Ready for $262 bbl oil?

[mime]

Duc, or somebody else,

Could you explain this a bit further please? What does this mean?

I think it means we are burning all the energy we are getting.

 

[bullmarket]

Hi wayne

Duc, or somebody else,

Could you explain this a bit further please? What does this mean?

I think he means that, for example, in 1916 there was 28 times as much energy recovered as there was used.

But are those numbers reliable or accurate I have no idea since he didn't quote the source of his numbers or how they were calculated.

The unit of energy is the Joule and power = rate of using energy = joules per second = Watts - so I'd be interested to see where he got those numbers from and how they were derived.

cheers

bullmarket

 

[Bobby]

Duc, or somebody else,

Could you explain this a bit further please? What does this mean?

Wayne I think it means that for every drop of oil known to exist in the ground that drop has already been figured for demand, hence (Peak Oil) is here now Uck ! .

Bob.

 

[wayneL]

Hi wayne

I think he means that, for example, in 1916 there was 28 times as much energy recovered as there was used.

OK this is what I don't understand.

That means for example that for every million bbls used, 28 million bbls were sucked out of the ground. That means there was 27 million bbls sitting around somewhere, accumalating every year.

Surely that couldn't be it, could it? Where was it stored?

 

[mime]

OK this is what I don't understand.

That means for example that for every million bbls used, 28 million bbls were sucked out of the ground. That means there was 27 million bbls sitting around somewhere, accumalating every year.

Surely that couldn't be it, could it? Where was it stored?

I think so. Not accumulating just showing that demand was not exceeding supply.

 

[wayneL]

BTW There are commodity bears as well.

http://www.businessweek.com/ap/financialnews/D8H60BHG6.htm?campaign_id=apn_home_down&chan=db

OPEC head predicts oil prices will fall


APR. 23 6:54 P.M. ET OPEC President Edmund Maduabebe Daukoru predicted Sunday that oil prices would fall from their current high of just over $75 a barrel to stabilize in the "upper fifties to lower sixties" as political tensions ease.

Daukoru, who is also Nigeria's petroleum minister, was in Doha for the three-day International Energy Forum that began on Saturday.

Crude-oil prices hit a new record Friday, fueled by concerns about Iran's nuclear ambitions and tight U.S. gasoline supplies.

Advertisement

The Organization of Petroleum Exporting Countries president said the solution to high prices lies in a calmer international environment and boosting refining capacity -- not increasing output which would only clog the market.

"If we do the right things by lowering international tensions, oil prices will definitely stabilize," he said.

Oil ministers from several countries are taking part in the event organized by Riyadh-based International Energy Agency.

"The important thing is that we should begin now (to increase refining capacity) so that we do not continue with these kinds of problem beyond the next three years," Daukoru said.

"When the capacity is tight, you get a wide fluctuation of prices -- up or down -- depending upon the particular circumstance

 

[bullmarket]

Hi wayne

OK this is what I don't understand.

That means for example that for every million bbls used, 28 million bbls were sucked out of the ground. That means there was 27 million bbls sitting around somewhere, accumalating every year.

Surely that couldn't be it, could it? Where was it stored?

I'm not sure he was referring to bbls of oil, cubic metres of gas or whatever.

As I mentioned earlier, energy is measured in joules regardless of its form and he clearly mentioned 'energy' and not specifically oil, gas, electrical, solar, wind or hydro - all of which are forms of energy.

Maybe he's still trying to find out for himself what he actually meant but I'll be interested to see if he comes up with a source for his ratios and how they were derived...........time will tell I guess

cheers

bullmarket

 

[Smurf1976]

Duc, or somebody else,

Could you explain this a bit further please? What does this mean?

It works like this.

It's the energy return on energy invested. How much oil is consumed in order to produce a barrel of oil counting everything from vehicles used in exploration, running the drilling rigs, building platforms and pipelines and so on.

If it's 20:1 then that means burning one barrel of oil in order to produce 20 barrels. Scale that up and you have a large net production of oil. A net 19 barrels for every barrel expended in extracting it.

I'll use a financial analogy to make it easier to understand. Suppose that you invest $1K and get back $20K. You've made a profit of $19K. Keep doing that and you end up with a lot of money.

But if it drops below 1:1 then you're getting back less than you put in. If it's 0.9 for example, then you spend $1000 to get back $900. NOTHING you do in terms of scale or effort will make that profitable. The more you do, the more you lose. Negative expectancy.

In oil terms a ratio below 1:1 means using more oil to find the oil fields and extract the oil than is actually extracted from those oil fields. Burning 1000 litres of oil to produce, say, 900 litres. A completely pointless exercise.

Once it reaches this point oil ceases to be a useful bulk source of energy. It would be taking more to produce it that it is worth. This is not a financial limit but a physical one. $1 million per barrel doesn't change the reality of needing to use more than one barrel to produce a barrel. At that point it just doesn't stack up at any price no matter how desperately the oil is needed nor how much remains in the ground. It is no longer a viable bulk energy source.

Once this day comes the use of such oil is limited to a means of converting some other form of energy into oil. For example, if the energy to produce the oil comes from coal then, even though it's a net loss in terms of energy, you've effectively swapped a quantity of coal for a smaller (in energy content) quantity of oil. Since cars and aeroplanes don't run on coal, that would still be useful but it would make no sense whatsoever to then use the oil for a purpose that coal could be directly used for. To do so would mean extracting the oil for a negative benefit - more coal burned extracting the oil than saved by using it.

This is why, for example, batteries aren't a useful large scale energy source but they have niche applications. It takes far more energy to manufacture a torch battery (around 50 times as much) than the battery will ever produce. But on a small scale (batteries are a very minor energy source) it's tolerable due to lack of alternatives. A coal-fired power plant inside a torch isn't exactly practical.

As for the actual figures, I don't believe that the average of present oil production is actually that bad but it's certainly in a declining trend and heading for the inevitable less than 1:1. Even approaching 2:1 means burning half the oil produced from a field just to produce that oil which diminishes the real usefulness of the oil in the field rather a lot.

Canadian tar sands have a ratio of about 3:1. Extract 3 barrels and use one of those barrels of oil to run the process leaving a net 2 barrels. Hence the 175 or so billion barrels in quoted reserves is really a bit less than 120 billion barrels of oil that can be sold on the market.

All energy production uses some of what is produced. For some sources, for example a hydro-electric scheme, it is very low (typically 0.5%) of the energy produced is consumed in building the scheme. For others it is higher. Typical coal-fired power plants consume 6% of the electricity they generate to run the plant itself - there's lots of motors, pumps etc to run. And that doesn't count mining the coal. Add that in and it comes to around 8% for a brown coal plant with an open cut mine (as done on a large scale Victoria). And that doesn't count the energy needed to build the mine and power station in the first place.

If the coal is transported then that's another loss. Refining oil also takes energy, about 5% of the oil is used in the refinery (4 - 7% depending on the plant in question). Nuclear also involves huge amounts of energy to extract and process the uranium - if the grade drops sufficiently then it goes negative in terms of energy yield and ceases to be a useful large scale energy source.

The need to expend large amounts of oil in order to build alternative energy sources is often overlooked. It is for this reason that the cost of alternatives rises when oil prices rise.

IMO it would be a very sound policy to (1) as rapidly as possible phase out the use of oil and gas for applications (escpecially electricity generation) which can be done with more abundant resources (coal, nuclear, renewables) and (2) use the opportunity provided by the remaining oil to build alternative energy supply infrastructure. It will be a LOT harder and more expensive to build this once cheap oil is gone.

That said, things can be done without oil. The first big hydro scheme in Tasmania (and the world's longest transmission line at the time) was built with manual labour to build the dam and dig the canals and horses to move heavy items (pulling carriages along timber rail tracks - steel tracks just weren't an option...). Likewise Victoria's first brown coal plant used animals to haul coal (mined with pick and shovel) from the mine to the power station. They were trained to do the task without human help although apparently the odd one encountered trouble, lost the coal wagon etc. But it's a LOT easier to build these things using machinery powered by oil so it makes sense to do so while we still have it rather than waiting until we have to do it the hard way. And of course it would be virtually impossible to have built 30 hydro schemes in Tas or be mining 60 million tonnes of coal each year in Vic with only manual labour and animals. Use the remaining oil wisely for lasting benefit IMO.

 

[wayneL]

Smurf,

Thanks, that makes perfect sense.

Cheers

 

[bullmarket]

Hi smurf1976

thanks for that - that all makes sense but you are talking about comparing the cost (in equivalent barrels of oil) of producing a barrel of oil to what a producer can sell that barrel of oil for. So obviously if it costs more to produce a barrel of oil than what you can sell it for then you may as well shut down the production facility.

But I don't think we are anywhere near that. I spent nearly 20 years in the oil and gas exploration industry up until Jan 2002 and back in the 80's the cost of producing a barrel of oil by the company I was employed by was in the $2-5/barrel range. In 2001, although with a different employer then, the cost to produce a barrel of oil was something like $7-10/ barrel. These costs include all the exploration costs from drilling dry-holes (non hydrocarbon bearing wells).

Even allowing for inflation I can't the see the cost for any producer nowadays of producing a barrel of oil being anywhere near the price of a barrel of oil atm....assuming that is what he meant with his 1:1 ratio.

Anyway, I suppose your clear explanation could be bent, hammered, massaged or whatever to fit into what ducati said but imo his general use of the term energy when I suppose it could be argued he was talking about solely oil was misleading and confusing.

Finally, I'd still like to see what source he used for his ratios because here in Australia at least, I doubt very much we are anywhere near 1:1

cheers

bullmarket

 

[nizar]

It works like this.

It's the energy return on energy invested. How much oil is consumed in order to produce a barrel of oil counting everything from vehicles used in exploration, running the drilling rigs, building platforms and pipelines and so on.

If it's 20:1 then that means burning one barrel of oil in order to produce 20 barrels. Scale that up and you have a large net production of oil. A net 19 barrels for every barrel expended in extracting it.

I'll use a financial analogy to make it easier to understand. Suppose that you invest $1K and get back $20K. You've made a profit of $19K. Keep doing that and you end up with a lot of money.

But if it drops below 1:1 then you're getting back less than you put in. If it's 0.9 for example, then you spend $1000 to get back $900. NOTHING you do in terms of scale or effort will make that profitable. The more you do, the more you lose. Negative expectancy.

In oil terms a ratio below 1:1 means using more oil to find the oil fields and extract the oil than is actually extracted from those oil fields. Burning 1000 litres of oil to produce, say, 900 litres. A completely pointless exercise.

Once it reaches this point oil ceases to be a useful bulk source of energy. It would be taking more to produce it that it is worth. This is not a financial limit but a physical one. $1 million per barrel doesn't change the reality of needing to use more than one barrel to produce a barrel. At that point it just doesn't stack up at any price no matter how desperately the oil is needed nor how much remains in the ground. It is no longer a viable bulk energy source.

Once this day comes the use of such oil is limited to a means of converting some other form of energy into oil. For example, if the energy to produce the oil comes from coal then, even though it's a net loss in terms of energy, you've effectively swapped a quantity of coal for a smaller (in energy content) quantity of oil. Since cars and aeroplanes don't run on coal, that would still be useful but it would make no sense whatsoever to then use the oil for a purpose that coal could be directly used for. To do so would mean extracting the oil for a negative benefit - more coal burned extracting the oil than saved by using it.

This is why, for example, batteries aren't a useful large scale energy source but they have niche applications. It takes far more energy to manufacture a torch battery (around 50 times as much) than the battery will ever produce. But on a small scale (batteries are a very minor energy source) it's tolerable due to lack of alternatives. A coal-fired power plant inside a torch isn't exactly practical.

As for the actual figures, I don't believe that the average of present oil production is actually that bad but it's certainly in a declining trend and heading for the inevitable less than 1:1. Even approaching 2:1 means burning half the oil produced from a field just to produce that oil which diminishes the real usefulness of the oil in the field rather a lot.

Canadian tar sands have a ratio of about 3:1. Extract 3 barrels and use one of those barrels of oil to run the process leaving a net 2 barrels. Hence the 175 or so billion barrels in quoted reserves is really a bit less than 120 billion barrels of oil that can be sold on the market.

All energy production uses some of what is produced. For some sources, for example a hydro-electric scheme, it is very low (typically 0.5%) of the energy produced is consumed in building the scheme. For others it is higher. Typical coal-fired power plants consume 6% of the electricity they generate to run the plant itself - there's lots of motors, pumps etc to run. And that doesn't count mining the coal. Add that in and it comes to around 8% for a brown coal plant with an open cut mine (as done on a large scale Victoria). And that doesn't count the energy needed to build the mine and power station in the first place.

If the coal is transported then that's another loss. Refining oil also takes energy, about 5% of the oil is used in the refinery (4 - 7% depending on the plant in question). Nuclear also involves huge amounts of energy to extract and process the uranium - if the grade drops sufficiently then it goes negative in terms of energy yield and ceases to be a useful large scale energy source.

The need to expend large amounts of oil in order to build alternative energy sources is often overlooked. It is for this reason that the cost of alternatives rises when oil prices rise.

IMO it would be a very sound policy to (1) as rapidly as possible phase out the use of oil and gas for applications (escpecially electricity generation) which can be done with more abundant resources (coal, nuclear, renewables) and (2) use the opportunity provided by the remaining oil to build alternative energy supply infrastructure. It will be a LOT harder and more expensive to build this once cheap oil is gone.

That said, things can be done without oil. The first big hydro scheme in Tasmania (and the world's longest transmission line at the time) was built with manual labour to build the dam and dig the canals and horses to move heavy items (pulling carriages along timber rail tracks - steel tracks just weren't an option...). Likewise Victoria's first brown coal plant used animals to haul coal (mined with pick and shovel) from the mine to the power station. They were trained to do the task without human help although apparently the odd one encountered trouble, lost the coal wagon etc. But it's a LOT easier to build these things using machinery powered by oil so it makes sense to do so while we still have it rather than waiting until we have to do it the hard way. And of course it would be virtually impossible to have built 30 hydro schemes in Tas or be mining 60 million tonnes of coal each year in Vic with only manual labour and animals. Use the remaining oil wisely for lasting benefit IMO.

Well said smurf

conventional reserves are in decline; >80% of todays oil supply comes from oil fields discovered

of course we also have unconventionals, canada alberta tar sands, 175billion barrels reserves, but these are very hard to extract, and cost around us$20/barrel as opposed to middle east oil at <us$2/barrel to extract and bring to the market...

also we have another unconventional in US oil shale, US Department of Energy concluded that ultimately 750billion barrels could be recoverable.

for alberta tar sands, even if all current expansion plans come to fruition, production will be 3million barrels a day by 2012...

for oil shale, even less, aggresive production targets are around 2.2million barrels a day

global demand currently is 84million barrels a day, 20million of those from the US

the point is, this supply is many years away, us$100/barrel may still coming in the meantime

(all figures from Jeremy Leggett's Half Gone (2005) a good read on all those interested in peak oil)

 

[Smurf1976]

Hi smurf1976

thanks for that - that all makes sense but you are talking about comparing the cost (in equivalent barrels of oil) of producing a barrel of oil to what a producer can sell that barrel of oil for. So obviously if it costs more to produce a barrel of oil than what you can sell it for then you may as well shut down the production facility.

But I don't think we are anywhere near that. I spent nearly 20 years in the oil and gas exploration industry up until Jan 2002 and back in the 80's the cost of producing a barrel of oil by the company I was employed by was in the $2-5/barrel range. In 2001, although with a different employer then, the cost to produce a barrel of oil was something like $7-10/ barrel. These costs include all the exploration costs from drilling dry-holes (non hydrocarbon bearing wells).

Even allowing for inflation I can't the see the cost for any producer nowadays of producing a barrel of oil being anywhere near the price of a barrel of oil atm....assuming that is what he meant with his 1:1 ratio.

Anyway, I suppose your clear explanation could be bent, hammered, massaged or whatever to fit into what ducati said but imo his general use of the term energy when I suppose it could be argued he was talking about solely oil was misleading and confusing.

Finally, I'd still like to see what source he used for his ratios because here in Australia at least, I doubt very much we are anywhere near 1:1

cheers

bullmarket

It's energy cost not financial cost that counts here (ie replace the $ in your post with BTU's, MJ, kWh, BOE or whatever energy measurement you prefer) but basically agreed there. I don't have figures at hand but at an educated guess it's still 5:1 or greater for marginal oil production so we're not at that point yet. I'll see if I can find some proper data.

 

[mime]

Oil dropped $3.50 a barrel last night to around $70 a barrel. We'll wait to see what happens next.

 

[michael_selway]

Oil dropped $3.50 a barrel last night to around $70 a barrel. We'll wait to see what happens next.

yeah the thing is there still alot of supply out there atm esp US

atm people are just worried over Iran which may affect supply if the decision is bad

thx

MS