Global Oil Supply: Learning from Lagos 23 comments
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The September issue of Gregor.us Monthly, Learning from Lagos, addresses key events earlier this decade that helped to reveal the structural changes in the global oil system. From Moscow’s Spring 2004 attack on Khodorkovsky and Yukos, to the late 2005 campaign initiated by MEND in the Niger Delta, these actions at the margins of world oil supply signaled to other global oil producers that the era of spare capacity had come to an end.
It is often too difficult to comprehend the totality of very large systems. This is why, unintentionally, many of these – I call them Oil Actors – performed a series of useful stress tests on world oil supply coming out of the 2002-2003 period. Once the feedback mechanism of these events filtered through the price of oil, that sent a new message and a new revelation to producers such as Venezuela, Brazil, and also to Russia and Nigeria – all producers that never before had been able to impact the price of oil.
But of course no part of this phenomenon would have been sustainable had not something else started to show through, in the geology of global oil supply. And that was the stagnation of growth in Non-OPEC oil. From my newsletter:
We can think of the world of global oil supply in essentially four distinct parts. There is OPEC, with its largest producer Saudi Arabia. And then there is Non-OPEC, with its largest producer, Russia. You can think of these four suppliers of oil as units, or perhaps mega-regions, of oil supply. As four distinct categories, they allow us to better see the totality of global oil. Saudi Arabia is of course the anchor to OPEC supply. Russia is the anchor to Non-OPEC supply. That leaves us with OPEC ex-Saudi Arabia. And, Non-OPEC ex-Russia. It’s this latter category, Non-OPEC ex-Russia, which currently provides a non-trivial 44.00% of global oil supply. Of the four units, it is the largest single contributor to global oil supply. And, as a category, it is also quite useful thematically as this is essentially all the free market oil.
The data now clearly shows that starting in late 2003, just 6 months before the Moscow-Yukos affair launched oil over the 40.00 dollar level, that Non-OPEC supply ex-Russia peaked. And while international managers of both western oil companies and national oil companies would not necessarily have seen the totality of this inflection point, it’s reasonable to conclude that in each oil producer’s corner of the world they were seeing the following: that Non-OPEC oil was getting harder to produce, more expensive to produce, and most important, Non-OPEC oil supply was not responding to price.
In the recent examples of junk journalism from both the New York Times and Scientific American on the subject of peak oil, it should be pointed out that the missing man in these pieces on recent oil discoveries was how these new resources will actually translate into flow rates. Not only are we finding less oil each year now compared to previous decades, but the geological constraints on this “new” oil are onerous, to say the least. Kashagan, Chicontonpec, Ultra-Deepwater/Pre-Salt and even Albertan oil are all evidence of deposits that take years to develop, and even when production does finally start the daily flows are relatively small. It is incorrect and therefore misleading to fail to note these realities to the reader of these publications. Both the New York Times and Scientific American should have instead restricted their articles to the nature of these new oil discoveries, and not erroneously claimed that they will translate into net, aggregate increases in global oil supply.
A new era of resource nationalism is underway for varying reasons, but not the least of which is the stall-speed of global oil production. In other words, the best reason now to hoard your oil is as follows: because you can. No one is going to outproduce you. Wise producers of oil, like Brazil, now understand this. And wise consumers of oil, like China, have also acted accordingly by putting together a global portfolio of oil by peaceful means (using dollars), and one which is widely dispersed geographically (not tightly coupled). Perhaps like journalists, some countries get it, and some countries don’t.
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Our model predicted the crash in crude oil from 147 to 36 dollars per barrel www.baminvestor.com/bl.../
and it is predicting another crude oil crash here in October.
The first stop target is 52.50 but we see new lows back under 36 dollar per barrel coming this year.
Feel free to follow our real-time predictions on twitter through October 11th. twitter.com/baminvestor
If not, it is extremely well written and extraordinarily persuasive.
"It is often too difficult to comprehend the totality of very large systems.."
Truer words have never been spoken.
And from the article I conclude that the price of oil will either go up or it will go down. That's because the totality of very large systems is often difficult to comprehend.
Emerging markets, such as China, every month continue to import record amounts of oil into their countries.
Any drop in oil prices that does occur will be concentrated in the NYMEX contracts due to Wall Street's favorite pastime of shorting oil. That is why many investors around the world no longer trade the NYMEX contracts and trade elsewhere.......
On Oct 02 09:21 AM JG Savoldi wrote:
> What we think people "don't get" is the collapse in demand that has
> been happening right under their nose.
>
> Our model predicted the crash in crude oil from 147 to 36 dollars
> per barrel www.baminvestor.com/bl.../
> and it is predicting another crude oil crash here in October.
>
> The first stop target is 52.50 but we see new lows back under 36
> dollar per barrel coming this year.
>
> Feel free to follow our real-time predictions on twitter through
> October 11th. twitter.com/baminvestor
www.twst.com/tt/info/i...
Good article. While oil will drop the next few months probably, that is just the calm before the storm next yr when the economy recovers, oil is going to hit $150bbl+ and keep going up until it causes another recession here. And will keep doing that until we start getting off oil.
Facts are we have to get off oil and will whether we want to or not as the price will cause that as at about $100/bbl. many alternatives are cheaper. It will just take 7-10 yrs to switch to them.
Using oil is our largest national and economic security problem by far yet so many are trying to keep us on it. It's the same people, repubs, who caused the present recession and will cause the next one too.
There are no technical reasons we can't do without imported oil as EV's, Ng for trucks, semi's, gasoline/diesel from NG, biomass or even solar,CO2 and water.
I drive my EV's every day, as do many others who have built, converted their own, and only cost me $.02/mile for electric and battery. No problem even using lead batteries if they are designed right getting 100 mile range and 80 mph in a cool 2 seat sportwagon could be built for under $12k if they thought outside the box.
On Oct 02 08:27 AM Yarak wrote:
> From here in Brazil your point about oil nationalism is clearly evident.
> Also how some "get it," others don`t. Many years ago in a graduate
> class (in the US) I dared to make a point about the possible wisdom
> of increasing taxes on gasoline as a means of strategic energy policy,
> simply on the basis that oil imports enriched America's worst ideology
> rivals. Added to possible volatilities in supply, the deficit-blowing
> impact of oil on dollar weakness, theories of declining world production,
> etc., and America's oil-guzzling ways seemed downright suicidal.
>
> Meanwhile other countries, like Brazil, were executing smart, hedged
> strategies like their dual-fuel policy, as is China.
>
> In my mind these days (and months) is how easy an empire can fall,
> how inevitable it seems that history just repeats itself.
>
> Step back for a moment, and so much of our current trouble is fundamentally
> caused or deeply affected by energy policy. For example, now minus
> all the bulls*t about WMDs, wouldn't about 1 to 1.5T come of the
> cost of the Iraq war come in handy now? Or how about the fact that
> financing the war kept rates low longer than they should ? Or Administration
> attention focused on the War and not on domestic issues where it
> needed to be? I always lamented how narrow the view of "national
> security" was to my colleagues and friends...
In order to reduce our dependency on oil, we need to utilize the different forms of alternative energy. The world's oil supply is running out and investments in alternative forms of energy will make for a promising future. Solar Energy, Wind Energy, Bio-Fuels, and Hydro Electric energies are all viable sources of alternative energies. Solar energy is becoming more and more common as a means to power things that normally run off of electricity. Ethanol is starting to creep into the gas tanks of more and more Americans as we see countries like Brazil in South America running on ethanol, and depending less on gas. Wind energy farms are starting to dot the countryside in countries all over the world.
The world has grown a disturbing addiction for oil. Many oil fields around the world are headed for depletion. National statistics are unreliable at best, or classified at worst, and national oil companies control up to 80 percent of oil and natural gas reserves. The main problem of oil shortages today is not lack of reserves in the ground, but lack of access above ground. The demand for oil continues to rise right along with the population growth. Recognizing the inherent, systemic, and long-term instability of the global oil markets is the first step in addressing the problem the world. is facing. Continuing research on alternative energies and creating fuel effective vehicles is a great place to start in resolving the world's oil dependency issue.
---------------------
Money without intelligence is like a car without a road.
www.intelligentinvesti...
True, political instability restricts supply, or at least makes supply more volatile. Meanwhile, those pesky environmentalists are trying to decrease demand (higher taxes, mileage standards, alternative energy, conservation). And we know that decreasing demand is a sure way to drive up prices.
what do i mean? we currently pay much less for oil than it costs to pull out of the ground, refine and protect. we also subsidize the risk that oil explorers take when they start to drill. if none of these processes were subsidized, explorers would think twice before drilling and that would send the price of oil up. so oil prices go up and the taxpayer gets a tax break so there is a zero sum game. the key difference is that the consumer is now empowered to choose. he can use the tax break money to fill up his truck or he can purchase a smaller vehicle and take what's left of his cash and put it to better use!
On Oct 02 08:27 AM Yarak wrote:
> From here in Brazil your point about oil nationalism is clearly evident.
> Also how some "get it," others don`t. Many years ago in a graduate
> class (in the US) I dared to make a point about the possible wisdom
> of increasing taxes on gasoline as a means of strategic energy policy,
> simply on the basis that oil imports enriched America's worst ideology
> rivals. Added to possible volatilities in supply, the deficit-blowing
> impact of oil on dollar weakness, theories of declining world production,
> etc., and America's oil-guzzling ways seemed downright suicidal.
>
> Meanwhile other countries, like Brazil, were executing smart, hedged
> strategies like their dual-fuel policy, as is China.
>
> In my mind these days (and months) is how easy an empire can fall,
> how inevitable it seems that history just repeats itself.
>
> Step back for a moment, and so much of our current trouble is fundamentally
> caused or deeply affected by energy policy. For example, now minus
> all the bulls*t about WMDs, wouldn't about 1 to 1.5T come of the
> cost of the Iraq war come in handy now? Or how about the fact that
> financing the war kept rates low longer than they should ? Or Administration
> attention focused on the War and not on domestic issues where it
> needed to be? I always lamented how narrow the view of "national
> security" was to my colleagues and friends...
ok, so we've had a huge pullback in demand which has created the illusion of spare oil, but it's only a matter of time until that slack gets pulled out. to be fair, that could take a long time because i don't see demand recovering any time soon.