Rodney Dickens says because of new technologies being used to extract oil and gas, we should in time benefit from much cheaper energy and petrol/diesel prices

Rodney Dickens says because of new technologies being used to extract oil and gas, we should in time benefit from much cheaper energy and petrol/diesel prices

By Rodney Dickens*

A multi-front revolution is underway in the international energy market that should deliver much cheaper energy prices including petrol pump prices over the next decade.

At the heart of it is technological innovations that are game changers on several fronts: fracking and shale oil and gas extraction; multi-well pad drilling for oil and gas; solar energy where the economic viability has improved dramatically; hydrogen-sourced energy that offers enormous potential but will take longer to be a game changer than solar; and fascinating but possibly red-herring developments with how nuclear energy is produced.

The big loser will be coal.

The big winners will be global economic growth and V8 car sales.

In part one of this three part series of Ravings I review a number of the issues related to fracking and shale oil and gas. Part two will be on solar energy.

Fracking has a bad name in environmental circles, but to put this issue in perspective, the US is currently enjoying gas prices that are below one third of the level they would if fracking hadn't been invented.

US gas prices are well under half the level faced by European consumers of Russian gas because of fracking.

It is driving a renaissance of manufacturing in the US that is boosting employment significantly.

But the fracking revolution will go global and this Raving shows how this is already starting to happen. Fracking is occurring in NZ already but not on the scale to have a major impact on local gas prices.

But even if there aren't any major new finds in NZ as a result of either elevated exploration or because of the new technologies being used to extract oil and gas, we should in time benefit from much cheaper energy and petrol/diesel prices because of global developments.

I am not an energy expert, although I have worked with several. I follow international energy market developments reasonably closely because of the exciting prospects in the pipeline.

This Raving draws on reading I have done on the topic over the last 1-2 years. Technological innovation is the quiet revolution occurring in many industries including the international energy industry that should get down energy costs over the next decade, make a significant contribution to economic growth and help the environment.

What is fracking?

"Hydraulic fracturing also hydrofracturing, fracking, or fraccing) is a well-stimulation technique in which rock is fractured by a hydraulically pressurized liquid. A high-pressure fluid (usually chemicals and sand suspended in water) is injected into a wellbore to create cracks in the deep-rock formations through which natural gas, petroleum, and brine will flow more freely. When the hydraulic pressure is removed from the well, small grains of hydraulic fracturing proppants (either sand or aluminium oxide) hold the fractures open once the deep rock achieves geologic equilibrium.

The hydraulic fracturing technique is commonly applied to wells for shale gas, tight gas, tight oil, and coal seam gas. Such well-stimulation is common throughout the exploitation of the field to greatly increase the flow rate. Stimulation is intensified to extend the period before production declines.

Hydraulic fracturing began as an experiment in 1947, and the first commercially successful application followed in 1949. As of 2012, 2.5 million hydraulic fracturing operations had been performed worldwide on oil and gas wells; over one million of those within the U.S.

Hydraulic fracturing is highly controversial, proponents advocating economic benefits of readily accessible hydrocarbons, and opponents concerned for the environmental impact of hydraulic fracturing including contamination of ground water, depletion of fresh water [see page 7], degradation of air quality, triggering of earthquakes, noise pollution, surface pollution, and the consequential risks to health and the environment." (Source: http://en.wikipedia.org/wiki/Hydraulic_fracturing )

Fracking has resulted in dramatically lower US gas prices and the world will follow

The US has front-run fracking over the last decade, with a dramatic impact on domestic gas prices. US natural gas prices used to be dramatically more volatile than the West Texas oil price prior to fracking playing a major role, but there was a definite link between the two prior to 2009 (left chart).

Between 1998 and 2008 the correlation between the two was 0.80, which compares to a maximum possible correlation of 1.0 (i.e. it was high), but since 2009 the correlation has been mildly negative at -0.18. As the extraction of especially gas via fracking exploded in the US a dramatic gap has opened up between US oil and gas prices.

Fracking has been a dramatic game changer for US domestic gas prices. To put it in perspective, if the gas price was in line with the oil prices it would be around three times higher than it is today. No wonder energy-using manufacturing industries are experiencing a renaissance in the US.

The left chart above shows the massive international competitive advantage the US has in terms of gas prices, with the Russian gas price being relevant to European consumers. US gas isn't being exported because of legislative restrictions and a lack of infrastructure. Export licences are being approved and contracts to supply gas in the future have been signed. Some Asian buyers panicked and signed up for so much future supply they are now trying to sell some of it to European consumers.

Future US gas exports are already playing a part in getting down international gas prices. Pressure from Asian gas consumers and especially Japanese consumers is helping bridge the gap between US gas prices and international prices. This may be having an impact on Russian gas prices. The right chart above shows that up until late-2013 the Russian gas price remained closely linked to the West Texas oil price. The best fit was the oil price leading the gas price by six months with an extremely high correlation of 0.97. Where the oil price went the Russian gas price largely followed six months later. But a gap has started to open up between the Russian gas price and the oil price, although this may only be partly because the threat of the US exporting cheaper gas is starting to impact on international gas prices. The prospect of the US exporting gas is a threat to Australian gas export plans.

The US revolution is resulting in a dramatic fall in US net oil imports at the same time US consumption has stopped growth (see this link for a good CNBC article that also provides some info on the boost to US manufacturing from cheap gas prices). The chart below is sourced from the original NBC article (i.e. before it became CNBC - I apologise for the poor quality of the chart). Reduced US imports means international producers have to export more to other markets, which includes Canada and Mexico that are boosting or planning to boost production via fracking. There are plans for major new pipelines and port facilities in Canada so it can export shale gas to Asia and especially Japan.

There are environmental and financial risks associated with the US fracking revolution, but the financial incentive for the US to expand the use of fracking is likely to win out and the same is likely to be the case around the world to varying degrees (see below). The world gas market will become more integrated, as discussed below, meaning price differentials will narrow. Prices around the world probably won't fall to current US levels, but they should fall significantly, aided by the march of technology.

US and global shale gas potential thanks to fracking

The US still has some major areas to apply fracking and boost oil and gas extraction from shale rock and "tight" formations. Here a video that provides background info on fracking as well as the huge potential to increase extraction of oil and gas using fracking from the "Petroplex" area in Texas. I recommend watching this video, but ignore the tail-end plug for investing in a related company.

There is great scope for debate over how much US oil and gas production will increase, with this link to a Reuters' article that reviews this potential, but there is massive upside potential. The map below shows how extensive shale gas reserves are in the US.

It isn't all plain sailing, with challenges to fracking in addition to the environmental ones. Some areas are producing more than can be currently shipped.

Extracting shale oil and gas has high upfront costs and it is possible some operators will fail, while gas prices may have to increase more to make larger-scale future extraction possible.

High US costs of extracting oil from shale formations and high debt levels are a threat to some companies, with the threat increasing if oil prices fall more and interest rates increase.

But technology is coming to the rescue in the form of "multi-well pad drilling" or "octopus" drilling that dramatically reduces upfront costs (both land and drilling platform) and dramatically increases recovery rates (see this  video about octopus drilling but again ignore the trailer offering investment advice, while this link is a brief Santos video about using multi-well pad drilling to extract coal-seam gas in Australia).

The US is granting export licences for gas while the potential for shale oil and gas extraction around the world is massive (see the map below that excludes Russian reserves). But it will be some time before other countries catch-up with the US.

There are technical challenges to adopting US shale techniques (e.g. different geology that means difference techniques are needed) and the US companies aren't giving away their secrets.

There are major infrastructure challenges (e.g. the lack of infrastructure to transport the gas from where it lives to the factories and homes that will use it).

But the potential returns are so large the obstacles will be overcome. In the case of China part of the motivation is to reduce the massive reliance on coal-sourced energy because of the air pollution caused by coal.

The map below shows known "world" shale gas resources and was produced by the US Energy Information Agency (EIA), it may be slightly dated but it shows that there is lots of the stuff around the world even when Russia is excluded. The following text explains the map: "In total, the report assessed 48 shale gas basins in 32 countries, containing almost 70 shale gas formations. These assessments cover the most prospective shale gas resources in a select group of countries that demonstrate some level of relatively near-term promise and for basins that have a sufficient amount of geologic data for resource analysis. The map shows the location of these basins and the regions analyzed. The map legend indicates four different colors on the world map that correspond to the geographic scope of this initial assessment:

  • Red colored areas represent the location of assessed shale gas basins for which estimates of the 'risked' gas-in-place and technically recoverable resources were provided.
  • Yellow colored area represents the location of shale gas basins that were reviewed, but for which estimates were not provided, mainly due to the lack of data necessary to conduct the assessment.
  • White colored countries are those for which at least one shale gas basin was considered for this report.
  • Gray colored countries are those for which no shale gas basins were considered for this report." [This includes Russia where there is major potential - see below.]

China has started to make early progress with fracking and has the advantage of being able to largely ignore some of the environmental fallout. This needs to be viewed in the context of the drive in China to reduce the reliance on coal that is reported by make-up 70% of energy supply, with coal having a much larger negative environmental impact.

This link below explains some of the challenges in China, but it is a bit dated.

"Demand for natural gas is set to nearly double within five years in China but the emerging market giant will meet half that with domestic supplies, the International Energy Agency said Tuesday. … demand for cleaner-burning natural gas was likely to grow in China as air quality concerns prompted authorities to take measures to reduce pollution." (Source.)

Russia will in time become a major playing in shale oil (and gas) production: "According to BP analysts, Russia may become one of the world's chief countries in shale oil production. Tax incentives are already in place, the only stumbling block is the technology. According to a BP forecast, in 20 years' time, Russia will become the world's second largest tight oil producer. The company's experts estimate that by 2035 it will be producing 800,000 barrels of shale oil a day.

When it comes to shale oil, there is a confusion in terms between Russia and the United States. What is known in the U.S. as shale oil, meaning that it is produced from oil shale, has been since Soviet times known in Russia as tight or unconventional oil.

Russia's oil majors confirm BP experts' predictions by declaring that they view unconventional oil production as a priority. A source at Rosneft said that the company's estimated reserves of shale oil stood at about 1.4 billion tons." (Source.)

The current embargos on Russia will have a negative impact on oil and gas exploration: "Fresh U.S. and EU sanctions imposed on Moscow will bring an abrupt halt to exploration of Russia's huge Arctic and shale oil reserves and complicate financing of existing Russian projects from the Caspian Sea to Iraq and Ghana." (Source.)

But Russia and China have signed major deals, including plans for massive spending on a pipeline and port facilities that will increase Russia's ability to make use of the massive potential it still has to increase oil and gas production via exports to Asia (here and here). It will take some time, but the global gas market will become much more integrated over the next decade, which should mean less disparity between gas prices in different parts of the world (i.e. the US will lose the current major competitive advantage it currently has). It may result in higher US prices, but should mean significantly lower gas prices outside of the US.

Things are moving slowly in Australia because of environmental constructions, but it could in time become a significant player in the global shale gas market if it can be cost competitive (see here and here): "New draft regulations which pave the way for the start of commercial shale gas fracking have been released in Western Australia. WA is estimated to have one fifth of the world's shale gas reserves, natural gas which is released by fracturing shale rock thousands of metres below the earth's surface."

Even the UK is trying to get in on the game: "Britain is on track to "accelerate” its shale gas programme, according to Michael Fallon, the energy minister, as he confirmed a new licensing round for oil and gas explorers will take place next year [2014]. The Government will next year [2014] launch the UK’s 14th onshore licensing round, he said, announcing that engineering consultancy AMEC has been hired to do the environmental assessment of plots' suitability for exploration. The last such licensing round closed in February 2008, meaning this will be the first to take place since the shale gas revolution in the US, which has been at the forefront of the drive to extract methane gas trapped in layers of shale rock."

Japan and India are working together to get down Asian gas prices (here).

As the fracking boom goes global it should mean not only cheaper gas prices outside of the US and maybe somewhat higher prices in the US, it should also mean lower energy prices more generally (see this link for a Reuters' article that partly links the latest fall in the oil prices to the gas revolution in the US).

Fracking and shale oil and gas are only a part of what will shape global energy prices over the next decade and beyond driven by technological advancements.

The next Raving will look at the advancements being made with solar energy that should have a negative impact on oil prices and positive impacts on global economic growth and the environment.

The water threat to fracking; enter cryogenic fracturing and hydrogen-sourced energy

Fracking uses lots of water and parts of the west coast of the US have been experiencing a protracted drought that is playing a part to fuelling opposition to fracking that could end up being a significant obstacle (see this link - you may need to use Google or Firefox rather than Chrome to open this link as I couldn't get it to open with Chrome). This link has reference to a report about a new fracking technique that could partly solve the water problem: cryogenic fracturing.

This link is a better source of info about cryogenic fracturing. Water is the solution when it comes to hydrogen-sourced energy that will be covered in the third Raving in this series of Ravings on the energy revolution. Where this march of technology leads to in the energy field I can't tell, but the possibilities are both fascinating and enormous and it appears to be time to start taking the potential sources of lower energy prices seriously.

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*Rodney Dickens is the managing director and chief research officer of Strategic Risk Analysis Limited.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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Clueless.....yet another economist who not understanding engineering a geology thinks we will be fine.
Meanwhile the price of oil continues to dive,
http://oil-price.net/  (1 year chart)
That isnt a sign of over-supply but lack of demand, but no problem, no worries.
PS go read up on EROEI
PPS dont confuse the temp abundance (say 2 decades) of shale Ngas with a very temp blip in shale oil output (say 2 years).  Ngas is not crude oil.
PPPS look at the output collapses of tight oil/gas wells, the costs to drill, the impact on the water tables and the amount of water needed.  Water by the way is needed for food production. Cyrogenic? and the costs? look back a EROEI.
regards
 

It's ok Steven there is heaps of oil left.  It dosn't matter if it takes 2 barrels of oil to get a barrel out the ground.  We are worried about making money not energy.  Like all good ponzi schemes debt is the best way to keep it going.

Mate , the world is not about to run out of fossil fuel , in this fossil fuel age .
That prediction has been around since about 1888 ( over a hundred years ago)
We will move on to other energy forms way before we run out of fossil fuels

Sure we will.  Such as?
 
I know I know "we didn't leave the stone age due to a lack of stones"  

Nope, 100% wrong again on so many levels.  I have not said oil is about to run out, what Im reading and understanding is we are at maximum production per day and we ration that via price.  So what happens then like 2008 as the price climbs to around 6~8% of GDP (depending on country) a recession occurs which collapses demand and hence price.
Right new we are seeing a price drop in oil, the Q is, is that  signalling another recessionary bout....suspect so BDI is also down.  Whats left to keep us afloat? a ponzi scheme in property in many countries.
There are no other energy forms for transport giving an EROEI of over 8 to 1, none, nada. 
regards
 
 
 

UK shale plays are pretty interesting.  Really good study on shale gas (from fracking) in UK, environment impacts V coal and renewables here:
 
http://www.sciencedirect.com/science/article/pii/S0306261914008745
 
Beats even solar on some measures (amount of metals needed for panels which produce bugger all energy over lifetime makes solar very limited still). Likewise with windfarms. Only good old fossil fuels have the density of energy needed to fuel the world (and nuclear, which may play bigger parts in decades to come with further advances).
 
iGas is the UK firm with the biggest shale deposits after recently taking over australian firm dart energy.  Can still buy dart energy (DTE) shares on the asx for around 12c a share, equivalent to buying iGas on the UK listed AIM for around 0.83GBP (last traded around 0.92GBP), and has target prices of 1.70GBP. 
Other countries are forced to follow US in lock step, because if they dont, then they die.  Chemical companies in UK/germany that use methane as feed stock can not compete with US companies, this is the most directly affected type of company, many many more down the chain will start feeling the pitch eventually as the US continues on it's merry way and the rest of the world twiddles it's thumbs listening to irrational and illogical greenies while they chain themselves to diggers

Meanwhile as the bullshit spins UK consumers are switching from natural gas to wood for home heating because the gas is too expensive. As my contact there says, wood is the new oil.

Thats what you get when you have luddite greens running energy policy. Not to mention 25k extra eldery deaths annually due to fuel poverty. But hey the EROEI on firewood is 30 so that is all that matters.

Gee really? Nothing to do with the UK oil fields peaking so that they now have to import natural gas? Than isn't green policy buddy, dumbass thinking that it was inexhaustable created that scenario. Those deaths are on the head of people like you.
 
Only reason EROEI is so high is that fossil fuel is used to transport it. Otherwise the only thing that matches the EROEI of wood is domestic coal, where that occurs.

Gee nothing to do with building windfarms with intermittent supply that need to be backed up by idling power stations running sub optimal to kick in when the wind doesn't blow. Or when it snows and wind turbines produce nothing just as demand goes thru roof.

Here is an example of green energy policy. You could not make this shite up if you tried. From that bastion of greeness the BBC.

"Two diesel power stations planned in Plymouth will compensate for fluctuations in supplies from green energy, say developers.Green Frog Power got planning permission last year and Fulcrum Power has made an application for a similar power station.The Devon-based Regen centre for green energy questioned the use of diesel generators. Both firms said their power stations supported renewable energy.

What is any of that nonsense got to do with the fact the UK peaked in domestic energy production 10 years ago. That is two energy peaks in 100 years.

The UK consumers are switching from natural gas to wood because their energy costs too much becasuse of green energy policy. They have plenty of gas so it must be policy not due to the lack of energy reserves. If they has a rational policy they would be hooking into their shale gas reserves e.g. the 1300 tcf Bowen field rather than "investing" in diesel gensets and wind farms or burning Missisippi wood pellets in Drax power stataion(!). I see the other day they found a few more trillion tonnes of coal on top of their 3 billion reserves. Proven oil reserves 4 billion tonnes. No shortage of energy reserves just no shortage of NIMBY's and chicken littles driving energy policy. Their Climate Change act was written by a Friends of the Earth chicken little ffs. You reap what your sow. It would be laughable if it would not for the premature eldery deaths.

Red Herring, the thing is wind never stops with a distributed system and multipe wind sites.  Actually if you look at Germany with its Solar and wind it has enjoyed the greatest stability and lowest outages for years. 
http://energytransition.de/2014/08/german-grid-more-stable-in-2013/
It has also gutted the peak charging regime that the utilities used as a monopolistic tools to pillage businesses. 
So what we see actually is businesses can get on with making goods with lower overheads.
URL for your BBC link BTW?
If we look here (I assume it is this),
http://www.bbc.com/news/uk-england-devon-22845487
"Fulcrum said in its application that fluctuations in supply are "predicted to become greater with the advent of unpredictable renewable generation such as solar and wind""
Yet from actual data above we see this seems not to be the case.
So, we have a business, a vested interest wishing to run deisel generators in order to maybe make money and using rather dubious claims to do so. 
Funny thing but when you look at some rural uptakes of wind in say Texas it has revived the local economies and provided jobs.
 
regards
 
 
 

Have you not read the Rime of the Ancient Mariner? As you can see from this graph wind does indeed stop blowing in a practical sense. 5,000 turbine producing 0.2 GW ! Nuclear electricity then has to be imported from France or you have to have diesel gensets stitting around.  The mere fact gensets are installed shows how flawed their energy policy is. And then you have to pay wind farms to switch off when they produce too much- this highlights their intermittent supply issues. If you build a turbine you also have to build a backup power source. How green/cheap is that?
http://www.euanmearns.com/wp-content/uploads/2014/01/europe_wind_june13.png
http://clivebest.com/blog/wp-content/uploads/2014/04/wind-percent.png
I'm glad you are coming around to Texas energy policy. I knew you'd get there in the end.
And this gem:
"The REF said energy companies were paid £900,000 to halt the turbines for several hours between 5 and 6 April." Nice work if you can get it. And you get to feel good about yourself 'cause you are saving the world.

Sure there are "issues" with the markets, this doesnt affect the outcome coming to the max output of oil per day...when it comes.
"REF" refers to scotland it seems, not texas.
and there was a reason,
"Mr Larque said a transmission fault in the system meant the surplus energy could not be transferred to England and so generation had to be cut.'
so yet again you cherry pick.
In terms of generators sitting around, well they sit around for nuclear outages as well, its known as resiliance, spare capacity to keep the lights on and people warm.  So the cost is there anyway.
Texas (and the US) is showing some severe conflicts. Some texans see how wind energy is benefitting them while not benefitting the utilities and hence we see bought pollies trying to shut down wind.  That just shows how much of a banana republic the USA has become.
regards
 

Not Green luddite policy, this is cost driven. "true" greens are all for technology, green sustainable technology as they know its a long term solution and not a quick fix. Now sure there are some mis-guided la la land Green's who think we'll just carry on but all be driveing EVs, um no.
"fuel poverty" well sorry but as you use up the cheap energy first the remainder gets more and more expensive. If that costs escalates at a rate that the economy cant stand the economy collapses in a recession if not a depression aka 2008.  So all you are complaininga bout is keep fuel cheapish for a bit longer at the expense of a lot more cost later. 
regards
 
 

See gas price quote above. Fuel poverty kicks in when green luddites get approval to run diesel gensets to back up "green" energy supplies. As for EROEI should we all go for coal, firewood and nuclear then? Once we chew through the sea of gas and ever increasing proven oil reserves and assuming technology advance stops in its tracks today.

These are not Green. They are also being put in to back up nuclear as well. Lots of dubious claims and not much sign of being green a marketing gimick it seems.  Oh and BTW, this is cherry picking one data point yet again to cliam validity.
Your EROEI is out of context for these three, none work and especially not as transport fuel at a price we can afford.
THE US has shale gas sure, and is getting it at huge cost in water, damage to the environment and at dubious finacial returns, ie its looking like a ponzi scheme the gullible are buying into.
These oil reserves you claim on are proven in context that they exist, not that they are technically and economically extractable and at the rates per day we need, they too suffer from a bad EROEI.
regards
 
 
 
 
 
 

Mate why have you ever bothered to find out what the technical term proven reserves means? Let me help you -  "geological and engineering data demonstrate with ‘reasonable certainty’ (80% to 90% confidence) to be recoverable in future years by specified techniques (the development scenario has been defined and uses known technology) and which are commercial under current economic conditions (prices and costs prevailing at the time of the evaluation)."
Thus as technology advances or energy prices increase then proven reserves go up. That is why proven oil reserves have gone from 600 million to 1.6 trillion since 1980 when President Jimmy said were supposed to run out of oil.
"The EROEI is out of context" - yes that is why nobody uses the term.

I know what the terms are.  I also understand the economic costs in terms of $s does not add up in terms of what us as individuals and as an Ecoonmy can "afford"  when it comes to heavy/shale oil. This in a nutshell comes back to EROEI.  The fact you are unwilling for for your own political or vested interest reasons to grasp this isnt my problem.
The 600 going to 1.6trillion is about the heavy oil now being thrown in with the cheap conventional crude oil.  What "Jimmy carter said",
Well here is his speech,
http://www.pbs.org/wgbh/americanexperience/features/primary-resources/ca...
again context which you constantly twist into un-truths, he never said we'd run out of oil in the 1980s.
What he said was,
"The oil and natural gas we rely on for 75 percent of our energy are running out."
and,
"we now believe that early in the 1980s the world will be demanding more oil that it can produce"
Nothing like what you claim.
however events like 1976 changed the degree of oil use and instead was delayed until the first decade of teh 21st century.  Now we regulate demand oil based on price, hence pay $100 a barrel and not $10.
So really it seems you constantly cherry pick out of context, twist data and it seems even lie about events, what ppl said and data to further your own political ends...yeah sound thought processes, that.
regards
 
 

If you understand the terms then why did you say "These oil reserves you claim on are proven in context that they exist, not that they are technically and economically extractable".
"we now believe that early in the 1980s the world will be demanding more oil that it can produce" - sounds like running out to me.
I think the world can afford shale oil at $45-$55/bbl or ROI of 30-60% at today prices.
My political ends? WTF?

Twisting your own words now,
"were supposed to run out of oil."
to,
"like running out to me."
Indeed we are running out, nice to see you get it, finally.
However you still dont get peak production per day.
marginal oil is priced at $90+ not $45, ie new fields.  There is also considerable question around what the true costs are v actual decline artes across all wells and not a few good producers.  One to watch as we see the shale oil players start to go bankrupt.
"Political ends", yes indeed.
regards

Demand is flat and proven reserves have tripled since 1980 and oodles of cheap gas is around to eat oils lunch. The ROI of putting a well down in wolfcamp is 63% and the breakeven prices quoted earlier are $45-$65 for September 2014. Running out yeah right.

The debate has never been about 'running out' of anything, it's always been about the rate of energy production (or should I say extraction).
Quoting reserves is largely irrelevant. For example, if you have $1,000,000 but can only spend $100 each day you're never going to be able to live like a millionaire. Rate of production (i.e. how much energy society has available in real time) is the key metric.

Shale reserves are vast (I completely agree with you there), however it remains to be seen whether they are able to sustain the current rate of oil production we enjoy today, it will certainly be interesting to see if they can as conventional oil continue to decline. As I said, quoting big reserve numbers sound impressive but this is not the issue at hand, pretending otherwise only muddies the waters.

That's why I quote Proven reserves -technologically and economically recoverable today - not total reserves. Thus if the price goes up and with technology advance the proven reserves will increase as they have done every year to date.

You've missed my point (or have deliberately chosen to ignore it). I'll say it one more time, reserves are not the key factor, the rate of production is.

Production rate (i.e. barrels extracted per day) determines how much energy we have available at a given point of time to use to run society on. In this repect reserves are irrelevant.

EROEI, more money to extract more expensive oil cancels out at some point.  Generally its 8 to 1. Even at 8 to 1  much of the economy as it is today is gone.
regards

Quoting reserves is largely irrelevant.
 
And hence Profile is largely irrelevant. The only reason I bother replying to him is so that anyone who also can't think for themselves has a counterbalance. I mean otherwise you wouldn't bother wasting your time would you?

Yeah, it is frustrating as quoting 'reserves' completely misses the issue.

We're always going to have plenty of fossil fuels in 'reserves', we just won't be able extract them at a rate fast enough to keep 'business as usual' going.

Nice hair split. I am not quoting "reserves" am I. I'm quoting PROVEN reserves. If if the flow rate is not economically or tech feasible then it is not proven then is it. You do understand the concept of proven reserves don't you? It is essentially an accounting term for oil asset valuation. If I was talking about total reserves you would have a point. Why do you think the IEA, EIA and oil industry accountants spend so much time and energy putting together proven reserve info? If we aren't "able to extract them at a rate fast enough" then they aren't proven.
EIA Proved reserves definition for chicken littles: "Estimated quantities of energy sources that analysis of geologic and engineering data demonstrates with reasonable certainty are recoverable under existing economic and operating conditions. The location, quantity, and grade of the energy source are usually considered to be well established in such reserves."
 
 

You are actually the one that fails to understand, um no I think you do, you are just trolling.
Reserves is not oil flow, Proven just says its probably recoverable, no mention of rate.
"Proven Reserves: an estimated quantity of all hydrocarbons statistically defined as crude oil or natural gas, which geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions.'
http://www.opec.org/library/Annual%20Statistical%20Bulletin/interactive/...
Thing is about much hvy oil the production rate is likely to be way to low to replace conventional crude as that output declines at 6% ish (typical).
regards
 
 
 
 

You seem to be ignoring the word "economic". If the flow rate is too low then it won't be economic to extract therefore won't be included in proven reserves.

No, proven reserves does not mention flow rate with an inferred link to economic. Purely if it is there, and if it is technically, economically or maybe technically and economically ecoverable in the future, no mention of rate/flow.
"an estimated quantity of all hydrocarbons statistically defined as crude oil or natural gas, which geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions. Reservoirs are considered proven if economic producibility is supported by either actual production or conclusive formation testing"
So its perfectly possible to have a small and economically flow rate within how "proven" is defined, though the latter is questionable, eg Canadian tar sands.
regards

No, its on purpose. The thing is for profile is such right wingers can see when the going gets tough there will be considerable changes and its bye bye capitalism and "freedom" Lots of parasites are going to find they are carrot pullers, if as Kunslter says they are not found hanging from lamposts.
regards

Perhaps you could provide some industry stats or links to help you case? That would really convince those poor people out there that "can't think for themselves". That's a high horse you've got there.

The oil industry generally hides its numbers, as its a vested interest hence yet again it looks like you are cherry picking data.
Of course I believe you said you had invested in oil?
so you to are a vested interest.
regards
 

http://www.telegraph.co.uk/finance/newsbysector/energy/oilandgas/11126668/Ineos-offers-2.5bn-to-communities-disrupted-by-shale-gas.html
 
Right on queue...
 
Ineos, UKs largest chemical producer who recently brought into a Scotland shale play (other half owned by DTE the asx listed company i mentioned above).
Offering $$ to shut up the greenies to get this thing going in the UK as currently Ineos has to import gas from the US and can not compete...

dp

Much cheaper petrol just around the corner.  cue Tui ad. Will have to bookmark this one and revist in 5 years, should be a good laugh.

Will you still have the energy to visit here in 5 years time? ;-)

The petrol price in the next five years is going to be driven how much Jokowi cuts fuel subsidies by not by advances in fracking technology.

um?  "Jokowi" Joko Widodo is an Indonesian politician who is currently the Governor of Jakarta and the President-elect of Indonesia."
Indonesia is already a net importer of oil, it cant afford to keep the fuel subsidies going so prices will rise, ditto Iran etc.
So this is of no interest in global and NZ terms.
regards

It is set to become the world's biggest importer of gasoline. From Woods Mac "will increasingly influence global trade flows and prices by 2018". C'mon man google stuff before you comment.

Well when you dont set a context. though that is normal for you isnt it, looking for cheap point scoring on cherry picked, often wrong or inconsquential data.
So sure their demand is going to push petrol/oil prices up, just like it has increases in china and india, makes it far worse for us, especially rural NZ.
regards
 

I'm curious whether there is now a significant lift in efficiency in (updated, more modern) vehicle fleets around the world and if this is having some impact on demand for oil?

Here you go. This chart is quite interesting. Is it the Uber effect, retiring baby boomers or fuel efficiency? - even a F-150 gets 1/3 more milage than a decade ago.
http://t.co/oQ4zOXqUqP

“MPG is certainly a factor in the US drop in demand for fuel, especially since many manufacturers have reported their best monthly sales figures in years as recently as July and August of this year,

Lets try some actual numbers,
"The Ford F-150 is now at 19 MPG, up from 14 for the 2004, and Edmunds says it is the top-selling model of the first eight months of this year."
http://blogs.platts.com/2014/09/19/us-gasoline-demand-falling/
So a 5mpg improvement after 10 years? wow what a huge gain. It is still however the top selling model so its numbers will have a significant effect on the average. All that for still doing 55mph and much of it cruising on a motorway, makes soo much sense, not. Swapping to a prius would get you something like 60mpg(US) a 4 fold gain and not a 5MPG one.
Also cart before the horse, is MPG a cause of the drop in demand or a symptom.
regards
 
 

"After peaking in 2005, jet fuel consumption in the United States has fallen by almost 15 percent, the equivalent of more than 200,000 barrels per day, according to the U.S. Energy Information Administration (EIA).U.S. airlines' fuel saving programme is just one example of how higher oil prices over the last decade have transformed transportation, and led to demand destruction which is likely to prove permanent. Most of the fuel economies which have been implemented in the last decade will not be undone, even if oil prices fall."

You seem to have copied that from the Reuters news article, from an article that starts "Higher oil prices have had a traumatic effect on U.S. airlines, forcing carriers to re-examine every aspect of the way they do business in a bid to control costs"

 

 Indeed, it almost looks like selective quoting taken out of context, as the article talks about how fuel costs have increased by 400%, so being able to saved 15% by flying slower still leaves them with major problems.

 

 

http://www.dailymail.co.uk/wires/reuters/article-2770920/Airlines-fly-sl...

 

Yeah it was from the reuters article. The point people are doing thing things more efficiently. The structral reduction in fuel demand is not just about the GFC as much a some people would lead you to believe. I think everyone is aware fuel prices have increased and posting the whole article isn't really practical. Hamish' question was about fuel efficiency and that is how these guys have made savings - not by flying less flights. So it is within context of Hamish' question.

Really? sure some things are more efficient, but yet Americans for instance are spending twice what they were a decade ago on gas,
"High fuel prices hit poor families harder, with the lowest spending nearly 13% of their income on gas"
The poor are also usually least able to make efficiency gains as they lack capital.
http://www.usatoday.com/story/money/cars/2014/09/26/gasoline-gas-price-c...
 
 

But as the chart above shows the economy as a whole is using less oil so that's good right? Perhaps windfarm and solandra subsidies could go to natural gas conversions. But I suppose where is the porkbarrel opportunity in that.

Not necessarily, if the economy is using less because its making less, and it seems it is, no, it trems of the economy.
There is pork barrelling in fossil fuels...just what the differences are I dont know.
 

not by flying less flights
Er, they are flying less flights. it says so in the article. they are flying less flights and flying those flights slower to save fuel. They've also put in smaller seats to fit more people in a flight.

But the fact is more passengers were flown using less fuel - thus more efficient. That is a good thing right? "revenue passenger miles rose by 6 billion (0.8%)"

It has never been about oil shortage. The peak oil hype is a ploy by OPEC to keep the oil price high.
http://www.bloomberg.com/news/2014-09-16/deeper-saudi-oil-cuts-seen-after-biggest-drop-since-12-energy.html

The price of oil has to stay high because the unconventional oils need the high price in order to extract them at profit. Secondly, the break-even price for OPEC is now ~$100 per barrel, any lower and their budgets are in the red.
Capital expenditure for oil companies has also risen hugely over the last decade (i.e. they have been having to spend increasing amounts of money to produce the same amount of oil).

The price of oil will stay high because the US is now the swing producer. Oil price gets too low stop drilling. That is the beauty of fracking - you know the oil is there is so not so much exploration risk. More like harvesting a forest than old school prospecting.

Wolfcamp is the second largest oil field in the world and has a ROI of 30% at $60/bbl. It is around 60% at todays prices. Not bad at all. Eagle Ford has a break even of $45/bbl.

Hence if you don't get amongst it the US is going to take your jobs. And then there is the gas...

" It is our view that the global market is now entering its next phase, potentially one of transition to a period of significant oversupply.  This may have profound implications for the evolution of both gas and power markets "

The few parts of the shale oil plays that are profitable are going to be declining within 2 at most 4 years. Much of teh other shale plays and even other parts of the above are not at this cost and will probably never be drilled.
The price of oil will only stay high while there is the demand, if we see another recession the oil price will drop again just like it did in 2008. Sure OPEC will try to drop output to keep the price high, trouble is its member s are desperate for the $s....so probably, as usual wont comply.
"get amongst it" jump on over the the US and see how it goes for you. Ar15s are very cheap over there, you might need 1 or 2 just in case.
You seem to mix up oil and gas repeatedly, as if trying to mask the issues with oil by pointing at gas.
"over supply" that may well be the case for shale gas in the USA, not so for oil, and questionable about GAs outside of the USA, unless the over-supply comes from lack of demand.
regards
 
 
 

Oil is over supplied in the the US thats why people want to export it...domestic supply is about to reach refining capacity. That is when it is going to get interesting.

The issue with oil is the US is that it is too expensive when compared to gas hence Volvo and Cummins putting out gas engines for heavy rigs to take advantage if the price differential.

I think its more correct to say that in the short term ppl want to get the best price for their oil and are prevented from doing so.  This means that the price of petrol etc to US users is artificially a bit lower.  So all those jobs you seem to think the US will take is dependant on an artificially depressed price. If/when that discount goes away US consumers will face price increases, that will do the US economy little good and probably much harm.  "interesting" um well no, the USA has maybe 4 years of such abundance before US shale oil output drops off, that opportunity it seems will be wasted.  Ex-shell CEO made it clear that that is plian crazy....ie looking at an energy policy 2 years out and not 50...oh wait Obama is in of course, he kept his mouth shut under Bush.
Ngas rigs (trucks etc), sure there are some conversions, but not wholesale.  It looks like few will take up the gamble that the expense of the conversion (or extra cost from new) will be paid back before gas prices rise canceling the payback.
regards
 

I don't think it will happen it is already happening. This is from 2013:

Lower energy and feedstock prices help narrow the production cost gap with countries such as China to make exports more competitive.According to research and analysis firm IHS, a number of large chemicals companies have announced plans to spend a total of about $95 billion to build or expand facilities in North America for exports, lured by cheap feedstock."

You can't have it both ways on the gas conversions. You would be "taking the gamble" given you think were about to run out of oil.Volvo Cummins obviously have long term plans or they wouldn't bother. If oil runs out like you then people will make the switch wholesale with gas booming out past beyond 2040. Sure the price will converge but that is the market at work isn't it. Transport is the big daddy for oil consumption so it is nice to have a viable alternative rather than chicken little scenarios. Especially given the health benefits.

As ppl move to gas, and they will its price will rise and its reserve will be eaten into that much quicker.
2040? that for instance is the possible peak on present consumption?  lets say that consumption doubles....thats a far earlier peak.
regards
 
 

Usually when prices rise consumption is lower not higher. I don't follow your gas price logic.

When you get beyond very simple economics, then it should become apparant.
regards

Yeah well to paraphrase Rutherford if your theory can't be explained to a barmaid it isn't much of a theory is it?

Well even Rutherford wouldnt try explaining say quantum mechanics to most ppl let alone a barmaid.  Anyway, supply and demand is a very simple construct.  Simple its the flow rate, so if the flow rate is less than the demand, price will rise aka crude oil since 2004 its gone from $30US to $148USD and caused a recession which caused a price drop.
Then consider that price is dropping pretty quickly at the moment, and given commodities are down and the BDI, well that suggests another recession is possibly happening.
We then move on to elastic and in-elastic demand when you look at petrol / oil prices, and all the other complexities of a real economy. 
regards

This speel still doesn't explain your "theory" that the consumption of gas will rise if its price increases. Perhaps lay off interest.co.nz for a while and spend more time with barmaids to get your theory sorted.

I just explained it to you as very simple supply and demand , this school level economics which it seems you cannot fathom did you leave at 15?
To repeat, if the increase in demand outstrips the increase in supply just like it did with oil in about 2004 and because we are in a free market where we ration on price the price will rise until enough dont buy.
regards
 
 

I see you finally added in the crucial bit where people will stop buying if the price gets too high. Thank you.

 'The dynamic ‘new’ LNG marketplace could be a scary place for these dinosaurs who must learn to adapt – or face dire consequences.  LNG is a commodity and sooner everyone treats it as such, the more efficient the market will be."

The "theory" is based on the FACT that gas demand is not directly and insularly linked to the gas price.

Conversion to gas is an expensive shift - for factories producing the equipment, the research to improve gas technology and efficiency, and for the endusers to uptake on the gas.

As people convert to gas, the more demand will be for the support services (technology, competing brands), this is similar to GDP effect, and so all costs borne by consumers.

Once they convert, the demand will be higher,  as people have already invested and committed themselves to the gas source.  And a bit like fixed loans they will have to wait for their debt and/or service life of euqipment to end before jumping to non-gas.

The higher demand will push up the price.

The higher price makes it more worthwhile to set up gas distribution and harvesting.

This means supply rates will rise.  But if the demand for the raw gas is market driven then the supply will lag the demand, creating a higher price.

Yep, if you look at how much petrol is used and then try and convert say 10% of vehicles per annum to Ngas that gives a doubling of gas demand (roughly) every 7 years.  So every year you have to be putting in plant and capacity to meet that demand and that capital cost has to be met somehow.  Then of course you have also to be drilling a lot more wells. A heck of a lot more wells due to the increased demand plus the awful output collapse of the fracked wells has to be met, so trippling the rig count and wells being drilled and the tail chasing that implies.  Then somehow you have to get a lot of water from somewhere, then there is the scale of the ground pollution from putting a toxic un-disclosed concoction into the ground....bound to end well.
regards
 
 

Rodney Dickens = Profile?  Good to see what he looks like I guess.  

LOL, but Na, Rodney is pretty bright.
regards

Okay ,  where's that glass half empty Peakeverything fellow ?

My glass of wine is currently half empty.

... can't figure that ... got the same amount in mine , but my glass is half full ...
 
2012 Clare Valley cabernet sauvignon , Taylor's .... nice !!!

Ha,  my thinking with the half empty wine glass is which direction are the contents heading.  If I'm drinking it half empty if topping back up half full.  
 
2011 Pinot noir  mt difficulty 

Mount Dif pinot ! Mmmmh.  You are a person of discernment.
I retract all those negative thoughts I had about your past comments.

Exactly, I have an empty glass, it is a glass empty, I pour wine into it to half filled, it is a glass half full, I decide that is not enough so I top up the glass, it is a glass full, I drink half of it down, it is a glass half empty, I drain it, it is a glass empty, rinse and repeat.
Please note that unless you are total addict your glass is going to spend more of its time empty than even half full, let along full

That is fine, it is pretty easy to beat Boatman in an argument even when half pissed. Actually even well pissed :-P

Well if Rodney is correct, which is unlikely, then the world population will be about to explode again after a steady 50 year deline in the rate of growth.
 
Forget looking at oil, look at the outcomes for the true picture.
 

Oh wait you mean we are not on a flat earth? Rodney thinks so.
Incredible how some ppl get employment....
regards

have you looked at the environmental costs of fracking?
delved under the hood of the probable fraud that is going on on costs v output and decline rates?
seems not.
regards

All those comments and not one single one about the environment till now. I would like to know what some of these people who think we have plenty of oil think about oil exploration in places like the Amazon delta or gorilla habitat in Africa.
There is a simply stunning attitude in the world today that seems almost suicidal, and almost gleefully so.
No-one bothered to mention climate change and the amount of carbon now in the air. 

I read in February how badly the risk reward ratio was/is for fraking. There is an excellent doco
called " Split Estate" a film about the environmental disaster that has happened in Colorado where 85% of landowners do not have any control at all over min eral rights companies coming on to their land and setting up fraking operations with their sediment ponds full of chemicals etc. They can't even get the chemicals used that are mixed with water because they are considered proprietary and not able to be re produced because they are legally protected!
The whole fraking scheme is a massive fraud not a massive gain for energy. The cost does not equate to a profit it doesn't even equate to covering the costs! Then add in the loss of water for livestock in places like Texas where the water table has dried up and then add in the pollution and the settling ponds full of chemical sludge left by so many bankrupted fraking cos and you have an industry that is more about pumping up the small fraking cos stocks than genuine long term equitable energyu businesses. Even the majors are suffering under the huge costs associated with fraking.
I guess govt subsidies and policies open to abuse will create any boom you want.

I read in February how badly the risk reward ratio was/is for fraking. There is an excellent doco
called " Split Estate" a film about the environmental disaster that has happened in Colorado where 85% of landowners do not have any control at all over min eral rights companies coming on to their land and setting up fraking operations with their sediment ponds full of chemicals etc. They can't even get the chemicals used that are mixed with water because they are considered proprietary and not able to be re produced because they are legally protected!
The whole fraking scheme is a massive fraud not a massive gain for energy. The cost does not equate to a profit it doesn't even equate to covering the costs! Then add in the loss of water for livestock in places like Texas where the water table has dried up and then add in the pollution and the settling ponds full of chemical sludge left by so many bankrupted fraking cos and you have an industry that is more about pumping up the small fraking cos stocks than genuine long term equitable energyu businesses. Even the majors are suffering under the huge costs associated with fraking.
I guess govt subsidies and policies open to abuse will create any boom you want.

I read in February how badly the risk reward ratio was/is for fraking. There is an excellent doco
called " Split Estate" a film about the environmental disaster that has happened in Colorado where 85% of landowners do not have any control at all over min eral rights companies coming on to their land and setting up fraking operations with their sediment ponds full of chemicals etc. They can't even get the chemicals used that are mixed with water because they are considered proprietary and not able to be re produced because they are legally protected!
The whole fraking scheme is a massive fraud not a massive gain for energy. The cost does not equate to a profit it doesn't even equate to covering the costs! Then add in the loss of water for livestock in places like Texas where the water table has dried up and then add in the pollution and the settling ponds full of chemical sludge left by so many bankrupted fraking cos and you have an industry that is more about pumping up the small fraking cos stocks than genuine long term equitable energyu businesses. Even the majors are suffering under the huge costs associated with fraking.
I guess govt subsidies and policies open to abuse will create any boom you want.

Sorry I missed the fact that the chemical mix used with water cannot be anaylised as to its toxicity because each fraking co has its own proprietary mix considered legally protected.

Some of it may also be volitile, so samples may not survive being recovered.
regards