Oil is weird. Production usually doesn’t decline with prices. The reason is that the big expenses for conventional wells are all up-front. Once you’ve made those investments, you can keep producing even at low prices. And usually any revenue is better than none.
Tight oil — the stuff made by fracking — is different. Wells have high decline rates, sometimes dropping as much as 80% in the first year. So you gotta keep drilling to keep up production. The logical conclusion, then, is that when oil prices drop below the cost of drilling, the amount of production will rapidly start to fall. This should serve to stabilize oil prices.
But ... there are two counterpressures. The first is a secular decline in the cost of horizontal drilling and fracking. My friends at Laredo Petroleum have become very good at this ... and the Financial Times presents more evidence here. In the Permian Basin in Texas drilling costs have fallen from around $7 million per well in 2011 to $5 million today as production per well rises; IHS estimates that breakevens have dropped from $70 to $57 per barrel.
The second is something that does in fact occur in conventional oil as well: when prices slump, so does the demand for all the specialized inputs that oil operations need. Geologists, rigs, roughnecks, all will cut their prices. So will landowners: they will offer cheaper leases and accept fewer royalties. After all, some revenue is better than none. And oil service companies would prefer to take losses for a couple of years than have no business and risk losing all their skilled people and specialized equipment.
So maybe, just maybe, the logic is wrong and the recent fall in prices will not rapidly reverse itself as unconventional production falls.
Totally off topic (And I put Carlos up to asking you, too): I'd like to know about La Paz. Really, I'd like to know about La Paz circa 2420, but current La Paz will make an acceptable substitute... can you recommend a good resource for an English speaker (or at least non-Spanish. I don't think my limited French, more limited German, or truly horrible Church Latin will help me).
I'm mostly interested in the character of the place as a place to live, rather than the economics, and given how much research I have to do on other things, I don't know that I have the time to read more than one or maybe too volumes. But something about a character from a city with a very old, picturesque city of cable-car transit really appeals to me.
Posted by: James Angove | October 23, 2014 at 05:43 PM
La Paz, Bolivia? Also, why 2420? Seems a long way off.
Posted by: Noel Maurer | October 23, 2014 at 05:51 PM
Because I bitch about SF a great deal, and I decided if I was going to keep bitching I should so something about it. Or at least try.
The reason for La Paz (yes, Bolivia. Sorry; I should have been more specific) is more random; I heard a story about their cable car system on NPR a few day back, and it captured my imagination. Granting that in the amount of time we're talking about it will have changed beyond recognition, I would like to put the minimal effort of reading something about the place before talking about someone from said place.
(Incidentally: you never did tell me what charity you wanted for your review of Through Struggle, The Stars, so you have a donation just waiting to be made).
Posted by: James Angove | October 23, 2014 at 09:21 PM
The next best(?) thing for me might be to combine a decent history of the Andes and/or Bolivia with a not completely crappy tourist guide. I mean, ideally I'd just go their, but I'm reasonably confident that my wife wouldn't go for that as a reason to flee the country by myself, and her vacation time is booked. Given that this is basically character background, there is a limit to how much of a time sink I can afford to let it be, but I want to do at least the basic minimum.
Posted by: James Angove | October 23, 2014 at 11:47 PM
I'm not sure what to say. The last time I was there was in May-June 2005, during which time there were riots. This was not coincidental.
Herb Klein is the best historical source; I've got some other more recent ones, but I'll have to unpack my office to make sure I've got the right references.
Bolivia is one of those countries where things go swimmingly until they don't. I am a big fan of Evo, but it is far from certain that he's put his country on the road to political stability and long-term growth. Right now, things look great; the biggest issue with La Paz is altitude sickness. I would, however, highly recommend Bolivia as a tourist destination as long as you're not traveling with small children. And intend to do so before Evo retires.
And if you are, well, it is one of those place where people love children! It's just a little dangerous, transport-wise. Outside those cable cars.
As for 2420, there are all sorts of AI-related issues that I can't help you with. Will? Carlos? Doug? Y'all way more sanguine about weak artificial intelligence than I am, so can you help a brother out?
Posted by: Noel Maurer | October 24, 2014 at 01:02 AM
I need to edit my posts better.
There were not riots because I arrived. I went there to research reforms to the hydrocarbon regime that produced riots.
"Things go swimmingly until they don't": political instability can arrive from nowhere in countries like Bolivia. It is not clear that the rules laid down by the constitution of the Plurinational State of Bolivia have achieved the kind of legitimacy acquired by, say, the constitution of the United Mexican States ... let alone the constitution of the [redacted] of Canada. Evo has done a great job of managing a resource boom in a poor country ... but there are multiple ways in which that could fall apart at short notice. Low hydrocarbon prices are neither necessary nor sufficient for that to happen, but they do increase the probability.
"People love children!" It is hard to travel in Bolivia with small children, because transport is relatively precarious and provides few places to strap in a safety seat. But this does not apply to La Paz, as long as you adopt a healthy 1970s approach to risk. We take our small children to Trinidad and Mexico, which are not less dangerous than the Bolivian capital, transport-wise.
(My son rides the Metro with me every morning and evening. He's two. Don't trust us.)
As for 2420, I repeat the above. I am not a singulartarian, but I have been future-shocked in the last decade (fuck you, Watson!) and need to be convinced as to why humanity won't be superseded or transcended in the next century to make any coherent predictions about the 25th century. Or even 2054, when my firstborn son will be the age that I was when he was born.
Posted by: Noel Maurer | October 24, 2014 at 01:18 AM