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The Peak Oil Crisis: Parsing 2014

May 16, 2014 in EV News, Oil

By Tom Whipple, Post Carbon Institute

Tom Whipple Photo courtesy of Post Carbon Institute

Tom Whipple
Photo courtesy of Post Carbon Institute

Some 15 years ago when the current concept of peak oil was posited, it was all going to be simple. Somewhere in the early part of the 21st century oil production was going to reach a peak and start to decline. Shortages would develop and prices would spiral upwards. But we should know by now nothing is simple. Peak conventional oil actually arrived on time circa 2005 and has remained on a rough production plateau ever since. Oil prices went flying up from the $20 a barrel we saw 15 years ago to $140 before demand destruction set in, leading to crude prices settling around $100 a barrel.

High priced oil sent much of the global economy into the tank where it still struggles to eke out small gains amidst incessant hopes for a rebound. Demand for the new high priced oil products fell in the advanced countries partially from gains in efficiency and partly because large segments of the population could no longer afford to use them in the accustomed manner.

The five-fold increase in oil prices produced other reactions. The international oil companies were soon rolling in money which led to a capital spending spree to find and extract more oil. Much of massive increase in capital expenditures, however, went to fund costly deep sea drilling as most of the remaining dry land oil fields are now firmly in the hands of the national oil companies. Sadly, the big jump in drilling expenditures in the last eight years found just enough oil to keep global production steady, but did not increase global supplies of conventional oil.

The most visible “benefit” of high oil prices was that it permitted oil companies to go after the expensive-to-exploit tight (shale) oil/gas deposits and the fracked oil “revolution” was born. U.S. production of fracked oil and natural gas soared by nearly 3 million b/d; which as it turned out was enough, when combined with the drop in demand from the US and the other OECD countries, to meet the increase in global demand for oil which has averaged roughly 1.25 million b/d each year recently.

So, for the time being, we have a balance. The OECD’s demand has been trending down: the surplus has been taken up by increases in Asian demand; lower production in several OPEC countries due to political disturbances continues; and global depletion of existing oil fields continues to drop by some 3-4 million b/d each year. The markets are balanced out by a large increase in fracked oil and an increase in unconventional hydrocarbons such as natural gas liquids and lease condensates. For several years now, this balance has worked fairly well as world oil prices have remained around $100 per barrel, but now we come to 2014.

The very cold weather not only consumed an inordinate amount of our natural gas reserves, but also slowed the drilling of new oil and gas wells in the northern states. North Dakota’s production in March was the same as in November so there was no growth in Bakken shale oil production during the four winter months. It is clear to everyone but the most optimistic that the rapid increases in US shale oil production will come to an end within the next few years, and it seems likely that production increases in 2014 will be less spectacular than in recent years. Some independent analysts believe that the peak in U.S. shale oil production could come within the next 24 months. This year’s production should give some good insight into just when peak U.S. shale oil may come.

Last winter several of the major international oil companies announced that they could no longer afford the accelerated pace of capital expenditures that resulted in some $3.5 trillion being spent to explore and drill for conventional oil in the last ten years. It is this massive expenditure that has kept conventional oil production steady, but now is coming to an end. Within the next few years, we are likely to see drops in conventional production as the pace for exploring and developing new oil fields contracts.

On top of the geologic problems, the political situation in several oil producing countries seem likely to get worse before the year is out. We have already lost substantial oil production from Syria, Egypt, Yemen, South Sudan, and Iran. Iraq, where production is still growing, is sinking into anarchy. Unless a more stable political situation emerges in Baghdad soon, the fighting is almost certain to spread into the country’s oil producing provinces before much longer. Only the Iranian nuclear negotiation, the prospects for which fluctuate daily, seems to offer any hope for increased oil production from the Middle East. Even this is still a great unknown. An agreement could result in increased Iranian oil exports, while failure of the talks will likely lead to increased tensions and more sanctions, especially if Tehran resumes a quest for nuclear weapons.

There are a lot of factors currently in play that could have a major impact on oil markets. The rate of global depletion from existing oil fields is increasing as production shifts to more fast-depleting deepwater and shale oil wells. The weather forecasters say El Niño is returning this summer which means higher global temperatures and more oil and gas consumption for cooling. The Ukrainian situation is far from settled and has the potential to disrupt global oil and gas flows. One such disruption would be an increasing share of Russian oil and gas production going to China at the expense of the EU. China is engaged in mini oil wars with Japan and Vietnam over offshore drilling rights. Governments are slowly becoming more concerned about air pollution/climate change and are starting to take concrete steps to slow fossil fuel burning.

It is too early to call 2014 a pivotal year, but by December we may have a much better appreciation on what the future has in store.

This article is a repost (5-15-14), credit: Post Carbon Institute (Tom Whipple).

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Five states and the Gulf of Mexico produce more than 80% of U.S. crude oil

March 31, 2014 in EIA, EV News, Oil

Graph courtesy of EIA

Graph courtesy of EIA

Five states and the Gulf of Mexico supplied more than 80%, or 6 million barrels per day, of the crude oil (including lease condensate) produced in the United States in 2013. Texas alone provided almost 35%, according to preliminary 2013 data released in EIA’s March Petroleum Supply Monthly. The second-largest state producer was North Dakota with 12% of U.S. crude oil production, followed by California and Alaska at close to 7% each and Oklahoma at 4%. The federal offshore Gulf of Mexico produced 17%.

Total U.S. crude oil production grew 15% in 2013 to 7.4 million barrels per day. Texas and North Dakota led that growth, with their crude oil outputs each increasing 29% from 2012. Production gains in both states came largely from shales, especially the Eagle Ford in Texas and the Bakken in North Dakota. In the three years since 2010, North Dakota’s crude oil output has grown 177% and Texas’s output 119%, the fastest in the nation.

Three other states that were among the top 10 U.S. producers in 2013 also experienced production growth rates above 20% during the past three years. Colorado, which overlies part of the Niobrara Shale, had 93% growth in production from 2010 to 2013; Oklahoma, with the Woodford Shale, had 62% growth; and New Mexico, which shares the Permian Basin with Texas, had 51% growth.

Crude oil is produced in 31 states and two offshore federal regions—the Gulf of Mexico and the Pacific Coast. Of those 33 producing areas, 10 supply more than 90% of U.S. output. While 9 of those top 10 areas were also among the top 10 producers five years ago, their relative contributions have changed.

North Dakota has risen from the seventh largest oil producer to the third. The Gulf of Mexico, Alaska, and California, which together in 2008 supplied nearly half of U.S. crude production mainly from conventional oil reservoirs, provided less than one-third of national output in 2013. Output in those areas has declined at the same time that overall national production has expanded.

Principal contributors: Allen McFarland, Tom Doggett

This article is a repost, credit: EIA.

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Crude oil inventories at Cushing, Oklahoma, hub down 32% over the past two months

March 27, 2014 in EIA, EV News, Oil

Source: EIA, Weekly Petroleum Status Report  Courtesy of EIA

Source: EIA, Weekly Petroleum Status Report
Courtesy of EIA

Crude oil inventories at Cushing, Oklahoma, the primary crude oil storage location in the United States, decreased 13 million barrels (32%) over the past two months. On March 21, Cushing inventories were less than 29 million barrels, more than 20 million barrels lower than a year ago and the lowest level since early 2012. Cushing is the delivery location for the New York Mercantile Exchange (Nymex) West Texas Intermediate (WTI) crude oil futures contract.

The recent drawdown of stocks at Cushing resulted from three factors:

  • The startup of TransCanada’s Cushing Marketlink pipeline, which is now moving crude oil from Cushing to the U.S. Gulf Coast
  • Sustained high crude oil runs at refineries in Petroleum Administration for Defense Districts (PADD) 2 (Midwest) and 3 (Gulf Coast), which are partially supplied from Cushing
  • Expanded pipeline infrastructure and railroad shipments that have made it possible for crude oil to bypass Cushing storage and move directly to refining centers in PADDs 1 (East Coast), 3 (Gulf Coast), and 5 (West Coast)

Despite the considerable decline in Cushing inventories, crude oil stocks remain above the top of the 2005-08 range. Over the past several years, much of the crude oil production growth from tight oil formations in the Midcontinent was delivered to Cushing storage. Because takeaway capacity from Cushing storage was insufficient, inventories there rose. Currently, Cushing inventories have fallen to levels that reflect current market conditions, and although they are reduced, the levels remain consistent with crude oil supply requirements to meet regional refinery demand.

Principal contributors: Hannah Breul, Mike Leahy

This article is a repost, credit: EIA.

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China is now the world’s largest net importer of petroleum and other liquid fuels

March 24, 2014 in China, EIA, EV News, Oil

Graph courtesy of EIA

Graph courtesy of EIA

In September 2013, China’s net imports of petroleum and other liquids exceeded those of the United States on a monthly basis, making it the largest net importer of crude oil and other liquids in the world. The rise in China’s net imports of petroleum and other liquids is driven by steady economic growth, with rapidly rising Chinese petroleum demand outpacing production growth.

U.S. total annual petroleum and other liquids production is expected to rise 31% between 2011 and 2014 to 13.3 million barrels per day, primarily from tight oil plays. In the meantime, Chinese production will increase at a much lower rate (5% over this period) and is forecast to be only a third of U.S. production in 2014.

On the demand side, China’s liquid fuels use is expected to reach more than 11 million barrels per day in 2014, while U.S. demand hovers close to 18.9 million barrels per day, well below the peak U.S. consumption level of 20.8 million barrels per day in 2005. U.S. refined petroleum product exports increased by more than 173% between 2005 and 2013, lowering total net U.S. imports of petroleum and other liquids.

China has been diversifying the sources of its crude oil imports in recent years as a result of robust oil demand growth and recent geopolitical uncertainties. Saudi Arabia continues to be the largest supplier of crude oil to China and in 2013 provided 19% of China’s 5.6 million barrels per day. Because production levels from Iran, Libya, and Sudan and South Sudan dropped since 2011, China replaced the lost shares of crude oil and other liquids imports from these countries with imports from Oman, Iraq, the United Arab Emirates, Angola, Venezuela, and Russia.

Principal contributor: Candace Dunn

This article is a repost, credit: US Energy Information Administration.