Friday, January 15, 2016

Short Course in Overproduction 3

From the Financial Times, Thursday 14 January, 2016:

Delayed oil projects near $400 billion
Energy groups have shelved nearly $400 bn of spending on new oil and gas projects since the crude price collapse, pushing back millions of barrels a day in future  output from areas including the Gulf of Mexico, Africa and Kazakhstan.
In an authoritative study published today, the energy consultancy Wood Mackenzie says development of 68 significant projects, or 27 bn barrels of oil equivalent reserves, has been put back as companies scramble to curtail costs and protect dividend payouts.
OK, points to remember:

1. protect dividends 
2. $400 billion is the cost to access 27 billion barrels of oil equivalent, equal more or less to what the industry terms "finding costs."  The finding costs then work out to be about $15/boe.
3. Since 2002, "lifting costs," the actual production costs after projects have been developed, have been much less than finding costs.  However, let's estimate the lifting costs at 80% of the finding costs or....$12/boe.   
4. So, the approximate cost-price, to use Marx's term, for each of the 27 billion barrels of oil equivalent is...$27.
5. Mystery of the collapse in oil prices to the $30 mark solved.  The $30 is the money price approximately equivalent to the socially necessary labor time for the reproduction of the commodity. 

Overproduction is capital revaluing capital by capital's own criteria.
The figures show that the amount of deferred capital spending on projects awaiting approval has almost doubled since June, from $200bn to $380bn with 2.9m barrels a day of liquids production--equivalent to Kuwait's crude output--now not due to come on stream until early in the next decade.
Nice choice of examples to indicate the impact on production-- "equivalent to Kuwait's crude output."  Last attempt at taking Kuwait's output off the markets was back in 1991 by the dearly departed Saddam Hussein.  Who says history isn't a jokester?
The roll call of  delayed projects includes developments such as Statoil's Johan Castberg field in the Norwegian Arctic, BP's Mad Dog 2 [not to be confused with the fortified, flavored, and colored "wine,'' Mad Dog 2020,  a product of the Mogen David wine company] in the Gulf of Mexico and the second phase of the Kashagan field in Kazakhstan, which is being developed by a consortium.
The list has grown by a third in the past 6 months, with the average "break-even" price of the projects being $62 a barrel.  Deepwater fields account for more than half of the new deferrals, up from 17 six months ago to 29. 
Such developments have been hit hardest because of their high break-even prices, heavy upfront capital needs and "relative inflexibility," says the report. 
 (thanks to JAI)

January 15, 2016

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