Tuesday, May 17, 2016

The end of Big Oil

And Russia, Venezuela, and Saudi Arabia:
“Fracking” plays (Oil Speak Note: Play = producing oil well) are normally for four years, with most of the oil in the first two years. They cost $10 to $15 million. They are profitable at $50 a barrel for a new play and already fracked wells cover their costs at half that price. The “new revolution” technique the oil service firm mentioned doubles those times to four years of high flow with a further four years of declining flow. Depending on whatever drilling costs are involved, this effectively earns them profit at a price as low as 1/2 of the per barrel cost of previously fracked wells over the new well’s longer productive lifetime.
A Big Oil drilling play in the deep ocean, arctic, or politically unstable/corrupt 3rd World nation (This now includes Putin’s Russia) runs between $1 and $5 billion because of all the infrastructure Big Oil has to build to extract and move the large quantities of oil from howling wilderness at the edge of civilization. They run 7 to 15 years.
The disinvestment that this Saudi-caused oil price crash is bringing on will see declines by corruption of existing big-oil-type production in various national oil companies, followed by a massive market share shift to fracking when the reduced-by-disinvestment Big Oil production curves start bumping reduced oil supply into increased oil demand.
These facts left me with several impressions that I later confirmed.
First, this new extended frack technology is what is driving the “Fracking to Frack-log” drilling decline by the mid-to-large oil industry players in the last 9 to 12 months. Effectively, mid-to-large fracking firms have stopping current style fracking to get a piece of the new technique for the next oil price rise, AKA when the Saudis have burned through their foreign investments and sovereign-debt credit rating.
Second, cheap fracking-type drilling also moves all future oil extraction to places that have certain legal and regulatory regimes for quick market moves. Places like private lands in Texas and other traditional American oil states that have existing transportation infrastructure, laws and regulations for land use plus a stable & (relatively) honest political culture adapted to running them.
And also, the Big Green environmental movement:
Big Green has a March-of-Dimes-after-the-Salk-Polio-vaccine problem. 
The environmental movement arose in part due to real and imaginary environmental abuses of Big Oil, notably its huge infrastructure requirements generating “Not in my back yard” (NIMBY) resistance in many American states. The size and scope of these infrastructure programs required multiple levels of local, state and federal regulatory approval which allowed protracted opposing environmental lobbying and media campaigns. Those campaigns required huge standing organizations, raising and spending money on political lobbying and public education/awareness. This in turn created huge INCOME STREAMS with a familiar pattern of fund-raising consultants getting a percentage of the take, plus ditto for related lobbyist and publicity staff, all of whose livelihoods and identities are wrapped up in environmentalist political action. Big Green is merely one of, albeit now the largest, of many such self-licking ice cream cone institutions in America.
If most of the new production is on private land and transported/refined in existing infrastructure, then this is a big, big problem for all the Green mouthes that are used to eating high off the hog today.

Left unstated is whether a successful effort by Big Green to stifle a Texas-only economic development might spur talk of secession.

This is a very interesting article.


burt said...

If secession is in the future for America, the first state to secede will be Texas, followed quickly by Alaska. BOTH states have massive oil reserves, and both states are being hobbled by federal regulations forbidding them to develop oil fields. And both states have the natural resources, saltwater ports, and populations willing and eager to exist largely without Federal controls.

The "greenies", who oppose the use of newer and less-polluting oil exploration and recovery methods, have hurt their own case by publicly attacking exploration in relatively-clean US oil fields while ignoring Nigeria, Venezuela, and the incredibly dirty oil fields in other oil-rich countries with much worse ecological records than the US.

Let's hope that Texas and Alaska do not decide to secede, but let's hope that they DO declare that they are no longer bound by federal laws and regulations that are not directly based on the Constitution. They both have the resources to live without Washington. And they could inspire to a return to the standard that "the powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people."

Old NFO said...

+1 on Burt.

Lawrence Person said...

I doubt Big Oil is going anywhere, as they own the vast majority of the country's refineries, which is still a key part of the supply chain. Not to mention a goodly number of the gas stations as well.

SiGraybeard said...

I've never seen an argument that with new fracking technologies, American producers can break even at $12.50/bbl. Amazing! That's around where Saudi Arabia breaks even (I've read $10/bbl), and they have it flowing out of the ground under pressure.

You're not just looking at Russia and Saudi Arabia fail as states (although that does have its allure). Venezuela is in collapsed today. Iran needs something close to $130/bbl for its budgets to work. Iraq needs $100. Pretty much all of OPEC, except the Saudis, need prices over $70/bbl to stay afloat economically.