Posted on 01/27/2006 5:23:10 PM PST by LouAvul
DAVOS, Switzerland (FORTUNE) - Be afraid. Be very afraid.
That's the message from two of the world's most successful investors on the topic of high oil prices. One of them, Hermitage Capital's Bill Browder, has outlined six scenarios that could take oil up to a downright terrifying $262 a barrel.
The other, billionaire investor George Soros, wouldn't make any specific predictions about prices. But as a legendary commodities player, it's worth paying heed to the words of the man who once took on the Bank of England -- and won. "I'm very worried about the supply-demand balance, which is very tight," Soros says.
"U.S. power and influence has declined precipitously because of Iraq and the war on terror and that creates an incentive for anyone who wants to make trouble to go ahead and make it." As an example, Soros pointed to the regime in Iran, which is heading towards a confrontation with the West over its nuclear power program and doesn't show any signs of compromising. "Iran is on a collision course and I have a difficulty seeing how such a collision can be avoided," he says.
Another emboldened troublemaker is Russian president Vladimir Putin, Soros said, citing Putin's recent decision to briefly shut the supply of natural gas to Ukraine. The only bit of optimism Soros could offer was that the next 12 months would be most dangerous in terms of any price shocks, because beginning in 2007 he predicts new oil supplies will come online.
(Excerpt) Read more at money.cnn.com ...
I'm for drilling. People always under estimate production technology.
Kuwait's biggest field peaking
news to me... the link?
Kuwait cutting oil reserve estimates by 50%.
Speaking of reserves, I believe all of the numbers are greatly exaggerated. The last time there was an independent audit over there was the 1970s. The Saudis have "magically" increased reserves twice since then, and also you'll note that reserves do not decrease as oil is taken out of the ground.
Yes, it will be the defining event ... of 2035.
2035 is the extreme on the optimistic side.
If you don't think the technology is already there and in place, I believe you are naive. The military is light years ahead of you.
Time to drill - ANWAR, California, Gulf Coast, National Parks, etc.
There just isn't that much there. We need to find an alternative to oil."
Baloney. There is a LOT of US oil and gas that could be available that is off-limits solely for political reasons. ANWR has about 10 BILLION barrels of recoverable oil. Just one lease area alone off the Cali coast has 1 BILLION barrels. Gas reserves off the Cali coast are huge. ... There are BILLIONS of barrels, worth over $1 trillion, in oil and gas off California's coast. We dont drill because the US Government forbids it. Now, it's time to CHANGE that:
http://www.sfgate.com/cgi-bin/article.cgi?file=/c/a/2006/01/26/MNGPEGT2O21.DTL
"Pombo is considering new hearings on a bill that would end the 23-year-old moratorium on offshore drilling, allowing drilling for natural gas -- but not oil -- on about 85 percent of the nation's coastline that is now off-limits. Pombo is also pushing a plan to give states the ability to opt out of the moratorium to drill for either oil or gas."
To understand how absurd this limit is, consider:
http://www.mms.gov/omm/pacific/offshore/oil-and-gasfaq.htm
"OCS operations are carefully conducted and regulated to ensure safe and environmentally sound operations. Since the tragic oil spill in Santa Barbara in 1969, about 833 barrels of oil have been spilled as a result of OCS natural gas and oil operations offshore California. This spillage represents the cumulative loss from cups or a barrel at any given time, but for a 150 barrel spill from a pipeline in State waters carrying exclusively OCS production to shore. The California nearshore and coastal areas are replete with natural seeps. It is estimated that over 1,000 barrels of oil each week are released into the environment from these seeps. (From the Coal Oil Point seeps alone, almost 200 barrels a day may be entering the ocean.) There is some evidence that commercial production of the reservoirs offshore has reduced the amount of oil that would naturally seep into the marine environment by reducing pressure in the reservoirs."
In other words, NATURAL oil seepage off the Cali coast dwarfs the oil seepage from oil drilling by a factor of 10,000 to 1, and yet we forbid drilling because of the fear of oil seepage. Go figure!!
Except it's a lie (no kidding).
Ronald Reagan did more to end the oil crisis in a single day than Jimmy's whole term in office. Reagan decontrolled the price of oil and gas, and that fixed the screwed up economics that was harming our economy.
I remember that Kennedy lamented Reagan's decision and predicted that gas prices would go through the roof ... gas prices fell.
I thought refining oil shale became profitable at $40.00/barrel crude. That may have been in 70's-80's dollars but I can't help but wonder what, outside of lack of refining capacity for that particular source, is holding back domestic production of fuel from this resource.
Promises, promises. When oil hit $40 a couple of years ago, I saw similar posts here. Then people said the same thing when it hit $50. And $60.
These new "technologies" appear to be as Matt Simmons says, simply bigger straws to get the existing oil out.
"If the Arabs want to sit on their oil, embargo their oil, eat their oil or rub it on their camels' heinies, I say let them."
Me too. Let's let Alberta join the Union. Give them free condos on Miami Beach. Alberta would put two more Senators in the Republican column. Alberta has the kind of Canadians I like.
Good points made here.
"Not as cheap to recover as the oil sands of the middle east where it begs to be harvested. The cost of recovering a barrel of Saudi crude is about $1.50. The technology for recovering deep oil is constantly improving and costs of recovery shall fall in line going forward. Notice that the Saudis could sell $10 a barrel oil with their costs and make profits hand over fist, notice also big oil turned in record profits."
The Saudis now say they are "comfortable" with $60 a barrel oil. What they mean is - they are thrilled that the global economy hasnt collapsed under the weight of $60 a barrel oil, because they could use that price more than $30 a barrel price.
No producer minds selling for a higher price, as long as they can get away with it.
The price of oil will be based on the most expensive marginal producer, not the cheapest, which suits Saudis just fine. With tar sands now becoming a part of needed oil production, you can expect to never see oil under $25/ barrel again.
"notice also big oil turned in record profits... If we were running out of oil, those profits would be squeezed instead by humongous production costs; that alone is indicative that there is plenty of oil, a virtual inehaustable supply."
Another good point... it would be interesting to know what the average production cost is for oil in 2005. Not just OPEC but other non-OPEC producers.
I'd guess in the low teens, at most, with highest costs for producers like the deep offshore GOM and offshore Nigeria.
RightWhale wrote:
Coal is shipped pretty far. Electricity has a practical distance limit of about 300 miles.
That's fine for those who live near the major coal deposits.
300 miles? Isn't the whole east coast on a big power grid?
In fact I've seen reference to an HVDC line that transmits 2.0 gigawatts 1,480 kilometers from Quebec to New England, roughly 900 miles.. Correct?
"Nuclear reactor heat, which is usually wasted in condensors could be used to heat the shale. Or a dedicated heat exchanger just for shale oil extraction. Of course it would require a nuclear reactor but it would be much "cheaper" in terms of energy to get the oil from the shale."
Nuclear energy is a great answer for that problem.
First, nukes generate a lot of heat and electricity, thermal efficiency is about 40% or less.
So piping both the heat and using the electricity could be a very efficient use of the energy from the reactor in the overall process.
I read Simmons differently. I believe that his key points are: (i) The oil column in Ghawar has thinned making MRC wells almost a requirement [the oil columns he alludes to would still make someone operating in TX or OK deliriously happy]; (ii) injection of water is one of the techniques used in secondary production [tertiary techniques are next]; (iii) when an MRC well waters out it is because the oil water contact had more or less uniformly risen to the level of the laterals which are by design at the very top of the pay; (iv) at the time a well designed layout of MRC wells in a highly porous and highly permeable field such as Ghawar starts to experience rising water cuts, it may be a sign that the oil water contact has almost uniformly reached the top of the reservoir -- no more thousand plus barrels of oil per well per day.
Simmons provides the Yimbal [spelling] field as an example of how rapidly a giant oilfield can decline using MRC well and massive water injection during primary production. The concern is not the injection of water, but the fact that the technique masks normal production declines and bringing the point of depletion forward in time.
Beyond that, the main message that I get from Simmons is that we don't know enough about OPEC reserves to know what is in store.
This brings me back to your belief that there is 3 trillion barrels in still to be produced oil.
"If prices hold above $50 for a sustained period, and demand holds up, then other sources/methods will be applied. I can assure you that drilling in the US and Canada has ramped up, more than doubled I'd guess, in the last 12 months."
Yes. Rig counts are way way up from say 5 years back and are returning to the historical highs of the early 1980s.
If oil maintains it's expense or rises, it's very likely will invest deeply into shale. America has a lot of shale (more reserves than the entire middle east), and I have no real big concern that will ever see those expenses...unless there's world war.
http://slweekly.com/editorial/2005/city_2_2005-09-15.cfm
I'm eager to see shale suceed...then we could let the middle east rot.
"As Mulder said, it takes a lot of energy to dig up the shale, crush it, heat it and get the oil out."
Er, that is why in-situ methods will be used when shale oil is finally commercialized. Digging it up and processing it that way is too inefficient, but in-situ is more efficient.
>Before the United States allows oil to hit $262 a barrel,
There isn't much the United States can do about it, other than reducing its consumption. As I understand it, it's a supply-demand issue.
This right after the news of a huge oil find in Canada, bigger than that of Saudi Arabia.......
"A lot of assertions there. The real secret name of Peak Oil is Peak Easy Oil. When the easy oil peaks, what is left is not-so-easy oil, and not so cheap. $70 a barrel will be seen as the good old days when we are ten years farther down the road. There's an assertion."
At least you are making an economically computable assertion, which the peak oilers have a problem with. And you are basically right in one sense - it's not about the end of oil, but about the end of cheap-and-easy oil. We will never see the dirt cheap oil price that we got in 1998 again.
I disagree with the price prediction though ... $70 is near historical highs that only occured once in 120 years of oil history. It will revert more to the mean. I think oil will be $35-55 in the coming decade, average price of $45 or less.
Production capacity will go up to 100 million barrels, and the production costs for all that capcity is under $30/barrel, including the unconventional oil (tar sands), while this oil scare will teach us that we need our own resources and we need to conserve. So we will. Good lessons to learn, and about time we held the whip hand against Iran, Chavez and the other oil despots. I want to see more nuclear power, more drilling, higher MPG cars, lower oil imports, and Chavez and the mullahs going bankrupt.
That's my assertion. :-)
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