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"This has happened in the past as well. Nowadays ppl talk about no new oil fields but then their is a ramp up in alternate resources to especially shale oil and oil from sands. Technology is already ramping up. Arctic drilling and drilling in international waters will start happening at some point. "

It took me awhile to find a article that made my eyes go wide open and finally understand. I can't find the article now but basically what was said is that many people failed to understand the difference in the different types of oils. There is a big difference in finding easy oil (i.e. oil that just bubbles up out of the ground that has low sulfur content and is super easy to refine) and high sulfur shale oil or oil from the Oil sands.

Take for example Oil Sands oil...the amount of energy that you must put back into the oil to extract it and worse refine it is HUGE!!! It was then I began to understand the problem big time...I forget the exact numbers but lets say for instance the amount of energy that you must put back into extracting and refining Oil Sands oil is like half the value of the oil that you actually extract from the Oil sands. Well that would mean you would need twice as much Oil Sands oil to replace the decline of the "easy oil" that simply bubbles out of the ground.

The same things apply to things like Artic oil and oil on the continental shelf. There are huge difficulties and expenses to drilling deep sea. I wish everyone could spend some time on a oil rig and see exactly what it takes to get that oil out of the ocean. It is a lot harder than simply collecting that easy oil that bubbles up out of the ground.

When they talk of oil fields declining and no new significant finds in the last 20 years....well they mean the easy oil. There is plenty of "hard" oil but that "hard" oil is not worth as much because you need more of it to get the same net energy as the "easy oil"

Oh, it is it starting to click now.....well there is more....When the Saudis talk about increasing oil production, they are talking about increasing the production of sour crude....the hard to refine stuff that you need special refineries for.

The USA has plenty enough refineries BUT the big problem is our refineries are set up to mostly refine sweet oil. The sour crude that the Saudis are offering is useless in the quantities offered to our refineries.

THAT IS WHY THERE IS A DISCOUNT ON THE SOUR CRUDE PRICE FROM THE SWEET OIL PRICE!!! The world has a shortage of refineries that can refine the SOUR CRUDE!!!

Hmmm....CBI makes refineries.....CBI is a BUY, BUY, BUY as Cramer would say (ummm Cramer actually hates CBI now but he will like it again when the world figures out the difference between Sweet and Sour Crude and the CBI price spikes).

It is not Peak oil but peak refining that is the problem:

"One of the issues facing the world is a lack of refinery capacity. Boone Pickens often says the world has a maximum refinery capacity of about 84mbpd. With the hurricane damage, I've delved a little more into this issue. A quick search on the net found a report by ICF Consulting.

ICF says the following in a report on refinery capacity issues:

(1) "over the next roughly 5-year period, that the ability to meet forecast demands for oil will be driven by refinery capacity issues, not crude availability"
(2) This refinery "capacity crunch will change the historical playing field for international crude and product supply and trade, and create strong and sustained margins for refiners, higher prices and potentially supply shortfalls for consumers"
(3) "ICF Consulting has examined recent global demand forecast date from the (IEA) from 2000 through 2020 and compared it to the current and estimated growth in refining capacity . . . The IEA estimates that the global oil demand in 2010 will be about 90 million barrels per day, an increase of nearly 8 million barrels per day over the 2004 number. This increase is about 30-40 world scale refineries, and the net impact on the marketplace, even if that much refinery capacity could be made operational by 2010, would simply be maintaining today's high margins and volatility . . . for the refining capacity to keep pace with this increase . . . it would need an additional 13.9 million barrels per day capacity to be built between now and 2010. This would be 50-70 refineries of world scale size."

****side note - keep in mind ICF just projected a need for an additional 13.9 mbpd in refinery capacity but as of 2005, only an additional 250K is in the pipeline for development****

"Since that publication, there have been some noteworthy announcements . . . however, even with these announcements, it is clear that the number of new refineries needed, or major expansions, is significant, and, more critically, these additions should right now, already be in the engineering phase to be operational by 2010 . . . the need for timely investment in capacity to sustain the demand outlook is compelling."

*** side note, so much for the optimistic CERA report of an oil glut by 2010, without addtional refinery capacity being added by 2010, any extra oil projected by Cera is of no use ****

"As capacity growth lags demand, small events can have a grossly magnified effect. This leads to increased upward pressure on prices, refining margins, and volatility"

****This was published before the Katrina and Rita Hurricanes. But the truth of this prediction that "small events have a grossly magnified effect" is evident from the U.S. refineries knocked off line, even temporarily.

"With IEA predicting another 17.6 million barrels per day demand by 2020, the refinery capacity need will grow even more"
****Whose budgeting for this?*****

"The magnitude of the need for additional capcity over the next 5 years is, however in stark contrast to the relatively few significant projects currently underway to expand global refining capacity. In cases where industry is evaluating or has announced capacity increases since the Oil and Gas Journal survey was released, the location of those projects are planned for China and the Middle East, and none are in the engineering stage"

***side note, so much for refinery capacity meeting the demand needs by 2010, maybe ole Boone Pickens is right***

"Moreover, the tighter product specifications in the United States versus the emerging Far East region will make it more cost effective for refiners with export capability in the Middle East, or even Europe, to manufacture and ship product to China or India. Where the product goes will depend on who is willing to ante-up and pay for the volume, and the ramnifications for both the 'winner' and the 'loser' in that battle are significant"

****note - this sounds like the beginning of a bad movie. In fact, it is the same thing Michael Klare has been saying concerning "resource wars." ***


Barring a radical and immediate innitiation of major refinery projects, there will be a competition for available supply as the decade draws to a close. The 'winning' bidders will pay a premium for products which could make today's prices look very reasonable; the 'losers' may be required to slow down economic growth. The overall effect of both may be that global economies will suffer until refinery capacity gets back in alignment with demand . . . The overall refining capacity crunch looks like it will be difficult to reverse given the long lead times necessary for construction . . . All these factors lead ICF Consulting to believe that the global oil product market will remain tight in the near future . . .it is more important than ever to look at the fundamentals and determine a long-term strategy to reduce or slow down the growth of petroleum demand, and to prepare for the future . . .

**note - how can any of us add to that last statement*** "

Oh eyes are starting to see now:

When it comes to gas prices it is not just crude oil production and the end demand that must be considered. The refining process and the different types of oil grades must be considered too.

There may be plenty of oil but if it is of the wrong type in the wrong place at the wrong times then huge price spikes can occur but this is quite complex so congress just simply blames it all on speculators....

Rob S
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