What does $500 brl OIL mean??

[Bill.L]

Devo,

Starting hysteria seems to be your angle.

Bringing up a topic that is likely to have a vast effect on us, is hardly hysteria. Is having a 'head in the sand' approach really better??

What do you propose we do different to prepare???

Currently we (as in governments) are doing nothing different to BAU, including to even study the problem.

I don't see a nice easy answer to declining energy availability at all. I do not really know 'how to prepare', perhaps some here can come up with a few ideas. I have never been part of the "I don't like the message, therefore let's shoot the messenger" brigade. I would love to be wrong and our Cornucopian world continue indefinitely, but the growing evidence suggests otherwise.

bye

 

[devo76]

Devo,



Bringing up a topic that is likely to have a vast effect on us, is hardly hysteria. Is having a 'head in the sand' approach really better??



Currently we (as in governments) are doing nothing different to BAU, including to even study the problem.

I don't see a nice easy answer to declining energy availability at all. I do not really know 'how to prepare', perhaps some here can come up with a few ideas. I have never been part of the "I don't like the message, therefore let's shoot the messenger" brigade. I would love to be wrong and our Cornucopian world continue indefinitely, but the growing evidence suggests otherwise.

bye

I will continue to believe that we adapt to change. I cant see this changing. GFC,Nuclear war,911,swine flu,peak oil,climate change. All changes that we have and will adapt to.
Peak oil is something we personally cant do much about so for that reason i will not lose sleep over it.
On a side note i bought a 6 lt v8 today. Love it and well worth the extra few litres per 100 klm.But i also have cheap transport for work.Thats all the peak oil preperation i can do. By a moped

As for its effects on realestate. I live in Nowra and it is the employment hub for the shoalhaven. It is surrounded by coastal towns ranging in distance from 5 klm to 40+ klm.These hold a lot of the areas housing.
With the last peak in fuel prices i noticed a significant push for renters to move into town. The daily trips to work where adding $100 plus per week to there bills. That started to make rent in Nowra look cheap. Great for Landlords. I had employees ask to vary their start times so they could carpool. This looks like something to take advantage of in rising fuel prices.

If fuel dries up or becomes unafordable. Well we are all screwed so cant really plan for that.

 

[alexlee]

Bill, while this is probably a form of 'she'll be right, mate' optimism, but isn't there still plenty of undeveloped oil out there? Oil shale, for example, in politically safe places like Canada, and oil in areas like Africa, South America, Iraq, etc haven't developed their oil supplies efficiently. So some supplies are inaccessible because of political issues, even though there's likely to be more oil there.

Another would be to convert trucks to LPG (a Boone Pickens project), and there are untapped supplies of natural gas in the US (though there are environmental concerns with fracking).

Oil supplies have been predicted to peak in the 'near future' for decades. But technology and actual new finds have extended this outwards.

While oil may not be cheap, it doesn't necessarily mean it's going to suddenly jump up. It may well be more gradual, giving the market time to adjust. i.e. energy will be available, just not cheaply.

Ultimately, it's whether you are looking at it optimistically or pessimistically. Looking purely at available information, and putting a pessimistic slant, it probably makes sense to say we're in trouble. But you can take the same approach to climate change, food, population growth, etc and conclude the world is coming to an end. But if you look at it more optimistically, you also have to factor in the fact that technology will improve, market forces will adjust if the price increases are gradual, and people muddle through, improving long term though it looks like we're screwing it up.

 

[Bill.L]

Hi alex,

but isn't there still plenty of undeveloped oil out there?

Yes there are. In fact world reserves are now at the highest in history. The point is about oil production, it has plateaued. Some of those huge reserves are paper ones, some are political ones and some are really not accessible by any known methods even at today's high prices. Some are very expensive in terms of energy to recover the oil, hence as the price of oil goes up so does the cost to extract it.

In terms of gas, there is currently a glut in the US, with futures prices very low, below the cost of production in many cases. Converting vehicles to gas, whether LPG or CNG will take time and a high cost. My point is that it is time that is against us. The sudden spurt in oil prices and potentially the lack of availability for some, in the next 2-4 years, must have a huge effect on the economy and particularly the outer suburbs initially.

Oil supplies have been predicted to peak in the 'near future' for decades. But technology and actual new finds have extended this outwards.

Oil has been predicted to peak in the 2000-2010 period for decades. Even M. King Hubberts original forecast of 1995 has only been put back a few years, and mainly because of the oil shocks of the '70's and the changing use of oil that it brought about (how many people still have oil heaters in their homes?) The easy and cheap changes have been made, the small price hikes in the '06-'08 period maxed out public transport at peak times. We have been on a plateau of crude production for 5 years, price rose but production did not, as much because of declining fields keeping up with the pace of new production.
The major technology improvements have been things like horizontal drilling, it has been used for years to get the maximum production from the declining fields.

While oil may not be cheap, it doesn't necessarily mean it's going to suddenly jump up. It may well be more gradual, giving the market time to adjust.

I think this is what everyone is counting on. It is why there is no real planning or studying of the problem. That is BAU, the market will sort it all out, nothing to worry about. Historically when anything that is needed/essential has been in short supply the price has exploded, to levels unexpected by anyone.

bye

 

[alexlee]

Yes there are. In fact world reserves are now at the highest in history. The point is about oil production, it has plateaued. Some of those huge reserves are paper ones, some are political ones and some are really not accessible by any known methods even at today's high prices. Some are very expensive in terms of energy to recover the oil, hence as the price of oil goes up so does the cost to extract it.

I would have thought the reverse: the price of oil goes up BECAUSE of the cost of extracting new supples. While some are not accessible by any known methods, some are, just at a high cost.

In terms of gas, there is currently a glut in the US, with futures prices very low, below the cost of production in many cases. Converting vehicles to gas, whether LPG or CNG will take time and a high cost. My point is that it is time that is against us. The sudden spurt in oil prices and potentially the lack of availability for some, in the next 2-4 years, must have a huge effect on the economy and particularly the outer suburbs initially.

But you're already assuming there will be a sudden rise in oil prices. Also, surely 2-4 years is very short term even in terms of a person's lifetime. We've had oil shocks, but once we passed that period, it became more just a blip in the trend. How hard is it to convert cars to gas? I note that taxis run on gas. I can see the possibility of a a stimulus package in the US that gives tax credits to transport companies to convert their trucks to gas, especially when it's already been pushed by some. Rich people can get ideas onto the political agenda.

I think this is what everyone is counting on. It is why there is no real planning or studying of the problem. That is BAU, the market will sort it all out, nothing to worry about. Historically when anything that is needed/essential has been in short supply the price has exploded, to levels unexpected by anyone.

But that still assumes oil will be in short supply, or at least it will be sudden enough that the price will explode. Why is this inevitable? I would see your scenario as one of several, but since no one knows what's around the corner and what supplies are still out there, I can't assign likelihood. But in a general nod to human optimism (and ignorance) I think we'll blunder through somehow.

If you were in the 70s and living through the energy crisis, would you have thought oil prices would ever be cheap again?

 

[devo76]

during the last fuel price jump. My old man sold his car for a more fuel efficient one at a $15,000 changeover price. I laughed at him.A 3 litre per 100 klm saving will take him over 250,000 klm to break even.

Actually i remeber a news artical about people dumping v8's real cheap. The savings in purchase prices covered the additional fuel cost for between 5 and 10 years depending on usage.

 

[Sunfish]

I have to be the first to say that Thommo was right, I was wrong, there is a coming crunch that will be associated with peak oil, and the timing of such is likely only 2-4 years away at best. There are a million ideas out there about how we will keep going by changing to electric vehicles, or hydrogen cars, or compressed natural gas etc, yet nothing is happening fast enough.

We will easily get to $500 bbl oil and it will be devastating to the economy.

bye

Thanks for the acknowledgement Bill but your last sentence is worthy of examination.

500 what? Near enough for now, $500 ( US, C or A) buys a third of an ounce of gold. The US may go into hyper-inflation in which case you may quickly get to where US$5,000 won't buy a third of an ounce, but I don't see that hurdle being leapt in a basket of "sound" currencies. The banking system would break if there wasn't some sort of decisive and wise reorganization made before then.

Similarly, world trade would collapse well before $500 oil if measured against a basket of sound currencies or was trading for one third of an oz of gold. The US has the most fearsome military ever assembled and if you look at their history there has never been a problem they could not solve at the end of a gun. Just this weekend I heard Jim Rickards suggest that the US, who has 800 tons of gold and is holding 600 tons for European banks in their vaults, could simply annex what they hold. Now Jim is a guy who normally voices only considered opinion, so WTF? The biggest bit of gold belongs to the Bundesbank and it is hard to imagine that happening but any held for the Arabs would be fair game . They annexed the US oil wells after all.

The most likely scenario would be the Yanks paying the current cash price in fresh, newly printed US$ to the O/S holders on a "take it or leave it" basis and then, and only then, they would allow gold to rise. That is how they handled it back in the thirties: Once the citizens handed in their gold @ something like $25/oz the US promptly revalued it @ $35/oz.

$500 oil in 2010 dollars cannot happen. Would we then be up to Mad Max IV? I never talk about "guns 'n ammo" because it is unthinkable but they wiould be your most valued property before $500 oil was reached.

 

[Sunfish]

You can talk about alternative oil and oil alternatives as much as you like but we only replace 10 percent of our vehicle fleet every year, so even if we suddenly had a "cheap" alternative private vehicle, how long will it take before 50% of the cars on the road were "next gen"? I'm guessing but it would be way over 10 years.

There is no free lunch. Canadian tar-sands need two barrels of oil equiv in natural gas to produce 3 barrels of heavy, crappy liquid. I've heard it described as "making mock crab out of caviar".

When examined ALL "new technology" fails the basic test if you ask "Is there enough time and currently available energy to make this into "game changing" technology"?

The biggest fraud hoist on mankind is ethanol. It needs more energy to produce than it returns when burnt. And it puts up the price of of protein for second world peasants and feed stock for our favoured foods.

 

[Dazz]

$500 oil in 2010 dollars cannot happen. Would we then be up to Mad Max IV? I never talk about "guns 'n ammo" because it is unthinkable but they would be your most valued property

Already happening chief....


http://madmax4movietrailer.blogspot.com/

 

[Bill.L]

Hi Sunfish,

I'm sort of expecting tight oil supplies and much higher prices to be the catalyst for higher inflation across the board. History has shown that whenever the money supply has had a major boost then inflation follows, often with a lag time. There are some papers at the Bank of England's web site that show this. The have the history going back to 1694

The reason we have not had high inflation yet is because a catalyst is needed to kick it off and keep it running. Much higher oil prices due to scarcity to me seems a likely catalyst.

The $500/bbl figure is in $US and probably in $A as well. Obviously not a 2010 dollar, but a round of inflation brought on by fuel scarcity is likely to lower standards of living for many, most wages will not enjoy the same rises as energy based goods and services (including food), and gold for that matter.

bye

 

[dadevelopments]

I am a small developer and have been wondering peek oil for a few years now (hence my first post). For me it is very important because on each project there is a small period of time where I am highly leveraged (from end of the build until sale). At these times I am vulnerable.

I have found this web site good:

http://www.theoildrum.com/

Gets a bit technical - but I find I can grasp the basics which are: We do not know if peek oil is soon, e.g. 5 years or a long way off 20+ years. However, demand is still growing at 1% to 2% each year and we do not need to reach peek oil for demand to outstrip supply.

Important to note:
In opec the size of your quota is proportional to the size of your reserves. Therefore there is an incentive to exaggerate your reserves. The middle east has not allowed any independent verification of the size of their reserves for 40 years.

Conclusion - Peek oil is an unknown.

Oil demand is in-elastic to price. That is - if the price goes up we do not use less - we just pay more. With a demand in-elastic commodity facing a shortage prices can get real high real quick because there isn't more for us to pay for - Highest bidder gets it!

Current opinions:

- Electric / hydrogen discussion is irrelevant. These technologies store energy for use in transport. This whole discussion is where does the energy come from.

- Shale oil etc are too hard - they require too much energy to extract.

- Bio Fuels will just spread the inflationary effect and cause food shortages.

Possibilities:

- Built the right infrastructure now (this should cushion us from the economic shock by having existing alternatives)

- Rationing (rather than bid the price our of each others price range - lets co-operate of who can have how much)

Lets all hope for good leadership over the coming years!

 

[Dazz]

Important to note:
In opec the size of your quota is proportional to the size of your reserves. Therefore there is an incentive to exaggerate your reserves. The middle east has not allowed any independent verification of the size of their reserves for 40 years.

.....and why should they ??


What we are talking about here are mineral deposits that constitute the largest asset ever discovered by human kind. I know the Yanks are pretty disappointed that it's not in there backyard.....they got East Texas, Pennsylvania, California and stole Alaska off the Russians but still they whinge.


Independent verification - what does that mean ?? Some Yank from the IEA trolling through a soveriegn countries major (only) asset so they can see how much they can screw 'em down in price negotiations. Quite rightly, they've told 'em to go and whistle Dixie.


Iraq knows what Iraq has.
Iran knows what Iran has.
Saudi Arabia knows what Saudi Arabia has.
Russia knows what Russia has.
The US knows what it and all the other western countries has, and is mightily ****** off that it's not allowed in to rummage through. So what....


It'll be quite a while before the US State Dept and Mines Dept allows Saudi, Iranian and Russian inspectors into their US oilfields so they can double check what is going on and what they own. The US Federal underground reserve of supposedly 15 billion barrels won't last long if they keep their consumption up at ~ 22 million barrels a day.


How would the US family cope without the father having his V8 and his favourite A/C ducted system turned up full blast in summer and his full on ducted heating turned up full blast in winter, the mother her SUV and microwave and 3 TVs and washing machine and iron and 57 downlights all on at once, the teenage girl with her plastic IPOD and laptop in her room on constantly and huge plasma on constantly and 3 mobile phones, and the son with his own big plasma and stereo blasting away.....


Heaven forbid them backing off a bit on their consumption and leaving some of that 22 million barrels a day to go to others who are still burning cow dung and a blanket to keep warm.

Saudi Arabian oil Minister, Ali Al-Naimi, commented that the days of easy oil are not over, and that there remain at least 88 billion barrels in the Saudi oilfield of Ghawar, let alone the rest of the fields in that country.

So, Ghawar can support the world for 3 years on it's own....turn the rest of the world off and give it a rest.


Self support for Australia is big on my agenda. It's disgraceful how huge chunks of the marine system are being locked up away from exploration.....it's such an undiscovered frontier.....there is only so much whale watching and picture taking that can be done. They all get there by car and boat anyways. No-one is walking or swimming out there.

 

[Sunfish]

Dazz, they've been recharging Gawar with salt water for years now. Without "independent confirmation" why would you believe the quoted reserves? And you know that oil-fields go into decline long before they go "dry".

Cantarel (in Mex) is declining more'n 20% pa. It's so bad that Mexico is expected to become a net importer in a few years. Britain is now an importer with the Nth Sea in serious decline. How can the Middle East fields be the only ones that don't deplete?

 

[Dazz]

Dazz, they've been recharging Gawar with salt water for years now.

Yes, it's called secondary recovery....I don't know an oilfield in the world that doesn't have water injectors. Natural water drive from below doesn't last long, especially with vertical wells, as the water from below "cones" in.

Recharging is good.

I did my 4th yr Engineering project studying Ghawar, the porosity, the permeability of the formation, and the absolutely massive areal extent and height of column. Water saturation amongst the grains was minimal. Staggeringly big. By far and away the biggest wealth accumulation the world has ever known.

Without "independent confirmation" why would you believe the quoted reserves?

Having worked and lived over there for many years Thommo, I would trust the Saudi's and other Arabs far more than any Yank. They make eels look good.

And you know that oil-fields go into decline long before they go "dry".

Yes....and....I was standing one day next to Brunei's very first oil well on the coast drilled in 1914. it went dry in about 1923. but it was short, and shallow, and the casing had no integrity - looked like swish cheese on the sonar scan we did. Doesn't stop us drilling deeper, contorted horizontal wells to specifically target the huge untapped reserves and line it with chrome casing strings. The Middle East is yet to have the advantage of all of these techniques applied.

Libya, with it's huge reserves, is severely hampered with the still American embargo....no horizontal drilling motors or MWD tools are allowed in. Yankee aircraft carriers still patrol offshore to make sure nothing gets in.

Cantarel (in Mex) is declining more'n 20% pa. It's so bad that Mexico is expected to become a net importer in a few years. Britain is now an importer with the Nth Sea in serious decline. How can the Middle East fields be the only ones that don't deplete?

Don't know much about Mexico....have looked up Cantarell a few times, never worked there so don't know the on ground stuff.

What i do know is that the journo's and experts writing these columns hardly know a stitch about what actually happens on the ground. No-one really cares. they only want to talk about the really big numbers and the national averages. This is where it becomes very hazy. then of course you have 10's of thousands of sharks in NY manipulating everything for their own end making billions out of trades that get bought and sold up to hundreds of times between wellhead and refinery. The porr old tanker captain doesn't know whether he's Authur or Martha.

What is the price gonna do. With an engineering degree and 20 years experience in the subject, I honestly couldn't tell ya. The 4,000 factors that go in and make up the melting pot known as the "oil price" is just to big and fluid to predict.

 

[Sunfish]

What is the price gonna do. With an engineering degree and 20 years experience in the subject, I honestly couldn't tell ya. The 4,000 factors that go in and make up the melting pot known as the "oil price" is just to big and fluid to predict.

Without your experience I'm even less inclined to made any predictions.

It is on the economics of world trade that I don't believe oil could reach one third an oz of gold while maintaining any semblance of normality. World trade would have to collapse because we could not afford the ships and trucks. If sanity prevailed we would be living simpler, more "local" lives. If Mad Max prevailed I can't imagine.

 

[Dazz]

If sanity prevailed we would be living simpler, more "local" lives.

Agreed, that would be my wish too.

It horrifies me to see posho swanko homes with imported Italian slate, Persian rugs, Egyptian this, Japanese that, Mongolian this, Bolivian that, all hand selected by the Owner as shopping trophies....

The massive amount of oil needed to get her there and back, and all of these things to her her house amounted to 10's of thousands of barrels....wicked wicked waste of resource.....but they have they dosh and are happy to pay whatever it takes.

At the very very top end, that's where the western democracy and business model falls down I reckon.

 

[House_Keeper]

Came across this web site recently, association for study of peak oil:
http://www.aspo-australia.org.au/

One of the things that surprised me was that in the US banks are starting to evaluate mortgages based on their sensitivity to the oil price, trying to assess people’s ability to meet their interest payments should the oil price increase significantly. That seems to indicate that the finance world is starting to take this seriously.

In Australia, properties in the outer suburbs would be most at risk from rising oil prices. This indicates we should focus our property investment in inner-city areas, and be careful about places that don’t have good public transport.

When will peak oil happen? I don't know, but some people think it could happen in a few years...

 

[Sunfish]

When will peak oil happen? I don't know, but some people think it could happen in a few years...

There is a difficulty defining just what is "peak oil". I think it is reasonable to describe it as the point at which production of conventional oil reaches a peak with an inevitable decline thereafter. "Conventional" is when you sink a well a few thousand feet on land or in shallow water and the black stuff rises to the surface under it's own pressure.

Canadian tar sands and US shales contain a lot of oil but they will never be cheap to recover and the maximum recovery per year is limited.

Something like 3% of Middle Eastern oil is spent in it's recovery while 70% of the oil from the Alberta tar sands is spent in it's recovery, measured as "oil equivalent", plus a lot of water is needed and it is a very polluting process.

These alternative sources can never be scaled up to meet a high percentage of the 80+ million barrels / day we use.

 

[pauly]

Theres a big shift happening in the auto industry (I work in it)
In several years time you'll never have to put another drop of a product derived from crude oil in your car if you don't want to.

I wouldn't be stressing at all, and the infrastructure is already there for several of the alternatives, albeit the infrastructure might need expanding but its already happening.

Oil wont run out for a long long time still, by then you'll have so many choices for fuels.

 

[Aaron Sice]

In Australia, properties in the outer suburbs would be most at risk from rising oil prices. This indicates we should focus our property investment in inner-city areas, and be careful about places that don’t have good public transport.

i've been saying this for ....how long now?