. The inclusion of the word “possible” is only there because I am of the opinion that offshore wind flows more consistently than onshore wind does, and that there are fewer direction changes per unit time – i.e. the torque levels that have to be managed are so high that variability in speed and direction plays hell with gearboxes and grinds their teeth down at an astonishing rate. I should really have said that based on my (limited) experience with onshore windmills, I am actually quite doubtful that offshore windmill power is going to pan out due to ongoing maintenance issues that continue to plague highly loaded gear systems.

Many years ago, I did work directly on some gearbox systems for onshore windmills that tried to alleviate the problem by using hydraulic systems for power transmission between the rotor system and the generator. The rotor was fitted with a hydraulic pump, which was connected to a variable swashplate motor that could be controlled by a programmable servo system. These were small mechanical systems (less than 100hp) that were built by a fairly wealthy hydraulic company that had a dream of finding the optimal method of power transmission between the rotor and the generator (and particularly, one that did not rely on gears). I’m sure such schemes were tried before, but this company (my client at the time) were convinced that their knowledge and skill with hydraulic systems would uncover the magic solution that would solve the highly variable mechanical power transmission problem between rotor and generator. (BTW, my involvement was to design the disk brake system that would engage if there was a runaway, and incorporated a number of large disk brakes from highway semi-tractors) The hydraulic company never did make their system work properly, and as far as I know they eventually shelved the whole idea as pumps and motors kept malfunctioning under the loads imposed by the rotor (which as I said, was very small at about 100hp max).

In summary, I’ve seen a few different ideas tried for power transmission systems between rotor and generator but it appears that only mechanically geared speed reduction systems with blade pitch control seem to last any length of time. I am currently of the opinion that the initial manufacturing and ongoing maintenance costs of these geared systems are going to show that they can only be used profitably at very high electrical power costs – much higher than is currently provided by coal or natural gas generators. And even then, I would have to see it to believe it. (I think Germany probably thought that with their engineering prowess, they could easily overcome the issue but from all appearances, such does not appear to be the case)

Those that love wind and solar are, religious, engineering, finance and operations have nothing to do with their belief. Lafrange published an article proudly telling that they supplied 134,000 tons of concrete to build a 300 MW wind farm in Ohio. That’s over 6200 truck loads of cement.

Well, tomorrow I´m paying 7,55 EUR/MWh, around 0,766 cents/kWh, sucks to be me, I guess… https://www.nordpoolgroup.com/en/Market-data1/#/nordic/table The foundations obviously takes some effort to build, but they can be used for quite some time, regardless of potential gearbox and blade issues. Better a bird in your hand than ten in the woods.

I’ve worked on equipment at cement plants. You would not believe how much energy it takes to make cement, and the massive amounts of CO2 that is produced in that process. Then, of course, it has to be transported to the windmill site, another significant energy investment. Digging up the foundations and installing the rebar are yet further massive construction inputs for a utility windmill.

The energy payback time for Photovoltaic including all of the energy used mining, smelting, manufacture, transport, install, electronics, and decommissioning after 30-40 years is in the of 1-2 year range, depending on where you put it. Maybe closer to 3 years in Ireland. No belief, prayer or membership fee required.

btw- France the gold standard for nuclear energy production is only operating at about 50% capacity due to widespread unexpected corrosion problems and inadequate cooling capability as a result of low and hot river flows. Their reactor fleet is old. Its going to take a long time and a lot of E to replace them.

Here is a chart that may interest some of you. The data is through June 2022.

Without Saudi Arabia, OPEC has just about as many decliners as it has gainers. Again, virtually all increase, if any, in world oil production must come from the USA and Saudi Arabia. The world less Saudi And the USA will continue to decline.

It’s all over but the crying.

Iraq, UAE, Kuwait, Iran, US, Canada, Brazil, with a bit from Guyana, Suriname, and perhaps Argentina can all add to World output, it is more than just Saudi Arabia.

Don’t forget Martian oil. Maybe if we can get Capt Kirk to convince the Martians on Mars to beam down some cheap crude oil… that could help.

Dennis – Only Canada, US, UAE, and Kuwait have investment grade credit ratings…the rest are teetering on failed state status or at least not in good financial positions…

Guyana is doing quite well, higher oil prices may help things in Brazil and Iraq.

That’s a great chart Ron, Dennis needs to realize that there is a cascading effect.

But he doesn’t do bottom up analysis so of course he’s either clueless or wants to ignore reality.

US doesn’t export meaningful quantities…so maybe your statement should be “…must come from Saudi Arabia”.

I would have thought by now it would have clicked for Dennis…maybe in October/November?

I have looked at declining nations and have read many papers on peak oil.

We will see what happens.

US exports 3.5 Mbpd of tight oil, this may increase to 6.5 Mbpd by 2028. A fairly significant amount.

For comparison Russia’s crude oil exports in 2021 were about 5.3 Mb/d.

Jesus Dennis – We import more than we export! Really?

“According to our February 2022 Short-Term Energy Outlook (STEO), we expect net crude oil imports to increase, making the United States a net importer of petroleum in 2022.”

If we are basically net exports of zero does it really matter if we send 10 M. out for refining and then import the products back in? Think about it… We are currently net importers of ~ 2 MBOPD…

2021 Exporters that actually matter (meaning they send oil to countries who are busy playing oil products arbitrage)… Russia net export of 7.5 MBOPD (2.75 Gb) Saudi Arabia net export of 7.4 MBOPD (2.7 Gb) Iraq net export of 3.4 MBOPD (1.2 Gb) Canada net export of 3.2 MBOPD (1.2 Gb) Kuwait net export of 3.2 MBOPD (1.2 Gb) UAE net export of 2.7 MBOPD (1.0 Gb) Iran net export of 2.3 MBOPD (0.8 Gb) Norway net export of 1.8 MBOPD (0.7 Gb) Kazakhstan net export 1.5 MBOPD (0.5 Gb)

As you can see Russia and Middle East hold all the cards for the rest of the world…particularly Asia and Europe…

Yes the US is a net importer of crude oil, if we export less, then out net imports increase, it is not complicated. Just pay attention to World output, the imports and exports will sort themselves out.

Separating the WHEAT from the CHAFF…

There continues to be a lot of HOPIUM, BLIND-FAITH & DENIAL that Green Energy will save the day. While this may allow some to sleep better at night, the TRUTH SETS US FREE…

The situation for Green Energy is going from BAD to WORSE. With Europe now paying 8 TIMES more for Natgas and Japan-Korean paying 6 TIMES more for LNG than U.S. natgas, this is totally destroying these economies.

How so… well, the last German Wind Turbine Plant just closed its doors last month, along with Germany’s last Wind Blade Plant. Why? Costs were going through the NOSE causing Nordex to lose money HAND OVER FIST.

Shut down of last German wind turbine rotor plant could put renewables expansion in danger

https://www.cleanenergywire.org/news/shut-down-last-german-wind-turbine-rotor-plant-could-put-renewables-expansion-danger

Nordex to cease rotor blade production at German site

https://renewablesnow.com/news/nordex-to-cease-rotor-blade-production-at-german-site-775222/

Nordex plans to relocate its Wind Turbine Plant manufacturing to India to save costs… LOL. Let’s see how long that one lasts.

How in heaven’s name is it possible to run a wind turbine blade plant at a loss, with the local price of NG at 200euro/MWh? The cost of electricity generation at present from NG in Europe is about .50euro/kWh. And this makes up a significant proportion of generation, what with frequent calm wind conditions over N Europe. Renewable operators, with prioritised grid access, should be making handsome profits. Clearly Nordex has not positioned itself correctly to take advantage of sky-high electricity prices. All to the detriment of Germany’s renewable ambitions.

Business proposal: buy cheap electricity from wind and hydro in the north of Sweden, for tomorrow the price is 4,42 EUR/MWh, thats roughly 0,5 cents per kWh, so in essence, too cheap to meter… https://www.nordpoolgroup.com/en/Market-data1/#/nordic/table The crux is to “ship” it south (and east, to the finns) due to not enough transmission lines, but if you solve that you can sell it 10 or even 20 times more expensive, so there is money to be made. ( caveat, the normalized cost of wind power in Sweden last time I heard a couple of years ago was about 35 Eur/MWhs, so at times like this they on paper make a loss, unless they sell it elsewhere, come to think of it, maybe that´s why Sweden export so much…) More to the point, blade manufacturing is labour intensive, and basically currently made by the same technique as making a really long and narrow fibreglass hull for a boat, hence the relocation drive for cheaper workforce. That might change, however.

Steve- “With Europe now paying 8 TIMES more for Natgas and Japan-Korean paying 6 TIMES more for LNG than U.S. natgas, this is totally destroying these economies.”

Your message is not coherent. These three big industrial countries do not have domestic supplies of nat gas, and close to zero other fossil fuel except for low grade coal in Germany. So they of course will look to all options to get energy. Whether they burn coal or build out nuclear is entirely the choice of their voters. German and Japanese voters may rethink nuclear, despite Chernobyl and Fukushima, but that energy is extremely expensive and has a 12-25 year time-frame to deploy once a decision is made. They have no good choices. Canaries in the mine for energy depletion.

You say… “Steve, your message is not coherent.” I find that quite hilarious, to say the least. Actually, it’s BEAUTIFULLY CLEAR and COHERENT. I am surprised that was your conclusion.

Regardless… because Europe & Asia built their economies on massive net Oil & Gas Imports, they are the first to head down the ENERGY CLIFF. Hence, the 8X & 6X U.S. natgas prices. This is very easy to understand.

So developing an alternative to fossil seems to be a wise policy, though they should have started sooner.

I’m beginning to think that Steve is opposed to any measures that would blunt the impact of fossil fuel decline since those measures would be a threat to his opinions on the oil industry which he tries to sell to others- others who knowingly or naively invest based heavily on opinions and beliefs of a person like himself. They call it vested interest in a particular narrative.

We all have beliefs, but I work hard to not let them interfere with investment. I invest based on actual factual performance, with no opinion middleman.

Here a two headlines in today’s news in case you missed them.

Shell Makes Record Profits For Two Quarters In A Row

https://www.rigzone.com/news/shell_makes_record_profits_for_two_quarters_in_a_row-02-aug-2022-169832-article/

BP profits highest in 14 years, raking in $8.5 billion amid gas pump pinch https://www.washingtonpost.com/business/2022/08/02/bp-record-profit-oil-gas-ukraine/

You wrote…“I’m beginning to think that Steve is opposed to any measures that would blunt the impact of fossil fuel decline since those measures would be a threat to his opinions on the oil industry which he tries to sell to others.”

You have made an incorrect assumption based on an incomplete understanding of my analysis of the ENERGY CLIFF.

First… the ENERGY CLIFF of Fossil fuels is coming, and there isn’t anything we can do about it.

Second… Green Energy isn’t a viable long-term solution; rather, it just makes the situation worse.

Lastly… the only real solution to the ENERGY CLIFF is “Managed Degrowth.” However, that is not going to happen. It will be a chaotic decline.

Ovi- I am a aware of the the recent much improved performance of the oil and gas sector (after a dismal period from 2014-2020), in response to higher prices. These are facts. Not based on beliefs or opinion. No bold type. Not selling a hype. If you recall- this same Steve was posting a hyped ad about the death of the big oil companies a year or two ago.

I don’t pay anyone for investment information that is all freely available, and I don’t pay anyone for their opinion.

It’s my belief Steve has a problem with the difference between his doomer opinion and reality. When he was selling gold about 5 or 6 years ago, he was anti equities. Equities have out preformed gold since than. Less than 2 years ago Steve was promoting the collapse or death of ExxonMobil because of debt. Only to be wrong again.

Friday, 7/29/22 -“Exxon Mobil (XOM) rose 4.2% after the company said its second-quarter profit jumped to $17.85 billion, or $4.21 a share, from $4.69 billion, or $1.10 a share, in the year-ago quarter. Breaking out a $300 million one-time item for the sale of its Barnett Shale upstream assets, Exxon earned $4.14 a share.”

Doomer do what doomer believe, shoot themselves in the economic foot. His First, Second and Lastly are his opinions and not fact.

“I invest based on actual factual performance, with no opinion middleman.” Wow, that is rich beyond belief.

Any casual observer can see what is currently happening in Germany, a so-called green powerhouse, where politicians in that country have passed legislation to dramatically limit the amount of power consumed by companies and individuals. I think there are even cases where the public has been told that it can’t heat it’s apartment residences higher than 58F for this winter.

Furthermore, I see that you heap criticism on Steve without actually saying why he is wrong, while ignoring the massively underperforming PV/Windmill situation that currently exists in Germany. For my part, I saw something similar occur in Alberta years ago, where the government had decided to remove a great many windmills in a very windy region because they were constantly losing money.

So tell me, now that Nordex is now shutting down it’s windmill blade manufacturing in Germany and moving it to India, and given the deplorable energy situation of Germany generally, how does that work to your position as opposed to Steve’s? Do these recent facts comport in any way with your self-regarding “I invest based on actual factual performance, with no opinion middleman” statement?

BTW, your characterization of Steve was insulting and wrongful, and if Coyne had any sense of decency he would demand you apologize to Steve forthrightly.

I just did a new Subscriber Update on the: GLOBAL OIL INDUSTRY SLEEP-WALKING OVER THE ENERGY CLIFF: Killing The Oil Industry 10 Million Barrels At A Time

It amazes me how the market fails to realize that the global oil industry is sleepwalking over the ENERGY CLIFF. Instead of being deeply concerned about our future, investors believe this is a temporary energy crisis solved by just investing more money in finding oil. And… it’s even worse than that.

https://srsroccoreport.com/global-oil-industry-sleep-walking-over-the-energy-cliff-killing-the-oil-industry-10-million-barrels-at-a-time/

In that update, I provide those ROSY Major Oil Company news results. Indeed, the Majors are making big profits. However, one important factor that is overlooked as the Oil Companies laugh all the way to the bank is that their CAPEX investment is in the TOILET.

So, what we have now is the MAJOR OIL INDUSTRY Going Out Of Business Sale. They are no longer interested in being a long-term ongoing concern as they see the writing on the wall. The collapse in CAPEX spending suggests the END IS NIGH…

Steve, I agree with you insofar, that renewables will never be able to boost an economy with the ease of fossile fuels. There is just too much complexity in the system. We will definitely need a mixture of debt relief, managed degrowth AND the implementation of renewables.

Maybe, if someone invents a cheap fusion reactor that will pop up in the thousands all over the planet in this decade, we could go on with BAU. But more probable than this is that Denis and Ron agree on a date for peak oil …

“renewables will never be able to boost an economy with the ease of fossile fuels. There is just too much complexity in the system. We will definitely need a mixture of debt relief, managed degrowth AND the implementation of renewables.”

Many of us agree with the gist of these points. I must point out that -debt relief will only come through inflation/currency debasement, and therefore comes with its own pain. -Managed degrowth is only an embryonic exercise in thought , and Unmanaged degrowth will be the reality. The only significant exercise of managed degrowth that I have witnessed is the China one family/one child policy. There was announcement last month that China peak population will happen in 2023. Economic contraction (degrowth) is another word for indefinite recession, but it will happen with declining global energy production. -Depletion changes everything-

“In these energy-insecure times, it seems it’s a bad bet to wager against anything that will keep the lights on.” this was from an article on coal, but it applies to all sources of energy.

https://www.telegraph.co.uk/business/2022/08/02/oxford-nuclear-fusion-spin-out-raising-400m-energy-breakthrough/

You have posted a link that requires us to pay you to read it. Go screw yourself.

Didn’t your MOMMA tell you that it’s not nice to have a POTTY MOUTH?

Dude, quit soliciting. If you want to flog your wares, there are other venues.

If you want my opinion on matters… deposit 100 BTC into my crypto wallet and I’ll let you in on it.

I’ve been reading this site since Ron started it after the demise of The Oil Drum, a big thanks to Ron for this site where probably the most valuable oil flow information gets posted by our various experts. IMHO the smartest oil and energy aware people in the world post and hang out here. Thanks for everyone’s contributions over the years.

It was only a couple of weeks ago that the last piece of information necessary for where we are heading as a civilization came to me when looking at this chart from J. Laherrere et al.. (Having trouble with chart)

IMHO everyone has been asking the wrong questions about charts like this, trying to fit bell shaped curves to the information..

The chart is clearly in 2 parts. First part was the exponential growth from 1900 to early 1970’s, then dislocation for a decade then the second part of the chart showing linear growth up to 2018. The question to ask is what changed to alter the shape of the bell curve? There was a lot, but 4 major influences. 1. Realisation around that there were limits to growth, despite the protestations of economists.

2. Technology and efficiency gains. Very quickly we had the greatest gains in efficiency allowing cheaper costs of extraction, of oil and all minerals. Like everything in life the largest gains were the early ones and the law of diminishing returns has set in over the last few decades. Now a bit of efficiency gain comes at the cost of greater complexity.

3. Globalisation has allowed the costs of all extractive equipment to become relatively cheaper, again allowing lower grades of minerals to be mined and some non viable oil resources to become reserves. We off shored a lot of heavy industry to China that had a much lower labor cost plus a large source of untapped cheap energy in coal to be used. We don’t have another source of cheap labor and cheap energy to allow ‘costs’ to go lower by the same margin again.

4. Cheaper capital. Over the last 40 years the overall cost of capital has been falling, making projects that had a high cost more viable. There are probably many deep water oil fields that would have never been brought into production with interest rates at 10%, but become viable and a part of reserves at 3% interest rates. Like wise for many mining operations.

So what happens at peak oil production? We can’t repeat the efficiency gains, we don’t have another China to get cheaper equipment and the cost of capital is starting to go up. It means the URR for oil and all minerals must decline in the future as what was economically viable drops in viability as costs rise.

In the background we have a relentless progression of mining every mineral becoming more energy expensive. In the last 25 years the average grade of copper mined in the world has halved from around 1.6% to 0.8% (this varies slightly from source to source). If you don’t have cheaper equipment, or better efficiency or cheaper money, then the cost in terms of dollars goes up for extraction of any given tonne of copper on average (or any other mineral).

In terms of oil production, with the diminishing returns of technology and efficiency, plus the higher cost of equipment (oil platform, pipes, pumps, labor etc), plus higher cost of money, all new projects become less viable over time. As oil production falls and price of oil becomes more expensive, the cost of all other mining also becomes less viable and more expensive, making the inputs to any oil project more expensive again in a spiral of less affordability.

Just like a lot of oil went into the category of URR over time from resources to economically viable reserves, because of technology gains, cheaper equipment from globalisation and cheaper capital, the exact opposite will happen when we are past oil production peak.

Right now we are seeing large increases in the cost of everything, including the cost of solar, wind, batteries and EVs. All the renewable energy future plans rely upon all the minerals needed being cheap, when their production cost is already going up because of expensive energy. No-one is mining and processing all the minerals needed for a renewable future with just energy from renewables, nor has anyone put up the capital to make it happen in even a minor way. All the known EROEI calculations for renewables are wrong as they apply to fossil fuel inputs. Using electricity inputs to make hydrogen or synthetic fuels to use in mining, makes all renewables unable to pay off their own energy inputs, leaving nothing left for society.

Over time, the amount of energy needed to extract a tonne of whatever metal(or other mineral), rises as the ore grade becomes lower, the ore becomes deeper on average, and the hardness index goes higher on average (needing more energy to crush it!), eventually it becomes impossible to mine the necessary minerals to keep civilization going. Not only is ‘growth’ not possible but so also is a steady state circular economy. We have entropy and dissipation of existing metals and minerals occurring all the time, so we always will need to mine just to keep whatever steady state going, until it becomes a physical impossibility.

When I think about it, because civilization is not possible in the long term, because of the declining grades of everything mined, it explains a big part of the Fermi paradox. The same rules of physics apply across the universe. Eventually every civilization must crash as it reaches an important limit.

We have used up all the cheap easy energy available, while dragging future resources into the present via technology improvements, efficiency gains, globalisation and cheaper money, while believing that human ingenuity did it all. Instead we just brought the future decline closer to the present. Once obviously past peak oil, the decline will happen at an accelerating pace as the call on capital becomes greater for present use instead of the future. Less money will be available for capital expenses as people become worse off demanding governments do something to relieve falling standards of living in the present.

https://alchetron.com/cdn/jean-laherrre-c065d665-5144-4f9b-a781-d71a1a1dfb2-resize-750.jpeg Attempting chart from J Leherrere from different source..

Hideaway, referring to the chart: XH means hydrogen? So, in 2070, all liquids plus hydrogen would sum to about 60 mbd. Quite a lot, having in account that probably renwable electricity will play a much bigger role than today. And yes, cheap fusion energy should form an important part of energy production by then.

WTFC, XH means extra heavy.

As to fusion energy, it just ain’t gonna happen, not ever. Even if they get fusion to happen inside that donut, they still have to figuure a way to extract that energy to boil water to turn the turbines. That would be a hurclean task in itself.

Ah, thank you Ron. So there aren’t even hydrogen or synthetic fuels mentioned. They will also add to the energy mix.

What the donut concerns: a fusion with a positive net energy gain will be certainly achieved by ITER somewhen in the next ten years. That‘s a given for me. Cooling for tokamaks or stellarators is quite conventional, so the production of electricity should not be too complicated. Once positive fusion is achieved, I guess it will take another 20 years for a working prototype of a commercial plant. And 20 years more for connecting a significant number of them to the grid. So yes, I‘m convinced that within half a century fusion can make a difference – IF we get there as a technological civilization.

Exactly right, Ron, and I have wondered about that myself. Even if they dunk that donut in a gigantic tank of coffee (well, pressurized water), I’m not seeing how the conversion to steam is going to work out particularly well. Maybe that particular part of the engineering problem is “another 50 years away”.

Mike, almos a 100% of the fusion energy will go into the tokamak‘s mantel. There, a conventional water cooling will be able to drive a heat engine, probably the cooling water will be heated to more than 100 degrees Celsius and drive a steam turbine. Same like in fission reactors. The only problem might represent the heavily cooled magnets whose field holds the plasma. But since the beginning of this technology you had to deal with extremely high and low temperatures in almost the same place. And for what I know, it never represented an impossibility.

“The question to ask is what changed to alter the shape of the bell curve? ”

“1. Realisation around that there were limits to growth, despite the protestations of economists.”

Dennis, can you help me out here ? My economic studies where done during the mid and late 70’s and I just don’t remember the topic of unlimited growth and economists protests. Maybe I was out to late the prior night and asleep in class that day or I need to make an appointment with a neurologist for Alzheimer’s.

“1. Realisation around that there were limits to growth, despite the protestations of economists.”

After Limits to Growth was published there was a lot of blowback. One of the most prominent ones was Julian Simon who made his famous bet, which he won.

But I always thought Limits to Growth was never a mainstream economic issue.

Gerry, yes, there are some people who believe that growth can go on forever. But it doesn’t really matter whether that belief is mainstream or not. Anyone who really believes that there are no limits to growth is simply batshit crazy.

Recently I googled it and there have been some modern examination of the Limits to Growth model, and I believe they all show that the global data is following the ‘business as usual’ model that Limits to Growth developed. The consequences of that BAU model continuing are horrendous but not a lot of talk about that.

Ron – It’s worse than the climate debate crap that was going on 10-15 years ago…it takes incredibly basic math (plus-minus) skills to understand the dire straights we are in…But we have to admit the oil companies did amazing job at blowing smoke for past 20 years…now the green-washing machine is in full swing and oil companies will transition to “climate repair” companies so they can profit from the mess they created…genius really…

Like Tony Hayward after the Deepwater Horizon disaster, courtesy South Park: https://www.youtube.com/watch?v=b7iB_ztP-r8 Edit: they also covered the GFC quite well, coining ” And it`s gone…” https://www.southparkstudios.nu/episodes/9do3gw/south-park-margaritaville-season-13-ep-3

Three great things to boost my evening: Nick Clegg and Tony Hayward apologies and the first of three “once in a lifetime” recessions I’ve experience in 15 years.

21st century is a blast.

I think economists will always be in conflict with physicist and other scientists since they see human ingenuity and innovation being greater than the limits set out by nature on us.

And so far they have been right. But ultimately they will be wrong.

Most economists recognize there are limits to growth. So you didn’t miss anything.

They must be the powerless and therefore sucky ones, because the ones I only ever hear about couldn’t even explain how money gets created correctly, to say nothing of the finite concept.

Okay, Steve Keen, but he’s an exception proves the rule kinda guy.

Hideaway, “The question to ask is what changed to alter the shape of the bell curve? ”

What happened was the US conventional peak. Cartel pricing power moved from TRRC to OPEC. Oil was repriced upwards after the embargoes illustrated the world’s dependence on OPEC supply.

Hubbert’s curve was truncated by the new cartel and growth restricted for 50 years. Any curve or linearization fitted to oil production any time after 1970 conveniently ignores the reality. That puts us in the Wile E Coyote position:

Upload trouble, look here https://i.postimg.cc/1t9M52qN/Jiggered-Laherrere.jpg

Thanks for the plot. Do you see a second oil production peak around 2025?

Thanks Mike, I am no expert but I’d guess we’ve not hit peak. But who knows, lots of balls in the air, sanctions, the future of Russia’s economy, what OPEC really has at the ready— good OR bad— the crazy economy, and on and on…

Thanks Pops – Looking at the data I could see this pattern too, I think you are spot on, nice work!

POPS – Needs to be less than 50 KB, resized image below:

Thanks Ken, and thanks for the loading tip.

Remember you have to look at real capital cost (interest rate minus inflation rate). Energy is likely to be used more efficiently over time so energy needs can be reduced further as the cost of energy increases, eventually we will reach a physical limit on further efficiency gains, but we are not very close to that limit. The same will be true of all scarce resources and there will likely be more recycling of materials as scarcity becomes more of a problem. One point that is sometimes missed is that most oil and gas fields actually are the reverse of a Seneca curve, the ramp up in production is quite rapid and the decline phase is slower. Most analyses of World conventional crude plus condensate have URR estimates in the range of 2500 to 3000 Gb and unconventional oil estimates range from 200 to 2000 Gb, my guess is about 2750 Gb for conventional and 200 Gb for unconventional oil. It is possible that oil output falls faster due to lack of demand, though I have revised my estimate to 2040 or so before that occurs.

Dennis, my point was that all the factors that allowed the URR of everything we mine to go up because of the gains from technology, efficiency, globalisation and cheaper capital. I’ve only been researching all things as alternatives to FFs for 47 years, so I’m not a babe in the woods looking at the numbers.

The cost of capital is going up after 40 years of getting cheaper. It couldn’t continue to get cheaper at the rate it was and in fact has started to turn up. All the easy pickings on technology and efficiency gains have been made. We went from 40 tonne mining trucks moving ore and waste to 400 tonne trucks with massive efficiency gains, we can’t go to 4,000 tonne mining trucks because we are reaching the strength of metals limits at 400 tonne. Yes there will still be some gains, but minor compared to those of the last 6 decades, so the energy cost of mining will accelerate as grades become lower, depths of mining deeper and ore hardness index higher. Another factor is that the best remaining resources are all more remote relative to what was mined historically. These resources take diesel to mine. There is no possibility of connecting them to a grid in most cases. Using synthetic fuel or Hydrogen from renewables doesn’t work as both have a negative EROEI. This can be discussed elsewhere.

There is no new China out ther, where we can get cheap labor and cheap coal production to lower costs of energy and labor intensive manufactured goods like we did from moving from western countries to China. The cost of the manufactured goods needed for every mining project will go up as labor becomes scarcer in China and the cheap coal is gone. In other words the factors allowing cheaper capital goods is reversing.

What doesn’t seem to be understood is that it is a combination of all these factors, not any one individually that allowed ‘growth’ to continue the way it did over the last 40-60 years. We ate into future production of every resource, kidding our selves it was progress, human ingenuity and technology that allowed it to happen, while the real reason was cheaper energy, cheaper labor and cheaper money, with the best technology/efficiency gains happening decades ago.

All the inputs to any large oil/mining project have already started to increase greatly compared to the final price of the commodity, because of the reversal of the factors that allowed them to stay cheap. As we go forward in time all these capital goods must continue to increase in cost relative to the commodity, because we need relatively more of the capital goods as we get into declining grades. Just look at the change over 140 years from drilling 40′ into the ground to get an oil gusher, to needing thousands of feet of pipe, high pressure pumps, sand, fracking fluids and massive drill rigs etc to get at fracked oil. As the factors that allowed the capital goods to get relatively cheaper reverse, so does the amount we can extract from the ground. URRs of everything declines.

There will be massive amounts of known resources left in the ground because we just can’t afford to drill it or dig it up. This includes all the things needed to mine for renewables. EVs and renewables only look like alternatives while oil, gas and coal are cheap. The cost of them goes up as energy goes up in price, yet economic theory has them all going down in price in the future. Right now solar panels are 40% more expensive than 2 years ago, lithium for batteries 10 times the price of 18 months ago.

On top of all the physics reasons why the future in one of less manufactured goods, the costs of food and other essentials is going up massively. We will have greatly unknowable dislocations in societies across , which of course will accelerate the decline.

Like most here I hope the future you paint of EVs taking over from oil demand by the end of this decade, all run off solar and wind power becomes reality, but the numbers certainly do not stack up for that future.

I agree costs will increase, my guess is that in some cases substitutes will be found and also there will be increased recycling and a change of the design of goods so they can be more easily recycled. In addtion I expect there will be a demographic transition in nations that have not already experienced this (about half of the World population lives in nations where this has already occurred), in addition growth in the use of material goods (as opposed to services) may slow over time as costs rise. Another change as these costs rise will be a change in design of many goods so that they last much longer, goods that utilize technology will be designed so that they can be easily upgraded to extend their useable life.

Fossil fuels have an inherent physical limit in how efficiently they can be utilized as they are replaced by alternatives the energy efficiency of the system increases, for space and water heating heat pumps increase efficiency over boiler or furnace based systems. There is a lot of room for improving building efficiency in the World through better insulation and building tightness and also through passive solar building design. Of course there are physical limits to how far all of these steps can be taken, currently we are very far from those limits.

Sometimes increases in price are simply a matter of demand increasing faster than supply (currently this is the case for lithium). The lithium resource is very large, the supply of mines has just not caught up with future demand, solar panel increases is in part tariffs and in part China’s zero covid policy shutting down industry in China.

In general the pandemic has messed up supply chains throughout the World and this is likely to be sorted.

In my view these changes will be gradual and the system will gradually adjust, the pandemic was an economic shock and the world will gradually adjust to that or that’s how I see it. There will be future shocks as well (war, pandemic, famine, and other events) and I think it likely the World economic system will adjust to those as well.

Doe you have a guess for World C plus C URR? Cumulative production to date is about 1450 Gb (1870 to present). Laherrere et al recently estimated World C plus C URR at 3500 Gb, my estimate is about 3000 Gb, what’s yours?

Of course there are physical limits to how far all of these steps can be taken, currently we are very far from those limits.

What are you basing that statement on ?

https://www.energy.gov/downloads/chapter-5-increasing-efficiency-buildings-systems-and-technologies

There are some who believe that utilizing more hybrids like the Toyota Prius is a better option for reducing CO2 emissions, for the current average grid output that is likely true, though I have not dug into the numbers enough to verify.

Certainly my 2004 prius which averaged about 50 MPG over its 160k life before trade in had better energy efficiency than a Honda Civic which averages about 35 MPG.

The short answer is my guess is subjective, based on older housing stock and the poor efficiency of the average World vehicle fleet, better efficiency can also be accomplished with walkable bikeable urban and suburban environments, and more train travel vs air and light vehicle travel, more recycling and cradle to grave manufacturing would also reduce energy use. There are many opportunities for reductions in energy use and many may be realized as the price of energy increases.

Dennis, for someone that is so quick with numbers, it’s an interesting co-incidence that you hand wave away so many important aspects of renewables without looking at the numbers… For example “The lithium resource is very large,”

The lithium resource is large, but the reserve is not and it is the economically viable parts of the resource that should be counted. Apart from seawater which has the largest component of the lithium resource, the next largest resource is in Salar De Uyuni in Bolivia with around 21m tonnes of lithium according to the USGS, about 25% of known resources, yet hardly any from there is mined because it takes around 20 tonnes of soda ash to remove the high magnesium content of the brine for each tonne of lithium carbonate produced. Other smaller brine deposits with much lower lithium/magnesium ratios are where lithium brine operations happen.

Solar panel prices have not gone up here because of tariffs here, there are none, they have gone up because the energy input costs have risen massively. It takes a huge amount of energy to make solar panels, the siemens process alone to make the silicon ingots requires a temperature of 1100*c for 200-300 hours for just one of the many processes in the production. This heat comes from coal and/or gas, which have had huge price increases in prices.

It seems to me all your positive thoughts about EVs and renewables are from not looking at the details of these things, instead just assuming they are easy and cheap, when the reality is vastly different.

This part ” Another change as these costs rise will be a change in design of many goods so that they last much longer, goods that utilize technology will be designed so that they can be easily upgraded to extend their useable life.”….. …is exactly the opposite direction of how goods are actually made, as in what is happening in the real world. Quality goods that are repairable are few and far between, in fact becoming less common.

My guess for C+C URR is lower in 5-10 years than it is now, because all the factors that allowed it to grow are reversing, so now it will shrink. The decline rate will start slow but then accelerate to the downside. Within a decade after the peak we will be getting production declines of 6-7% per annum and increasing every year. I hope I’m wrong, but there is no evidence of that…

Hideaway- I agree with much of what you write. There is an area where your concern is not supported by published analysis in the past 5 years. That has to do with energy return on energy invested for photovoltaics. Two sources in including the NREL of the US Governement and The Fraunhofer Institute in Germany have shown- “Energy payback estimates for rooftop PV systems are 4, 3, 2, and 1 years: 4 years for systems using current multicrystalline-silicon PV modules, 3 years for current thin-film modules, 2 years for anticipated multicrystalline modules, and 1 year for anticipated thin-film modules (see Figure 1). With energy paybacks of 1 to 4 years and assumed life expectancies of 30 years, 87% to 97% of the energy that PV systems generate ..” ““The Energy Payback Time of PV systems is dependent on the geographical location: PV systems in Northern Europe need around 2.5 years to balance the input energy, while PV systems in the South equal their energy input after 1.5 years and less, depending on the technology installed.” Its report also noted there was a PV system in Sicily with a payback time of about one year.”

I do not know everything, not even close.

A quick look at lithium reserves at the end of 2021 from USGS has World reserves at about 22 million tonnes with the resource at about 89 million tonnes. As the price increases more of the resource becomes profitable to produce and is converted to reserves. As the industry develops costs may decrease and more of the resource many be profitable to produce, in addition more resources may be identified over time.

Data for chart below from

https://www.usgs.gov/centers/national-minerals-information-center/lithium-statistics-and-information

I realize that currently goods are designed to be thrown away, this may change as resources become scarce, thinks were not always done this way, there was a time when quality goods were manufactured so that they would last a lifetime.

https://www.reuters.com/world/us/exclusive-biden-use-executive-action-spark-stalled-solar-projects-amid-tariff-2022-06-06/

Also much of the World’s solar panels are produced in China (tariffs only applied to the US) and production was likely affected by China’s zero covid policy shutting down industry in many places in China.

Hickory all the numbers pertaining to the EROEI of renewables vary greatly from different sources but the one thing they have in common is the use of current technologies. The cost of making them varies according to the energy cost of oil, coal, and gas, because that’s what we use to make them.

There are no processes to make renewables from electricity provided by renewables and if we converted electricity to synthetic fuels, to use existing mines, equipment and factories the primary energy input would be vastly higher.

I use the example of the Haru Oni plant, currently under construction as an example of the efficiency of a synthetic fuel. It is the most modern, largest example of creating synthetic fuel from a renewable source. The efficiency of just the process is ~6%.

The input energy is from a 3.4Mw wind turbine that has a capacity factor of 70% in the location of Southern Chile (according to Siemen’s Energy). The output of this $55m plant covering 3.5ha is just 130,000 litres of synthetic fuel per year. The reason for the horrible efficiency, is the number of separate processes that have to happen to create synthetic fuel. BTW the efficiency of this plant is ~6% only if we ignore the embedded energy used to build the plant, the energy consumed by the workers at the plant, all repairs and maintenance on the plant, and the transport of the fuel to where it is used. The life of this plant will be around 25 years, in which time it will have made a total of 3,250,000 litres of synthetic fuel, which is 20,440 barrels. Just the capital cost alone means a cost of $2,690/bbl over the life of the plant

Once you punch in the amount of primary energy needed to make solar panels from synthetic fuels, it becomes obvious that solar has a negative EROEI.

All renewables are only possible because of our fossil fuel energy inputs, there is no evidence nor any existing examples that renewables can replace themselves and provide a large amount of energy for the rest of society.

I’m all for building as much solar as possible, more so than wind turbines, as solar has no moving parts, so theoretically should last much longer. We have several solar systems ourselves and my first solar installation (very small) was in the mid 80’s. The output from solar is also way less than all the theoretical numbers I read. One system I’ve had for over 11 years now, has generated around 2.76Kwh/d/Kw of installation. The theoretical number for our area is ~4Kwh/d/Kw. Dust, leaves, bird droppings and insects are some the main reasons why actual output doesn’t match theoretical numbers.

All renewables are just an extension of the existing fossil fuel civilization. All the energy created by them has been in addition to growing fossil fuel use over the last few decades. They buy us a bit of extra time by replacing a very small part of the increase in FF use. The cost of renewables are going up right now mainly because of the increase energy cost of their mined inputs, manufacture and deployment, all done with oil, coal and gas.

Hideaway. Yes we use fossil fuel for many points in all industrial endeavors. Making energy producing equipment is one very good use fossil fuel… more important than for most other uses and certainly more important than for light transportation, for example. I have not called for getting rid of all fossil fuels, rather for using the [soon to be] depleting resource wisely.

As output from wind, solar, hydro and nuclear power increase as smaller and smaller proportion of total energy will be provided by fossil fuel, just because the current system uses mostly fossil fuel for energy does not mean this will always be the case.

As a simple example if we take 2021 values for total primary energy and non-fossil primary energy and assume primary energy use grows at 1.3%/ year and non-fossil fuel energy grows at 10%/year then 100% of primary energy is provided by non-fossil fuel in 2042. Of course we do not know future growth rates, but if we assume fossil fuel depletion leads to high fossil fuel prices, this scenario may be reasonable, probably 2050 to 2055 is a better estimate.

Dennis, you’re really good with numbers when you choose to work them, but this little exercise of yours is completely wrong..

“As a simple example if we take 2021 values for total primary energy and non-fossil primary energy and assume primary energy use grows at 1.3%/ year and non-fossil fuel energy grows at 10%/year then 100% of primary energy is provided by non-fossil fuel in 2042.”

The world used about 170,000Twhs of primary energy in 2021. Wind and solar combined were about 2,894Twh in 2021.. So doing the math 2,894 X 1.1 to 2050 = 45,907Twh in 2050 Meanwhile total primary energy use growing at 1.3% … 170,000 X 1.013 = 247,242Twh

In other words non solar and wind primary energy use has grown to 201,335Twh over the same period.

In your example above with your growth rates, solar and wind go from 1.7% of primary energy use in 2021 to 18.5% of primary energy use in 2050, a long, long way short of your 100% mentioned..

My point is that people fail to work out the real numbers for a renewable future, because if they did, it would show a renewables only future is not possible. You have kind of proven my point of people not doing the math necessary with your example above..

Try it this way, divide primary energy into fossil fuel (coal, natural gas and oil) and non-fossil fuel energy (which includes hydro, wind, solar, other renewables, and nuclear power). I created a simple example of non-fossil fuel energy growing at 10% per year to keep it simple. Most of the growth in non-fossil fuel primary energy has been from wind and solar and they have been growing at more than 10% per year(wind at 13%/year and solar at 24.3%/year), if we assume the growth rate of the past 5 years for wind and solar continues at the rate of the past 5 years for the next 11 years and other non-fossil fuel primary energy remains at the 2021 level and 8% growth rate in all non-fossil fuel energy would reach a similar level for all fossil fuel energy in 2032 (about 250 EJ for non-fossil fuel energy), then if we assume non-fossil fuel energy continues to grow at 8% (note that oil and natural gas grew ay 7% per year for decades and was demand limited) then all primary energy could be provided by non-fossil fuel energy by 2049.

Just run the numbers, the solar resource in particular is very large Also use the BP data in Exajoules which corrects for the huge amount of primary energy (roughly 60%) that is simply waste heat. Primary enery use in 2021 was about 595 EJ, fossil fuel energy was 490 EJ, and non-fossil fuel was 105 EJ, solar was 9.72 EJ and wind was 17.54 EJ (these are converted to thermal equivalent to account for the fact that there are no thermal losses as in the conversion from fossil fuel to electricity).

OPEC+ set to approve minuscule oil output rise in rebuff to Biden

NUR-SULTAN/LONDON, Aug 3 (Reuters) – OPEC+ is set to raise oil output by a tiny 100,000 barrels per day in what analysts described as an insult to U.S. President Joe Biden after his trip to Saudi Arabia last month to persuade OPEC’s leader to pump more to help the U.S. and global economy.

The increase, equivalent to 86 seconds of global oil demand, comes after weeks of speculation that Biden’s trip to the Middle East and Washington’s clearance of offensive missiles sales to Riyadh and the United Arab Emirates will bring in more oil.

An OPEC+ document showed the group was set to raise output by 100,000 bpd from September and two sources said it has been effectively rubber-stamped by a close-door meeting.

“That is so little as to be meaningless. From a physical standpoint it is a marginal blip. As a political gesture it is almost insulting,” said Raad Alkadiri, managing director for energy, climate, and sustainability at Eurasia Group.

OPEC and its allies led by Russia have been previously increasing production by about 430,000-650,000 bpd a month although they have struggled to meet full targets as most members have already exhausted their output potential.

The United States has put OPEC leaders Saudi Arabia and United Arab Emirates under pressure to pump more oil to help rein in prices boosted by rebounding demand and Moscow’s invasion of Ukraine.

Obviously, the reason for so little an increase is they know that is all they can possibly produce. However, they are unlikely to meet even that tiny increase.

Reuters missed the most important part of the OPEC announcement.

The Meeting noted the dynamic and rapidly evolving oil market fundamentals, necessitating continuous assessment of market conditions.

The Meeting noted that the severely limited availability of excess capacity necessitates utilizing it with great caution in response to severe supply disruptions.

The Meeting noted that chronic underinvestment in the oil sector has reduced excess capacities along the value chain (upstream/midstream/downstream).

The Meeting highlighted with particular concern that insufficient investment into the upstream sector will impact the availability of adequate supply in a timely manner to meet growing demand beyond 2023 from non-participating non-OPEC oil-producing countries, some OPEC Member Countries and participating non-OPEC oil-producing countries.

It noted that preliminary data for OECD commercial oil stocks level stood at 2,712 mb in June 2022, which was 163 mb lower than the same time last year, and 236 mb below the 2015-2019 average, and that emergency oil stocks have reached their lowest levels in more than 30 years.

Seneca Cliff: Growth is slow, but decline is rapid.

Ugo Bardi has done the best job modeling a mathematical formula which inscribed not the symmetrical bell-shaped Hubbert curve but a rapid decline. He called it the Seneca Effect.

My own perception has to do with economies and food and overall progress of civilization. At some point in the decline of fossil fuels, cheap products and fertilizer drop off very quickly. Prices rise. People hoard. Food becomes scarce. Bardi’s curve is not symmetrical. At some point things drop like a stone: similar to old Sisyphus actually getting his boulder to the top of the hill.

The world embraced the concept of global warming by grasping at the only politically correct alternatives: wind and solar, which will be woefully inadequate. The small modular nuclear reactors (Rosatom) were selling like hotcakes in the Balkan states—who knows after Ukraine.

Opinions are like butts: everyone has one. My personal opinion is that we are damn close to falling off the Seneca Cliff. And furthermore, that almost no one in power actually sees it coming. Like Bardi, I don’t think this has to be apocalyptic, but it probably will be. Because the “world community” is made up of about a thousand renditions of the Hatfields and McCoys.

So like the man said, there will be blood. In other words, we’re going to dip down to our reptilian brains and fight for energy and electricity. I’m not trying to spread fear or the idea of a Mad Max world, but rather to interrupt the endless chatter about a smooth transition. When people get cold enough, or hot enough, or don’t have enough to eat, or even when pharmaceuticals and hair-dryers are rationed, we are not talking about the Gentleman’s Club.

the “world community” is made up of about a thousand renditions of the Hatfields and McCoys.

Oh my God, that is so far from the truth. The world is made up of at least a million renditions of the Hatfields and McCoys. 🤣

Okay, I know I have already said it many times on this blog, but I will say it one more time. It is just in our nature. People, in general, do not hear of a coming catastrophe and act. They wait until the catastrophe has already happened, then react.

World C plus C output grew at about 7% annually from 1910 to 1973, let’s call that “slow growth” (I would call it rapid growth compared to the last 40 years where the annual growth rate was about 1.2% on average).

So what does a Seneca cliff look like? 10% annual decline, 14%?

I have difficulty creating a realistic model with more than a 5% decline, if we assume a new peak in 2028 or so at 85 Mb/d. To be honest even 5% decline at the World level seems unlikely except if everything goes to hell.

That seems to be your basic premise. Note that I agree it is unlikely there will be a smooth transition, it is even more unlikely that we devolve to a Mad Max world. There will be a bumpy transition as the World comes to grips with depleting fossil fuel. Note the shift from 7% annual increase in oil output to 1.2% increase, there was a period of adjustment, but life went on even though oil output growth was nearly 6 times lower. Can another adjustment be made? There really is not a choice, adjustments will be made.

Dennis – See my reply above, Asia-Pacific and Europe import 40 MBOPD…what if that ends? Is that a Seneca Cliff?

Yes it would be a Seneca cliff, do you envision a reasonable scenario where global trade of oil stops abruptly? I can think of two plausible scenarios, a nuclear holocaust or a major asteriod collision with the Earth, the odds of either are rather low, but they remain possibilities. Note that the oil exporting nations need to export oil just as much as oil importing nations need to import oil, this will not change any time in the near future.

So I am looking for likely scenarios. Note that I expect a transition, but a BT (B for bumpy) rather than an ST.

Noted – revised/added SET and BET into the mix: Smooth Energy Transition Bumpy Energy Transition

Does pricing out nations (like Sri Lanka) matter?

Maybe prices are too high for the economics to make sense…I believe your BET assumes very high prices, right?

Cheap energy is a thing of the past, so how do we keep these energy flows going? Producers want $150 / barrel, consumers can only afford $50…who is magically covering this 3x delta? What if your monthly income is $500 but your rent is $1500, what happens? Maybe you apply for assistance (someone else pays), most people become homeless… This is all happening right this second on a global scale, not 5-10 years from now…

Chesapeake spun the oil price wheel of fortune and hit bankrupt… Saudi’s and rest of middle east have no spare capacity… Organic structures have 2 modes, grow/die…we can’t put the economy into hibernation, can we?

Every oil price shock in history has resulted in massive economic contraction…the difference is this shock only has one option, demand destruction…we don’t have additional supplies to bring in and will never have them again…after 2019 it’s a whole new ballgame…

The World economy dealt with high oil prices from 2010 to 2014 with pretty good growth and no economic downturn. My expectation is that oil prices remain high until 2040 or so, though they will be volatile moving between $85 and $150 per barrel in 2021 $, after 2040 my expectation is that transition to electric transport might bring oil prices down.

No doubt there will be demand destruction in order to bring supply and demand in balance.

I wouldn’t assume that the way the economic system operated more than 10 years ago has any bearing on the next several years. How many countries reached peak production and are now in terminal decline since 2010? A lot more oil has been drained from proven reserves in past 10 years than any other time in history.

It seems the writing has been on the walls for a long time WRT Saudi Arabia:

Why Saudi Arabia is losing its power to calm the oil markets [April 4, 2012] https://www.washingtonpost.com/blogs/ezra-klein/post/why-saudi-arabia-is-losing-its-power-to-calm-the-oil-markets/2012/04/04/gIQABRklvS_blog.html

“Worries about Saudi excess capacity are one reason why Iran-related tensions have driven crude prices up so high. By one estimate, this spare capacity could vanish entirely by 2020. If that happens, oil prices will get seriously volatile.”

Oil price was higher than average 2010-14, but supply WAS increasing— just not as fast as consumers desired. Energy share of GDP was 8% or so. Compare that to 1970-80s when supply was constrained, perhaps only 5% below demand. Energy share of gdp went over 13%. — http://www.eia.gov/todayinenergy/detail.php?id=49476#

Charles Hall proposed that 11% of GDP is the “tolerable” limit. — https://www.sciencedirect.com/science/article/pii/S2590332219302209

Laherrere has more realistic estimates on page 115-116 of the october 2018 paper for Saudi Arabia with a URR of 300 to 350 Gb, what is the URR of your scenario?

For comparison his 300 Gb URR scenario has Saudi output at 9 Mbpd in 2030, and at 6 Mb/d in 2050. The 350 Gb scenario looks more realistic to me with 9.5 Mb/d in 2030 and 7 Mbpd in 2050 (read from chart on top left of page 116 of the 2018 paper (October version).

Denis, without playing too much with numbers: have a look at the collapse of the Soviet Union. When an economic system ceases to be able to sustain a certain level of industrialization, a significant collapse will take place very fast, followed by a more stable plateau and, if things get worked out, there will be a slow but steady increase in oil consumption. So, how do I imagine an Seneca Cliff? Take away 1/3 of world production very fast (especially expensive production like fracking and deep sea). Then, after a quite confuse time, a slow recovery will set in, hopefully into the right direction (to avoid another cliff after a decade or two). IMO we‘re very close to such a plunge.

To put it in few words: imagine the pandemy cliff of 2020, but four to five times larger and with a much slower recovery.

Why does one third of World production go away very fast?

For a plausible scenario you need a plausible story. Why would tight oil and deep sea output stop suddenly? Is it due to a Worldwide depression, WW3, asteroid strike? I doubt any of these are likely in the next 15 years or so, but I admit I am not much of an astronomer so I could miss the coming asteroid, I don’t know how Putin might react if we back him into a corner and whether NATO will handle this properly, and I am indeed scared of a nuclear war. Future severe economic downturns are impossible to predict accurately, except if we say one is around the corner at all times, then we eventually will be correct.

I just don’t see something like the pandemic lasting 4 or 5 times longer, except perhaps a Depression, even the GFC resulted in only a brief slowdown in oil demand, the odds of a Great Depression would require all economists to forget the lessons that Keynes taught us (utilizing that knowledge helped make the GFC as mild as it was).

Maybe I will be surprised, I hope not.

Note that the Soviet Union’s collapse was a political revolution which led to an adjustment from a planned to a market economy and lots of turmoil as society adjusted. Note at the World level there was barely a blip in economic output when the Soviet Union collapsed and that was a big deal which I doubt is repeated.

“Why does one third of World production go away very fast?” The most likely mechanism for that to occur would be due to human mismanagement of the political/economic world. As we have seen with the financial crash of 2009 or the Russian invasion of Ukraine these kind of factors/events can be huge. They can be contagious, and they are unpredictable. I leave it to everyone to decide how likely something like this will be.

A gradual decline is much more probable. Problem is that some countries will experience severe oil shortfall much earlier than others. And those countries will experience turmoil akin to what we have see in failed states elsewhere in the past decades. Spillover turmoil and trade interruption (such as grain, oil, machinery or semiconductors) is not unlikley, IMO.

I think the chances of several catastrophies piling up on each other is not high. Humans sometimes learn from past mistakes and may not repeat them, if you look at the Seneca scenario below not the small change in World output in most cases with the exception of the Iran/Iraq War which lead to a large decrease in World output from 1980 to 1982 and the recent pandemic. The GFC and fall of the Soviet Union barely show up on World output and several other periods (dot com bubble crash for example) have dips in output at least as large. It is not impossible we might see future crises as large as 1980-1982 or the 2020 pandemic, but the Seneca scenario I show with output falling as much as it did in 2020 (about 7.5%/year) for 5 years in succession seems far fetched to me.

A Great Depression 2 could do it, as could WW3 (nuclear conflict), or a major impact by an asteroid (these last two could be far worse with output falling to zero in a years time).

Not many would survive either of the last two scenarios and oil output would be the least of the problems faced by survivors.

If you had told me a year ago, that Europe would be talking about rolling blackouts and shutting down industries to deal with a loss of energy, while my domestic bills would triple in that time for energy alone, I’d have laughed you out the room.

Yet, it is happening. Right. Now.

A single miscalculation in the South China Sea can end this sorry state of affairs in an even worse way. We just had a pandemic after a decade of miserable growth (QT to inflate equities and print more debt since 2008 is not a financial success story in the least) and now have war in Europe. We now decided that wasn’t enough, so spat in China’s eye for good measure.

On top of that, climate change kicking it up a notch hasn’t helped with agriculture or the US south west’s hydro power.

“I think the chances of several catastrophies piling up on each other is not high.”

I’d rank the chances of compounding events as higher than you, Dennis. Probably much higher. Wouldn’t be at all surprised to see some stair-stepping down (underperforming the geologic and economic potential curve) on that global production chart over the next 2-3 decades.

Kleiber- thanks for sharing that update on your energy costs. Its useful for other people to here that. In the US most people have been heavily sheltered from energy price escalations that people in most other countries are experiencing, and that sheltering makes them slow to understand how much the scenario is changing.

For your viewing pleasure: https://www.moneysavingexpert.com/utilities/-are-there-any-cheap–fixed-energy-deals-currently-worth-it–/

I’ll be surprised if there aren’t riots in the New Year at this rate. The UK outlook is grim, and the likes of most of the EU is not much better.

Kleiber- is it common for homes in UK to have coal or wood burning furnace?

No, the UK primarily utilises natural gas for central heating or fireplaces to heat homes since boilers became more widespread for such systems in the ‘80s. When I was growing up, my parents had only two gas fireplaces and a couple of electric space heaters. I used to wake up to frost on the inside of the (at the time) single glazing.

Denis, 1/3 is just a very, very rough estimate, as I see it in line with the dispensable part of the economy (which will go away first in a depression).

But my main point is this: I don‘t think there will be a linear decline.

Scarcity will create stress which will cause extreme reactions. The main dangers are not a meteorite impact, not even a nuclear war: they are called hyperinflation, unemployment and mass migration. I foresee a volatile scenario with stocks plunging, currencies devaluation (especially the US Dollar and the Euro), mass unemployment, civil unrest and some minor but serious wars (for example in Ukraine and Taiwan). Supply chains will break, populism will rise, protectionism will take over. Expensive oil production like fracking and deep sea might disappear nearly over night. The decline will be zigzaging towards lower levels, going over minor cliffs every time systemic inestability takes over. Somewhere society, freed from the inmediate menace of an impending peak, might stabilize. From there on we could get another chance to construct a working planet.

Our actual economic model pushes the world too close to the maximum exploitation of available energy sources. While renewables are sold as the silver bullet, they are rather of complementary character (which could change over time – but we would need a lot MORE TIME for that goal to be reached). So, in the end, a limited collapse that takes out the expensable part of the economy, even with its high risks of civil unrest, populism and war, could lead to a solution – if humankind acts wisely enough.

Well said. I see the risks similarly.

Thanks West texas fan club and Hickory,

That scenario sounds more plausible. The difference is a matter of viewpoint, there have been lots of disruptions in the past (WWI, Great Depression, WW2, various wars in the Middle East in Iran and Iraq, and Syria, also the Korean War, Vietnam War, War in Afghanistan, Ukraine War, collapse of Soviet Union and the Warsaw pact, the GFC, Arab Spring) all have been weathered (and I provided a very incomplete list).

Perhaps peak fossil fuels will be the event that leads to the cascading systems failure that you foresee, this is not known.

One thing I will note is that it seems from my vantage point that you are mostly arguing a Seneca cliff due to a lack of fossil fuel demand 9in other words we would expect collapsing fossil fuel prices. That is not what we are experiencing currently, but rather the reverse. This could change abruptly as it did in 2020. I guess it might take the form of widespread social unrest and riots worldwide as people got fed up with high energy prices. It might also lead to policy changes to attempt to address the problem of energy scarcity and perhaps more research on how best to deal with peak fossil fuel, which is denied by many.

Would either of you guys like to give your subjective estimate of the probability of collapse that you envision? When I say not likely I mean 33% probability or less, I would define likely as 66% or greater probability.

“Would either of you guys like to give your subjective estimate of the probability of collapse that you envision?” No…I don’t have anywhere enough facts or solid indicators to make any probability guess worth a darn. And just how fast does a decline have to be before its called a cliff or a collapse- I don’t know? I will say that many countries have a high probability of major down-scaling of economy to the point where chaos and population decline will then follow. Just how many countries and how contagious that is to others will wait to be seen. Disorderly conduct of populations who have unmet basic needs may end up being the biggest risk of all. Risk to their civil order, and risk to the international trade that their country engages in.

I agree the decline curve will not be smoothe, I draw it that way because the timing of any shocks cannot be predicted, think of it as a trendline through a jagged set of data, it simply indicates one possible path out of an infinite set of possibilities.

Consider oil output during the great depression, it fell from 3723 kb/d to 3281 kb/d from 1929 to 1932, an annual rate of decline of about 4%. After that it rose for the rest of the Great Depression.

The decline curve for oil is unlikely to be steep. The supply is too diversified. Also if a steep decline did occur for a few years, there are many high use areas of the global economy that could be quickly eliminated at little real cost if need be, such as 90% of airline travel. So many high energy use luxuries we all enjoy say at the grocery store such as imported fruits/vegetables from South America – their absence will not meaningfully impact our well being.

Punctuated equilibrium is a concept known to biologists. When times are good and stable, evolution essentially stops. When a resource dries up and times get increasingly difficult, rapid periods of evolution occur. This is what will happen with our ridiculously inefficient transportation systems once the decline in oil availability really sets in.

Stephen, I agree, however lets take note that for perhaps 5 billions of people they do not now and never did live with luxury energy use. But they did live with non-discretionary energy derived products such as fertilizer for staples, pumped water, metal and manufactured tools, and transport of basic goods. All hell could break loose when (bigger) holes are torn in this basic fabric.

https://oilprice.com/Energy/Energy-General/Shale-Companies-Prepare-For-Their-Best-Quarter-Ever.html

Combined free cash flow at the top 28 independent U.S. oil producers is set to exceed $25 billion for the second quarter, estimates compiled by Bloomberg showed at the start of the shale earnings season. Free cash flow is set to be over $100 billion for the full-year 2022, more than double the FCF the shale patch generated last year. This year’s projected FCF will also be nine times higher than the combined annual cash flows between 2018 and 2020, per Bloomberg Intelligence data.

https://oilprice.com/Energy/Natural-Gas/Shale-Giant-Chesapeake-To-Exit-Oil-As-It-Focuses-On-Natural-Gas.html

>Chesapeake will fully focus on key shale gas plays. >Chesapeake will look to reduce its Eagle Ford positions. >The company will increase exposure in the Haynesville shale formation.

Chesapeake has been primarily a shale gas producer for many years, probably smart to focus on what they do best.

Amazing Free Cash does not create any more drilling locations unfortunately. Many of these Shale companies only have two solutions 1. sell out as quickly as possible to a larger company or 2. Pay down debt asap. Every CEO I know in the business has said to me privately that I was smart to get out because the drilling locations are diminishing very quickly. Those who stay are going to be left with significant plugging liabilities and stripper wells will be defined as as 50 bopd unless the price is over $150 per barrel. Just Sayin

I imagine the number of profitable drilling locations increases as the differential between price and CAPEX plus OPEX costs rises. Of course higher profits does not change the amount of resource that exists, but for those that claim that the debt incurred by tight oil companies will never be paid back, it certaily could be if the cash flow continues in the future, particularly if these companies pay down their debt rather than return the cash to shareholders, but the investors want the cash so debt will gradually be paid back over time. I would think at current prices for oil, natural gas, and NGL, the average Permian well would pay out very quickly even with today’s higher costs.

The news talking heads haven’t caught up yet. The WTI price dropped below $90 this morning and it’s going to fall quite a bit more IMO.

So, aren’t all these record profits going to be a one quarter phenomenon in the shale patch? Or is natural gas going to save the day? It still has a strong price in relation to the 2015-2020 time frame.

What makes you think WTI will continue to fall? Maybe end of driving season in Sept?

I just took a look at the futures curve which has WTI at $67/bo in Dec 2032, I have revised my expectation of the speed of any transition to EVs and doubt demand falls below supply due to EVs becoming commonplace prior to 2035 and more likely around 2040.

For this reason I am highly skeptical of the futures curve, I think $150/bo is a much more likely price than $70/bo for the annual average price of oil in 2032. In fact a rough guess might be $100/bo average in 2022 with the average annual price increasing by $5/bo over the next 20 years reaching $200/bo by 2042 (nominal oil price).

They will fall until at least November. It’s an all of the above to lower gasoline prices for the mid term elections.

Americans are hyper focused on gasoline prices, as we have discussed.

There has even been the idea that gasoline demand for July, 2022 is below that of July, 2020. The main man at gas buddy disputes this. I think it’s fishy also.

I know anecdotal isn’t worthwhile, but I sure haven’t seen less traffic this summer than in the pandemic summer.

Interesting perspective. I don’t think the government has much control over the oil market, and I doubt output increases enough to bring down prices, but as you know I am consistently wrong on future oil prices.

If not for our all out pumping of the domestic strategic petroleum reserve prices would be at $150 per barrel. We have been pulling out 4-7 million barrels of oil per week for months. What happens when it’s depleted? This is all for political reasons to drive down inflation. Sheer stupidity and and very short sighted.

Historical US oil stocks from EIA, we are below the levels of 2010-2014 when oil prices were pretty high, do you see this changing soon?

You are right today. I’m along for the ride.

Dennis Coyne: “Would either of you guys like to give your subjective estimate of the probability of collapse that you envision?”

I would put it at a 100%. But I’m not so sure about the degree of that collapse. It could span from a severe recession to a plunge right into the stone ages (which translates from a 10% dip to a 100% collapse). I’m not an economist, so I’m walking on thin ice here, but nonetheless I dare to emphasize the meaning of money. Until now, debt could be sustained because societies were producing enough wealth in the future to pay back their debt and interest. When this debt scheme collapses, the whole system based on it stops working. Historically, in most cases that meant war. Maybe the world will act smarter this time, but the fighting ind Ukraine and the tensions in Taiwan are telling another story. So, things probably will go much further south before people find a way out. On the other hand, I have enough trust in mankind to think we won’t auto destruct. So my best guess is somewhere between a 20% and a 50% bump, with the middle case (roughly 1/3) being the most probable outcome. While this means hardship, it doesn’t mean full collapse. Mankind could come out of this wiser and happier.

What are the most important elements to achieve a positive outcome?

First: forgive debt. Worldwide. Second: Create a planetary multipolar system of understanding and cooperation with a currency basket that represents each pole. This means a process of regionalization which not necessarily must end global interaction. Third: Peg the value of money to a basket of different values: resources, energy, human work (this latter point is still work in progress for me. But I understand that a single dominant currency pegged to gold or oil won’t work in a future world).

A comparison of the latest US weekly oil production data and monthly data. For the July monthly data to catch up to the weekly data, the Monthly data has to increase by 500 kb/d.

Excellent chart. Will be quite interesting to see how these two trend lines play out over the next 7 months.

A half-million barrel a day catch-up… this will be FUN.

Don’t worry, only need new capacity to grow by 6 barrels per second…I’m sure that will happen, right?

Strange that the weekly data is looking smoother than the monthly dots. Should be the other way around, shouldn‘t it?

Most producers USA lower 48 are being paid below $90 per barrel today.

That sure didn’t last, did it?

New data for US car sales. I have added some ornaments to emphasize the two phases of car sale increases: 2013 with 14 %BOE, and 2021 with 6 %BOE. 8 years difference, 8 points loss of %BOE. The remaining 6 points will vanish until 2027. It is not possible to fly faster than the speed of light, and it is not possible that oil production breaches the second law.

Ever heard of a Seneca cliff?

Typically, I am pretty good at figuring out what Charts are showing. However, this one completely BAFFLES me to no end. While I get the meaning you are trying to share, I am having difficulty figuring out what all those SQUIGGLY LINES represent for each year.

Can you explain in a bit more detail?

Hi Steve, the attached simplified graphics could help to understand. The x-axis of the diagram is the Brent price converted to energy. This conversion is done using the energy intensity diagram. (I assume you know how to do that ?) The y-axis is the number of cars sold. Because the number of cars changes wildly from month to month, i do not use the current number, but the average of the last 12 months. For example, the value for january 2020 is the average for february 2019 to january 2020, the value for february 2020 is the average for march 2019 to february 2020. In the simplified graphic only the years 2013, 2014 and 2015 are displayed. The line for each year consists of twelve points, one for each month. The oil price is falling during these three years, and the car sales numbers increase. A strong increase in US car sales, lasting from 2013 to the first half of 2014 is recognizable. The blue arrow highlights this strong increase. In 2013, the oil price of 14 %BOE has been no problem for US consumers to buy masses of new cars. In 2014 and 2015 the oil price was falling, but they still bought masses of new cars.

With this kind of diagrams i combine oil price, car sales numbers and time in one graphic.

“The x-axis of the diagram is the Brent price converted to energy.”

So what is the Brent price equivalent of a terra watt of sunlight? Or a terra watt of tide energy? It isn’t apparent from the chart what the price difference is between the collecting of the two energy forms for an equivalent amount.

You have made a typo. The correct writing is tera, not terra.

Berndt – Would your chart maybe work better with sales on primary Y axis, years (time) on X axis, and BOE on secondary Y axis? Could play with scales to help show the correlation?

i have done a lot of different displays. I have the diagram with sales on primary Y axis and years (time) on X axis. But the complicated diagram i have posted two days ago gives more information. Please, look at it. An example: In 2013 and 2014 the car sales numbers increase. In contrast, from the second half of 2021 to 2022 the sales numbers decrease. The oil price in %BOE in 2013 and 2014 is larger than in 2021 and 2022, nonetheless, the sales behave quite differently. In 2013 and 2014 the oil price has been okay for the car purchaser, in 2021 and 2022 it is much to high. Something must have changed in this period. It is clear, that the oil price alone is not responsible for car sales numbers, but the thing which has changed. I use the 2nd law to explain, that the exergy required to produce oil has changed. This allows me to predict, that the change will continue, and that the car industry gets heavily damaged.

Berndt is attempting to express a simple relationship hypothesis- that total automobile sales are determined by oil price.

The charts are a tangled mess because that is a weak relationship.

The bigger influences on auto sales have to do with rate of economic growth, interest rates, sales incentives. Sure- if high oil prices eat into peoples wallet they will delay spending on all sorts of items.

The big point on which most of us agree is that very high energy prices can depress economic growth, and even cause economic contraction. I think we all know that.

Hickory, you misunderstand me: Total automobile sales are determined by net exergy. Oil prices had a connection to net exergy, which today is lost. At the moment i am half an observer, and half a predictor. The sales numbers versus oil price in the complicated diagram are the observer results, and the blue and red arrows are the predictor results. Make your own predictions. My prediction is: “very hard times for the car industry for the next five years, probably with death”.

Net energy /exergy from all sources [not just oil] is certainly critical to the economic life and health of the global economy. We all agree on that. But it is certainly not the only factor affecting prosperity [and thus car sales].

If oil price was the most important of the top ten factors affecting vehicles sales than you could make a nice simple chart demonstrating the relationship.

Hickory, before i present the chart, i expect your prediction concerning the car industry, based on rate of economic growth, interest rates, sales incentives and whatever you want.

To Mr. Coyne’s questions and comments above: You may be missing the gist of the Seneca Cliff that I envision. There will still be oil. Just not enough to go around and certainly not enough for the myriad of pharmaceuticals, tools, toys and accoutrements of daily life as we’ve come to view it.

So what? Most people don’t live in a mansion, drive a Bentley, jet around the world.

There’s a very big difference between never experiencing a luxurious lifestyle and having one taken away from you. Using cheap oil we have given a massive consumer group a taste of the good life. When there is not enough oil to go around, why, I would imagine there’s going to be quite a stir.

Maybe not. Perhaps it comes like old age, with a small (call it 5%) reduction in the fun zone each year. But I suppose it will really piss people off. And I believe that a few of them may throw a brick or two. I don’t know, but it’s going to be interesting to see.

So increased oil prices lead to social unrest and/or revolution, wars etc. I think the scarce oil will be employed in its most important uses, people will buy more efficient vehicles (new or used) and perhaps purchase a BEV or plugin hybrid which will have lower total cost of ownership. The World has seen big increases in the price of energy in the past and maybe I missed the World revolution the last time around. I see future bumps in the road, but a major social upheaval worldwide (I assume you envision something like an Arab spring, but worldwide) seems quite unlikely. I think there will be pockets of unrest, but not enough to cause a Seneca cliff. Can you define the annual decline rate you envision for a Seneca cliff? Everyone talks about it, but nobody wants to answer this question, perhaps a 20% annual decline rate?

Ovi – July forecast seems totally detached from reality…is there some fundamental reason we should expect production to increase dramatically? Jan. 2024 suggests production at 13 M., yet we can’t seem to maintain 11.5 for past 6 months? Longer-term trend suggests that 12.5 M. might be feasible by Jan. 2024… If the pessimists are right then we are much more likely to be heading towards 11 M. or even below 11 M. relatively soon.

Some fun math for the SET and BET club (EVs will save us). Assuming today there are 600k EVs operating in US and 15k miles/year.

I guess the EV should be renamed to the Coal and Natural Gas vehicle (CNGv), No? or Maybe 66% CNGv…better yet call them ‘Nuclear CNGvs’… That’s around 25 million miles per day, saving plus or minus 1 million gallons of fuel per day. That works out to 50,000 barrels of oil per day. Meanwhile US consumes 400 times that amount…so far EVs have satisfied 0.25% of oil demand. Of that 400 times, only 80 can be addressed by light-medium duty EVs…so a best case scenario is that EVs could address 20% of demand, which would likely take 40-50 years, if not more. Drinking a lot of koolaid you might see it happening in 10 years… About 2/3rds of the electricity powering EVs is produced from coal + NG. Now coal + NG prices get to skyrocket in order to keep oil prices from skyrocketing…

For the 2012 to 2021 period plugin sales wordwide grew at at average annual rate of 42% per year. It is not clear how long that rate of growth can continue, it will mostly be limited by battery supply. If battery supply can be ramped up quickly enough, demand for plugin vehicles remains strong, and the 42% annual growth rate continues through 2028, then plugin sales reach 78.5 million by 2028. Note that I do npt believe such a scenario is realistic, the rate of growth in sales will likely slow down, when that occurs I do not know.

I do know I have been looking at this since 2018 and I have always expected that the future rate of growth would slow down, so far it has not. Maybe it will be 2022.

Doesn’t sound like that’s possible:

But maybe 50 million in 2030… at some point batteries need to find their way into big rigs, work vehicles, buses, etc…

Forecast: Li-Ion Battery Market Might Exceed 6 TWh/Year By 2030 (Apr 24, 2022) https://insideevs.com/news/581666/forecast-battery-market-6twh-2030/

“…by 2030, the global lithium-ion production capacity might exceed 6 TWh (or 6,000 GWh). This forecast is based on current plans announced by battery manufacturers.”

“The numbers include around 1 TWh of existing battery capacity as of the end of 2021. At 6 TWh of capacity the world could produce around 109 million EVs, although this is based on all the plants coming into production and operating at full capacity. In reality it’s likely that around 70% of the gigafactories in pipeline will come into production with an average global capacity utilisation of 70%, according to Simon Moores, chief executive of Benchmark.”

I agree 42% annual growth in plugin output is not likely, my more realistic scenario has growth rate slowing so that 79 million are produced by 2033 and in 2030 it is 53.8 million plugin vehicles produced, this matches pretty well with the 70% and 70% assumption which would lead to 53.4 million EVs (plugin hybrids would be more as the batteries are smaller, plugins are the total of BEVs plus plugin hybrids). I also think the pipeline for battery factories is likely to increase above current announced plans as demand for plugin vehicles may soar with high oil prices. Supply of lithium will also be an issue.

Attached is a chart to give you and me some insight on what is happening in the Permian and answer your question if there is some reason to explain the expected rise in production. The chart plots Permian production overlayed with Permian completions.

During mid 2019, 500 wells were being completed. A typical new well, Septemeber, produced 339 kb/d and legacy decline was 264 kb/d for a net gain of 75 kb/d. For August 2022, the new completed wells are adding 381 kb/d while the legacy decline is 303 kb/d for a net gain of 78 kb/d. Both similar gains but with fewer completions

I have placed a blue line that is parallel to the 2022 production and copied it and placed in by the 2019 production. The slopes are very similar. The DPR thinks that the current completions, which are close to 25 to 35 fewer than in 2019 are more productive relative to the earlier wells.

I can see some of their thinking, but I am not saying it is correct.

In last half of 2020, the rapid rise in completions only yielded flat output. During 2021, the rough average increase in completions was almost parallel to the increase in output. It is not clear why the flattening of completions in 2022 should result in such a dramatic increase in production.

Chart for 5 tight oil basins covered by DPR and all US tight oil output. Note that last month’s tight oil estimate had the monthly rate of increase for the past 5 months at about 90 kb/d for US tight oil. This will be revised in the future due to the drop in North Dakota output in April due to early spring blizzards, that estimate may be out by tomorrow. The EIA is still trying to recover from a July server crash that has messed up their schedule.

We have lots of coal. That will be north america’s fuel during the latter half of the century. Cold and hungry, or coal? Gernany is making that choice right now, under a green government. Climate change will be in the rear view mirror. Liquids from lignite will be the growth industry. Texas, Kansas, the Dakotas….all of them have vast amounts of strip minable lignite. Lignite works. Wind and solar, not so much.

“We have lots of coal. That will be north america’s fuel during the latter half of the century.”

latter half of the century?? how bout latter half of this decade.

Coal to liquids is very expensive and lignite fired power plants is far more expensive than wind, solar, and natural gas power plants. If natural gas prices remain high, natural gas will take more and more of a backup role for wind and solar as they ramp up as new natural gas power plants will not be a profitable investment, most existing coal palnts will be retired, few new plants will be built in the US and eventually backup power will be provided by synthetic natural gas produced using excess power produced by wind and solar during high wind and high solar periods. The transition will be gradual over the next 20 to 40 years.

I’ve wondered about the cost of coal-to-liquid. RAND did a study years ago and came up with CTL being competitive at $70/barrel.

Secunda CTL currently produces more than 150,000 bpd, but is also the world’s biggest emitter of GHG.

I’m cynical enough to believe that if it comes down to the air conditioner in the bedroom, many people would happily support a CTL industry and add the climate effects to the next generation’s burden.

But there was something said about different methods of CTL that would manage the CO2 in an ‘environmentally sound’ way.

When we see a significant increase in CTL output, I will believe it is viable. Seems the total world output might be as high as 350 kb/d. This is a drop in the bucket, but perhaps will change if coal prices fall and oil prices remain high.

total world output being ~350k is a function of countries with coal reserves having a better option.

They produce their oil or they can import it.

When those options get worse or go away

1) Hitler did – CTL 2) What South Africa did – CTL

Proven blueprints on what works.

And yes this is bad for climate change but I don’t think we can get to Net Zero emissions if we wanted to. The Chinese, Indians and Russians at a minimum are not going to stop burining fossil fuels, and they are nuclear armed so we can’t make them stop.

My only point is that it is an expensive option, perhaps at an oil price of $150/bo this option will be chosen, but there are cheaper options which may be chosen instead. A transition to EVs would be far cheaper. There will still be oil and it will be the cheaper option after 2050 when demand has fallen due to a transition to non-petroleum transport (whether EVs, rail, or biofuels, or human powered).

As an aside, CTL smells bad ( overtones of benzene) compared to the much less offensive smell of refinery gasoline.

Natural Gas smells bad to. My dad’s farts used to kill me.

When countries/people don’t have oil or gas or electricity from other sources, yes they will certainly resort to local coal. Distant coal will no longer be affordable or available. Too low grade and not enough energy available for long distance transport.

And wood. The last gasp of a world that is over 9 billion people [late 2030’s at this rate] that has insufficient energy will be to go after the forests, like was done before fossil fuels when the world had less than 1 billion people and there was no chain saw.

The TDE [Terminal Deforestation Event] will in fact be spread out over a decade.

According to Reuters, OPEC increased production by 310,000 barrels per day in July. However the production figure they gave was 28.98 million bp/d, is only 264,000 bp/d above June production.. I suppose June was revised downward. At any rate, OPEC August production is supposed to be their last hurrah. They are promising a 100,000 bp/d monthly increase beginning in September. Don’t count on it. At any rate, OPEC+ production will start to decline in September. Any slight increase in OPEC production will be more than offset by the decline in the non-OPEC part of OPEC+.

My prediction: It will be quite obvious by the end of the year that we are post-peak. OPEC will have hit its limits, Russia will be in gradual decline and the rest of the world will be in decline also. Only the USA, and possibly two or three other countries, will show a small increase but not nearly enough to offset the decline in the rest of the world.

You are predicting that 2022 output will be more than 2021, perhaps by the end of 2023 it will be obvious, if output has decreased from 2022 as you predict, we will see.

Dennis, 2021 average C+C production was 77,085,000 bp/d. Of course, 2022 will be much higher than that, possibly even 3 million bp/d higher. March 2022 C+C production was 80,552,000 bp/d. Average production for the first three months of 2022 was 80,309,000.

I am predicting that world oil production will start to drop in September 2022, or sooner. And by the end of the year, that will be very obvious.

The increase production in 21 and 22 was all covid recovery. We have recovered about all we will ever recover by now.

Reuters references their July numbers to their own June numbers. They do not reference the MOMR.

Here are the Bloomberg numbers. 270 kb/d more than last month.

OPEC’s Gulf Nations Boost Oil Production to Relieve Tight Market

Saudi Arabia bolstered output by 180,000 barrels day to 10.78 million barrels a day in July, the highest since April 2020, and a level rarely seen in the kingdom’s decades as an oil exporter.

The United Arab Emirates and Kuwait also added substantial volumes, the survey showed. Abu Dhabi raised output to 3.24 million barrels a day, or 113,000 a day more than permitted under the OPEC deal. Libya appeared to be on a tentative path to recovery following an agreement to reopen its ports.

https://www.bnnbloomberg.ca/opec-s-gulf-nations-boost-oil-production-to-relieve-tight-market-1.1800291

https://finance.yahoo.com/news/saudi-arabia-raises-oil-prices-091735547.html “Despite indications that slowing economies are starting to hit global demand for crude, state producer Saudi Aramco increased its Arab Light grade for next month’s shipments to Asian refineries to $9.80 a barrel above the Middle Eastern benchmark. That’s 50 cents more than in August.

Traders and refiners had expected a bigger jump of $1.50, according to a Bloomberg survey in late July. That was before data emerged this week showing that Americans are driving less than they did in the summer of 2020, when coronavirus travel curbs all but halted movement.

Yet many major oil producers are facing supply problems, leaving the market tight. Analysts at Goldman Sachs Group Inc. said this week that demand exceeds output by around 2 million barrels a day. Consumption in many Asian countries is continuing to recover from pandemic lockdowns.

“Look at demand outside the US — India is scorching,” Bob McNally, president of Rapidan Energy Advisers, said to Bloomberg Television on Thursday. “China, we think, is growing strongly.””

Just 21 countries accounted for 80% of the world’s total primary energy consumption in 2021 (“Statistical review of world energy”, BP, 2022).

China and the United States are true energy giants, together accounting for more than 42% of world consumption. India and Russia are both very large energy consumers, with more than 11% between them, and bring the combined share to more than 53%. Seventeen moderately large energy consumers account for a further 27% and take the total to 80%: Nine could be characterised as advanced and high-income economies and account for a 15% share (Japan, Canada, Germany, South Korea, France, United Kingdom, Italy, Australia and Spain). Eight are developing and mostly middle-income economies and account for 11% (Brazil, Iran, Saudi Arabia, Indonesia, Turkey, Mexico, Thailand and South Africa).

None of the remaining countries accounts for a significant share of global consumption sop they can mostly be ignored (though some are major suppliers of oil, gas or coal).

Russia likely to be down at least 2 MBOPD. Saudi Arabia struggling to maintain current production, but if they do it will be a 1 MBOPD increase from 2021. Iraq appears to be more or less flat, maybe up 2% in best case scenario… Canada expects to increase annually by 1% (negligible impact). Kuwait may be up 10%, adding 0.3 MBOPD for 2022. UAE seems to be same as Kuwait, adding 0.3 MBOPD for 2022. Iran is flat. Norway expects to be flat (see chart below). Kazakhstan is flat, maybe even down. US might be up 7% depending how the next 5 months go, but doesn’t matter much since there are no net exports…

All-in-all for top producers, we should see a decline or very limited growth due to Russia.

If all the others are down 2-3% then we should be seeing a net drop of 1-2 MBOPD by end of the year…

I’m sure I’m off somewhere/missing something but bottom line is we will not see significant oil production growth between 2021-2022…all pretty much due to Russia…

Yes US output matters, US increased output from 2005 to 2017 by about 4.6 Mb/d, this oil could all be handled by US refineries. So due to this there was 4.6 Mb/d ledd demand for imports on World market. Output is all that matters. Without US tight oil production, World C plus C output would be about 72 Mb/d rather than 80 Mb/d, if you do not think that nakes a difference you are mistaken.

It looks like Norway expects increased output up to 2024.

The rest of the World besides the top 10 producers would decrease output at around 2.4% per year or about 500 kb/d, based on 2010 to 2019 OLS trend.

Mr. Coyne: In regards to the question you asked and your concept of a relatively uneventful energy transition as fossil fuels become scarce, I would offer the following: 1. I have no earthly idea what kind of incremental decline the world will experience in oil stores. But we have two serious in-the-trenches oilmen on this site warning us that good drilling locations in the shale basins are becoming hard to find, the reservoir pressure in the Permian is falling, and it’s costing up to one-million dollars a well for frack water. Probably a third of Russian oil is going off the market and the Saudis are struggling to produce their pledge. The Middle East is a mess. The total underinvestment in global discovery over the last 8 years is very close to a trillion dollars. So let’s just assume for a minute that we’re going to eventually run short of oil. Probably before all 8.2 billion of us have a Tesla. 2. Borrowing from history, every time oil became scarce, there was a war. And that was back when oil was plentiful, somewhere. Rather than laboriously detail these wars on my iPhone (I don’t own a computer), I would refer you to the excellent treatise by Matthieu Asganneau, entitled, “Oil Power and War.” 3. Running short of oil with global knowledge that this is the end of an era (life span increasing from age 42 to something like 75, Industrial Revolution, air travel and space exploration, pharmaceuticals and pacemakers and defibrillators) will in all likelihood return the world to some form of class warfare. Perhaps it will be courteous. I doubt that. 4. I should say that I make my entire living from oil and gas. All of my holdings are in areas that are not talked about daily. Of all the folks in oil and gas, I trust only the ones who are not trying to sell me anything and have gotten their hands dirty. I get paid by the unit measure but I am personally worried enough that I’d like to make a little less money and be assured that we’ll have enough fossil fuels resources that we can maintain dignity and defense of our country. 5. I’ve made all the case I can as I—like all of you—have to guess at most of this. So I’m out, but I believe your site leads to some good dialogue. Whether it actually helps the situation remains to be seen but I’ve been educated by some of the posts.

Thanks for your perspective Gerry. Some people are easy to take seriously and you are one of them here, as I see it.

I also thank you for your educated post Gerry. I very much share your concerns and suppositions. Money, in modern economies, represents stored energy which is going to be used in the place the owner of the money decides: if you are going to build a house, a lot of energy goes into construction machines and cement. If you are going to buy a car, the energy goes into the steel and car industry. Add to this the salaries of the workers, who give their time and work and have their own energy needs, for example for their own cars and houses, and you get the picture. Now, most of these purchases are based on credit and, while present energy is used for the production, it is supposed that future enery will be available to repay the debt. This generally works fine if there‘s plenty of energy in the future. But if there‘s energy scarcity, much of the debt becomes just a pile of meaningless numbers and the creditor will claim posession of the existing values, that means the cars and the houses. But sometimes people disagree and defend their „property“ with a gun. Scaled to the size of nations, one can clearly see the cause of wars.

All this will play out very different in different places. Denis mentioned with some disbelief a global Arab spring. I think this situation is not far off. But it will only hit poor countries with high population growth that suffer food scarcity. So basically again the arab countries. BRICS+ will secure themselves with mutual arrangements and treaties. While the developed countries, the golden billion, will be crushed in the described debt trap. It is hard to imagine the Euro or the Dollar fall to a fraction of their present value, a monetary devaluation that the West only sees realistic in countries like Argentina, but nonetheless this is my short an medium term asumption.

You assume energy is the source of all value in your analysis. This may be a faulty assumption that many economist would not make, for me reducing the analysis to energy only misses a lot of the complexity of the real world.

Energy is important, as is water, air, soil, and many other materials.

Note that when I say global Arab spring, I mean all nations, not just poor nations. Could there be a debt crisis, of course, could there be social unrest,also yes. Is it likely that all of these problems occur simultaneously throught the world, no in my opinion. Does this mean I think everything will be rosy at all times with no crises ever, also very unlikely (probability = 0).

Denis, I‘m aware that many economists do not take into account the very special characteristics of enery. In a general analysis, energy is just one more factor of many, and no special attribution will be done.

But, while soil and water should be a stable resources (sadly, they aren‘t and will make the picture even more dire), energy is limited, at least in its still abundant fossile form. All the other resources can be produced (cement for example) or be mined and refined with the use of abundant and cheap energy.

Modern society is like a high tech car with a combustion engine. Some parts are dispensable, the lack of others will make the car break down. But beyond any of its pieces, the fuel is paramount. Without fuel, you can repair and redesign the car as much as you want, it could only serve for a short downhill trip. Such are the characteristics of energy.

I think the assumption that water, air, and soil are stable resources is not a good one. The point is not that these are more important than energy, but imagine how things would go if we eliminate just one of these, my guess is not well. Energy is important, but not the only important resource in my opinion.

Dennis, energy is what enables a civilization to exist. It is only energy that allows us humans to dig, transform and transport ‘stuff’ around.

If we didn’t have an energy source apart from our own labor, then we would still be hunter gatherers, which is what we will return to after we run out of fossil fuel energy because the grades of all ores available will have fallen so low that we wont have the ability to transform anything with just charcoal.

Of course that’s after we have run out of cities to mine for metals plus entropy and dissipation work their magic..

Humans would not exist without clean air, clean, water and fertile soil. Energy is also important, I acknowledge that, my point is quite simple, it is not the only thing that matters. If you believe that only energy matters, I disagree.

What matters most is what you are about to run out of.

We are very wasteful in our use of energy. As it becomes more scarce it will become more expensive and it will be used more efficiently.

Dennis, WE are not the world. The world is about to realize that its crude oil supply is in decline. That decline cannot be made up by just being more frugal with our oil. Airlines and ships at sea do not waste their fuel needlessly. Globalization will be affected dramatically by the decline of crude oil.

Sri Lanka is the canary in the coal mine. Sri Lanka must import almost everything it consumes. Sri Lanka has no money to import oil, no money to import food, and no money to import everything it must import to stay alive. Sri Lanka has declared bankruptcy. No one will lend them money.

I am very sorry Dennis, but those rose-colored glasses you are wearing are making you almost stone blind to what is really happening in this world.

By we, I mean people in general and I am talking about energy use, rather than specifically oil use. Ships at sea can save fuel by going slower, true of transport in general whether air, water or land. Land transport in general could use far less energy.

None of this implies that there will be no problems in the world.

WTFC, just having fun with your analogy, but may be Dennis is saying if the ground in front of the car is covered in boulders and potholes, you can have all fuel you could ever need, and the car still won’t go anywhere. Don’t focus on the car, or the fuel, it’s the total picture 🙂 Cheers, Phil

Phil, this car I’m describing is a really advanced one: a flying amphibious car. It has even a coffe machine and a fridge which run on solar energy. No bump in the road would ever stop it. And if you ever get stuck somewhere: it has sattelite internet to enjoy Spotify and Netflix at any place in the world.

I appreciate your perspective. I agree oil is likely to be scarce. A thought on making less money, as I see it, is that if you mean you wish oil prices were lower (so your profits would be reduced) this would lead to a faster rate of consumption. Perhaps you agree with Mike Shellman that exports of oil and natural gas from the US should not be allowed, for oil that would actually increase the price as it would take about 3.5 Mb/d off the World oil market (currently exported from the US), for natural gas it would reduce the price and reduce profits for oil producers due to less income from associated natural gas, this may be what you are referring to.

Seems this would be unfair to companies that have invested in LNG trains, but I would think it fair not to allow any new LNG trains (that have not already reached FID) to be builtso that LNG exports would be limited, if we wanted to reduce natural gas exports further we should compensate companies that would be harmed by this change of rules in the middle of the game.

I do not expect 8.2 billion EVs ever, maybe 1.5 billion by 2050, obviously only some of these will be Teslas.

There are many in the oil industry such as reservegrowthrulz that are very knowledgeable about petroleum engineering that believe my scenarios are for too conservative. For tight oil URR I use about 74 Gb, when 100 Gb is likely more reasonable in a high oil price scenario that extends out to 2040 or so.

Note that I have been expecting a decline in New well EUR in tight oil basins since 2013, so far decreases in EUR normalized for lateral length have been quite marginal. We will run out of tier one locations eventually, we are getting close in the Bakken, but the Permian has some room to run in my opinion. My current scenario has Permian URR at 59% of the USGS mean TRR (44 of 75 Gb). My Bakken scenario with high oil prices has URR=8.2 Gb relative to a USGS mean TRR estimate of 11 Gb, for an equivalent Permian scenario we would have about a 55 Gb URR.

Despite what some believe the Permian has a fair amount of oil left to produce, about 9 Gb has been produced so far and about 50% will have been produced by 2029 for my best guess scenario (27.5 Gb cumulative) with a URR of about 55 Gb for a high oil price scenario (oil price about $100/bo or more in 2021 $ up to June 2040).

We have had wars for all of human history, well before oil was important, so boiling down war to oil is not a good thesis in my opinion. It is far more complex than scarce oil leads to war, scarce resources may be a piece of the puzzle, but class and power also are important in any thorough analysis of economic history.

In other news, US Treasury believes Biden was able to lower the cost of fuel by $0.38/gallon by tapping the SPR:

The Price Impact of the Strategic Petroleum Reserve Release (July 26, 2022) https://home.treasury.gov/news/press-releases/jy0887

The man is a genius!?!

An interesting chart from a 2015 IMF report:

Oil Prices and the Global Economy

I added the yellow dot for our recent $120 oil price…

The analysis was in 2013$/bo, $120/b nominal oil price is about $95/b in 2013$.

Freeport LNG terminal to restart in October. This will coincide roughly with the SPR being tapped out. These two things will change the energy supply dynamic in the US substantially this winter. Main question will be what the economy looks like this fall…

https://oilprice.com/Latest-Energy-News/World-News/Freeport-LNG-To-Restart-Most-Production-By-October.html

Hickory asked: “Kleiber- is it common for homes in UK to have coal or wood burning furnace?”

95% of UK homes have “central heating”, a central boiler and pump which distributes hot water to radiators in every room.

87% of homes use nat gas for this; I assume the remaining 8% use heating oil (like my place).

The 5% remaining probably rely on electric space heating. Heat pumps are virtually non-existent but hopefully that will change.

To answer your question, I suspect less than 1% of homes rely on coal or wood exclusively. Although I did as a student in Bradford in the 1970’s 🙂

Drilling in the Texas Permian has plateaued over the last few months. The larger producing counties, like Midland, have actually lost a few rigs while more marginal, peripheral counties have gained (proportionally more though because their starting rig counts are lower). New Mexico is continuing to add rigs but only in Lea county, the number in Eddy has been falling.

As prices may now have entered a falling trend, and with companies keeping spending tightly controlled, it’s possible that numbers will fall in both states. While adding rigs tends to be fairly steady over periods of years, losing them can happen suddenly over a couple of months. This week the Permian drop by four by week to week there’s a lot of noise. The current number of rigs in both Staes is enough to allow continued production rise provided the quality of wells stays the same, but the evidence seems to be growing that actually more low grade areas are having to be accessed.

There are still quite a few vertical rigs still operating. These have fast turn around times so drilling and completion would take a few days and the “DUC” would hardly register. I think this is why the average inventory for DUCs has fallen below three months. For horizontal wells only it’s probably 3 to 4 months (closer to where EF and Bakken seem to be plateauing, but still leaving the lower inventory at Niobara to be explained). EIA data does not split between type of well for DUCs or completions. The number of vertical wells fell dramatically as horizontal drilling started and crashed in 2015. Is this just a reflection of competition for resources and means that there are still plenty of locations were low cost vertical wells could be placed as horizontal activity declines? It seems unlikely but I don’t know.

I look at the county numbers once in while. Since you have looked at the counties, would you mind commenting on the attached table which show the change in rigs between May 6 and August 5. The 7s are of most interest.

Webb is a minor producer in the Eagleford. It looks like a smallish new field in the Austin Chalk formation came on line in 2019. This is the only time I have come across a new field start up since the 2015 crash. Martin is a smaller and peripheral county amongst the major producers of the Permian (if that makes sense). Much of it’s production has come from the Wolfcamp, which is now past peak and I think rapidly getting drilled out in Texas. I think other major producing counties in Texas Wolfcamp could follow in starting to lose rigs (like Upton and Reeves in your list).

Thanks. You may be onto something regarding WTI price and Rigs. Also yesterday frac crews were down by 6. Let’s see if this trend continues over the next few weeks.

I have just read that Texas is experiencing 100 F for more than 40 days. Would this hot weather have much effect on drilling and fracking?

The temperature has zero to do with falling rigs. I am a broken record but having experienced drilling conventionally and unconventionally in the Permian, the degree of interconnected(ness) create by these massive francs surprised most to the young engineers. Originally they believed the permeability of the shale rock measured in nano darcys was so tights that they believed each well would be a pressure capsule within the the drilling units. They were wrong and now the most prolific counties like Martin,Loving and Reeves are seeing inferior results. This will continue to happen unless drilling and completion costs stay the same and prices increase. In other words, until the least productive formations become profitable, production will continue to stagnate. If the industry had the same number of DUCs we have today a year ago we would be seeing a steady decline of production.

On a brighter note, there is a significant amount of gas in the deeper horizons in the Permian below the wolf camp and in the strawn, morrow and even the Ellenberg formations. The price of gas needs to stay high in order to make these wells profitable.

Since there appears to be some degree interconnectivity between these pockets, does that mean there is a possibly of injecting gas or water to enhance production.

Above you state: “the most prolific counties like Martin, Loving and Reeves are seeing inferior results”

In the Rig table above, it shows: Martin: -7 Loving: 3 Reeves: -3

Just wondering if you follow any Canadian oil companies? I ask because I am wondering if any subscribers to your letter have any interest in Canadian oil companies. I believe this company, Canadian Natural Resources, (NYSE: CNQ), is one of the top 10 oil companies in the world. It has at least 30 years of oil remaining and no exploration costs. Primarily maintenance, drilling costs, finance, etc. It declared a special dividend for Q2. https://www.cnrl.com/upload/report/154/7cc8681bda3f/q122-interim-report.pdf

Comments from GS and RBC below.

Goldman Sachs on Thursday reiterated its neutral rating on the shares of Canadian Natural Resources (CNQ.TO) with a US$63.00 price target after the country’s No.1 oil producer reported better than expected second-quarter results while raising production and cost guidance and paying out a special dividend.

RBC Capital Markets on Friday reiterated its outperform rating on the shares of Canadian Natural Resources (CNQ.TO, CNQ) with a C$90.00 price target after the country’s No.1 oil producer reported better than expected second-quarter results and offered shareholders a special dividend.

“CNQ posted another strong quarter amid production of 1.21 million boe/d and net debt reduction of approximately $1.4 billion,” analyst Greg Pardy noted. “We were pleasantly surprised with the company’s declaration of a $1.50 per share special dividend, payable August 31. Under its 10% NCIB, the company repurchased $2 billion (26.4 million shares at $75.92 per share) of its common shares in the second-quarter.”

Ovi, I think many Canadian oil companies are undervalued. Some decent ones are currently trading at P/E ratios as low as 1.3. Probably because Canadian oil grades are generally trading at a discount to both WTI and Brent and this is likely due to pipeline constraints.

You are correct in saying that Cdn oil companies are undervalued. For example XOM has a P/E of 9.68 while CNQ’s is 6.99 and SU is 5.96. XOM’s divy is 3.98% vs CNQ at 4.46%, not including the bonus and SU is 4.8%. SU is an integrated refiner like XOM with oil sands and conventional oil production and downstream operations.

The two main export crudes from Canada to the US are Synthetic Crude Oil (SCO) and Western Canada Select (WCS). The SCO sells at a premium to WTI as noted in the CNQ report.

“With the turnarounds now complete, both AOSP and Horizon have returned to full production rates, capturing a strong SCO price premium of over US$10/bbl to WTI.

The Horizon and Scotford turnarounds, together with higher energy costs, resulted in Q2/22 operating costs averaging $33.76/bbl (US$26.44/bbl) of SCO.”

I think that SCO sells at a premium because it is sweet and biased toward diesel and great for making ULSD.

WCS typically sells at a $15/b to $20/b, today closer to $20, discount to WTI. It is heavy and sour and is also good for making diesel. I think the main reason for the large discount is lack of access to tidewater. The opening of the Trans Mountain pipeline in late 2023 should help reduce that gap.

What is interesting to note is that Maya, which is a heavy sour crude that sells to the Gulf coast sells very close to WTI while WCS has this huge discount. Some of the difference may be due to pipeline charges. Most of the difference is what US refiners are willing to pay and Canada has no other buyers.

Oil prices should be viewed more through the lens of its a proxy of growth and inflation expectations instead of just supply/demand balance.

Just an average recession by historical standards will bring the CPI down 7 percentage points inline with the FED’s 2% target.

If we get something a little more than and average recession. CPI will turn negative.

Central banks will definitely over tighten and inflation and growth expectations will overshoot to the downside.

I’d expect large moves down in oil prices. Particularly as with yield curve inversion. Banks can’t make money borrowing short and lending long. So only the best highest rated borrowers with the best collateral will get loans.

Institutional money is going to get blown out their long oil positions. Because they’ll not be able to roll their positions. That’s when the big down days/weeks will be seen in oil prices.

https://peakoilbarrel.com/open-thread-non-petroleum-august-8-2022/