Tag Archives: OPEC

Peak Oil

How OPEC’s Decision Affects Hawaii

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Richard Ha blog
The OPEC flag

Last week, OPEC decided to maintain oil production at 30 million barrels/day. Robert Rapier comments on the issues involved at his blog Energy Trends Insider:

OPEC Crashed the U.S. Rig Count

 By Robert Rapier

June 10, 2015

The OPEC Free Fall

 There is a popular narrative going around that I want to address in today’s article. Last November, after several months of plummeting crude oil prices, the Organization of the Petroleum Exporting Countries (OPEC) met to discuss the oil production quotas for each country in the months ahead. Many expected OPEC to cut production in order to shore up crude prices that had been falling since summer. This was the strategy favored by OPEC’s poorer members, as many require oil prices at $100/barrel (bbl) in order to balance government budgets…. Read the rest

Here’s recent background: In the latter half of 2014, oil prices were declining steadily, influenced mostly by large supplies of U.S. shale oil. When OPEC met in November to decide on production quotas, lots of folks expected it to reduce production in order to push oil price higher, but instead the organization decided to maintain market share by maintaining production at 30 million barrels/day. The price of oil dropped from a high of over $100/barrel to mid-$40/barrel. There was lots of speculation as to whether or not shale producers could sustain themselves at $40/barrel. As it turns out, above $70/barrel or so is where shale production increases and below that price it decreases.

Of all the states, Hawai‘i is the most dependent on oil. As soon as oil prices plummeted in November, we knew it would be good for us. The University of Hawai‘i Economic Research Organization (UHERO) has forecasted that Hawai‘i County will have economic growth for the next several years.

So what will happen between now and OPEC’s next meeting? If demand increases, then when oil hits $70/barrel, U.S. shale will start to crank up and that will hold the price around $70. If demand is not sufficient, prices will decline. Either way, it’s good for Hawai‘i.

What about the next OPEC meeting in November? Robert Rapier says that OPEC will probably be dealing with the effect of Iran’s increase in supply if a nuclear deal is made. This means lower price pressure, assuming the world’s political problems remain manageable.

Now if we can find a solution to our liquid transportation problem sooner rather than later, we in Hawai‘i will be well on our way to energy security. Think hydrogen for ground transportation and the Big Island will be in the best possible position to achieve energy security.

Peak Oil, Sustainability

Are Shale Oil Bankruptcies Coming Soon?

Richard Ha writes:

This Wall St. for Main St. video has oil and energy expert Robert Rapier as guest and it’s a very interesting discussion.

Robert, an internationally known energy expert who was recently on 60 Minutes, discusses various scenarios around the price of oil and cause-and-effect. I like Robert because he has no fear. He calls it like he sees it. He has a chemical engineering background and he has actually run a petroleum plant. He knows what it takes to make ends meet.

Here are some highlights of the discussion:

Robert says that because March and April are normal maintenance months it’s not likely that oil will drop into the $40/barrel range, unless it’s only for a very short time. Usage has started to ramp up in the last few weeks.

He thinks that oil will be in the $50-$70/barrel range for the next few years. The trend will be for the oil price to rise due to demand. T. Boone Pickens feels the price will hit $100/barrel in two years. Robert thinks it will be a little longer. $100 per barrel oil is not good. Any higher than that is bad.

Hedges come off in the next year, so most producers are hoping desperately for higher prices. Demand has increased by one million barrels every year for the last five years, mostly supplied by shale oil. But shale oil wells deplete very quickly. 

Rig count, normally a leading indicator, has fallen but we haven’t seen supply drop yet. Hedges running out in a year will add to upward pressure. Within the year we will start to see the effect of declining rig count.

Robert thinks Saudi will talk about raising prices at the next OPEC meeting. He doesn’t think Saudi Arabia expected to drop to the $40s.

Shale oil is not a panacea. The U.S. has a huge infrastructure advantage over the rest of the world. We have pipelines, water, and refineries in position. For the rest of the world, it means new capital spending. So supply from world shale oil will probably be minimal.

Conventional oil has been declining and U.S. shale oil will not last very long so the world needs to go to natural gas or deep water, and that will put pressure on natural gas prices. After shale oil and gas, there is no more. 

If you like to see the background to the oil and gas supply markets, I highly recommend Robert Rapier’s view of things. It gives you an insider view.

Here in Hawai‘i we depend on oil for 70 percent of our energy. We will transition to natural gas and before long that price will start to rise. We need to grab all the advantages we can get.

Do not throw away the Thirty Meter Telescope, geothermal, and biotech crops. These all help us cope in a world of declining petroleum products.