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Thread: Running out of oil?!?!?!?

  1. #1
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    Running out of oil?!?!?!?

    http://www.msnbc.msn.com/id/14678206/

    Let's give a basic economics lesson here, free of charge!

    When oil profit margins are higher, capital expenditures by oil companies increase. When CapEx increases, exploratory drilling increases...since profits have to cover not only successful drilling but also unsuccessful drilling. With these high margins, new sources of oil are likely to be found, increasing the overall supply, which in turn, coupled with the increased competition that record margins attract, puts a depressive effect on prices.

    60 years ago, experts hysterically warned that we would run out of oil in a generation if we didn't cut back severely on consumption. (They also warned hysterically about Global Cooling!). However, a funny thing happened - not only did we not cut back on consumption, we increased it rapidly. But what, pray tell, happened to the oil supply? There's about 3x more now then there was then! How can this happen, you say? Because peple don't know how much oil there is, so at any moment, we can only speak of the known reserves of oil. But these known reserves increase when companies drill successfully and companies drill successfully when it is profitable for them to do so - when oil margins are high. This is an industry with unimpressive historical margins...oil is a volatile, risky asset.

    Now, the fashionable thing to do is use words like "addiction" to describe what any reasonable person would think about an inexpensive vital resource. Are we addicted to electricity? Are we addicted to computers? What do people think is used to make plastic? Plastic is the most-used material in the world and has been for almost 40 years and is vitally important, cheap, food and healthcare packaging material. What do people think powers planes and hospitals that greatly enhance our standard of living?? Now, the Big Scare is global warming...it used to be acid rain and DDT and too many others to list.

    But hey, everyone - please go back to demonizing oil companies and talking about price gouging, price controls, suing oil companies and oil addiction and everything else. That makes a TON of sense.
    Last edited by jets5ever; 09-05-2006 at 11:17 AM.

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    Smog is cool!

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    I just paid $2.29/gal at the local grocery store to fill up my SUV.

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    Quote Originally Posted by JetFanTransplant
    I just paid $2.29/gal at the local grocery store to fill up my SUV.

    My SUV runs on dead baby seals and blood mixed with sand!

  5. #5
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    Quote Originally Posted by PlumberKhan
    My SUV runs on dead baby seals and blood mixed with sand!
    theyve come a long way with the hybrids

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    I agree with the premise of your post, but like to add a few things. While gross margins are at a record high for the industry, they still are low compared to other industries (believe its around 9 or 10%.) With the amount of capital required to be a player in this game, I don't think we will see a lot more new entrants.

    I also believe that overcapacity will not be an issue in oil. As margins increase, most companies overestimate future profitability and market share, leading to overcapacity in that market...it is usually exacerbated by "cheap money" flowing into the industry. But even as Greenspan and Bernake continue to just print money to solve any problem, the oil industry seems to not have followed this trend more recently demonstrated by telecoms, fiber optics, media, tech etc and what I believe will happen in the next year or so in housing.

    Oil companies aren't predicting a rosy tomorrow. I think its because they have seen this movie before and know what overcapacity will do to an industry. So while they are IMO, doing what is right for the company, it isn't going to help the price of oil go down. What I'm most afraid of is politics will get way too much in the way, force all sorts of unprofitable projects etc and muck everything up

    feel free to bash this, just my ideas
    Last edited by Lawyers, Guns and Money; 09-05-2006 at 11:51 AM.

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    5ever - the flaw in your argument is in the assumption that new reserves can be found. In the end, all that is is an assumption; that it happened in the past is no predictor that it will happen in the future as well.

    That's not to say that it won't - but it makes sense to plan for it not happening, rather than simply hoping that it does and being left with no contingency plans if it does not.

    And either way, wouldn't you agree that if at all possible we need to be less reliant on a resource we need to pay hostile countries for?

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    Quote Originally Posted by doggin94it
    5ever - the flaw in your argument is in the assumption that new reserves can be found. In the end, all that is is an assumption; that it happened in the past is no predictor that it will happen in the future as well.

    That's not to say that it won't - but it makes sense to plan for it not happening, rather than simply hoping that it does and being left with no contingency plans if it does not.

    And either way, wouldn't you agree that if at all possible we need to be less reliant on a resource we need to pay hostile countries for?
    The sun rising tomorrow is also an assumption. That is has happened in the past is no predictor that it will happen in the future.

    My post is not meant to suggest that there is some infinite amount of oil - perhaps it is possible to run out in some absolute sense, if you assume that everything else in the world remains stagnant and unchanged over time. But more it is to demonstrate that the "we're running out of oil!" nonsense is unfounded, since there is more now than there was 60 or 100 years ago, and we've used more oil during that time, not less. Remember that the next time some moron talks about how we only have x amount of years' worth of oil left. You'll see all sorts opf studies by academics warning us gravely about how we only have 30 years worth of oil left, but they don't understand economics at all.

    "Science" as many on the left like to call it, doens't even kow for certain where all oil comes from or how much there is. The basic, "dinosaurs" biogenic oil theory was developed over 250 years ago. Recently, there have been studies that imply that there are "abiogenic" theories about how oil can form naturally, deep inside the earth and seep upwards through cracks formed by asteroid impacts, to form pools. Such oil, such "abiogenic" oil has been discovered already, although to date not in significant amounts. However, studies and searching continues apace and if this source of oil were ever discovered to be large and extractable, this would likely mean that il also exists on other planets and, possibly, the moon. (The moon is a vast repository of nutrual resources just waiting to be mined, but that is a whole nother story entirely!)

    Who says we have no contingency plans? Look at what companies are doing to oil shales and tar sands, for one example. That is still a ways away, but it is being addressed at a gangbusters pace. (seek out the Alabasca (sp?) field in Alberta, Canada that is daily producing a lot of oil that way) Right now there are many alternatives to oil, it's just that at the present state of technology, none are as cheap and some (like hydrogen) actually require more energy to acquire and process than it actually provides itself. But the main point is that innovation is going on constantly and will continue to go on.

    The gulf of Mexico is not exactly Iran, though, right?

    When you research this problem, you will find phrases like "peak oil production" and data that says things like, "New oil discoveries have slipped over the past couple of decades." What these figures imply is that exploratory drilling has been undertaken at a consistent pace during all of those years, but has simply been unsuccessful. The problem, though, is that when margins are not high in the industry, people don't drill. Companies tend to not find oil when they think it is not worth it for them to even look. When it is worth it, they tend to find it, like they apparently did in the Gulf of Mexico.
    Last edited by jets5ever; 09-05-2006 at 12:44 PM.

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    Quote Originally Posted by Lawyers, Guns and Money
    I agree with the premise of your post, but like to add a few things. While gross margins are at a record high for the industry, they still are low compared to other industries (believe its around 9 or 10%.) With the amount of capital required to be a player in this game, I don't think we will see a lot more new entrants.

    I also believe that overcapacity will not be an issue in oil. As margins increase, most companies overestimate future profitability and market share, leading to overcapacity in that market...it is usually exacerbated by "cheap money" flowing into the industry. But even as Greenspan and Bernake continue to just print money to solve any problem, the oil industry seems to not have followed this trend more recently demonstrated by telecoms, fiber optics, media, tech etc and what I believe will happen in the next year or so in housing.

    Oil companies aren't predicting a rosy tomorrow. I think its because they have seen this movie before and know what overcapacity will do to an industry. So while they are IMO, doing what is right for the company, it isn't going to help the price of oil go down. What I'm most afraid of is politics will get way too much in the way, force all sorts of unprofitable projects etc and muck everything up

    feel free to bash this, just my ideas

    You may be right about the barriers to entry, but there are many firms with a ton of capital available who may want to invest in this, especially with the short-term outlook so rosy, in terms of margins. We shall see.

    You are right that oil companies know that their commodity is volatile and risky and has low historical profitability. The biggest challenge any firm faces is how to allocate capital. I'm unsure if I agree with the notion that this reticence will prevent them from making (what they think are) profitable capital expenditures. Assuming that the government stays out of it, and assuming they fear overcapacity, what, exactly, do you think these oil companies are going to do with their extra capital? What would you do, if you ran an oil company?

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    Quote Originally Posted by jets5ever
    You may be right about the barriers to entry, but there are many firms with a ton of capital available who may want to invest in this, especially with the short-term outlook so rosy, in terms of margins. We shall see.

    You are right that oil companies know that their commodity is volatile and risky and has low historical profitability. The biggest challenge any firm faces is how to allocate capital. I'm unsure if I agree with the notion that this reticence will prevent them from making (what they think are) profitable capital expenditures. Assuming that the government stays out of it, and assuming they fear overcapacity, what, exactly, do you think these oil companies are going to do with their extra capital? What would you do, if you ran an oil company?
    I really haven't looked closely at what oil companies are doing, but Im pretty sure that returning money to shareholders has been the priority weather a buyback or dividend. Exploration seems to be secondary (aagin I haven't looked that closely.) I agree with the strategy if they don't have enough NPV positive projects to invest in. But the flip side (and this is all based on my assumptions, which could be off) is this will add to political pressures and will do little to lower oil prices (and to be fair, there is little that oil companies can do to lower prices to hold off political pressures)

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    Quote Originally Posted by Lawyers, Guns and Money
    I really haven't looked closely at what oil companies are doing, but Im pretty sure that returning money to shareholders has been the priority weather a buyback or dividend. Exploration seems to be secondary (aagin I haven't looked that closely.) I agree with the strategy if they don't have enough NPV positive projects to invest in. But the flip side (and this is all based on my assumptions, which could be off) is this will add to political pressures and will do little to lower oil prices (and to be fair, there is little that oil companies can do to lower prices to hold off political pressures)
    http://www.conocophillips.com/newsro...ens_to_profits

    Take a look at this link and the data in the chart on the right, as well as the link to the API's report on investment in emerging energies. Look at how much exploration and production investment has increased recently, conciding with the higher margins.

    You have it backwards- divs are secondary and CapEx is primary. Divs have increased too, no doubt, though.
    Last edited by jets5ever; 09-05-2006 at 12:40 PM.

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    Quote Originally Posted by jets5ever
    The sun rising tomorrow is also an assumption. That is has happened in the past is no predictor that it will happen in the future.
    That's a terrible analogy and you know it. The "sun will rise tomorrow" is not an assumption but a prediction based on current (not past) measurable (not assumed) facts: the earth's rotation, the position of the earth relative to the sun, etc. Saying "the sun will rise tomorrow" is like saying "if I drop a ball from the top of the building, it will fall downward" - you say it not because "it's happened before" but because you know that the forces which caused it to happen before (the earth's rotation, gravity) are still in play.

    "We found more oil before, so we'll find more again", in stark contrast, is nothing more than a hope based on past results, not an extrapolation from currently known and operative facts.

    So there.

    My post is not meant to suggest that there is some infinite amount of oil - perhaps it is possible to run out in some absolute sense, if you assume that everything else in the world remains stagnant and unchanged over time. But more it is to demonstrate that the "we're running out of oil!" nonsense is unfounded, since there is more now than there was 60 or 100 years ago, and we've used more oil during that time, not less. Remember that the next time some moron talks about how we only have x amount of years' worth of oil left. You'll see all sorts opf studies by academics warning us gravely about how we only have 30 years worth of oil left, but they don't understand economics at all.

    "Science" as many on the left like to call it, doens't even kow for certain where all oil comes from or how much there is. The basic, "dinosaurs" biogenic oil theory was developed over 250 years ago. Recently, there have been studies that imply that there are "abiogenic" theories about how oil can form naturally, deep inside the earth and seep upwards through cracks formed by asteroid impacts, to form pools. Such oil, such "abiogenic" oil has been discovered already, although to date not in significant amounts. However, studies and searching continues apace and if this source of oil were ever discovered to be large and extractable, this would likely mean that il also exists on other planets and, possibly, the moon. (The moon is a vast repository of nutrual resources just waiting to be mined, but that is a whole nother story entirely!)

    Who says we have no contingency plans? Look at what companies are doing to oil shales and tar sands, for one example. That is still a ways away, but it is being addressed at a gangbusters pace. (seek out the Alabasca (sp?) field in Alberta, Canada that is daily producing a lot of oil that way) Right now there are many alternatives to oil, it's just that at the present state of technology, none are as cheap and some (like hydrogen) actually require more energy to acquire and process than it actually provides itself. But the main point is that innovation is going on constantly and will continue to go on.

    The gulf of Mexico is not exactly Iran, though, right?

    When you research this problem, you will find phrases like "peak oil production" and data that says things like, "New oil discoveries have slipped over the past couple of decades." What these figures imply is that exploratory drilling has been undertaken at a consistent pace during all of those years, but has simply been unsuccessful. The problem, though, is that when margins are not high in the industry, people don't drill. Companies tend to not find oil when they think it is not worth it for them to even look. When it is worth it, they tend to find it, like they apparently did in the Gulf of Mexico.
    Oh, I agree - particularly when it comes to oil shale and tar sands (that'll be a subject on my campaign blog soon enough). But the fact that the world isn't going to end tomorrow (as the doomsayers would have it) doesn't mean that continuing on our present path without any alterations (as the fingers-in-the-ears, la-la-la-ing, there-will always be enough oil crowd would have it) is a good idea. It's a question of what tradeoffs can be made, whether they are worth it, and how significant their impact is (that's why I'm against ANWR drilling, btw).

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    Quote Originally Posted by doggin94it
    That's a terrible analogy and you know it. The "sun will rise tomorrow" is not an assumption but a prediction based on current (not past) measurable (not assumed) facts: the earth's rotation, the position of the earth relative to the sun, etc. Saying "the sun will rise tomorrow" is like saying "if I drop a ball from the top of the building, it will fall downward" - you say it not because "it's happened before" but because you know that the forces which caused it to happen before (the earth's rotation, gravity) are still in play.

    "We found more oil before, so we'll find more again", in stark contrast, is nothing more than a hope based on past results, not an extrapolation from currently known and operative facts.

    So there.



    Oh, I agree - particularly when it comes to oil shale and tar sands (that'll be a subject on my campaign blog soon enough). But the fact that the world isn't going to end tomorrow (as the doomsayers would have it) doesn't mean that continuing on our present path without any alterations (as the fingers-in-the-ears, la-la-la-ing, there-will always be enough oil crowd would have it) is a good idea. It's a question of what tradeoffs can be made, whether they are worth it, and how significant their impact is (that's why I'm against ANWR drilling, btw).

    My analogy is bad, but your ridiculous description of our present path is valid?? C'mon - fingers in our ears, la-la-la-ing -...are you kidding me?


    People love doomsday scenarios, people love repentence and forgiveness, For all I know, this sort of thing is hard-wired into humanity. We're all going to die, society is going to collapse unless we change our sinful ways. It's a common narrative and anyone who tries to show any skepticism about it is instantly branded as a fool or as somone who is selfish and cares naught for his descendants. It gets old, espcially considering that these Impending Catastrophy stories have literally been 100% wrong without exception. (I know, I know, just because they've all been wrong before doesn't mean this new one is wrong...blah, blah blah.)

    Of COURSE you're against ANWR drilling. You care about things, natch.

  14. #14
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    Quote Originally Posted by jets5ever
    My analogy is bad, but your ridiculous description of our present path is valid?? C'mon - fingers in our ears, la-la-la-ing -...are you kidding me?
    yes and no; I wouldn't put you in that camp, but there are plenty who belong there. Besides, I just liked the image


    People love doomsday scenarios, people love repentence and forgiveness, For all I know, this sort of thing is hard-wired into humanity. We're all going to die, society is going to collapse unless we change our sinful ways. It's a common narrative and anyone who tries to show any skepticism about it is instantly branded as a fool or as somone who is selfish and cares naught for his descendants. It gets old, espcially considering that these Impending Catastrophy stories have literally been 100% wrong without exception. (I know, I know, just because they've all been wrong before doesn't mean this new one is wrong...blah, blah blah.)

    Of COURSE you're against ANWR drilling. You care about things, natch.
    Hey, I agree that the "impending catastrophe" idea is overwrought. But this isn't a two value world, and "no impending catastrophe" does not equate to "therefore everything is fine".

    We need to consider steps like subsidizing domestic/canadian oil shale and tar sand production, even if it would mean overspending if market prices fell back below the current ~$50/bbl break even point on those technologies, we need to spend far more on R&D efforts aimed at alternative power sources (reducing use of oil as a power source would have a profound effect, even if it doesn't eliminate the need for oil in other areas), and we should be conserving more because conservation can help reduce consumption, especially if it is not the only step taken.

    And yeah, I oppose drilling in ANWR because as far as I can tell, the trade off isn't worth it. It won't dramatically increase the world's oil supply or impact the markets, and the damage it would cause is very great. If there was a Saudi Arabia sized oil field sitting under there, I'd say drill away, but even the rosiest of forecasts for the ANWR field are relatively negligible.

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    BTW, isn't it nice to be arguing about something again instead of agreeing all the time? I was beginning to think fatherhood had made you boring (How's everyone doing, btw?)

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    Your post assumes that the world petroleum market is a perfect free market where free market forces control production, exploration and demand. Can you really say that is true? When there are cartels and political forces in play that all control supply can you properly use the free market model and say that it will work?

    Also oil profit margins have been pretty good for a while but the price has really skyrocketed. If your theory is operative this shouldn't have happened.

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    Well lookee here. More oil, right here in the good ol' US of A

    Vast Oil Pool Tapped in Gulf of Mexico

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    a 5-15bbl reserve.

    As a reference point, Saudi Arabia has a 270bbl reserve.

    Not that it isn't good news, but I wouldn't be popping champaign corks over it either.

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    the problem with oil is that importing and securiting it has become a national security risk

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    Quote Originally Posted by Associated Press
    Vast Oil Pool Tapped in Gulf of Mexico
    A trio of oil companies led by Chevron Corp. has tapped a petroleum pool deep beneath the Gulf of Mexico that could boost the nation's reserves by more than 50 percent. A test well indicates it could be the biggest new domestic oil discovery since Alaska's Prudhoe Bay a generation ago.

    But the vast oil deposit roughly four miles beneath the ocean floor won't significantly reduce the country's dependence on foreign oil and it won't help lower prices at the pump anytime soon.



    Isn't that cute....BUT ITS WRONG!
    Last edited by PlumberKhan; 09-05-2006 at 07:40 PM.

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