Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.

[sculpin]

Incredible .We are now only "discovering 1 out of every 20 bbls of oil we use". This fact should be forefront in most people's minds as they think into the future for their living standards, choice of residence, employment & portfolio strategy to allow them to both survive and profit from this trend. Certain energy industry followers already believe current demand is greater than supply with oil being drawn down from non US inventories.

http://oilprice.com/Energy/Crude-Oil/Oil-Price-Spike-Inevitable-As-New-Discoveries-Hit-Seventy-Year-Low.html

Obviously this is not sustainable.  Thoughts on each scenario:

1. This will end very badly for civilization as we now know it. Modern humans are so fossil fuel dependent (& not just transport - heating, electrical related but agriculture, plastics and other modern derived products). Large price spikes will be need to encourage F&D and to curb ever growing WW demand.

2. There will be a renewable solution along with slow draw down on fossil fuels to offset most of a shock to the system.

3. A complete polyanna solution that is coming soon (ie fusion, breakthrough battery tech, EV breakthru etc) or future discoveries (ie shale) will quickly move to a higher replacement level.

Portfolio strategy to profit from potential soaring oil prices in the future? (ie long % allocation to oilsands/shale, short airlines/chemicals etc) Timing and sector allocations both short and long. My bet is currently with the first outcome that we will be going back to an oil price spike situation sometime in the next 2 years.

What is chance of loss of large producer suddenly (ie Saudi with 10.5mm bbls/d) like what has happened to Libya - immediate and devastating black swan type of event on world economy, investments etc. Good use of far out of money LEAP options both bull (energy producer call) and bear (general market put or sector?) as portfolio insurance?   http://oilprice.com/Energy/Energy-General/Yemeni-Rebels-Claim-Unconfirmed-Second-Strike-On-Saudi-Aramco-Oil-Facilities.html


some say supply could fall short by about 4 mb/d by 2018-2020 compared to previous estimates from 2014. For an oil market only suffering from a surplus of less than 1 mb/d currently – and only as much as about 2.5 mb/d at its worst – a supply drop off of that magnitude could be enormous. Sure, crude oil and refined product inventories will take time to get worked off, but once that buffer is gone, the global economy could find itself a little short on crude oil. Prices would subsequently spike because the projects that have been cancelled won’t come back online at a moment’s notice.

[sculpin]

https://pbs.twimg.com/media/Crm0xGXUIAELdlH.jpg:large





https://climateequilibrium.wordpress.com/2016/02/26/are-renewables-just-a-dream/#jp-carousel-242

[tombgrt]

The article mentions the threat of EVs but I can't see how current infrastucture would be able to carry this electricity demand in the near future unless we seem ridiculous technological advancement in the current renewables? In 10 years a lot can and will happen but in 2-3 years the impact will be small even if they find some breakthrough tomorrow.

[Jurgis]

Just making sure: are we talking peak oil/gas again? Fracking taught us nothing?

[rkbabang]

"New discoveries hit 70 year low."

It is no coincidence that this is occurring while oil prices are low and have been remaining low for a few years.  If oil prices hit $120/bl again you will see the discovery rate magically improve.  Supply and demand, it is all about incentives. Right now it doesn't make a ton of sense to spend a fortune looking for oil.

[sculpin]

Just making sure: are we talking peak oil/gas again? Fracking taught us nothing?

Yes it has lulled many people into the false sense that easy to access hydrocarbons are limitless.


What about the other 40mm bbl. p/d?

OPEC produces 33.5mm bbl. p/d, Russia produces 11.5mm bbl. p/d, the US 8.5mm bbl. p/d
and Canada 3.7mm bbl. p/d.. That totals 57.2mm bbl. p/d.. The world will use 97mm bbl. p/d
in the 4th qtr. or an additional 40mm bbl. p/d..

Many of the OPEC producers are in decline, all are having economic and financial problems.
The US is in decline and will continue to be so thru the 1H of 2017. Canada may be flat.

The 40mm bbl. comes from areas such as Mexico, Brazil and the FSU countries. All
are either in decline or not even close to meeting production expectations. Asia
led by China is down. The North Sea is in decline.

US shale will need 2 years to bring back production to its peak if possible. The
massive credit that had been available is no longer there. The majority are highly
levered and are planning to use additional C/F to reduce debt prior to additional
drilling. The majority of producers including the most aggressive PXD state they
need $60 or better to be C/F positive. The MSM makes shale look like it is the
majority of the worlds supply even though at its peak it only got close to 5mm
bbl. p/d. I do not believe any is full cycle profitable currently. The debt &
equity that was issued will not be returned by production at current prices nor
$70 for the majority of the producers.

Offshore is not profitable. Brazil has cut back to 10 rigs offshore as well as
the US. Infill drilling & EOR has been cut way back WW. The 40mm bbl. p/d that
the world will need in the 4th qtr. in addition to OPEC, Russia, the US & Canada
will not be there. Neither is the CAPEX for future additional production. The
production from past CAPEX is online much is already in decline.

The focus by the MSM & WS are on shale and OPEC. They have missed the big picture.
Neither OPEC or shale have any additional capacity & the ROW's 40mm bbl. p/d
is in decline and the CAPEX is not there to replace that declining production.

http://www.investorvillage.com/groups.asp?mb=19168&mn=47271&pt=msg&mid=16332663[/i]

[Cardboard]

And this supply deficit will come as a surprise. Please take a look at the share prices of Frontline and Teekay Tankers. When you have record high worldwide demand is this what you should expect for major tanker companies?

What has been happening for 4 or 5 months now is offloading of tankers sitting at sea that were used by various players who were benefiting from a large contango that has now diminished and others who were simply investing into physical inventory. This has had a major dampening effect on inventory draws during peak driving season. As this comes to an end or slows down and with fundamentals improving, inventory draws should increase when people least expect it.

Cardboard

[DTEJD1997]

I doubt very much that we will have difficulty finding oil in the near & medium term.

When the price of oil is low, exploration is curtailed...

Some years ago, I knew some petroleum engineers.  They said that there were huge deposits of oil just waiting to be found in around Africa.  Surprisingly, they also stated that there were huge un/underappreciated oil deposits in OPEC nations (Saudi Arabia, Iran).  They claimed that there were large areas of those countries that have NEVER been explored, OR were last explored in the 50's/60's.  That if a concerted effort with the latest technology was run, a LOT more oil would likely be discovered.  Why spend massive amounts on exploration when you've got a lot pumping right now?

They also stated that Venezuela & the Canadian Tar Sands have BILLIONS & BILLIONS of barrels of oil.  At $45/barrel, that oil is not profitable to extract/process.  At $120/barrel, it is entirely a different story.

There are other crazier stories that I heard...but I have no doubt that we generally will have enough oil for the next few decades.  100 years from now?  Harder to say....Will we have ups & downs?  Certainly!  Will we even have brief disruptions?  Maybe...but totally changing our way of life?  I don't see it....

[SharperDingaan]

You might want to read up on the economics of fracking
http://www.theatlantic.com/business/archive/2013/08/shut-up-and-drill-why-fracking-could-end-the-age-of-gas-price-spikes/278494/

Fracked oil is very light crude requiring minimal refining, a single (larger) well will routinely deliver an initial 5,000-7,000 bbl/day, and can be drilled & producing in around 10 days (more likely 2 weeks today) - with delivery by truck. Its pretty easy to knock down a US demand driven price hike, by rapidly bringing on additional US supply.

There's also more than enough crude around the world, provided we're willing to pay the extraction cost.
A good chunk of it will also never be produced - as green energy & methyl hydrates will be cheaper to extract.

SD

[Ballinvarosig Investors]

My bet is currently with the first outcome that we will be going back to an oil price spike situation sometime in the next 2 years.

Who is to say civil war doesn't break out in Saudi Arabia and the oil price shoots up to $100 in 3 months? Who is to say that demand remains weak and oil stays in the $40-$50 range for the next 10 years? There's a pretty wild range of outcomes when it comes to oil. At this stage, we can't discount the fact that oil might even become obsolete (2/3's of global oil demand is through transport).

If you want to invest in energy, then really, nothing has changed. You buy the lowest cost producer, or else you can identify a company that is under-priced by assets.