Wednesday
Oct222014
by Bishop Hill
Matt Ridley: on cheaper oil
Oct 22, 2014 Energy: oil Matt Ridley
Matt Ridley has an optimistic article in Times today [paywalled] on the benefits of cheaper oil.
His encouraging words are available at his website
Cheer yourselves up.
Reader Comments (12)
I always top up my oil tank at about this time of year ready for winter. Last year at this time it was about 59p/litre, today it is about 50p/litre, and the price is falling by the day. That means I will save about £90 compared to last year, when I order 1000 litres. Taken together with falling petrol prices, it is nothing but good news.
Or looked at a different way, I can turn the thermostat up a couple of degrees.
http://www.cityam.com/1412642360/europe-won-t-gain-oil-price-slump-cnbc-comment
Why cheap oil won't boost European economy...
Ridley's article suggests some interesting economics.
If OPEC try to kill off US and WORLD shale oil production by dropping the price past the shale break-even point (bizarrely cheered on by the Green blob) then we will buy OPEC oil – as we'd be idiots not to. Then when price goes up (or they start shooting each other) we will start fracking again. OPEC will lower prices, we'll buy their oil again. Rinse, repeat.
End result is that OPEC will sell their oil off cheap while we hold onto ours. When theirs runs out they will have nothing. No industry. No money. No oil. We will still have all three.
Stuck-Record on Oct 22, 2014 at 5:05 PM
The oil industry does take time to respond, and it would be encouraging if we could get a few shale wells drilled in the UK so that we can sort out logistics, if only on the regulation side of things.
I don't think ME oil will be running out of oil soon though. It will be more likely that technical expertise will be in short supply, as has occurred in Venezuela:
"The U.S. Energy Information Administration (EIA) estimates that Venezuela produced 2.49 million barrels per day (bbl/d) of petroleum and other liquids in 2013. Crude oil and condensates represented 2.2 million bbl/d of the total, with condensates, natural gas liquids, and refinery processing gains accounting for the remaining production. This production level marks a significant decrease from production peaks in the late 1990s to early 2000s, largely owing to human capital losses from the 2002-03 strike and the diversion of revenues to social programs to bolster the administration rather than being reinvested into petroleum production."
http://www.eia.gov/countries/cab.cfm?fips=ve
Human capital losses and the diversion of revenues, that is all it takes.
@Stuck-Record same supply/demand pricing logic explains why unsubsidised wind/solar will never be cheaper than OPEC oil. (except that wind/solar are supposed to be magic)
PS you can't bet against fusion being viable within 16 years
We should remember what happened in 1986. Oil prices fell because of a price war among OPEC countries that it lost. Initially, no significant production was shut in anywhere - even in the supposedly high cost North Sea, despite prices going well below $10/bbl. Eventually, nodding donkey production in Texas became the main casualty, because the price didn't pay to keep the pumps running and to work over the wells.
Prices didn't really start to recover (a couple of geopolitical incidents aside, including the Kuwait invasion) until almost the turn of the century, when the Saudis and Venezuelans agreed to stop trying to undercut each other, and Venezuelan production started to stall under enforced incompetence at PdVSA imposed by Chavez.
I suspect that banks have rather more insight into the hedging strategies of major producers and financial asset holders than they do into the real cost profiles of production. Bank opinion is probably motivated by trying to avoid too big a financial meltdown on their own and customer positions.
Many projects in Aberdeen have a break-even point around $80 a barrel, so the North Sea industry is a bit nervous right now
@It doesn't add up...
I think the reality is that the banks are controlling oil prices, not OPEC. Same people, but different identities/companies.
@Salopian it's OK to have a conspiracy theory, if you can state any evidence .. can you ?
Read it before responding. Unfortunately, Mr. Ridley is long on short run optimism, and short on long run facts.
Oil is a basic commodity, so very price sensitive to instantaneous supply/demand balance. That sensitivity is exacerbated by its price inelasticity (comment brevity prevents the underlying economic explanation given in ebook Gaia's Limits). The transitory oversupply resulting from US fracked shale production and slower growth in Asia will self correct within a few years. Most likelynwithin 3 years given fracked well steep decline curves. For sure, at least the growth of US shale production will stop and start declining, by around 2019 (EIA) to 2022 (IEA). Details are contained in several energy essays in the just released ebook Blowing Smoke: essays on energy and climate. Foreward from Dr. Judith Curry.
"End result is that OPEC will sell their oil off cheap while we hold onto ours. When theirs runs out they will have nothing. No industry. No money. No oil. We will still have all three." --Stuck-Record
Well, what else have they got to sell? Sand? Yeah, plenty of that. Unfortunately it's not the right type for sand-blasting. Saudi Arabia imports sand for that. But I'll bet they have enough financial resources at hand to buy entire governments--assuming they haven't bought them already.
Which helps illustrate why carbon dioxidophobia is disease that will make the world poorer, colder, hungrier, sicker and more unhappy.
Which is why "EU plans to revive lifeless carbon market" [*]today and tomorrow are a disgrace. Politicians toadying to neo-Malthusian environmentalists, and cosying up to financiers who know an open till when they see one.
[* FT paywalled, but available free upon registration. I make no apologies for posting the link for a second time. The BBC typically puts up an outrageously political article every day in the lead-up to these summits. "It is not the BBC's job to save the planet", as an ex current-affairs editor at the BBC once said.]