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‘Authorities,’ media don’t understand petroleum economics
Midland Reporter Telegram ^ | 1/15/19 | Daniel Fine

Posted on 01/17/2019 11:32:28 PM PST by brownwill6767

The United States and its southwest tight and shale oil has changed from dependence on world oil to domination. News of the size of oil reserves in the Delaware Basin (New Mexico’s share of the Permian) while OPEC was deciding how many barrels it will cut from the world market to lift prices caused epic confusion — and revelations of how little “authorities” and the media understand petroleum economics. The New Mexico media, which relies mainly on interviews with petroleum industry spokespersons, got it wrong. Recommended Video

Government numbers came out as 46 billion barrels (Permian total) with 26 in New Mexico. This means nothing but oil in good rock along with technical recovery as an estimate. Some excited “authorities,” who should know better, exclaimed that there was more.

However, the estimate is based on the application of technical means to recover the oil. The reserves of real oil depend on ultimate economic recovery. This means technical based on geology, plus economics. A high price will recover the billions of barrels while a low price will not.

(Excerpt) Read more at mrt.com ...


TOPICS: Business/Economy; Editorial; Extended News; Foreign Affairs; News/Current Events; US: Texas
KEYWORDS: business; danielfine; delawarebasin; energy; hydrocarbons; maga; newmexico; oil; opec; republican; shale; texas
In short, the numbers reflect the rocks without economics. The Delaware reserves plus the Texas Permian are now there to expand supply over 12 million barrels a day (b/d) in the United States. This writer has warned that world oil demand is sluggish and imprecise with only references to legacy guesswork that the developing world plus China demand will support prices long term or forever. Yet, world oil consumption has increased only 5 percent in the last 10 years. OPEC, with Saudi Arabia as its leader, has expired as the world administrator of the price of crude oil. At its December meeting in Austria, Qatar quit after nearly 70 years and announced concentration in LNG production and world export as the existing market leader. OPEC emerged with a serious factional split between OPEC original and OPEC with Russia. There would have been no agreement without Russia and its old Russian Federation members as producers. Moscow is the new world oil price-setter indirectly while OPEC Original becomes a collaborator in cartel for now. Simply put, Saudi Arabia no longer is the “residual supplier” alone.
1 posted on 01/17/2019 11:32:28 PM PST by brownwill6767
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To: brownwill6767

Good article and personal comment following. It’s really another example of the media exposing themselves for just how little they know as compared to what they think they “know.” Essentially the same thing happens when it comes to firearms yet they still persist in consuming barrels of ink and billions of electrons to publish stuff that much of their readership knows is complete and utter BS.


2 posted on 01/18/2019 12:08:14 AM PST by T-Bird45 (It feels like the seventies, and it shouldn't.)
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To: T-Bird45

So, in layman’s terms - since I know just a bit more than squat about petroleum exploration, extraction and distillate production - what does this mean for Joe Blow on Main Street?


3 posted on 01/18/2019 12:17:13 AM PST by JME_FAN (If you lived here, you'd be home by now.)
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To: JME_FAN; brownwill6767

I’ve pinged the OP so we might get his point of view on your question as it appears he may have some insight to the matter, based on his opening comment.

I sense a bit of tongue in cheek when characterizing your knowledge level but I’ll take your question at face value and give my opinion as a fully-qualified member of the Joe Blow Main Street mob: the likelihood of a repeat of the 1970s is now so remote as to be on the order of finding a unicorn and price stability in the West Texas Intermediate market price will mean long-term transportation fuel costs are a known input for multiple industries. The inflation that the Fed has proposed as the reason behind interest rate moves is an invention of a fertile mind with a underlying desire to have a hand on the economic levers to achieve an unstated political goal. However, the goal can be surmised as one without PDT getting a second term, IMO.

So, how’d I do? Does this comport with you knowing “just a bit more than squat” and your interest in how Main Street either benefits or suffers?


4 posted on 01/18/2019 12:43:12 AM PST by T-Bird45 (It feels like the seventies, and it shouldn't.)
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To: brownwill6767

Tight oil is a unconventional oil that is found in reservoirs with very low permeability.


5 posted on 01/18/2019 12:50:44 AM PST by sparklite2 (Don't mind me. I'm just a contrarian.)
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To: T-Bird45

The inflation that the Fed has proposed as the reason behind interest rate moves is an invention of a fertile mind with a underlying desire to have a hand on the economic levers to achieve an unstated political goal.


One plausible, stated goal is this ...

Zero interest rates are not necessary as the economy ramps up. When the next recession hits, we need a means to spur the economy again and can’t do it if interest rates are too low. We need a cushion to ease the next recession, IOW.


6 posted on 01/18/2019 12:56:13 AM PST by sparklite2 (Don't mind me. I'm just a contrarian.)
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To: sparklite2

“When the next recession hits, we need a means to spur the economy again and can’t do it if interest rates are too low.”

As a junior member of the seasoned set (age 64 next month and still in the workforce), there’s no doubt that the zero rate had bad effects on those seeking savings and investment returns. I’ll also agree with the stated “cushion” concept as it gives a place to go in a recession pinch. These reasons were viable long before the choice was made to implement upward moves so you have to question what changed. I’ve already state my opinion on that.


7 posted on 01/18/2019 1:13:53 AM PST by T-Bird45 (It feels like the seventies, and it shouldn't.)
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To: sparklite2

I suspect that “tight” is still less expensive to extract than shale. It surprises me. I grew up in Carlsbad and played in the deserts around there. I haven’t be back in a long time but I love to check Google Earth for places I loved as a boy. I thought there were a number of oil wells in the area growing up but what is there now is ridiculous.


8 posted on 01/18/2019 1:16:27 AM PST by wastoute (Government cannot redistribute wealth. Government can only redistribute poverty.)
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To: T-Bird45

These reasons were viable long before the choice was made to implement upward moves so you have to question what changed.


What changed was the timing. The reasons are only viable when you think the economy is strong enough to take the hit of increased interest rates. Too soon, and you could kill the recovery. Looking at the how markets crashed in response you see the hazards of doing anything at all.

Strategic thinking or response to political pressure? The only faction I can think of pushing for higher rates would be savers and bond holders. And who cares what they think?


9 posted on 01/18/2019 1:26:05 AM PST by sparklite2 (Don't mind me. I'm just a contrarian.)
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To: brownwill6767
Just remember that the young earth had massive forests everywhere and the oxygen content was double what it is today. There was relatively little oceans and after the floods of Noah the entire planet's crust broke up and shifted into war we see today.

So instead of oil being in just a few places, there is actually oil EVERY WHERE as the biomass of the trees and all the air breathing creatures was what created most of the oil, natural gas and coal deposits.

Also there are many ways to synthesize oil from various bio matter. Even Hitler was able to make gasoline from Germany massive coal fields as the Allies bombed out all his external oil sources.

10 posted on 01/18/2019 1:34:55 AM PST by prophetic (Trump is today's DANIEL. Shut the mouth of lions Lord, let his enemies be the Cat Food instead.)
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To: sparklite2; T-Bird45

Hmmm...mixing Fed talk and fracking I see.

IMHO ZIRP was meant to stimulate a weak economy. Our economy is no longer weak...it’s record setting strong. The Fed correctly is concerned about inflation. We who lived through the inflation of the Carter years understand that danger. The Fed wants to get to “neutral”, which doesn’t put on either the gas pedal or the brakes to the economy but they are just guessing as to where that might be. Too many global moving parts to ever really know.

Regarding Shale, the article is correct that if oil prices are low less of the shale will be recovered but that isn’t the whole story. IF it were necessary to get that tighter shale out IT IS STILL THERE and we can get it. That is the main thing.


11 posted on 01/18/2019 6:26:28 AM PST by jdsteel (Americans are Dreamers too!!!)
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To: jdsteel

Agree completely.


12 posted on 01/18/2019 6:31:13 AM PST by sparklite2 (Don't mind me. I'm just a contrarian.)
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To: T-Bird45

Tongue n cheeky - just a bit.

Kinda what I figured, both on the economic and political side of the equation.

My interest is a realistic assessment of both our technical ability and the economic feasibility of accessing those oil deposits cited in the article.

My immediate impression was that 1.) the amount of recoverable oil is greatly exaggerated; and 2.) while technically feasible, the economic reality is that, at current market prices, the ROT is either break-even or a negative. IOW, even though we have all this oil, it will cost too much to recover - so we really do not have it; and thus the government, as usual, is neck-deep in the brown stuff - and I don’t mean oil.


13 posted on 01/18/2019 6:00:17 PM PST by JME_FAN (If you lived here, you'd be home by now.)
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