Peak Oil goes to Davos

Greetings

     

   As the  uber rich and powerful network in Davos. they'll have the opportunity her from Jeremy Leggett   He argues that oil is a sunset industry, due to rising costs, as well as the potential of climate regulation.

    (Speaking of Davos - Here's a fun fact - last year in the US, the top 400 earners- made the same as the bottom 60% - $1.2 Trillion.)

    Below - Jeff Ruben - former investment banker, confirms Leggett's point -  big oil's, investment costs are rising much faster than their oil discoveries.  

"According to the International Energy Agency’s 2013 World Energy Outlook, global exploration spending has increased by 180 percent since 2000, while global oil supplies have risen by only 14 percent. That’s a pretty low batting average.

Ruben points out that the companies could only recoup their investment if oil prices continue to ries.  However,  its clear that world economy can't handle higher prices - higher prices lead to recessions

"Investors can’t simply count on ever rising oil prices to justify Shell’s lavish spending on quixotic drilling adventures around the world. Prices are no longer soaring ahead like they were prior to the last recession, when heady global economic growth was pushing energy prices to record highs"

This is as predicted by   Nelder and MacDonald  who pointed out in 2011 :

"On the plateau of oil supply, prices are trapped on a narrow ledge. Economic growth requires more oil, which requires high oil prices, which in turn undermine economic growth. And that ledge is getting narrower. We know that the economy fell on its face at $147 per barrel in 2008, and brought growth to a halt in 2011 at $120. The new pain tolerance limit appears to be $90 in the U.S., but $100-110 in China. At the same time, it costs $80-90 to bring a new barrel of supply online from marginal resources such as deepwater, tar sands, and the Arctic.

     

Ugo Bardi points out this this is what we should expect, in an era of  Limits To Growth.    Costs of all extraction industries are rising -   One reason is the high cost of oil.  

"So, in the table created by Steven Rocco, you see how the cost of diesel fuel used in gold extraction has nearly doubled during the past four years, arriving, at present, to represent about 10% of the market price of gold. We can still afford to mine gold, but the writing is on the wall and not just for gold. The cost of extraction is increasing for all mineral commodities, including fossil fuels, as an unavoidable result of progressive depletion. Obviously, that's not good news for the world's economy, and the increasing expenses needed for extraction are one of the reasons of the present economic troubles.

     

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Why turning a buck isn’t easy anymore for oil’s biggest players

Posted by Jeff Rubin on January 27th, 2014 under SmallerWorldTags: Big oil, finding and development costs, oil prices, profits • No Comments

Judging by pump prices, Canadian drivers might think oil companies were rolling in profits that only move higher. Lately, though, the big boys in the global oil industry are finding that earning a buck isn’t as easy as it used to be.

Royal Dutch Shell, for instance, just announced that fourth quarter earnings would fall woefully short of expectations. The Anglo-Dutch energy giant warned its quarterly profits will be down 70 percent from a year earlier. Full year earnings, meanwhile, are expected to be a little more than half of what they were the previous year.

The news hasn’t been much cheerier for Shell’s fellow Big Oil stalwarts. Exxon, the world’s largest publicly traded oil company, saw profits fall by more than 50 percent in the second quarter to their lowest level in more than three years. Chevron and Total, likewise, are warning the market to expect lower earnings when fourth quarter results are released.

What makes such poor performance especially disconcerting to investors is that it’s taking place within the context of historically high oil prices. The price of Brent crude has been trading in the triple digit range for three years running, while WTI hasn’t been far off. But even with the aid of high oil prices, the supermajors haven’t offered investors any returns to write home about. Since 2009, the share prices of the world’s top five publicly traded oil and gas companies have posted less than a fifth of the gains of the Dow Jones Industrial Average.

The reason for such stagnant market performance comes down to the cost of both discovering new oil reserves and getting it out of the ground. According to the International Energy Agency’s 2013 World Energy Outlook, global exploration spending has increased by 180 percent since 2000, while global oil supplies have risen by only 14 percent. That’s a pretty low batting average.

Shell’s quest for new reserves has seen it pump billions into money-devouring plays such as its Athabasca Oil Sands Project in northern Alberta and the Kashagan oilfield, a deeply troubled project in Kazakhstan. It’s even tried deep water drilling in the high Arctic. That attempt ended when the stormy waters of the Chukchi Sea crippled its Kulluk drilling platform, forcing the company to pull up stakes.

Investors can’t simply count on ever rising oil prices to justify Shell’s lavish spending on quixotic drilling adventures around the world. Prices are no longer soaring ahead like they were prior to the last recession, when heady global economic growth was pushing energy prices to record highs.

Costs, however, are another matter. As exploration spending spirals higher, investors are seeing more reasons to lighten up on oil stocks. Wherever oil producers go in the world these days, they’re running into costs that are reaching all-time highs. Shell’s costs to find and develop oil fields, for instance, have tripled since 2003. What’s worse, when the company does notch a significant discovery, such as Kashagan, production seems to be delayed, whether due to the tricky nature of the geology, politics, or both.

Shell ramped up capital spending last year by 50 percent to a staggering $44 billion. Oil analysts are basically unanimous now in saying the company needs to rein in spending if it hopes to provide better returns to shareholders.

Big Oil is discovering that blindly chasing production growth through developing ever more costly reserves isn’t contributing to the bottom line. Maybe that’s a message Canada’s oil sands producers need to be listening to as well.