Peak Oil

The arrival of peak oil is as plain as the nose on your face. And yet many "experts" nevertheless keep insisting that peak oil is a lot of Chicken Little worrying about nothing. Smart people will make energy-crash preparations now. -- RF

Why, Despite the Boom in Oil Production, are Gasoline Prices Still High?

Oil Price,

14 February, 2013

On Monday, USA Today reported that the price of gasoline hit $3.60 a gallon for the first time since October — an early start in comparison to the usual price rise seen in the spring. The increase occurred despite world oil production climbing to 88.8 million barrels per day in 2012, about 2 million barrels higher than two years ago according to the Washington Post’s Brad Plumer. And about half of that increased production is due to an oil boom in the United States that’s driven imported oil to its lowest level since 1987.

That increased oil production will bring down gas prices is one of the most reliable Republican canardswhen it comes to energy, so what gives?

As Plumer points out, “The big thing to remember is that oil prices are a function of both supply and demand. If world demand for oil rises faster than producers can pump the stuff out, prices will go up.” Plumer cites a piece by James Hamilton of UC San Diego, which shows China’s consumption of oil is booming, and that the world economy as a whole is growing apace — and thus demanding more oil — even as fuel efficiency increases.

Technically, the world isn’t even producing enough oil to keep pace with the rise in global incomes. Oil supply has risen by 2.3 percent since 2010. But the world economy has grown by 7.1 percent since then. The only reason that oil prices haven’t soared to record highs, Hamilton points out, is that countries have been undertaking new conservation measures. Americans, for instance, are buying more fuel-efficient cars in droves.

Granted, oil prices would almost certainly be even higher than they are now without the drilling boom over the past two years in places like North Dakota. But at this point, the extra drilling is struggling to keep up with the pace of global economic growth.

Here are the global production and consumption numbers for the last few years from the U.S. Energy Information Agency (note the numbers to the left start at 84,000 thousand barrels per day):

And despite forecasts from BP and the International Energy Agency that domestic and global oil production will continue rising, Plumer notes that high gas prices aren’t going away anytime soon:

The [IEA] recently projected that U.S. oil production would continue rising through 2020 and beyond, as companies extract more “unconventional” oil from shale rock and other sources. But global demand was also expected to rise 35 percent between now and 2035, with China on pace to become the largest oil consumer in the world in the next two decades.

And that’s the optimistic scenario. Raymond T. Pierrehumbert, a geophysical sciences professor at the University of Chicago and a lead author on the third IPCC Assessment Report, recently pointed out in Slate that while going after unconventional oil remains profitable, and thus likely to continue, it requires ever greater effort to retrieve the same amounts of oil:

Technological developments have made it possible to tap into tight oil, but these are not the same kinds of technological developments that have given us ever more powerful computers and cellphones at ever declining prices. Oil production technology is giving us ever more expensive oil with ever diminishing returns for the ever increasing effort that needs to be invested. According to the statistics presented by J. David Hughes at the [American Geophysical Union] session, we are now drilling 25,000 wells per year just to bring production back to the levels of the year 2000, when we were drilling only 5,000 wells per year.

We have to keep increasing drilling just to keep production steady, and the faster you drill in a particular area the faster production peaks and drops off. That future is an economy pouring ever greater amounts of energy and money into efforts “to extract the last drop of profit through faster depletion of a resource that’s guaranteed to run out.” So the structural economics of continuing to pursue oil are shaky, even if further industry profit is possible.

It remains the case that the best way to avoid high gas prices and supply shocks — not to mention avoiding catastrophic damage to the global climate — is to move away from oil as an energy source.

By. Jeff Spross

World Oil Hits Supply Constraints; North Sea Production Nears Historic Low

Forbes,

17 February, 2013

Anyone in the northeast filling up their house with heating oil knows, oil prices are going higher.

What investors know is that crude oil markets have had quite the week, with Brent oil futures settling above the $118 per barrel on most days. With the United States being a net importer of oil, of course, that European Brent crude price is more important that West Texas Intermediate, which is now trading at $96 a barrel.

Even though macroeconomic sentiment weakened slightly on the back of poor fourth quarter GDP numbers in Europe, oil continues to get price support from a solid underlying demand-supply equation and ongoing geopolitical elements in the middle east.

In this context, last week saw yet another failure in talks between the International Atomic Energy Agency and the government of Iran. No date has been set for future talks and the failure in a negotiated agreement comes just two weeks before more meetings, this time between Iran and the so-called P5+1 (China, France, Germany, Russia, U.K. and the U.S.).

That in mind, Barclays Capital told clients in a note on Feb. 15 that supply constraints would serve as strong support for oil prices in the weeks ahead.

The full set of supply figures for North Sea oil (Brent basis) for 2012 was released by the Norwegian Petroleum Directorate and these show the country’s production averaging 1.91 million barrels daily of oil and oil equivalents over the year. That figure stands at historic lows and 13% below the country’s own production expectations for the year.

Over 2012, output was negatively affected by a multiplicity of technical problems at a variety of fields, including Hog, Oseberg, Vigdis and Troll. Preliminary data for January show total output at 1.85 mb/d, lower on the year by an impressive 255 thousand b/d, though 1% higher than the Directorate’s forecast production for the month.

Then there are the ongoing outages in Brazil, Syria and Sudan in non-OPEC nations. As a result, Barclays‘ tally of non-OPEC supply disruptions now stands at 875 thousand barrels daily, about 256 thousand less barrels of oil less than the previous month.