Oil Price, Undulating Plateau

Yesterday a report by Leonardo Maugeri created big buzz in the oil and gas community.  The Oil and Gas Journal actually used the ridiculous 17 million number in a headline.  The executive summery forgets about priceThe WSJ and economist Mark Perry tease the peak oil idea in their headlines.

One not obvious idea missed is the idea of natural decline rates.  I haven’t found what what number Mr. Maugeri used, but I speculate it is too low.  Also, we live in a world of corrupt governments and politically rivalries.  Venezuela production is going to increase?  Iraq’s production was supposed to boom enough to pay for the Bush’s militarism using $25 oil…how’d that work out?

But the main idea missed in shale oil is price.  With $100+ oil pricing the North American E&P industry will increase production robustly.  They have aggressively broke down technological barriers.  But those barriers require high prices for economic returns.  Today’s WTI price near $80 means many Bakken and Canadian tight oil players are receiving maybe $70 for their oil, a price at which economic returns are very skinny.  If prices stay the same or fall, capex budgets will be scaled back when they report results in a month.  These guys as a group already outspend their cashflow…

So the oil price may crash, but it would be a function of a poor economy, not because production rose by many millions of barrels a day.  Moreover, OECD oil consumption will continue to shrink at these high prices, while booming emerging markets and oil producing countries increase their consumption.

Shale oil has created an undulating plateau in oil production, the shape of which will be a function of price.

Marginal oil production costs are heading towards $100/barrelFT Alphaville

Clearly the world is not short of BTU’s, per Monty’s excellent notes:  World of Wallstreet.

Fortunately horizontal drilling technology has advanced so much.  As the Land Export Model predicted, 2 million barrels less a day of oil production is available to the world than 2005.  Oil exporting nations have been seeing their own consumption boom.  Energy Bulletin

Meanwhile, the EIA is a decade and half behind:  “Tight oil production is expected to rise past 1.3 million barrels of oil per day (bopd) in 2027…”  Um, U.S. tight oil production surpass that level by the end of this year!  Rigzone

Chasing arctic oil illustrates the easy and inexpensive oil era is history imo:  WSJ.

A really cool 15 page oil presentation chart-fest:  Business Insider.

A land owner caught between energy giantsGlobe and Mail.