Global Oil Production Booming; Demand is Softening

Oil prices have remained remarkably stable over the past few years, considering the impressive price boom and bust of 2007 - 2008 - 2009. Peak oil doomers have been particularly disappointed at the failure of their predictions of near-term global collapse -- made so gleefully in the heady days when it was still possible for a halfway intelligent person to believe that oil production had permanently peaked in 2005. But the real world still holds a lot of surprises for people who believe they understand its energy complement -- or even its climate, for that matter.

The reason for the oil price softness is slowly but surely being revealed. Oil and gas production is booming globally but particularly in the US to the point where just last month, the International Energy Agency projected that “extraordinary growth in oil and natural gas output in the United States will mean that … the United States becomes a net exporter of natural gas by 2020 and is almost self-sufficient in energy, in net terms, by 2035.”

According to the EIA, the average cost of production is lowest in the Middle East at around $US17 a barrel, with a global average around $US25 a barrel. This suggests the low will be a little above that, barring a demand free-fall. In the US, the cost of production is in the mid $US30 range, all of which suggests a level as low as $US40 is possible.

Add to that the tepid growth phase of the global economy and price trends should be down. _BusinessSpectator

There is a lot more oil to be discovered, particularly around the great underexplored areas of the planet. Even the Persian Gulf is underexplored compared to North America, by a factor of roughly 1,000.

“We see an easing of oil prices [in 2013] as demand remains weak,” explained Peter Kiernan, lead energy analyst for the Economist Intelligence Unit, adding that even fast-growing emerging markets and non-OECD nations will experience a poor economic performance next year.

...A “shale revolution” in the U.S. promises to change the market landscape. “U.S. production of shale gas has exploded with a nearly 50% annual increase between 2007 and 2011,” a report by the National Intelligence Council noted, while shale oil production, still in its infancy, could bring anywhere from 5 to 15 million barrels per day by 2020 at a break-even price as low as $44 to $68 per barrel. “By 2020, the U.S. could emerge as a major energy exporter,” the report added. _Oil 2013

This is bad news all around for aging peak oil doomers, who sit wanking in their circular echo chambers.

It is also bad news for many supporters of US President Obama. Obama has backed dozens of failed or failing big green energy startups at taxpayer expense, to please green political backers and to enrich the bank accounts of campaign bundlers and other crony supporters.

Obama favours intermittent unreliables, but it is the hydrocarbons and nuclear power -- both of which Obama dislikes -- that deliver reliable energy, power, and fuels. Obama was the accidental beneficiary of an unplanned US shale boom. But he is happy to take the credit for an economic boom that only happened because his EPA was too slow to kill it before it bloomed.

And now that the US oil & gas boom is proceeding ahead, despite Obama, the UK and the EU may be next. And don't forget China. If Australia can dump its foolish green "energy suicides", it might wish to join the global party.

Oil Supply and Demand in State of Flux

North America is experiencing an energy revolution of oil & gas thanks to technological innovations of production. The same and similar innovations are beginning to sweep across large areas of the globe from Eastern Europe to the Levant to South America to China to Western Siberia. Combined with improved tools of exploration and discovery, improved undersea oil & gas production, and enhanced oil recovery tools, the production side is seeing an upswing.

This increase in production, combined with a growing sense of impending global economic downturn, appears to point to an ongoing period of suppressed oil prices -- when compared to recent highs well above $100 a barrel for both Brent and WTI.

A recent Manhattan symposium on oil supply and demand attempted to shine more light on various factors contributing to today's fluctuating oil price situation:

The consensus outlook (with one outlier) is for liquid fuel production to plateau to the end of the decade. This will constrain economic growth, particularly in the OECD as the OECD sheds liquid fuel consumption to allow consumption growth in the Chindia and oil-exporter developing world. Unconventional oil (deep-water, arctic, tight-shale) all have significant geologic/geographical limits. They can be expected to support a limited duration liquid fuel plateau but are not big enough or can be brought online soon enough to support increasing production. Saudi Arabia needs $80/bbl to support its committed government spending and has stated that $100/bbl is the “fair” price they expect. This should support, apart from short term financial crisis-type demand drops, the price of oil.

...Edward Morse, Citibank - the short and long-term outlooks are bearish.

North America is where production is growing fastest. Expects production increases to continue (no backup). Expects Mexico to starting growing based on deep-water (no backup). Without Mexico, expects North America to be a net exporter.
Claims Chinese slow-down is substantial and will affect demand growth.Global recession could also impact demand.
Claims in 2013, the US will stop importing light sweet crude. Land-locked Candian crude will be part of the difference.
Sees long-tterm oil prices (end of decade) at $80 to $90.

...Ray Leonard, Hyperdynamics:

A geologist. Has seen reserves data bases from Russia and the ME.
Expects oil plateua from 2005 to 2030 of non-renewable oil production of 84 to 88 MBPD.
More and more of it expensive unconventional and deep-water oil.

...Jason Stevens, Morningstar: Tight Oil

Thinks US production Shale-Oil production grows to around 3.0 mbpd/year to 2015.
Sees total US oil growing to almost 7 mbpd/year by 2020.

...James Henderson, Oxford Academic:

Russian oil production has risen every year except on since 1998.
Currently transitioning to harder to access oils.
400 to 500 B$ investment needed to maintain current production.
There will have to be some tax breaks to maintain current production.
The export tax is an impediment on new investment because there is no allowance for investment.
Tax changes are negotiated ad-hoc, e.g. arctic different than east siberia.
Oil is 64% of export revenues, 25% of GDP, big part of government revenues.

_World of Wall Street

More at the link.
Program and links to obtain video proceedings ($200)

Expert viewpoints for the future of petroleum supply and demand are all over the map. Wise persons capable of reading between the lines should comprehend that political factors are paramount in determining future supply & demand and other determinants of pricing.

The highly politicised and pseudo-scientific movement of global carbon hysteria, has had an undue effect on the politics of oil, gas, and coal in North America, Oceania, and Europe. But such poorly reasoned political crusades can only continue for so long in the face of the inevitable economic difficulties and societal disruptions which they cause.

The future suplies of liquid transportation fuels from all sources should be quite ample, as long as advanced nuclear fission and fusion are facilitated by wiser political leaders.
Once one tacks on advanced BTL (biomass to liquids) on top of the massive unconventional CTL, GTL, KTL, BitTL, and GHTL resources, one begins to glimpse a vast horizon for production of large scale liquid transportation fuels. Over time, the economies of production become more economical -- particularly with the widespread use of advanced gas cooled nuclear fission reactors.
Uses of advanced nuclear power beyond electric power generation.
More uses of nuclear process heat.

World hydrocarbon endowment via Swindell.


More: Oil Markets in a Flux as Demand Slows Interesting weekly update for global commodities

As Supplies Rise, Demand Appears to Stagnate

At the same time as global demand appears to be stumbling, global supplies of liquid fuels appear to be steadily rising. This is a predictable phenomenon of supply and demand economics, although sometimes one must allow prices to rise quite high over time before consumers are motivated to conserve, and producers are motivated to produce.

WaPo

The world is pumping out more oil and other liquid fuels right at the moment when the global economy is starting to slacken and people are using less of the stuff.

So where did this extra oil* come from? Some of it was tapped from new unconventional supplies in the United States and Canada. But OPEC countries have also been cranking up crude production in the past year. Iraq is slowly rebuilding its oil industry. And Saudi Arabia has added about 1 million barrels per day in the past year, to the point where it’s now pumping out more oil than it has in the past three decades.

Meanwhile, global demand as falling. As my colleague Steve Mufson reports, according to Barclays Capital, most of the growth in global oil demand in recent years has been coming from just four countries: Saudi Arabia, China, India, and Brazil. And those last three countries are all slumping. That means there are fewer takers for that extra oil than was expected.

Add that up, and many analysts are now predicting that crude prices will keep falling this year — possibly as low as $90 per barrel. From a historical point of view, that’s still very high. But from the perspective of the U.S. economy, that could provide a small stimulus as gasoline prices keep falling. _WaPo

Of course, the US economy can benefit either way the oil price swings. But on the balance, it is still better for US commerce if oil prices do not rise too high.

On the supply side, we are just beginning to see producers taking advantage of the large gas to oil price spread. With the rise of GTL (gas to liquids), and the global development of vast shale gas ( and oil ) resources, we are likely to see more downward pressure on global oil & gas prices, at least in some markets.