$7/gallon gas is coming

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

About a dozen or so pages back I was lectured for pointing out the problem here, but I’ll try again:

1. Drilling for oil is a technically complex operation. You’re trying to extract a molecule thousands of feet beneath the surface of the earth. You’re drilling into asymmetric geological formations. Those formations will determine the success of your venture. You can’t actually put your eyes on the molecule until it is extracted. There is a reason why Petroleum engineers are amongst the best paid on the planet.

2. Drilling for oil is a capital intensive business. Most of your costs are upfront before you start to collect revenue. The economics on any particular well are typically based on 30+ years of production from that well. Investing in a new well is inherently a very long term commitment.

3. Even under ideal circumstances, assuming you have a lease to drill on, first planning to first production takes about 180 days. Typically, it is much longer. Presently, it would be even longer due to labor and supply shortages.

4. EVEN BEFORE COVID, the oil business in North America was going through a historic reorganization with record bankruptcies filed. COVID further supercharged the process. Numerous big time investors flat out declared they would never invest in the space again. Politicians all over the globe have stated a desire to phase out oil sometime between 2030 to 2050.

5. EVEN BEFORE RUSSIA ATTACKED UKRAINE, the price of oil was steadily marching upward as demand was outstripping market forecasts. Just like COVID accelerated what was already a badly declining price environment, Russia’s actions accelerated what was a badly increasing price environment.

Now, a bunch of politicians who as recently as three weeks ago were openly cheering on/trying to legislate the end of the oil industry, have a SHORT term problem. They want oil companies to deploy expensive LONG term solutions to solve the problem. I don’t know what the solution is and there are probably a thousand more wrinkles to this problem I’ve left out from this post.

Still doesn’t mean the windfall should be paid out to shareholders rather than invested in more efficient energy sources or somehow used to soften the price increases on consumers. The message to consumers is that the companies and the shareholder are happy with inflation. They making out like robber barons at their consumers’ expense.

Huh, the price of oil is determined by a global market. Oil company shareholders took a lot of losses from 2018-2021 and companies pivoted to prioritizing paying down debt. That's a good thing. This isn't some conspiracy.

But, I'll tell you what would help. Investing in our electrical grid and infrastructure. Too many of ours are built to use the Saudi/Russian heavy grades of oil. This is because they were built before the shale revolution. We need to be able to use the lighter types that we have and that our allies have. But instead we have our time and money wasted by NIMBYs, "clean coal", ethanol, and the no change brigade etc. Optimize what we have for what we got in the short term and upgrade the grid to enable distributed production, ie: smaller scale wind and solar, for the long term.

[Anonymous]

Anonymous wrote:I'm not sure why so many people are condemning the President when oil companies are raising prices, prioritizing paying dividends to share holders, and raking in huge profits at the expense of the customers.

The President has made a bi-partisanly politically popular decision to ban the import of oil from Russia in response to the Russian invasion of Ukraine. But that, and even the closing of the XL pipeline are not the reasons why the price of gasoline is skyrocketing at the pump. The oil companies should be held accountable, not the President. Most other corporations out there, when faced with rising costs, tighten their belts, decrease their profit margins and lower dividend payouts to shareholders in order to minimize the amount they raise the price of their products. Not oil companies. And the oil companies get to skip off scott free and let the politicians take the blame.

You don't seem to understand market dynamics. The price of oil is not increasing because of rising costs, but because of a shortage in supply (and some speculation too). Oil is traded in commodities market, it's a very transparent process. It's supply and demand that is dictating the current price of oil not these companies. Some could say they should increase production but as already mentioned the economics may not make sense for them. Up to the Government to take action.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

About a dozen or so pages back I was lectured for pointing out the problem here, but I’ll try again:

1. Drilling for oil is a technically complex operation. You’re trying to extract a molecule thousands of feet beneath the surface of the earth. You’re drilling into asymmetric geological formations. Those formations will determine the success of your venture. You can’t actually put your eyes on the molecule until it is extracted. There is a reason why Petroleum engineers are amongst the best paid on the planet.

2. Drilling for oil is a capital intensive business. Most of your costs are upfront before you start to collect revenue. The economics on any particular well are typically based on 30+ years of production from that well. Investing in a new well is inherently a very long term commitment.

3. Even under ideal circumstances, assuming you have a lease to drill on, first planning to first production takes about 180 days. Typically, it is much longer. Presently, it would be even longer due to labor and supply shortages.

4. EVEN BEFORE COVID, the oil business in North America was going through a historic reorganization with record bankruptcies filed. COVID further supercharged the process. Numerous big time investors flat out declared they would never invest in the space again. Politicians all over the globe have stated a desire to phase out oil sometime between 2030 to 2050.

5. EVEN BEFORE RUSSIA ATTACKED UKRAINE, the price of oil was steadily marching upward as demand was outstripping market forecasts. Just like COVID accelerated what was already a badly declining price environment, Russia’s actions accelerated what was a badly increasing price environment.

Now, a bunch of politicians who as recently as three weeks ago were openly cheering on/trying to legislate the end of the oil industry, have a SHORT term problem. They want oil companies to deploy expensive LONG term solutions to solve the problem. I don’t know what the solution is and there are probably a thousand more wrinkles to this problem I’ve left out from this post.

Still doesn’t mean the windfall should be paid out to shareholders rather than invested in more efficient energy sources or somehow used to soften the price increases on consumers. The message to consumers is that the companies and the shareholder are happy with inflation. They making out like robber barons at their consumers’ expense.

Huh, the price of oil is determined by a global market. Oil company shareholders took a lot of losses from 2018-2021 and companies pivoted to prioritizing paying down debt. That's a good thing. This isn't some conspiracy.

But, I'll tell you what would help. Investing in our electrical grid and infrastructure. Too many of ours are built to use the Saudi/Russian heavy grades of oil. This is because they were built before the shale revolution. We need to be able to use the lighter types that we have and that our allies have. But instead we have our time and money wasted by NIMBYs, "clean coal", ethanol, and the no change brigade etc. Optimize what we have for what we got in the short term and upgrade the grid to enable distributed production, ie: smaller scale wind and solar, for the long term.

As i understand building new refineries to process the kind of oil supply we have takes years and is very expensive.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Was mentioned several times upthread, the investments to expand production are uneconomical to companies like Shell. It would take either some sort of regulation or incentive by US gov for these companies to expand production.

That is not true production is expanding and is extremely profitable at current price points. The problem, as it were, is more that companies are not convinced that this price spike isn't just temporary. Investments in production capacity take at least a year to start seeing a return. They are holding back because of how hard many companies got hit by debt issues from 2018-2020 and not having a clear idea where the price of oil will be a year from now. Investors want financial discipline and dividends over growth. The market will take some time to adjust but it will. The oil guys also want a pat on the head and a belly rub

That's how the oil industry has always worked. Certain wells are always profitable, as the prices rise, other sources like shale and deeper water become profitable, as the price falls, those rigs are taken off line.

Of course, it's basic economics. I'm just pushing back on the assertion that increasing production is uneconomical.

Increasing production is uneconomical for the companies for all the reasons mention by the poster at 15:54

That's not what that poster was saying. The poster was explaining why the industry isnt jumping and immediately expanding production.

The breakeven price for most shale is, conservatively, $60. Prices greater than $70 are economical. The issue is whether $75+ prices will be sustained over the medium term.

[Anonymous]

Anonymous wrote:

Anonymous wrote:I'm not sure why so many people are condemning the President when oil companies are raising prices, prioritizing paying dividends to share holders, and raking in huge profits at the expense of the customers.

The President has made a bi-partisanly politically popular decision to ban the import of oil from Russia in response to the Russian invasion of Ukraine. But that, and even the closing of the XL pipeline are not the reasons why the price of gasoline is skyrocketing at the pump. The oil companies should be held accountable, not the President. Most other corporations out there, when faced with rising costs, tighten their belts, decrease their profit margins and lower dividend payouts to shareholders in order to minimize the amount they raise the price of their products. Not oil companies. And the oil companies get to skip off scott free and let the politicians take the blame.

You don't seem to understand market dynamics. The price of oil is not increasing because of rising costs, but because of a shortage in supply (and some speculation too). Oil is traded in commodities market, it's a very transparent process. It's supply and demand that is dictating the current price of oil not these companies. Some could say they should increase production but as already mentioned the economics may not make sense for them. Up to the Government to take action.

I'm not talking about the price of oil. I'm talking about the price of gasoline at the pump. The oil companies do not control the price of the raw product, but they do control the amount of profit they make and the amount of dividends that they pay out to shareholders for the processing of the raw product into the finished product that they sell. I'm not saying that they need to eat all of the cost, eliminate all profit or shareholder dividends, but taking in $46B worth of profits for the corporation and shareholders and buying back shares to cut down on debt should not be done at the same time that the cost of oil is rising.

This reeks of price gouging and the federal government should be looking into more regulation of the oil industry if they are making such huge profits during times of crisis when the international price of oil is rising.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:I'm not sure why so many people are condemning the President when oil companies are raising prices, prioritizing paying dividends to share holders, and raking in huge profits at the expense of the customers.

The President has made a bi-partisanly politically popular decision to ban the import of oil from Russia in response to the Russian invasion of Ukraine. But that, and even the closing of the XL pipeline are not the reasons why the price of gasoline is skyrocketing at the pump. The oil companies should be held accountable, not the President. Most other corporations out there, when faced with rising costs, tighten their belts, decrease their profit margins and lower dividend payouts to shareholders in order to minimize the amount they raise the price of their products. Not oil companies. And the oil companies get to skip off scott free and let the politicians take the blame.

You don't seem to understand market dynamics. The price of oil is not increasing because of rising costs, but because of a shortage in supply (and some speculation too). Oil is traded in commodities market, it's a very transparent process. It's supply and demand that is dictating the current price of oil not these companies. Some could say they should increase production but as already mentioned the economics may not make sense for them. Up to the Government to take action.

I'm not talking about the price of oil. I'm talking about the price of gasoline at the pump. The oil companies do not control the price of the raw product, but they do control the amount of profit they make and the amount of dividends that they pay out to shareholders for the processing of the raw product into the finished product that they sell. I'm not saying that they need to eat all of the cost, eliminate all profit or shareholder dividends, but taking in $46B worth of profits for the corporation and shareholders and buying back shares to cut down on debt should not be done at the same time that the cost of oil is rising.

This reeks of price gouging and the federal government should be looking into more regulation of the oil industry if they are making such huge profits during times of crisis when the international price of oil is rising.

Paying down debt when the price is rising is the exact thing they should be doing. One cant pay down debt when profits are shrinking.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

About a dozen or so pages back I was lectured for pointing out the problem here, but I’ll try again:

1. Drilling for oil is a technically complex operation. You’re trying to extract a molecule thousands of feet beneath the surface of the earth. You’re drilling into asymmetric geological formations. Those formations will determine the success of your venture. You can’t actually put your eyes on the molecule until it is extracted. There is a reason why Petroleum engineers are amongst the best paid on the planet.

2. Drilling for oil is a capital intensive business. Most of your costs are upfront before you start to collect revenue. The economics on any particular well are typically based on 30+ years of production from that well. Investing in a new well is inherently a very long term commitment.

3. Even under ideal circumstances, assuming you have a lease to drill on, first planning to first production takes about 180 days. Typically, it is much longer. Presently, it would be even longer due to labor and supply shortages.

4. EVEN BEFORE COVID, the oil business in North America was going through a historic reorganization with record bankruptcies filed. COVID further supercharged the process. Numerous big time investors flat out declared they would never invest in the space again. Politicians all over the globe have stated a desire to phase out oil sometime between 2030 to 2050.

5. EVEN BEFORE RUSSIA ATTACKED UKRAINE, the price of oil was steadily marching upward as demand was outstripping market forecasts. Just like COVID accelerated what was already a badly declining price environment, Russia’s actions accelerated what was a badly increasing price environment.

Now, a bunch of politicians who as recently as three weeks ago were openly cheering on/trying to legislate the end of the oil industry, have a SHORT term problem. They want oil companies to deploy expensive LONG term solutions to solve the problem. I don’t know what the solution is and there are probably a thousand more wrinkles to this problem I’ve left out from this post.

Still doesn’t mean the windfall should be paid out to shareholders rather than invested in more efficient energy sources or somehow used to soften the price increases on consumers. The message to consumers is that the companies and the shareholder are happy with inflation. They making out like robber barons at their consumers’ expense.

Huh, the price of oil is determined by a global market. Oil company shareholders took a lot of losses from 2018-2021 and companies pivoted to prioritizing paying down debt. That's a good thing. This isn't some conspiracy.

But, I'll tell you what would help. Investing in our electrical grid and infrastructure. Too many of ours are built to use the Saudi/Russian heavy grades of oil. This is because they were built before the shale revolution. We need to be able to use the lighter types that we have and that our allies have. But instead we have our time and money wasted by NIMBYs, "clean coal", ethanol, and the no change brigade etc. Optimize what we have for what we got in the short term and upgrade the grid to enable distributed production, ie: smaller scale wind and solar, for the long term.

As i understand building new refineries to process the kind of oil supply we have takes years and is very expensive.

Indeed. The US has gotten around it by mixing various types of oil to fit its refineries.

I’m not in favor of building new refineries, except perhaps a very few. We really do need to focus on renewables. Our situation reveals a weakness in our system. We can surmount it, but there’s no immediate solution to increased domestic energy production.

However, the world CAN stabilize energy prices somewhat low f OPEC does its part instead of shielding Russia. The UAE announcement was a good first step.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

About a dozen or so pages back I was lectured for pointing out the problem here, but I’ll try again:

1. Drilling for oil is a technically complex operation. You’re trying to extract a molecule thousands of feet beneath the surface of the earth. You’re drilling into asymmetric geological formations. Those formations will determine the success of your venture. You can’t actually put your eyes on the molecule until it is extracted. There is a reason why Petroleum engineers are amongst the best paid on the planet.

2. Drilling for oil is a capital intensive business. Most of your costs are upfront before you start to collect revenue. The economics on any particular well are typically based on 30+ years of production from that well. Investing in a new well is inherently a very long term commitment.

3. Even under ideal circumstances, assuming you have a lease to drill on, first planning to first production takes about 180 days. Typically, it is much longer. Presently, it would be even longer due to labor and supply shortages.

4. EVEN BEFORE COVID, the oil business in North America was going through a historic reorganization with record bankruptcies filed. COVID further supercharged the process. Numerous big time investors flat out declared they would never invest in the space again. Politicians all over the globe have stated a desire to phase out oil sometime between 2030 to 2050.

5. EVEN BEFORE RUSSIA ATTACKED UKRAINE, the price of oil was steadily marching upward as demand was outstripping market forecasts. Just like COVID accelerated what was already a badly declining price environment, Russia’s actions accelerated what was a badly increasing price environment.

Now, a bunch of politicians who as recently as three weeks ago were openly cheering on/trying to legislate the end of the oil industry, have a SHORT term problem. They want oil companies to deploy expensive LONG term solutions to solve the problem. I don’t know what the solution is and there are probably a thousand more wrinkles to this problem I’ve left out from this post.

Still doesn’t mean the windfall should be paid out to shareholders rather than invested in more efficient energy sources or somehow used to soften the price increases on consumers. The message to consumers is that the companies and the shareholder are happy with inflation. They making out like robber barons at their consumers’ expense.

These are not Nationalized companies, they are private, for profit - of course profits are passed on to shareholders as is the duty of the company to do so. It's up to the US government to take countermeasures or regulate the industry more heavily due to implications to national security and interests.

That isn’t how capitalism is supposed to work. If it was a truly competitive market they couldn’t all pocket all the money because some competitors would be more efficient, more productive, or higher quality and use those competitive advantages to increase their market share. Competition dries innovation, efficiency, and productivity. We don’t have that kind of competition. It’s an inherently corrupt industry.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

About a dozen or so pages back I was lectured for pointing out the problem here, but I’ll try again:

1. Drilling for oil is a technically complex operation. You’re trying to extract a molecule thousands of feet beneath the surface of the earth. You’re drilling into asymmetric geological formations. Those formations will determine the success of your venture. You can’t actually put your eyes on the molecule until it is extracted. There is a reason why Petroleum engineers are amongst the best paid on the planet.

2. Drilling for oil is a capital intensive business. Most of your costs are upfront before you start to collect revenue. The economics on any particular well are typically based on 30+ years of production from that well. Investing in a new well is inherently a very long term commitment.

3. Even under ideal circumstances, assuming you have a lease to drill on, first planning to first production takes about 180 days. Typically, it is much longer. Presently, it would be even longer due to labor and supply shortages.

4. EVEN BEFORE COVID, the oil business in North America was going through a historic reorganization with record bankruptcies filed. COVID further supercharged the process. Numerous big time investors flat out declared they would never invest in the space again. Politicians all over the globe have stated a desire to phase out oil sometime between 2030 to 2050.

5. EVEN BEFORE RUSSIA ATTACKED UKRAINE, the price of oil was steadily marching upward as demand was outstripping market forecasts. Just like COVID accelerated what was already a badly declining price environment, Russia’s actions accelerated what was a badly increasing price environment.

Now, a bunch of politicians who as recently as three weeks ago were openly cheering on/trying to legislate the end of the oil industry, have a SHORT term problem. They want oil companies to deploy expensive LONG term solutions to solve the problem. I don’t know what the solution is and there are probably a thousand more wrinkles to this problem I’ve left out from this post.

Still doesn’t mean the windfall should be paid out to shareholders rather than invested in more efficient energy sources or somehow used to soften the price increases on consumers. The message to consumers is that the companies and the shareholder are happy with inflation. They making out like robber barons at their consumers’ expense.

It’s not so simple. If you stopped drilling for oil worldwide tomorrow, in about 12 months you’d have 7% less oil being produced. That would have a catastrophic worldwide impact. There is no overstating the hurt that would result in such a scenario.

Simply stated, you need investors and companies engaged in the sector for the foreseeable future. Commodities are inherently boom/bust. Take away the boom part of the equation and why would any capital remain in the space? The real answer is that with time this will work its way through the market.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Was mentioned several times upthread, the investments to expand production are uneconomical to companies like Shell. It would take either some sort of regulation or incentive by US gov for these companies to expand production.

That is not true production is expanding and is extremely profitable at current price points. The problem, as it were, is more that companies are not convinced that this price spike isn't just temporary. Investments in production capacity take at least a year to start seeing a return. They are holding back because of how hard many companies got hit by debt issues from 2018-2020 and not having a clear idea where the price of oil will be a year from now. Investors want financial discipline and dividends over growth. The market will take some time to adjust but it will. The oil guys also want a pat on the head and a belly rub

That's how the oil industry has always worked. Certain wells are always profitable, as the prices rise, other sources like shale and deeper water become profitable, as the price falls, those rigs are taken off line.

Of course, it's basic economics. I'm just pushing back on the assertion that increasing production is uneconomical.

Increasing production is uneconomical for the companies for all the reasons mention by the poster at 15:54

That's not what that poster was saying. The poster was explaining why the industry isnt jumping and immediately expanding production.

The breakeven price for most shale is, conservatively, $60. Prices greater than $70 are economical. The issue is whether $75+ prices will be sustained over the medium term.

That's what makes it uneconomical. Huge capital expenditure upfront with zero guarantees of being able to recover that investment or turn a profit long term. Also, OPEC countries can increase production and choke shale producers. They'd have to get some guarantees from the Government.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

About a dozen or so pages back I was lectured for pointing out the problem here, but I’ll try again:

1. Drilling for oil is a technically complex operation. You’re trying to extract a molecule thousands of feet beneath the surface of the earth. You’re drilling into asymmetric geological formations. Those formations will determine the success of your venture. You can’t actually put your eyes on the molecule until it is extracted. There is a reason why Petroleum engineers are amongst the best paid on the planet.

2. Drilling for oil is a capital intensive business. Most of your costs are upfront before you start to collect revenue. The economics on any particular well are typically based on 30+ years of production from that well. Investing in a new well is inherently a very long term commitment.

3. Even under ideal circumstances, assuming you have a lease to drill on, first planning to first production takes about 180 days. Typically, it is much longer. Presently, it would be even longer due to labor and supply shortages.

4. EVEN BEFORE COVID, the oil business in North America was going through a historic reorganization with record bankruptcies filed. COVID further supercharged the process. Numerous big time investors flat out declared they would never invest in the space again. Politicians all over the globe have stated a desire to phase out oil sometime between 2030 to 2050.

5. EVEN BEFORE RUSSIA ATTACKED UKRAINE, the price of oil was steadily marching upward as demand was outstripping market forecasts. Just like COVID accelerated what was already a badly declining price environment, Russia’s actions accelerated what was a badly increasing price environment.

Now, a bunch of politicians who as recently as three weeks ago were openly cheering on/trying to legislate the end of the oil industry, have a SHORT term problem. They want oil companies to deploy expensive LONG term solutions to solve the problem. I don’t know what the solution is and there are probably a thousand more wrinkles to this problem I’ve left out from this post.

Still doesn’t mean the windfall should be paid out to shareholders rather than invested in more efficient energy sources or somehow used to soften the price increases on consumers. The message to consumers is that the companies and the shareholder are happy with inflation. They making out like robber barons at their consumers’ expense.

These are not Nationalized companies, they are private, for profit - of course profits are passed on to shareholders as is the duty of the company to do so. It's up to the US government to take countermeasures or regulate the industry more heavily due to implications to national security and interests.

That isn’t how capitalism is supposed to work. If it was a truly competitive market they couldn’t all pocket all the money because some competitors would be more efficient, more productive, or higher quality and use those competitive advantages to increase their market share. Competition dries innovation, efficiency, and productivity. We don’t have that kind of competition. It’s an inherently corrupt industry.

You don't know what you are talking about. The shale revolution and what happened completely refutes your assumptions. The big mistake you are making is assuming that the industry was doing well from 2018-2021. It wasn't.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Was mentioned several times upthread, the investments to expand production are uneconomical to companies like Shell. It would take either some sort of regulation or incentive by US gov for these companies to expand production.

That is not true production is expanding and is extremely profitable at current price points. The problem, as it were, is more that companies are not convinced that this price spike isn't just temporary. Investments in production capacity take at least a year to start seeing a return. They are holding back because of how hard many companies got hit by debt issues from 2018-2020 and not having a clear idea where the price of oil will be a year from now. Investors want financial discipline and dividends over growth. The market will take some time to adjust but it will. The oil guys also want a pat on the head and a belly rub

That's how the oil industry has always worked. Certain wells are always profitable, as the prices rise, other sources like shale and deeper water become profitable, as the price falls, those rigs are taken off line.

Of course, it's basic economics. I'm just pushing back on the assertion that increasing production is uneconomical.

Increasing production is uneconomical for the companies for all the reasons mention by the poster at 15:54

That's not what that poster was saying. The poster was explaining why the industry isnt jumping and immediately expanding production.

The breakeven price for most shale is, conservatively, $60. Prices greater than $70 are economical. The issue is whether $75+ prices will be sustained over the medium term.

That's what makes it uneconomical. Huge capital expenditure upfront with zero guarantees of being able to recover that investment or turn a profit long term. Also, OPEC countries can increase production and choke shale producers. They'd have to get some guarantees from the Government.

They don't need guarantees from the government. We dont need price controls and subsidies. We need geopolitical stability and unfortunately we are in the midst of a geopolitical inflection point right now.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Was mentioned several times upthread, the investments to expand production are uneconomical to companies like Shell. It would take either some sort of regulation or incentive by US gov for these companies to expand production.

That is not true production is expanding and is extremely profitable at current price points. The problem, as it were, is more that companies are not convinced that this price spike isn't just temporary. Investments in production capacity take at least a year to start seeing a return. They are holding back because of how hard many companies got hit by debt issues from 2018-2020 and not having a clear idea where the price of oil will be a year from now. Investors want financial discipline and dividends over growth. The market will take some time to adjust but it will. The oil guys also want a pat on the head and a belly rub

That's how the oil industry has always worked. Certain wells are always profitable, as the prices rise, other sources like shale and deeper water become profitable, as the price falls, those rigs are taken off line.

Of course, it's basic economics. I'm just pushing back on the assertion that increasing production is uneconomical.

Increasing production is uneconomical for the companies for all the reasons mention by the poster at 15:54

That's not what that poster was saying. The poster was explaining why the industry isnt jumping and immediately expanding production.

The breakeven price for most shale is, conservatively, $60. Prices greater than $70 are economical. The issue is whether $75+ prices will be sustained over the medium term.

That's what makes it uneconomical. Huge capital expenditure upfront with zero guarantees of being able to recover that investment or turn a profit long term. Also, OPEC countries can increase production and choke shale producers. They'd have to get some guarantees from the Government.

No. Shale doesn't require the level of capex traditional production did. The tradeoff is that wells are shorter lived and the breakeven price is higher. Conventional production has a much lower breakeven point but requires a lot more capex. OPEC has been around for decades. We've been through this before.

I dont know which is worse the drill baby drill capitalists demanding socialism or the stop oil production now environmentalists complaining about prices.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

About a dozen or so pages back I was lectured for pointing out the problem here, but I’ll try again:

1. Drilling for oil is a technically complex operation. You’re trying to extract a molecule thousands of feet beneath the surface of the earth. You’re drilling into asymmetric geological formations. Those formations will determine the success of your venture. You can’t actually put your eyes on the molecule until it is extracted. There is a reason why Petroleum engineers are amongst the best paid on the planet.

2. Drilling for oil is a capital intensive business. Most of your costs are upfront before you start to collect revenue. The economics on any particular well are typically based on 30+ years of production from that well. Investing in a new well is inherently a very long term commitment.

3. Even under ideal circumstances, assuming you have a lease to drill on, first planning to first production takes about 180 days. Typically, it is much longer. Presently, it would be even longer due to labor and supply shortages.

4. EVEN BEFORE COVID, the oil business in North America was going through a historic reorganization with record bankruptcies filed. COVID further supercharged the process. Numerous big time investors flat out declared they would never invest in the space again. Politicians all over the globe have stated a desire to phase out oil sometime between 2030 to 2050.

5. EVEN BEFORE RUSSIA ATTACKED UKRAINE, the price of oil was steadily marching upward as demand was outstripping market forecasts. Just like COVID accelerated what was already a badly declining price environment, Russia’s actions accelerated what was a badly increasing price environment.

Now, a bunch of politicians who as recently as three weeks ago were openly cheering on/trying to legislate the end of the oil industry, have a SHORT term problem. They want oil companies to deploy expensive LONG term solutions to solve the problem. I don’t know what the solution is and there are probably a thousand more wrinkles to this problem I’ve left out from this post.

Still doesn’t mean the windfall should be paid out to shareholders rather than invested in more efficient energy sources or somehow used to soften the price increases on consumers. The message to consumers is that the companies and the shareholder are happy with inflation. They making out like robber barons at their consumers’ expense.

These are not Nationalized companies, they are private, for profit - of course profits are passed on to shareholders as is the duty of the company to do so. It's up to the US government to take countermeasures or regulate the industry more heavily due to implications to national security and interests.

That isn’t how capitalism is supposed to work. If it was a truly competitive market they couldn’t all pocket all the money because some competitors would be more efficient, more productive, or higher quality and use those competitive advantages to increase their market share. Competition dries innovation, efficiency, and productivity. We don’t have that kind of competition. It’s an inherently corrupt industry.

This is a faulty interpretation of the facts. Oil is not a standardized widget. Standardization occurs at the refinery after the oil has been extracted. So while oil is a global commodity, it isn’t as simple as a barrel from West Texas replacing one from Russia or Canada or Venenzuela.

Additionally, producing oil is incredibly risky. The most technically challenging wells in North America are deep water wells in the Gulf of Mexico. Those are drilled in about 1000 feet of water with a target drilling horizon about 30,000 feet below the seabed floor. You’re literally drilling for something that is over 5 miles away from the nearest human being. You’re doing this based on geological surveys that can easily be misread. And you’re doing it from a floating platform and dealing with insane temperatures that deep into the earth. A TEST well out there costs well north of $100 million just to drill and can take up to a decade to plan.

We haven’t even gotten to how you get the oil back to dry land. Or making sure you optimize production (produce too fast and you’ll damage the well, produce too slow and you can damage the well).

I get that people want this to be a simple problem to solve with simple explanations.

Obviously this is but one example and there are less technically challenging projects, but you’d be surprised at the technical challenges in all fields. You probably have no idea what waxy Utah oil is, but you should Google a picture. As the name would imply, it is a waxy oil that is solid at surface temperatures. Yet that supplies most of the oil products for the Utah area. California oil is a completely different production profile than west Texas. Etc….

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Was mentioned several times upthread, the investments to expand production are uneconomical to companies like Shell. It would take either some sort of regulation or incentive by US gov for these companies to expand production.

That is not true production is expanding and is extremely profitable at current price points. The problem, as it were, is more that companies are not convinced that this price spike isn't just temporary. Investments in production capacity take at least a year to start seeing a return. They are holding back because of how hard many companies got hit by debt issues from 2018-2020 and not having a clear idea where the price of oil will be a year from now. Investors want financial discipline and dividends over growth. The market will take some time to adjust but it will. The oil guys also want a pat on the head and a belly rub

That's how the oil industry has always worked. Certain wells are always profitable, as the prices rise, other sources like shale and deeper water become profitable, as the price falls, those rigs are taken off line.

Of course, it's basic economics. I'm just pushing back on the assertion that increasing production is uneconomical.

Increasing production is uneconomical for the companies for all the reasons mention by the poster at 15:54

That's not what that poster was saying. The poster was explaining why the industry isnt jumping and immediately expanding production.

The breakeven price for most shale is, conservatively, $60. Prices greater than $70 are economical. The issue is whether $75+ prices will be sustained over the medium term.

That's what makes it uneconomical. Huge capital expenditure upfront with zero guarantees of being able to recover that investment or turn a profit long term. Also, OPEC countries can increase production and choke shale producers. They'd have to get some guarantees from the Government.

They don't need guarantees from the government. We dont need price controls and subsidies. We need geopolitical stability and unfortunately we are in the midst of a geopolitical inflection point right now.

There has never been geopolitical stability. US has had to flex its army and enter in the shadiest of deals to maintain a semblance of stability.