Posted on 12/23/2014 7:30:49 AM PST by thackney
A few commenters have mentioned peak oil recently. I am cautious about making forecasts and predictions and prefer instead to observe and document the data as the peak oil story unfolds. I have in fact published a couple of charts recently illustrating aspects of peak oil, one showing a possible peak in the rest of the world that excludes N America and OPEC (Figure 1). The other shows the undulating plateau in conventional crude + condensate that has persisted since 2005 (Figure 2). In my last post on oil price scenarios two of those showed global oil production capacity 1 to 2 Mbpd lower in 2016 than 2014. If that comes to fruition, will we have passed peak oil but does it matter?
The current low oil price crisis is providing a clear and new perspective on the nature of the peak oil problem. If low price does indeed destroy high cost production capacity then this will raise the question if the high cost sources can ever be brought back? IF low price kills the shale industry can it come back from the dead?
The response of the oil price to scarcity in the period 2002 to 2008 was for it to shoot up. And the response of the energy industries to scarcity and high price was to develop high cost sources of energy shale oil and gas and renewables. The longevity and permanence of these new initiatives has always been dependent upon our ability and willingness to pay. Of course, most of us who have cars continued to use them but have perhaps subliminally modified our behaviour through driving less or buying more fuel efficient vehicles. OECD oil consumption has at any rate been in decline and robust economic growth has been elusive....
(Excerpt) Read more at oilprice.com ...
Figure 1 Global oil production has been split into three geo-political categories: 1) USA and Canada, 2) OPEC and 3) the Rest of the World (RoW). RoW production bears the hallmarks of having peaked in the period 2005 to 2010 and this has consequences for oil prices, demand and prosperity in parts of the world, especially the OECD. Most of the growth in oil supply has been in the USA and Canada where the market has been flooded with expensive oil. Data are crude oil + condensate + natural gas liquids (C+C+NGL) and exclude biofuels and refinery gains that are included by the IEA in their total liquids number.
Figure 2 Conventional crude oil + condensate production has been on an undulating plateau just over 73 million barrels per day (Mbpd) since May 2005, that is for almost 10 years and despite record high oil prices! Note that chart is not zero scaled in order to amplify details.
Figure 3 QE appears to have impacted demand for oil and may have created the lines of credit enabling energy companies to produce high cost gas and oil at a loss. But the oil price has been equally controlled by OPEC controlling supply. Chart by Gail Tverberg.
What operators is this man talking about?
Lower oil prices and debt combine to create a squeeze
http://www.houstonchronicle.com/business/energy/article/Lower-oil-prices-and-debt-combine-to-create-a-5939341.php#/0
December 6, 2014
Smaller companies are at the most risk if crude futures don’t stage a recovery
If oil prices stay below $75 for nine months to two years, oil analysts and credit experts say, many of the smaller independent oil companies pumping crude from U.S. shale plays will be at far greater risk of comingup short on cash to pay back billions of dollars of high-yield corporate debt they’ve used to drill expensive horizontal wells.
Because the energy sector makes up the biggest portion of the high-yield debt market, a surge of defaults could resemble earlier telecommunications and real estate busts that infected banks and hit other quarters of the U.S. economy, said Oleg Melentyev, head of U.S. credit strategy at Deutsche Bank in New York.
According to JPMorgan Chase & Co., if U.S. benchmark West Texas Intermediate crude remains around $75 a barrel through 2017, the default rates for the energy sector’s high-yield debt issuances - known as junk bonds because they carry higher risk for investors - could reach 8 percent if companies cut spending and sell assets, and 12 percent if they don’t.
Right now, the high-yield debt market is forecasting a 12-month default rate of 2.6 percent overall, but the energy sector’s projected default rate has risen to 5.4 percent - rising sharply after the Nov. 27 OPEC meeting, said Martin Fridson, chief investment officer at Lehmann Livian Fridson Advisors.
Energy now makes up 14 percent of the $1.3 trillion high-yield debt market, up from 4.3 percent in 2004, according to Barclays.
U.S. energy debt performed worse than all other industries by far in November with a 3.4 percent loss in total returns, according to the Bank of America Merrill Lynch High Yield Index.
But it will take at least a year for oil prices to have a dramatic effect on balance sheets, as about 7 in 10 U.S. oil companies have contracts in place locking in prices at around $90 a barrel through 2015, said Andrew Byrne, director of energy equity research at energy research firm IHS. Lenders typically require more such hedging as a company’s debt increases.
Excerpted...
He was referring to shale gas.
One example would be Chesapeake Energy.
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I’m probably thinking of some outdated stories on Chesapeake. They have had to sell assets to cover debt a few times.
Chesapeake Ruling Shocks With $117 Million Loss: Credit Markets
http://www.bloomberg.com/news/2013-05-13/chesapeake-ruling-shocks-with-117-million-loss-credit-markets.html
Chesapeake Energy Swings to Loss
http://www.wsj.com/articles/SB10001424052702304709904579406722824091240
Chesapeake (NYSE: CHK) Reports Major Q3 Losses
http://www.energyandcapital.com/articles/chesapeake-nyse-chk-reports-major-q3-losses/2759
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