Oil Production

Alan Greenspan coined the phrase "irrational exuberance" during his tenure as Federal Reserve chairman. He used it in a 1996 speech in reference to the excessively high prices of "dot-com" companies. He worried that assets were overvalued. Four years later, the dot-com bubble burst, confirming his concerns. Presently we are observing the last gasps of irrational exuberance in petroleum. Call it "petro-exuberance." This malady became apparent during a session on oil market issues at the World Economic Forum in Davos, Switzerland. Some panelists clearly had a case of irrational exuberance, an overenthusiasm no different from what we saw at the end of the dot-com and the housing crises.

If you work for a producer or oil field services company, you might have a bit of an issue with that title.  But just for a moment, put your worries aside and consider the silver lining – huge improvements in our industry’s productivity over the last few years.  Things are getting better and better.  In fact that is part of the problem.  Producers have just become too productive for their own good. We’ve seen the consequences of this kind of productivity improvement before, not in the energy industry, but in electronics.  Moore’s law, remember?  In today’s posting we’ll look at some of the evidence of huge productivity improvements, what it has meant for production volumes, and the implications for U.S. producers now facing many of the same issues that electronics companies have dealt with for decades.

In the immediate aftermath of disasters like hurricane Isaac, our thoughts focus on the victims and the tremendous damage to homes and infrastructure alike. As a category 1 hurricane Isaac has not so far shown the destructive force that its infamous predecessor, Katrina did in 2005.  In particular energy infrastructure has been shut in by Isaac as a precaution but appears not to have suffered lasting damage. The Gulf of Mexico remains an important center for US crude oil and natural gas production. Today we compare the production shut ins caused by Katrina and Isaac and their impact on the national picture.