As a former member of the so-called "peak oil blogosphere" I don't write much about oil much anymore. That's not because I no longer think oil is important to our global industrial civilization—I do. It's more because every time I wrote about oil in the past various & sundry peak oil acolytes, unburdened by considerations of the data or the ravages of rational thought, would take that as an opportunity to foist their "oil collapse" religion on me and my readers. Jesus wept.
Generally I have found that all human discussions of anything important (like crude oil) are primarily faith-based.
So it is with some trepidation that I offer up a review of the global crude oil supply now. Maybe I'll close this post to comments.
With crude oil, as with anything else, there are optimists—this is the default position—and a few very vocal, strident, attention seeking pessimists. What is missing of course is some account which is largely in accord with Reality. That's what I'm trying to offer you today. Take it or leave it, I don't give a fuck either way.
OK, here goes nothing.
Here's the Big Picture from Stuart Staniford (December, 2013, data through mid-2013).
As annotated by Staniford at the bottom of the graph
I am concerned only with "C&C" (crude oil and condensate) today. This should not be confused with "all liquids" (black line above).
The EIA recently updated the supply picture in an interesting way.
The EIA graph shows clearly what the impact of shale ("tight") oil has been on the world market. We are entitled to conclude two things so far.
1) Since 2005, the growth rate of global C&C supply has slowed considerably, but there is some growth.
2) So-called "tight oil" from the United States has largely driven that growth in the last few years, and accounts for 4.3% of world supply.
In a supply-constrained market, 4.3% of anything is a lot. If there was plenty of crude oil available globally, nobody would give a damn about U.S. shale oil production, which would become marginal in such a market. But nowadays, in a tight global supply market, shale oil makes a big difference.
In a truly well-supplied market with lots of spare capacity, shale oil probably wouldn't be produced because of price. Shale oil is "break even" at somewhere between $60-$80/barrel. Compare that with Iraq, where average production costs are about $20/barrel.
As usual, the state of global oil production is a mess because geopolitics is a mess (and always will be). So there is no ideal fully-functioning market at any point in time which allows us to figure out what our spare production capacity really is.
To make this point about spare capacity clear to you, consider Libya and Iraq (the next two graphs).
What a mess!
Looks good but ...
The mess in Libya requires no comment, but does raise the question of whether we should consider that currently unproduced oil (in barrels/day) to be "spare capacity". I think not. It will become real capacity when the humans in that part of the world get their shit together.
Looking at Iraq, the sky seems to be the limit, but then we read stuff like this.
OPEC crude oil output falls on Iraq exports setback and African outages Saudi pumps more, Iranian exports hold strong
LONDON, April 1, (RTRS): OPEC’s oil output fell in March to its lowest since December, a Reuters survey found on Tuesday, as Iraq’s oil revival suffered a setback and outages cut output in African producers. Supply from the Organization of the Petroleum Exporting Countries averaged 29.72 million barrels per day (bpd), down from a revised 30.06 million bpd in February, according to the survey based on shipping data and information from sources at oil companies, OPEC and consultants. The survey highlights the impact unrest and outages, rather than voluntary cutbacks, can take on supply from the group which pumps a third of the world’s oil. Still, with output rising outside OPEC in countries such as the United States, there is no global shortage, analysts say.
Here's some more blah, blah, blah, but note the Iraq sabotage.
“Ample supply is likely to continue to weigh on prices,” said Carsten Fritsch, analyst at Commerzbank in Frankfurt, although he added Libya’s production outages should prevent Brent crude falling further. In March, a drop in Iraq’s northern exports, oilfield maintenance in Angola and further unrest in Libya outweighed extra barrels from Saudi Arabia, Nigeria and a further small rise in Iranian supplies. OPEC’s output in March was the lowest since December’s 2 1/2-year low, when it pumped 28.90 million bpd, according to Reuters surveys. With the exception of February, OPEC production has fallen short of its nominal target of 30 million bpd in every month since October.
The biggest decline came from Iraq, whose shipments of Kirkuk crude from its north plunged due to sabotage, industry sources said, meaning total exports dropped from February’s record rate.
[My note: February's record export rate was 2.8 million barrels per day.]
Still, Iraq sustained higher levels of exports from its southern terminals, where shipments held close to 2.50 million bpd, a 35-year high reached in February, according to loading data and an Iraqi oil official. Angola’s exports fell due to planned maintenance at BP’s Plutonio oilfield and Libyan output, a fraction of its potential due to strikes and protests, declined further to a monthly average of 230,000 bpd, the survey found.
On the other hand, Russia's Lukoil just began production at Iraq's West Qurna 2, which will ultimately reach 400,000 barrels/day by the end of 2014.
Geopolitics will always be a mess, and will no doubt get much messier as the 21st century progresses. Hold on to your hats!
So with humans, the rule of thumb says the "Lord giveth" (optimists) but, unfortunately, He also "taketh away" (pessimists). My almost-famous line—optimists don't know how to subtract, and pessimists don't know how to add. Simple arithmetic is hard for humans because you can throw elementary "reasoning" out the window when it comes to important things like crude oil (or the climate, the oceans, etc.).
Still, I expect the Lord will do more giving than taking away in Iraq over the next decade. Crude production may reach 6 million barrels/day by 2022, but this is only an educated guess based on credible reserves numbers and current investment.
While we might "rejoice" at Iraq's always-troubled comeback, the picture is not so rosy in Brazil, where prospects for new crude oil production were so overhyped that clinical depression has now set in. So it goes! (as Kurt Vonnegut liked to say). It turns out they're drilling a lot of dry holes in that "pre-salt" bonanza we heard about 5 or 6 years ago. Don't expect much more production from Brazil over the next decade over and above what they're producing now.
And what about the United States? The sky is definitely not the limit here, despite the Brazil-like hype we've had to endure over the last few years. I could tell you with Jim Kunstler-like certainty that the boom is over in the Bakken, or soon will be, but I would be distorting the outlook if I did. I believe U.S. oil production will reach 9 million barrels/day (C&C only), which is really god-damned unexpected given where we seemed to be only 5 years ago.
Still, hype is endemic to humans, so I still see fantasy charts like the one below, which only serve to remind me that it's always better to keep both feet on the ground if you don't want to fall down.
Bakken Fantasy Graph
The optimists and the pessimists have a crystal ball, but mine broke and I threw it out with the trash about four years ago.
That said, the state of the global oil supply in 2014 tells me that our "undulating plateau" (with some weak growth since 2005) can be sustained for at least another decade, if not a few years more. It is "undulating" because there will be geopolitical ups and downs, there will be relentless depletion in some places, and there will be all sorts of unpredictable chaos in global markets going forward.
On the plus side, I see no reason why Russia will not remain the world's biggest C&C producer for many years to come. Optimistic talk of $75/barrel oil which would crush Russian (and U.S.) oil production is just that—a lot of talk (bullshit, wind, babbling, etc.). Crude oil will never be cheap again. On the other hand, expensive oil is not the primary (or even an important) reason why the OECD economies are now permanently in the dumper.
Some of you may be going crazy because I didn't mention Saudi Arabia in this post. No, I didn't
So that's my too-brief review. As the expression goes, only time will tell. On my list of threats to global industrial civilization, "peak oil" comes in about 8th out of 20, which tells you just how fucked we humans really are. And threat #1 of course is Homo sapiens itself—optimists and pessimists alike.
I'll be that guy and ask you why you didn't mention Saudi Arabia, but only because you mentioned it first. I don't know why you *should* have mentioned it specifically, other than it being a generally important oil-producing state.
You basically asked me to do this!
Posted by: rumor | 04/02/2014 at 02:19 PM