Over the course of 2014 the prices the world paid for crude oil tumbled from over $125 per barrel to around $45 per barrel now, and could easily drop further before recovering for a time to then begin the cycle of boom and bust all over again . You get the idea. In the end, the wild whipsawing of the oil market, and the even wilder whipsawing of financial markets, currencies, the rolling bankruptcies of energy companies, followed by the entities that financed them, then national defaults of the countries that backed these entities, will in due course cause industrial economies to collapse. And without a functioning industrial economy, crude oil would be reclassified as toxic waste. But that is a few decades in the future.
In the meantime, the much lower prices of oil have priced most of the producers of unconventional oil out of the market. Recall that conventional oil (the cheap-to-produce kind that comes gushing out of vertical wells drilled not too deep down into dry ground) peaked in 2005 and has been declining ever since. To make the statistics look better, resources that aren't actually oil were counted as oil. Biofuels (ethanol and biodiesel) were counted without adjusting for the fact that the net energy (after subtracting the fossil fuels used in producing them) is quite small. Natural gas plant liquids, lease condensate (low-grade gasoline from gathered vapor) and “refinery gain” (volume expansion that does not add energy) were counted as well to make the numbers tell a better story.
To be sure, there were some actual production gains as well. The production of unconventional oil, including offshore drilling, tar sands, hydrofracturing to produce shale oil and other expensive techniques, was lavishly financed in order to make up for the shortfall. But in spite of all these efforts, oil prices went up and stayed stubbornly high, hovering around $100/bbl. And then they dropped. Explanations for this abound, including some very interesting geopolitical theories. But the simplest explanation that may in the end prove sufficient is that consumers, when faced with the consequences of $100/bbl oil, eventually run out of money and their consumption drops. And if production isn't cut (and it isn't being cut for geopolitical as well as financial reasons) then a glut forms and prices collapse.
Be that as it may, what we are left with is that at the moment most unconventional oil costs more to produce than it can be sold for. This means that entire countries, including Venezuela's heavy oil (which requires upgrading before it will flow), offshore production in the Gulf of Mexico, Norway and Nigeria, Canadian tar sands and, of course, shale oil in the US, are producing oil at a loss. All of these producers are now burning money as well as quite a bit of the energy they produce, and if the low oil prices persist, they will in due course be forced to shut down.
In the meantime, the much lower prices of oil have priced most of the producers of unconventional oil out of the market. Recall that conventional oil (the cheap-to-produce kind that comes gushing out of vertical wells drilled not too deep down into dry ground) peaked in 2005 and has been declining ever since. To make the statistics look better, resources that aren't actually oil were counted as oil. Biofuels (ethanol and biodiesel) were counted without adjusting for the fact that the net energy (after subtracting the fossil fuels used in producing them) is quite small. Natural gas plant liquids, lease condensate (low-grade gasoline from gathered vapor) and “refinery gain” (volume expansion that does not add energy) were counted as well to make the numbers tell a better story.
To be sure, there were some actual production gains as well. The production of unconventional oil, including offshore drilling, tar sands, hydrofracturing to produce shale oil and other expensive techniques, was lavishly financed in order to make up for the shortfall. But in spite of all these efforts, oil prices went up and stayed stubbornly high, hovering around $100/bbl. And then they dropped. Explanations for this abound, including some very interesting geopolitical theories. But the simplest explanation that may in the end prove sufficient is that consumers, when faced with the consequences of $100/bbl oil, eventually run out of money and their consumption drops. And if production isn't cut (and it isn't being cut for geopolitical as well as financial reasons) then a glut forms and prices collapse.
Be that as it may, what we are left with is that at the moment most unconventional oil costs more to produce than it can be sold for. This means that entire countries, including Venezuela's heavy oil (which requires upgrading before it will flow), offshore production in the Gulf of Mexico, Norway and Nigeria, Canadian tar sands and, of course, shale oil in the US, are producing oil at a loss. All of these producers are now burning money as well as quite a bit of the energy they produce, and if the low oil prices persist, they will in due course be forced to shut down.
Read more from source: http://world.einnews.com/article/246506934/s1WGpRsRV2Xse-wT
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