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Discussion: (9 comments)

  1. Sorry Mark but tight oil production is the bottom of the barrel. The only reason that we are resorting to it is because the very high prices make the marginal production economic. Unfortunately, the depletion rate is so high for tight oil production that the producers will have to leave the core areas and start losing money just as they did with the shale gas that you were also hyping not too long ago. Eventually the investments in money losing production will dry up and when it does another option will have been taken off the table.

    What I cannot figure out is how you can take any bit of news and always spin it as a positive while you keep ignoring reality. I have been asking you to provide us with a handful of primary shale producers that have operations that are self financing for years and you have yet to find them. That means that the sector is in a great deal of trouble and that it will have to rely on external financing to remain in business. It also means that if we have another contraction we will see many of the players get wiped out and driven into bankruptcy. I suggest that you go beyond the surface and do some real analysis on this topic.

  2. Oil prices are up over $90/bbl (I would not be surprised to see $100+ in 2013) and likely to rise further as global oil consumption continues to rise.

    I suspect the high oil prices will keep producers drilling. According to Berkshire-Hathaway, US Oil Rotary Rig Count rose to 1,423 active rigs, a gain of 34.9% from last year and annual oil extraction is at the highest level in 26 years. Both these trends are likely to continue as oil prices encourage further drilling, not only in conventional fields, but also shale and off-shore.

  3. Vangel,

    Companies lose money providing consumer goods all the time. The airline industry has lost boatloads of money at various times and there have been numerous bankruptcies.

    In spite of the occasional terrible financial condition of the industry consumers have always had abundant opportunities to buy airline tickets at reasonable prices.

    The telecom industry provides another example of this.

    Broadband networks: Returns on invested capital stink

    And yet for all the technological strides the industry has made, the returns on invested capital, or ROIC, during the decade have been, at best, anemic.

    Even before considering the atrocious deals that mark the past decade of telecommunications, the business of building networks is so capital intensive that economic value creation by the group we cover here has been, in aggregate, barely positive.

    The fact that the incumbent shale drillers are losing money at the moment does not mean that shale will not continue to produce significant volumes of hydrocarbons.

    It might and it might not but financial condition of the incumbent drillers does not provide sufficient information to decide.

  4. Walt Greenway

    Fracking/shale oil has had the financial support from the federal government through direct grants and tax breaks since the 1970s. Fracking was laughed at by many people for many years (and still is by some people even here at Carpe Diem).

    Do you suppose the government’s (our) current investment in renewable energy and electric cars will pay off in the future as well as fracking has seemed to do today? Why or why not?

    1. That’s a good question, Walt. Leaving the potential for debate on the government role in fracking research (that is a conversation we will need to have another time :) ), my short answer is “I don’t know.”

      As of right now, I do not see much benefit in solar energy as anything more than individual use. I do not think it can be used as a national policy, the way oil and coal are and wood was.

      I think wind power is an idea whose time will never come.

      I think there is great potential in biofuels like algae (but not ethanol).

      The problem with all these renewable fuels right now is that they are wildly inefficient and very expensive when compared to fossil fuels and natural gas (is natural gas considered a fossil fuel?). Until some breakthrough comes along that helps in both these areas, green energy will be a lovely dream, but that’s it.

      So, to answer your question, I think bios have the best chance, followed by solar, and finally wind. I don’t know if the breakthroughs will come from the private side or government research (history would suggest private side, but no way to know for sure).

      1. Walt Greenway

        Yes, I agree with you, Jon. We’ve canceled many solar and wind energy classes at the college where I work. Every time alternative energy pokes its head up, a new cheap source of abundant natural gas comes along to knock it back down. My newest area of teaching is energy education, auditing, and conservation. I think that area will thrive as all energy sources inevitably get more expensive. People’s eyes light up when you prove to them they can save $500-$1000 a year just by turning a few lights off and unplugging a few things off they are not using.

        I think the argument for government funding a lot of projects that seem like boondoggles now is that no one else will fund them because they are not profitable in a short enough time frame to take them on. And, as in any research, some will be winners and some will be losers: time will only tell.

  5. Kum Dollison

    Baker Hughes reports that the rig count in the Bakken has fallen to 187 (from 214 a couple of months ago.)

    This makes sense in light of Rune Likvern’s exhaustive analysis

    That shows an approx. 25% decrease in productivity in wells drilled in the Summer of 2011 vs those drilled in 2010 (these are the last that can be studied on a 12 mo. basis.)

    This is all reinforced, of course, by the fact that 152 New Wells brought online in July were only able to increase the production of the Bakken by a little less than 10,000 bbl/day.

    It looks very likely to me that the Bakken might not get much over 750,000 bbl/day. I’ll still promise to eat every leather work boot in Fargo if N. Dakota ever gets to a Million bbl/day.

  6. Kum Dollison

    Meanwhile, we continue to Import about 8.5 Million bbl of oil/day.

    It would have been almost 9.5 Million bbl/day if it weren’t for ethanol (that is now selling, unsubsidized, on the CBOT for approx $0.90/gal Less than gasoline.)

  7. The Unknown One

    Excellent explanation, Duracomm.

    EIA says US will average 6.8 million barrels/day crude oil production next year.

    Credit Suisse study says, depending on assumptions of price and recovery/decline rates of wells, US will be producing as “little” as 8 million barrels/day or as much as 10 million barrels/day in 2022.

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