Peak Oil …



Part of the current frenzy about energy prices is the insistence on a petroleum ‘glut’. According to conventional wisdom, there is simply so much excess crude on the markets there is nowhere for oil prices to go but down.

The reasons given for the excess crude are many: Saudi intransigence, a Saudi-US geopolitical contest (price war) with Russia/Iran, pesky futures’ market speculators … because/in spite of the president, because/in spite of the governments energy (non)policy … because of clear and concise leadership from Congress. Excess crude is the incredible free enterprise system working its magic! There is a glut of crude because Americans are incredibly clever and hard-working, because they are too fat/not fat enough … because they take too many drugs/not enough drugs, are red (blue); because our brilliant technology has permanently solved the problem of shortages so that our greatest challenge is to manage the onrushing, cornucopian abundance …

Keep in mind, a glut or the appearance of one makes sense at the oil extraction peak, after all, what is a ‘peak’ but the period of the greatest rate of extraction? There cannot be more petroleum available any time than at a peak. All that remains is for consumption to sort itself out; our brilliant-as-technology marketplaces will take care of that by themselves. Glut = cheaper crude! It’s morning in America, again!

That’s can’t be what’s happening … there has to be some mistake. What goes down must go up, right? If prices drop too far the entire extraction industry will go out of business, that the prices have crashed indicates half the industry is already out of business, it just doesn’t know which half it is yet.

 
Staniford-Oil 122214

Figure 1: various rates of extraction from multiple data sources compiled by Stuart Staniford, this chart is from December, 2013. The top line indicates 92 million barrels of various flammable ‘liquids’ per day including bitumen, natural gas plant liquids and biofuels.

The increase in petroleum volume isn’t necessarily a blessing as the energy content of the newer fuels is no greater than that of smaller volumes seven- or eight years ago. The increased volumes cost more to extract, transport and process so the net-energy yield is less. Regarding conventional crude, the likelihood is that the output peak occurred in 2005.

Every single one of the billions of barrels indicated on this chart have been burned up for nothing. This is the topic that is never discussed, never even acknowledged; our incredible permanently extinguished oil. There are literally zero returns for the precious capital we have burned, nothing to show but junk. This is the collateral for all of our (borrowed) ‘money’ … and the reason why we have financial ‘difficulties’. The dollar and other currencies are backed by fraud, used cars and smog.

Given that the world is at some sort of peak right now, what happens afterward? Because the world has not experienced a peak of existential magnitude before, we tend to make assumptions about what to expect. One assumption is that technology will provide substitutes, higher prices will allow extraction of deeper, harder to extract reserves. In this line of thinking, nothing really changes because extracting crude oil and using it has always been a costly endeavor, it will be a little more costly but manageable.

The plunging price of crude oil does not reflect the cost of extracting it or finding substitutes but rather the paucity of return on its use. This is sensible because returns are what are supposed to pay for extraction- plus a profit. What pays instead are sub-prime loans made against promises of bottomless production rather than actual remunerative use. The highest and best use for crude oil and related goods has been as subjects in a Wall Street finance shell game which is undone by the crash in crude prices … and crash it is, (Bloomberg):

Energy Commodity Futures

Commodity Units Price Change % Change Contract
Crude Oil (WTI) USD/bbl. 55.26 0.00 0.00% Feb 15
Crude Oil (Brent) Hammered again USD/bbl. 60.13 -1.25 -2.04% Feb 15
RBOB Gasoline USd/gal. 153.50 0.00 0.00% Jan 15
NYMEX Natural Gas USD/MMBtu 3.14 0.00 0.00% Jan 15
NYMEX Heating Oil USd/gal. 195.14 0.00 0.00% Jan 15

Precious and Industrial Metals

Commodity Units Price Change % Change Contract
COMEX Gold USD/t oz. 1,179.80 -16.20 -1.35% Feb 15
Gold Spot USD/t oz. 1,177.06 +0.62 +0.05% N/A
COMEX Silver USD/t oz. 15.69 0.00 0.00% Mar 15
COMEX Copper USd/lb. 287.25 0.00 0.00% Mar 15
Platinum Spot USD/t oz. 1,182.88 +0.88 +0.07% N/A

Individual countries are going through the Peak Oil process making it fairly simple to see what sort of outcomes can be expected … these are generally ugly.

Mazama-Egypt 122214

Figure 2: Egyptian crude imports, exports and domestic consumption. Map- graphics by Mazama Science; data by BP. Egypt’s oil output peaked in 1995 at roughly 1 million barrels per day and has followed the classic M. King Hubbert decline curve since then. At its peak, Egypt was a substantial exporter, since then it has become a socioeconomic basket case, increasingly dependent upon both dollar- and fuel subsidies from the US and Persian Gulf states plus the meager returns from the European tourist trade. The country’s fabulously corrupt, autocratic government pretends to manage its zooming human- and auto population, Islamic militancy in the hinterlands, diminished foreign currency reserves and ballooning external debts. Like many other producing countries, Egypt offers, albeit in diminished amounts, subsidized fuel for its millions of worthless cars.

Explosive unrest occurred in the country in 2011 as part of the Arab Spring. Egypt’s management was able to keep the lid on the mid- 90’s as long as there was an increase in marketable fuels, once supplies tightened so did the grip of poverty and a sense of middle-class hopelessness.

Mazama-Nigeria 122214

Figure 3: Crude oil extraction never allowed for a Nigerian ‘golden age’ as much of the returns from sales were stolen by elites. Output increased sharply beginning in the 1970s. It is possible that the peak occurred during that period or later, in 2010. It is hard to say because much of the country’s crude is siphoned off by criminal gangs or spilled from the country’s leaky pipeline infrastructure. Like Egypt, post-peak Nigeria is slowly becoming a hospice patient with grinding poverty, instability and a thievishly inept, autocratic government. Like Egypt, Nigeria is plagued with militants who make life miserable for farmers and villagers in the northern hinterlands.

High crude prices over the past few years allowed the Nigerian establishment to take on the appearance of stability and to paper over some of its economic problems, one such effort has been subsidies for millions of drivers. Lower overall crude prices can do little but cut ordinary citizens’ purchasing power while intensifying the Nigerian elites’ urge to steal as much of the country’s remaining portable wealth as they can and remove it from the country while they still have the chance.

Mazama-Iran 122214

Figure 4: Arguments regarding ‘above-ground issues’ notwithstanding, the peak of Iranian crude production occurred in 1974. The output bumpy plateau from 1990 to 2012 has kept the country ‘open for business’, but the story so far appears to be that of a mature fuel producing region that now extracts less — for whatever reason. At the same time domestic consumption is relentlessly increasing largely due to fuel subsidies for motorists. Like other petro-states, Iran is controlled by an autocratic regime that rules by fear, informants and secret police. Recent high crude prices have allowed Tehran to fund a proxy war against Saudi Arabia for hegemony over the Middle East. Iran also funds ‘resistance’ to Israel at the same time pursuing a costly, pointless nuclear weapons program. The high prices + hard currency inflows by way of Dubai have tended to counteract the effects of international trade- and economic sanctions against the country. Those days are over: lower prices and dollar shortage will amplify the effects of sanctions and certainly act to constrain Iran’s influence, its solvency along with its ability to wage proxy war against ideological- but otherwise almost identical adversaries.

Mazama-Russia 122214

Figure 5: Under the lash of Soviet commissars and the prodding of Five Year Plans, Continental Russia experienced its output peak before the regime collapsed in the late 1980s. Since then, Russian output recovered to some degree but the oil experts within Russia admit now that future output will irretrievably decline.

As in Iran and Egypt, the long, post-peak interval in Russia has been marked by a slide into despotism, sputtering external conflicts, internal repression, harassment and spying, loss of liberties and varying degrees of economic hardship. The role of the ordinary citizens within the current regime is to bear the regime’s ballooning costs: the outcome is a race to remove portable wealth from the country as fast as possible. Russia subsidizes its energy consumers which accelerates depletion, mostly natural gas. Instead of leveling the economic playing field, subsidies divert funds to drillers, toward Russia’s elites, with the customers as conduits.

High crude prices have allowed Russia to keep up pretenses. Hard currency inflows counteracted the effects of the Russian government’s incompetence and corruption. Lower prices and a dollar embargo will have the opposite effect, magnifying Russian leadership failures and burying Russia’s economy: go to sleep in Moscow, wake up in Cairo.

Mazama-UK 122214

Figure 6: the word ‘England’ looks to mean ‘unending crisis’ as the country’s petroleum fuel resource was dumped on the world markets for narrow political advantage in the mid-1980s and ’90s with the peak output occurring in 1999. Since then, England has been experiencing what can only be called a ‘Long Descent’ into the energy abyss. Along with the other post-peak examples, England suffers from incompetent and increasingly autocratic government and an economy undermined with fuel subsidies on one hand, unpayable debts on the other. The UK’s economic assets are opaque derivatives and pricey houses for tax exiles in central London. Its liabilities are millions of guzzling automobiles and a hodgepodge of poorly considered, blindingly expensive energy megaprojects that have zero chance to solve the country’s problem … if they are ever finished! England and fuel-starved Japan look to be the world’s first credit providers to default or experience runs out of their respective currencies.

Low prices will hammer what remains of the UK’s petroleum industry which is almost entirely offshore. This version of the Seneca Curve will leave Britons more dependent upon imports … and an increasingly shaky pound. Worst-case scenario would have UK looking to buy hard to find dollars at any price in order to gain fuel; conservation taking the form of a bitter and cruel comeuppance.

Mazama-Australia 122214

Figure 7: This is what denial looks like: Australia’s peak occurred in 2000, since then fuel output has relentlessly declined alongside Australians’ galloping internal consumption. Australia government has coped by becoming increasingly inept. As the coal- and iron miner to China, Australia has been able to avoid some of the worst outcomes that afflict other post-peak economies. If nothing else, lower China consumption and the more costly US dollar will end the lucrative carry trade that has subsidized Australian credit expansion and wasteful consumption.

Mazama-Argentina 122214

Figure 8: Argentina’s oil output peak took place in 2002, the same time auto-driven consumption began to increase; like other oil nations, Argentina subsidizes consumption. The outcome as been creeping bankruptcy … default, hyperinflation/currency collapse, goods-shortages and riots, instability, increasing poverty; all helped along by the usual inept, thievish government(s). Lower prices and the broken Argentine economy look to strand drillers leaving the country to import fuel … if citizens can find the dollars to do so.

Mazama-Venezuela 122214

Figure 9: Venezuela’s peak was in 1970 … it has been a roller-coaster ride since. Output- and price fluctuations have since played havoc on Venezuela’s clownishly inept governments and flailing economy. If oil bounty is a curse, the depletion of bounty is descent into Inferno: as in Argentina, there is government corruption, inflation/hyperinflation, instability, social unrest. Even though the country is bankrupt, the government subsidizes fuel for its non-remunerative fleet of worthless automobiles. Venezuelans can use their last tankfuls of gas to drive to the poorhouse …

Mazama-Mexico 122214

Figure 10: Poor Mexico; so far from God, so close to the United States. Mexico’s petroleum story has largely been that of the super-giant Cantarell oilfield; its peak was in 2005. Since then, Mexican output has declined despite much hand-waving on the part of the Mexican establishment. Up until recently, petroleum extraction was nationalized, Mexico also subsidized motor fuel consumption. Along with the baleful effects of NAFTA and the burgeoning drug trade to the US, Mexico suffers the usual economic- and political rot found elsewhere in other oil states: sclerotic government, wrenching poverty, corruption, pollution with drug mafias standing in for the ‘Brand X’ militants found elsewhere.

Mazama-US 122214

Figure 11: The USA peak in 1970 looked to be overtaken by new output from Bakken and other shale plays leading to throaty proclamations of ‘energy independence’. Even with shale additions, US finds itself importing six million barrels per day; ongoing reductions are due to creeping impoverishment and less consumption. As with other countries the US massively subsidizes petroleum consumption:

Oil Subsidies 122214

Figure 12: Industrial nations’ fuel subsidies by way of BBC/IMF: The cost of subsidies ultimately proves to be unbearable even for petro-states with large reserves such as the US. Subsidies are a primary driver of declining net exports. Subsidies directed toward consumers flow immediately from them to the drillers: they are loans, laundered by way of governments from the same customers who receive them. As with monetary easing: more subsidies => more bankrupt customers and ultimately, bankrupt drillers.

Most oil states post-peak share the same characteristics: inept, pilfering, absolutist regimes, faltering economies overburdened with debt, over-reliance upon subsidies; there is war, militancy and social unrest. Some of these countries face more of some problems and less of others. Of the oil ‘producers’ that are post-peak only a handful, such as Norway and Denmark, have been able to maintain a tentative of political-economic equilibrium.

Mazama-Denmark 122314

Figure 13: Denmark’s extraction peak occurred in 2005, Norway’s in 2002. It would appear the best way to cope with oil peaking is to reduce consumption, for countries to become more like Denmark and less like Argentina or Egypt. Consumption in Denmark has declined by more than half since 1973; for it to decline by half again over the next ten years does not look to be a big problem.

With world-wide financial repression and the propping up of key-men everywhere, any energy crisis initially will not take familiar forms: gas lines, rationing and highway speed restrictions. Instead, the crisis will emerge as a credit crunch which is underway right now. Credit is being systematically revealed as worthless, leaving the fuel industry to provide for those elements of the fuel-use economy that can pay for themselves. This amounts to a very small fraction of current ‘use’ which is mostly for entertainment and pleasure.

It is hard to see how prices can rise in real terms from here.

Purchasing power rests more with the tycoons. Given enough deflationary medicine and tycoons will be just as broke as the rest of us. Purchasing power is the equivalent relationship between a good that is exchanged and what is gained for it: one is always worth the other; otherwise the exchange does not occur. Capital is non-renewable resources, it is the ultimate good, the basis of all ‘production’; as capital is depleted or diminished for whatever reason, so is purchasing power.

Customers must buy the fuel products that allow the drillers to retire their own loans. Customers can only buy when they borrow themselves … or after their employers borrow in turn from their own customers. The cost of ongoing oil peak = fewer customers borrowing overall, they have been fired, lost their businesses, have had their wages cut or they have other more important costs to meet, like food, housing or medical care.

Every post-peak country is in the same boat. China is slowing … because Americans and Europeans are buying less Chinese-made goods with borrowed money => less purchases from Australia and other resource providers. Large swaths of the world are embroiled in conflict which is a dead- loss to all sides. There are fewer places for any bid going to come from. How are prices going to rise?

“Central banks will print money,” is the usual nonsense refrain. Central banks cannot increase purchasing power, they can only dilute it. Finance can lend but the cost of moral hazard — a kind of indirect subsidy — has risen to where even largest governments cannot bear it. More loans won’t work anyway: money flows to drillers starving customers of funds leaving nobody to retire the drillers’ loans.

At the same time, oil states need to sell as much as they can to gain what cash-flow is possible. All petroleum is high cost now b/c of the need to work over old, depleting fields. Drillers are frantic to make up their losses on volume …

There is nobody with a handle on this situation, it is running away on its own.

43 thoughts on “Peak Oil …

  1. passivesolar

    Hello Steve

    I agree with RE that you should be nominated for a Nobel Prize. You help me to understand what is driving all the symptoms I see around me in different countries of the world.
    In a comment in the last post you posited that about 8% of petroleum use can be used for a purpose that would actually make thermodynamic sense and I am assuming that is what industrial countries will have to fall back to through either voluntary rationing or “conservation by other means”. In “waste based” economies that would indeed be a steep Seneca Cliff decline.
    As a Canadian, I was wondering if you could do an analysis of Canada as you have done for the other countries in this post. I think we are in a hyped up housing bubble to cover over the steep costs of extracting “dilbit” from our tar sands and though we do have some offshore oil (off the Atlantic coast of our Maritime provinces) I don’t see any reason that those deep wells could make any economic sense with the price of oil this low. Will all of Canada’s sunk costs be stranded?
    Thank you for the research and your clear explanations of what we can expect in our “age of consequences”.

    GS

  2. Reverse Engineer

    MERRY DOOMY CHRISTMAS UNDERTOWERS!

    Looks like 2015 will finally bring the issue to a boil after a very LONG 8 years of Blogging on this insanity.

    Whose currency will collapse first, Euro, Yen or Ruble?  Whose incompetent Goobermint collapses first here, which one will be the Last Standing?

    Inquiring Minds want to know!

    RE

  3. dolph

    I nominate Japan and UK for faster slide down, less so for Europe, Russia, China, and North America.

    I also think young populations combined with diminished expectations will undo Latin America, Middle East, and South Asia pretty soon.

    There’s nowhere to hide, we are all in on this collapse together.

    1. steve from virginia Post author

      Ellen,

      I’m sorry I don’t have something better to offer. Sadly, there is plenty of happy talk elsewhere, all of it rings hollow, (NY Times):

      Oil’s Swift Fall Raises Fortunes of U.S. Abroad

      BRUSSELS — A plunge in oil prices has sent tremors through the global political and economic order, setting off an abrupt shift in fortunes that has bolstered the interests of the United States and pushed several big oil-exporting nations — particularly those hostile to the West, like Russia, Iran and Venezuela — to the brink of financial crisis.

      The nearly 50 percent decline in oil prices since June has had the most conspicuous impact on the Russian economy and President Vladimir V. Putin. The former finance minister Aleksei L. Kudrin, a longtime friend of Mr. Putin’s, warned this week of a “full-blown economic crisis” and called for better relations with Europe and the United States.

      Hard-hit anti-American oil producers have blamed foreign machinations for their woes, suggesting that Washington, in cahoots with Saudi Arabia, has deliberately driven down prices.

      This view is particularly strong in Russia, where former K.G.B. agents close to Mr. Putin have long believed that Washington engineered the collapse of the Soviet Union by getting Saudi Arabia to increase oil output, driving down prices and thus starving Moscow of revenue.

      In many ways, the recent price fall really is the United States’ work, flowing to a large extent from a surge in American oil production through the development of alternative sources like shale.

      NYT fails to understand: what ever affects lower cost overseas energy exporters is going to affect the expensive surge in US output to a much greater degree! There is no possible way it cannot. The currency used by customers is the same currency used by drillers; a dollar is a dollar. The high costs that allow the US to create a ‘glut’ are the same high costs that ultimately destroy demand … which is why there is a glut in the first place. The low price that undermines drillers overseas is the same low price that undermines the homegrown variety.

      Another item to keep in mind; the only way the natural gas ‘frackers’ can stay afloat while selling gas below cost is they can sell higher-cost associated condensate and natural gas plant liquids to refiners … this not-quite-crude represents much of the ‘all-liquids’ increase since 2005 (along with high-cost biofuels).

      Like a friend of mine said earlier today, “The cognitive dissonance becomes too much to bear.”

      Anyway, good luck to all of you, merry Christmas and have a jolly New Years.

  4. Bill Sodomsky

    Hi Steve,

    Long time reader of your blog, first time contributor. T’is the season and an appropriate time for me to thank you for all of the work you have contributed in regards to energy matters and the world economy as a whole. I don’t say this lightly, but your postings have had a tremendous influence on my understanding of how we’ve arrived at this incredible juncture in history. I was formally trained in finance and spent thirty plus years in entrepreneurial/consulting fields believing I had a fairly good grip on how the world worked UNTIL… I came across your blog courtesy of Jim Kunstler’s work. The Triangle of Doom hit me like a ton of bricks and set me on the path of understanding how the energy piece underpins every aspect of our modern industrial society.
    Each and every day, I check out your site, always hoping to find more insights from you and the small band of intelligent contributors like the RE that populate the site.

    I wish you and the “Small Band” a Merry Christmas and Happy New Year!

    P.S. I am also interested to know what your opinion is on the future of the Canadian Tar Sands. I am Canadian and have family members working in Northern Alberta.

  5. Pingback: Peak Oil… | Doomstead Diner

  6. Jb

    Staniford’s chart is a good one. Clearly, ‘something’ broke in early 2011.

    “At the same time, oil states need to sell as much as they can to gain what cash-flow is possible.”

    So it’s a race to the bottom. Shut down rigs, lay off workers, stop exploration, sell your leases, lie to the media and shareholders – whatever it takes to keep the business solvent.

    Maybe there will be enough economic activity in 2015 to keep LTO flowing. Another year or two would be nice. The other charts tell us that several sovereigns are going belly-up due to depletion anyway; not pretty.

  7. Joe Mc

    Excellent article Steve. The UK is absolutely oblivious to its unsustainability, at every level of public discourse. It took a few German U-boats to put this country on the brink of starvation during WWII. How it will fare when oil becomes too expensive at any price, and society has descended into a community destroying rat race of 65 million people on an island that can support only a few million people? It’s going to be an order of magnitude worse here than in America, because you’ve got land you can disperse on to, so you can feed yourselves.

    1. Mister Roboto

      I also get the impression from a lot of stuff I hear coming out of the UK that England even in the recent past hasn’t exactly been the happiest country in the world.

    2. Reverse Engineer

      The UK is just the European Version of Japan.

      The total land mass is not able to support the current population, and if/when the monetary system collapses, so will the population of the UK.

      However, most of the current population of the UK is in the Big Shities. So most of the Die Off will be concentrated in those locations.

      You could make it through in a rural location in Britain, Wales or Ireland, but it will be a bit of a Slog.

      RE

  8. St. Roy

    This is a brilliant and awesome post explaining how peak oil affects the economy. Collapse will go into high gear in 2015 as the Seneca cliff arrives. Damn, it was one hell of a party. I’m glad I got to go, but the hang over is going very bad and lethal to many.

  9. steve from virginia Post author

    Crude oil = pummeled again today, down over a buck on exchanges.

    Keep in mind, what is being priced is returns on consumption not cost of extraction. Without returns what pays is credit … which appears to be completely broken.

    1. Jb

      Steve,

      If the return on consumption is close to zero (mostly wasted driving around in circles) and the credit system is broken, then we should see oil drop a lot more. Boom, we’re done?

      At some point though, the price drops below what consumers are willing to spend on wasting it. We might put LTO out of business in the process, but it sounds like you don’t expect to see a ‘dead cat bounce’ in our economic future. Are the credit markets in such bad shape that it’s all downhill from here?

      1. steve from virginia Post author

        Basically turtles all the way down … There might be some reversals but purchasing power once gone cannot reappear by magic: it is contingent upon available resource-capital. For the (relative) price to rise, workers would need higher wages and full employment. At the same time, firms would need to relinquish some of their own purchasing power. More credit to customers flows from them toward big business, inflation would change both price (for customers) and costs (for drillers) … For economy to work @ lower prices, a greater fuel surplus/spare capacity is needed, not the piddling increases that have been extracted since 2005.

        Ironically, more customer purchasing power would have to be coupled with stringent conservation/rationing otherwise there is no point to the exercise. There is no longer-term way to increase customer purchasing power without the customers squandering their purchasing power to waste fuel. After that the customers would be broke, again.

        We — all of us Americans with our car love and tract houses — blew it.

        The dynamic underway right now is with maximum self-fooling engaged and false confidence in the (broken) system. All credit is a narrative. Once the narrative is revealed as foolishness/lies then the search is on for something better = a more trustworthy version that has fewer silly assumptions (like perpetual growth on a finite planet).

        One thing for sure = fewer crooks so it’s not all difficulties. The bad guys just won’t be trusted (neither will bad institutions) and they will be marginalized and whither away … because they are not productive any more than a tapeworm. Truly productive individuals will simply form their own communities and ignore the dead-beats, swindlers, ultra-violent, stupid, etc. Right now, the stupid can survive b/c they can run on cheap fossil fuels, post-theft growth has been able to heal all blunders. Stakes are now instantly higher, no time for fools.

      2. Jb

        Steve,

        Thanks for the response.

        “The bad guys just won’t be trusted…”

        Maybe at some point in the future after we pass through the economic bottleneck ahead. In the meantime, I don’t have much hope that the current system will produce a conservation minded egalitarian. We can always hope.

        Happy New Year, whatever it may bring.

      3. Manual Labour

        “Truly productive individuals will simply form their own communities and
        ignore the dead-beats…” -SFV

        Concern has been expressed about how their neighbors will respond when
        their lifestyles (driving in circles) come to an end. For most this will
        be through job loss and for almost all through failures in the bank exchange
        mechanism.

        The amount of available ancient sunlight will diminish while the amount of
        energy flow required to maintain metabolism will stay the same. Chemical
        energy will have to make-up the difference (human/animal labor).

        Here is a typical view from my window into the world. I’m the only person on
        the entire street who mows their own grass (reel mower). They won’t even
        re-position a gas powered machine on wheels (push-mower). What they will do is
        hire a service to mow the grass. However the service doesn’t cut the grass either.
        The service takes it to an entirely new level of lazy. They trailer in what
        sounds like a four-hundred horse power riding tractor to mow a three quarter
        acre lot, unbelievable.

        I’m convinced that the extent of my community response will be limited to sending
        an email or, at most, updating a spreadsheet. My plan is to ignore the dead-beats.

    2. Mister Roboto

      Peeps should also keep in mind that coal extraction (and maybe natgas extraction also) is more heavily reliant on petroleum-powered machinery than it has ever been, as the only coal left in North America is increasingly low-grade, polluting seams that are increasingly difficult to access.

  10. Reverse Engineer

    The Reviews are Coming In! Steve & RE are HITS! 😀

    “Your work and Ludlum’s are the best I’ve come across and I’ve been at this long and hard for many years”– Bill Sodomsky

    Brilliant RE. At year end you have outdone yourself. I agree with BS above that you and Steve L. are both hitting on all eight cylinders or out of the park for your last posts of the year.– St. Roy

    RE

  11. Mister Roboto

    Happy New Year, fellow EU readers. Enjoy what there is to be enjoyed for however much longer it lasts, for the bell appears to be tolling. Until such time as it tolls for thee, I offer up a very doomer-friendly ABBA song from 1980, which was essentially the eve of our collective decision to blow through our last stores of fossil fuels in one last, wild, growth-for-the-sake-of-growth waste-binge. The lyrics reflect the Zeitgeist of both then and now quite effectively.

    https://www.youtube.com/watch?v=3Uo0JAUWijM

  12. Oilcrashing

    Hello RE.

    I came across your forum and other websites some days ago, while I was looking for answers for the recent drop (should I say crash?) in oil prices, as it came as a shock to me. I didn’t understand what was going on, but now I do.
    It is very dissappointing to see how the media and the government portrays in my country – Spain- that the sudden crash in oil prices (and other commodities, by the way) is positive, because it will help to grow the GDP after years suffering from an economic crisis. They are unable to see beyond the very short-term effects of this event.
    I don’t think this is a difficult concept to understand, but some people are so brainwashed that they don’t pay attention to the fact that right now the market is flooded with “expensive” oil (or iron, cooper, etc) that is being sold at low prices.

    I’ve been sharing this link or explaining the current situation in other economic websites, and people seem to understand what is going on pretty well. (I can’t post the links though, as the site doesn’t allow me to do it – SPAM)

    I would like to thank you for all the effort you put into it, and I would like to share with you as well the ETP model. It was developed by a peak oil forum user (“shortonoil”) and he has modelled this outcome some months ago (before this collapse in oil prices): http://www.thehillsgroup.org/depletion2_022.htm

    http://www.thehillsgroup.org/index.html

    Best Regards,

    1. steve from virginia Post author

      Hi Oil,

      We’re all kind of watching with some amazement over what’s going on right now … we are also annoyed with media coverage, what can you do but offer guidance and hope someone in charge figures things out.

      BTW: thanks for the Hill’s Group plug, we have discussed this on occasion (and I realize right now I should write a little bit about their report).

      🙂

  13. dolph

    RE, your new years rant was a good one.

    I’m afraid we are done for, folks. I wish things could have turned out differently but the world has been run by maniacs for awhile now.

    I don’t want to be around for the fallout because it’s not going to be good for anybody involved.

    1. Reverse Engineer

      Thanks D!

      As for being around for the fallout goes, I’m hoping to last until the Internet Goes Dark, then head for the Great Beyond when the Blue Screen of Death appears on the Laptop and I seize up with a Massive Coronary Infarction. 😀

      Until then, I shall keep ranting, and chatting Doom with the rest of the crew. We got a BIG ONE scheduled for Sunday, with Guests including Steve, Gail Tverberg, Ugo Bardi, Tom Lewis, Albert Bates and maybe Jim Kunstler if he can figure out how to make Google Hangouts work.

      Also, Podcast with Tom Lewis ready to Broadcast, just waiting to hear back from Tom with the Thumbs Up.

      RE

    2. Mister Roboto

      Your phraseology really gives me the willies, because I’m more than a little concerned that there could be literal fallout involved. Though that’s probably on account of having a “nuclear war” nightmare last night from hitting the sack immediately after having something to eat. (Yeah, I know better, but I was really, really tired.)

  14. Mister Roboto

    So, it looks like the Euro is crossing that 1.20-to-the-dollar threshold. Might that be why Merkel is talking about letting Greece go its way?

    1. steve from virginia Post author

      It’s academic at this point, if we cannot afford $100 oil we certainly cannot afford $20 billion reactor complexes.

      What we can buy are the ‘fantasy reactors’ that appear with the wave of a hand.

  15. Ken Barrows

    Mr. Berman may be right, but Bakken barrels per day per well in October 2014 was lower than September 2014 and new wells went from 200+ to 118.

  16. Usman

    This is quite amazing. Did not expect an all out crash this time around. Thought maybe finance and govts would have prepared for such a scenario and managed any unwind. Instead, they’re deer in headlights. WTI hit a low $48.10 today. Not a peep from the establishment! Just a bit of “well, this is unusual”, and the story becomes yesterday’s news!

    Meanwhile, pay attention to which banks have the highest exposures to energy:
    http://www.businessinsider.com/us-bank-oil-exposure-2014-12
    … and place your bets on who will present with ‘financial difficulties’ first.

    1. steve from virginia Post author

      The banks will lie/obfuscate: the real problem is in dark corners of bank balance sheets and in shadow banking. NYSE margin debt = $600 billion w/ collateral being shares (being bought w/ loans by companies themselves):

      ” … it’s not the absolute value (‘worth’, steve) of debt that matters, it’s debt as a percentage of GDP that matters as everything is relative. For the month of November, NYSE Margin Debt to GDP clocked in at 2.82%, the 9th consecutive month below its February highs. As you can see above, the prior peaks coincided precisely with peaks in the equity markets. While so far this time around the S&P has been defying history by staying near all-time highs (why oh why could that be?), don’t expect it to last much longer.

      http://www.goldsqueeze.com/analysis/nyse-margin-debt-to-gdp-continues-to-signal-danger

      Obviously, it isn’t the stock market taking the hit (it is self-supported) but commodities instead. Right now they are getting whacked:

      As energy stocks continue to catch down to oil-price’s incessant weakness, US energy company credit risk has surged back above 1000bps for the first time in 3 weeks. WTI Crude oil prices just traded to a $47 handle – the lowest since April 2009.

      http://www.zerohedge.com/news/2015-01-06/crude-crash-crushes-credit-risk-wti-hits-47-handle-energy-spreads-top-1000bps

      Someone is losing a lot of money … customers.

      1. Mister Roboto

        Well, gold is making an a bit of a comeback (for now), which is certainly an indicator that the investor class is starting to become a skoash nervous.

      2. Usman

        So you’re saying they’re relying on liquidating their commodity positions to meet margin calls currently?

      3. steve from virginia Post author

        I’m a little early on the NYSE margin debt business but all that debt is fuel for the fire that’s certain to come.

        The banks claim they don’t have exposure to the energy companies through the loan- and bond markets, they do by way of the margin lending business (as well as shadow banking). Leverage in futures market is a lot more dangerous than on stock exchanges even though most observers cannot tell the degree to which some of these companies are exposed. There are no doubt more than a few Enrons out there in the oil-gas fields.

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