The Coming Oil Apocalypse

[SpencerH]

An interesting point I heard yesterday was regarding whether the price increase in crude has sparked new exploration? I didnt hear all of the answer but I did hear the comment that the oil companies have to consider whether the price will drop again - making exploration too costly - something that happened after the 70's price increase.

I'd point out that what happened in the 70's was an 'artificial' shortage caused by OPEC ('our friends' yeah right!) flexing their muscle whereas the current price increase is caused by the increased demand from China and India.

[MosesPresley]

This thread has degenerated into a technology love fest. It appears that technology is the new god.

I don't think technophilia will save us without the foresight to develop new energy sources.

I think a major point has been missed. Just because technology will allow you to get to the oil and refine it, no matter the quality, if the cost is too high, people will not necessarily be able to afford it. Higher cost does not necessarily mean greater profits. There is a critical point where the consumer will no longer be able to afford the higher cost. Government subsidies or some other remedy will be necessary to keep costs down. If the average person cannot afford gas, then the current lifestyle and the automobile infrastructure which makes it possible, will fail.

Another problem with the availablity of oil reserves is, as Agathon pointed out, (I mentioned it briefly in post #60) China is parked at the gas station now, India will soon follow. This will stretch the affordability and availability past the average working person's financial ability and the refining capacity well past its current limits.
China and India will two billion new customers to an already overstretched market.

If we are to maintain the current standard of living with an oil dependency, we will need to massively invest in refining and limit the financial impact on the consumer. If the consumer bears the brunt of the cost of expanding refining capability, without corresponding rise in wages, recession or an outright depression will certainly follow.

Some links:

Full refining report:

http://www.icfconsulting.com/markets/energy/marketing/refinery-capacity.asp

http://www.icfconsulting.com/Markets/Energy/Marketing/refinery-capacity.pdf

News article:

http://www.detnews.com/2005/editorial/0509/03/A12-298216.htm

Annual Refinery Capacity Tables for 2005:

http://www.eia.doe.gov/oil_gas/petroleum/data_publications/refinery_capacity_data/refcapacity.html

Deliberate decrease in refinery production. You can always depend on some chicanery to happen.

http://releases.usnewswire.com/GetRelease.asp?id=52755

[KrazyHorse]

Originally posted by BlackCat
KH - haven't you figured it out yet ? LC has a firm grip on your nose and are dragging you around at his will.

LC may have a point, but it is so extremely small that it falls beyond what is mesurable.

Who cares about measurable?

I'm a theoretical physicist, damnit. What is measurable is a secondary consideration.

[Japher]

theoretical physicist has got to be the best job

no deliverables
you don't have to be right
and you are wrong, no one will no for years

[General Patton]

America will probably use force to acquire others reserves so we can preserve our way of life for as long as possible.

[DanS]

Really, there's no need. And even if there were, it's much cheaper just to buy the oil from them than to take them over. And even if it made sense in a cost/benefit sense, it wouldn't make sense otherwise, considering that oil is a global market and it does us no good if we are the only ones who have oil and our trading partners don't.

[Flubber]

Originally posted by SpencerH
An interesting point I heard yesterday was regarding whether the price increase in crude has sparked new exploration? I didnt hear all of the answer but I did hear the comment that the oil companies have to consider whether the price will drop again - making exploration too costly - something that happened after the 70's price increase.

Oil companies project plan based on their long term price projections. In more remote areas, a best case can be a decade between a discovery and potential production. The current price is almost irrelevant except to the extent it :

a) provides current capital
b) impacts that long-term projection

The important numbers on a risk assessment will be the projected prices and the worst case (say at a 1%) probability level. Even when oil is say $50, many oil companies may be doing economis based on $30 oil and which factor in the possibilities of $12 oil (thta was the price not that long ago)

Current price is a HUGE driver in

a) wanting to get production on stream faster
b) re-entering or reactivating older wells
c) triggering all sorst of production enhancement schemes that would niot be done in a lower price environment

[Flubber]

Originally posted by MosesPresley


I think a major point has been missed. Just because technology will allow you to get to the oil and refine it, no matter the quality, if the cost is too high, people will not necessarily be able to afford it. Higher cost does not necessarily mean greater profits. There is a critical point where the consumer will no longer be able to afford the higher cost. Government subsidies or some other remedy will be necessary to keep costs down. If the average person cannot afford gas, then the current lifestyle and the automobile infrastructure which makes it possible, will fail.

I agree with most of this. What we have seen to date is that people have a fair tolerance in the short run for higher prices or an inability to change consumption patterns easily. What should happen though is that we should see SOME decreased demand which should allow oil to find a new price lever at which to settle

[RGBVideo]

For a currently supposedly scarce and expensively acquired resource, oil is sure making nice profits to the pockets of major US oil companies.

Does anyone want to start an avatar bet with me? I'm willing to bet that during at least one market day in 2007, the price of light crude will be under 40 euros (which is currently around $50).

[SpencerH]

Originally posted by Flubber


Oil companies project plan based on their long term price projections. In more remote areas, a best case can be a decade between a discovery and potential production. The current price is almost irrelevant except to the extent it :

a) provides current capital
b) impacts that long-term projection

The important numbers on a risk assessment will be the projected prices and the worst case (say at a 1%) probability level. Even when oil is say $50, many oil companies may be doing economis based on $30 oil and which factor in the possibilities of $12 oil (thta was the price not that long ago)

Current price is a HUGE driver in

a) wanting to get production on stream faster
b) re-entering or reactivating older wells
c) triggering all sorst of production enhancement schemes that would niot be done in a lower price environment

So I guess that means that the estimates for when to begin shifting to alternative fuels are still 'behind the curve' and so the question becomes at what point will they shift the oil price to where alternatives become viable for companies like archer daniels midland and others of course to begin pursuing them?

[SpencerH]

Originally posted by VJ
For a currently supposedly scarce and expensively acquired resource, oil is sure making nice profits to the pockets of major US oil companies.

My oil//mostly gas stock (XTO) is up 40% in the last two months or so - and I'm hanging on!

[Flubber]

Originally posted by SpencerH


So I guess that means that the estimates for when to begin shifting to alternative fuels are still 'behind the curve' and so the question becomes at what point will they shift the oil price to where alternatives become viable for companies like archer daniels midland and others of course to begin pursuing them?

Iwas talking about oil companies when they are trying to make a decision to invest billions. But I assume the projected price of alternatives would play the same role in any company trying to adopt alternatives.

When at 50 bucks it might seem smart to switch to an energy source that is equivalent to 40 bucks but you look like an idiot if oil then went to 30.


Projections could be ahead of the actual price. If a bunch of major corps felt that oil would stay ar $70 for a while and did their projects based on that, you would have seen a bunch of alternative sources already being developed