10 Updates

Cost Inflation In Energy Projects 2: The Myth Of The End Of Cheap Oil

Feb 5 2014, 1:53pm CST | by

There is no question that development costs for oil products, as well as LNG plants, gas-to-liquid projects, and others have experienced substantial inflation over the past decade. The source of...

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24 weeks ago

Cost Inflation In Energy Projects 2: The Myth Of The End Of Cheap Oil

Feb 5 2014, 1:53pm CST | by

There is no question that development costs for oil products, as well as LNG plants, gas-to-liquid projects, and others have experienced substantial inflation over the past decade. The source of this increase, however, remains a point of contention.

One school of thought argues that “the easy oil is gone” and that marginal cost of new oil projects is $100 a barrel, meaning prices are unlikely to fall below that level for any length of time. The opposite point of view suggests that these are primarily cyclical, and will be reversed in time.

Research I have done suggests that the latter is the primary cause of recent cost escalation. (More in the next post.) Although massive projects like deepwater oil fields appear to involve much more effort than a shallow, onshore well, they also contain much more oil, so that unit costs ($/barrel) are usually not too dissimilar. And while those who believe that the early days of the industry resemble the title sequence of the Beverly Hillbillies, with Jed striking oil by firing a bullet into the ground, the reality is contained in books like “Hell’s Half Acre” about the early days of the Canadian oil industry (not the cheesy B movie .  Okay, I haven’t seen it, but just look at the poster.)

The perception that the industry has, suddenly in the past decade, moved from “easy” oil to “hard” oil is fallacious. The huge number of oil fields (over 40,000 discovered to date) means that there is a continuum of potential development projects, not a dichotomy. Although geopolitical events such as the upstream nationalizations of the 1970s, can shift the industry from cheaper wells to more expensive wells, that was a one-time event, unlikely to be repeated.

And those who, like peak oil advocate Colin Campbell, believe that most new supplies must come from the Middle East are contradicting themselves, since countries like Iraq and Saudi Arabia typically produce about 10,000 barrels a day from conventional wells, versus a more typical 10-20 barrels a day in North America. Relying more heavily on the Middle East for oil supplies would mean lower costs overall.

It’s true that the industry is using larger and much more sophisticated equipment to access supplies, but this is not so much an indication that the ‘easier’ oil is gone as that the ‘harder’ oil has become easier, and often accessible. After all, no one thinks the use of four engine jetliners is a sign that the ‘easy’ sky is gone, or that skyscrapers mean that there is no land to build upon.

In the end, the reality is that most comments on oil development costs are based on vague impressions, not careful analysis. In the next post, I will argue that cyclical factors, especially high oil prices, are driving up costs.

Source: Forbes Business

 
Update
10

6 weeks ago

RM47mil KWSG contributions still unclaimed

Jun 9 2014 7:54am CDT | Source: Business Times Malaysia

Cambodia's Famous Battambang Circus
KUALA LUMPUR: About RM47 million of contributions in the Teachers Provident Fund (KWSG) still remain unclaimed, the Dewan Rak ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
9

6 weeks ago

Gold shop lost almost RM1mil

Jun 9 2014 3:50am CDT | Source: Business Times Malaysia

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KANGAR: A gold shop owner lost almost RM1 million after after the safe on in his shop was broken into by robb ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
8

6 weeks ago

Motion to debate MAS losses in Dewan Rakyat rejected

Jun 9 2014 3:39am CDT | Source: Business Times Malaysia

Federal Aviation Administration Bans All US Flights To Israel
KUALA LUMPUR: AN emergency motion to debate the losses incurred by Malaysia Airlines last year, amounting to RM1.2 billion was reje ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
7

6 weeks ago

MH370 Tragedy: Hisham: RM27.6 mil spent on 1st phase of SAR

Jun 9 2014 2:11am CDT | Source: Business Times Malaysia

KUALA LUMPUR: Malaysia spent some RM27.6 million in its first phase of the search operations for missing Malaysia Airline flight MH370, said Acting Transport Minister, Datuk Seri Hishammud ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
6

6 weeks ago

9.1m litres of diesel seized in a month

Jun 8 2014 1:11am CDT | Source: Business Times Malaysia

INDIA-CHINA-DIPLOMACY-TRADE
PUTRAJAYA: The Domestic Trade, Cooperatives, and Consumerism ministry has seized some 9.1 million litres of diesel and property worth RM58 million since mounting ‘Operasi Diesel Selatan’ in the southern states last month. ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
5

7 weeks ago

Girl, 9, awarded RM2.78m compensation for medical negligence

Jun 6 2014 4:56am CDT | Source: Business Times Malaysia

Government Weekly Cabinet Meeting
KUALA LUMPUR: A nine-year-old girl who suffered brain damage during her birth at a government hospital was awarded over RM2 ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
4

7 weeks ago

Malaysia's total trade in April up 12pc

Jun 5 2014 11:52pm CDT | Source: Business Times Malaysia

KUALA LUMPUR: Malaysia's total trade in April 2014 rose by 12 per cent from a year ago to RM123.86 billion due to growing trading activities, International Trade and Industry Minister Datuk Seri Mustap ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
3

7 weeks ago

Works Ministry to spend RM20m for upgrading works at 50 accident black spots

Jun 4 2014 11:35pm CDT | Source: Business Times Malaysia

Iskandar Johor Open - Previews
JOHOR BARU: The Works Ministry will implement upgrading works at 50 accident prone locations in the country that have been identified this year involving an allocation of RM20 milli ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
2

7 weeks ago

Najib launches loan scheme for Ramadan traders

Jun 4 2014 10:24pm CDT | Source: Business Times Malaysia

EurAsia Cup presented by DRB-HICOM - Day One
PUTRAJAYA: Prime Minister Datuk Seri Najib Razak today launches RM45 million Ramadan Bazaar Scheme 2 ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
1

7 weeks ago

Residents bring up objection against Kidex to Suhakam

Jun 4 2014 4:49am CDT | Source: Business Times Malaysia

PETALING JAYA: A group of 20 Petaling Jaya residents held a meeting with the Human Rights Commission of Malaysia (Suhakam) over their objection against the proposed RM2.2 billion Kinrara Damansara Skyway (Ki ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 

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