Toil for oil means industry sums do not add up

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The most interesting message in this year’s World Energy Outlook from the International Energy Agency is also its most disturbing.

Over the past decade, the oil and gas industry’s upstream investments have registered an astronomical increase, but these ever higher levels of capital expenditure have yielded ever smaller increases in the global oil supply. Even these have only been made possible by record high oil prices. This should be a reality check for those now hyping a new age of global oil abundance.

According to the 2013 WEO, the total world oil supply in 2012 was 87.1m barrels a day, an increase of 11.9mbd over the 75.2mbd produced in 2000.

However, less than one-third of this increase was in the form of conventional crude oil, and more than two-thirds was therefore either what the IEA calls unconventional crude (light-tight oil, oil sands, and deep/ultra-deepwater oil) or natural-gas liquids (NGLs).

This distinction matters because unconventional crude has a higher cost than conventional crude, while NGLs have a lower energy density.

Shilling for OPEC, the Financial Times swills out the following:

Over the past decade, the oil and gas industry’s upstream investments have registered an astronomical increase [sic], but these ever higher levels of capital expenditure have yielded ever smaller increases in the global oil supply. Even these have only been made possible by record high oil prices. This should be a reality check for those now hyping a new age of global oil abundance. According to the 2013 WEO, the total world oil supply in 2012 was 87.1m barrels a day, an increase of 11.9mbd over the 75.2mbd produced in 2000. [that's an increase of nearly 16%] However, less than one-third of this increase was in the form of conventional crude oil, and more than two-thirds was therefore either what the IEA calls unconventional crude (light-tight oil, oil sands, and deep/ultra-deepwater oil) or natural-gas liquids (NGLs). This distinction matters because unconventional crude has a higher cost than conventional crude, while NGLs have a lower energy density.

Nice three-card-monte there -- NGLs have lower density, but the rest of the unconventional crude by and large has higher density; both are profitable because the price is higher, it's called the free market, something the FT should be familiar with. Thanks Lorianne.

I think per capita Chinese demand will skyrocket to Taiwan’s level, as they catch in terms of GDP per capita. That means they’ll use 60m barrels of oil per day (up from 10m barrels), with some downward adjustment to reflect the massive price increases (due to the increasingly marginal sources of oil that have to be tapped to meet demand).
............
Its not just that higher prices —lower demand—it is that higher prices cause other lower cost technologies get a foothold.

shell Oil one of the largest globally integrated oil companies —says they expect oil to represent a shrinking proportion of worldwide energy use after 2030.
http://oilprice.com/Energy/Energy-General/Shells-Predictions-for-the-Future.html

After 2030 the growth areas for energy growth are primarily coal, natural gas and nuclear with a grab bag of other energies.

How would that happen?

Take China for example

China is reputed to have the world’s largest reserves of shale gas—located mostly in the north. My understanding is that initial tests are already underway to extract that gas. If that can be brought on-stream in volume and at a reasonable cost (currently Asia pays for natural gas 4 times what the USA pays for domestically produced natural gas— — you can bet a large section of transportation infrastructure will be shifted over to natural gas.)

Currently in the USA there is a huge shift of short haul trucks and buses over to natural gas because the cost of it is much cheaper than oil. Trucks and buses represent about 40% of demand for oil in the USA.

Maybe they represent a similar ratio of demand for oil in China.

Why coal and nuclear? Why do these become more prominent.

We won’t have a definitive answer until 2016. That’s when Tesla promises to have available a 30k electric car that can go at least 200 miles on a charge. That’s the minimum you need for a local driving car. If they succeed then it will only be a matter of time before electric cars take a bite out of demand for internal combustion engine cars. Even if Tesla doesn’t succeed, they have already set off a stampede among the major car companies to up their electric car game.

With the number of technological revolutions that have happened in just the last 10 years — it don’t think it prudent to calculate that new technologies will not suddenly materialize in the next ten years. Does anyone see the pace of technological innovation slowing down? (imho the pace of technological innovation is only speeding up. But that’s just me.)

So while it might be accurate to say that China’s demand for energy will grow to the equivalent of 60m barrels of oil per day .... it likely will not be accurate to say that the energy source will be oil. But rather the energy will come from a mix of other energy sources that would be equal to 60m barrels of oil per day.

shell Oil one of the largest globally integrated oil companies —says they expect oil to represent a shrinking proportion of worldwide energy use after 2030.

This at best is a guesstimate. The wild card in the picture is providence and man's willingness to accept the blessings of providence. Technology keeps marching on, and if we don't manage to Armageddon ourselves (biblically, it just does not seem to be the time for that) it will be easier, not harder, to get at oil which eluded us in the past. Fewer wells will fail. We will be able to do more undersea wells and low-manpower wells (which will also cut personal risk). But again someone might make fusion harnessable, either cold or hot, and electricity could come to dominate the day. I believe we do well to put our eyes on the Lord who furnishes the resources, then by all means compute, baby, compute, drill, baby, drill, fuse, baby, fuse. Etc. Till something pans out. And realize that guesstimates are guesstimates, and we shouldn't set long term policy in stone on account of them.

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