[Peakoil] Expense of Finding Oil, Nat. Gas Soared in 2008

[Keith Thomas]

Thanks, Paul. Makes sense and is very helpful.

So when oil reached $US 147 a barrel last year, demand barely changed. 
Then came the recession and the amount of cash now available to fill up 
the nation's fuel tanks is much less - at the same time that petrol 
prices are creeping up again. But, as you say, over the short term, we 
can expect consumers to sacrifice elsewhere in order to keep motoring. 
It's what they choose to sacrifice that will cause the pain in 
households and through them rippling through the economy.

This is where to social effects of peak oil ripple outwards, feeding 
back from each other. Things could get worse very quickly as "the pips 
squeak". I wouldn't like to have a business dependent on highly elastic 
consumer demand: up-market coffee shops, clothing shops, new cars.
--------------------------------------------
Keith Thomas
www.evfit.com
--------------------------------------------
On 22/06/2009, at 3:30 PM, Paul Pollard wrote:

Keith

I don't have any figures on price elasticity of petroleum, although I 
have
seen somewhere figures in the recent past for the effect over several 
months
or a year of much higher prices, which suggest that demand is pretty 
price
inelastic..

However, the key point is that price elasticity varies greatly 
depending on
whether it is short-term (say, immediate up to a year or two), 
medium-term
(say two to five years), long-term (say up to ten years), or very 
long-term
(say over decades).

I would confidently guess that the demand for petrol is very inelastic 
in the
short-term (because its built into transport fleets that are very 
expensive
to rapidly change, and into patterns of transport that are also very 
costly
to alter), but is far more elastic in the long and very long-term 
because
these aspects can be changed at reasonable cost, as long as we have the
foresight to make the necessary changes.

However, the apparent lack of long-term thinking and planning so far, 
for less
oil, in most countries including Australia, does not bode well for much
greater price elasticity in the long-term.

Paul Pollard


On Monday 22 June 2009 06:27, Keith Thomas wrote:
> Note well.
>
> What I'd really like to know is what effect the recession has had on
> petroleum consumption. Is demand elastic (pointing to society's ability
> to adapt), or inelastic (pointing to the danger of a sudden social
> change)?
>
> I'd also like to compare elasticities between, say, Australia, UK and
> the US. Does anyone have these data?
> --------------------------------------------
> Keith Thomas
> www.evfit.com
> --------------------------------------------
>   Study Shows Expense of Finding Oil, Nat. Gas Soared in 2008
>   by Kristen Hays
>   Houston Chronicle, 19 June 2009
>   URL: http://www.rigzone.com/news/article.asp?a_id=77447
>
>   The U.S. oil and gas industry's costs of finding resources rose 35
> percent last year amid the wild rise and fall in commodity prices, an
> Ernst & Young study released Thursday showed.
>
>   The three-year average cost per barrel of oil equivalent, excluding
> acquisitions of proved reserves, was $27.22. But in 2008 that spiked to
> $51.96.
>
>   "This validates that finding oil and gas reserves is very, very
> expensive," said Marcela Donadio, oil and gas sector leader for the
> Americas. She noted that cost also demonstrates why some companies have
> delayed final investment decisions on costly expansions or new
> projects, such as those in Canada's oil sands or deep-water
> exploration.
>
>   The study examined U.S. exploration and production results for 40
> companies from 2004 through last year. The companies, which include oil
> majors as well as large and small to midsize independents, collectively
> hold 70 percent of U.S. oil reserves and 61 percent of U.S. natural gas
> reserves.
>
>   Overall costs, including acquisitions, rose 35 percent last year to
> $132.1 billion, the study said.
>
>   But oil reserves fell 7 percent to 15 billion barrels, largely 
> because
> regulatory reporting rules required companies to book reserves that can
> be produced economically at the closing price on the last trading day
> of the year.
>
>   Last year that price was $44.60 a barrel -- far below the year-end
> 2007 price of $95.
>
>   The same rule forced reductions of 6.7 trillion cubic feet of booked
> natural gas reserves as well. Even with those write-downs, gas reserves
> rose 4 percent overall amid the boom in shale production last year.
>
>   However, starting at the end of 2009, companies can book reserves
> based on average annual price rather than a one-day snapshot. In 2008,
> that average was about $99 a barrel.
>
>   So as prices recover alongside the economy, reserves that were 
> written
> off can be restored to companies' books as they become economical to
> produce again, said Charles Swanson, managing partner of Ernst &
> Young's Houston office.
>
>   "It certainly was a year to remember," he said.
>
>   Copyright (c) 2009, Houston Chronicle. Distributed by
> McClatchy-Tribune Information Services.