Posts tagged “oil production”
When I made my energy predictions for 2015, I made some very aggressive predictions. Perhaps the most aggressive was that the closing price of West Texas Intermediate would not fall below $40/barrel (bbl) in 2015. Why do I consider this a particularly aggressive prediction? Because on the day I made it, the price of WTI closed at $48.80, but in each of the previous three months the price of WTI had dropped at least $10/bbl over the course of the month. So if WTI had maintained the same downward trajectory, it could have easily ended January below $40/bbl. My prediction could have been proven wrong before we even got out of January, so I really stuck my neck out on that one.
It’s not that there is anything special about $40, and I acknowledge that it’s possible that we could overshoot. But I made the prediction to highlight my conviction that $40 oil simply isn’t a sustainable price in today’s world.
A number of respected pundits are projecting that we will go below $40/bbl, with some suggesting that crude could even crash all the way to $30/bbl. Last week on CNBC, respected oil analyst Stephen Schork said “I do think this is a dead cat bounce”, elaborating that at least over the next 2 to 3 months that there is too much oil supply relative to current demand. My point is that it has been a widely held belief that oil is going to fall below $40/bbl, so I am definitely on the wrong side of conventional wisdom on this prediction. That’s not a safe place to be, because when you are wrong in that case people think “Everyone read this correctly except for you.”
But I think conventional wisdom is wrong in this case. CONTINUE»
In the past few weeks I have received numerous questions about the role of a “drop in demand” in the oil price decline. These questions are driven by many stories in the media that have referenced a drop in demand.
There are two primary reasons given for this so-called demand drop. One is that years of high oil prices have resulted in reductions in consumption through conservation and improvements in vehicle fleet efficiency. The second reason is due to the strengthening dollar, oil has become more expensive for many countries since oil is generally traded in dollars.
There are elements of truth behind both reasons. There has indeed been reduced oil consumption in recent years in most developed regions of the world. It is also true that the dollar has strengthened against many currencies. But despite the rationale that explains this drop in oil consumption, ultimately the data must support the narrative. CONTINUE»
There was an energy story that stood head and shoulders above all the rest in 2014, but no clear runner-up. After the #1 entry on the list below, the rest of the Top 10 is highly debatable. I don’t think there is a consensus #2 story, and I don’t believe there is a well-defined Top 10.
But I do believe there is a clear #1. Here are my choices for the Top 10 energy stories of 2014, followed by about 15 more that could have easily been on the list. Feel free to chime in with any major stories I have missed.
1. Crude oil prices collapse
On July 30, West Texas Intermediate (WTI) closed at $104.29 per barrel (bbl). The next day it suffered a sharp decline below $100/bbl. As the year comes to an end, WTI has dropped below $55/bbl. The last time oil was this cheap was during the global financial crisis six years ago. CONTINUE»
As the year expires and the new year arrives, there are several topics I like to cover in a series of articles. One is to review the top energy stories of the year. Another is to grade my predictions for the year. And finally, I lay out my predictions for the upcoming year.
Usually I have a dilemma of whether to grade my predictions first, or to lay out the energy stories first — because I normally do both stories at the end of the year, and something could potentially happen right at the end of the year that might change the narrative. For example, I might do the top energy stories this week, but what if something monumental happens in the next two weeks? The other option is of course to wait until after the first of the year, but then that delays my predictions.
This year, however, there isn’t much of a dilemma on which story to do first. I can grade my 2014 predictions at this point with a high level of confidence. CONTINUE»
The US Shale Oil Boom
There have been a lot of stories over the past few years about the implications of the US shale boom. To review for those who might have been living in a cave for the past 5 years, the marriage of horizontal drilling and hydraulic fracturing (fracking) has reversed 40 years of declining US oil production and created a shale oil and gas boom.
As amazing as it would have seemed a decade ago, US oil production is increasing at the fastest pace in US history. In the past 5 years US oil production has increased by 3.22 million barrels per day (bpd). The overall global oil production increase during that time was only 3.85 million bpd, meaning the US was responsible for 83.6 percent of the total global increase over the past 5 years.
Last month BP (NYSE: BP) released the Statistical Review of World Energy 2014. This report is one of the most comprehensive sources of global and country level statistics on production and consumption of oil, natural gas, coal, nuclear power and renewables. Right after the release of the report, I wrote a short post discussing the highlights. Today I will take a deeper dive into oil production and consumption figures. In coming weeks, I will delve into the rest of the report.
First a note about BP’s definitions. “Oil” in the BP Statistical Review (BPSR) is defined as ”crude oil, tight oil, oil sands and natural gas liquids”, but excludes biofuels and liquid fuels produced from coal or natural gas. Consumption numbers do include all liquid fuels, so consumption numbers are always greater than production numbers, but this is merely an artifact of BP’s definitions.
Global oil production advanced in 2013 by 557,000 barrels per day (bpd), reaching a new all-time high of 86.8 million bpd (an increase of 0.6 percent over 2012). After declining in 2009, global crude oil production has now increased 4 years in a row. But as I noted in last month’s short article, while global oil production did indeed set a new record, the US production increase alone was 1.1 million bpd. Thus, outside the US global production actually declined by 554,000 bpd. CONTINUE»
Favorable Economics, the Permian, and Choices
In July, I wrote about the ramped up activity in the Permian Basin. The point of that story was to merely observe and document that period of time in the Basin. In the data offered over the course of several articles, the conclusion was clear: the U.S. is in the early period of another boom from U.S. production of oil, and Texas is largely the zone for the majority of the production capacity. While the Bakken Shale and the Eagle Ford receive numerous well-deserved headlines, exploration and production (E&P) firms were busy making new history in the Permian Basin.
The largest producer in the Permian Basin is Occidental Petroleum, also known as Oxy. This also makes the firm the largest producer in Texas. Pioneer Natural Resources, Apache and Kinder Morgan Production follow behind Oxy in Permian Basin production for 2012. According to the Energy Information Agency, in 2012 the U.S. imported approximately 10.6 million barrels of crude oil per day. The ratings agency Moody’s recently made an announcement about the impact of the “Permian revival” on exploration and production (E&P) firms. In their communication, they mention producers speculate that the full development of the Wolfcamp Shale could result in 2 million barrels a day — more than the 1970s peak for the entire basin. That is nearly 20% of U.S. daily imports. When might that happen? Hard to say.
This is the 3rd installment in a series that examines data from the recently released 2013 BP Statistical Review of World Energy. The previous posts - Renewable Energy Status Update 2013 and Hydropower and Geothermal Status Update 2013 – focused mainly on renewables. This post delves into the world’s oil production and consumption patterns.
Global Oil Consumption
Global oil consumption trends received a lot of misleading press coverage shortly after the Statistical Review was released. Many of the news articles reported that global oil consumption is slowing. I addressed this in some detail in Did Global Oil Consumption Slow in 2012?, but the gist is that global oil consumption increased in 2012 to a record 89.8 million barrels per day (bpd). Global oil production also achieved a new record of 86.2 million bpd. (The reason the consumption and production number aren’t in sync is that ethanol and biodiesel are included in the consumption number, but the production number represents only “crude oil, shale oil, oil sands and natural gas liquids.”)
Jaunt Through West Texas Reveals Oil’s Revival
It was a 102 degree-hot, mid-July, typical summer day travelling on the road to West Texas; a nine-hour, high-speed journey made with numerous gasoline pit stops. Passing by Midland-Odessa, the commercial hub of the Permian Basin, was a stretch of energy mecca some 20 miles or more, filled to the brim on either side with oilfield services firms — transmission gear, pump equipment, fracking services, and other oil and gas-related businesses. Pumpjacks, also known as nodding donkeys, scattered across swathes of the expansive oilfields. Signs with “Home for Your Workforce” in Pecos and Odessa cropped up a couple of times. Workers, and their firms, are settling in for a boom which could last for many years to come, like the second boomlet in the 1970s and early ’80s that followed the Middle East oil crisis. Bust followed boom in Texas to the mid-1990s.
The scale of energy production in the Permian Basin looks mammoth. The Permian Basin produced more than 270 million barrels of oil in 2010, over 280 million barrels in 2011, and 312 million in 2012. In percentages, production increased 10% in 2011 and 35% in 2012. Texas’ oil production represents about 25% of the U.S. oil production, with the Permian housing 57% of Texas’ oil production, according to the Texas Railroad Commission.
Where there are higher prices or margins possible to justify accessible resources, production will follow. The ability to recover more oil, thanks to technological advances, which include multi-stage hydraulic fracturing, horizontal drilling and carbon dioxide injection, has reversed the declining U.S. production trend of 20-years prior.
Majority of Global Oil Reserves in Areas of Geopolitical Risk
The last two weeks I have been writing about deepwater oil and gas exploration and the trend to push out into deeper waters further offshore. This week I wanted to drill deeper into the drivers of this important exploration and production trend in the oil and gas industry.
Against a backdrop where 43% of global oil production is in high risk regions — the Mid-East and Africa account for 32.5% and 10.9%, respectively — and add on top of that another 16% from Russia and Venezuela, you have nearly 60% of world oil production in areas of high geopolitical risk. Looked at from another perspective, National Oil Companies control roughly 75% of proven crude oil reserves (probability that 90% of the reserves will come to production), with the remainder held generally by multinationals – IOCs.