AuthorTopic: Why This Is Just The Beginning Of The Supply Glut  (Read 2291 times)

Offline Palloy

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Why This Is Just The Beginning Of The Supply Glut
« on: April 10, 2016, 05:01:44 PM »
http://www.zerohedge.com/news/2016-04-10/iraq-latest-announce-record-oil-production-why-just-beginning-supply-glut
Iraq Is Latest To Announce Record Oil Production: Why This Is Just The Beginning Of The Supply Glut
Tyler Durden
04/10/2016

First it was the Saudis; then Russia announced another month of record oil production.



And now it is Iraq's turn. According to the state-run Oil Marketing Co., Iraq increased crude output to a record level in March, ahead of the long-awaited April 17 meeting in Qatar where OPEC members and other producers may or may not (they won't) agree to cap production to curb a global glut.

As Bloomberg reports, crude output in OPEC’s second-biggest producer rose to 4.55 million barrels a day last month from 4.46 million barrels in February, while exports increased to 3.81 million barrels a day in March from 3.23 million the previous month, the company, known as Somo, said in an e-mailed statement. The 500,000 barrel increase in monthly barrels has made up almost entirely for the 600,000 barrel decline in US shale output.

Ahead of the Doha meeting, Iraq - which is clearly pumping at full power - supports an agreement reached in February between Saudi Arabia, Russia, Venezuela and Qatar to cap output at January levels. Well maybe: this is what the Iraqi Oil Ministry Spokesman Asim Jihad said on March 23, without confirming if the country agrees to freeze its own production.

Iraq's unprecedented oil production has been duly documented here.  Recall just on Friday we showed a line of oil tankers caught in a traffic jam near the Iraqi port of Basra, causing delays in loading. The culprit is high oil production in Iraq. The port at Basra is struggling to load up all the oil tankers fast enough, forcing some to sit and wait. Iraq exported about 3.26 million barrels per day (mb/d) in March from its southern coast, which is up from just 2.5 mb/d in 2010.



Furthermore, we already know that Iran and Libya have refused to cap output putting any Doha agreement in jeopardy because as the Saudis made all too clear two weeks ago, they won't limit their own production without Iran joining, but for now the market has hope.

Just like Iran, Iraq is boosting output and exports after decades of economic sanctions and war. The country pumped a then-record 4.43 million barrels a day in January, the International Energy Agency said in a report published last month. Iraq holds the world’s fifth-biggest crude oil reserves. Iran on the other hand, has said it won't limit production until it reaches the roughly 4+ million barrell output it had before US sanctions crippled its production.

As Bloomberg reminds us, Iraq’s Oil Minister Adel Abdul Mahdi suspended his participation in the cabinet last month, citing disarray in government ministries. Nizar Saleem Numan, who was nominated to replace him, withdrew his candidacy earlier this month, citing a lack of agreement over the make-up of the proposed cabinet.

In short: any attempts to rein in Iraq's oil production will face an uphill climb.

As for Iran, the WSJ warns that the the upshot from the country's slow return to peak output is that it may have given false comfort to the rebounding oil market. "Some analysts think that the amount of Iranian crude stored on supertankers has even increased. Betting that those barrels won't show up at a refinery soon or that Iran will willingly cut short its return to the oil market would be naive."

For Kuwait and the U.A.E., the goals are even higher. Kuwait plans to raise production capacity by 5 percent from 3 million barrels a day by the third quarter, and to reach 4 million barrels by 2020. Abu Dhabi means to lift production capacity to 3.5 million barrels a day by 2017 from about 3 million.For Saudi Arabia the expansion is as much about gas as oil. The number of rigs drilling for gas there has jumped from about 20 in early 2013 to 60 last month, as the country tries to develop its own resources to support a growing petrochemicals industry and free up oil for export.

The first part of Saudi Arabia's "market share" strategy saw it refuse to continue cutting output to prop up high-cost producers elsewhere. As a result, U.S. production has fallen by about 600,000 barrels a day from its recent peak and other high-cost areas are following.The Saudis may not have announced part two of the strategy yet, but it's well underway.

But what may be most concerning for oil bulls, especially in a world in which demand refuses to pick up to "balance" the massively oversupplied market, is another Bloomberg report that in what would be the second phase of the kingdom's strategy to defend its market share against rival producers (most visibly U.S. shale), Gulf states are planning to raise output capacity to fill the hole left by the lack of investment in new projects elsewhere.

The details:

    The number of rigs drilling for oil in three Arab countries has more than doubled since 2010.

     

    All three saw drilling reach at least 20-year records in 2015 and activity remains close to that peak. An expansion at Saudi Arabia's Shaybah field should add 250,000 barrels a day as early as June, while the Khurais field could contribute another 300,000 barrels by the end of 2017. State-owned Saudi Aramco says this will let it ease pumping from older fields yet maintain a production capacity of more than 12 million barrels per day, 2 million barrels above its current rate.

    For Kuwait and the U.A.E., the goals are even higher.

    Kuwait plans to raise production capacity by 5 percent from 3 million barrels a day by the third quarter, and to reach 4 million barrels by 2020. Abu Dhabi means to lift production capacity to 3.5 million barrels a day by 2017 from about 3 million.

So in an environment in which not only the Saudis but Kuwait and the UAW are all planning to unleash millions more barrels of oil, the market somehow believes that next Sunday OPEC will agree - and actually comply - with a production freeze?  The algos may be stupid enough to believe it, but we hope any carbon-based traders can see the writing on the wall.
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Offline MKing

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Re: Why This Is Just The Beginning Of The Supply Glut
« Reply #1 on: April 10, 2016, 07:30:32 PM »
Well, peak oil certainly didn't turn out as expected did it?
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Offline Palloy

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Re: Why This Is Just The Beginning Of The Supply Glut
« Reply #2 on: April 12, 2016, 05:50:21 PM »
Quote
MKing: Well, peak oil certainly didn't turn out as expected did it?

It certainly didn't turn out exactly as I expected.  The first sign of this was when the oil price started going up from its agreed $22 -28 /b range in December 2003.  That had happened before of course, but was always soon followed by an opening of the taps that brought the price down again.  The interesting thing was that after 2003, production DID rise, but not at the 1.6% p.a. rate that had been the average rate rise over the previous 20 years.  So the price was reflecting pre-peak levelling off - inability to grow fast enough.  That surprised me, but was perfectly logical when you come to think about it.

Then politicians started to repeat the Yergin mantra that higher prices would bring more supply to market, and that known reserves were sufficient to keep the world going for 100 years at current levels.  That is such a ridiculous claim that I was surprised that anyone would dare to make it - not "all known reserves" could be produced at current prices, or even at ten times current prices, and "current levels" were insufficient for economic growth.

As a result of publishing a scathing article on that, I was interviewed on radio and pointed out that $200 /b was not only possible but likely, and that $1,000 /b was certainly possible with the auction system for deciding who gets the diminishing resource.  The interviewer gasped in such a melodramatic way that it would obviously be going to air.  It did, but was forgotten about ten seconds later - a meme whose time had not yet come. 

I was surprised that banks would lend to frackers and ultra-deep offshore drillers, who have no chance of selling oil at a profit, but on second thoughts, what else could they do?  They can't let the system fail.

Of course the world economy cannot afford to pay $200 /b, and instead has fallen into a deflationary torpor, only kept alive by a massive debt bubble.  Even the mighty Exxon is borrowing to buy back its own shares, as that is the only way to keep its share price up, and that is the only way to keep its borrowing capacity up. 

The banks cannot afford NOT to lend, because their current quarter's bottom line has to grow as well, and central banks have got to keep monetising the debt to prevent a collapse from happening TODAY.  I am surprised today (and every day) that the whole house of cards hasn't fallen already.  But it CERTAINLY will at some time.

So yes, Peak Oil has been surprising, but the fundamentals are NOT sound and collapse is inevitable.  Maybe the collapse will not be blamed on Peak Fossils, but on quantitative easing or some such derivative of the real problem - not enough cheap fossil fuels left to drive the transformation of the energy industry to renewables.

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Offline MKing

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Re: Why This Is Just The Beginning Of The Supply Glut
« Reply #3 on: April 12, 2016, 07:11:54 PM »
I was surprised that banks would lend to frackers and ultra-deep offshore drillers, who have no chance of selling oil at a profit, but on second thoughts, what else could they do?  They can't let the system fail.

That certainly wasn't what was written on the loan documents.  :icon_sunny:

And yes, profits were made. But as with most things, the "when" is extremely important. And even today I'm sitting here looking at a resource cost curve for Bakken and Three Forks oil, and the "profitable" part is measured in the 10 figures without much trouble.

Quote from: Palloy
So yes, Peak Oil has been surprising, but the fundamentals are NOT sound and collapse is inevitable.

..always has been...and we're in the what, 3rd century since Malthus began ringing that bell...so when "inevitable" is measured in centuries..or more...then sure...inevitable it might be.

Quote from: Palloy
Maybe the collapse will not be blamed on Peak Fossils, but on quantitative easing or some such derivative of the real problem - not enough cheap fossil fuels left to drive the transformation of the energy industry to renewables.

Define cheap. Define "not enough". Certainly energy experts worried more about peak demand aren't sweating the ability of renewables to keep doing what they've been doing.

Said experts, who happen to drive Ford C-Max Energi...same drivetrain as my Fusion...

http://www.wsj.com/articles/why-the-worlds-appetite-for-oil-will-peak-soon-1430881507

and just a piece of the transition, still doing what it is supposed to be doing, right on through the last three claimed peak oils I  might add...maybe all these peak oils are GOOD for renewables growth?


Sometimes one creates a dynamic impression by saying something, and sometimes one creates as significant an impression by remaining silent.
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Offline Palloy

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Re: Why This Is Just The Beginning Of The Supply Glut
« Reply #4 on: April 15, 2016, 08:41:51 PM »
Quote
Certainly energy experts worried more about peak demand aren't sweating the ability of renewables to keep doing what they've been doing.

That is because they haven't considered the difficulty as a reducing amount of FFs bumps into an increasing amount of wind turbine production.  Wind turbines (and solar panels,) require a lot of energy up front to make, transport and install them, and then operate "for free" apart from maintenance and final disposal.  So while the ERoEI over their lifetime may be good, there is an energy cost to starting the cycle, energy that can only be got from FFs.

Incidentally, 58% of world wind capacity is found in just 3 countries - China, US, and Germany. 
Similarly 60% of world solar capacity is found in just 4 countries - Germany, China, Japan, US.
Can you think of a reason why that might be, and why it might hold back other countries?
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Offline agelbert

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Re: Why This Is Just The Beginning Of The Supply Glut
« Reply #5 on: April 15, 2016, 09:28:08 PM »
Quote
Certainly energy experts worried more about peak demand aren't sweating the ability of renewables to keep doing what they've been doing:emthup: :emthup: :emthup:

That is because they haven't considered the difficulty as a reducing amount of FFs bumps into an increasing amount of wind turbine production.  Wind turbines (and solar panels,) require a lot of energy up front to make, transport and install them, and then operate "for free" apart from maintenance and final disposal.  So while the ERoEI over their lifetime may be good, there is an energy cost to starting the cycle, energy that can only be got from FFs.

Incidentally, 58% of world wind capacity is found in just 3 countries - China, US, and Germany. 
Similarly 60% of world solar capacity is found in just 4 countries - Germany, China, Japan, US.
Can you think of a reason why that might be, and why it might hold back other countries?


 :emthdown: :emthdown: :emthdown:

As usual, you neglect the MASSIVE UP FRONT COSTS of Fossil fuel power plants that WE-THE-PEOPLE subsidized and STILL SUBSIDIZE!  :evil4:

Your stats are grossly inaccurate and unrepresentative of the renewable revolution going on in countries, in addition to the industrial powerhouses you conveniently mentioned, like Costa Rica and Spain:icon_sunny:

You are always a day late and a dollar short in your hemming and hawing about why Renewable Energy cannot do this, that and the other. If Elon Musk had listened to you, he would not have obtained over 275,000 orders in two days for the new Tesla model 3 because YOU would have claimed it "wasn't possible". 


Sell it to someone else, Palloy. The world isn't waiting for you hairsplitting foot draggers who DEFEND dirty energy.

Costa Rica boasts 99% renewable energy in 2015   :icon_mrgreen:
 http://phys.org/news/2015-12-costa-rica-renewable-energy.html#jCp

And the fracker fucks are going to be OUT of money (THAT WAS ALSO UP FRONT, BY THE WAY), NOW.

No end in sight for energy pain at Wells Fargo, Bank of America  ;D
By Sruthi Shankar and Richa Naidu

SNIPPET:

Troubles in the U.S. oil industry amplified profit pressures on Wells Fargo & Co (WFC.N) and Bank of America Corp (BAC.N) on Thursday as rising bad loans added to a tough climate for trading bonds and currencies, along with persistently low interest rates.

Wells Fargo and Bank of America, two of the biggest lenders to the U.S. oil and gas sector, each set aside hundreds of millions of dollars in additional provisions to cover souring loans to energy companies.

While the price of oil has risen off decade-lows hit in January, it is still trading around $40 a barrel, well below the $100 plus levels seen in 2014 and spelling trouble for many exploration and production firms.

Energy XXI Ltd (EXXI.O) filed for bankruptcy protection on Thursday, joining dozens of other energy companies that have done the same in recent months.

Many more are expected to follow.  

"Our oil and gas portfolio will continue to be impacted by the volatility and stress in the industry and it will take time to move through this part of the cycle," said Wells Fargo Chief Financial Officer John Shrewsberry.

JP Morgan Chase & Co (JPM.N) said on Wednesday it could boost its provisions to cover soured energy loans by another $500 million this year, on top of the $529 million taken in the first quarter.

http://www.marketbeat.com/stories.aspx?story=http%3a%2f%2ffeeds.reuters.com%2f%7er%2freuters%2fbusinessNews%2f%7e3%2fg_MtaiLiLHk%2fus-bankofamerica-results-idUSKCN0XB15B






« Last Edit: April 15, 2016, 09:38:46 PM by agelbert »
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Offline Palloy

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Re: Why This Is Just The Beginning Of The Supply Glut
« Reply #6 on: April 15, 2016, 10:02:43 PM »
Quote
AG: As usual, you neglect the MASSIVE UP FRONT COSTS of Fossil fuel power plants that WE-THE-PEOPLE subsidized and STILL SUBSIDIZE!

We already have those, the problem with renewables and nuclear is that we don't have those, and after a short while of growth, we won't have the energy to build more.  I used to be fervently pro-renewables until I realised the amount of energy the transition is going to need.

Quote
Your stats are grossly inaccurate

They come from BP Statistical Review of World Energy (2015), based on 2014 data.

Quote
The world isn't waiting for you hairsplitting foot draggers who DEFEND dirty energy.

I don't defend it.  I just can't support renewables as a solution, because I know it doesn't work out energy-wise.  There is no solution.

Quote
Costa Rica boasts 99% renewable energy in 2015

"Three-quarters of Costa Rica's electricity is generated by hydroelectric plants".  Good for them.

It doesn't say how much energy that actually is though.  It is so small that BP(2015) lumps it into "Other S. and Central America".  ALL of that category comes to 93 Mtoe.
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Offline RE

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Re: Why This Is Just The Beginning Of The Supply Glut
« Reply #7 on: April 15, 2016, 10:29:37 PM »

I don't defend it.  I just can't support renewables as a solution, because I know it doesn't work out energy-wise.

Not with this size population.  However, with a substantial die off in the 70-80% range it could work.

RE
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Offline MKing

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Re: Why This Is Just The Beginning Of The Supply Glut
« Reply #8 on: April 16, 2016, 07:03:46 AM »
Quote
Certainly energy experts worried more about peak demand aren't sweating the ability of renewables to keep doing what they've been doing.

That is because they haven't considered the difficulty as a reducing amount of FFs bumps into an increasing amount of wind turbine production. 

What reducing amount of FF? It ain't happening. The peak oil/gas pipe dream of oilpoclypse in our time didn't work out, and turning that dream into a conditional on which to hang your conclusion just won't fly.

Supply isn't a concern in your lifetime, if you are over the age of 50. The only question even worthy of asking is about price, because only from that answer can we begin to discuss whether or not we have supply constraint AFTER you are dead. Maybe. And then we can discuss IF high school kids today have to worry about this issue or not.

Michael Lynch and I had lunch last week, and we had an absolutely wonderful row on this one, and the mind boggling large blinders that they must wear, to arrive at conclusions that are obviously so flawed.

Quote from: Palloy
Wind turbines (and solar panels,) require a lot of energy up front to make, transport and install them, and then operate "for free" apart from maintenance and final disposal.  So while the ERoEI over their lifetime may be good, there is an energy cost to starting the cycle, energy that can only be got from FFs.

Energy that only TODAY might be coming from FF, and the WHY is because they are so plentiful. Still are, even after people wanted to proclaim the end of oil, be it in 1916, 1943, Hubbert in 1938, Jimmy in 1977, or any of the modern peak oilers since Campbell claimed it was happening in 1989. And all the times since then.

Quote from: Palloy
Incidentally, 58% of world wind capacity is found in just 3 countries - China, US, and Germany. 
Similarly 60% of world solar capacity is found in just 4 countries - Germany, China, Japan, US.
Can you think of a reason why that might be, and why it might hold back other countries?

I can think of PLENTY of reasons why. I can also think of plenty of reasons why it will be different tomorrow, and not just with wind turbines. You can't spend a day with Peter Schwartz and not be speculating on everything from alien moon landings to the sheer mind boggling potential of the discovery of gravity waves.
Sometimes one creates a dynamic impression by saying something, and sometimes one creates as significant an impression by remaining silent.
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Offline Palloy

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Re: Why This Is Just The Beginning Of The Supply Glut
« Reply #9 on: April 21, 2016, 06:19:44 PM »
If I worried only about whether the Collapse was going to affect me personally, I wouldn't be so worried.  But that is such a selfish viewpoint that it is worthy of contempt.  What about your children's future, and grandchildren's?

My wealth, such as it is, also gives me some small measure of protection - a protection that the abject poor of the world don't get.  They are already on the demand destruction side of the ledger - the auction system ensures you will get your fuel, and they won't, but that's OK isn't it?  Lets go for a drive around the continent for fun, while the ambulances outside the hospitals in Pakistan can't go anywhere because they can't afford the fuel.
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Offline MKing

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Re: Why This Is Just The Beginning Of The Supply Glut
« Reply #10 on: April 22, 2016, 05:27:56 PM »
If I worried only about whether the Collapse was going to affect me personally, I wouldn't be so worried.  But that is such a selfish viewpoint that it is worthy of contempt.  What about your children's future, and grandchildren's?

They damn well better be part of the effort to save the planet from cosmic catastrophe, as opposed to being so denuded that they do permaculture while ignoring the real dangers in the universe.

Quote from: Palloy
My wealth, such as it is, also gives me some small measure of protection - a protection that the abject poor of the world don't get.  They are already on the demand destruction side of the ledger - the auction system ensures you will get your fuel, and they won't, but that's OK isn't it?  Lets go for a drive around the continent for fun, while the ambulances outside the hospitals in Pakistan can't go anywhere because they can't afford the fuel.

Poor countries have been poor countries for as long as there were 2, and 1 was better off than the other. America is not on the poor end of the scale, and I certainly am not on the low end of the American distribution of earning potential, and yes, I am currently on cross continent trip number 4 in just this year alone. I recommend the Pakistani folks prioritize, clean up the political system that thinks keeping the Taliban and folks like Osama around is a good idea, stop hating others just because they are Buddhists, pick a cult that doesn't require wasting work productivity bowing in random directions while chanting, and maybe they WOULD be able to afford some fuel for important things.
Sometimes one creates a dynamic impression by saying something, and sometimes one creates as significant an impression by remaining silent.
-Dalai Lama

 

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