BBC on Oil - are low prices here to stay

cells

IveSeenTheLight wrote: »

This is the crux, the Saudi's want to strangle their competition and drive out the value of fracking

http://www.forbes.com/sites/nathanvardi/2015/01/05/saudi-arabias-750-billion-bet-drives-brent-oil-below-54/

More likely are that any price drop will stop future costly projects rather than impact on shale output.

The big advantages of shale are its upfront production and small scale high volume nature.

what that means is you have mucj better cash flow. You don't need to sink $4B and 10 years into an offshore golf of Mexico drill* instead you can drill 1000 x $4m wells onshore and frack em. Time taken as lpw as 1 month and capotal rosl mivh lower and cash flow much better.

In the only country shale exists in any volume its now the main soirce of fossil fuels. Eg shale oil now outputs more oil in the USA than conventional. And shale gas more gas than conventional.



*which if it goes wrong gets you a $30B fine a la BP gplf disaster.

CLAPTON

IveSeenTheLight wrote: »

Interesting.
If we "leave it where it is", your suggesting we'll import more.

P.S., Hands up, I didn't look at your previous graph to realise you referenced real prices

why should the government do anything at all about north sea oil?

if it's cheap why not simply import more?

cells

antrobus wrote: »

I don't think UK North Sea oil production is that big a deal in the global context. These days, I don't think that UK North Sea oil production is even that big a deal in the UK fiscal context; less than £5bn of revenues in 2013-14. If the oil price remains at $50 some of it may well be left where it is, but that's the way it goes.

UK oil and gas output is equivalent to ~1.5mbpd combined which is very significant for the UK and also for the world.

The price of thise commodities are set on the margin so a 1.5mbpd difference is big. The markets move on much lessor volumes being impact by a pipeline being blown up for instance

also it lools like Europe marginal supply of gas is LNG from now on. So UK output of se 4bcf/d being replaced by LNG would be significant chunk of global LNG.


also value of UK gas and oil at todays prices are ~£17B a very significant and important industry even if there were no oil and gas royalties

cells

CLAPTON wrote: »

why should the government do anything at all about north sea oil?

if it's cheap why not simply import more?

Because it isn't cheap and 'do something' simply means lowering the royalties to a sustainable level.

Forget oil and pretend we are talking about car imports. Lets pretend the UK is so fantastic at manufacturing cars that the government on top of all normal taxes applies a 70% royalty to cars. At such a level the UK produces 800k cars and imports 800k cars.....now some time latet foreign car manufacturers get better and better and are able to undercut uk car manufacturing (car prices drop). The government has a choice keep the royalties at 70% and watch uk car manufacturing fall to zero. Or reduce royalties to keep the UK manufacturers alive.


And lile it or not that is what will happen and is the wise thing to do.


Having said that I don't think we are at that point yet

cells

antrobus wrote: »

I believe that the fiscal breakeven point for Saudi is about $100 a barrel.

That means nothing.

just because entity A needs a price of B to stay solvent doesn't mean the market price has to be over B

also saudi is the swing supplier from 9-12mbpd. They are at the bottom part of that now they don't have much capacity to cut but have a lot of capacity to increase

also what would scare me if I were the Saudi oil minister is nat gas conversion. Eg they were about to build the worlds biggest nat gas to oil plant in America. Probably scrapped now. Keep oil too high for too long and the meerkat will link it via technology

CLAPTON

cells wrote: »

Because it isn't cheap and 'do something' simply means lowering the royalties to a sustainable level.

Forget oil and pretend we are talking about car imports. Lets pretend the UK is so fantastic at manufacturing cars that the government on top of all normal taxes applies a 70% royalty to cars. At such a level the UK produces 800k cars and imports 800k cars.....now some time latet foreign car manufacturers get better and better and are able to undercut uk car manufacturing (car prices drop). The government has a choice keep the royalties at 70% and watch uk car manufacturing fall to zero. Or reduce royalties to keep the UK manufacturers alive.


And lile it or not that is what will happen and is the wise thing to do.


Having said that I don't think we are at that point yet

north sea oil and gas are finite resources and there is no rush to further deplete them ; better to wait until the price turns up


we would have be in a much better situation now if we hadn't pumped them out in such vast volumes in the 89/90/00s

There is absolutely no parallel with car production and importation

antrobus

IveSeenTheLight wrote: »

Interesting. If we "leave it where it is", your suggesting we'll import more.....

Or use something else.

If the cost of getting the oil out exceeds the value of the oil extracted, then of course it's going to be left where it is. But then, if we're serious about this global warming thingummy, we (and that's a global we) are going to have to leave a lot of oil exactly where it is.

I just suspect, that given the relative costs involved, it's far more likely that the oil that we leave untouched will be under the North Sea rather then the sands of Saudi.

http://www.ucl.ac.uk/news/news-articles/0115/070115-fossil-fuels

IveSeenTheLight wrote: »

...P.S., Hands up, I didn't look at your previous graph to realise you referenced real prices

I know.:)

antrobus

CLAPTON wrote: »

north sea oil and gas are finite resources and there is no rush to further deplete them ; better to wait until the price turns up ....

Maybe the price won't turn up. Maybe it has further to fall. People are seriously considering the possibility that a lot of the world's current known fossil fuel reserves are worth precisely nothing. Or as some people call it, the Carbon Bubble.

The Bank of England is to conduct an enquiry into the risk of fossil fuel companies causing a major economic crash if future climate change rules render their coal, oil and gas assets worthless.
http://www.theguardian.com/environment/2014/dec/01/bank-of-england-investigating-risk-of-carbon-bubble

CLAPTON wrote: »

...we would have be in a much better situation now if we hadn't pumped them out in such vast volumes in the 89/90/00s...

Depends dunnit. If we ever get to the point where oil is worthless, then perhaps we will be more than happy that we pumped the stuff out and flogged it when we could.

CLAPTON wrote: »

...There is absolutely no parallel with car production and importation

I'm inclined to agree.

cells

CLAPTON wrote: »

north sea oil and gas are finite resources and there is no rush to further deplete them ; better to wait until the price turns up


we would have be in a much better situation now if we hadn't pumped them out in such vast volumes in the 89/90/00s

There is absolutely no parallel with car production and importation

not sure anyone can claim with certainty we would have been in a better position and hindsight is a wonderful thing

also you are almost certainly wrong due to the time value of money. eg lets say you could move a billion barrels through time and space from 1980 ($37 a barrel) to 2010 ($80 a barrel)

what appears a good move would be a stupid move.
the UK would need to borrow $37B to buy the oil, issuing say 6% yeild gilts over 30 years = $212B and it would only get $81B of oil a huge loss not a gain

pick another set of dates, 1990 ($24) to 2010 ($80) but the 1990s oil is worth $77 at 6% interest almost the same


also the magic of moving a billion barrels of oil means higher prices at your move date and lower prices at your sale date


so in conclusion, its wasnt half as bad as you think

cells

CLAPTON wrote: »

we would have be in a much better situation now if we hadn't pumped them out in such vast volumes in the 89/90/00s

average price 2000-2015 by the looks of it is going to be ~$65

go back 25 years and the average 1976-1990 price was ~$25


gilts were yielding 10-15% during 1976-1990 if we take the mid point of 12.5% a $25 investment during that time period is worth $475

so instead of wishing we could magically bring historic production to now, we should be wishing we could magically bring current production back and sell it 25 years ago


seems the reverse of what you thought is true, and by a big amount