# Drop in Oil



## dougstove (Jan 16, 2015)

Following earlier threads here, I am wondering if we are watching a battle to determine who gets to supply the twilight of the oil age.
If prices stay low, long enough, will the high extraction cost reserves be left stranded, as we replace oil with other sources?
There is a good article in the Economist on related topics.
This could be the breathing space we need to solve alot of problems.
Indonesia just used the drop in oil price to eliminate fuel subsidies, freeing money for better uses.
India could follow.

I would be very happy to stop sending money to benighted cultures that hate us.


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## valuman (Jan 16, 2015)

There are a lot of possible ramifications from the reduced price of oil we're currently seeing. Unfortunately, one of those is sure to be increased consumption at a time when we should be focused on continuing the reduction of our consumption. As much as I'm enjoying the money that stays in my pocket, I wonder how this might impact the continued development of EVs and more efficient combustion engines. Personally, I'd love to be able to stop using any oil at all in my personal heating/cooling/transportation modes and hope that possibility will exist in my lifetime.


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## woodgeek (Jan 16, 2015)

Bottom line: the only struggling oil producers will be frackers in the US and oil-sands guys Canada.  Those that go bankrupt will default on their debts to their counterparties, who are the TBTF US banks.  The assets of bankrupt frackers (shut off wells) will prob be sold to the US majors for pennies on the dollar, who will revive the fields as soon as the price bounces back up (as it will, global conventional production is inadequate).  If the TBTF banks lose too much money (i.e. the price undershoots too far for too long) then they will be bailed out by you and me.

Net effect:  Fracked assets developed using money that comes from the US govt bailout or Fed gets given to the oil majors for pennies on the dollar.  Everyone wins!


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## valuman (Jan 16, 2015)

Yes, there's a pretty serious financial consideration to this as well. Everybody wins? I'm supposing that's a facetious statement. Right?


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## woodgeek (Jan 16, 2015)

Indeed.  Or if the frackers are 'well managed' they can just hunker down until prices recover, and then resume operations with minimal financial drama.  And prob at a price point significantly below $100/bbl.

The 'not well managed' frackers should be bankrupted and their assets auctioned off.  And if the the TBTF banks are 'well managed' they can eat the loss.

Etc.


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## woodgeek (Jan 16, 2015)

valuman said:


> There are a lot of possible ramifications from the reduced price of oil we're currently seeing. Unfortunately, one of those is sure to be increased consumption at a time when we should be focused on continuing the reduction of our consumption. As much as I'm enjoying the money that stays in my pocket, I wonder how this might impact the continued development of EVs and more efficient combustion engines. Personally, I'd love to be able to stop using any oil at all in my personal heating/cooling/transportation modes and hope that possibility will exist in my lifetime.



EVs are continuing strong sales.  Gas-burning hybrid car sales are flat to down, being hurt by gas prices on the financial end, and EVs on the green end.

I got my EV mostly for carbon reasons, and because it was a nice and fun car that was cheap after rebates.  With the drop in gas prices, I am saving $70/mo instead of $120/mo. Whatevs, no regrets.

Stated another way, all your cheap gasoline is my fault.  You're welcome.


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## valuman (Jan 16, 2015)

woodgeek said:


> Indeed.  Or if the frackers are 'well managed' they can just hunker down until prices recover, and then resume operations with minimal financial drama.  And prob at a price point significantly below $100/bbl.
> 
> The 'not well managed' frackers should be bankrupted and their assets auctioned off.  And if the the TBTF banks are 'well managed' they can eat the loss.
> 
> Etc.


If they're really well managed they might figure out how to spend their profits and get a bailout too as per your first post on the topic.


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## valuman (Jan 16, 2015)

woodgeek said:


> EVs are continuing strong sales.  Gas-burning hybrid car sales are flat to down, being hurt by gas prices on the financial end, and EVs on the green end.
> 
> I got my EV mostly for carbon reasons, and because it was a nice and fun car that was cheap after rebates.  With the drop in gas prices, I am saving $70/mo instead of $120/mo. Whatevs, no regrets.
> 
> Stated another way, all your cheap gasoline is my fault.  You're welcome.


Currently, my work car is a 2014 Prius and my personal car is a 2010 Jetta TDi that has been a fantastic vehicle that I've put 140k on since buying it new. My dream work car is a Model S and I'm holding off on buying a Tacoma pickup to replace the Jetta in hopes that the Chevy Colorado diesel model will be available soon. I hope I'm contributing to the reduced fuel consumption trend too!


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## begreen (Jan 16, 2015)

A couple other countries have already used the drop in oil prices as timing to cut oil co. subsidies. Not a bad idea.


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## vinny11950 (Jan 16, 2015)

begreen said:


> A couple other countries have already used the drop in oil prices as timing to cut oil co. subsidies. Not a bad idea.



Never gonna happen here as our political system is owned by big money.  The industry will go away before those subsidies are cut.


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## Ashful (Jan 16, 2015)

dougstove said:


> Following earlier threads here, I am wondering if we are watching a battle to determine who gets to supply the twilight of the oil age.
> If prices stay low, long enough, will the high extraction cost reserves be left stranded, as we replace oil with other sources?


A little early to be calling the curtain, no?  My eye still sees an upward trend.


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## woodgeek (Jan 16, 2015)

The majors have little exposure to the fracking business, but are drooling at the prospect of buying already drilled holes for cheap.


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## BrotherBart (Jan 16, 2015)

Exxon got up to their butts in fracking when they paid $41 billion for XTO in 2009.


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## woodgeek (Jan 16, 2015)

I wonder if XOM considers that a significant exposure....


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## Jerry_NJ (Feb 2, 2015)

Has the price for heating oil dropped anywhere near what we've see for gasoline?  I'm still working on paying off my geothermal heat pump investments....working now on my Waterfurance replacement - I think the first one paid off during its21 year life.  Heating oil at$3 a gallon was easy to beat with the geo heat pump.  Heating oil at $175 may be hard to beat on cost per BTU


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## begreen (Feb 2, 2015)

woodgeek said:


> I wonder if XOM considers that a significant exposure....


http://www.nytimes.com/2015/02/03/b...ent/exxon-mobil-q4-earnings-decline.html?_r=0


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## iamlucky13 (Feb 2, 2015)

dougstove said:


> If prices stay low, long enough, will the high extraction cost reserves be left stranded, as we replace oil with other sources?



Definitely not. The low prices will last six months to a year. If I'm badly wrong, it could be as much as two years before we're back in the $80-120 per barrel range where oil shale and tar sands make healthy profits. That's still nowhere near enough time to displace them.

2014 EV sales were about 120,000 cars in the us (source). Total US car sales were about 16.5 million (source). That puts EV sales at less than 1% of the current market, and in the ballpark of 0.1% of the current fleet.

The growth is very rapid so far, but even if the trend stays in the high double-digit range (more likely it will taper off to low double-digit as the market matures), we're still talking at least a decade before half the cars being sold are electric, and the overwhelming majority in service will still be internal combustion at that point. Besides, the electric grid can't absorb that much growth that fast.

Biofuel growth, meanwhile, has slowed significantly, and is not going anywhere until oil prices go back up.

Meanwhile, the low oil prices remove the biggest incentive for users to switch to other sources.


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## woodgeek (Feb 3, 2015)

iamlucky13 said:


> 2014 EV sales were about 120,000 cars in the us (source). Total US car sales were about 16.5 million (source). That puts EV sales at less than 1% of the current market, and in the ballpark of 0.1% of the current fleet.
> 
> The growth is very rapid so far, but even if the trend stays in the high double-digit range (more likely it will taper off to low double-digit as the market matures), we're still talking at least a decade before half the cars being sold are electric, and the overwhelming majority in service will still be internal combustion at that point. Besides, the electric grid can't absorb that much growth that fast.



Agree with the EV growth curve projection, but not with the grid limitation.  When people get a 'charge cheaper at night' option then a significant portion of EV owners do just that (built in charge timers are already common), so peak load on the grid is not higher.  Of course that energy production still needs fuel, like natgas at the utility....but gasoline production already consumes a LOT of energy: natural gas and other light components (like ethane, propane, etc) at the refineries are used for process heat and to generate elec on site to run pumps, etc.  If the light compounds currently used to produce gasoline were switched to making electricity off peak for EVs, it would offset more than 50% of the required energy mile for mile replacing an ICE vehicle.

The amount of energy used for light vehicle transportation looks like a significant fraction of the total energy used by the economy, but drop the required energy used per mile by 75% as in an EV, and it isn't really that much.  Running my EV 10,000 miles/yr is increasing my home elec bill by ~20%.


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## jebatty (Feb 3, 2015)

Seems to me that the drop in oil prices will have little effect on the growth of PV and that cafe standards for cars and trucks will push the market for EV regardless of the drop in oil prices.


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## woodgeek (Feb 3, 2015)

Since the price of gas only really dropped dramatically in December (with associated media attention) it is still too early to say what will happen to EV sales (latest comprehensive figures are for November).  Regular hybrids (i.e. Prius) sales have been flat lately, IMO because EVs are eating into their sales on the efficient end.  Conventional wisdom (that I agree with) is that hybrids will sell weakly with cheap gas, but EV sales will just plow through.  We shall see shortly.


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## dougstove (Feb 3, 2015)

I am still thinking this could be a play by the Saudi's to retain a bigger fractional slice of a static or shrinking pie.
     Afterall, oil is their only option to fund a transition to some other future.
Remember China is huge, and if they make a policy decision towards electric, they can turn on a dime.
Likewise India is an immense market that could leapfrog the ICE.
I suspect there is also a geopolitical dimension, in that the Saudi/USA co-dependency is critical to the Saudi regime, and to alot of rich (=lobbyist) people in the USA.
An oil-independent USA would disrupt alot of applecarts.


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## woodgeek (Feb 3, 2015)

The last time the US of A was a global hegemon, it was still _exporting_ oil.


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## iamlucky13 (Feb 3, 2015)

dougstove said:


> I am still thinking this could be a play by the Saudi's to retain a bigger fractional slice of a static or shrinking pie.
> Afterall, oil is their only option to fund a transition to some other future.
> Remember China is huge, and if they make a policy decision towards electric, they can turn on a dime.
> Likewise India is an immense market that could leapfrog the ICE.
> ...



It does seem to be a Saudi-led dumping tactic. The current low prices are certainly not in their long term interest, since they depend on oil revenue to fund public works projects to placate their subjects. Monarchies can be expensive to prop up.

But they can presumably take a hit now, drive a number of the US and Canadian companies (and maybe some of the European and Australian producers, too) out of the business, and then return to "normal" for a few years while the newer sources regain the courage to risk their money in a volatile industry.

On the geopolitical angle, the US does not benefit from political instability in Saudi Arabia, which could result from low oil prices. Nor do many rich lobbyists in the US benefit from low oil prices - most of them are losing a lot of money right now. However, there has been suggestions, not given much discussion so far, that Saudi Arabia is also looking to hurt Russia, perhaps at the US and European behest, or perhaps just because Russia is their biggest non-OPEC competitor.

The US and Europe would arguably like to exert more pressure on Russia to stop meddling in the Ukraine, but oil sanctions are basically out of the question for Europe, which depends heavily on Russian oil and gas. But Europe's appetite for oil and Saudi Arabia's desire to limit competition might combine with political concerns about Russia to overcome any qualms in the middle east over OPEC's current policy.


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## dougstove (Feb 3, 2015)

Currently, the only reason for the USA to pay attention to a regressive, oppressive monarchy in the middle east, is oil.
So the Saudis rely upon oil to maintain the protection by the USA.
An oil-independent USA could largely ignore Saudi.
But there are also significant economic actors in the USA profiting handsomely from the current Saudi/USA interaction, and they would be disrupted if/when the USA becomes energy independent again.  To be cynical (remembering Eisenhower) the current arrangement supports alot of arms dealing as well.

The 'natural allies' of the west in the Middle East are Turkey and possibly Iran.  Iran is currently something analogous to England in ~1600; an authoritarian church supported ruler, but at least the structure and some of the function of a nascent democracy.  I can dream they could evolve back into a representative government system.  Current mania aside, they also have some heritage of reasonable inter-religious relations.

Saudi has no natural cohesion, just a personal autocracy under a family that assembled territory through conquest and marriage, propped up by a sick deal with religious extremists.  It is not a nice place.

On the bright side,  think the USA is (once again) going to win the geography jackpot, because your deserts are a great opportunity for solar, with relatively low NIMBY resistance.
5 years ago, I was worried about desertification hitting your crops hard, but now solar farms might take over some of the drying areas.

Sorry to ramble, off work today.


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## woodgeek (Feb 3, 2015)

I am no expert of middle east politics or cultures, but I know that if we wanted to get to oil independence via fracking, it would cost another ~$1-2T up front, and would last 5-10 years or so.

The only long-term solution to the oil problem is renewables.  $1-2T would buy a _lot_ of renewables and grid infrastructure and EV incentives.


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## begreen (Feb 3, 2015)

Renewables and conservation. We can go a very long way towards independence by reducing waste and being more efficient. Just look at a nighttime satellite image of the Bakken oil fields. S. Dakota has gone from dark to lit up at night due to flaring off gas.


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## dougstove (Feb 4, 2015)

woodgeek said:


> I am no expert of middle east politics or cultures, but I know that if we wanted to get to oil independence via fracking, it would cost another ~$1-2T up front, and would last 5-10 years or so.
> 
> The only long-term solution to the oil problem is renewables.  $1-2T would buy a _lot_ of renewables and grid infrastructure and EV incentives.


I agree; I should have written 'energy independence'.

Unfortunately for Canada, I think we are going to be stuck with alot of low value hydrocarbons, and alot of melted muskeg that is useless for forestry or cropping, because I think the Saudi's, Iraqi's, Iranians and Russians will more or less run out the end of bulk international oil demand, before the tarsands are ever really needed.

Maybe we could get into industrial scale Moose farming as the boreal forest moves north.


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## jebatty (Feb 5, 2015)

Would you call mining tar sands from the boreal forest an event of deforestation? In MN the interests that want to cut down the forests call it a "land use decision," not deforestation. I guess developed countries make land use decisions while for 3rd world or undeveloped countries the word is deforestation.


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## dougstove (Feb 5, 2015)

I would call the tarsands deforestation.
But, to be fair, the loss of forest in Northern Alberta is small compared to the piece by piece conversion of forest and farm to parking lots around Toronto or Calgary.  Our zoning and building code decisions are having big cumulative impacts on land use and embedding future energy use into infrastructure building.
Nobody wants to be told not to pave their drive way, or to install insulation rather than granite counter tops.  But our individual decisions add up.


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## iamlucky13 (Feb 6, 2015)

The tarsands mining requires completely deforesting the area being mined, but it's a far smaller area than most people realize, or than than the media portrays. There's a map of the current development here:
http://www.oilsands.alberta.ca/reclamation.html

The yellowish patch is the currently disturbed area, and the brown the expected future mining area. The tan is deeper deposits expected to be extracted by an underground steam heating method.(Wikipedia article here). This doesn't require nearly as much disturbance of the surface. They clear a work area for the large drill rigs and steam plants, and do horizontal bores through the deposits.

It will also take a long time to remove that much oil. I think they're currently extracting about 1.3 million barrels per day. The high end of the estimates 2030 production is 3.3 million barrels per day. At that rate, it will take roughly 150 years to extract all that is estimated to be retrievable with the current technology.

Where the land is deforested, the government is requiring them to recontour the ground to a roughly natural state as they replace the soil that has had oil removed from it, cap it with the organic-rich soil that originally formed the top layer they remove to access the tar sands, and replant it. It will obviously take decades before it is covered with mature trees again, and full recovery to the level of diversity that was there before will take longer, but it will be done.

Land use decisions and deforestation are not exclusive terms. But if a private landowner is going to do something with their land other than leave it as forest or manage it for timber, it generally means deforesting it. That's just something we need to accept unless we're going to as a society stop pretending to respect private property rights.


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## jebatty (Feb 6, 2015)

Deforestation, changes in land use, loss of forest lands, impacts on ground and surface water, impacts on habitat -- and private property rights -- all are big issues in Minnesota. It's probably correct that virtually no one is opposed to private property rights. The issue usually is the intersection of the exercise of private property rights by one person which take away the private property rights of another person (or the general public). I have no desire to turn this thread into a discussion of private property rights. Thanks for the information on the tar sands mining and required restoration/reclamation as the mining ends. I hope the follow through to restore/reclaim in fact occurs.


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## dougstove (Feb 6, 2015)

Not to argue property rights (a big ball of wax), but NIMBY drives me nuts.
A parking lot full of SUV at an anti-fracking rally.
Some one in a 3000 sq ft. monster house in a no-transit suburb who oppose a pipeline....


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## jebatty (Feb 6, 2015)

NIMBY is irksome, but really presents two different issues. For example, the issue of fracking, go or no go, is different from the issue of the SUV's. About four different ways to decide that. I think the problem is one person perceiving that another person is not living well enough the values that other person appears to be advancing. But IMO they each need to be decided on their own merits and not tied together. As to fracking and the SUV, what if the person who opposes fracking instead rides a bicycle or always uses public transportation, but takes an annual flight to Bali for a winter vacation. How to judge? Best not to judge at all but again, decide each issue on its merits.

After all, not one of us is good enough on whatever value he or she espouses. A person can always do more, a person can never do enough, no matter how hard a person tries. So, NIMBY always applies


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## dougstove (Feb 7, 2015)

Fair enough.


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## JustWood (Feb 8, 2015)

jebatty said:


> Thanks for the information on the tar sands mining and required restoration/reclamation as the mining ends. I hope the follow through to restore/reclaim in fact occurs.


If Canada enviro law is anything like US is. It will be .
A gravel mining permit here must be bonded to ensure its reclaimed. Last figure I heard from a friend it was around $6K/acre.


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## vinny11950 (Feb 9, 2015)

Here is an article on oil prices

http://www.bloomberg.com/news/artic...unge-to-20-and-this-might-be-the-end-of-opec-

Despite the recent price surge in oil, I keep seeing calls for it to fall again to around $30.  Not sure if analysts who are late to the party of calling a bottom, are trying to cover their short positions, or if they really believe it.  Only time will tell.

One point is obvious, oil producers and oil producing countries overall (excluding the bad ones - like Venezuela) have become incredibly efficient at getting the stuff.  Too good for their own good.


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