Saturday, January 24, 2009

The Hooey in Peak Oil

OK (Chart swiped from CIBC http://documents.scribd.com/docs/12kdfurtyelabr93uovy.pdf )

Here it is - someone has to explain this to me. Central part of "peak oil" is the graph above which shows the incremental cost of new oil.

Suddenly, out of the blue, incremental cost to make one more barrel of oil appear out of the ground moved, after decades, from sub $20 pre 2002 to just shy of $100? What happened in 2002, were the Saudi fields nukes? Did I miss that?

That's ridiculous. We can choose to make energy from bio-fuel or the $60 or so per barrel for Ft McMurry oil, but the least expensive incremental cost to make one more barrel of oil is still south of $20. And it will be so as as long as Russian and Middle East reserves are not depleted.

This chart above (er that part before 2002) also shows where oil is headed. Also shows the pain felt in many parts of Canada like Ft McMurry or Halifax yards servicing Hibernia....

4 comments:

  1. The hike in marginal costs has some relation to the steep decline curve of conventional oil fields and the unconventional nature of newer discoveries/sources. i.e. deep water, shale, tar sands, etc... --- expensive to produce.

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  2. This is all well and good, but as long as demand for oil declines the marginal cost of production of oil will fall as well because people will simply stop producing oil from marginal sources.

    I don't think Chinese demand will be coming back any time soon, the American consumer is permanently wounded. I'm not sure where the "equilibrium" price is (if you believe in such things as equilibrium) but there's no reason for oil prices to increase as long a demand continues to drop and OPEC continues to cheat, which is to say, for the foreseeable future.

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  3. But the key word is "new." That incremental cost is for "new" supply that has been tapped such as deep water, shale, sands, etc. per tradefast's post. Any existing wells that are already producing output are not considered inccremental "new" supply. On another note, great blog post by Faust. I'm going to borrow the article he cited for a blog post tomorrow at greenfinconsulting.blogspot.com

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  4. I apologize, the second sentence should read, That incremental cost is for "new" supply that has not been tapped such as deep water, shale, sands, etc. per tradefast's post.

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