Long term Oil Prices?

Discussion in 'Commodity Futures' started by cakulev, Dec 23, 2005.

  1. cakulev



    $7 billion investment can build a plant that produces 150,000 barrels per day of gasoline or diesel fuel from coal at a cost of $35 per equivalent barrel of oil.

    Montana has 120 billion tons of coal (I think the conversion rate is 4 barrels per ton, IIRC).

    Basic math: we need 86 such plants costing $600 billion to replace the 13 million barrels per day we now import at a cost of about $230 billion a year. 120 billion tons would last 101 years at the same rate. $600 billion is about 5% of our annual GDP ($11 trillion).

    However, no companies seem to be eager to make this kind of investment. Is it because they fear oil going back to sub $30s? And certainly the government is not ready for this kind of commitment at least not with Bush as president.

    Note also that mining tar sands costs less, about $20 per barrel, but this is a dirty process and perhaps not a fair comparison.

    My point is it doesn’t matter if Peak Oil is true or not. The prospects cannot sustain oil prices to be over 40$ long term (inflation adjusted).
  2. I'll gladly write $40 puts for any term you wish.
  3. I have support at $56, then $52, once that is broken $44 is right in your ballpark.

    Futures do provide liquidity, but in the end their abuses provide more insanity than stability, for which they were initially intended: hedging!
  4. Back in the last energy shortage, in the 80s, I was involved in this type project; the economics were different but the reasons I suspect they won't get built are the same:

    1. huge environmental hurdles taking years and lots of money to overcome, assuming they can be overcome.
    2. lack of water near the coal.
    3. no guarantee of oil price holding at high levels.
    4. better returns elsewhere.

    The order is not significant. Now, there are still cheaper ways to get oil: Africa, Russia, deepwater GOM, workovers of old fields, Wall Street like COP just did for gas, GTL like in Qatar, heavy oil in the Orinico belt-although Chavez is a stumbling block, and oil sands. There is a huge boom in Alberta converting oil sands to crude at a cost of about $20USD per bbl, much better than coal to oil. And anyone who can pass the piss test for drugs can get a fairly high paying job there.

    Unless the govt. steps in and guarantees a price floor for the coal - oil projects, I doubt any will get built, until the economics get better and the easier to find oil dwindles. And IMO, the world still has lots of new oil fields, maybe not giants, but lots of little ones.

  5. DS

    So what you are stating is that Big Oil is now acting like the Saudi's: 'let the price settle where it may".

    In other words: why drive the price down by investing our profits and finding cheaper alternative sources, when we have all the reserves we need to make huge profits. Case in point XOM.
  6. Big oil's hands are tied in America because of enviornmentialists. No way that coal gets out the ground with the socialist democrats around.

    Besides, we won't be using oil that much longer.

  7. Mining coal for liquefaction is even less efficient, even less amenable to scale, even more capital intensive, and even worse for the environment than mining and upgrading bitumen from tar sands. I would invest in tar sands producers before I'd invest in coal liquefaction.

    Coal liquefaction, using Fischer-Tropsch or other methods, results in a great deal of excess carbon - far more than bitumen upgrading. Unless it is sequestered it will contribute to global warming.

    Coal is dirty stuff. The best thing to do with it is leave it in the ground, the second best thing is to burn it for electricity. If we haven't found another transportation fuel by the time we run out of oil, gas, and bitumen, I guess we'll have to start in on the coal. Until then, my personal opinion is that capital is better spent on finding ways to use less coal, not more.

  8. ifinitis


    There are too many things concerning oil that are factored into the future price to really get into here.

    If we look at it very simply, these are the facts. Production is not a problem, refining capacity is. Production will continue at current levels driving inventories up short to intermediate term. Production will remain up to take advantage of the higher price. Inventories will stay up since refining capacity is fixed. Inventories will drive down the price to the point where production declines. The price will stabilize at a production/refining balance in late 2006 at 45.00-50.00 Light sweet crude levels.

    Production is in a Catch 22 situation, knowing that over production will raise inventories and lower futures pricing and also knowing that they have to produce and sell while the price will allow profits (U.S.). The only thing that will change this is increasing refining capacity and this will not occur for many reasons for quite some time.

    Adjust the above for events such as Middle East stability, storms, and alternative fuel developments, etc.

  9. Sure price should settle where the market deems proper. What's wrong with that? And it's not the Saudi's who act that way, it is all companies, national oil companies and the private/public companies that utilize the pricing mechanism of the open market.

    What is your point re. XOM?

    COP is investing about $11 billion next year in energy related projects, most in E&P and refining. Considering their profit for 2005 will be about $12 billion, I find it hard to understand how what they are doing is wrong? I don't know XOMs budget, but I imagine they will invest about their annual profit in new projects to product more oil, gas and refined products.

    They are acting like any other business, trying to maximize returns. If that results in lower prices, which I think it will as it has many times in the past, all the better. If not, tough. The price of most everything we buy has gone up faster than the price of oil, the current blip excluded. Just look at medical costs which are rapidly becoming larger than housing costs. Or, maybe the current energy price blip will become the norm.

    Why don't you explore for oil as many people who have done this start with almost nothing. I have friends in Texas where I live that are doing just that on some property they own. Funding is fairly easy to get.

    What are the "cheaper alterntive sources" you refer to? If there are cheaper alternates, then they would already be part of the market wouldn't they? Or is there some secret research program going on that big oil has hushed up? I can't believe if there was a cheaper way to produce gasoline, heating oil, etc that in the free market it has not come forth. So, please let me know what it is and I'll help raise the funding for it.

  10. cakulev


    Of course, tar sands has smaller cost: ~20$, but the key question is the production capacity.

    The article claims this is a clean process but I admit, details are lacking.
    #10     Dec 24, 2005