The US government agency The Energy Information Administration reported natural gas production numbers for January 2015 on 31 March (numbers are reported with a two month lag).
US dry gas production was up 8.9% year on year in January, and the 12-month moving average was 6.1% higher year on year, the highest growth since October 2012 (click for large image; source: here).
Meanwhile, natural gas prices have continued to trend down and are now reaching around $2.5 per million British thermal units (Btu). This is not far off their 2012 lows (source: here).
Sometimes it is best just to pilfer other people’s work– any other action feels rather pointless. This from Andy Skuce’s blog Critical Angle (click for larger image):
Bang! Marty McFly goes back to 1955 to persuade Doc to save the world from fossil fuel emissions (one can but dream).
Then again can we ask ourselves whether the relatively low energy intensity economies of the 1950s had a higher level of well-being than those that exist now (of course development has widened and population has grown). I’ll let my readers have a think about that.
Anyway, check out the Critical Angle blog here.
Time for a switch in focus, from the philosophical yesterday to the prosaic today. It’s that time of the month for some hard numbers from “frack land”, i.e., the good old USA. What is more, I am going to stick my neck out today and call the top for US crude oil production.
The US government agency the Energy Information Administration (EIA) reports monthly crude oil production with a 2 month lag; January 2015 data were published on 30 March. January saw oil production averaging 9.2 million barrels per day, a rise of 14.8% year on year. Over the previous month, production was down slightly. Nonetheless, we did see a month-on-month decline in November only for production to power to a new record again in December.Yet I’m still calling the top.
True, growth has far exceeded what I expected when I started writing this blog. The production surge is indisputable (here, click for larger image).
The reason why I didn’t expect to see output rise so far so fast was due to the high production declines rates exhibited by tight oil plays, leading to what many call the ‘Red Queen’ syndrome: the need to run faster and faster just to stand still. So a mea culpa on my side: the US shale oil industry did run faster and faster. With global crude oil prices locked above $100 barrel for three long years, we got both a lot more rigs and, critically, more efficient rigs as fracking technology advanced. This was enough to overwhelm the naturally high depletion rates. Continue reading
I’ve been mulling a name change for the blog for some time. The name the “The Rational Pessimist” was a riposte to Matt Ridley’s book “The Rational Optimist“. Ridley’s book is a paean to global free markets and human innovation–and in parts is correct. Since the industrial revolution commenced, technology coupled with capitalism has lifted the bulk of the world’s population out of a Hobbesian life that was “nasty, brutish and short”. But where I differ from Ridley is in believing that a 200-year data set of economic growth can fully capture all future risk.
Ridley’s book is Panglossian. He believes that every problem we face–from climate change to resource depletion–is relatively minor, just waiting to be solved by a technological fix. For him, price always trumps scarcity. Whenever something looks like it is running out, the magic of markets will always lead to new discoveries or acceptable substitutes.
As an economist by training, I accept that the everlasting dance between supply, demand and price is something of beauty. But I also believe that it has its limitations. A backward-looking empirical observation that things haven’t run out is different from a forward-looking theoretical prediction that things won’t ever run out. North Sea oil is running out regardless of price, and a global supply of oil is not qualitatively different from a local one.
Of course, technology may provide a perfect, or dare I say it better, substitute for fossil fuels. But then again it may not. That is uncertainty, and the consequences of that uncertainty is the concept of risk.
Posted in Climate Change, Happiness, Peak Oil, Post Growth, Resource Constraints, Technology
Tagged Daniel Kahneman, decision utility, experiencial utility, Richard Dawkins, Richard Thaler, wantability
In the words of the Roman philosopher Seneca:
Increases are of sluggish growth, but the way to ruin is rapid
Lucius Annaeus Seneca was musing on the accelerated rate of decline and fall of empires a couple of thousand years ago. The chemist and scholar of the post-growth world Ugo Bardi has borrowed the philosopher’s name for his idea of a Seneca Cliff–the precipice over which our complex society will likely (according to him) tip and fall.
While such ideas gained considerable traction a few years ago (fanned by rocketing fossil fuel prices and the impact of the Great Recession), they are now deeply out of fashion. Doesn’t Bardi know that we live in an age of abundance, or so the shale oil and gas story goes.
Befitting the name of his blog, Bardi remains a committed Cassandra, warning all those who will listen. To my shale oil production chart of yesterday, Bardi responds with this first (all is well in the world of cod):
And then this (perhaps it was not as well as it seemed):
Full blog post by Bardi on this theme is here. But does the argument “so goes cod, so will go shale” hold true?
This is certainly the view of the geoscientist J. David Hughes, who maintains a web site called “shalebubble.org“. On it, you will find a number of Hughes’ reports published under the imprint of the Post Carbon Institute, the latest going under the title of “Drilling Deeper‘. The full report is 300 pages long, but Hughes concludes that the US Energy Information Administration has built a production forecast on the back of a series of three false premises. Further, based on these, the US economy has taken as truisms a series of false promises (click for larger image).
Should Hughes’ analysis be correct, then Seneca’s Cliff may beckon. Within a decade we will know one way or another. Never forget: Cassandra was proved right in the end.
I regularly report on the Energy Information Administration‘s monthly US oil production statistics, which show no slowdown in output as yet (see here for latest numbers). Bloomberg, however, has a series of multimedia offerings giving more colour as to what is going on.
First, a nice chart juxtaposing production and rig count numbers (source: here).
And for a great animated graphic showing rig count through time and space, this offering (again from Bloomberg) is superb. Below is my screen shot, but to get the full effect click this link here.
Finally, an animation explaining why the crashing rig count has yet to stop production rising. In Bloomberg‘s view, the divergence between rig count and production has many months to run.
National Geographic recently had an article titled “How Long Can the US Oil Boom Last?” which emphasises the longer view. They argue that the US fracking boom is a multi-year phenomenon not a multi-decade one.
But in the long term, the U.S. oil boom faces an even more serious constraint: Though daily production now rivals Saudi Arabia’s, it’s coming from underground reserves that are a small fraction of the ones in the Middle East.
Both the EIA and the International Energy Agency see US oil production peaking out by the end of the decade regardless of short-term oil price fluctuations. Nonetheless, both organisations have underestimated the upswing in tight oil production to date. Overall, it is very difficult to gauge where US production will be in five years time. This is a bigger story than the current spectacular rig count crash, and one I intend to return to in future posts.
Yesterday, I noted that US natural gas production has yet to reflect the recent prices declines. Today, I am reporting basically the same story for crude oil.
The US government agency the Energy Information Administration (EIA) reports monthly crude oil production with a 2 month lag; December production was published on 27 February. December saw oil production averaging 9.2 million barrels per day, a rise of 17.4% year on year. The two following charts are taken from the EIA’s weekly oil report here (click for larger images).
The chart of futures prices below shows the 50% decline between the summer of 2014 and the beginning of 2015.
As discussed in my post at the beginning of February, it will take another six to 12 months before futures hedges roll off and rapid shale field depletion rates mean that additional capital investment is required in order to sustain production levels. Such investment will only be forthcoming if the new oil price environment is countered by further technology driven cost savings.
My sense is that new investment projects won’t hit their required hurdle rates and so won’t go through. If so, production will first plateau and then fall. As always, we have to let the data speak on this one.