Posted on 06/30/2014 4:50:49 PM PDT by ckilmer
There was a lot of hoopla last week over the news that the U.S. Department of Commerce had seemingly loosened rules governing the export of condensate — light weight hydrocarbons recovered from oil and gas wells. The excitement was palpable; shares in in oil refiners sold off. Was this the start of the big policy shift that oil producers have been dreaming of? An end to the 40-year oil export ban?
(Excerpt) Read more at forbes.com ...
This article is excerpted. There are a bunch of quotables in this article. Below are my favorites.
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A decade ago the U.S. was exporting 1,000 barrels of it [condensate] per day. But as the Great American Oil And Gas Boom has taken hold, exports have jumped — to 32,000 bpd in 2010 and 200,000 bpd this year.
Attorney Weisman says that we could soon see a host of new condensate processing plants being built: “We could see 1 million barrels per day of condensate exports in a year.”
Pioneer expects that within a decade it will more than quadruple its production of oil and other liquids to more than 1 million barrels per day.
Still, they’re going to need a helluva lot more than some mini-refineries. Wood Mackenzie analysts figure that between now and 2020 drillers will add an incremental 4 million bpd of oil output, bringing the domestic supply above 15 million bpd. Analyst York believes all that oil can get processed domestically. “We can get it into the U.S. refining system. It physically fits. It’s just a matter of price.” The producers will have to be willing to accept enough of a discount on their oil, relative to international prices, to coax the refiners to take it.
Most of the big U.S. refineries have been optimized to process heavier, higher-sulfur crudes than those coming out of Texas and North Dakota. But a $10 per barrel discount for U.S. crudes should, over the long-run, incentivize refiners to buy American.
Wood Mackenzie analysts figure that between now and 2020 drillers will add an incremental 4 million bpd of oil output, bringing the domestic supply above 15 million bpd.
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The Wood Mackenzie guys numbers track my own. The EIA predicts oil production will increase by 1 million barrels @ day in each of 2014-2015. (Then the EIA figures production increases will flatline.) I figure that oil production will increase in each year of 2016, 2017,2018, 2019 by about 500k. So that between now and 2020 american oil production will add another 4 milllion bpd of oil.
500k per year between 2016-2019 represents 100k from bakken 100k from eagle ford 100k from the Permian basin. 100k from the gulf and 100k from all the other smaller fields around the USA.
The eagle ford, bakken and gulf look like stable estimates. but the permian basin could be a wild thing and some of the smaller fields around the USA —especially the ones in oklahoma, could together add another 100k. A couple more companies are reporting success in the Tuscaloosa marine shale formation and core lags is getting more business there. So that formation could put up some numbers in a couple years.
Overall excellent news.
$100 crude is required to achieve U.S. self-sufficiency in oil; otherwise we’re back to 2006 import levels.
$100 crude is required to achieve U.S. self-sufficiency in oil; otherwise we’re back to 2006 import levels.
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I used to think that oil prices would crack and go down to $80 range by next year because of continued high US production rates.
Now I think that worldwide demand rising so fast and there are so few other players around the world with rising oil production — which will continue to be the case anytime before 2020—that prices will remain above $100@ barrel for the next several years.
Basically oil production is flat to down everywhere in the world except for the USA Canada and Iraq. Now Iraq is not looking so sure. Certainly— at the very least— there won’t be any new investment in that country until the situation stabilizes. Which means their production increases stop.
The real risk right now is that Iraq will implode and their oil will go off the market causing a huge spike in oil prices and tanking worldwide economies thereby causing a huge drop in demand before things stabilize again.... which is pretty much what we saw in 08-09.
But even then, the million barrel a year increases from the USA will end after 2016. (I’m figuring they’ll fall to 500k. But those numbers may well rise over the next year.)
“Now I think that worldwide demand rising so fast and there are so few other players around the world with rising oil production — which will continue to be the case anytime before 2020—that prices will remain above $100@ barrel for the next several years.”
Wish it were this easy.
There are two sides that can swing this pricing scenario, demand and risk.
On the risk side, we have in front of us the upward pressure of the instability in the ME. A lot of the price of current trades already reflect this risk.
On the demand side, there is pressure in this country caused by unconventionals, but not in the way you think, I.e., increased capacity by more oil drilling.
No, it will be downward pressure exerted by the stupendous volumes of unconventional natural gas already identified but uneconomic to exploit. These are truly staggering in amounts, enough for many generations of Americans to keep energy moderate in price.
A few steps in the right direction by a business-minded US govt(e.g.-approval of Keystone, cessation of all alternative fuel subsidies and mandates, export of natural gas, etc) will do the trick, energizing a free market to prefer the usage of much cheaper btus in the form of natural gas to substitute for oil, which is much less widespread in the US and easier to extract.
The irony of it all is we will have the enviro nuts to thank, first in building the myriad of solar and wind farms that mostly have idled backup generators that run on natural gas( these are idle when the sun don’t shine or the wind don’t blow). Removing the stupid subsidies will immediately cause these backups to be run as the primary power generators, causing a huge and immediate demand for natural gas.
Secondly, this country has been conditioned for years to look for environmentally better alternatives for oil and so voila! Natural gas is in high demand.
George Soros owns a large interest in the 2 companies allowed to sell.
Barring federal action —natural gas is not going to cut into the demand for oil any time soon.
But it will definitely happen as heating oil —heating big city buildings plus diesel powered trains trucks and buses are converted over to natural gas.
I’ve seen figures for USA conversion of trucks and buses from diesel to natural gas. I think production rises there are in the 25%-35% range annually for the last two years. But they’re coming off such a low base that it will be sometime after 2020 before they make a dent in demand.
Same goes for electric cars. They may well be a category killer for oil prices judging by how much talk the Tesla has generated among the major auto companies worldwide.
But again, the real damage to demand there won’t start until sometime after 2020. Plus electric cars still have some technological hoops to jump through before they go mainstream. Like they have to go at least 250 miles on a charge and be priced at most in the 35k range. Tesla says they’ll accomplish that in 2017 and by 2020 they say they’ll be producing 500k electric cars. We’ll see.
So for the +- next half dozen years anyway imho oil prices will remain high—mostly propelled by high overseas demand. Drillers will want to spend that time drilling like crazy and and squeezing the cost of drilling out oil because in time the wheel will definitely turn and turn hard against high oil prices. None but the lowest cost producers will survive.
My understanding is that fracked horizontal wells have longer higher volume tails than vertical wells. (However, this is unproved since fracked/stimulated horizontal wells don’t have enough history. Is this correct?
Is it the case that once the initial costs of drilling are recovered—maintenance costs for the long tails for oil are in the 30-40 dollar range?
This is where you have to figure the price of oil is going in 15-20 years or less. Why? because currently coal and natural gas on a btu basis are in the $30-$40 dollar range. energy prices historically have gone to about these levels.
Crude prices are international. Competition with natural gas is by region. In most of the rest of the world, natural gas prices are $10 to $15 per mmbtu/mcf, which equates to current crude prices. Only in North America is there a big spread between the two, and that is likely to persist, barring a depression. So I don't see North American substitution having a significant impact on crude prices.
I agree that if it were up to only American substitution and American production increases —that these alone would not be enough to cap and crush world oil prices.
However, there are massive shale gas deposits all over the world. These will in due time get exploited. It won’t be this year or next or maybe even five years out. But it will happen. Plus there is massive interest in all the industrial world for lower energy prices. You can bet for example, that China will watch the way the USA converts over to natural gas trains trucks and buses and does the exact same thing with their immense shale gas reserves.
But again this stuff won’t even start to happen until after 2020 or so.
So at least a decade from now for the U.S., and another decade or two for the rest of the world, just in time to be replaced by thorium.
Battery technology advances would be quickly transferable, but thus far have been slow.
Yeah you’ve got the scenario about right. The exact timing is anyone’s guess. It took the USA about five years to ramp up natural gas production to the point where it collapsed natural gas prices.
For a command economy like the Chinese, once they have the technology—production won’t be far behind. As it is, they’re going to meet their first modest goal on shale gas production for 2015.
For the Chinese because they are a commmand economy shifting over to natural gas trucks buses and trains will come faster.
As for thorium, the Chinese plan to have their first prototype LFTR reactor running next year.
In early 2012, it was reported that China, using components produced by the West and Russia, planned to build two prototype thorium molten salt reactors by 2015, and had budgeted the project at $400 million and requiring 400 workers.”[16]:157 China also finalized an agreement with a Canadian nuclear technology company to develop improved CANDU reactors using thorium and uranium as a fuel.[40]
http://en.wikipedia.org/wiki/Thorium-based_nuclear_power
Just from the threads that you have started on fracking, you can appreciate how much industry knowledge went into the ramp-up of the Bakken and Eagle Ford: decades. The Chinese will take one or two decades to get to our state of development. Also, thorium development faces many challenges. It will take a couple of decades of trial and error to develop and roll out a process that works successfully, it at all. There is a great deal of hype.
This makes no sense to me. Why should American producers get less than the global rate for their product? Why should American refineries that spent billions of dollars upgrading buy more expensive light crude while running less efficiently than designed?
Export the expensive oil and import the cheap oil? Why is that a bad idea?
The Chinese will take one or two decades to get to our state of development.
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I prefer to think that you are right. However, the chinese have proven adept at rapidly copying/stealing american technology in every other field. So I’m not sure why they would have such great difficulty in this one. My understanding is that they have already met their goal for shale gas production for 2015.
Is there anything that prevents the Chinese from legally purchasing all this equipment in the US?
Obviously the manpower will be no issue as our tech universities are full of Chinese nationals.
Is there anything that prevents the Chinese from legally purchasing all this equipment in the US?
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No, they can purchase the equipment,hire the companies, buy stakes in american plays and do joint ventures. All of which they are currently doing. Their learning curve won’t be decades long.
There’s only one downside of big domestic Chinese production.
I was hoping they would become the big hog at the oil trough in the mideast and bring the muzzies under control.
Their domestic media wouldn’t be too concerned about “wars for oil” and they have a lot more expendable manpower than the ragheads.
“But again, the real damage to demand there won’t start until sometime after 2020”
You are not thinking dynamically enough.
The present installed backup capacity of natural gas generators used for wind and solar farms is likely to be so great that if the govt stopped the subsidies it would immediately, not 2020, cause natural gas at the burner tip to be several bcfpd increase.
The reciprocating effect would in very short order cause gas price spikes that would encourage those operators with unconventional gas acreage (Marcellus, Haynesville, etc.) to begin development programs that were placed on hold years ago as prices fell due to their over-achievement successes at finding and appraising these resources.
Since the O&G industry does not exist in a vacuum, this will such away resources from the oil drilling currently underway, causing the cost of drilling oil wells to increase and spiraling to less drilling.
Go back and review the history of the O&G industry.
Cycles are short generally and reaction to pricing is very short.
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