Art Berman: Don't Get Used To Today's Low Oil Prices

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Oil expert and geological consultant Art Berman returns to the podcast this week to address head-on the question: Was the Peak Oil theory wrong? With the world "awash" in sub-$50 per barrel oil, were all the warnings about persistently higher future oil prices just a bunch of alarmist hand-wringing?

In a word: No.

Art explains how the current glut of oil created by the US shale boom -- along with high crude output by both OPEC and non-OPEC  producers -- is a temporary anomaly. Fundamentally, we are not finding nearly as much oil as we need to continue the trajectory of our demand curve. And at the same time, we're extracting our reserves at a faster rate than ever. That's a mathematical recipe for a coming supply crunch. It's not a matter of if, but when:

I’m not interested in spreading any kind of false ideas that we’re running out of oil. We’re not running out of oil. We’re not running out gas. The problem that we’ve had now for the past twenty years is that we seem to have run out of inexpensive oil and gas -- and that’s where the so-called shale plays, the offshore deep water kinds of ventures that have dominated the industry now for much of the last twenty years come in.

So, you can always find more. The question is: At what cost? That’s I think an issue that we don’t really want to talk about very much.

The second piece of that is the idea that somehow technology is always going to save us. I think that theme goes way beyond oil and gas and energy. But, it’s certainly prevalent in my line of work which is oil and gas and so the problem there is that people seem to lose the distinction between technology and energy. Technology does not create energy. Technology is simply a way to convert energy, or to convert resources, into work. So, you can improve the technology and basically it allows you to turn the faucet on harder. It doesn’t create any new energy and it certainly doesn’t help you conserve what you already have. In fact quite the opposite. The better the technology the quicker you run through what you have left.

So, yeah, we can always find more oil and gas. But will be able to afford it? Is our global economy capable of managing that cost? That’s really the issue.

We’ve been looking at diminishing returns as far as the size of what we’ve discovered now for the last 40 or 50 years. This was a trend that was of concern long before shale plays came onto the landscape. It’s an endemic problem and the reason why we went into things like tar sands and ultra-deep water.

We’ve got a hundred and fifty years of history of producing oil and gas wells and oil and gas fields around the world. So far, I have not seen the laws of physics give unconventional/shale plays a pass. There’s just nothing unusual about the fact that you should expect to see things grow, then peak, then decline. That’s just the way that natural systems work. All natural systems. Why should an oil field be different than any other natural system?

So, it all comes down to what we are willing to pay for that additional fix of energy? Unless we somehow figure out how to scale back our use of energy, there’s a day of reckoning which isn’t that many years out. Nobody knows exactly when, but soon we’re just not going to be able to do this anymore  -- not at $40, $50 or $60 dollars a barrel. The big question is: What are the implications of that?

Click the play button below to listen to Chris' interview with Art Berman (48m:47s).

This is a companion discussion topic for the original entry at https://peakprosperity.com/art-berman-dont-get-used-to-todays-low-oil-prices/

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Can this technology be the next step in oil production? These companies have developed a soap that cleans oil off of oil sands.

http://www.mcwenergygroup.com/ http://www.usoilsandsinc.com/ https://seekingalpha.com/article/3184316-mcw-energy-group-the-lowest-cos... http://www.mcwenergygroup.com/technology/overview Company claims to have an EROEI of 20:1 and costs of between 20 and 33 dollars per barrel.
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One thing I would question Art Berman on is his statement that oil is a commodity like any other. Oil is a commodity that touches everything we do and has no replacement, certainly not at the scale needed.
As life in the US is pretty dependent on oil, I can see governments waiving taxes, increasing subsidies and eventually nationalizing oil–even at a huge loss–to keep the oil (and the economy) flowing.

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MCW energy also claims not to use any water, unlike shale which uses an ungodly amount of water, and according to Art Berman is now in trouble because of this.
“Our extraction process is fully contained within a closed-loop system. We extract over 99% of all hydrocarbons. We recycle 99% of our benign solvents for reuse. Our process requires NO water, no high temperatures or pressures. We create a very small footprint on the land, and the cleaned sand can be sold for fracking or construction purposes or it can be returned to the land.”
https://seekingalpha.com/article/3222776-mcw-energy-group-interview-with…

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I contend that Banks are not the only “evil” ones out there. Fracking companies chase profits, pillaging the commons and communities. Google Firestone, Colorado for recent context.
Now for me, in order to validate my concern about ocean acidification and the honey bees, I cannot make a quick dime from the “brightest” areas of the hydrocarbon extraction industrial complex.

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5,000 barrels per day, is 0.025% of US Daily consumption.
It would take almost 4,000 plants producing 5,000 barrels per day to supply the US demand.

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Interesting idea to use solvents to separate the bitumen from sand. Until we see some actual results I wouldn’t bet on it, I have a hard time believing the big oil companies haven’t yet thought of using a solvent to wash it out, especially since they dilute the processed bitumen with solvent to send it down the pipelines… This is a basic principle of chemical engineering and I’m sure they employ a lot of innovative chemical engineers!
I have a feeling this is only applicable to surface-accessible oil sand. There isn’t a lot of that in Alberta, most is down deep so I would doubt this process would work there. In those deep deposits they have to send steam down to melt the oil and suck it out.

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Hats off to MCW Energy for their encouraging “blurb” on the potential of using solvents to extract heavy oil from Oil Sands deposits. I would, however, caution anybody that thinks that this approach may be a panacea for the cost effective processing of these materials. Oil sand processing has the major burden of hauling the sand to the processing facility and returning the spent product back to the original or another site. The mining industry has and is currently using many similar processes to extract PM residues from ores containing fractional amounts of ores. Many of the majors in oil sand technology are using in situ technologies because of cheap access to energy and water. If Mr. Berman is correct (and I think he is), not until oil becomes as precious as gold, silver, platinum, etc., will things change appreciably. The major financial organizations of the world will always opt for “high margin” commodities such as weapons, drugs( illicit or legal, humans, lotteries, and other vices. Oil is low on the list because of the substantial infrastructure built up over the last century and a half (sunk costs, as Mr. Berman puts it). At some point, something will have to give. Will it be wages, increase dependence on automation, the ability to feed ourselves, the elimination of the gold standard? Personally, I would suggest a new innovative serfdom:

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I’ve read a number of Art’s posts (at his site, and oilprice.com) and he always comes armed with data, which I like. It lets me interpret the same data differently, if I want, which I find to be really useful.
His current thinking, summarized:
Current price for oil (the mid-40s) is “about right”, given how far above average current global inventory is right now. Currently, supply is slightly lower than demand, but the surplus inventory is only slowly being drawn down.
Oil prices will take another 6-12 months to start moving higher; that’s about the amount of time Art calculates it will take to bring oil inventories back to average levels.
A slowdown in demand could lengthen the time needed to bring inventory back to normal levels.
It was really interesting to hear about the rising amount of water in the Bakken. I wish I could see a chart on that one - and how that looks historically for other oil plays. Can he use this to estimate how far from peak the Bakken is?

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I was at a local strip mall that was full this time last year,now every 3rd parking space was open slowdown!

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I agree

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pat the rat wrote:
I was at a local strip mall that was full this time last year,now every 3rd parking space was open slowdown!

Maybe

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Local brick and mortar retail continues to be hammered by growth in internet sales. Many of the speciality shops are successfully moving into the internet arena, but many will continue to close their doors as they lose sales.
I would love to see some hard data comparing overall retail sales in local vs internet stores alonside data showing the overall trend in retail sales.

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Interesting view from north of the Permian:
http://www.cbc.ca/news/business/oil-prices-permian-canada-1.4110300