On Oil Supply and Demand
By Vladimir Posted in Energy — Comments (3) / Email this page » / Leave a comment »
A few thoughts to keep in mind when discussing energy markets.
Anyone, including Uncle Sam, who says that ANWR (or any other large potential supply) will bring the crude oil price down "only $1 per barrel" is blowing pure smoke. Oil prices are moving several dollars per barrel intraday, so $1 per barrel is way below the threshold of noise.
Anyone who says that "Alaskan oil would just be sold to Japan" doesn't understand that the oil market is worldwide and that oil is a fungible commodity.
As a commodity, oil supply has an odd relationship with its price. The value (utility) of the commodity is extraordinary; a half-million barrel shortfall in supply worldwide can bid the price up extraordinarily high. Conversely, if an excess of a half million barrels per day overhangs the market, an incremental barrel has little value since it must be stored. Once tankers, pipelines and storage tanks are full, wells will be shut in.
Back in the '80s, OPEC, and the Saudis in particular, were very conscious of the West as their primary market, and they intended to maintain market share at all costs. New, non-OPEC supplies were coming on in the North Sea. The Saudis' biggest fear was that high sustained prices would cause the West to invest heavily in R&D in enhanced oil recovery and other new technologies. Consequently, the Saudis opened the valves and managed their supply to maintain the world price at a low level in order to make it hard for competing technologies and high cost production to compete.
For S vs D projections for the next decade or two?
There's a lot I don't understand about maintaining market share by dropping price while pumping more from a limited field.
Why doesn't SA take Achance's position of letting the world get hooked on high cost producers while producing a little for a long time and wallowing in the dough? Even if it does only cost them a buck and a half to get a barrel up, why would they want to pump 5 mbpd @ $60 when they could pump 2.5 mbpd @ $120? Doesn't the industry love their crude?
Lot to learn, I guess.
http://www.eia.doe.gov/oiaf/aeo/index.html
Without deviation from the norm, progress is not possible. - Frank Zappa
is a red herring. As Vladimir points out, it is a fungible commodity and if we sell it to Japan, oil that would have gone to Japan is available to go somewhere else. I don't think we are exporting any significant amounts of oil these days. Back when our production was higher, we did export some, though we had one Helluva time getting authorization to do so even though we were having to give oil away at or near production costs. The reason export was so important to us is that there was not enough refinery capacity on the West Coast to take all of our production. When the Left Coast refineries couldn't take our oil, it had to go to Panama, get transhipped through a pipeline to another tanker and shopped on the Gulf or East Coasts and the transportation costs were taking all our revenue which is based on wellhead value.
Bringing ANWR on at 1MM/bbl./dy. would bring TAPS back up to near its capacity of around 2MM/bbl./dy., so I don't know if there is the refinery capacity on the Left Coast these days. I know they haven't built any, but some might have been upgraded. I also don't know if there is enough Jones Act tanker capacity to get that much oil up and down the West Coast. I think we can still use the usual rust buckets for oil that isn't going between American ports.
In Vino Veritas