Oil & Gas : leave it in the ground?

michaels

CLAPTON wrote: »

In my view, the oil and gas in the 80s caused the pound to become too strong and helped kill off a lot of Uk industry.

A lower pound at that time would have encouraged new export industries to start up so it's likely that there would have been higher employment during that period.

Once the 00s arrived we really didn't need the oil and gas as we had a sustained boom (without bust) until 2007/8.

So, in my view we would have been a lot better off then and now if we had left a lot more in the ground.

I'm not an expert on oil and gas production but we could have restricted the number of licenses to restrict the flow.

I am a firm beleiver in this 'dutch disease' hypothesis. I suspect we might have an economy more like Switzerland with a bit of French type Nuclear electric thrown in...although I guess we might also be more like Greece.....

cells

CLAPTON wrote: »

In my view, the oil and gas in thit Clapton 80s caused the pound to become too strong and helped kill off a lot of Uk industry.

A lower pound at that time would have encouraged new export industries to start up so it's likely that there would have been higher employment during that period.

Once the 00s arrived we really didn't need the oil and gas as we had a sustained boom (without bust) until 2007/8.

So, in my view we would have been a lot better off then and now if we had left a lot more in the ground.

I'm not an expert on oil and gas production but we could have restricted the number of licenses to restrict the flow.

You should copyright your economic theory.

The uk could simply have baught foreign assets (eg t-bonds) to achieve the same lowering of the pound

however it is far from clear that a lower pound would have done anything positive for the uk. Alwaya remember its easy to trash your currency but hard to have a hard currency. If the route to wealrh was devaluing it woild be an easy route indeed.

grizzly1911

vivatifosi wrote: »

Currently extraction costs about $40-50 in the North Sea (per article I put on Scottish independence thread). Substitutes such as fracking could make it uneconomically viable if the price per barrel falls. Saudi oil on the other hand costs about $4-6 per barrel to extract. Bear in mind there are other costs to factor in on top of that. Can't remember what the trading price per barrel was, just over $100 per barrel iirc (links on other post).

Thanks.

At this point we do not know what the cost of extraction through fracking is or will be.

Our market is very different to the US and there is no guarantee prices will be depressed anything like as much - if at all. AIUI the gas will be sold into the European Wholesale grid/market for the best price. If other suppliers believe the price is to cheap they will throttle back supply to compensate. Don't the middle east already throttle up and down to keep prices within an acceptable range?

The government will also want a sizeable cut. If this isn't through licensing then it will no doubt be added through duty/levy.

Something tells me global prices aren't going to reduce, markedly.

CLAPTON

cells wrote: »

You should copyright your economic theory.

The uk could simply have baught foreign assets (eg t-bonds) to achieve the same lowering of the pound

however it is far from clear that a lower pound would have done anything positive for the uk. Alwaya remember its easy to trash your currency but hard to have a hard currency. If the route to wealrh was devaluing it woild be an easy route indeed.

Japan did very well for 30 years with a low currency

Germany is doing quite well with a low currency (as part of the Euro)

China did quite well with a low currency

In the 80s our industry was not competitive and the high value of the pound was due solely to the oil and gas : without it the pound would have been lower in what was a very unbalanced economy.
We went from an unemployment level of under a million to one of over 3 million.

Yes, establishing a sovereign wealth fund would have been a good idea and may have reduced the level of the artificially high pound

CLAPTON

grizzly1911 wrote: »

Thanks.

At this point we do not know what the cost of extraction through fracking is or will be.

Our market is very different to the US and there is no guarantee prices will be depressed anything like as much - if at all. AIUI the gas will be sold into the European Wholesale grid/market for the best price. If other suppliers believe the price is to cheap they will throttle back supply to compensate. Don't the middle east already throttle up and down to keep prices within an acceptable range?

The government will also want a sizeable cut. If this isn't through licensing then it will no doubt be added through duty/levy.

Something tells me global prices aren't going to reduce, markedly.

aren't all these things positives?

isn't it good that we sell into the wholesale markets for the best price?

although I doubt our production would be sufficient to change the world price, wouldn't it be good to throttle back supply rather than sell a scarce finite resource too cheaply?

is it bad that the taxpayers gets a cut of UK gas?

cells

vivatifosi wrote: »

Interesting, thanks. I don't suppose you would happen to have any stats on how much of the oil reserves is in currently exploited wells and what is elsewhere (in other words, where the marginal cost would be higher).

We can estimate it.

A new fossil fuel site has around 40 years life. Some more some less

Lets say on average they are half way between their lives. That means if no new investment was made into new fields in twenty years production would halve.

or the overall natural decline rate is somewhere between 3-5% with exploration and adding new sites accounting for a flat or increasing production.


So if a new source of power was discovered. Be it cheap fusion fission solar wind or even pixy dust...fossil fuels could only be displaced at a rate of some 3-5% a year.

But its more complicated than even that. You would find that the cost of exploration and developing fields crashes if the demand for new sites crashed. So what might now be $40/barrel to develop and start a new field could fall to $20/barrel. For instance part of the cost of starting a new offshore oil site is the cost of hiring a drilling rig.

If demand is high the owner may be able to charge $1 million a day. If demand is very low (due to the fantastic new cheap energy source everyone is deploying) then he would only charge say $100k a day for his rig.

So exploration costs can plumit and exploration and new fields open at a lower price .

cells

cells wrote: »

We can estimate it.

A new fossil fuel site has around 40 yeprs life. Some more some less

Lets say on average they are half way between their lives. That means if no new investment was made into new fields in twenty years production would halve.

or the overall natural decline rate is somewhere between 3-5% with exploration and adding new sites accounting for a flat or increasing production.


So if a new source of power was discovered. Be it cheap fusion fission solar wind or even pixy dust...fossil fuels could only be displaced at a rate of some 3-5% a year.

But its more complicated than even that. You would find that the cost of exploration and developing fields crashes if the demand for new sites crashed. So what might now be $40/barrel to develop and start a new field could fall to $20/barrel. For instance part of the cost of starting a new offshore oil site is the cost of hiring a drilling rig.

If demand is high the owner may be able to charge $1 million a day. If demand is very low (due to the fantastic new cheap energy source everyone is deploying) then he would only charge say $100k a day for his rig.

So exploration costs can plumit and exploration and new fields open at a lower price .

A good example of what I am trying to explain can be seen in the American coal industry. A new source of plentiful cheap energy was discovered and bought to market (shale gas).

The reaction was that coal prices crashed in half to maintain production rather than see the end of coal

The same would happen with other fossil fuels. Say wind or nuclear or solar got 10% cheaper than coal/gas. Well you would find coal/gas would be reduced in price by 15% to slow/stop deployment of the new source to a rate which is at the decay rate of existing fields minus new fields at lower marina costs

cells

CLAPTON wrote: »

Japan did very well for 30 years with a low currency

Germany is doing quite well with a low currency (as part of the Euro)

China did quite well with a low currency

In the 80s our industry was not competitive and the high value of the pound was due solely to the oil and gas : without it the pound would have been lower in what was a very unbalanced economy.
We went from an unemployment level of under a million to one of over 3 million.

Yes, establishing a sovereign wealth fund would have been a good idea and may have reduced the level of the artificially high pound

How do you know the uk currency was high. A gut feeling?

A good way to measure it is nominal gdp per head. If it is high vs your peers it suggests your currency is too strong. If it is low it suggests your currency is too weak.

well vs france vs Germany the uk has a lower gdp per capita even today and the differential in the 80s was even higher suggesting we have/had too weak a pound becuase we do not export enough and or because we receive too little currency inflow.

Its hard to take you seriously when you are suggesting that in the 80s the pound was too strong at a time when the french economy was nearly 50% bigger than the uk. If you had limited oil production we would have been even poorer

cells

grizzly1911 wrote: »

Thanks.

At this point we do not know what the cost of extraction through fracking is or will be.

Our market is very different to the US and there is no guarantee prices will be depressed anything like as much - if at all. AIUI the gas will be sold into the European Wholesale grid/market for the best price. If other suppliers believe the price is to cheap they will throttle back supply to compensate. Don't the middle east already throttle up and down to keep prices within an acceptable range?

The government will also want a sizeable cut. If this isn't through licensing then it will no doubt be added through duty/levy.

Something tells me global prices aren't going to reduce, markedly.

global coal prices have already crashed due to American coal exports growing very rapidly.

The idea that existing suppliers will cut back to support prices is a good proven reality but it only holds if the existing suppliers can cut back enough.

This was not the case in America. Shale gas production took over about 20% of existing fields production. Ie the old dogs cut back production to try and save prices from crashing. They crashed nonetheless. If the old dogs cut production further they coild have ended up cutting their fields prpductions by 50% or even more.

ie shale in america was sooooo plentiful the cut production to maintain prices idea did not work


imo the same will in time happen worldwide. Its unlikely that America is the only place in the world with shale gas and oil. Just like many nations have conventional oil gas and coal aites so will many nations have shale oil and gas

Whats more is that the uk may have one of the best in the world. Uk shale is about 20x thicker than most American shale. Thay could mean much lower costs because one site could fracture a lot more volume of rock.

Only time will tell. What is virtually guaranteed is that the world is full of shale formations equal to or better than the yanks they just need to be found and developed

cells

CLAPTON wrote: »

helped kill off a lot of Uk industry.

An Internet fact?

Uk manufacturing workforce has certainly contracted but value added? Probably not

eg I used to work at a steel plant whwre production rose from 1 million tonnes in the 80s to 3.5 million today. Production is up 350%....

However the workforce went from 30,000 to 2,500 due to automation. So an outsider would probably say the industry was decimated and destroyed when the truth is production is much higher.


The same applies to the coal pits.
automation meant that the 200k coal miners in 1980 would have become 20k in 2010 if production was maintained at the same 1980 level. Those coal miners would have lost their jobs to the machines even if dear Arthur had dislodged maggie and became PM himself. ...