The Death Knell For ‘Peak Oil’

GWPF | 25 Jan 2016

OPEC ‘Cannot Destroy The US Shale Industry’

Hedge funds and private equity groups armed with $60bn of ready cash are poised to snap up the assets of bankrupt US shale drillers, almost guaranteeing that America’s tight oil production will rebound as soon as prices start to recover. Daniel Yergin, founder of IHS Cambridge Energy Research Associates, said it is impossible for OPEC to knock out the US shale industry though a war of attrition even if large numbers of frackers fall by the wayside over coming months. Mr Yergin said groups with deep pockets such as Blackstone and Carlyle will take over the infrastructure when the distressed assets are cheap enough, and bide their time until the oil cycle turns. –Ambrose Evans-Pritchard, The Daily Telegraph, 25 January 2016

1) OPEC ‘Cannot Destroy The US Shale Industry’
The Daily Telegraph, 25 January 2016

2) Saudi’s Shale Mistake: You Can Price War A Company, An Industry, To Collapse But Not A Technology
Forbes, 25 January 2016

3) The Death Knell For ‘Peak Oil’
Editorial, Denver Post, 20 January 2016

4) Forecasts For The State Of US Shale Oil
Global Risk Insights, 24 January 2016

5) British Climate Protesters Face Prison
Press Association, 25 January 2016

6) And Finally: Blizzard of Global Warming Blankets U.S. East Coast
Breitbart London, 23 January 2016

Rockefeller’s Standard Oil was able to bankrupt competitors and then purchase their assets and absorb them into the monopoly (well, near monopoly) he was building. Saudi cannot do that to shale oil. It can, if it presses hard enough and for long enough, bankrupt all the companies involved in using the technology, sure it can. But what it cannot do is then profit from the resultant bounce in prices. Because it is now more akin to manufacturing. So, Saudi might be able to bankrupt the current players: but it won’t be able to stop new ones, using the same technology, arising from the ashes. –Tim Worstall, Forbes, 25 January 2016

Collapsing energy prices and bearish economic news have rattled equity markets, and the shock may not be over. It’s as if the whole world were conspiring to bury the tattered remains of the “peak oil” thesis, so popular a few years ago. Peak oil handwringing was popular for most of a decade. Suffice it to say that human ingenuity and the profit motive are usually enough to overcome worries over resource scarcity. Or at least that has been true in the case of oil for all of its history: one prediction after another of impending permanent shortage followed by an unforeseen gusher of supply and diving prices. —Editorial, Denver Post, 20 January 2016

The US oil industry is experiencing its worst period since the 1980s, and the end is nowhere in sight. Since June 2014 oil prices have collapsed from more than $100 to $30 per barrel, and the most recent forecasts predict a further slide to $20 per barrel. Over the past year and a half, the US oil sector has struggled to survive.  However, despite current woes, shale will continue to be the game changer in the long term. Its greatest strength, in comparison to other global players, lies in the stable American political and economic environment, and the ability to quickly adapt to market realities. This will not only benefit the US economy, but also contribute to the overall stability of global energy markets. –Ante Batovic, Global Risk Insights, 24 January 2016

Thirteen protesters who chained themselves to railings at the UK’s largest airport have been told it is almost inevitable they will be jailed for their actions. Members of the Plane Stupid campaign group cut a hole in a fence and made their way on to the north runway at Heathrow in July last year. They were found guilty of aggravated trespass and entering a security-restricted area of an aerodrome. Giving her verdict at Willesden magistrates’ court, district judge Deborah Wright said the cost of the disruption at the airport on 13 July 2015 was “absolutely astronomical”. The demonstrators had admitted being on the runway but claimed their actions were necessary to stop people dying from the effects of pollution and climate change. Supporters packed the public gallery this afternoon, with one calling proceedings “a farce” and others shouting “shame on you” at the judge. —Press Association, 25 January 2016

The US East Coast has been blanketed in global warming. Layers and layers and layers of it. But don’t worry: it’s not actually real. We know this because of the climate experts and their computer models. –James Delingpole, Breitbart London, 23 January 2016

1) OPEC ‘Cannot Destroy The US Shale Industry’
The Daily Telegraph, 25 January 2016

Ambrose Evans-Pritchard

Hedge funds and private equity groups armed with $60bn of ready cash are poised to snap up the assets of bankrupt US shale drillers, almost guaranteeing that America’s tight oil production will rebound as soon as prices start to recover.

Daniel Yergin, founder of IHS Cambridge Energy Research Associates, said it is impossible for OPEC to knock out the US shale industry though a war of attrition even if large numbers of frackers fall by the wayside over coming months.

Mr Yergin said groups with deep pockets such as Blackstone and Carlyle will take over the infrastructure when the distressed assets are cheap enough, and bide their time until the oil cycle turns.

“The management may change and the companies may change but the resources will still be there,” he told the Daily Telegraph.

“It takes $10bn and five to ten years to launch a deep-water project. It takes $10m and just 20 days to drill for shale,” he said, speaking at the World Economic Forum in Davos.

In the meantime, the oil slump is pushing a string of exporting countries into deep social and economic crises.

“Venezuela is beyond the precipice. It is completely broke,” said Mr Yergin.

Iraq’s prime minister, Haider al-Abadi, said in Davos that his country is selling its crude for $22 a barrel, and half of this covers production costs.

“It’s impossible to run the country, to be honest, to sustain the military, to sustain jobs, to sustain the economy,” he said.

This is greatly complicating the battle against ISIS, now at a critical juncture after the recapture of Ramadi by government forces.

Mr al-Albadi warned that ISIS remains “extremely dangerous”, yet he has run out of money to pay the wages of crucial militia forces.

It is understood that KKR, Warburg Pincus, and Apollo are all waiting on the sidelines, looking for worthwhile US shale targets.

Major oil companies such as ExxonMobil have vast sums in reserve, and even Saudi Arabia’s chemical giant SABIC is already nibbling at US shale assets through joint ventures.

Full story

2) Saudi’s Shale Mistake: You Can Price War A Company, An Industry, To Collapse But Not A Technology
Forbes, 25 January 2016

Tim Worstall

An interesting economic point being made by Daniel Yergin at Davos: essentially, that you can conduct a price war, certainly, and you can drive companies, possibly all the companies in a specific industry or sector, into bankruptcy, but you cannot do that to a technology.

The technology itself will still exist whatever happens to those currently deploying it and thus price wars to establish monopolies really just don’t work. Here, obviously, the story is about the oil market but it’s one of much wider importance to the way that we deal with monopoly and cartels more generally.

At heart this comes back to the idea we’ve discussed here many a time: the way we should deal with a contestable monopoly is very different from how we should approach a defensible one. That latter does indeed require intervention: the former can be left to market forces. The importance here is the point that just the existence of a monopoly is not enough to trigger legislative or economic action, unlike the way that most people currently think about the matter.

Yergin:

Daniel Yergin, founder of IHS Cambridge Energy Research Associates, said it is impossible for OPEC to knock out the US shale industry though a war of attrition even if it wants to, and even if large numbers of frackers fall by the wayside over coming months.

Mr Yergin said groups with deep pockets such as Blackstone and Carlyle will take over the infrastructure when the distressed assets are cheap enough, and bide their time until the oil cycle turns.

“The management may change and the companies may change but the resources will still be there,” he told the Daily Telegraph. The great unknown is how quickly the industry can revive once the global glut starts to clear – perhaps in the second half of the year – but it will clearly be much faster than for the conventional oil.

“It takes $10bn and five to ten years to launch a deep-water project. It takes $10m and just 20 days to drill for shale,” he said, speaking at the World Economic Forum in Davos.

This is a point I have made before: fracking is not just a useful addition to the oil market, it entirely overturns the economics of said market. It turns the marginal oil supply into something akin to a manufacturing process rather than working within the traditional economics of resource extraction.

Here, with respect to the Saudi Arabian decision to keep pumping despite the oil price collapse, is what that means. Rockefeller’s Standard Oil was able to bankrupt competitors and then purchase their assets and absorb them into the monopoly (well, near monopoly) he was building. Saudi cannot do that to shale oil. It can, if it presses hard enough and for long enough, bankrupt all the companies involved in using the technology, sure it can. But what it cannot do is then profit from the resultant bounce in prices. Because it is now more akin to manufacturing. And as Yergin points out there are some very deep pockets (and yes, the accumulated pockets of the major investors are deeper even that those of a petrostate like Saudi Arabia) willing to wait and enter the market. To pick up the technology ready for when the oil price does indeed recover.

It is also true that given the manufacturing-like aspects of shale drilling we would expect it to become cheaper and cheaper again. A technology that is really only a decade or so old (the origins are many more decades than that, but routine deployment is rather new) is most unlikely to have reached a price plateau. So, Saudi might be able to bankrupt the current players: but it won’t be able to stop new ones, using the same technology, arising from the ashes.

Full post

3) The Death Knell For ‘Peak Oil’
Editorial, Denver Post, 20 January 2016

Peak oil theorists who predicted shortages and high prices proven wrong – again

Collapsing energy prices and bearish economic news have rattled equity markets, and the shock may not be over. With the world awash in oil and prices falling toward $26 a barrel, Iran is set to add to the oversupply now that international sanctions have been eased.

It’s as if the whole world were conspiring to bury the tattered remains of the “peak oil” thesis, so popular a few years ago.

As recently as 2009, a headline in The Denver Post announced a gathering of “peak-oil theorists” who insisted the planet was “running out of oil faster than society suspects,” and predicted the resulting spot shortages would “blow up prices, shock economies and destabilize governments.”

Little did they realize that the shale oil revolution in the U.S., already under way, was about to push domestic production to unforeseen heights. As it turns out, the real threat to stability around the globe was an oil price too low to support the budgetary commitments of petrostates such as Russia and Venezuela, among others.

Needless to say, peak oil — the high point of production after which it steadily declines and oil is never cheap again — is no longer on the horizon. Indeed, some experts are saying that huge upward price spikes aren’t likely in the future, absent war, because of immense supplies and the ability of producers to react faster than ever to market signals.

They may be proved wrong, of course, just as peak-oil pessimists were, but their logic at least bears considering.

Peak oil handwringing was popular for most of a decade, with even a somber editorial on these pages 10 years ago highlighting some of the arguments. Suffice it to say that human ingenuity and the profit motive are usually enough to overcome worries over resource scarcity. Or at least that has been true in the case of oil for all of its history: one prediction after another of impending permanent shortage followed by an unforeseen gusher of supply and diving prices.

Full editorial

4) Forecasts For The State Of US Shale Oil
Global Risk Insights, 24 January 2016

Ante Batovic

The US oil industry is experiencing its worst period since the 1980s, and the end is nowhere in sight. Since June 2014 oil prices have collapsed from more than $100 to $30 per barrel, and the most recent forecasts predict a further slide to $20 per barrel.

In 2007, oil production was hovering around 5 million barrels per day (mb/d), but by 2010, it increased by 500 000 b/d, and by early 2015 it shot up to 9.5 mb/d. Almost all of this increase was came from unconventional shale fields.

Untitled
Source: Federation of American Scientists

Such tremendous success had implications for both the US and global markets. By 2012 it was already clear that the US energy infrastructure was not ready to absorb large quantities of crude oil, which in effect created an oil glut and depressed US domestic prices bellow the global Brent benchmark.

US refineries quickly took advantage, and started to refine larger quantities of domestic sweet crude, instead of importing from traditional markets such as Nigeria, Algeria, Angola, Brazil and Russia.

In June 2014, the glut spillover effect finally started to affect global markets and prices began to fall. OPRC’s refusal to act as a swing producer and cut production in order to support prices in October 2014 further aggravated the situation. The world found itself awash with 2 million barrels of excess oil.

Over the past year and a half, the US oil sector has struggled to survive. Although producers managed to significantly cut capital costs, the breakeven point for the majority of shale producers is still considerably higher than the current price of oil. […]

However, there remains some optimism in the medium to long-term. The oil glut is expected to ease by the late 2016 and in 2017. In such a scenario, the realistic forecast for oil prices is between $60-80 by 2020. Although this will not completely reverse the impact of the price slump, it will help the US oil industry to restructure and survive. Analysts should still be weary of sluggish global demand and Chinese economic troubles which may easily postpone this recovery.

However, despite current woes, shale will continue to be the game changer in the long term. Its greatest strength, in comparison to other global players, lies in the stable American political and economic environment, and the ability to quickly adapt to market realities. This will not only benefit the US economy, but also contribute to the overall stability of global energy markets.

Full post

5) British Climate Protesters Face Prison
Press Association, 25 January 2016

Thirteen protesters who chained themselves to railings at the UK’s largest airport have been told it is almost inevitable they will be jailed for their actions.

Members of the Plane Stupid campaign group cut a hole in a fence and made their way on to the north runway at Heathrow in July last year. They were found guilty of aggravated trespass and entering a security-restricted area of an aerodrome.

Giving her verdict at Willesden magistrates’ court, district judge Deborah Wright said the cost of the disruption at the airport on 13 July 2015 was “absolutely astronomical”.

The demonstrators had admitted being on the runway but claimed their actions were necessary to stop people dying from the effects of pollution and climate change. Supporters packed the public gallery this afternoon, with one calling proceedings “a farce” and others shouting “shame on you” at the judge.

Full story

6) And Finally: Blizzard of Global Warming Blankets U.S. East Coast
Breitbart London, 23 January 2016

James Delingpole

The US East Coast has been blanketed in global warming. Layers and layers and layers of it.

But don’t worry: it’s not actually real. We know this because of the climate experts and their computer models. (H/T Tom Nelson)

Here is a learned, peer-reviewed study published in Nature in 2014:

In a warming climate, precipitation is less likely to occur as snowfall. A shift from a snow- towards a rain-dominated regime is currently assumed not to influence the mean streamflow significantly. Contradicting the current paradigm, we argue that mean streamflow is likely to reduce for catchments that experience significant reductions in the fraction of precipitation falling as snow.

Here is the 2001 IPPC report:

Milder winter temperatures will decrease heavy snowstorms

Here – lest we forget – is the most-read online story in the history of the Independent.

“Children just aren’t going to know what snow is”.

Meanwhile, in My Little Pony Land, the experts are putting a brave face on things. According to climatologists Michael Mann and Kevin Trenberth, all this snow is definitely a sign of….you guessed it: global warming.

Full story 

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