Oil & Gas Group

This group brings together those who are interested in topics around oil and gas exploration, drilling, refining, and processing.

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Energy; A never Ending Discussion

Humans use energy for survival and life style. It is as close to being a part of our DNA as possible so naturally it is always an active topic.  Humans require adequate calories for survival and we have found various ways to secure what is needed and more. With global trading and integration, energy for transportation is a vital input that aids our trying to live well.  The use of petroleum-powered transport has made most of this activity possible but it is simply energy that drives the bus, not its type.

Since the late 1950s K. Hubbert confronted the petroleum industry with the reality that an industry dependent upon the finding of a non-renewable commodity had a limited life span. His presentation became known as “Hubbert’s Peak” where the shape of the finding curve was “normal” and the shape of the finding cost curve was like a “hockey stick”.  Because of the distress this matter caused, it became a deferred item. That deferment is no longer an option.

The publishing by “Zero Hedge” of the “SRSrocco Blog” has revealed some interesting petroleum industry developments. Since 2012 the Global Conventional Oil & Gas Discoveries fell from 30 billion Boe equivalents to 6.7 in 2017. Here is a production side drop with no corresponding buy side drop. Global capital investment in the upstream end peaked in 2014 at US$578 billion and then dropped to US$316 billion by 2016. Matching this not so good news was the collapse of combined profits of Petrobras, Shell, BP, Total, Exxon and Statoil from US$99.2 billion in 2004 to US$10.5 billion by 2016. This appalling record of non-profitability was also matched by the same group increasing their long-term debt, from US$84 billion in 2007 to US$379 billion by 2016.

So what caused this important industry to deliver such worrisome reports?  Global consumption, measured in barrels per day, has been quite stable over the past decade. In 2006 the global amount was 85.3 million barrels per day and by 2018 it is projected to be at 99.3 or only 11.3 % greater. Even with the peak price for West Texas Intermediate of US$145.29 on July 3rd 2008, consumption appeared to be unaffected. Market price volatility appears to have started about 2003 even though there is no evidence that demand volatility was the cause.  Prices for West Texas oil were unchanged from 2005 (US$73.52) to US$74.15, July 2018, with lower prices registered over the interim (US$48.99, July 2016). There appeared to be “no pricing room” for this industry. Higher prices might be only aspirational.

By all measures the petroleum industry seems to have little control over its business, which means the vital role petroleum has in global trade and life styles are at big risk and set to change.

What this condition forces all of us to do is to confront the “what next” matter.

A normal corrective action to the condition above would be higher petroleum prices. Why they have not materialized before now is perhaps a mystery. Humans can be stubborn about taking reductions in quality of life matters. Personal and goods mobility is a no go zone and higher prices will only happen under duress. It seems clear that expecting the petroleum industry to continue to deliver the goods at a price we all wish to pay, and not much more, is hardly realistic. So is there maybe a plan ”B”?

Tony Seba , talking about solar energy, thinks this is at least part of the solution. He has reached into history to find what he calls moments of “disruptive” technological convergence.  It is simply a point in time when new technologies and management strategies combine to create an explosive event. His marker is when the new way delivers a ten times less costly option compared to what old technologies and management styles required to deliver the same unit of service or product.  From these events the annual increase in productivity is +30-40 %. To embrace this idea one needs to drop linear thinking because you will be wrong. He thinks a barrel of crude oil will be US$25 by 2020, for example.

One of the more celebrated linear thinkers was Chairman Stalin. He decided he needed the best and brightest to help him guide the ship of state so he appointed economist Kondratiev. Nikolai had developed from his research what is now known as the “K-cycle”, a super cycle that recognized human economic activity was non-linear. Stalin did not like the part where entrepreneurs played a vital role in there being a “spring” phase to the cycle.  Nikolai paid the price of being objective with his life.

It seems that we humans could be at the beginning of not just a K-spring but according to Tony Seba, we will have a disruptive technology convergence.

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