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TheTalkingMule
Distributed Energy Enthusiast
Even BNEF is echoing the narrative! This is a good opportunity.
Oil Markets Start to Recover, May Tilt Into Deficit in 2H | BloombergNEF
Oil Markets Start to Recover, May Tilt Into Deficit in 2H | BloombergNEF
One of the side benefits of tracking Covid-19 is getting exposure to data methods used in epidemics. One of the venerable tools for modeling epidemics is the Gompertz distribution. In this curve the growth rate declines linearly as log cases mount. So it is particularly good for model how growth rates decline to zero and yield ultimate area under the curve.
So I've applied that to building long-term scenarios of oil consumption. As of 2018, the world has consumed about 1.5 trillion barrels of oil products. This curve shows few signs of stopping. The slope exiting 2018 is roughly in line with consuming 5 times as much oil, 7.5Tb, over the coming centuries.
There are several problem with this. BP estimates about 1.7 Tb in crude oil proven reserves. Combined with the 1.5Tb already consumed, that only allows a 3.2Tb ultimate scenario. Where exactly can the world find another 4.3 Tb of oil reserves? Of course the second problem is climate change, plastic pollution and other environmental effects. So even if humans could find that much oil, we would be ill advised to consume it.
Many in the oil industry have envision a peak in range of 105 to 110 mb/d happing in the 2030s. Such an outlook is compatible with a 6.0 Tb ultimate consumption scenario. Such scenarios require a near tripling of current proven reserves. So this scenario implies keeps oil exploration in full swing and preserves the value of reserves. No wonder the oil industry would like to believe it. But probably is too damaging to the climate to be taken seriously. One envisions the granddaughter of Greta complaining that her generation had done nothing to halt climate change. Look the world still consumes as much oil in 2058 as it did in 2018. How dare you, grandma Greta!
The 4.5 Tb scenario is interesting. Oil peaks in the early 2020s. The rise EVs should be able to secure this scenario or better. But it requires at least another 1.3 Tb of oil reserves to be discovered and hoisted into the air. This does not make environmental sense. Thie cost of discovering 1.3Tb is on order of $15T to $45T. Wouldn't the economy be much better off just investing that capital into renewable energy, EVs and other climate preserving technologies?
So finally, we need press for the 3.0 Tb scenario. Let's not waste time, talent and treasure looking for more fossil fuels that we can ill afford to dump into the biosphere. The time is now to draw down oil production levels.
So I've applied that to building long-term scenarios of oil consumption. As of 2018, the world has consumed about 1.5 trillion barrels of oil products. This curve shows few signs of stopping. The slope exiting 2018 is roughly in line with consuming 5 times as much oil, 7.5Tb, over the coming centuries.
There are several problem with this. BP estimates about 1.7 Tb in crude oil proven reserves. Combined with the 1.5Tb already consumed, that only allows a 3.2Tb ultimate scenario. Where exactly can the world find another 4.3 Tb of oil reserves? Of course the second problem is climate change, plastic pollution and other environmental effects. So even if humans could find that much oil, we would be ill advised to consume it.
Many in the oil industry have envision a peak in range of 105 to 110 mb/d happing in the 2030s. Such an outlook is compatible with a 6.0 Tb ultimate consumption scenario. Such scenarios require a near tripling of current proven reserves. So this scenario implies keeps oil exploration in full swing and preserves the value of reserves. No wonder the oil industry would like to believe it. But probably is too damaging to the climate to be taken seriously. One envisions the granddaughter of Greta complaining that her generation had done nothing to halt climate change. Look the world still consumes as much oil in 2058 as it did in 2018. How dare you, grandma Greta!
The 4.5 Tb scenario is interesting. Oil peaks in the early 2020s. The rise EVs should be able to secure this scenario or better. But it requires at least another 1.3 Tb of oil reserves to be discovered and hoisted into the air. This does not make environmental sense. Thie cost of discovering 1.3Tb is on order of $15T to $45T. Wouldn't the economy be much better off just investing that capital into renewable energy, EVs and other climate preserving technologies?
So finally, we need press for the 3.0 Tb scenario. Let's not waste time, talent and treasure looking for more fossil fuels that we can ill afford to dump into the biosphere. The time is now to draw down oil production levels.
Dr. J
Active Member
Here is a discussion from June 2019 about various measures of proven oil reserves:
Global oil reserves data is muddled, but does it really matter?
Reserves vary markedly based on methodology employed:
But not all reserves are created equal. The data masks large disparity in production costs for the economic recovery of the oil, and a divergence in reserve accounting standards.
According to BP’s review, Saudi Arabia’s proved oil reserves are now 11% higher than previously thought, at close to 300 billion barrels, after the world’s top oil exporter reclassified some of its gas reserves as oil.
....
A separate report by Norwegian consultancy Rystad Energy, however, takes a more rigorous approach to reserves by applying Society of Petroleum Engineers (SPE) standards.
....
On a strictly SPE proven reserves basis, Saudi oil reserves stood at just 95 billion barrels last year, still well ahead of the US’ 32 billion barrels, Rystad believes. Canada’s massive but costly oil sands deposits suffer a similar fate under the tougher rules, shrinking to 24 billion barrels.
Proven reserves grow as the price of oil increases, which makes it economical to extract the best marginal unproven resources. The reverse is also true.
Oil reserves denote the amount of crude oil that can be technically recovered at a cost that is financially feasible at the present price of oil.[1] Hence reserves will change with the price, unlike oil resources, which include all oil that can be technically recovered at any price.
Oil reserves - Wikipedia
A low oil price not only crimps revenue of highly leveraged E&P companies, it also shrinks their proven reserves, so asset values take a hit. These assets are the basis for credit. Even if the assets are recycled through bankruptcy to other/new firms, their value still isn't the old value before the oil price drop. Only a rise in the price of oil can restore or improve that value.
Low oil prices, should they continue, will impair oil production unless greater E&P efficiencies are somehow realized. In recent years, costs of extraction (for shale oil, for example) have gone up, not down. We shall see what happens to the price of oil as the pandemic recedes.
problem, what problem?
Australia's largest imports is petroleum (crude +refined) followed by cars. Cheaper the oil, the better
mspohr
Well-Known Member
TheTalkingMule
Distributed Energy Enthusiast
Good news!
Oil stockpiles have stopped growing in world's biggest buyer
Nevermind the fact that's physically impossible.
Oil stockpiles have stopped growing in world's biggest buyer
Nevermind the fact that's physically impossible.
Agreed. Lower oil prices:
- reduce proven reserves,
- make it harder to add to proven reserves (harder to find cheaper reserves), and
- leave little margin for re-investment into exploration.
I think the only mistake that peak oil demand theory makes is to focus on displacement volumes eventually driving down oil prices rather than on the impact of all technologies driving oil prices down ahead of massive displacements. Of course, from a volumetric view point, what is needed for the latter is a massive stockpile of oil. This is technically needed for production to be able to decline before consumption peaks. But a large stockpile also impacts supply and demand elasticities. That is, traders drawing down or building up inventory become the price sensitive marginal sellers or buyers of oil. This trading action will tend to moderate the extremes of oil prices. The more storage capacity is created, the more muted price swings can become. Storage capacity has a capital cost and will extract rent, taking a slice between what producers get paid and what consumers pay. But this also buys time for EVs and other technologies to ramp. Oil inventory levels take a longtime to cycle from one extreme to another, Covid-19 and other black swans notwithstanding. EV maker
s could double EV production in 12 to 18 months if oil were getting too pricey. For example, consider how much investors and governments would be throwing cash at the likes of Tesla if oil were stuck above $100/b. We would see all out production in the EV space. Moreover, the EV market is nearly at a scale where doubling production offsets demand for 200 to 500 kb/d. Thus, in a very tight oil market, EVs could dash a material chunk of demand to help rebalance the market. With further gains in EV scale, we get to a place where EV displacement can scale up faster than oil producers can scale up. Thus, even prices like $60/b become virtually impossible to sustain. EVs and other technologies are putting a price cap on long-term oil prices, and that price cap declines each year. The futures markets won't be able to rationally price oil futures above that price, and this can induce traders in physical oil to draw down inventory even at moderate oil prices. So this gets us to a point where production levels can fall even while increases in consumption are being supplied by inventory drawdowns. Here the futures market and storage traders must recognize that EV production and other oil displacement technologies are scaling up fast enough to wipe out future growth in demand. Those tech do not actually have to be at that level; they just need to be approaching that level fast enough. So I think this only puts peak production about 1 or 2 years ahead of peak consumption. But the amount of lag increases with the size of the oil inventory going into peak production. One big glut triggers this off.
Those are the official numbers coming out of China? Maybe when the prices come down, they find a little spare capacity.
TheTalkingMule
Distributed Energy Enthusiast
TheTalkingMule
Distributed Energy Enthusiast
Posted this in the Energy forum....
Saudi Arabia to impose 'painful' austerity measures, triple VAT
I smell Arab Spring Part Deux on the horizon, just in time for the 10 year anniversary.
Saudi Arabia to impose 'painful' austerity measures, triple VAT
I smell Arab Spring Part Deux on the horizon, just in time for the 10 year anniversary.
Dr. J
Active Member
The Houston Chronicle article was behind a paywall for me, so this may be the same Bloomberg article at Aljazeera:
There is more space for oil in China, world's biggest importer
Unlike the U.S. government, which publishes weekly snapshots of its oil inventories, China rarely provides insight on it stockpiles, leaving analysts to come up with complex formulas to estimate levels or use satellite observations to try to estimate how full the country's floating-roof storage tanks are.
That's what Ursa and Orbital Insight Inc. do. The companies use different methods, but both have shown a recent drop. Ursa pegged peak inventory levels in late March, while Orbital saw supplies peaking mid-April and falling off since then, according to data provided by the companies.
I think the lower storage levels make some sense: China is well out of lockdown, the economy is recovering (though maybe not to pre-Covid-19 levels), and a lot fewer people are riding subways, thus burning gasoline:These are "estimates" from "analysts" and satellites".
Refiners are drawing oil out of inventory to process into gasoline and diesel as traffic once again snarls China's cities following the lockdown earlier this year to halt the spread of the coronavirus. Even as driving demand dries up in the rest of the world, rush hours from Beijing to Shenzhen at the end of last month are busier than they were in the same period last year.
Meanwhile subway ridership remained about 50% below pre-virus levels in Beijing and about 30% below in Shanghai, according to data compiled by BloombergNEF, as fears of large crowds push commuters toward the relative isolation of cars.
I guess we can see whether the same dynamic emerges (slowly) in NYC as it opens up. I can imagine people being leery of riding the subway while the health threat remains.
Thanks. Tesla is going to have so much demand in China. Auto ownerships will go way up, but Tesla is offering some of the most compelling products in the market.
mspohr
Well-Known Member
US fossil fuel giants set for a coronavirus bailout bonanza
US fossil fuel giants set for a coronavirus bailout bonanza
Fossil fuel companies and coal-powered utilities in the US are set for a potential bonanza under federal government plans for a bond bailout, part of the rescue package for the coronavirus crisis.
At least 90 fossil fuel companies, many of them established giants such as ExxonMobil, Chevron and Koch Industries, stand to gain from the Federal Reserve’s coronavirus bond buyback programme, alongside more than 150 utilities including coal-heavy firms such as American Electric Power and Duke Energy, according to a new analysis.
US fossil fuel giants set for a coronavirus bailout bonanza
Fossil fuel companies and coal-powered utilities in the US are set for a potential bonanza under federal government plans for a bond bailout, part of the rescue package for the coronavirus crisis.
At least 90 fossil fuel companies, many of them established giants such as ExxonMobil, Chevron and Koch Industries, stand to gain from the Federal Reserve’s coronavirus bond buyback programme, alongside more than 150 utilities including coal-heavy firms such as American Electric Power and Duke Energy, according to a new analysis.
In the end, these capitalists are put on public life support.
mspohr
Well-Known Member
Socialism for the corporations, dog eat dog for everyone else.
Even the banks are fleeing, much to the concern of Republicans.
Republican Congress members upset banks dropping support for fossil fuels
Last week, Republican House members sent a letter to President Donald Trump in which they decried banks' recent re-evaluations of the risks of fossil fuel investments. While the letter doesn't call for any particular action, it repeatedly mentions the assistance offered to banks via the Coronavirus Aid, Relief, and Economic Security Act 9 (CARES Act), and it implies that the banks aren't living up to their end of the deal. Throughout the letter, its signatories seem to ignore the fact that the fossil fuel sector is not the only component of the US energy economy.
TheTalkingMule
Distributed Energy Enthusiast
Turns out I can't trade DTO, SCO or other leveraged commodity ETFs in my Fidelity IRA. What a letdown. The volatility in crude pricing the next 6 months is going to be unprecedented. The market is lapping up this "return to balance" nonsense the industry is pumping into the media. It literally has zero chance of becoming reality.
Can Hertz survive coronavirus business hit? New filing casts doubt
Hertz cancels nearly all new car purchases. This is bad.
Can Hertz survive coronavirus business hit? New filing casts doubt
Hertz cancels nearly all new car purchases. This is bad.
adiggs
Well-Known Member
We've joked about it before - it's apparently arrived:
Washington Blocks Anti-Oil State Law | OilPrice.com
Washington Blocks Anti-Oil State Law | OilPrice.com
Meanwhile, traders are turning to rail cars as storage space for temporarily unsellable oil, Reuters reported in April, adding these to another unusual storage option: pipelines.[.quote]
(the link in the quote
Ships, trains, caves: Oil traders chase storage space in world awash with fuel
This is from April 21, so it's been developing. This might be where a previous note about "pots & pans" came from
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