US shale oil peaks June 2015(?) ...

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jacob
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US shale oil peaks June 2015(?) ...

Post by jacob »

From the "told you so" department:

http://www.dailyimpact.net/2015/06/09/i ... m-is-over/
http://marcellus.com/news/id/124785/eia ... from-here/
...

I always enjoy these moments because every time a "told you so" happens, all the optimists with economics, computer science, business, and other backgrounds that aren't rooted in some kind of fundamental physical reality each and all pay us fact-based realists a dollar :D ... we wish :P

Of course, here's counterpoint in which Moore's law for microprocessors is invoked to predict that oil will become too cheap to meter, because "human ingenuity" is an infinite resource :roll: Feel free to take that seriously if the thought is comforting.
http://www.wsj.com/articles/the-shale-b ... 1433104129

cmonkey
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Re: US shale oil peaks June 2015(?) ...

Post by cmonkey »

Total shale production has been declining since (edit) April. Only the Permian has continued to increase, but now I think it has peaked as well.

http://peakoilbarrel.com/the-eias-drill ... ty-report/

The overview of that WSJ article was so ridiculous it's not even worth signing up for an account to continue reading. :shock:

Scrubby
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Re: US shale oil peaks June 2015(?) ...

Post by Scrubby »

Your sources seem extremely biased. I don't think it's a surprise to anyone in the industry that shale and offshore fields are put on hold. With a price of ~$60 the profitability of these fields is 0 or very close to it. Everyone in the industry assumes the point of OPEC's decision not to put any restrictions on their oil production is to force shale oil companies out of business. They are showing investors around the world that they shouldn't risk their money on shale oil, because OPEC will make them bleed. When the shale fields are closed down OPEC will probably let the price go back up a bit again.

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Re: US shale oil peaks June 2015(?) ...

Post by jacob »

Facts aren't biased. Maybe it wasn't a surprise to anyone in the industry either that well production rate declines of shale would be massive (geological/engineering fact) and that the cost of drilling new wells was so high (economic fact) as to require borrowing money to make up for the cash flow shortfall (financial fact) even when prices were at $100 (historical fact) and that that money eventually had to be paid back for real when the banks stopped extending additional credit because the leverage has become too large ... or maybe it WAS a surprise?!

It shouldn't have been. It's exactly the same playbook as was used in the ethanol subsidy debacle and it would have blown up in exactly the same way for exactly the same reasons regardless of OPEC. OPEC's dumping just sped up the process while providing a convenient excuse. But note that shale companies were already failing before OPEC stepped in.

Since my explanation was one to two years ahead of your after-the-fact explanation, I prefer mine.

Scrubby
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Re: US shale oil peaks June 2015(?) ...

Post by Scrubby »

I'm telling it know because now is when you started the thread, but I've been aware of it since before you started the thread you linked to in the first message. If you had been following the business through more sources than conspiracy sites you too would have known it a long time ago. Of course businesses which require expensive equipment and labor borrows money. It's what all businesses do to get started, and the fact that the interest rate is close to 0 doesn't make it less attractive. Everyone who can't make a profit at these prices are struggling. In Norway 22 000 oil related jobs have been lost the last 12 months. Before that business was booming, even though production levels have been declining for almost 15 years.

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Re: US shale oil peaks June 2015(?) ...

Post by jacob »

I'll agree to disagree because this is a matter of interpretation which is a matter of perspectives and I don't really care to debate perspectives. I'll stick with mine because it's more useful to me.

Scrubby
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Re: US shale oil peaks June 2015(?) ...

Post by Scrubby »

We'll know if the price rises above $80 or so again and stays there, or the cost of production continues to go down. If you are right then production won't pick up again much.

Noided

Re: US shale oil peaks June 2015(?) ...

Post by Noided »

jacob wrote:I'll agree to disagree because this is a matter of interpretation which is a matter of perspectives and I don't really care to debate perspectives. I'll stick with mine because it's more useful to me.
Wait, so is it factual or subjective?

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Re: US shale oil peaks June 2015(?) ...

Post by jacob »

It's factual that US shale production is decreasing and peaked earlier this year.---That cash flow from shale operations has been negative requiring outside funding to remain ongoing concerns.---That various shale companies have gone under since a few years.---That the EROEI of shale is very low (closer to 1 than to conventional oil).---That shale companies have taken on a lot of debt.---That banks are no longer extending that much debt.---That if you subtract the shale industry's contribution to the various states, GDP has not been rising.---That majors in other parts of the world have been abandoning projects left and right.---That OPEC has decided to take advantage of them being a low cost producer. That OPEC countries need those oil profits to pay for their governments.---That marginal producers can't compete at the current prices.

That is, you have a large amount of facts and interconnected systems which you can then attempt to put in some perspective taking into account Upton Sinclair's observation that such perspective often depends on why pays your salary.

It's a matter of perspective whether shale companies are shutting down down because the economy isn't there's at $60 oil (and problems didn't start until late 2014) or whether it isn't there at any price (and problems started much earlier) and the boom was only made possible by extending cheap credit to fundamentally uneconomical projects.

In short, one perspective is that shale is just in a temporary downturn due to the low oil price and that those companies that failed before the price dump was merely poorly run.

Another is that shale is similar to ethanol and subprime housing boom and busts in the sense tht the economics was fundamentally poor and only made possible by credit and that all shale operations would have failed sooner or later (within the next 5 years as IEA also observes).

The latter perspective is a few years old. The former is little less than a year old.

It's not that one perspective is right and the other is wrong. In this case they are both correct. It's more an argument of which perspective is more useful. That of course depends on what the goal of the analysis or holding that perspective is ...

Just like with the credit crisis, the shale crisis is complex and caused by many coinciding factors. And similar to that it is possible to blame any one particular aspect of it if so desired. Assigning blame to specific factors in a complex system is a matter of opinion and thus subject to endless debate because it's impossible to assign cause and effect in an interconnected system. It is possible to understand the system, but it's complex.

Noided

Re: US shale oil peaks June 2015(?) ...

Post by Noided »

So, suppose this scenario:
1. Oil prices goes back up
2. Production starts increasing again

If this happens, how will that fit in your theory? I mean, excessive and bad credit are just part of the world right now, it doesn't really tell me if the business is good or bad.

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Re: US shale oil peaks June 2015(?) ...

Post by cmonkey »

I think this speaks for itself. Declining production is really the least of their problems right now (or rather will inflame the larger problem). If this isn't a bubble, I don't know what is.
The debt that fueled the US shale boom now threatens to be its undoing. Drillers’ debt ballooned to $235 billion at the end of the first quarter, a 16 percent increase in the past year, even as revenue shrank. The problem for shale drillers is that they’ve consistently spent money faster than they’ve made it, even when oil was $100 a barrel. The companies in the Bloomberg index spent $4.15 for every dollar earned selling oil and gas in the first quarter, up from $2.25 a year earlier, while pushing U.S. oil production to the highest in more than 30 years.
“The question is, how long do they have that they can get away with this,” The companies with the lowest credit ratings “are in survival mode.
Many of these shale oil companies couldn't pay off their debts if they stopped drilling (i.e. stopped incurring costs). There aren't enough reserves.
Noided wrote:If this happens, how will that fit in your theory?
Even the EIA is forecasting a peak in Shale Oil production in the early 2020's. How is a business that has a foundation in excessive debt and dwindling resources good?

Noided

Re: US shale oil peaks June 2015(?) ...

Post by Noided »

Even with all that information, are we really sure peak shale oil has been reached? That is the original point of the thread.

I mean, I get you, this business grew up too fast and in a speculative manner, but people here tend to be too confident on their assertions sometimes. That is why I like making some questions.

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Re: US shale oil peaks June 2015(?) ...

Post by jacob »

@Noided - I think I'm just getting too old to "debate".

I'm confident in my assertions (otherwise I don't make them) because they're based on an interlocking (I don't like to hold self-contradictory positions) explanation of many facts. A world-systems model if you will. In this case, energy accounting, actual accounting, the state of the global economy, the state of the US economy, the relative power between cheap and marginal producers, the reporting of numbers from different players, how these players tend to be biased, what other resources are relevant, who can pay for them, who can take them, and a bunch of other stuff ...

I read far more stuff than I post links to :-P ... about 100 articles per day ... and then I put these things together. Also, I tend to be right quite often, so even if it very much sounds like it, I don't think I'm conceited. It's not that I'm supersmart; it's just that I have a lot of diverse input and that I organize it systemically.

Here's the reason for why I'm not overly inclined to debate ...

In statistics, one makes a distinction between type I errors and type II errors.

Most people are familiar with type I errors. A type I error is a false detection. In other words, if I make a prediction or some claim and it turns out to be false, I made a type I error.

Most debate or questioning is intended towards rooting out type I errors. This makes sense as people make type I's all the time. Type I errors are a natural consequence of guesswork.

However, if that line of action (thinking that everything is based on guessing or that one's favourite source of information is the sole provider of the god-given truth) is taken too far, one risks making type II errors. A type II error is a failure to detect. This happens when the method of testing or understanding is too weak to detect a signal that's actually there (possible reasons: not looking deeply, not looking widely, not looking the right place, ...)

A statement like "I don't know therefore nobody can know" or simply "nobody knows how/what/why/when..." is a likely type II in the making. Like, how would one know that nobody else knows whether knowing everything about everything and everybody?

To eliminate type II errors, rather than waste time debating or questioning, the effort should be in expanding understanding since type II errors really reflect not having correctly dealt with unknown knowns (things you don't know but which others do know) and unknown unknowns (things nobody know of).

In terms of your scenario, did you consider the supply and demand (econ101) consequences of your scenario? Given 1 and 2,

3) Where would demand be in this scenario?
4) At what price would demand and supply intersect?
5) Who can afford this price?

I have about 10 questions more that would lead to the OP conclusion once ALL information has been considered and connected. Keep in mind that the main concern is in identifying the peak level, not the particular peak date. We could get close again in a few years and even beyond but never significantly higher. Peak is not a date. It's an era. And that era just began.

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Re: US shale oil peaks June 2015(?) ...

Post by jacob »

I guess, in hindsight, knowing that I don't care to debate and considering that it was highly likely to be contested by industry people, I should simply have avoided posting in the first place rather than being an ass about it now. Sorry about that.

cmonkey
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Re: US shale oil peaks June 2015(?) ...

Post by cmonkey »

jacob wrote:I read far more stuff than I post links to :-P ... about 100 articles per day ...
That is an incredible amount of reading. I am usually burnt out after going through Tom Whipple's weekly energy summary.... wondering how you have the energy for that.

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Re: US shale oil peaks June 2015(?) ...

Post by jacob »

I'd mostly attribute it to reading style. I've read so much already that a typical nonfiction book will hold only 1-3 sentences/statements that will change my outlook or that I haven't seen already in some variation. IOW, if I have 100 articles, I might only need to think deeply about 0-1 articles worth of equivalent. The rest are just different perspectives on the same thing. Most articles contain no info beyond paying attention to "who" is saying it... not "what" they're saying.

It's like the blind men and the elephant. Once I have a good idea about the elephant, most articles about elephants just provide yet another perspective on e.g. how tree-like the elephant is (obviously a leg man) or how ropy it is ... and who thinks what. Not at lot of thinking is required to sponge up that info, e.g. author X is a leg man.

Also why my desire to debate the tree vs the rope properties of elephants is getting limited. It's only fun when the "elephant" is new to me. Not several thousand pages in ...

NB: I read fast. It's not really skimming or scanning as I understand those methods. Or maybe it's skimming. Dunno, I'm not a speed-reading expert. But generally, I can process 800 words per minute seeing every word in the text but not paying deep attention to most of them until something [a statement, a connection, a number, ...] is out of the ordinary, which is rare. I'm basically comparing statements to what I already know in most cases. The best analogy I can come up with is as if I'm reading to collect new words for my personal dictionary/word-list. It takes time to write new words down but it doesn't take time to verify that I already collected the word I'm reading. Consequentially, the processing goes faster and faster the bigger my wordlist gets. Only, of course I'm not just collecting data in a long list. I'm adding it to a framework of models and metaphors that explain the world as well as possible. That model rarely changes. Sometimes I need to draw a new line between point X and point Y---that would correspond to the 1-3 sentences above---but even that doesn't change the overall system very much.

NNB: The latticework model is the recognition that the overall system is composed of only a limited number of substructures (models, metaphors). Knowing these makes it easier to add entire concepts without having to start from scratch each time.

NNNB: I hope this doesn't sound too conceited or like bragging. I think this is just the normal way an INTJ brain functions. I've just been working at it consistently w/o breaks for 25+ years now, so maybe it's how it works when taken to excess. Not really different from being able to squat 500lbs if you're been lifting for that goal for two+ decades, though.

PS: Resilience.org posts are significantly longer than most of the journal/news stuff I plough through. My daily load is "only" about 100k words or about a book's worth. That's not a lot when you consider what could be done.

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Re: US shale oil peaks June 2015(?) ...

Post by enigmaT120 »

You probably read much faster than 800 wpm. I tested at about 700 with retention/comprehension in the seventh grade. I'm much faster now, and the way you describe your reading sounds like how it feels for me.

I think that may be why I hate being read to, why I dislike TED talks and YouTube videos unless they are demonstrating something I don't know how to do. If all they are doing is talking, I want to read it.

Edit: Your book slowed me down, though. You write densely.

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Re: US shale oil peaks June 2015(?) ...

Post by jacob »

Yeah, I don't do podcasts and I'd rather put a fork in my eye than listen to an audiobook :-D The 800 wpm came out of some online test.

The bigger frustration lies in taking the information along with the "holographic" structure that underlies an assertion or a prediction as above because if it had to be written out in the linear one-dimensional format known as writing, it would be the size of a rather larger review-article, say 30-40,000 words and it would take several months to write (if it had to be understandable which would be the point of that exercise). That's presuming that the foundation is there (e.g. econ101 with supply/demand curves, marginal curves, stiffness, thermodynamics of resource extraction, a ecological understanding of stock-flow models, linalg to cast it as a matrix, the current state of the world economy/politics, typically presented in a 400 page nonfiction book, comparison studies of the last couple of bubbles (house, dotcom) including how perceptions changed over time depending on who thought what, the statements, historically and present of the operators; all that but also considering what agents know or what they think they know). The foundation is rarely there, so now we're talking a MUCH bigger project.

Instead talking and debating involves exchanging a few hundred words of information on very reduced aspects of the entire issue.

It's like having a lot of experiental and intellectual elephant knowledge in one's mind but being restricted to issuing statements of two words at a time for practical reasons resulting in arguments like "Leg long", "Leg strong", "No big", ... "No, No!!"

It's a fundamental problem of limited communication channels.

What we need are Vulcan mind-melds.

Or only talk about complex issues in extremely long pieces of writing.

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Re: US shale oil peaks June 2015(?) ...

Post by jacob »

enigmaT120 wrote:Edit: Your book slowed me down, though. You write densely.
That was intentional. I didn't want to waste people's reading time with too low of a signal/noise ratio. The ultimate goal was/is to have signal in each and every sentence if not each and every word. I would be exaggerating if I claimed to have managed that with even each and every paragraph, but maybe each section?

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Re: US shale oil peaks June 2015(?) ...

Post by Scrubby »

cmonkey wrote:
The debt that fueled the US shale boom now threatens to be its undoing. Drillers’ debt ballooned to $235 billion at the end of the first quarter, a 16 percent increase in the past year, even as revenue shrank. The problem for shale drillers is that they’ve consistently spent money faster than they’ve made it, even when oil was $100 a barrel. The companies in the Bloomberg index spent $4.15 for every dollar earned selling oil and gas in the first quarter, up from $2.25 a year earlier, while pushing U.S. oil production to the highest in more than 30 years.
“The question is, how long do they have that they can get away with this,” The companies with the lowest credit ratings “are in survival mode.
Many of these shale oil companies couldn't pay off their debts if they stopped drilling (i.e. stopped incurring costs). There aren't enough reserves.
That's how the oil industry works. The expenses comes first (buying drilling rights, hiring equipment, doing the drilling). When the oil starts flowing most of the expenses have already occurred. If the price of the oil has crashed in the mean time then the company won't make enough money to pay the debt. If the oil is worth less than it costs to get it out of the ground then the right to drill is worthless, but the company still has the debt from buying it. That doesn't necessarily mean it's a bubble, it's just bad luck after taking a calculated risk. They bet that the oil price wouldn't fall much below $100, but it did.

Locked