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Countdown to $100 oil (31) - $15 oil? The cornucopians are fighting back

by Jerome a Paris Sat Sep 16th, 2006 at 11:03:51 AM EST

Recently, there has been a quite visible backlash in the media against peak oil theory. If the past few months had seen the sudden emergence of the concept in the mainstream press, the recent fall in oil prices (from a high of $78 to about $62 today in just a few weeks) has brought back the cornucopians in force.

The announcement of a significant find in the deep offshore area of the Gulf of Mexico was hyped (see quotes below); now there appears to be a concerted effort by big industry players, starting with Saudi Arabia and ExxonMobil, to downplay concerns.

the Gulf of Mexico find

The BusinessWeek view:

Plenty of Oil--Just Drill Deeper

The discovery of reserves in the Gulf of Mexico means supply isn't topping out

You can tune out all the scare talk about Peak Oil for a while--probably a long while. Peak Oil is the theory, on the verge of becoming conventional wisdom, that the world's petroleum supply is topping out and will not be able to meet global demand soaring along with the economies of China and India. But a successful test in a mammoth field deep beneath the Gulf of Mexico, announced on Sept. 5 by Chevron (CVX), Devon Energy (DVN), and Norway's Statoil (STO), should help put that scary scenario on hold for decades.


given the powerful combination of high oil prices and new technology, the industry is gaining confidence that supplies will grow. It's pushing hard to produce oil and gas from difficult tar sand and shale fields as well as rejuvenating older fields with enhanced recovery methods. Cambridge Energy Research Associates predicts world oil and natural gas liquids capacity could increase as much as 25% by 2015. Says Robert W. Esser, a director of CERA: "Peak Oil theory is garbage as far as we're concerned."

The Oil Drum's view (by Dave Cohen)

Jack-2 and the Lower Tertiary of the Deepwater Gulf of Mexico

The LTGOM play consists of a number of fields as shown in Figure 1 below. All of these fields have a EUR in the 350 million to 500 million-barrel range according to Rigzone and other unpublished sources. The production capacity of the various fields and the types of fluid they can deliver vary considerably. Aside from their great depth, the reservoirs and fluids present many challenges. Some of these fields will get produced, others will not. It is important for everyone to understand that the large EUR numbers quoted do not apply to any one field but rather represent the entire Lower Tertiary region.

The Jack-2 well test indicated a flow of 6000 barrels per day. This one data point encourages further appraisal but does not guarantee flow rates that will justify the massive (billions of dollars) investment required to put the LTGOM into full-scale production. Whether the economics of commercial exploitation is favorable for the various fields remains an open question.

Implementing development plans, where they exist, for these fields pushes the limits of deepwater technology. A myriad of questions exist about completion and production of the wells. Unanswered logistical concerns include securing rigs, transporting produced oil to market and what to do with associated natural gas.

Realistically, initial production of some fields (eg. Great White and Cascade) may happen by 2009 or 2010 at the earliest. The other fields that do get developed, including Jack, will likely not achieve first production before the 2012 to 2014 period. Delays are likely given that many technical problems are being solved for the first time. Under most forecasted scenarios, production from the LTGOM will likely only offset declines in US production that will have occurred by then.

In the best case, the whole area (not just the one field) has the potential to provide 5-10% of US consumption. While nothing to be sneered at, it's equally obvious that this will not change the worldwide oil balance.

Recent price decreases

The new "optimistic view, via the Seattle Times:

Analyst predicts plunge in gas prices

WASHINGTON -- The recent sharp drop in the global price of crude oil could mark the start of a massive sell-off that returns gasoline prices to lows not seen since the late 1990s -- perhaps as low as $1.15 a gallon.

"All the hurricane flags are flying" in oil markets, said Philip Verleger, a noted energy consultant who was a lone voice several years ago in warning that oil prices would soar. Now, he says, they appear to be poised for a dramatic plunge.

Crude-oil prices have fallen about $14, or roughly 17 percent, from their July 14 peak of $78.40.


But many of the conditions that drove investors to bid up oil prices are ebbing. Tensions over Israel, Lebanon and Nigeria are easing. The hurricane season has presented no threat so far to the Gulf of Mexico. The U.S. peak summer driving season is over, so gasoline demand is falling.

With fear of supply disruptions ebbing, oil prices began sliding. With oil inventories high, refiners that turn oil into gasoline are expected to cut production. As refiners cut production, oil companies increasingly risk getting stuck with excess oil supplies. There's already anecdotal evidence of oil companies chartering tankers to store excess oil.

All this is turning financial markets increasingly bearish on oil.


Should oil traders fear that this downward price spiral will get worse and run for the exits by selling off their futures contracts, Verleger said, it's not unthinkable that oil prices could return to $15 or less a barrel, at least temporarily. That could mean gasoline prices as low as $1.15 per gallon.

There is a reasonable case to be made for lower oil prices in the short term, as made by HiD in his competing diaries Countdown to $50 oil (4) or his comments.

Or you have the permanent anti-peakoilers like Alan Caruba

Suffice it to say that the new Gulf of Mexico discovery rivals that of Alaska's giant Prudhoe Bay oil field in 1968. President Bush may think we're "addicted" to oil and, along with other politicians, call for oil "independency", but the fact is we, like every other modern nation require oil for transportation, plastics, heating homes, and the countless other uses to which we put petroleum.

Recently, Abdallah Jum'ah, president and CEO of the state-owned Saudi Arabian Oil, better known as Aramco, said the world has the potential of 4.5 trillion barrels in reserves. At current levels of consumption, that's 140 years worth of oil to power the world. Even at the lowest level of estimated reserves, there's still enough until 2070 and does anyone believe we will not find more?

While the vast Middle Eastern reserves remain an important source of oil for the world, the geopolitical game just changed for the better as far as America is concerned. The Gulf of Mexico discovery insures a new degree independence and security. Think how much more we could achieve now that the twenty-five year old federal ban on offshore exploration has been lifted?

Basically, if American companies could drill in Alaska and in waters around the USA, all would be solved for a long time. He also makes reference to the recent Saudi pronouncements, which were given a lot pf prominence on the front page of the WSJ (sub. link, alternative link below) a couple of days ago:

Some insiders reject 'peak-oil theory'

Leading players in the petroleum industry, including Saudi Arabia and Exxon Mobil Corp., are aggressively arguing that plenty of crude oil remains for world consumption, in an effort to counter critics who contend crude output is about to plateau.

That argument, known as the peak-oil theory, has provided intellectual backing for the boom in crude prices and sowed doubts among some policy makers about crude's long-term reliability as an energy source. Such doubts, coupled with concern over sky-high prices, have added impetus to the search for oil substitutes--including in Washington, where President Bush this year declared the U.S. "addicted to oil" and sparked a boom in interest in ethanol.

Some in the industry now are keen to fight the threat posed by such fears.

Tuesday, Abdallah S. Jum'ah, chief executive of Saudi Arabian state-owned Saudi Aramco, the world's largest oil company by production, argued during a speech in Vienna that the world has more than a century's worth of crude left at current rates of production. His talk followed similar remarks by a senior Exxon executive this week. Spokesmen for Exxon and Aramco said they aren't coordinating their remarks.


At an OPEC seminar yesterday, Mr. Jum'ah of Aramco said the world had produced only about one trillion barrels, or about 18%, of the earth's producible potential of 5.7 trillion barrels of oil. "That fact alone should discredit the argument that peak oil is imminent, and put our minds at ease concerning future petroleum supplies," he said. The remaining 4.7 trillion barrels should be enough to last more than 140 years at current output rates, he said.


Mr. Jum'ah's speech came two days after Exxon's Australia chief, Mark Nolan, told an industry conference in Adelaide, Australia, that "the end of oil is nowhere in sight." Mr. Nolan cited a U.S. Geological Survey estimate of more than three trillion barrels of conventional recoverable oil resources, of which one trillion barrels has been produced. Conservative estimates of heavy-oil and shale-oil resources push the total to four trillion barrels, while a 10% increase in recoverability will deliver an extra 800 billion barrels, Mr. Nolan said.


"I think there's a lot of misconceptions of what peak oil is," Mr. Raymond said in an interview last week. "The resource base is continually changing, driven by economics and technology." But he said his views won't dictate the results of the National Petroleum Council's study. "I may learn something."

So, there you go. The resource base is continually changing and new technologies increase it all the time.

We'll be fine. Right.

Earlier "Countdown Diaries":
Countdown to $100 oil (30) - senior politico fears looming oil wars
Countdown to $100 oil (29) - Alaska joins axis of evil (unreliable oil suppliers)
Countdown to $100 oil (28) - New records suggest more to come
Countdown to $100 oil (27) - 'Mission Accomplished' - High oil prices are here to stay
Countdown to $100 oil (26) - Time to bet again (eurotrib)
Countdown to $100 oil (26) - Time to bet again (dKos)
Countdown to $100 oil (25) - Iran vows that oil prices will not go down
Countdown to $100 oil (24) - What markets are telling us about future energy prices
Countdown to $100 oil (23) - Running out of natural gas in North America
Countdown to 100$ oil (22) - gas shortages in the UK - 240$/boe
Countdown to 100$ oil (21bis) - long term vs short term worries (dKos)
Countdown to 100$ oil (21) - 8-page extravaganza in the Independent: 'we're doomed'
Countdown to 100$ oil (20) - Meteor Blades is Da Man in 2005
Countdown to 100$ oil (19) - Your bets for 2006 (Eurotrib)
Countdown to 100$ oil (19) - Your bets for 2006 (DailyKos)
Countdown to 100$ oil (18) - OPEC happy with oil above 50$
Countdown to 100$ oil (17) - Does it matter politically? A naked appeal for your support
Countdown to 100$ oil (16) - We'll know on Monday
Countdown to 100$ oil (15) - the impact on your electricity bill
Countdown to 100$ oil (14) - Greenspan acknoweldges peak oil
Countdown to 100$ oil (13) - Katrina strikes / refinery crisis
Countdown to 100$ oil (12) - Al-Qaeda, oil and Asian financial centers
Countdown to 100$ oil (11) - it's Greenspan's fault!
Countdown to 100$ oil (10) - Simmons says 300$ soon - and more
Countdown to 100$ oil (9) - I am taking bets (eurotrib)
Countdown to 100$ oil (9) - I am taking bets (dKos)
Countdown to 100$ oil (8) - just raw data
Countdown to 100$ oil (7) - a smart solution: the bike
Countdown to 100$ oil (6) - and the loser is ... Africa
Countdown to 100$ oil (5) - OPEC inexorably raises floor price
Countdown to 100$ oil (4) - WSJ wingnuts vs China
Countdown to 100$ oil (3) - industry is beginning to suffer
Countdown to 100$ oil (2) - the views of the elites on peak oil
Countdown to 100$ oil (1) (eurotrib)
Countdown to 100$ oil (1) (dKos)

This is crossposted on dKos for your kind support

In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Sat Sep 16th, 2006 at 12:27:35 PM EST
by Fran on Sat Sep 16th, 2006 at 01:42:40 PM EST
[ Parent ]
conspiracists all jazzed up Jerome.  Those poor bastards at Exxon that aren't allowed to trade futures will be bitter with you!

I don't know that they aren't allowed to trade on the screen these days, but they were forbidden in the 90's to take any speculative positions.  BP was the only real "player" among the majors.  The small guys, Koch, Valero Conoco, Neste had some aggressive traders though.  Neste's boys lost about $40 meg in a few months and that shop closed down about 1995.  Ditto Chevron for the most part.  But it goes in cycles.

Big oil only wishes they have control.  I'd guess Morgan and J. Aron have many times the influence of Big Oil

by HiD on Sun Sep 17th, 2006 at 06:27:42 AM EST
[ Parent ]
On the carbon side, an interesting article from Le Monde on the state of forests in France:

[...] Enfin de bonnes nouvelles pour l'ONF ! Chargé de valoriser les forêts domaniales et communales, il commercialise 14 millions de m3 de bois, soit 45 % de la production française.

La France possède le troisième massif forestier d'Europe. Il couvre 29 % du territoire et s'accroît tous les sept ans de l'équivalent de la superficie de la Marne. Une richesse économique (et écologique) au moment où l'ONU dénonce "le rythme alarmant" (9,5 millions d'hectares par an) du déboisement des régions tropicales.

La Marne is 8 162 km² according to wikipedia, France is  675 417 km², so that's +1.2% every 7 year.

by Laurent GUERBY on Sat Sep 16th, 2006 at 01:25:54 PM EST
Europe's forests are 40% bigger than a century ago. Forests are not endangered in Europe, and could indeed be sustainably harvested to a much larger extent than today.

In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Sat Sep 16th, 2006 at 01:37:32 PM EST
[ Parent ]
France is 550 000 km2

Le massif forestier représente à lui seul 27 % du territoire et constitue le 3ème massif de l'Union européenne après ceux de Suède et de Finlande. La superficie de la forêt française a progressé de 35 % depuis 1945 et doublé en 200 ans.

Forest surface, now 27% of French territory, has increased by 35% since 1945 and doubled in 2 centuries.

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Sat Sep 16th, 2006 at 02:03:14 PM EST
[ Parent ]
550e3 km2 that's for "France métropolitaine".

French Guyana has lots of forest :) but I think you're right, the article ratio is for France métropolitaine indeed.

As usual wikipedia has more, 166e3 km2 of forest (30% of 550e3). Interestingly:

Les peupleraies qui occupent environ 30 000 km² ne sont pas considérées comme des forêts, et sont incluses dans la surface agricole.

So that makes 166+30 = 196 = 35.6% of surface.

Lots of the total is privately owned (~ 70%), but it looks like use and planning is controlled.

French Guyana has 77e3 km2 of primeval forest.

by Laurent GUERBY on Sat Sep 16th, 2006 at 02:42:17 PM EST
[ Parent ]
Guyana forests for the Guyana people!

Those whom the Gods wish to destroy They first make mad. — Euripides
by Carrie (migeru at eurotrib dot com) on Sat Sep 16th, 2006 at 02:51:04 PM EST
[ Parent ]
Drilling into wikipedia, sustainable production of heating wood (leaving other wood use constant) in France is estimated at 100e3 TEP (Ton-eq-petrol, energy equivalence), a TEP is 7.33 barrel or 11.6e3 kWh.

I let Jerome comment on wether it's significant or not in the big picture :).

by Laurent GUERBY on Sat Sep 16th, 2006 at 03:08:57 PM EST
[ Parent ]
Smoke from the burning of wood is full of pollutants and carcinogens. Not a real alternative to oil, gas, or coal.

Share. Share resources, share delight, share burdens, share the healing. If we only could realize that sharing will bring us back from mass suicide.
by Isis on Sun Sep 17th, 2006 at 11:55:19 PM EST
[ Parent ]
Wikipedia mentions this, but also mentions that progress has been made to reduce pollutant emissions.

Do you have more information?

by Laurent GUERBY on Mon Sep 18th, 2006 at 06:39:51 AM EST
[ Parent ]
you can use catalytic afterburners in wood stoves.  Cuts down on the tars and ugly long chain molecules.  You still get a lot of CO2 up the stack.  Cellulose has a lot of carbon and not much hydrogen.

And you better have a well maintained flue.  High temps and a leaky chimney means you get to run out in the night in your jammies while your house burns down.

I once f/ed up and put a box in my wood stove that had some motor oil spilled on it.  The flue was glowing red while we crossed fingers and hoped the roof didn't catch fire.

by HiD on Tue Sep 19th, 2006 at 04:55:48 AM EST
[ Parent ]
The (relatively) small global warming predictions are based on peak oil being true-- that is, that we have extracted about 50% of all the oil that we will ever extract. And by "relatively small" I mean the projections we've been worried about.

If peak oil is false, and we have only burned a small fraction of all the oil we are going to burn in the 21st century, then the warming projections get much higher than that.

by Del C on Sat Sep 16th, 2006 at 02:47:35 PM EST
don't even think about coal..

we've barely dented the supply there.

The conservative types who only worry about the next 5 years (and their money) won't be happy until we have waterworld..

by HiD on Sun Sep 17th, 2006 at 03:16:53 AM EST
[ Parent ]
we could easily have a 2-3 year lull in price advancement.  Refinery expansion plans are huge.  Those $15 mogas cracks are just too tasty so refiners will add capacity until they kill their margins again.  Just like the early 80's.

There's an odd little website promoting oil market analysis that has some interesting graphs.  

check this one out:


and this one


showing non-opec and open production for the last 30-35 years.

 looking at the two you can see just why Saudi want to get prices down to prevent conservation and alternatives.  They got destroyed in the early 80's by conservation.  You can see how the Saudi's cut and cut their production to hold the price up until they couldn't stand it anymore.  

You can see how the high price stimulated exploration and production elsewhere once oil wasnt just going to be $4/bbl based on stripping out the Middle East reserves.

IF (repeat IF) there are deposits to be exploited elsewhere, there will be big efforts to grab these prices.  My gut feel is we will get world production up in the next few years and demand will ease. Add in the recession when the Bush bubble bursts and we could be back in the 30's briefly.   but I've been wrong before.

One good political event in the Mid East though and up we go.  

by HiD on Sun Sep 17th, 2006 at 03:14:45 AM EST
everything is pretty logical up to here:
Add in the recession when the Bush bubble bursts and we could be back in the 30's briefly.
Was it the Clinton bubble that burst in March 2000 when the technology indices plummeted?  Give me a __'ing break.  Of course not!  Look at the issues around technology and the Internet!!  The American economy just has so little to do with the president in power.  There will be no "Bush" recession that will take us back to the '30's.  there was no Clinton boom, that 10 year period of golden economics that began 18 months before Clinton took office (Clinton should get very little credit for it).  the recession that started 30 days after Bush took office had nothing to do with Bush (you think he started the recession after 30 days in office?  and though the US economy is great right now, Bush should get very little credit for it.  You're clouding your vision with this political BS.

Stick with the basics regarding oil supply and demand, alternative sources, and the risk profile of the world after 9/11 and imho you'll have a clear picture of the future.  On the other hand, if you're one of the wacko's that thinks Bush plotted 9/11,,,,well, then you should believe that today's risk premium is due to Bush.  Otherwise, stick with your vey logical analysis of the energy markets, and imo you'll be pretty accurate.

by wchurchill on Sun Sep 17th, 2006 at 04:27:15 AM EST
[ Parent ]
Just flat don't agree

Bush's bubble is based on tax deferments that have added $3+ trillion to our debt.  That piper has to be paid.  the 90's had growth that was underpinned by a balance sheet that was steadily improving.  This mediocre expansion is mostly credit driven, both at the government level and from people leveraging their housing.  I can and do blame Bush for the hangover we'll have when sanity returns.  Just as I blame Reagan for blowing out our balance sheet for 8 years in the 80's.

I don't give Clinton complete credit for the 90's, I'd give it to Rubin and the peace dividend and good fortune.  I don't blame bush for the 2001 recession.  any more than I blame him for 9-11.  He's still an incompetent wanker that could have done more though instead of focusing on Star Wars from Jan to Aug 2001.  Please don't put words in my mouth.  

As for putting me in with 9-11 conspiracy whackos -- my first reaction is "kiss my ass".  Or are you too busy kissing GWB's???

Your description of the 90's is classic limbaugh.  Give all credit to Republicans and shift all blame to Clinton.  You've dropped about 1000% in credibility in my book.  Offgefucken

by HiD on Sun Sep 17th, 2006 at 05:35:02 AM EST
[ Parent ]
right, I say stick to the facts and forget the politics and you're pissed off.  my point is to not give the credit or debit to the politicians, so check the mirror and you'll see the wanker.  <crying because my credibility has dropped 1000%>
by wchurchill on Sun Sep 17th, 2006 at 05:47:03 AM EST
[ Parent ]
perhaps you should stick to facts as well and avoid offering advice on what others should have opinions about.  Not to mention fingerpainting about their opinions they've yet to express.

that post was proof that

the # of assholes is > the number of heads.  

by HiD on Sun Sep 17th, 2006 at 06:05:39 AM EST
[ Parent ]
Actually, you are right here.  I do disagree with your comment on short term impacts of politicians, positive or negative.  But my comments went far beyond that, due to some pent up anger from other comments on other threads related to 9/11.  You had nothing to do with that, of course, and it was foolish of me to carry on as I did with my comments to you.
by wchurchill on Sun Sep 17th, 2006 at 06:38:07 AM EST
[ Parent ]
I'd give that one about a 3/10.  But I give every dog one bite.  
by HiD on Mon Sep 18th, 2006 at 04:39:02 AM EST
[ Parent ]
What's going to happen to the globe when all that CO2 from all the oil, gas, and  shales, etc. bounces even more infrared rays back onto the planet?

Share. Share resources, share delight, share burdens, share the healing. If we only could realize that sharing will bring us back from mass suicide.
by Isis on Sun Sep 17th, 2006 at 11:48:30 PM EST
how well do you swim?  might be time to look into mountain property!
by HiD on Mon Sep 18th, 2006 at 04:40:08 AM EST
[ Parent ]

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