Peak Oil 101

[K-Dog]

https://www.theguardian.com/global-development/article/2024/jul/11/argentinas-future-lies-in-the-balance-as-vast-oilfields-poised-for-extraction

Argentina's future lies in the balance as vast oilfields poised for extraction

RE

Privatize the commons, full speed ahead.  Let no crying infant or starving widow stop you.  As the preforming Argentinian clown just said:

Starting the delivery of his go-to manifesto about the evils of socialism, and virtues of the free market, Milei gave a hearty hug to Brazil's hard-right former President Javier Bolsonaro, who just days earlier was indicted by federal police in a scheme to embezzle Saudi diamonds.

My friend Jair Bolsonaro is suffering judicial persecution,

Milei said onstage from the conference in Brazil's southern city of Balneario Camboriu.

Che would not be happy.

* Bozo is getting Trumped and Trump is not.

[TDoS]

I'll buy that for a dollar!!

So you're going short on oil?  Make some money betting the demand dropping?

RE

I tend to bet overall market performance, not specific stocks, industries or commodities.

So for example when a decent recession is coming, I move from market tracking funds to fixed returns, and back again when things begin to turn. Made an absolute killing timing the end of the world with peak oil 2008 (according to the experts at TOD) and bet the wrong way a few years ago coming out of the market during Covid rather than before it. Stayed in that position to long, but got back in in time to get substantial benefit from the post Covid government spending spree and weird housing market reaction that came along with it. Went short on the market about 3 months ago, but not a bunch. Just a little.

Oil is irrelevant in the overall scheme of things from my investing perspective. Too myopic of a perspective.

[TDoS]

Clearly the Argentinians have not read the IEA or BP predictions.  lol.  Arriving a little late to the party.  Now the question is, who will pony up and finance the drilling?  Since the IEA projects a supply GLUT for the next decade, it doesn't seem to be a very attractive investment opportunity.  The Brit banks aren't financing new FF drilling in the North Sea, but maybe they would hand over money to Argentina for drilling?

https://www.theguardian.com/global-development/article/2024/jul/11/argentinas-future-lies-in-the-balance-as-vast-oilfields-poised-for-extraction

Argentina's future lies in the balance as vast oilfields poised for extraction


RE

Recently, during evaluations of offshoe resources in Guyanna, this problem reared its ugly head. In the States with continuous resource development (LTO and shale gas for those unfamiliar with the terms) it comes down to IRR across a sequence of CapX investment in a cycle. They get the discount from the service companies for the work, pound it all out and stand back and check to see that the mean of the IRR for all is reasonable, and begin playing hedging games and whatnot. Reevaluate and do it again.

The international actors are completely different. Walk into the room with some energy minister or another and begin laying out costs, timing and particulars, and when you discuss the 15% iRR that can be achieved, you get told to go back to the drawing board and find 25-30% iRR projects to fund. Think of them as being loan sharks compared to how the domestic E&Ps do it.

[RE]

The international actors are completely different. Walk into the room with some energy minister or another and begin laying out costs, timing and particulars, and when you discuss the 15% iRR that can be achieved, you get told to go back to the drawing board and find 25-30% iRR projects to fund. Think of them as being loan sharks compared to how the domestic E&Ps do it.

The problem of course is that you project your IRR  at what you THINK the oil will sell at when the well starts producing.  If you say you think it will sell for $80 but when the well comes online it's at $60, your revenue is 25% less than projected.   Obviously you have to convince the energy minister you are right and the IEA is wrong.  This makes it a risky investment.  The banks that ponied up money before the price dropped down to $30-50 between 2015-2021 took a serious bath since it had been selling at $90-100 in 2014.

So what price would you have penciled in right now (hypothetically) when you make your pitch to the Argentinians?

RE

[TDoS]

The international actors are completely different. Walk into the room with some energy minister or another and begin laying out costs, timing and particulars, and when you discuss the 15% iRR that can be achieved, you get told to go back to the drawing board and find 25-30% iRR projects to fund. Think of them as being loan sharks compared to how the domestic E&Ps do it.

The problem of course is that you project your IRR  at what you THINK the oil will sell at when the well starts producing.

What an interesting understanding of stochastic modeling you have. Would you care to volunteer your suggestion of the best futures hedging profile you would use across the life of the resource development project at the national level?

In my stochastic modeling, the tornado plot clearly demonstrates that price isn't even in the top 5 variables in terms of effect on the IRR profile through time. How else can you decide the best TIME to stop the project to maximize the overall result?

The IRR outcome is a probability density function at the annual level, based on all the other underlying probabilities as they play off against each other. More hedging, less hedging, future tax expectations, import/export considerations and refinery locations and costs in the GOM, long term contracts or short, geopolitical risk of a particular or general nature, initial investment all up front or development of multiple projects involved in stages, etc etc. Financing if it is included, etc etc. Some customers will take lower IRRs along with less hedging costs, different expections of ranges in exchange rates among currencies, etc etc.

Just run of the mill stochastic modeling, state of the art and no different than companies do for similar projects.

Like I said...oil price isn't even in the top 5 in terms of the uncertainty involved.

If you say you think it will sell for $80 but when the well comes online it's at $60, your revenue is 25% less than projected.

Depends on your hedging profile. Yours in this example appears to be none. How...quaint.

Obviously you have to convince the energy minister you are right and the IEA is wrong.

You are kidding, right? Name the geologic expertise and its caliber available to the IEA.

This makes it a risky investment.

Is that the conclusion energy ministers reach after seing your deterministic calculations? How do you answer if they say "and what might the IRR range and discounted return on initial investment be if we hedge at a price 10% higher than last run for the first 3 years from the starting point of the first capital expenditure tranche"?

The banks that ponied up money before the price dropped down to $30-50 between 2015-2021 took a serious bath since it had been selling at $90-100 in 2014.
So what price would you have penciled in right now (hypothetically) when you make your pitch to the Argentinians?
RE

Oh goodness. How would any of us internet yahoos ever be able to answer such a difficult question? A deterministic price path instead of a probabilistic one with correlations for rates of change through time to back out a range of IRRs? The complexity if just mind blowing for us internet yahoos.

[RE]

Blah blah blah, you didn't answer my question.

Just pretend I am a dumb ass bankster who has authority to loan you $100M to get some wells producing Oil.  You are in my office in Buenos Aires and I say, OK I'll write you a check if you tell me how many wells you will dig with this and how many barrels of oil they will produce starting next year when you have to make your first monthly coupon payment.  I want to know what you expect to sell each barrel of oil for starting Aug 1st 2025 and how many barrels you will produce.  If you give me a satisfactory answer, I will ask a few more before I write the check, but answer this first.  Otherwise, there's the door, don't let it hit you on the way out.

Now, even though I'm an idiot, if you are condescending and give me lots of bullshit answers, you will not get a penny from me.  Nor am I interested in whores or kickbacks, so forget trying to bribe me.  I realize most banksters would and you can go down the street to one of them, but I am incorruptible.  So answer or I'll have my body guards show you the exit.

RE

[RE]

Blah blah blah, you didn't answer my question.

Well geez, how am I supposed to answer a question that implies something so opposite of how professionals build these kinds of stochastic models?

By using your world class knowledge of the oil extraction bizness.  It's a straightforward question, and all you do is reply with insults.

Don't let the door hit you on the way out.  Since you can't answer a simple question,we no longer need your business.

RE

[K-Dog]

If all he has is a stochastic model to show you.  Tell his the door is behind him and all he has to do is turn around and walk.


Stochastic modeling.  Only people firmly grounded in a materialist perspective should play with such sharp objects.  They know a model is only a rhyme.   Extreme faith in stochastic modeling suggests blind faith in technology to a high probability.

What are the chances?  Does you make the world, or does the world make you. 

[RE]

I sent him to the cooler for a nice long vacation.  I might make it permanent.  Not answering direct questions within his area of expertiese makes him useless here.  Adding insults to that makes him less than useless.

I'm not interested in his stochastic models.  Any business I loan money to has to demonstrate to me how they intend to pay it back.  If it's a restaurant, I wanna know how much they will sell the meals for and how many they will sell.    I wanna know how much they spend to buy the food and how much their labor costs are.  This is Loan Officer 101 stuff if you work in banking.  According to Snidley Tdos, banksters don't ask this when he pitches for money, he just shows them his stochastic model and they pony up.  I don't buy it, and if in fact that is what they do it's no wonder so many had their loans go south when oil nosedived in 2015.

So, there's really no good reason to keep him around.  He doesn't provide any worthwhile or useful knowledge.  He can find another forum to troll.

RE

[K-Dog]

Start with basic modeling.  Stochastic comes way later.  Answering your questions about how much are your costs, how much you charge in detail, generates the substance of a basic model.

Argentina is not a politically or economically sound place.  It would be foolish to put money there.

Onto another subject.  The video seems strange, until you remember the Gaia hypothesis, and how tolerant everyone is supposed to be about that. 

And I enjoy a bit of what if thinking.  There is no lack of it here.

Myth shapes people.  No doubt about it.

[RE]

Argentina is not a politically or economically sound place.  It would be foolish to put money there.

Yup.  Especially considering the Kuwaitis just found another 2B barrels of oil & 5T cu ft of NG offshore which they intend on putting into production ASAP.  This should increase their contribution to the coming OIL GLUT predicted by the IEA and BP almost doubling it from 2.4M bpd to 4M bpd.  Highly doubtful the Argentinians can extract oil from their rocks as cheaply as the Kuwaitis can pump it up from under the Persian Gulf.  Add in a likely Recession setting in and we could see Oil drop to $50/bl next year.  The only good investment in Argentina is CDS contracts betting they default again on their loans from the IMF.

https://oilprice.com/Energy/Crude-Oil/Kuwait-Announces-Massive-Offshore-Oil-and-Gas-Discovery.html

RE

[K-Dog]

Enough to keep the wine and cheese crowd going for a month. 

The new find is only 1/6 of what has been extracted from Prudhoe, or half of what remains there.  Things went exponential.  2 billion barrels is not the find it used to be.

[RE]

The new find is only 1/6 of what has been extracted from Prudhoe, or half of what remains there.  Things went exponential.  2 billion barrels is not the find it used to be.

True, but they plan on pumping it out rapidly.   The plan in to raise their oil production by about 1.5M bls/day.  At that rate, they'll have it drained in about 6 years.  Prudhoe Bay has been producing oil for more than 40 years.  So it's significant on an annual basis.  They also say there is evidence for more as well.

RE

[RE]

The recent EIA prediction that we would reach Peak Oil Demand by 2020 has caused quite a bit of hoopla, with the Saudis vehemently denying it and claiming demand will continue to rise through 2040 at least.  These predictions however do not match the ACTUAL CONSUMPTION of oil, which you can only view in retrospect.  Peak Oil Consumption prior to Covid came in 2018-19.



The Global Economy basically shut down during CoVid, and oil consumption dropped dramatically.  We have been creeping back up to the consumption mark since and in 2023 just surpassed the 2018 peak.

CoVid arrived rather suspiciously just AFTER the consumption peak of 2018-19.  If it had arrived before the peak, you could blame the drop on covid, but the order was reversed.  On a conspiracy level, I mentioned a while back I find this very suspicious, since it looks like CoVid was used to disguise the peak by screwing up all the economic indicators.  This article confirms this and suggests our actual Great Depression v2.0 began with CoVid.

We are used to this kind of language blaming the pandemic for the results of lockdowns. Of course, it was a man-made decision to turn a respiratory virus into an excuse to shut down the world. The lockdowns blew up all economic data, generating seesawing graphs on every indicator never seen in industrial history. They also made before/after comparison extremely difficult.

The consequences will echo long into the future. The high interest rates are a result of trying to slow down the money spigot unleashed in March 2020, in which more than $6 trillion in new cash appeared out of nowhere and was distributed as if by helicopter.


The article goes further to demonstrate how inflation has been used to disguise the falling productivity and why there is such a mismatch between what Da Goobermint claims about our economy and what the truth actually is.  The reality is we weren't able to sustain the oil consumption level in 2019 before covid, and we can't sustain it now either.  The thing is, we don't have Covid to use as an excuse to shut everything down again, so something else will have to do it.  What will that something else be?

I'd bet on either a stock market crash or a banking crisis stemming from the collapse of the commercial real estate market here in the FSoA, or an international banking crisis due to the increasing number of failures of small regional Chinese banks that are being swallowed up in mergers with larger international ones.  The currency markets might also fracture along with the bond market.

November with the POTUS election also seems like a possible Crisis Moment, which makes the Assassination attempt on Trumpovetsky more suspicious than just a lone shooter disgruntled science nerd.  This may have been set up to begin a political crisis, and since he managed to survive it something else will need to be ginnied up.

On the International level, with the Olympics in Paris and the Frog Goobermint in complete disarray, the possibility of a major Terrorist incident at the Olympics seems high as well.  We have clearly reached a critical point and the system is ready to blow.

Somethings coming...don't know where...don't know when...WHO KNOWS?

https://www.newsmax.com/finance/phillippatrick/economy-recession-jobs/2024/07/16/id/1172734/

RE

[RE]

Add Morgan Stanley to BP and the EIA in the Short on Oil betting pool, as they pro0ject a supply glut for 2025 and price drop into the $70 range.  That number Is based on their analyses of "fundamentals" of Supply & Demand, and doesn't really take into account the effects of a Recession, which remains IMHO likely to arrive by the end of 2023, if it's not already here.  With recession factored in, a price in the $60s is possible, and that's where things really get interesting on the production level.  While the tight oil producers probably can squeak by with mid $70s prices, $60s is a big money loser.  We're down in the $70s again today already, while Morgan Stanley doesn't call for that until mid-2025.  So a drop into the $60s seems probable to me next year.

Despite all these indicators of a coming glut and price drop, there hasn't been any newz about producers reacting by  saying they will cut production, probably because they don't want to spook traders and seem bearish about the future of the economy.  However, I'm sure they are hedging with some short side bets.

Interestingly, the Newz from the POTUS election on both sides, with Trump"s Bloody Ear and Uncle Joe's swan song doesn't seem to have any effect on the oil market at all, or any other market.  In past years something like an Assassination attempt would have generated big changes in sentiment and made significant changes to the needle on pricing.  Which basically demonstrates that noobody really cares who is elected or thinks whoever it is will make any difference.  Who the POTUS is has become an unimportant detail.  The POTUS has about as much real power as the King of England, which is to say none.  Just a figurehead these days.

https://oilprice.com/Latest-Energy-News/World-News/Morgan-Stanley-Sees-Oil-Prices-Dropping-to-the-Mid-70s-Next-Year.html

RE