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Wed Dec 12, 2012, 12:11 PM

John Kingston : US as oil production king needs an asterisk


One of the arguments long made by followers of peak oil is that organizations such as the International Energy Agency count crude and natural gas liquids equally.So the world market of 89 million b/d of liquids contains mostly energy-intensive versatile hydrocarbons such as crude oil–versatile in the sense that they can be processed to make products that do everything from propelling cars to making carbon black–and a lesser amount of NGLs with a far more limited use.

So when the IEA came out with its widely covered announcement a few weeks ago that the US would be the world’s biggest oil producer in a few years, I was traveling and didn’t have immediate access to the report. But I didn’t need to see it to know that there was going to be a lot of NGLs in its calculation, and somebody would eventually point that out…somebody other than the peak oil folks.

Somebody has: the folks at Bernstein Research. The team headed by Bob Brackett last week put out a report entitled “All that is liquids is not oil, and cars can’t run on ethane.”

“We do agree that the US will likely become the world’s largest liquids producer for a short time,” the report said. “But the higher percentage of NGLs in the US’ liquids profile will almost certainly leave the US short of Saudi’s true crude oil production.”

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Reply John Kingston : US as oil production king needs an asterisk (Original post)
Javaman Dec 2012 OP
happyslug Dec 2012 #1

Response to Javaman (Original post)

Wed Dec 12, 2012, 09:15 PM

1. That is additional to other problems with that prediction


When I first ran across the report I made the following comments about it on November 13, 2012:

If you want to read the actual summary of the IEA report go here:

Here is the actual Summary report issued by the International Energy Agency (IEA), I will not cite the actual report for I am NOT buying it, the Summary on the other hand is free:


There is several potential problems with the expectations set forth in that summary:

1. OPEC is expected to increase its share of total oil production from 42% to 50%, mostly in the increase production of Iraq. This is to offset expected drops in Russian and Mexican oil production (Which are NOT reported in the Summary, but is expected based on other sources of information).

2. Oil prices will be $125/barrel (in year-2011 dollars) in 2035 (over $215/barrel in nominal terms). That is a quote from the Summary, I have no idea what they think the price of oil will be, but I have my fears. Present price is $105.21 a barrel as set by OPEC, $85.47 a barrel as priced by WTI, $109.87 for Brent. All of these prices may be compatible, for the price of oil depends on the ease it is to refine. The more it costs to refine, the cheaper the price of that oil ("Heavy, Sour" oil is closer to the $85 price, while "Light Sweet" oil" tends to the price of Brent. OPEC is a "base" price that the various OPEC members price there oil on). Given that it is HEAVY SOUR Oil production that will become more and more the norm, we are looking at a price increase from $85 a barrel to $125 a barrel (Heavy Sour Oil prices, it is light sweet oil that is presently priced at $105,21 a barrel). Thus a $45 a barrel increase in price.

Given that almost all of the new oil putting into production is "Heavy, Sour" oil and that will become the new price base as we switch from using mostly "Light, Sweet" oil to "Heavy, Sour" oil, expect a substantial increase in the price of Gasoline and Diesel (and other oil products) at the pump. In simple terms look to $5 to $10 a gallon gasoline (and I lean to $10 a gallon). That brings me to the third problem:

3. The report expect a substantial increase in fuel efficiency in the US, i.e. the US switch to Hybrids using lightweight materials to reduce the weight of the Vehicle and thus producing a 50-100 mpg car. The summary only mention Increase fuel efficiency, but hybrids and light weight material is the only way to achieve that and both come at a substantial increase in the price of a vehicle.

The US is no longer the #1 buyers of New cars, China is, but the US has a lot more cars given its much longer history of buying cars. The average American car stays on the road 10-15 years, but through 3-4 owners. The 10-15 year cars tends to be purchased by the low income group to be used to get to their jobs in the suburbs. How can you improve the fuel efficiency of the cars used by this group within the next 10 years? The cars they will buy 10 years from now, are the cars being produced today, and for every Hybrid being produced you have 5-10 non-hybrids. In simple terms I do NOT see that economic group buying a Hybrid, for they will be out bid for them by other groups, thus most will still use conventional cars. If the hybrids were the majority of cars being sold today, it might be possible, but while Hybrids are what is bring people into the show room, most car buyers are leaving with something else. I just do NOT see the increase in Fuel Economy reaching the lowest economic levels, and without them how do you get the Cashiers to the Stores people want to go to, and do you get the Janitorial workers to clean those same businesses?

I would like to think this is American Wishful thinking but the IEA is Paris France based, so it may be European wishful thinking, for Europeans just assume the US mass transit system is as good as it is in Europe and it is no where close.

4. The Summary does NOT mention it, but by mentioning $250 a Barrel oil prices, that means Oil-Shale production in the US. At $250 a barrel, oil shale can be profitable (mostly due to oil being used to propel vehicles, while Nuclear energy is used to mine and process the Shale to produce the Oil).

Canadian Oil Shale is profitable at the present time, for it has the greatest amount of energy among shale oil production areas (even Oil engineers are reluctant to call shale oil, oil, for the simple reason it is better looked at a pre-oil, something that is mined and then processed into oil). US Shale oil has even less energy in the shale the Canadian shale, but if another source of energy can be provided, the shale-oil can be mined and made into oil (Thus the idea of building nuclear plants to provide the needed energy).

US Shale oil is close to the point where the energy used to produced the oil equals the oil produced. If that energy input can be reduced OR provided by another form of energy so that the entire Energy input into Shale Oil becomes Oil, is otherwise cost efficient (i.e. due to the fact Oil is a better compact fuel for vehicles then batteries or other electrical shortage devices it may be more cost effective to use nuclear power to convert shale oil to oil, then to use the same electrical power to charge electric cars and have people drive electric cars). The problem then is we have a very expensive fuel. $10 a gallon plus.

5. IEA expects world wide Hydro electrical production to double by 2050, supplying some of the power presently supplied by oil.

6. Some how US and China Coal use will peak and decline after 2020, while India's increase till 2035, when it peaks and declines. Then it points out this is uncertain. i.e. your guess is as good as The IEA's.

IEA: World Energy Outlook 2012 - Executive Summary - English version

Brent and WTI prices:

OPEC price:

I am sorry, the summary says enough to scare me, the future it predicts depends on to many ifs, Iraq becomes the #2 oil producer, replacing Russia and Saudi Arabia, The US become #1 oil producer, and I suspect that means Shale oil, that people will be willing and able to pay $10 a gallon for gasoline (and I do NOT mean the middle class, I mean the working poor), and somehow the working poor can buy a hybrid, that costs more then they make. To many ifs.

On the other hand some of those ifs MAY becoming true:

2005-2011 US oil usage dropped of 8%:

US Summer Gasoline consumption expected to be at a 11 year low:

US Oil Consumption Peaked in 2005 at 20,803,000 barrels. In 2011 the US used only 18,877, 000 barrels just a hair above the lows of 2009, 18,789.000 barrels and 2010. 19,192,000 barrels. (i.e. just under a 10% decline since 2005):

Pakistan Oil use has dropped 3% in 2012, given that most Pakistani do NOT own a car, that is a significant drop for it means a drop in FREIGHT being shipped more then people not driving their car (Through how much is this due to the refusal of Pakistan to ship goods to Afghanistan due to the bombing of Pakistan by US Forces in Afghanistan is not stated).


Thus you have had declines in some markets, even as others, like India and China has seen an expansion in the use of Oil.


The problem I see, is that the US oil usage can only go down so far without major changes in society, I.e. Business having to move closer to where they low wage workers live, just to get workers OR providing them transportation (including increase mass transit) OR moving them to where the business is located. All would reduce gasoline consumption by these low income people, but many of these businesses do NOT want these people to live NEAR their business for they are the wrong type of neighbors, they want high income customers.

This is the single biggest problem with increase gasoline costs, and it is a problem no one wants to address, for they dislike the possible solution (except cheap gasoline, but that does NOT look like a possible solution).

I hate to say this, I just do NOT think these problems will be address until it becomes clear they have to be. I mean a crisis caused by people having to quit their work for they can NOT afford the gasoline to get to work. We are NOT there yet, but if gasoline gets to $10 a gallon we will be.

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