Wednesday, June 20, 2012

Worrying About a Collapse of Oil Prices

North American oil executives are becoming concerned that the same type of price collapse that occurred in the natural gas sector may also occur in the crude oil sector due to significant improvements in oil production technology.
Oil fundamentals today are showing very similar characteristics to natural gas a few years ago: A rapid increase in productive capacity; weak domestic consumption that can’t absorb the rising output; old takeaway infrastructure (for example, pipelines) that is not adapting quickly enough to match new sources of supply with shifting demand; and a fenced-in continental marketplace that inhibits exports to higher-value global markets.

Rapid production growth, the number one antagonist, continues to astound with every new data point received. From North Dakota to Alberta, Saskatchewan to Oklahoma, new light oil barrels from horizontally-fracked wells keep flowing in greater quantities every month. If there is one chart that turns this story into Technicolor, it’s Figure 1, the long-term production profile for Texas. _Globe&Mail
CAPP 2010 . . . Updated 2012 CAPP PDF

Canada is projecting sustained growth in oil production over at least the next 2 decades, largely due to growth of in situ oil sands production.

And as you can see below, Texas has reversed its long decline in oil production, and expects production to continue to grow for the near-term and intermediate-term.
Image Source

Texas is now growing its rate of oil output by 35,000 B/d, every month, for an annualized growth rate of 425,000 B/d per year! To put this in perspective, that’s the equivalent of one-third of Libya’s oil production developed and brought to market in 12 months. It’s also close to China’s incremental consumption in 2011 (505,000 B/d).

Here in Alberta, the production of light, tight oil, or LTO, is now up by 175,000 B/d relative to what would have been expected without the new technologies. Putting this in perspective, Alberta has built the equivalent capacity of a big oil sands project in less than 18 months – complete with an upgrader to light oil! _Globe&Mail

To say nothing of North Dakota and the Gulf of Mexico!

Carbon Sciences is showing progress in its unique "dry reforming catalytic technology" which makes economic use of otherwise useless high CO2 natural gas deposits. By using CO2 in the reforming of methane to syngas, Carbon Sciences opens up large deposits of otherwise stranded gas which would be impossible to make economic use of otherwise.

Carbon Sciences' technology allows for a wide range of uses for these newly available gas deposits, including GTL (gas to liquids), high value chemicals production, etc.

Widening the economic uses of natural gas -- both stranded and otherwise -- also puts downward pressure on oil prices, although few analysts or journalists up until now have taken the trouble to point out that important fact.

More: The Coming Oil Crash

Even More:The Most Dysfunctional US Energy Department in History?

Labels: , , ,


Blogger Hell_Is_Like_Newark said...

I haven't been comfortable with what Carbon Sciences has been selling. IMO, they have been rather vague and obtuse on how their technology works. In order to turn CO2 into something you have to add energy. How is this process provide more energy than what is put in? If not, where does the energy come from? CS also hypes CO2 as a 'dangerous gas' in their press releases. That is the language of a Green Scam.

Bottom line.. I want to see a demonstration plant before I would even consider what they are selling as real.

As for the price of oil: Shale oil will see stress under $70 per bbl. If we go below $55, shale oil production comes to a grinding halt. ND requires that oil wells do not get "capped", but plugged with concrete instead. If an oil company walks away from its wells, the whole process will have to start from scratch once prices go back up.

This will set us up for a new disastrous spike in oil prices in the not so distant future.

6:29 AM  
Blogger Whirlwind22 said...

Well the economy is still in the toilet never having recovered from the recession of 2008 so thats probably why oil prices are so low right now. But then OPEC wants to cut production in July so it won't last long.

9:20 AM  
Blogger Hell_Is_Like_Newark said...


Yes, consumption is down. So much so that the USA now exports refined petroleum products. Which is something that we have not done for over forty years.

Production is also up. Production actually exceeds demand. IMO, a good portion of that demand has been filling up salt domes, idled tankers, and tank farms (same thing that happened before prices collapsed in 2008).

Dollars, Yen, and Euros are being traded for commodities as a hedge against inflation. There is a lot of oil sitting in storage under a futures contract. Instead of executing that contract, the contract just gets renewed as the investor / speculator sees more value in holding oil than say, dollars.

If the US government shows signs of implementing real fiscal sanity, there will be a flood of investment coming into the USA. A lot of that oil will need to be sold in order to exchange it for dollars (you can't buy stocks on the NASDAQ with Brent Crude.. you need dollars). Oil prices, at least in the short term will crash again.

10:44 AM  
Blogger al fin said...

In situ oil sands production reduces "breakeven" from $80 a barrel down to $60 a barrel. As technology improves, expect production costs to decline further.

Carbon Sciences is being forced to market their steam reforming GTL technology first, since their dry reforming catalytic process is not yet perfected. First they have to prove they can make money with more conventional processes.

The good news is that their CO2 "dry reforming" method is meant for use in gas wells containing relatively high amounts of CO2. Even if they burn a little extra methane to produce the syngas, they are still making economic use of gas that couldn't be used otherwise.

Like you say, the insane fiscal and monetary policies of the US are in large part responsible for the most recent oil price bubble. If the US government is ever tamed and forced to behave rationally, a lot of bubbles are likely to burst around the world.

12:43 PM  

Post a Comment

Subscribe to Post Comments [Atom]

<< Home

Newer Posts Older Posts