OPEC analysis – is there room for all of the oil the cartel can produce?
In the above video, Richard Swan, director of Platts global oil news, offers some keen insights about the world’s oil markets and the importance of OPEC in balancing supply and demand to establish a price that is “acceptable” to both consuming and producing nations. OPEC has a long running goal of trying to ensure that oil prices are set high enough to provide them with as much revenue as possible without being so high that they encourage the development of effective alternative energy supplies.
Of course, many people have misunderstood exactly which alternative energy sources are of the greatest concern when it comes to OPEC’s ability to sell as much oil as possible at the highest price that the market will bear.
As demonstrated by the most effective “energiewendes” (energy transitions) ever undertaken — France’s nearly complete shift from oil to nuclear energy in its electrical power system over a 20 year period and the US’s complete replacement of oil in aircraft carriers and submarines — uranium is one of the primary threats to OPEC’s market domination.
These days, the conversation among energy pundits often centers around unconventional oil from source like tar sands and shale rock as the alternatives that most directly take markets away from OPEC oil when oil prices are high enough to make those much more effort-intensive sources economical. Swan circles around the situation but does not connect the dots very well. World oil prices, as established by OPEC production quotas and world events like sanctions on Iran, war in Iraq, and regime change in Libya have been stable at a relatively high level for the past several years.
During the same several years, production from oil sands in Alberta and shale rock in Texas and North Dakota has steadily increased. The often mentioned production gain in those unconventional resource fields would not have happened without the steady high prices. There is no such thing as a creative entrepreneurial spirit that create a profitable business by squeezing oil out of oil sand and shale rocks if the world price was $80. That is the consensus estimate of the break even cost of production.
No one should ever buy into an industry sponsored story that there have been large discoveries in the Bakken or the Athabasca. People have known about the large quantities of oil in those formations for many decades; they even knew how to get the oil out. As oil and gas enthusiasts repeat every time someone challenges the safety of hydraulic fracturing or in-situ resource heating, the technologies have been known and used in special situations for more than 40 years. The missing ingredient for a growing application of the technologies has been a high enough market price to make the effort profitable. (The Eagle Ford Formation is a very recent discovery, but its development has also been enabled by high prices.)
As Swan points out, if Iran, Libya and Iraq all develop their production capability back to the level that they have traditionally been allowed to produce via the OPEC quotas, there will be pressure on the other suppliers to reduce their production to provide room in the market. The other alternative, the one that consumers might prefer, would be a dramatically lower price to encourage economic recovery and a growth in overall oil demand.
That might damage recent gains in North American production if world prices fall below the unconventional oil break even point.
Three posts in one day, nice. I was almost starting to be concerned after no new posts in a whole week.
Nnadir’s post looks like a solid 25-30 minute reading effort for this evening.
I was about to ask for a replacement for our light water moderator …..
No new posts in one week? I just thought the blog was going strong, but had renamed itself bAsTOMIC INSIGHTS. 😉
Okay. I get it. Sorry I was quiet for a while, but you can find out more about why from http://ansnuclearcafe.org/2013/11/05/realistic-look-at-smrs-in-idaho/
I guess I could have spend my evenings blogging instead of more face to face interactions. However, I am glad that you all missed me.
My response to the question:
Who cares? Anything that forces e.g. Saudi Arabia to halt its spending program on foreign mosques to placate its domestic hordes is a good thing.
@Engineer-Poet
The people who should “care” are those who are busily making plans expecting that the recent boom in US oil production is sustainable. They LIKE high oil prices, don’t seem to recognize the relationship between Saudi revenues and instability that you pointed out, and do not seem to care that those high prices are restraining economic activity throughout the rest of the world.
The shale boom may give us a few decades of rest from foreign dependence, but it won’t last forever. We should be using that new source of wealth like the UAE; by building a nuclear infrastructure that will last for centuries.
Now looking ahead with the new Democrat Governor of Virginia. Will the Uranium mining ban be lifted ?
Not likely from that wing of that party.
He is first and foremost a Clintonite, the people who presided over the IFR defunding in 1994, and the release of cleverly-redacted information on the use of “reactor-grade” Pu in a nuclear weapons test three decades earlier to support continued prohibition on spent fuel reprocessing.
Apparently he is a supporter of “clean coal” with CCS, and neodymium-dependent whirligigs (TOH to NNadir): http://en.wikipedia.org/wiki/Terry_McAuliffe#Energy_and_environmental_issues
Re: “…and neodymium-dependent whirligigs ”
I just don’t understand how the public can sit back and just let these metal monsters infest and litter the landscape and seascape. My big fear is that generations will grow up thinking the things are as natural as daisies.
James Greenidge
Queens NY
Most people do not understand energy and it’s importance to society. The average person likely thinks that electricity just bounces back and forth in the wires until it’s used, and terms like storage, itermittancy, peaking, baseload, etc, might as well be Chinese. I don’t know about the rest of the world, but the average American’s understanding of science and economics is
Woefully inadequate.
Funny you should mention the reactor grade thing, I was thinking about this just the other day. Do you have links to the “cleverly-redacted info”? Thanks!
That’s a question to Atomikrabbit. The sequence of replies always gets me on this site.
The following blog entry is very complete about why civilian nuclear industry has never been a pathway for a bomb :
http://depletedcranium.com/why-you-cant-build-a-bomb-from-spent-fuel/
And the paragraph titled “The great deception” has all the detail about the “reactor grade plutonium” 1962 test, down to demonstrating from which plant the used fuel likely came, including links to the documents it’s based on.
thanks jmdesp. I remember that one now.
As for cost and recoverable oil, with respect to Texas I noticed an incredible graph (arn’t they all! – thats the kind people like to make.) a few days ago. Rather unbelievable even considering rising prices – but not impossible I guess. I need to look more into it:
( http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=pet&s=mcrfptx1&f=m )
In many ways oil is probably the easiest dangerous fossil fuel to replace – with nuclear of course – although it seems to me that many people are missing this point.
I have a (very) long – even for me – piece touching on this subject that is built around the very interesting topic of carbon capture from the air.
I’m dusting it off to see what can be done with it, since Rod’s graciously letting me publish here.
It’s about my favorite “not petroleum” fuel, the wonder fuel DME. This fuel is so wonderful, I can’t imagine that anyone would use anything else. But anyone who has ever developed something that is the greatest thing since sliced bread should probably develop enough cynicism to expect no more.
The chemical feed stocks obtained from petroleum are also something of a non issue. If you have syn gas you have everything petroleum contains, without the dirt and filth.
Air capture is still a long shot, but there remain some very, very, very, very bright people working on it and it still may not be impossible, although as is often the case in so many other areas, nuclear is the only thing that can do it.
I saw some very wonderful presentations on the subject at the recent ACS meeting in Indianapolis, and I’ve read a lot of papers on the subject. Many people in the environmentalist community (in which I include myself) think that air capture may be essential, and if so, we’re in bad shape if it;s not possible.
If it is possible, it will involve the ocean, and I have some neat thoughts on that subject, if I must say so myself.
I couldn’t care less about the cost of oil; from where I sit it needs to be banned for political, environmental, safety and health reasons. Anything that causes it to decline has my enthusiastic support.
After electrification, I’m not sure we’d need air capture. Look at the figures in “The Billion-Ton Vision”. A billion tons of biomass, containing 400 million tons of carbon, ought to do for those things we need done.
FWIW, methanol is a better fuel than DME. It contains more energy (the reaction of 2 MEoH to DME+H2O is exothermic), is a room-temperature liquid and allows higher specific power in engines.
I never knew uranium was viewed as a primary threat to OPEC’s oil domination — natural gas, yes… capitalistic drive, yes… never uranium.
Good article, thanks for posting–
– Greg