Tuesday, September 08, 2009

$200 a Barrel Oil? Not for a While, Yet

While Canadian energy analysts are predicting oil prices over $200 a barrel in the near future, and a Goldman Sachs analyst is standing behind his 2008 prediction of $200 a barrel oil in the near term, financial realities suggest that these predictions have no solid support.
..the worldwide financial crisis of 2008, now lessening somewhat in Europe and Asia, still grips the U.S.A. like a vice. Demand for refined products will remain low for at least a year and possibly longer. More importantly, when a fuel category suddenly becomes inexpensive and plentiful at the same time and if that substance can be adapted for new uses, the potential to change the primary structure of the energy market exists. Pipeline natural gas and liquefied natural gas (LNG) both meet that requirement. Both are being thrust forward as it becomes more and more evident that electrically powered vehicles will be expensive with lengthy refueling conditions. The move to compressed natural gas as a transportation fuel is well underway in southern California and Utah and is beginning to influence the market in Oklahoma. Crude oil shows no real ability to move out of the $70/bbl range and can easily linger there for months. Further pressure on consumption of crude oil based refined products is coming from gas-condensate, the by-product of LNG. On the crude oil front, the international majors are maintaining high capital and exploratory budgets with a focus on the upstream because they see exactly the same depletion rates as Mr. Rubin. Some national oil companies, notably Saudi Aramco and Petrobras see it too. Much of the deep water Gulf of Mexico crude oil can be delivered to the intake manifold of a Gulf Coast refinery at between $25-35/bbl. Production from the Orinoco Tar belt, while expensive, is not nearly as as expensive as Canadian oil sand oil. Crude oil from much of the Permian basin can go to refinery at about $30/bbl all in. Crude oil from the San Joaquin appears to be a little cheaper. Major crude oil redevelopment projects in the Middle East can put oil into refinery at $20/bbl. Taken all together, while no one doubts that crude oil will steadily dwindle with a consequent rise in price, the powerful pressure of pipeline gas and LNG cannot be waved away. And as always, much hinges on how fast world economies recover from the body blows of 2008. Some think they have already recovered as much as they are going to - at least for a decade. Inflation alone can (and will) easily drive the price of crude oil above $200/bbl but that also is not just around the corner. _GLGroup
Yes, inflation and lower value for the US dollar will eventually push the price of oil above $200 a barrel. But that is very weak support indeed for current predictions.

Peak oil punkadoodles must grasp onto any confirmation of their apocalyptic visions as they can, of course. Ironic, isn't it, that the world economy must recover from one economic disaster before it can collapse utterly from peak oil. Because as long as demand stays low, all that oil will simply stay in the ground. And the longer the fields are left relatively undisturbed, the better the recovery technology that will be available when the time comes to go back to those fields.

It's far too much for the one trick ponies of peak oil to keep track of.

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2 Comments:

Blogger Ronduck said...

Natural gas can be converted directly to liquid motor fuel without the need to convert vehicles to a new fuel, see here.

After finding that article again I ended up wasting a good twenty minutes looking at other wiki articles related to coal gasification and synthetic fuels. One of the facts I learned is that the US has 26% of the world's coal reserves.

11:47 AM  
Blogger al fin said...

Yes. And don't forget all the shale oil in the mountain west.

Canada's oil sands deposits are huge and still being discovered. Improved recovery techniques for all of these deposits will make peak oil look like peak chicken little -- unless Obama and Pelosi succeed in putting almost all domestic hydrocarbons off-limits.

And if abiotic oil formation has any merit at all, the Earth has just barely been tapped for its abundant hydrocarbons.

11:42 AM  

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