Running out of oil?

Discussion in 'Economics' started by science_trader, Oct 24, 2007.

  1. Pekelo

    Pekelo

    It is actually true. We have exactly as much oil left as we have used in the past. Thus we are at peak oil by definition...(and we gonna use it up in 40+ years) :eek:
     
    #11     Oct 25, 2007
  2. Exploration is climbing astronomically. These new prices for oil are fueling major new exploration in much more difficult locations around the globe. The new prices are necessary to sustain this new development and growth which is critical to meet rising global demand and this is priced into oil as well.

    Here's a link that discusses, among other things, how Exxon's development costs have increased 30%:

    http://money.cnn.com/2006/07/18/news/economy/oil_costs/index.htm

    Big Oil's pain
    While record prices have produced record profits, they have also helped make crude a lot more expensive to pump.
    By Steve Hargreaves, CNNMoney.com staff writer
    July 18 2006: 1:39 PM EDT


    NEW YORK (CNNMoney.com) -- It's always more expensive to go to the ends of the earth.

    But as oil companies chase dwindling supplies by drilling in the icy waters of eastern Russia, map deposits under the rebel-infested Nigerian bush, or cut deals in corruption-prone central Asia, it's not just expedition costs that are making it more expensive to pull a barrel of oil out of the ground.

    Thanks to record oil prices spurring an exploration boom and a cyclical industry woefully unprepared to meet its labor needs, the cost to produce a barrel of oil has skyrocketed in recent years.

    Between 2001 and 2004, the average costs to operate a land-based oil well in the U.S. nearly tripled, according to figures from the Energy Information Administration and supplied by the Independent Petroleum Association of America, an industry trade group.

    And Exxon Mobil (Charts) said industry wide development costs soared nearly 30 percent from the first quarter 2005 to the first quarter 2006.

    While there is little sympathy among the public for companies that are posting record profits amid prices that have more than tripled since 2002, and little concern from investors as well, it's an often overlooked component to high oil prices that has many in the industry worried.

    "This is certainly one of the top issues people are talking about," said Frederick Lawrence, vice president of economics and international affairs at the Independent Petroleum Association.

    The lure of $80 oil
    One reason for the cost runup is that, at nearly $80 a barrel, everyone wants to find more oil.

    But the equipment needed is massively expensive and takes years to build. So, as is so familiar with other aspects of the oil story, limited supply is bumping up against surging demand.

    Take the rental rate on a drilling ship, for example.

    In the late 1990s and early 2000s it cost an oil company $200,000 a day to rent the latest generation drill ship from Transocean, an oil supply firm that operates the 835-foot long monstrosities, which use a complex Global Positioning System and series of thrusters to stay perfectly still while drilling in the deepest parts of the ocean.

    In 2006, a Transocean spokesman said its latest generation ship was going for $525,000 a day.

    "You're seeing unbelievable rates right now," said Lawrence. "It seems like we're getting into a new level."

    Lawrence said the shortage has led to acute global competition in which global infrastructure is being shuffled according to who can pay the most.

    "You're already seeing Chinese rigs in the Rockies," he said. "And the Middle East is trying to pull rigs from the Gulf of Mexico."

    Who's gonna do it?
    Another component to higher production costs is the shortage of labor.

    From the early 1980s to 2005 the number of people working in the U.S. oil industry fell from about 900,000 to about 300,000, according to the American Petroleum Institute, another industry association.

    Some of the decline was due to labor-saving efficiencies, but there were other factors at work.

    "If your child was in college in 1999, when the price of oil was $12 a barrel and the industry was flat on its back, would you have encouraged them to go into geology," asked Steve Enger, an analyst at Petrie Parkman, a Denver-based energy investment boutique. "The boom and bust nature of this industry keeps people away."

    The result is a doubling of the average industry wage from 1986 to 2004, according to numbers from the Department of Labor supplied by the Independent Petroleum Association.

    From ads in the Wall Street Journal to print material aimed at high school students, Lawrence said the industry is using a variety of methods to attract new workers.

    He said one promising demographic is people returning from the military, as they are used to working in harsh environments.
     
    #12     Oct 26, 2007
  3. Also, oil company profits are doing well of course. But notice that Exxon's (for example) cash is not going through the roof. In fact, their free cash actually only went up a few percent in the last year:

    http://finance.yahoo.com/q/cf?s=XOM&annual

    And Exxon's profit and operating margin, while impressive, is about half that of MSFT! So the oil companies are not drowning in profits from the oil prices - it's largely being eaten up by the new costs of exploration and development in much more difficult parts of the globe.

    And that will be reflected in the price as well...
     
    #13     Oct 26, 2007
  4. billdick

    billdick

    It depends upon what exactly you mean by "plenty." Are you one of the A-biotic oil origin believers?

    If so I ask you why major oil is found in a arc from Turkey thru Iraq and Iran, across the North of India and into Burma (and even further into the Tonkin gulf)? - I will tell why I think this so by quoting from wiki:

    "... The Tethyan Trench extended at its greatest during Late Cretaceous to Paleocene, from what is now Greece to the Western Pacific Ocean. Subduction at the Tethyan Trench probably caused the continents Africa and India to move towards Eurasia, which resulted in the opening of Indian Ocean. When the Arabian and Indian plates collided with Eurasia, the Tethys Ocean and the trench closed. Remnants of the Tethyan Trench can still be found today in Southeastern Europe and southwest of Southeast Asia. ..."

    I also note that Petrobras, Brazil's oil company gets none from the land mass of Brazil. That land mass is rich in large crystals that slowing cooled and grew deep inside the Earth, but is now up lifted to near or at the surface. If oil came from deep inside the Earth (a-biotic theory POV) then it should be seeping from every hill side in Brazil, not totally absent as is the case.

    Note than all oil is found where there is now or was once a great ocean and that never was that the case for Brazil's land mass.

    The rush to stake claims in the Artic ocean, now that the ice is melting, is due to general agreement with the oil comes mainly for organ life dropping into mud of ocean floor with little oxygen to destroy it before subduction in ocean trenches takes it deeper and transforms it into oil.

    In the Artic ocean case the 4 degree C (densest state of water) also helps avoid oxidation of the falling organic matter. - Why many think that is where the next big oil field will be found and used after Artic is open water. Pertrobras will be drilling there as they are world leader in ocean drilling (only thing they do as Brazil has none, contrary to the prediction of the a-biotic oil origin postulates.)

    I bet you believe in the "tooth fairy" also - and every other thing that promisses and easy energy based life. Get real. Face facts. Oil is limited and getting hard to replace with new discoveries, despite the great new technology now available to the searchers.
     
    #14     Oct 26, 2007
  5. BSAM

    BSAM

    There is currently no oil shortage. Anyone reading this today, will be using oil the day they die.

    This game, which is played in cycles, will continue for a long time.

    If there was a true oil shortage, a gallon of gasoline would be at least $100 right now.
     
    #15     Oct 26, 2007
  6. There's no oil shortage in terms of just the quantity of oil. However, there is a growing shortage of oil that can be developed at the old, "cheaper" price levels. And that's only going to get worse through the decades...
     
    #16     Oct 26, 2007
  7. We have over a trillion barrels in global reserves...
    that's 43 years of use, at today's 86 million barrel/day...
    If oil demand increases 2% that's 88 million, and 37 years of crude left...assuming, none is added..

    Reserves are being added to, but at a slower pace than before..

    a good recession, and we'll see $40 crude again...
    just a matter of time..

    Meantime, you are crazy if you can't recognize this trend...
     
    #17     Oct 26, 2007
  8. piezoe

    piezoe

    Well, apparently i'm deluded, because i thought all those storage facilities filled to the brim had something to do with speculation in the futures market. Oh well, wouldn't be the first time i've been wrong. :D
     
    #18     Oct 26, 2007
  9. Good comment about the trend. See p. 16 of this great summary report about Peak Oil if you haven't read it already. Pages 25-31 are very sobering as well.

    The author(s) point out that pretty much the entire world except for OPEC and the former Soviet Union are experiencing depletion. Mexico's huge Cantarell complex is probably most notable. (It declined about 15% between 2004 and 2006.)

    http://cogsci.ucsd.edu/~sereno/oil07.pdf

    I agree to a point about recession re-pricing, but geopolitical events could nullify what you are saying quite easily. It's a probability thing at this point. There are so many possible disruptions of supply that could occur that it's really just a matter of time. If one of these occurred during a recession, we would probably still have astronomical oil pricing.

    Here's just a few scenarios with some likelihood. Consider that most of them have to do with the fact that the world's oil, for the most part, sits on very politically unstable territory:

    1. Many geologists think that light, sweet crude has already peaked and just this perception alone may keep prices high.
    2. Weather. Remember that in '06 just the unmaterialized fear of Katrina led to $70 oil.
    3. A terrorist attack on a Saudi oil field. Although well-defended, an attack a few years ago on a Saudi oil facility at Abqaiq was nearly successful.
    4. Iran desperately needs Iraqi oil because it's oil exports are expected to drop sharply due to increased domestic demand. The economy, and therefore the political future, of Iran depend on getting their hands on Iraqi oil.
    5. The straight of Hormuz is located off Iran's tip and Iran has threatened to blockade it as recently as 2006. Remember that a huge percentage of the world's oil passes right through this channel.
    6. Russia may develop an "energy weapon", i.e. a cartel on natural gas/oil that could end in significant control of global supply.

    The list could go on and on. But I would argue that even if demand is hampered by a recession, there is no guarantee that supply will not be as well...
     
    #19     Oct 28, 2007
  10. There may well be a trillion in the ground.

    The problem is getting it out, there is limit to how many barrels can be extracted in one day.

    There could be 10 trillion barrels in the ground, it still wouldnt make any difference.
    If all you get out in a day was 100 million and demand was 120million, then prices would still skyrocket.

    Meantime, you are crazy if you can't recognize this trend...
     
    #20     Oct 28, 2007