Skip to comments.‘Authorities,’ media don’t understand petroleum economics
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 Mexicos 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 ...
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.
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?
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?
Tight oil is a unconventional oil that is found in reservoirs with very low permeability.
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.
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.
“When the next recession hits, we need a means to spur the economy again and cant 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.
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 havent 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.
These reasons were viable long before the choice was made to implement upward moves so you have to question what changed.
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?
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.
Hmmm...mixing Fed talk and fracking I see.
IMHO ZIRP was meant to stimulate a weak economy. Our economy is no longer weak...its 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 doesnt 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 isnt 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.
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.
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