Articles from 2012
Peak Oil is Dead say Citibank
- Written by Nick Grealy
- Published: 17 February 2012
Some days there isn't much news, some days there's too much. Check the Twitter Feed for interesting stories: Gazprom talking the old poison about shale, Gazprom saying (hoping? praying?) that US LNG won't amount to much, Santos revealing big Cooper Basin shale gasfind in Oz and of course the various contortions around the world reacting to the UT report.
But best of all is this from Citibank:
Death of the Peak Oil Hypothesis
Look I try to keep it clean around here, but if Peak Oil is dead, I say where's the grave: I need to take a leak.
Peak Oil and its various illegitimate progeny have provided the rationale for so many scams, crackpot theories and all the other just plain wrong headed foolishness that provide rationale for official UK Government Policy over the past ten years that something like this is cause for real celebration, which includes of course, rubbing lots of people's noses in it.
Let's point out of course that none of this is new. What isnew is who is not only the source but the paradigm shattering confidence that they say it with.
The concept of peak oil is being buried in North Dakota, which is now leading the US to be the fastest growing oil producer in the world. The belief that global oil production has peaked, or is on the cusp of doing so, has underpinned much of crude oil’s decade-long rally (setting aside the 2008 sell-off). The belief was bolstered by the repeated failure of supply to live up to the optimistic forecasts put forward by various governmental and international energy agencies. The IEA, the industry benchmark, made a habit of putting forth forecasts for the coming year of big gains in non-OPEC supply, only to spend the next 18 months revising those forecasts lower.
I especially savour this I told you so moment:
We expect oil production in the US to surprise to the upside. We expect industry expectations to lag behind reality, just as they did with shale gas for many years.
Something else I have been pointing out almost from day one here in 2008, is that we in the industrialised countries are becoming much more fuel efficient. I always used to mention that during my initial battle with the conventional wisdom bulls who ramped energy up so high. After the energy bulls, came the Peak Oil brigade who never wanted to waste a catastrophe and worshipping the ghost of Jevon insist against all evidence that we simply use too much energy. Don't get me wrong, I think we should use less, but the Peak Oil Jeremiahs completely ignore evidence crystal clear to anyone who has ever had any contact with end users:
The impact of the supply surge is being further accentuated by declining demand
Moving on through this report with
The driver of this resurgence in US oil production is the shale oil plays, in North Dakota (Bakken), Texas (Eagle Ford and Permian Basin) and more recently in a half dozen other areas including Colorado, Wyoming, Utah and Oklahoma . Starting in the mid-2000s companies began to roll out the same fracing technologies that revolutionized the natural gas supply picture in the United States into shale oil patches as well as into oily and liquids rich gas plays. As the charts of state level production data show, it clearly works, and it is making the US the fastest growing oil producer in the world.
Advances in the use of horizontal drilling and hydraulic fracturing have unlocked vast reserves of hydrocarbons originally trapped in highly dense shale rocks. The two shale oil plays that have benefited most from this transformation so far are the Bakken and Eagle Ford; active drilling activities will continue for as long as the regulatory and pricing environment allow. Production costs in the $60 to $70/bbl range lead to profit margins that incentivize further drilling, unlike natural gas, where the glut inside this isolated market, without any meaningful export capabilities, has pressured drilling activities. The continued high price environment for global oil is supporting production growth, despite the mounting disconnect between US onshore oil and global prices. And while development costs are creeping up, the likelihood is that the services sectors will sooner or later provide enough equipment and make efficiency gains that should lower costs significantly. We find analysts tend to forget that the services sector is a dynamic market, where price triggers generate investments and new efficiencies over time.
That last sentence reminds me of the conventional wisdom typified by the PhD top heavy Bernstein/Oxford Institute of Energy Studies/Poyry/Ofgem shale deniers who remind us that shale gas won't work in Europe because we don't have services.
The entire report is worth reading, but let's move on to the international implications.
Elsewhere globally, the Paris Basin in France may also be rich in light, tight oil. While the EIA report from 2011 identified the basin as a potential shale oil area, Vermilion, one of the largest conventional producers and as one of 10 companies with drilling activities in the area, just reworked a 25-year old Exxon well but using the same techniques as shale drilling.
Is there anyone awake in France who doesn't get the implications of this? Billions of barrels of oil or austerity. Votre choix.
The only thing standing between the Euro long term as petro-currency is the election. Then we can start working on reality, not emotion.
Next week is IP Week in London, one big oil shindig. Two years ago I was mentioning shale gas and shale oil and people were averting their eyes and seeing if I was accompanied by any people in white coats. All except the people from Opec.