WLD: this guy maybe put it better....
Remember, I'm not talking about peak oil supply. I'm talking about the cost (and eventually the spot price) of the marginal bbls of "new" oil required to overcome 6%-9% worldwide depletion of existing field production -- it's all about depletion and new production to replace lost "old" production... the cost of the last few bbls needed to meet demand is what determines the price of crude (and ultimately refined products) in the spot markets.
from urhmi:
"One needs to face the question of from where is the Marginal Barrel sourced.
Currently Projections are from the sources of Deep Water, and Oil sands.
New Oil Sands Projects cannot buy large equipment without a 2 year Lead time.
Deep water Rigs have a cost to build and Operate that might allow some costs lowering.
However the Technology of the Tools used to drill in deep water will not be cost lowered.
Special downhole Hot conditions exist the deeper you drill.
The tools are Not super durable but just marginally operational, they are considerably less reliable when maintenance is short-changed.
Many tools are good for one run and need to be laid down and sent to town (or shore) each time for re-working.
As Rig costs increase it is imperative to minimize tool failures, as it could cost 16 hrs to change out a
down hole tool that failed. With Rig costs of 400 -600 K per day, these tools are gonna be expensive because
they are cheaper than the ones that fail.
Think about a 3 inch inside diameter with 1200 gal/min flowing
through it and around some sensing device that operates in that situation and delivers performance reliably.
Now add in temperature of 150 - 180 degrees and consider the flow turbulence, it costs more to develop performance.
True some drill pipe costs might come down. But drilling fluids costs will not. Those chemicals used will not
as they are special polymers designed to drill without damaging formation while minimizing friction, and removing cuttings.
Now if you can cut the quantity of New Supply needed then you may be able to lower the marginal barrel price.
As you would naturally cut the most expensive projects first, avoid deep water and/or deep hot hole locations.
The thing is, all the shallow low tempeture reservoirs have been drilled.
Every New Source needs Infrastructure.
Seismic tools used today are more costly because the are more accurate. They are cheaper over the other options
because of the drilling costs on these deep water hot holes.
All these tools will have certain items made of specialty plastic compositions. These are mixed in a batch and molded.
The shelf life of the chemical components is short, the mixing process and procedure is exact, and the Molds are
often only used once. It is expensive. The atmosphere is precisely regulated.
If one considers the Marginal barrel to be of the first 50mmbls /day produced today and do not need the other 30mmbbls,
then yeah you can get those marginal first 50mmbbls cheaper. But not the last 5 mmbbls of new Production projects
needed for replacement of the natural decline rate of old reservoirs.