Sunday, July 30, 2017

Why I Love To Blog -- It's An Existential Issue -- July 30, 2017

Has Saudi Arabia stopped the bleeding?

Source: Trading Economics.

Posted by John Kemp, via Twitter, early Monday morning, July 31, 2017:

Lies, Damned Lies, And Statistics

John Kemp's headline over at Twitter: SAUDI CRUDE OIL EXPORTS have been running well below 2016 level since start of year and kingdom has pledged < 6.6 million b/d in August. 

What is not said in that headline is that Saudi had record production in 2016. From late 2014 to late 2016 Saudi tried to break US shale by opening the spigots; their production actually never dropped until early 2017. So, saying their exports were well below 2016 may not be saying a whole lot. Then, in the graph, they compare current exports to the 10-year average, which, of course, is greatly affected by the surge in production/exports from 2014 to 2016. If one eliminated 2014 - 2016 data, the 10-year line would be (much?) lower and Saudi exports would still be greater than the 10-year average. Lies, damned lies, and statistics. 

The real problem, however, is not Saudi. In the big scheme of things they probably are trying to right the ship. The problem is the other OPEC countries, notably Iraq and Iran.

Now Bloomberg Is Calling It An Existential Issue
As long ago as November 11, 2015, I said that low oil prices were an existential issue for Saudi Arabia and I've said it since on numerous occasions.

I see that others are reading the blog. LOL.

From Bloomberg today: OPEC's existential sucker punch.
You wait decades for an existential crisis, then two come along at once. At least that's how it must feel for OPEC's beleaguered ministers. In the short term the market for their oil is being eroded by rising production outside their control. Looking further ahead, oil demand itself is under threat from the electrification of road transport. OPEC may not yet be dead, but its days are surely numbered.
The most obvious short-term threat to the group comes from the rapid rise in U.S. shale oil, but the risks have expanded to include other areas like Brazil's prolific sub-salt discoveries and more recent finds further north along the east coast of South America.
The writer says "OPEC's days are numbered." For me, OPEC = Saudi Arabia. In math, if A=B and B=C, then A=C. Just saying.

Some data points from the article:
  • Asia turning to US crude oil to offset OPEC cutbacks
  • China was the biggest foreign buyer of US crude in April (most recent EIA data) -- overtaking Canada for the second time this year (does this say more about Canada or China?)
  • Indian refiners are finding an appetite for US grades that compete directly with OPEC
  • Saudi was hoping that Asia would stay true to OPEC
  • little letup in US oil production
  • lower 48 crude oil production hit 9 million bopd for the first time in nearly two years
  • big oil is learning to live with "lower for longer"
  • last quarter, Shell generated almost as much cash from its operations at $50/bbl as it when oil was above $100/bbl
  • big oil is getting "fit"; OPEC is not: they have not made the cuts they need to survive if prices persist at these levels
Then a lot of political correctness talk about EVs. Trivial. 


  1. Bruce Oksol: " 'Looking further ahead, oil demand itself is under threat from the electrification of road transport....'

    Then a lot of political correctness talk about EVs. Trivial."

    I agree about the EVs.

    But what about this? Where I live public transport is skipping the natural gas => electricity step, and going directly to buses that run on natural gas. This is far more efficient than the EV thing, or the diesel thing, its advocates claim.

    And natural gas is so unbelievably cheap in the north American market that it seems only a matter of time before we see more of this.

    --- Autobuses a gas natural, opción previa a eléctricos: El uso de autobuses a gas natural podría crecer porque ese combustible es más barato que la gasolina y diésel y porque son una opción más económica que los automotores eléctricos ---

    "Incredibly, the cost of operating a natural gas vehicle is cheaper than diesel, ethanol, hybrids and, of course, electric ones. After the electric buses that do not release polluting emissions, natural gas is the greenest….

    And, if they are almost as clean as the electric ones and they are the cheapest option and they are safe, why is the public transport service to natural gas not happening more rapidly? The answers have to do with the subsidy that has been maintained every year for fossil fuels (gasoline and diesel), the inadequate system of pipelines for the transport and distribution of natural gas and, of course, the meager growth of service stations to supply the fuel….

    In addition to having a positive impact on the environment and health, governments and carriers must take into account that natural gas is 40% cheaper than diesel. Instead of electric public transportation, the most profitable option is natural gas, whose total reserves in Mexico would be sufficient to supply the market for 100 years."

    1. What amazes me is that UPS, FedEx, USPS did not convert their fleets to natural gas or EVs a long, long time ago.

    2. In Mexico the conversion of buses and taxis to natural gas is already well under way.

      As of this time last year in Mexico City there were already 2,500 taxis operating on natural gas, a number that is expected to grow to 12,500 by 2021.

      The following article explains why natural gas vehicles are a viable option, and EVs and hybrids not so much. It all boils down to economics:

      --- Circulan dos mil 500 taxis a gas natural en la CDMX ---

      In the state of Queretaro 50% of taxis and buses already operate on natural gas, but beginning in August 2017 the state government is rolling out a program to make that 100%.

      The cost to convert a taxi from gasoline to natural gas is $34,500 pesos, but the taxi operator’s fuel bill will be reduced by $6,000 pesos per month. The payout is less than six months.

      --- Desde agosto, transporte público usará gas natural ---

      In 2015 there were a total of 1,842 EVs and hybrids sold in all of Mexico. Mexico is a poor country, and one only has to look at the price of EVs and hybrids to see why these cars are not selling like pan caliente in Mexico. The economics just don’t work.

      --- Ahorra gasolina con estos coches híbridos o eléctricos ---

    3. T. Boone Pickens, others were huge advocates of switching to natural gas here. One wonders if there were some powerful unnamed forces that kept this from happening in the US. Probably not. Gasoline has generally been so available, accessible, and generally affordable there was no push to convert. Algore and warmists should have pushed that agenda but couldn't accept any fossil fuel.