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HappySqurriel on 29 October 2008
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NJ5 said:
HappySqurriel said:

Most easy to access conventional crude is already being used so further production comes at a massive expense and several years of development. From what I hear (and I live in oil-town), the falling price of oil is not the primary reason why oil companies are cutting back or development (after all, many still expect $100+ oil next year). The oil companies fear windfall energy taxes and carbon taxes and are not willing to spend Billions in development for such little gain; after all, they can make far more profit if they don’t develop the resources and let oil skyrocket to $500 a barrel.

According to the article, even if investments were made the drop rate would only be 3% lower.

The problem with oil is that there are a number of large oil fields which, when declining, are very hard to replace. Unconventional oil or smaller conventional oil fields just can't keep up with the necessary flow rates.

A lot of the media keeps saying "oh don't worry, there's still a lot of oil on the ground". That's true, reserve numbers are still big. The flow rates aren't though, and as far as I know I can't fuel a car with buried oil. I can't even imagine what the oil price would be right now if it weren't for the economic crisis

 

We are seeing declines in conventional oil, but unconventional oil (from the oil-sands as an example) can replace this lost production and (potentially) increase the total oil production. The problem with unconventional oil is that it requires massive up front investments and is very expensive to produce (in comparison to conventional oil) ... A facility to convert bitumen to synthetic crude oil can cost $5 to $10 Billion and it still costs $60 per barrel of oil to process the bitumen; when you factor in royalty costs, they really don't start making a decent profit until oil surpasses $80 per barrel.

Now, oil companies are willing to spend this kind of money because when oil passes $100 per barrel they will rapidly be able to recover their initial investment. When you start to factor in the possibility of Windfall energy taxes which will (potentially) kick in before they're making a decent profit off of synthetic crude it really makes their investments far more questionable.