- October 1, 2016
- Posted by: Art Berman
- Categories: Audio/Video & Articles, Presentations & Publications
A presentation to the Houston Geological Society September 26, 2016. Click the link below to view the video:
Low Oil Prices In A Failing Economy: No Place to Go For Tight Oil
Anxious to
See this
I watched your video. People are pissed because politicians, after the great depression, promised them full employment and a life of prosperity, plus the entire economy has shifted to the rich. Income distribution is skewed rich and has for a while now. We shifted production to low-wage China, but I didn’t see prices go down. People’s salaries have gone down but prices haven’t; capital is making tons of money and people see that on TV. I did a little calculation; I earned minimum wage in 1970 of $1.80/hour; it would have to be around $11.00/hour to keep up with inflation. It’s not much more than 1/2 of that now. That’s been a bi-partisan type thing, as is the promotion of higher debt for all.
The second thing I noted was China. I hate to break this to you, but global manufacturing runs on coal (not oil). Coal is about $50/ton right now. China uses about 4 billion tons/year; if you look at the EIA website in 2012 they had 68 billion tons of the stuff (bituminous) that they use. That is 17 years, so they’ll be out by 2029, right?
It will never happen; China’s got trillions of tons underground. The problem is that the 68 billion tons was shallow coal; the trillions are deep coal in the Chinese West and Northwest. UK has lots of deep coal; Thatcher shut off the subsidies and now they don’t mine the stuff. Germany is set to do they same; all of their bituminous is deep coal. The Germans were mining coal with production costs of $180.00/ton.
Maybe Chinese miners are much more efficient than the Germans. If not, China would need subsidies of $130/ton ($500 billion/year) to keep costs down. China can’t afford $500 billion/year in subsidies. They mine half the world’s coal and seem to have half of its heavy industry. No one around China has a lot of coal; not 4 billions tons a year worth. Vietnam, Indonesia, and even Australia would have trouble supplying that much coal, and would run out very quickly if they tried.
It will bear watching. There’s only one country in the world with reserves that could replace 4 billion tons of production, and we live in it.
Richard,
I mis-spoke in the video. I meant to say that oil plus coal account for 60% of world primary energy consumption.
I’m sure you know that coal reserves are as uncertain as any reserve estimates and that China is moving away from coal like most of the world. That will take time, of course. I also think you understand that future U.S. coal extraction will be limited by EPA and public sentiment.
Once the full effects of a failing global economy are understood by the same public that thinks it is pissed off now, look out because we may go back to those cheaper sources of energy regardless of the environmental effects. I expect that the vicious backlash against the environmental lobby may be at least as strong as it is now against the political elite establishment.
All the best,
Art
Cassandra always told the truth but no one liked hearing it.
I am curious what conclusions you draw from your examination of gravity. 1) who is buying the high gravity oil that is going into storage (as opposed to export) and why buy it? 2) If that much high gravity “oil” is accumulating in storage every day then why do you continue to argue that the surplus of ~125 million barrels must be consumed before oil prices begin to rise appreciably? 3) I’m not exactly clear on what you were saying about rising imports–is the rise due to both declining domestic production AND the unsuitability of the gravity of domestic production? It seems that if the high gravity oil is going into storage, that if increased imports is symptomatic of that high gravity unsuitability, that demand for imports will continue to rise hastening the balance of world crude supply and demand regardless of the status of United States oil in storage. I usually follow your sound thinking easily, but this time it’s not all clicking for me.
PAOil,
I will be posting our findings on high gravity oil soon.
Until then, here are some quick answers to your questions.
I don’t know who is buying the light oil or why, nor is that information easily available. It is possible that companies are storing their own oil. As you know, high gravity oil has the highest per-barrel value so it makes sense to store it rather than sell at a discount because of limited market.
I don’t understand Question 2. It is not a contradiction that a lot of oil is accumulating in storage and that this must reverse before prices can recover. Storage is part of supply. As long as supply greatly exceeds demand, there is no basis for higher prices except sentiment.
Imports are rising because heavier oil is needed to blend with domestic light oil in order to get it into refineries to sell refined products. All that I meant about production was that my first thought was that imports were rising because domestic production was falling but that was not the reason. So, you are right–demand for imports will continue. That does not mean that world balance is improving. It simply means that the U.S. is buying more heavy oil. It says nothing about production levels of heavier oil nor does it say anything about the surplus of light oil supply we continue to accumulate.
I think the problem for you following my thinking is that it is an oral presentation in which I move quickly over certain points that are not central to what I am emphasizing. In written format, I am more careful to explain everything that I write and how it relates to the next thing that I write.
All the best,
Art
Art, I and others want to know what you have to say about things. Granted, my hearing is not what it used to be, but, my goodness, the audio on that video was terrible! If you are going to move away from the podium/microphone, you need to put a mic on you. You could easily solve this and end up with excellent and important videos. Don’t make us struggle to hear. I found it impossible to hear some of it. Thanks again for your excellent research.
Bill,
I had a lavalier microphone on my lapel and was also disappointed with the audio. The recording and produciton was done by the Houston Geological Society.
All the best,
Art
I didn’t go back to watch video of you to see if you had a lavalier mic, I admit, and I jumped to a conclusion. And that was due to the audio being fine one minute and then changing. It seemed like there must have been a mic at the podium because it seemed to degrade when you moved away from the podium. So, it could be simply that the lavalier mic was not working. I do realize that audio is often problematic, I have experienced frustration before on that! Thanks again for your honesty in presenting the unhappy truth about oil!
Hi Art-
Informative talk, thanks for posting it. A couple questions:
Regarding the “unaccounted for crude oil” from the EIA, have you/Matt looked at including refined products inventory and consumption into the equation to eliminate the uncertainty of refinery demand to see if there is a better correlation? You mentioned/alluded to in the video that refinery inputs may be the one factor with the least certainty in the balance equation. Since any oil produced in the US would have to be exported, stored or refined, are there better numbers on refined products demand and inventory (compared to refinery demand) that would help to reconcile the unaccounted for crude oil? The 400MMBO number is huge (80%) of the the current EIA estimate of 525MBO.
With the shortage of refining capacity world wide for high gravity oil (35 to 40 plus), why doesn’t a downstream company either retool an existing refinery or build a new one to process the higher gravity oil to eliminate the bottleneck? Is it a problem of economics, regulations or other factors? Seems someone would have a money making refinery given the supply of light oil.
thank you
Jeff,
The imbalance between crude oil input to refineries and product supplied is equally perplexing as the disparity between crude oil supply and input to refineries. As you might expect, there is an unaccounted-for volume in that accounting also.
But the problem is more fundamental. The crude oil barrels plus refinery processing gain simply do not square with product supplied. The sub-categories of products, however, do match the volume of product supplied.
I am at a loss to explain this and will contact EIA to help me understand it better.
Refineries are expanding capacity to meet anticipated volumes of light oil as quickly as they can but it takes time
(AFPM and B&OB studies).
We hope to post our full study in the next few days.
Thanks for your comments and questions,
Art
Look forward to that. Seems refineries are also likely battling the EPA with all the regulations that have been imposed on the oil industry or anything related to fossil fuels over the last 8 years.
thank you
Dear Art,
Thanks for the slides. On your slide 14, should it be – the most likely explanations are the “overestimating” of refinery intakes rather than “underestimating”…
That would tie up with your API theory.
I would like to see the video.