Art Berman: The Coming Moonshot In Oil Prices

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In spite of the recent low prices for oil and natural gas, an energy supply crunch is looming warns geological consultant Arthur Berman.

Berman's perspective should not be lightly dismissed: he has 37 years of experience in petroleum exploration and production with 20 of those years at Amoco (now known as BP). He has published more than 100 articles and reports on geology, technology and the petroleum industry during the past five years --more than 20 of those focused on the shale industry including the Barnett, Fayetteville, Haynesville, Bakken and Eagleford plays:

Chris Martenson: I'm reading lots of reports in the Wall Street Journal and other places that say that shale companies could make money at $30 a barrel.. not, wait.. they'll come roaring back at $40 a barrel. Well, here we are at $50 a barrel. Has the shale business come roaring back?

Arthur Berman: If we're talking about a break-even oil price of $30 and you're not talking about royalties or taxes or paying your employees or your debt service.. well yeah, you look pretty darn good. But you add in the normal cost of doing business and now we're talking about a different story. Bottom line, Chris, is that there isn’t an oil play in the United States or Canada that can break even at less than $50. And there isn’t an oil play in the world, in fact, when you include country overhead -- which is to say what a country like Saudi Arabia or Kuwait needs to balance its fiscal budget which is overhead. There is nobody in the world that can break even at less than $50. By the way, Kuwait is the cheapest producer.

What we have seen is a situation where not very long ago in the 1990s, oil prices in real dollars 2016 dollars were $20 and companies and countries were making money enough to stay in business at least on $20 oil. What I am telling you now is that, about 20 years later, nobody can stay in business at less than 2.5 times that basic cost. And so the cost of energy -- certainly the cost of crude oil -- has gone up two and a half times in two decades and that has absolutely very significant implications for everything that we talk about and think about. And when we read in the press or on television that oil is just getting more and more abundant well okay I am not going to argue with the abundance issue because that is another argument. But if it costs two and a half more times to have this abundance, then what is it really worth? That is an important piece of information to understand.

Chris Martenson:  What you are saying is that even if oil prices went up, the types of oil finds that are left are going to require a much higher price for oil in order to justify them, perhaps by as much as two and a half times?

Arthur Berman: That is absolutely correct. For the shale plays, $50 is the cheapest -- and really we need to be talking about $60-$65 kind of on average for the best of the plays in the core areas. Deepwater is higher. Oil sands can be sort of in that range for existing projects, probably $80 for new projects. 

What's happening right now that (at least according to the International Energy Agency) has never happened before is that we had two consecutive years where investment in oil production, infrastructure, exploration is significantly lower than the year before. And we may be going on a third year. With that in mind, we're talking about half a trillion dollars less if you take what we are going to spend in 2015 and 16 on these projects versus what we did in 2014. Half a trillion dollars. That's going to come back and hammer us. It is absolutely going to hammer us.

Conventional oil is declining: it's in terminal decline. Nobody is investing in conventional oil projects that move the needle in terms of global supply. Not reserves that really matter. All of the investment that is going on today is in expensive oil. 

What we are going to have -- and I don’t want to create any sort of sensationalistic fears or anything, but I've got to tell the truth -- the truth is that we are going to see an absolute moon-shot in terms of oil prices sometime sooner than later, I think -- let’s just say in the next five years. And I shudder to imagine the devastating impact that will have on the global economy. It's going to be paralyzing.

Click the play button below to listen to Chris' interview with Art Berman (41m:29s)

This is a companion discussion topic for the original entry at https://peakprosperity.com/art-berman-the-coming-moonshot-in-oil-prices/

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Couple Art's comments with increased globalization and robotic manufacturing and then figure where the jobs are going to come from. I don't think any of us have the remotest idea how this could effect the world's economies down the road. Peak"cheap oil" is definitively on the downward slide. Where is the energy going to come from to manufacture the emerging "Tesla" infrastructure. Investments in oil stocks, bicycle stocks and, maybe, Nike shares, and renewable energy is the place to be. The pet rocks of PM might buy you some time, but my money is heading to those investments that generate some cash. Call me old fashioned or a "Buffet-ite", but I'm keeping my powder dry and larder full. University?  Remember that Dresden's Frauenkirche was designed by a carpenter (vis-a vis, architect).

https://www.youtube.com/watch?v=kk2_32a3L_0

http://www.capp.ca/media/news-releases/capital-investment-in-canada-oil-and-gas-industry-down-62-per-cent-in-2-years

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What we are going to have -- and I don’t want to create any sort of sensationalistic fears or anything, but I've got to tell the truth -- the truth is that we are going to see an absolute moon-shot in terms of oil prices sometime sooner than later, I think -- let’s just say in the next five years. And I shudder to imagine the devastating impact that will have on the global economy. It's going to be paralyzing.

Just think if people knew in advance that the price of oil was going to skyrocket and potentially the availability of oil was going to be in short supply they could take steps to mitigate the impact.  Too bad someone isn't shouting from the to roof tops "oil is going to get scarce and your lives will be changed forever"!  

https://youtu.be/Z45Od4J3ueM

One quote from the movie was that by 2030 China and their cars will need all the output of oil.  Hmm what about the rest of the worlds needs, how will we get to Wal Mart, perhaps eating and staying warm will be our focus.

It's interesting that this topic will have more impact on our lives and that of our children's but there is so little discussion on the topic.  But that's okay when the oil tsunami and related consequences hits people will be watching their favorite show, checking their texts and smoking a joint.  We will have to have cameras ready for the stunned faces when reality sinks in.

I think we should create a t-shirt, PP SICK (saw it coming Kaboom). Any other suggestions for a t-shirt?  We would then have proof we saw the crisis coming.

I would like to hear Art Berman again, he was interesting and his message is important!

AK GrannyWGrit

 

 

 

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Get that "Mare settled", we all will need her. (metaphorically, of course) 
robie, moving back to the late19th early20th century.

obtw, we really need a Miller and Tanner.

 

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I wonder how my neighbors will cope, when unemployed and trying to keep gas in their SUVs and muscle cars?

Can you imagine how Dennis Meadows and company must feel about the worlds reaction to the message they delivered in 1972?

For that matter, I'm sure T. Robert Malthus is rolling over in his grave, or did they entoumb Anglican Priests in crypts?

Peak Prosperity's message is not new.  The first warning I am aware of was published in 1798, "An Essay On The Principles of Population."

Peak Prosperity's uniqueness lies in it's focus on the 3 Es and it's excellent accumulation of current information on the crisis humanity faces.  There are a lot of good people focusing on the problem.  Personally, I find Chris' writing on the subject on par with Donella Meadows.

I won't be wearing an "I told you so" tee shirt.  I've had Malthusian tendencies since the early 1970s, but I wasn't adequately aware of the magnitude and timing of the problem until around 2003 and didn't sell my last gas guzzler until 2008.

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Did we ever get Art to give us his best guess at conventional's decline rate?  As a geologist working in the industry I was hoping for his opinion.  Regardless of the future of the unconventionals, its the the decline rate of the giant fields that tell the story of the fall of industrial civilization.  Once that ball gets rolling down hill, no amount of tar sands and fracking is going to over take it.

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Yes, the decline rates are a pretty big deal and it got a lot bigger in 2014 and 2015 because companies were not doing the sort of in field drilling and other reservoir maintenance that keeps the oil flowing from mature fields.

In fact, according to Rystad energy, just from 2014 to 2016 the decline rates for mature fields (anything with a production start date prior to 2006) has increased dramatically from~ 3.5% to ~ 6.2%.

INCREASED FIELD DECLINE ON MATURE FIELDS IS BECOMING VISIBLE

June 2, 2016

Rystad Energy's latest analysis shows that, for the first time since the 1980s, we will have two consecutive years of decreased global E&P investments.

A lot of the investment cuts have been related to new projects and shale drilling, but we have also observed lower activity on mature producing fields. This decreased activity is starting to show on the production side, with the decline rates starting to increase.

Higher declines were observed for several of the major non-OPEC countries such as Russia, United States, Canada and Norway in 2014 and 2015.

For 2016, the decline is expected to continue increasing and in terms of barrels, this represents a 700 kbbl/d increase in the yearly decline from the mature oil fields.

The way I read that 2016 will see 700,000 fewer barrels per day flowing from these mature failed as compared to 2015, which means we might squint at the chart and observe that if the move from ~5.4% to 6.2% cost 700,000 barrels per day, it means (very roughly) each percent is about 1 Mbd/yr.

Thus these fields across the globe are shedding about between 4 and 6 Mbpd/yr and that’s a really big hole to fill (my guess is that the number is closer to 4 than 6…).

Huge really, especially with the still heavily depressed E&P budgets of the oil companies.

It remains to be seen if the decline rates taper off as Rystad expects, or if the future holds even more accelerating declines if the price of oil fails to recover sufficiently in time to prevent further erosion.

Said another way, the world is headed for a very unpleasant oily surprise.

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Start from here: World oil supply and demand are presently headed toward a rough balance. The world is consuming about 76 million barrels per day of conventional oil and about 14 million of non-conventional and natural gas liquids (NGLs). NGLs are not a transportation fuel, but until about 20 years ago the products made from them were taken from components that were part of the conventional oil production. So they relieve part of the demand for conventional production as a transportation fuel.
Now add that conventional reserves are declining at one or two percent per year, which is about one million barrels per day per year, give or take. (That rate of decline will likely increase in the next decade.) But the conventional sands production rate is being sustained by resumed production from Iraq, Iran and Russia. They have added about five million barrels per day over the last five years. That is why the conventional sands production has remained flat. Is there any more of that to come? I don't know of any sources.

For those who have forgotten, we lived with $100+ oil for about seven years and survived. That allowed U.S. and Canadian unconventional oil production to increase by about six million barrels per day. That was enough to let us slide by while Iranian oil was embargoed. Half of that will disappear by the time oil prices get back to the vicinity of $70 per barrel, but that may not be enough to produce serious shortages. The question seems to be, what level of unconventional oil production can be sustained at $100 per barrel? How large is the unconventional reserve base? Bear in mind that shales and tight formations are present in many places in the world. It is only in the U.S. that there has been extensive development of them.

When the decline of conventionals reaches 4% per year, that will represent a loss of about 3 million barrels per day per year. It seems unlikely to me that unconventionals can compensate for that kind of loss. We are probably going to see how this goes within the next five years.

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Sorry about this, but since I've had my head wrecked by this possibility, I can't resist wrecking everybody's here: Dr. Stephen Greer of CSETI insists Government is hoovering up free energy inventions ever since Mr. Tesla, and back engineered UFO drives. He's now offering to finance free energy inventions to save them from PSTB. With money!
But it could be worse; I am already seeing a psychiatrist.  And maybe it is; he's going to read the book I gave him; " The Hunt for Zero Point " by Nick Cook of Jane's Defence Journal.

If I don't write about this again it could mean I'm cured. Or that I've had a visit from very serious people. Or a visit from nice policemen with a form signed by two psychiatrists. Take care. I am.

PS  Dr. Greer's biography " Hidden Truth Forbidden Knowledge " is hair-raising. I tried to buy a hard copy through Amazon. The book company agreed the sale, then said they couldn't. Amazon emailed me they were ticking of the company. I got an Kindle version elsewhere.

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To thank for the reminder.
 

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Not to worry.  For now, my brain is safely shielded from considering free energy technology reverse engineered from UFO drives, by a layman's knowledge of the first law of thermodynamics and the General Theory of Relativity.

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http://kunstler.com/podcast/kunstlercast-278-alice-friedemann-trucks-stop-running/
In addition to Art Berman's great podcast James Howard Kunstler has a new one as well.  Worth listening to!

AK GrannyWGrit

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LesPhleps, Newton acknowledged he stood on the shoulders of others to progress. Surely, science has not arbitrarly stopped progressing at the 2nd Law and Einstein's Relativity? Personally I doubt it. Impersonally I doubt it.
PS  To anybody interested, I commend " Seven Commentaries on Physics "  pub. 2015 by Carlo Ravelli. I commend it, because I suspect it's easier to spell correctly than recommend? Rave reviews.

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1st law.

I seriously doubt the first law of thermodynamics, "there is no free lunch" will be superseded in time to replace petroleum and natural gas.

I will grant that the speed of light barrier is not sacrosanct at the quantum level.  Never the less, I suspect that there are far fewer aliens running around this part of the Galaxy than Hollywood has lead us to believe.  

Denial is a powerful tool.  It only requires either manipulating existing energy resource data or hanging your hat on some magic solution that is just around the corner.

Besides, energy is only one of the limits facing humanity.  Free, limitless energy only extends humanities destructive rush until the next limit comes into play, a very short time indeed.

 

 

 

 

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No Les, I do accept the liquid fuels problem, the limits to growth curves, and the frightening immediacy of climate change. That's why I'm thinking of standing out under the night sky, with my thumb out looking for a lift to somewhere else, which is escapist as I am 66, and have other attributes which would put me last on the list. Furthermore, my chi kung practice, ahem, aimed at achieving immortality has temporarily collapsed, though not for long.  It looks like I may have have to die like everybody else. How common !
The universe remains unmoved.

 

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Thanks for the informative oil articles folks. Somebody is doing real work around here.

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Watch Saudi Arabia?  I predict big changes in Saudia Arabia in the future.  No one can tell when but the odds of either internal or external are great,  Stay tuned.
 

 

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Chris,
 

I respect your commentary, but you must rid your mind of this peak oil idea, at least in a physical sense. Oil (gas, condensate, bituman, tar, coal, etc.) will never peak physically, it will always be there in the ground, but will only reach "peak" when it's no longer economically viable to extract it from the ground with the current technology available and we concurrently have another energy source made available that can take over where these natural energy sources are no longer feasible. No matter keep it up, always enjoy hearing Art talk, because he knows his stuff better than anyone out there in the media and the blogosphere.

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dive,
You're a troll, right?    

You're saying that physical things "will never peak physically." How can that be?

The burden of proof is on you. You'll have to explain that one.

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Nice summary of where we are in the oil story. It's a brief summary packed with important details.
http://oilprice.com/Energy/Energy-General/Why-Oil-Prices-Might-Never-Recover.html

Some snippets;

[quote]

Much of the developing world had survived the oil shocks of the 1970s by borrowing from U.S. commercial banks. Higher U.S. interest rates put those countries into recession and that helped keep oil demand and prices low. By 1985, oil prices had fallen below $40 per barrel and would not rise above that level again until 2005.

Volker found an opportunity in the demand destruction from oil shocks. By raising U.S. interest rates, he managed to roll back oil prices almost to levels before the 1973 oil embargo and created a great economic boon for the U.S.

[/quote]

and more recently;

[quote]

This price collapse is simply different than the others. It is more fundamental. The economy has been pushed beyond its limits.

Post-Financial Collapse monetary policies, the cumulative cost of nearly four decades of debt-financed growth, and the return of higher oil prices have exhausted the economy. Most debt is non-productive, interest rates cannot be increased, and 2016′s low oil prices are still one-third higher than in the 1990s.

Producers and oil-field service companies are on life support. One-third of U.S. oil companies are in default. Yet some analysts who have no experience working in the oil industry proclaim break-even prices below $40 per barrel and breathlessly predict that the business will come roaring back when prices exceed $50. Producers don’t help with outrageous claims of profitability at or below current oil prices that exclude costs and are not generally applicable to their portfolios.

[/quote]

Also, I wanted to post a recent oil production chart (Oct 2015);