The World Is Still Producing More Oil Than It Needs
wired.com
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Lifting costs vary a great deal but for my high-cost-of-living part of the world, we still don't spend more than about $20 a barrel to produce the oil. Most of the world would be far less.
I think for the vast majority of the oil industry, we still make a small profit on low oil prices. The economics of oil production is really that you spend a shitload up front (CAPEX) and then your continuing costs (OPEX) are an order of magnitude smaller.
And as our CEO said recently, when prices are low everybody expects to rise back to what we're used to again soon, because we're naturally optimistic. But that's not a law written in stone, it might be true that oil prices drop again in future, so we're better off selling it today.
Also what they mentioned about waxy pipelines doesn't affect most facilities. Usually we would do a shock biocide dose for preservation, which is not a particularly high cost. And if you've got a waxy crude, you're probably going to get your wax issue within 12-24 hours anyway as soon as you cool to ambient, so a long shut-in and a short shut-in would be dealt with similarly.
It is astonishing to me how professional people from the oil industry generally were in my previous interactions. Such a nice change of pace compared to many others.
Petroleum engineering/science is very hard; people don’t make it through that by the seat of their pants.
We are just killing ourselves slowly. Kind of like running a car in an enclosed garage but at a massive scale.
We can build carbon extraction plants to reverse this. We just need to wake up as a species to the issue at hand and stop saying the world is ending.
If they drunkenly retort that, at most, they're slowly destroying the floorboards, and that the frame and roof will happily go on without them... I'm still kicking them out.
We get your point, but for those of us not assuming the destruction of humanity, there are still choices we can make.
> we still make a small profit on low oil prices.
and
> when prices are low everybody expects to rise back to what we're used to again soon, because we're naturally optimistic. But that's not a law written in stone, it might be true that oil prices drop again in future, so we're better off selling it today.
So basically, a bird in the hand is worth two in the bush.
But once you've paid all that capital (and something like shale oil in the west has some of the highest relative capital costs) you're better to keep producing at anything north of opex, so maybe as low as $15-20 for a shale producer, or $5 for S.A.
This is all very estimated, but you start to see why they keep pumping.
Next add in things like transport and storage constraints, refinery capacity , etc and volumes range from zero to infinite regardless of prices.
source: we build modeling software for evaluation of these scenarios.
Keep in mind:
1) That the $20/bbl cost is likely with capex amortized on the assumption that the well isn't shut-in. You'd either have to add a one-time write-off for the capex balance (if you can afford to), or at least re-amortize. Either way, looking at the existing/assumed $/bbl cost vs market price isn't correct for most decision making purposes.
2) The act of shutting-in (and re-starting production) have direct costs to be accounted for. It's not as simple as pushing a button that activates a remote controlled valve. There's (almost) always physical work to be done, plus compliance / permitting work associated with any changes. More-so for restarts, if you assume the shut-in will be temporary, and want to account for that cost in decision making.
3) opex costs are largely still discrete to some extent (ie, not literally a cost in $/bbl, except pipeline transport and royalties), and can still be sunk costs.
Shutting-in wells doesn't necessarily reduce opex to $0, whether immediately or longer term.
Yearly maintenance might have been done last week. Tanker service already contracted for the year, or a direct pipeline already built. Lease and permit fees paid for the next X years. The lease might be contracted at some fixed cost plus royalties, for 10+ years, with the fixed cost guaranteed.
New for 2020: If the company took a PPP loan (or otherwise is trying to avoid layoffs) they have to keep surplus personnel, which then becomes a sunk cost.
Now if you look at exploration instead of production, it's much more likely to be a textbook case of if (cost > price), then (stop work immediately).
Things that are meant to keep moving tend not to fare well when they are left to sit for too long. If you have a classic car you have to drive it or everything starts to seize, separate, or gel.
I expect oil well equipment is not so different.
The ten most profitable companies in the world are nine oil companies and Apple. No wonder!
Aramco is probably #1 overall, but the rest of the top 10 should is like, Apple Samsung, and a mix of American and Chinese banks. Then after that you have energy mixed with the rest of the tech players.
Aramco is the only oil company on the top 10. We have Aramco at 1, Apple at 2, Samsung at 4, Alphabet at 7, and the rest is banks, mostly Chinese banks. Places 11-20 are a bit more varied with 3 oil corps, 3 banks, 3 tech companies and Toyota.
I remember when people used to write articles about how they suspected the Saudis were 'damaging' their oilfields by drawing them down at too high a rate. But I've been hearing that for 20 years and I would have expected the facade would begin to slip if they pundits were correct.
The change in pressure often damages the wall and casing, which increases costs.
With a fracked well, all of this is multiplied.
Shutting in a well is a case by case operation from a reservoir perspective.
Based on the analysis [0] of the experts I talk with, much of the Permian Basin could be damaged not just at the well level, but the reservoir too. (Note that re-fracking is not the same as fracking a virgin field due to the new faults that were created. )
[0] - this is proprietary. Sorry for that, but this is analysis of particular plays, and that is guarded extremely tightly.
people need many years of experience (recorded in a log-book), before they can do the next certification. Unlike SW engineering where you're promoted to Senior depending on company and sometimes for no apparent reason in oil+gas a lot of people are in their 40ies and 50ies. Our super-intendant on one job was 78. I was the youngest guy out there with 23 yro while the next closest was 12 years older than me (ans also only on one job. one all other gigs all were much older still).
Every 2 or so years you need to do a survival training. There are medical fitness tests etc ... You can't just quickly train a few on-shore engineers and then send them out there.
On the other hand there should be plenty of people "sitting on the beach" without work right now and from my experience it sounds like big oil companies rather not spend the money on this when they think there might be a chance of this blowing over in 3 months.
Has fields for name of ship/vessel, name of project, name of client, type of gear, date, and then time spent in bell or lock-out, and what you were working on, then you would calculate the total time spent in saturation at the end of the decompression (e.g. number of days/weeks etc). there would be signature field for yourself and supervisor/super-intendant:
https://www.subsupply.eu/store/image/cache/catalog/logbooks/...
https://www.google.com/search?q=commercial+divers+log+book&h...
https://www.google.com/search?q=saturation+divers+log+book&t...
ROV log books are similar with the difference that you're logging the time of the vehicle and your experience as the pilot not the diver (so no saturation, decompression etc):
https://www.google.com/search?q=off+shore+rov+logbook&tbm=is...
PYTHON
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You tried to use a class before you defined it.
----IDLE won't give a command prompt
Ctrl+F6, or kill that instance of IDLE and start a new one
--Problems with error messages
...What this means for producers in the US, that are increasingly relying on more expensive sources of oil is that Russia can collapse the prices to below their break even point any time they want. Same for the Saudi's. That used to be the nuclear option when Opec controlled the prices. This is also where the word oligarchy comes from. Once oligarchies stop fixing prices they are suddenly competing for cost per barrel. And the simple truth is that when it comes to fracking, the cost is too high.
What that means in turn is that oil related investments suddenly got a lot more risky than they already were. All the easy sources have long been invested in and the remaining sources are increasingly difficult to exploit. Institutional investors have already been divesting away from oil for a few years. Price fluctuations like we've seen in the past decade ranging from negative to above 100$ per barrel means it's a highly risky investment as you simply can't know if you get back your money.
So, shutting down right now may get a permanent nature for a lot of companies as they'll have a hard time getting investors to back bringing their plants online. The longer this lasts, the worse it gets. I expect a lot of recent investments to be written off completely. Also things like the Keystone pipeline are probably dead in the water as it is debatable whether the thing will ever be profitable.
IMHO that's actually good news and will force people to look at alternative technologies and accelerate the agenda on e.g. switching to electrical vehicles, battery technology, alternative energy etc.
The word has been in use for 500 years. According to the Oxford dictionary it derives from the Greek oligarkhia, from oligoi "few" and arkhein "to rule":
Im pretty sure the word oligarchy existed before humans relied on petroleum.
Could also be that I'm reading it too favorably, but I guess that's better than the opposite.
[0] https://en.wiktionary.org/wiki/%E1%BD%80%CE%BB%CE%B9%CE%B3%C... [1] https://en.wikipedia.org/wiki/Oligarchy
Now, when it comes to setting up the prices, which would normally be called anti-competitive, the rules do not apply when you are large and important enough. We also kind of grandfathered in the situation, it's been running for over half a century now.
If these were coalition of almost anything else, there would definitely be an outcry.
People do need to be reminded that the way the world works is whole lot different from idealistic notions. The rules we set are not and cannot be objective, they are just an optimization from constant blundering through reality.
It seems the problem is not with the costs of production but rather maturity of the country that wields the power over the resource, whether it understands that a) they are largely dependant on it, b) it is not given that tomorrow the prices will be the same, c) it will run out some day and d) it is easy to spend money now but actually you have to be frugal to save them for when it runs out.
Their huge savings is the combination of saving but also very high cost of living & taxation. The state provides a lot but also places high taxes on everything.
I live in Alberta where we have relatively low taxes and no oil savings. We've been boom/bust for our entire existence, but one huge difference - we've subsidized huge parts of the entire country during those good times. Those transfer payments add up to an incredible amount of money.
On the other hand I can imagine the US government subsidize at least part of their fracking/shale oil capacity - access to oil is a national security question.
I have some hope a prolonged oil glut might make some of them fall.
A world where Russia or Iran or Venezuela was run by decent government would be a great improvement!
I wish the same for Saudi, but I think that regime is safe.
Just look at Libya. The West got rid of Gadaffi and the country went from stability under a dictator to fractured chaos where tourism industry is dead and slave markets have opened.
See: Iraq, Afghanistan, Egypt, Syria, Libya, South Sudan
The particularly dumb thing about Libya is that the US administration at the time was quite keen on emphasizing that they did not want to get involved initially, since the US was tired of war and the US has no major presence there. Britain and France, who loved waxing on about Iraq being an immoral war, were the primary supporters of intervention.
These petrostate governments get their power from controlling the oil wealth.
If that becomes worthless, they have no power basis and serve no purpose anymore. Sure, what comes after, nobody knows. But in general, I think non-oil economies, that have to thrive of regular people working, produce much healthier governance.
I don’t see why Venezuela say is worse than Colombia which is a far worse human rights offender.
If I were to reality check though, this isn't the time the US would be choosing to take another hit on its own economy to disrupt Iran or Venezuela.
There is no guarantee that whoever comes out on top after civil war is better than the previous big dog.
There is also no guarantee civil wars will happen.
Some parts of the US are under a dollar a gallon. Couple weeks ago it was as low as 89 cents a gallon in some places in Oklahoma. Looks like it’s up to 95-99 cents at Costco now.
But in Oregon, it’s just about $1 more a gallon. And not much of that is taxes. We have a different refinery system for the western US, we never get the really good prices here.
Commodity prices are based on the delivery of the physical goods for a given month. If you don't get rid of the contract by the date stipulated in the contract, you are contractually obligated to take delivery.
If you're a financial institution setup to buy contracts from producers and sell contracts to refineries, you probably don't have any infrastructure to take delivery and safely store crude (which is highly toxic stuff).
This is partly why prices went negative. Too many contracts were held by institutions who could not deal with delivery.
IMHO I believe there are other reasons behind negative oil prices:
* Co-ordinated central bank action since 2008 that has led to 'ZIRP'--zero interest rate policy.
* ZIRP leads to the misallocation of capital (US shale may not have happened if interest rates were higher)
* The Petrodollar System (oil is denominated in USD)
* The Eurodollar System (non-US banks make USD denominated loans to non-US firms)
* Geo-politics of the US reserve currency status which is being challenged by Russia (Russia doesn't like the foreign policy constraints that come with the USD being the world's reserve currency)
* Geo-politics of the Saudis not liking US oil production (the Saudi influence on US geopolitics has waned since the US has become the largest oil producer)
* The 'milkshake dollar theory' (the USD will gain relative to other currencies and that will cause systemic domestic and global economic problems).
The obvious thing is to blame it all on the COVID-19 demand shock, but I think it's really a multivariate problem. The global economic outlook and geopolitics were shaky prior to the pandemic.
That said, I doubt many producers truly sold for negative prices. The negative prices were a commodities market effect where traders were required to pay to offload their futures contracts in order to not take delivery of the oil. In other words, I suspect the commodities traders bore the brunt of the negative pricing.
That doesn't seem accurate, since the expiring futures rebounded to a positive value the next (and final) day, right?
It seems more like people were panicking and thought they had to unload at any price, but it was simply an error. Although I'm not knowledgeable about it.
You could wait until the last day, but you'd have a big problem if the market was closed that day becomes of unexpected circumstances.