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The relation between oil prices and economic activity

August 27, 2010 4 comments

From Lewis L Smith

Recently a longtime Internet correspondent of international repute requested my opinion on the relation between oil prices and economic activity. I was both honored [since he is better known than I am] and somewhat take aback, since the subject is neither an easy one nor one on which I have done any research.

Fortunately I have tried to keep up with the work done by others and also have written quite a bit on closely related matters such as peak oil, “wild cards in the oil deck” and such like. So I was able to piece together the answer which follows, with a few revisions here and there. Read more…

Peak oil — the writing is on the wall

July 28, 2010 9 comments

From  Lewis L. Smith

There is no longer any doubt that world production of crude oil [however defined] is going to peak within everybody’s planning horizons, if it hasn’t done so already. The only argument is over when.

The turning point in discussions of this subject came in 2008 when the Saudis stopped talking about producing 10 to 25 million barrels per day for the next 50 years and admitted that their production was going to peak at 12 million barrels per day within a few years and then begin to decline, until all their wells are capped.

Today the forecasts range from 2004 [Dr. Rafael Sandrea  —  conventional crude] to 2032 [Exxon/Mobil  —  all crudes] , with a preferred range of 2010  —  2015.

Needless to say, for strategic and electric-utility planners, these dates are “just around the corner”.  Read more…

Categories: energy, Uncategorized

Deep Horizon and high-impact, low-frequency events

from Lewis L. Smith

There is an interesting calculation which one may make with regard to the Deep Horizon platform, which incidentally is located in an “oil play”  called “Macondo” !

Following a major spill off Mexico, some 5,000 deep-water wells were drilled in the Gulf of Mexico without serious mishap.

Suppose suppose that you are the BP official in charge of Deep Horizon and are about to order the start of drilling.

You say to yourself that you should assume the worst, just to be on the safe side, and estimate that the maximum damage to be expected from a major spill would be $50 billion.  Read more…

Categories: Uncategorized

Oil-industry statistics are full of errors, omissions and bald-faced lies

from Lewis L. Smith

BP is one of the world’s largest oil companies. It is also big on “hubris”. In fact, this hubris is undoubtedly a contributing factor to the magnum disaster which BP has just caused in the Gulf of Mexico.

["Hubris" is the ancient Greek word for "overweening pride".]

Now, as if nothing had happened to tarnish its image, BP has just presented its “Annual Statistical Review” with great self-assurance, at an invitation-only meeting in London.

To no one’s surprise, BP is one of the few remaining optimists on the question of future crude-oil supplies. In fact, its Chief Economist said at the meeting, “Oil will never peak” !  Read more…

Categories: energy

Fire

“Fire” by Lewis L. Smith – Analysis and photographs of the Gulf of Mexico disaster

Categories: energy

DOE sidles up to peak oil

April 2, 2010 2 comments

from Lewis L. Smith

Traditionally, the US Department of Energy has denied the existence [or at least the imminence] of a peak in world production of crude oil. In this regard, it has faithfully followed the traditional oil-industry line, frequently referring to such an event by the pejorative phrase, “the theory of peak oil”.

Suddenly, however, DOE seems to be sidling up to the possibility that this alleged “theory” might actually become a reality. In a recent, largely ignored, semipublic meeting, the US Department of Energy presented, as one of its scenarios of the future, the most pessimistic scenario in the agency’s history,  apparently without assigning it any probability .  Read more…

Two peaks for the price of one

March 12, 2010 4 comments

from Lewis L. Smith

Unlike some of the debates in the 20th Century, the debate over peak oil in the 21st  [2004-2008] was not at all theoretical. It was very practical. It turned on two questions  —  What is the condition and actual production of Saudi Arabia’s active oil reservoirs ?  How accurate are the projections of future production?

Despite recent op-ed articles in some of the principle media, the debate is over, and the pessimists won. In 2008, the King said that future confirmations and discoveries would be reserved “for our children” [not your SUV]. Subsequently managers at Saudi Aramco, the country’s oil company, stated  —  for the first time in history  —  that oil production would peak in a few years, plateau for a decade and then decline, until the wells were capped.  Read more…

Categories: energy

Wither China ?

February 2, 2010 2 comments

from  Lewis L. Smith

The biggest “wild card in the oil deck” is no longer some yet-to-be-commercialized technology. Nor is it a country harboring nests of terrorists. Nor it is a producing country like Iraq, Iran, Qatar or Saudi Arabia.  It is China, a net consumer.

In part, this is because of China’s economic, energy, environmental, military and political importance. Howwever, the main reasons are two  —   the uncertainty surrounding the country’s  future and the undertainty as to future actions of its government in the international sphere.

At $4.2 trillion [2008] , China’s economy is the third largest in the world, after the USA and Japan. By 2020, Read more…

Categories: Uncategorized

The Bakken Formation — hype or a new Saudi Arabia

January 10, 2010 3 comments

from Lewis L. Smith

A friend asked me to comment on some material which he had received, extolling the virtues of the Bakken Formation, which appears to have received considerable publicity among investors in the USA.

This is a large mass  of underground rock located mostly in Montana and Wyoming, running up to the Canadian border at least. According to a recent study by the US Geological Survey, this formation may contain large amounts of oil and gas which could be extracted using current technology. In fact, it is already being exploited successfully, and some people believe that it might even be another Saudi Arabia !

The Bakken Formation should not be confused with the  now famous, gas-bearing Barnett Formation. Their only similarities are that both both names begion with the letter “B”, both contain lots of shale rock and both have been subject to broker-inspired hype.

Since this  “good news” has coincided in  with the promotion of stock in oil or gas companies,  I though that I would try to inject a word of caution into the discussion of this geological phenomenon with  possibly large economic, environmental and political significance. Read more…

Afghanistan

December 29, 2009 1 comment

from          Lewis L. Smith

Afghanistan is economically, ethnically, geographically and politically one of the worst places in the world for an outsider to try to accomplish anything. This is especially so after Pres. Bush let Usama bin Laden “slip through his fingers” and then wasted six years  floundering around in that country, making more enemies than friends for the USA.

Indeed your correspondent believes that no matter what strategy the USA [or any other outsider] adopts, the odds are against a successful outcome. If this appraisal is correct, the best that we can say about Pres. Obama’s new strategy for Afghanistan is that it is the least worst of the alternatives. Moreover, he is likely to pay a severe price in electoral abstentions if things go badly, as they more are likely to do than not.

However, Read more…

Categories: Uncategorized

Shale gas – article yanked and editor fired

November 30, 2009 1 comment

from          Lewis L. Smith

Natural gas can be extracted from a kind of low-porosity rock known as shale. Indeed shale gas is already making a substantial contribution to the US gas supply. Moreover, some very optimistic estimates have been made about the quantity which could be produced in the future, without giving any thought to the  availability of the water required to fracture this rock and release commercial quantities of gas from newly discovered reservoirs.

Indeed some people are even looking to shale gas to “save” the USA from the impact of the coming peak in world crude-oil production. In the meantime, stock in shale-gas producers is being touted to investors as “the greatest thing since sliced bread”.

However, Read more…

Categories: energy

Oil prices

November 28, 2009 Leave a comment

In the markets for physical petroleum liquids, there is unprecedented speculation in favor of an oil-price increase. The speculative volume is the highest in ten years and the dollar amount involved is the highest ever. Moreover, the speculation involves both crude oil and products, especially  “middle distillates” such as diesel, an important fuel for construction, manufacturing and land transportation.  Read more…

Categories: energy

Political documents vs. scientific ones – #2

November 26, 2009 Leave a comment

Comparing the graphs tells the whole story (See Political documents vs. scientific ones). A essential point not made is that the finding, proving, delineating and bringing on line of an oil reservoir takes time, typically three to ten years. So the early stages of the search for much of the production “to be found” should be visible “in the pipeline” already. Only it isn’t, at least not for Dr. al Husseini, former head of exploration and production for Saudi Aramco. As he says, “there aren’t enough projects”, and a lot of us agree with him. Read more…

Categories: energy
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