Imagine the TITANIC going to sunk into a huge oil pit.. It’s going to happen if continue pump oil
Imagínese
el TITANIC hundiéndose en un inmenso pozo petrolero .. A
eso va el imperio hoy!
... is leading us to destruction.
An Oil Price Spike Would Burst The 'Everything Bubble'
And
we see a huge price spike on the way.
As a reminder, bubbles exist when asset
prices rise beyond what incomes can sustain. Greece is a prime
recent example. In 2008 when the price of oil spiked to $147/bbl, Greece
could no longer afford imported oil.
Well, if you thought that world debt levels were dizzyingly
high back at the beginning of the Great Recession in 2008, then you might want a fainting couch nearby before looking at
this next chart:
The Middle East Is Now A Lot More Volatile
Now, if there’s a war in the
Middle East that accelerates my timetable.. Higher
prices would arrive within weeks of the outbreak of hostilities, especially if
they impact shipping traffic through the all-critical Strait of Hormuz.
As a quick reminder, roughly one third of all exported oil in the world passes
through the Strait of Hormuz:
Before we move onto the supporting charts from the article
(below), let’s just note what we’ve read. The average break even is now
just $40 per barrel, a whopping 20% reduction from 2016 (which also saw a huge
reported reduction from 2015).
The first chart offered in this article supports that
contention very nicely. In it, we see that the
break-even price has plummeted every year since 2013; going down from $70 to
just $40. That’s amazing!
But a sharp eye would also
notice that the drilling costs have not fallen nearly so much. They’ve only fallen around 17% per well while the
break-even cost has collapsed by 42%.
What
accounts for the difference? You already know, don’t you…it’s the EUR, the total amount of oil expected to come out
of each well.
Here’s the supporting chart from the article:
Holey smokes! The EUR has climbed from 400,000 barrels to 700,000
barrels. That’s an increase of 75%!!
That
one feature alone accounts for nearly all of the reported drop in the
break-even case. Again, the casual reader would be forgiving for
thinking, Cool! That confirms what I’ve
been reading about all the amazing technological breakthroughs in horizontal
drilling and fracking. We've got this!
Which brings us to…
The Great Oil Swindle
Why is this data unhelpfully
presented? Because it stops at 18 months for each
vintage even though we have many more years of data. These wells are
principally depleted in 36 months, so why not show each vintage for 36
or more months, where possible? Is it because
that might undermine the impression being conveyed, possibly?
Before
we show that is indeed the case, just use your eyeballs and mentally carry
those curves out. You can see them flattening even within the first 18
months. .. Can you mentally project any of those (asymptotic,
flattening) curves ever reaching to 400,000 barrels on the y-axis? How
about to 500,000? Could you make the case for 700,000?
To my eye, those puppies are
flattening out. Even if I give them a generously long time, I can see them getting to maybe 300,000 to 350,000 -- tops.
Fortunately, we have more data
to definitively address that question: The first comes to us from Art Berman, who shows that
when you allow the data from each vintage to run, you'll notice something quite
obvious and very serious: faster initial rates of
production cause faster rates of decline later on:
Next, let’s again look at the
cumulative production values, this time by vintage, or year. This
data comes from the excellent website ShaleProfile.com run by Enno Peters who
has done all that heavy lifting of the data and then gone the extra mile to make
it easily graphed. Kudos Enno!
Accordingly, when the daily and
cumulative output of those wells are plotted on a log chart, the resulting
decline "curves" become straight lines. To
figure out how much oil is going to eventually come out of those wells over
their lives, or the EUR, it is not too terribly
inaccurate to simply extend a straight line through the data and see where it
points. When that's done for the Bakken wells we get this next
chart:
Each of these analyses are pointing
to EUR’s that are in the range of 250,000 to 350,000 barrels and across every
shale basin.
The Danger Of This Deceit
The summary is we have lots and
lots of actual data and supporting studies all pointing to the idea that the amount of oil that will come out of these shale wells is
half or less what’s being popularly reported.
In Part 2: The Massive Coming Oil Shock, we connect the
remaining dots that show an oil price spike caused by
an oil supply shortage is inevitable at this point, likely within the next 2
years. Thought $5 a gallon gas was bad back in 2008? You're really going to hate gas $10 a gallon (yes, it
could get that ugly).
…
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