Reporting gross oil production to hide the collapse of net oil production

[FrankL]

Re: Reporting gross oil production to hide the collapse of net oil production

LOL. I've been listening to this sort of argument since I was a young graduate starting out in the oil industry. The logical extension of your argument is that ALL oil that could be produced should instead be left in the ground indefinitely in the hopes it might be "worth more" on some future day.

As for "sovereign wealth funds", these are always and everywhere creatures of politics...not sensible economics...

of course 'maximizing profit' is not the only consideration going on here. My own vision would be to only pump up a portion of oil to finance development of a sustainable economy (e.g. specialize your academic institutes and local industries in key areas that generate long term revenue). For example you can take the lithographic industry in the Netherlands (ASML / ASMI) whose research is performed by Dutch universities and a public-private funded research institute (TNO).

In reality however, if you are sitting on a huge pile of oil, you either need to pump it up at a speed high enough to please the rest of the world, or you need to finance a military to protect your oil wealth, which requires......... pumping up copious amounts of oil.

So in the end I have no idea if the sovereign wealth fund of Norway is a good investment or not, but I have strong doubts

[Polish_Silver]

Uniqueness of oil

We aren't running out of energy, we are just slowly running out of cheap sources of a particularly important and highly valued form of energy that currently has no single equivalent substitute.

So well said. "Equivalent" includes "comparable cost". Oil really is unique. Hard to imagine a more convenient naturally occuring source of fuel.

[Polish_Silver]

Oil sands cost sought

There are supposedly huge energy reserves in Alberta's oil sands, as well as similiar deposits in Venezuela and other places. Does anyone know what the cost to make a barrel of crude equivalent from them is? How would rising natural gas prices affect this?

[GRG55]

Re: Oil sands cost sought

There are supposedly huge energy reserves in Alberta's oil sands, as well as similiar deposits in Venezuela and other places. Does anyone know what the cost to make a barrel of crude equivalent from them is? How would rising natural gas prices affect this?

In a report published in March of this year, the Canadian Energy Research Institute modeled the oil sands field gate supply costs for:

• Steam Assisted Gravity Drainage (SAGD) at $44.75 per barrel;
• stand-alone mining supply costs at $61.05 per barrel; and
• integrated mining and upgrading (Syncrude) at $89.62 per barrel.

"Field gate" means at the producing facility fence, which excludes blending and transportation costs to get the product to a refinery.

The WTI equivalent costs (e.g. at the refinery inlet) were estimated to be:

• Steam Assisted Gravity Drainage (SAGD) at $64.62 per barrel;
• stand-alone mining supply costs at $81.51 per barrel; and
• integrated mining and upgrading (Syncrude) at $91.07 per barrel.

All of these estimates are a bit higher than comparable Alberta Energy Resources Conservation Board estimates, but compare well with Canadian National Energy Board models.

Rising natural gas prices will raise the cost of all these schemes, but SAGD in particular will be hit as natural gas is the fuel for the steam generators.

Hope that is of some help...

[Polish_Silver]

Re: Oil sands cost sought

• Steam Assisted Gravity Drainage (SAGD) at $44.75 per barrel;
• stand-alone mining supply costs at $61.05 per barrel; and
• integrated mining and upgrading (Syncrude) at $89.62 per barrel.

"Field gate" means at the producing facility fence, which excludes blending and transportation costs to get the product to a refinery.

The WTI equivalent costs (e.g. at the refinery inlet) were estimated to be:

• Steam Assisted Gravity Drainage (SAGD) at $64.62 per barrel;
• stand-alone mining supply costs at $81.51 per barrel; and
• integrated mining and upgrading (Syncrude) at $91.07 per barrel.

All of these estimates are a bit higher than comparable Alberta Energy Resources Conservation Board estimates, but compare well with Canadian National Energy Board models.

Rising natural gas prices will raise the cost of all these schemes, but SAGD in particular will be hit as natural gas is the fuel for the steam generators.

Hope that is of some help...

Does that mean we have a crude price ceiling of $90 barrel + nat gas price ?
there is supposed to be a prodigious amount of this stuff in the ground.

[GRG55]

Re: Oil sands cost sought

Does that mean we have a crude price ceiling of $90 barrel + nat gas price ?

I don't know. It would require modelling the entire continental North America crude oil market...all inputs and all output markets. I say that because there's been a persistent disconnect between WTI and Brent which means, for now at least, a continental oil market has reestablished itself in North America. I believe the implications of this is one of the things that EJ is currently pondering.

There are at least 90 active or proposed projects in the Canadian oil sands. Don't forget that the economics for operating a heritage project with sunk capital costs is quite different from a project under construction or in the engineering stages. An existing facility, especially one owned by a major multinational that is holding the capital on its own balance sheet, is unlikely to be shut-down until the netback to cover operating costs goes negative.

there is supposed to be a prodigious amount of this stuff in the ground.

Yes there is a lot of potential crude in the Alberta oil sands and heavy oil deposits, an estimated 170 billion recoverable barrels. These are located primarily in 3 major deposits: the Athabasca oil sands and the heavy oil sources at Peace River and Cold Lake.

However, as with every source of "unconventional" petroleum and natural gas resource it is capital intensive to exploit, subject to much criticism for real and perceived environmental effects, and highly politicized (the Keystone pipeline controversy being but one example). A number of international oil companies including Norway's Statoil, France's Total and China's CNOOC and Sinopec have taken positions in the oil sands. CNOOC presently has a takeover bid for Canadian oil company Nexen, which operates the Long Lake in-situ oil sands project and upgrader, and at the moment this is proving to be a bit of a political hot potato for the Canadian Federal Government.

[bpwoods]

Re: Oil sands cost sought

GRG55: "However, as with every source of "unconventional" petroleum and natural gas resource it is capital intensive to exploit ..."

How about being energy intensive? You can (within limits!) keyboard and/or print any amount of credit money. I think 'energy' is a tad more difficult to conjure up! There is 'raw energy' which needs some transformation before it is available in a usable form. As long as folk concentrate on the economic (pecuniary) aspect and gloss over the energy (Watts, Joules BTU's or whatever your having yourself) aspect, they will eventually encounter quite a disaggreable suprise.

[GRG55]

Re: Oil sands cost sought

GRG55: "However, as with every source of "unconventional" petroleum and natural gas resource it is capital intensive to exploit ..."

How about being energy intensive? You can (within limits!) keyboard and/or print any amount of credit money. I think 'energy' is a tad more difficult to conjure up! There is 'raw energy' which needs some transformation before it is available in a usable form. As long as folk concentrate on the economic (pecuniary) aspect and gloss over the energy (Watts, Joules BTU's or whatever your having yourself) aspect, they will eventually encounter quite a disaggreable suprise.

If you check my prior posts (the ones where EROEI is brought up) you'll find that you and I are in disagreement on this. If you can you print the money you can buy the energy. The energy input is one of the reasons unconventional resource exploitation is capital intensive...but only one of the reasons...

[BadJuju]

Re: Oil sands cost sought

If you check my prior posts (the ones where EROEI is brought up) you'll find that you and I are in disagreement on this. If you can you print the money you can buy the energy. The energy input is one of the reasons unconventional resource exploitation is capital intensive...but only one of the reasons...

Never mind the fact that oil's unique function and the abundant nature of other energy sources for extraction means that the importance of EROEI is diminished.

[bpwoods]

Re: Oil sands cost sought

GRG55: Its not really significant that you and I disagree - we are not alone! However your statement that, 'If you can you print the money you can buy the energy.' is problematic. Its not untrue - just problematic.

A unit of energy (in whatever physical units you care to use) is exactly the same to-day as it was 100 years ago, and will be the same 100 years from now. But one can hardly make the same assertion about a dollar or a pound or a euro. Some folk even price a unit of energy using a unit mass of gold. Decades ago it may have required 'one unit' of energy to provide '100 units' of energy to the end-users, but to-day this 'cost' may be 5 units. This is the key issue here. The increase in the energy being used to prospect, extract, refine and transport energy is a usable form to end-users. Is this 'cost' decreasing, static or increasing. And if the latter is the rate of change decreasing or increasing. There are still some tricky arguments around this matter, but one matter seems agreed - the energy cost of energy is increasing. The units are in absolute terms and can be ratioed into a unitless number - which is quite informative - and frankly, of considerable concern. It is altogether too easy to consider the cost of energy in money terms - but given the serious complaints about commodity futures trading I must be quite suspicious that the money price of energy may conceal some nasty truths and the economic connection between demand - price should be treated with some positive level of scepticism. Its certaintly no un-important. Caveat lector!

[Slimprofits]

Re: Reporting gross oil production to hide the collapse of net oil production

See this post above.

For a readable history of the oil industry I recommend "The Prize: The Epic Quest for Oil, Money & Power" by Daniel Yergin.

Yergin has a new book out, published in 2011:

The quest : energy, security and the remaking of the modern world

[EJ]

Re: Reporting gross oil production to hide the collapse of net oil production

Yergin has a new book out, published in 2011:

The quest : energy, security and the remaking of the modern world

A word of warning on "The Quest": The Daniel Yergin who wrote "The Prize" 20 years ago approached the topic as a disinterested scholar. The Daniel Yergin who wrote "The Quest" works for the oil industry.

I found this Amazon review helpful: "As someone with fifty-five years of work on energy economics, I find his book a disgrace. It relies on dubious sources and ignores the vast relevant economic literature. It is disorganized. It is padded with historical background of dubious relevance. Anecdotes substitute for reasoned analysis. This particularly true of his treatment of the dangers of importing oil. The jumble of descriptions fails to produce a coherent discussion of the problem and the appropriate approach. This is inexcusable because many coherent discussions are available. These include, but are far from limited to, my decades of work in the area. His discussion of environmental issues in the last three parts of the book has the fatal flaw of first recognizing the folly of picking winners and promoting them by edicts, tax credits, and subsidies and then proceeding to write approvingly of countless measures that in fact try to pick winners by imposing such policies. [My fuller review is in press for publication in Regulation.] In most key areas, he almost always reaches the wrong conclusion. The big exception is that he rejects peak-oil concerns, but his rational is unacceptable feeble." - Richard L. Gordon

[c1ue]

Re: Oil sands cost sought

How about being energy intensive? You can (within limits!) keyboard and/or print any amount of credit money. I think 'energy' is a tad more difficult to conjure up! There is 'raw energy' which needs some transformation before it is available in a usable form.

Energy intensity matters when, not as much how much. If you must expend massive energy to start getting a trickle - for example spending 1000 units to get 11 units back a year for 10 years, that is a very different situation than spending 10 units constantly to get 11 units back. EROEI is the latter.

The capital intensity GRG55 is speaking towards is the need to marshal huge amounts of capital before successful exploitation of non-conventional resources - this is a financing problem and not a production problem per se, I believe.

[BlackVoid]

Re: Oil sands cost sought

EROEI does matter and it is not philosophical or abstract.

Before fossil fuels, human cultures were using renewable energy: whatever was produced by nature via the sun's energy. EROEI also mattered then.

Let's say there was a farmer who planted 10 seeds and got back 100 seeds. The EROEI in this case is 10:1.
I will now introduce another concept: NET ENERGY. The net energy produced by the farmer is 90.
Let's say that the soil quality is starting to worsen, because of cultivation moisture levels are decreasing. The solution is obvious: irrigation. But now the farmer has to feed some animals who help with moving the earth, digging, maintaining an irrigation system, etc. The animals consume 30 seeds out of the 100 originally produced. Our EROEI now declines to 7:1 (10 seeds used to produce 70) and net energy is only 60 (70-10)/.

Of course the farmer would still make money. However the surplus was reduced from 90 grains to just 60, a drop of 33%!!!

1 farmer can now sustain 33% less people than before.

THIS IS A HUGE HUGE PROBLEM, and this is happening right now to industrialized societies around the world. The energy sector (and not just the enetrgy sector, but also the oil producing nations as a whole) gobbles up more and more resources and energy leaving the rest of the society with less energy to spend than before. The result is inevitable: a loss in the standard of living for everybody. This same process repeats itself in many areas, just look up the ore content of ores that are mined for metal. Energy consumption is skyrocketing in the mining sector with increases in the double digits in just the last few years.

This is called diminishing returns and if this is not arrested the eventual outcome can only be collapse. (No, not Mad Max, but a great reduction in the standard of living and a different society at the end of the road.) The only way to stop this is to discover an energy source that has a higher EROEI than current oil (20:1) and is as versatile as oil (usage, transportability) which can be scaled up quickly. (None of the alternatives qualify).

Why is it so, and how it happened in the past, recommended reading:
http://www.amazon.com/Collapse-Compl.../dp/052138673X

[c1ue]

Re: Oil sands cost sought

Let's say there was a farmer who planted 10 seeds and got back 100 seeds. The EROEI in this case is 10:1.
I will now introduce another concept: NET ENERGY. The net energy produced by the farmer is 90.
Let's say that the soil quality is starting to worsen, because of cultivation moisture levels are decreasing. The solution is obvious: irrigation. But now the farmer has to feed some animals who help with moving the earth, digging, maintaining an irrigation system, etc. The animals consume 30 seeds out of the 100 originally produced. Our EROEI now declines to 7:1 (10 seeds used to produce 70) and net energy is only 60 (70-10)/.

Of course the farmer would still make money. However the surplus was reduced from 90 grains to just 60, a drop of 33%!!!

Your analogy is quite poor. If a farmer can plow, plant, and harvest 10 times as much acreage with an oxen vs. by hand, he's not going to care if the plant to harvest ratio falls in half.

A more concrete real life example of falling EROEI mattering not one whit: whale oil. Even as the whalers were having to make multi-year trips in order to find whales to harpoon - thus reducing EROEI - nonetheless they still did it. Because it was profitable.

Another example is the Peak Peat article posted in Energy.