2011 March 4

The Master Resource Report  2011-03-04

Why are you selling me your shale gas property? (page 1 )

Choke Point: China – Circle of Blue report. (page 2 )

Consumer spending on gasoline. (page 2 )

The next big thing in energy? (page 3 )

Energy, Water & Food? (page 3 )

The VW van is back, cool..! (page 4 )

Could the demand for oil exceed consumption?

“Analysts believe the political upheaval in the Middle East and north Africa is likely to encourage both China and India to accelerate their purchases of crude for strategic reserves.

Yes demand could exceed consumption. If oil importing countries like China and India try to import an extra million barrels or two cumulatively beyond the volumes needed to meet consumptive demand it could have negative impacts on an already strained supply. Demand for an extra 1 million barrels per day globally would absorb approximately 25% or more of Saudi reported (remember we don’t really know) surplus capacity. In addition this is relatively price insensitive demand that will be driven as much by domestic politics as supply and economic realities.

We may be seeing the early stages of the recognition that oil warrants a scarcity premium being manifested in a form of nationalized hording. If these condition begin to develop normal market forces will lose their impact and price could take on a life of its own.

When you start hearing that nearly every oil importing country in the world is developing a strategic oil reserve it will be a sign the rules are changing in the global energy market for crude oil.

Did US oil production reach its highest level in a decade last year?

The Financial Times this week reported that “US oil production last year rose to its highest level in almost a decade, thanks to an increase in the use of “unconventional” extraction techniques .”

The article went on to report that “…domestic production of crude oil and related liquids rose 3 per cent last year to an average of 7.51m barrels a day…” Is that true?

Well yes and no. The U.S. did not produce 7.51 mb/d of crude oil. Those “related liquids” include NGLs which are hydrocarbons like propane, butane and ethane. While they are valuable they are not crude oil. At the end of 2010 the U.S. had produced an average of 5.51 million barrels per day of crude oil according to data from the EIA.

The graph below illustrates average daily U.S. Crude Oil production for each year since 2000. It also shows (yellow line) the peak U.S. production reached in 1970 of 9.63 million barrels per day.

Click for enlarged view

It is not unreasonable that U.S. crude oil production could add another 1 or maybe even 2 million barrels per day of new crude production over the next few years from the Bakken and deep water Gulf of Mexico. However with background depletion eating away at existing wells and in particular the steep decline rates in deep water it is unlikely those additions would be net. Remember to never forget depletion, it never stops to rest.

At this time the U.S. has currently returned to consuming close to 20 million barrels per day. Would those new barrels really change the picture much?  Liquid Fuel Energy Independence…?

Oil was over $100 before Mubarak’s troubles began.

“Amid the chaos sweeping through the Middle East, it is easy to lose sight of where oil prices were trading before the political protests began. Brent was north of $100 per barrel before protestors started sweeping into Cairo’s Tahrir Square. The triple digit price for oil was due to runaway global demand, which by the end of last year had soared to more than a record 87 million barrels per day.”

To say that global petroleum consumers have a short memory is an understatement but since most have very little idea of how the oil markets and supply work it is no surprise they would not remember what Jeff Rubin wrote above.

Jeff’s closing remark on his blog was more important. “We are moving inexorably closer to another oil price induced recession. And when we get there, oil demand and oil prices will once again collapse. The only question is will we see $200 per barrel oil first?”