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**renewable** · December 16, 2007, 04:51 PM

Re: Oil to $60.....by January?

This isn't going to help the price of oil to fall: Turkish Planes Bomb PKK Targets in Iraq

**Guest** · December 16, 2007, 06:01 PM

Re: Oil to $60.....by January?

GRG55 -

I share your amusement at this article's facile conclusions - and add my comments.

Originally posted by GRG55 View Post

Apparently it's time to trade in the hybrid for a big SUV again...:eek: ... (a bit of comic interlude for the weekend) ... "Not only is there more oil out there than doomsayers claim, but it takes political will to ignore naysayers and get out there and discover more"

__________

Which convention for "one billion" is the quoted author employing? Can we assume the American definition of billion which has been now adopted in the UK?

_________

If you are American, it is undoubtedly 1,000,000,000. This amount is known to traditionally minded British people as `a thousand million', and by some more adventurous ones as a 'milliard', though this word has not made as much headway in English as in some other European languages. A trillion is then 1,000,000,000,000, and so on.

If you are British, on the other hand, a billion may be 1,000,000,000,000 (a million million), following the older convention.

If you are neither British nor American, you can take your pick! (Both systems were invented by the French, but are called 'British' and 'American' for convenience.)
Once the business world and the financial press found themselves discussing `thousand millions' so much, the 'American' system simply became more convenient, despite a certain lack of logical tidiness. (A 'British' trillion is the third power of a million, while the 'American' one is the fourth power of a thousand, and the 'American' system continues out of sync with the arithmetic). It also makes the profits sound bigger! The 'American' system is now standard use in British government publications, and is becoming the norm in many other languages.

_________

Simple numeric notations are highly misleading if cited out of context. The author notes:

<< Believing in their potential and determined to get rich, these countries are the ones making some of the most dramatic new energy discoveries this year. Besides Brazil, China has made 10 major new discoveries this year alone. Its Bohai Bay discovery last May, its largest in four decades, added 7.35 billion barrels of reserves. India, once viewed as an energy no-hoper, is also finding energy offshore, and Russia already is a major producer making itself bigger. >>

What is not noted is that this much applauded 7.35 billion barrel ( American numeric convention ) discovery amounts to just 86.47 days of current global consumption.

Say you have a really good year, and your hard headed, emerging tiger industrial nations unearth fully 20 of such "large reserves " in a single year - (and it would be a steep improbability to maintain that number of discoveries in indefinite further years) - 7.35 billion barrels of reserves equates to 86.47 days of petroleum at global consumption rates. 20 times that means these herculean efforts to expand the global petroleum resource base equated to 1,729 days, or 4.738 years of oil consumption at current (static) global consumption rates. How many years do you believe they can keep up this highly optimistic rate of new "significant field" discovery?

The author's analysis is woefully superficial - this seems more a feisty and skittish expression of the author's wish to bestow pleasantly vigorous sounding bullish sentiments upon bucolic readers of the Sunday paper, than it is any serious analysis of global supply/demand issues.

This article does not appear, based upon the plain significance of the cited numbers, to be in any way a significant rebuttal of emerging serious issues in petroleum supply. All these discoveries are minute compared to the global supergiant fields that have sustained growing world consumption until now. Twenty years ago global swing capacity via Saudi Arabia was 10-15 million barrels per day? Now that kind of spare capacity would certainly put a definitive cap on any rampaging oil price, even at today's consumption rates.

But take a look at today!? The "swing capacity" to increase global production is pathetic in the face of 85-90 million barrel per day consumption. Expressed globally, total "swing capacity" today is what? One million to two million barrels per day? How are you going to ever even hope to "cap the oil price" with these tiny surplus capacity volumes?

I reiterate, even more emphatically than before - CERA, and Daniel Yergin, are a bunch of quite remarkably audacious (and foolish) quacks, doing a great disservice to practically everyone by spreading this kind of pablum - "ample new discoveries to meet global demand" - my foot!!

Respectfully.

Lukester

**Guest** · December 16, 2007, 06:11 PM

Re: Oil to $60.....by January?

JK -

I commend your doing some of your usual trademark detailed thinking on what will or may play out in the energy markets. It's going to inevitably become a much bigger, and hence much more apparently "respectable" topic of discussion in the next decade, because the issue will probably become a giant steely hand firmly grasping all of our throats, squeezing the daylights out of us.

Originally posted by jk View Post

the thing that could produce "an undulating plateau" of oil production is high oil prices.

all regional production curves in the past were in the context of the global availability of reasonably cheap oil. thus there was no incentive to spend a lot of capital to extend regional production. thus, regional production was allowed to decline along a curve determined by the relatively stable global price of oil versus the continuously escalating cost of enhancing regional production as the more easily exploited of regional resources were progressively depleted.

in the context of the gradual but real global exhaustion of cheaply produced oil, there is no outside source of oil to keep prices from rising. as this price rises, it becomes economic to enhance production in increasingly costly ways. thus the curve of future production is determined by an unevenly rising global price of oil versus the progressively escalating cost of enhancing global production.

undulations in the production of hydrocarbon liquids will be determined by feedbacks between oil production, oil prices, conservation and the cost of conservation, variable lags in capital investments increasing production of increasingly expensive alternatives, economic cycles causing variations in consumption superimposed on the variations caused by increasing production costs, and so on.

**GRG55** · December 18, 2007, 08:59 AM

Undulations...

Originally posted by jk View Post

the thing that could produce "an undulating plateau" of oil production is high oil prices.

all regional production curves in the past were in the context of the global availability of reasonably cheap oil. thus there was no incentive to spend a lot of capital to extend regional production. thus, regional production was allowed to decline along a curve determined by the relatively stable global price of oil versus the continuously escalating cost of enhancing regional production as the more easily exploited of regional resources were progressively depleted.

in the context of the gradual but real global exhaustion of cheaply produced oil, there is no outside source of oil to keep prices from rising. as this price rises, it becomes economic to enhance production in increasingly costly ways. thus the curve of future production is determined by an unevenly rising global price of oil versus the progressively escalating cost of enhancing global production.

undulations in the production of hydrocarbon liquids will be determined by feedbacks between oil production, oil prices, conservation and the cost of conservation, variable lags in capital investments increasing production of increasingly expensive alternatives, economic cycles causing variations in consumption superimposed on the variations caused by increasing production costs, and so on.

Ran into an old acquaintance yesterday while transiting through a European airport. He's a 20 year veteran of Aramco's drilling and completions departments. WIll post more about the conversation when I have time, but here's a good example of why an extended plateau in global production is well within reasonable probability.

Shedgum is a high quality, but depleted reservoir in an extension to the NE of the main Ghawar structure. This year Aramco drilled 5 wells along the very northern edge of the field into the Arab D formation. The average production for these 5 wells is 15,000 barrels per day. EACH. Well above Aramco's expectations.

This is immediately producable, cheap to develop, quick to tie-in to existing underused facility capacity, light sweet crude, easily able to be refined in any number of locations worldwide. And no doubt one of the reasons Aramco was able to raise both production and exports quite markedly in November when Abu Dhabi had maintenance curtailments.

There's an old adage in the patch that the best place to look for oil is where you've already found it. AS the global industry comes to grips with, and solves, the shortage of resources, and the mega projects now undeway are completed and free up more of the same, this type of exploitation will increase everywhere. It won't reverse the rapid declines from so many of the high quality fields, but it will prevent the occurance of the "apocalypse soon" scenario of an off-the-cliff decline - all other things being equal.

**Tulpen** · December 18, 2007, 11:49 AM

Re: Oil to $60.....by January?

Oil is making a big reversal today.

**Guest** · December 18, 2007, 01:50 PM

Re: Oil to $60.....by January?

Tulpen -

My view is the only way you get to see where oil is really going in any investable sense other than being a day trader is to dial the picture out to a ten or twenty year chart.

The twenty year trend suggests the short side positions on oil going forward are trading positions, relying on nimbleness, grasp of all the interfering cross currents (geopolitical as well as economic) and above all having traded short term equity or futures positions for significant net profits for a few years prior -to derive sufficient confidence that one's short term plays produce consistent profit.

**rj1** · January 05, 2008, 11:15 AM

Re: Oil to $60.....by January?

Bump.

Oil at $99.32.

**Gordo** · January 05, 2008, 11:43 AM