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Peak Oil (conventional) happened in 2008 (see World Energy Outlook 2018 from the IEA). Tight oil came to the rescue. Tight oil and shale oil industries are all

by wazoox 7y ago

Peak Oil (conventional) happened in 2008 (see World Energy Outlook 2018 from the IEA). Tight oil came to the rescue. Tight oil and shale oil industries are all built on a huge amount of debt and never were cash-positive in the past 12 years. That's the part that wasn't anticipated. However shale oil requires constant drilling because production rises then falls very quickly (18 months to 2 years). With low oil prices, drilling will dry out and oil will dry out soon, too. Plus total oil production (conventional + non conventional) will probably peak anyway in the next decade (see WEO 2018, once again), and this may be quickened by the coming lack of investment due to low oil prices. What could happen? With low demand and low price, the non conventional oil industry is deemed to go bankrupt, and the US banks will have to part with trillions of debt. That won't be pretty. Until this industry is rescued and starts pumping again, there could be a severe crunch of oil production, initiating an oil shock and a huge recession, sometimes in the coming next few years.

perl4ever 7y ago
"However shale oil requires constant drilling because production rises then falls very quickly" You seem to interpret this as a problem. However, I've read many times that it's basically a solution, because what it means is that production is responsive to demand in a far shorter timeframe than conventional oil. On top of that, supposedly you can drill a well and not complete it until a price war is over. So I'm not sure why you think "non conventional oil industry is [doomed] to go bankrupt" when not only do people in the industry say it is relatively easy and cheap to put resources on hold, but obviously the sources of conventional cheap oil tried their best to kill the newcomers and failed, only a few years ago. According to both theory and recent history, your prediction doesn't make sense to me. However, I have no experience whatsoever in the industry, so maybe you have some expertise?
- wazoox 7y ago
  Yes, currently the tight oil industry could be in a good shape, because drilling a well is very cheap (about US$ 5 millions), without the trillions of debts it amassed. The problem may unroll like this: - demand is destroyed by coronavirus - prices go down (maybe as low as $10 a barrel according to some analysts) - existing wells maybe kept pumping, or not - new drilling stops, ditto exploration, etc. - cash flow in tight oil industry falls to about zero - huge debt (trillions) can't be paid back, companies go belly up, banks must be rescued by the Fed... several scenarii open up from there: would the Fed rescue the oil companies? may the government nationalise the oil industry? What can be the impact on US$? On US debt? financial markets? Who knows, all bets are off at this point. The crucial moment will be there: in the few months between this moment when the shale oil industry defaults on its debt, and when it's bought back (debt free, therefore in a sane situation), there may be a large gap in production, that could kill world oil demand by sending prices through the ceiling ($100 barrel? $120? $150?) because normal demand can't be fulfilled by conventional production anymore. Lots of graphs here: https://jancovici.com/en/energy-transition/oil/when-does-the-world-oil-production-peak/ https://jancovici.com/en/energy-transition/oil/when-does-the... I myself have no particular expertise, but I've been following quite closely oil and energy since 2005.
- 0xff00ffee 7y ago
  Also, the environmental impact is largely missing from this thread. In states that have lax environmental laws and oilmen at the helm, towns are being destroyed by extraction side-effects. To the extent that these states are OK being polluted will indicate how far this drilling will proceed.
lioeters 7y ago
For reference: World Energy Outlook 2018 https://www.iea.org/reports/world-energy-outlook-2018 https://www.iea.org/reports/world-energy-outlook-2018

by wazoox 7y ago

perl4ever 7y ago

"However shale oil requires constant drilling because production rises then falls very quickly" You seem to interpret this as a problem. However, I've read many times that it's basically a solution, because what it means is that production is responsive to demand in a far shorter timeframe than conventional oil. On top of that, supposedly you can drill a well and not complete it until a price war is over. So I'm not sure why you think "non conventional oil industry is [doomed] to go bankrupt" when not only do people in the industry say it is relatively easy and cheap to put resources on hold, but obviously the sources of conventional cheap oil tried their best to kill the newcomers and failed, only a few years ago. According to both theory and recent history, your prediction doesn't make sense to me. However, I have no experience whatsoever in the industry, so maybe you have some expertise?

wazoox 7y ago
Yes, currently the tight oil industry could be in a good shape, because drilling a well is very cheap (about US$ 5 millions), without the trillions of debts it amassed. The problem may unroll like this: - demand is destroyed by coronavirus - prices go down (maybe as low as $10 a barrel according to some analysts) - existing wells maybe kept pumping, or not - new drilling stops, ditto exploration, etc. - cash flow in tight oil industry falls to about zero - huge debt (trillions) can't be paid back, companies go belly up, banks must be rescued by the Fed... several scenarii open up from there: would the Fed rescue the oil companies? may the government nationalise the oil industry? What can be the impact on US$? On US debt? financial markets? Who knows, all bets are off at this point. The crucial moment will be there: in the few months between this moment when the shale oil industry defaults on its debt, and when it's bought back (debt free, therefore in a sane situation), there may be a large gap in production, that could kill world oil demand by sending prices through the ceiling ($100 barrel? $120? $150?) because normal demand can't be fulfilled by conventional production anymore. Lots of graphs here: https://jancovici.com/en/energy-transition/oil/when-does-the-world-oil-production-peak/ https://jancovici.com/en/energy-transition/oil/when-does-the... I myself have no particular expertise, but I've been following quite closely oil and energy since 2005.
0xff00ffee 7y ago
Also, the environmental impact is largely missing from this thread. In states that have lax environmental laws and oilmen at the helm, towns are being destroyed by extraction side-effects. To the extent that these states are OK being polluted will indicate how far this drilling will proceed.

lioeters 7y ago

For reference: World Energy Outlook 2018 https://www.iea.org/reports/world-energy-outlook-2018 https://www.iea.org/reports/world-energy-outlook-2018