AEO 2015 Preliminary Report

The EIA published, last month, AEO2015 Preliminary Oil & Natural Gas
Production & Price Results
. And just below the title they wrote:

                                    DRAFT – DO NOT CITE
But I am not citing anything, just informing you of what they said. 😉 What they mean however is that they reserve the right to change their mind before the report comes out early net year. And I can certainly understand that. All Oil data is in million barrels per day.

AEO 2015 1

They have lower 48 production hitting a slowly increasing plateau in 2016 and peaking at just under 8.4 million barrels per day in 2027.

AEO 2015 2

They have US Tight Oil production following pretty much the same profile, hitting a plateau in 2016 at about 5.5 million barrels per day and holding flat until starting a very slow decline in 2030.

AEO 2015 3

They have US Offshore moving above 2 million barrels per day in 2016 and peaking in 2018 at about 2.35 million barrels per day. US Offshore currently stands at 1.5 mbd so I think they are quite optimistic.AEO 2015 4And here is their projection to 2040. Only tight oil and Alaska shows any significant decline after peaking in 2018 due to offshore peak in that year.

AEO 2015 5This is a stacked chart of all light tight oil production. The Bakken is the big dog here, outproducing Eagle Ford from 2018 all the rest of the way.

AEO 2015 6This is the most interesting chart of all. Look at Eagle Ford, peaking in 2016, down slightly in 2017 then down sharply in 2018, then dropping to half its peak in 2040. All the other shale plays hold their plateau and only drop slightly beginning around 2030.

AEO 2015 8Shale gas by source. Notice that no one except Barnett is post peak. Contrast this with what the Post Carbon Institute says:

PCI 1Source, Post Carbon Institute.

AEO 2015 7The EIA has US gas production onward and upward right through 2040 when we will be producing about 10 million cubic feet more than we are today.

And I just had to add this:

De Smog Blog: U.S. Energy Policies Based on Inflated Fracking Predictions

Lon Burnam, a Texas State Representative from Denton Texas, who lost his latest bid for reelection after serving 18 years, gives his opinion of the Texas Railroad Commission.

At 6:10 into the second video interview at this link:

Reporter: When people in the government, like members of the Railroad Commission, start insinuating that money is coming from Russia to support activist in Denton, what’s your response to that?

Burman: Hogwash! And besides, who are they to talk? I mean they are all corporate whores to the industry, every one of those railroad commissioners.

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Note #2: In the comments section, previously after 25 original comments, it went to a second page. I changed that number to 100. That is original comments, replies to comments don’t count. Now it will hardly ever go to a second page. Please let me know if you prefer this or would rather have it page after 25 original comments.

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311 Responses to AEO 2015 Preliminary Report

  1. SRSrocco says:


    I think the EIA has done a swell job here. They have the Marcellus shooting up in a nearly vertical graph (70%) and then plateauing for the next 500 years.

    Looks about right to me.


  2. SRSrocco says:

    Well… on second thought,

    The EIA shows in their “Forecasted data” that the Haynesville peaked in Nov 2011 at a hefty 7.2 bcf, but is currently producing a smidge more than 3.9 Bcf. That’s a 46% decline in 3 years. I wonder how they get that graph of the Haynesville to bounce back higher.

    Maybe its the much higher natgas price coming from the BOATLOADS of LNG we will be shipping to countries that don’t have sustainable economies to purchase it.

    Regardless… looks like PEAK OIL IS DEAD. The EIA’s graphs say its so.


    • Keyser Soze says:

      Now that’s funny

    • Jeffrey J. Brown says:

      As I frequently point out, the year over 20% decline* in Louisiana’s annual marketed natural gas production from 2012 to 2013, presumably because of a decline in gas production from the Haynesville Play, is pretty strong support for the Citi Research estimate that the underlying decline rate US natural gas production is about 24%/year. At 24%/year, just to maintain current production for four years, we need to replace roughly 100% of current US natural production in four years.

      *This was the net decline; the gross decline from existing wells in 2012 would be even higher.

    • toolpush says:


      The Hainsville to me looks very much like it has a higher cost structure than the Marcellus. The Marcellus has grown leaps and bounds but is basically bound by take away capacity restraints. In the next couple of years many of the north bound pipelines will be reversed and depending on timing and how good the Marcellus really is one of three things could happen.
      1/The Marcellus could lower the Henry Hub price by bringing more capacity to La. and the Hainsville will further contract.
      2/The LNG plants kick in and overwhelm the Marcellus production, forcing up Henry Hub, and making the Hainsville economic again.
      3/The Marcellus faulters, the LNG plants are in full swing, and the US has really expensive Nat Gas, and the Hainsville really get a boost.

      I doubt if you will find anyone saying the Hainsville is out of gas, it is just out of cheap gas to compete with the Marcellus. The question really is, how long and how much can the Marcellus continue to produce nat gas $2-$4 mcf?

      • SRSrocco says:


        You bring some worthy points indeed. However, the European and Western economies are being propped up by some of the highest quality bailing wire and duct tape.

        These economies died back in 2008-2009. What we have now are Zombies walking around eating the living to stay alive. Well.. that’s really not the example I was trying to get across. Let’s try this…

        Most of the European and Western nations are what I label as “FLESH EATING ECONOMIES.” They really aren’t sustainable, so they have to absorb some of their arm, leg or left testicle to stay alive.

        Now… this seems to be working fine as there are still several body parts remaining, but I highly doubt this sort of activity will go on for many years. Basically, what I am trying to say is that the Fed and Central Banks are propping up a system that should have imploded a half a decade ago.

        I really believe the days of building STRIP MALLS, STARBUCKS & PARTY STORES are over. Don’t see how the world will be able to afford unconventional oil & gas for long.


        • toolpush says:

          “Don’t see how the world will be able to afford unconventional oil & gas for long.”

          Steve, I agree the Shale oil is expensive oil, and you most likely have valid points concerning the economy, but that is not my expertise, so I will not argue those points.
          My point is that the Marcellus, maybe unconventional, but it is cheap unconventional. Here is todays EIA Nat gas report.

          “Marcellus prices remain low. Prices at Marcellus trading points fluctuated during the report week, decreasing by Friday in anticipation of lower weekend demand. Prices rebounded on Monday and ended the report week 3% lower on Tennessee Zone 4 Marcellus and Millennium East Pool, at $2.15/MMBtu and $2.34/MMBtu, respectively.

          Pipeline constraints to move Marcellus production out of the region remain the main reason behind Marcellus prices trading persistently lower than the Henry Hub. Several new projects are being developed to alleviate the constraints and move Marcellus production to markets in the Northeast, Southeast, and Midwest. Four new and expansion projects totaling 1.1 Bcf/d of capacity were scheduled to come online in October, and three more projects with a combined capacity of 1.3 Bcf/d are scheduled to start up this Saturday, November 1. As the new projects are being commissioned, pipeline capacity constraints, which limit deliverability of Marcellus gas, are expected to be gradually lifted.”

          $2.15 mcf, where as Henry hub, right next door to Hainsville is approx $4. we will have to wait and see if the Marcellus has the legs everybody claims it has, or if Jeffrey Brown is correct and they get overwhelmed in fighting the decline rate

          • Jeffrey J. Brown says:

            Of course, it’s when, not if, that the production from new wells can no longer offset the declines from existing wells, i.e., Peaks Happen.

            Year over year, from July, 2013 to July, 2014, the industry was able to offset declines. US dry gas production was 70 BCF/day in July, 2013 and 70 BCF/day in July, 2014. However, at about a 24%/year decline rate, we need about 17 BCF/day of new dry gas production, every year, just to maintain current production.

            To put this in perspective, Canada’s 2013 dry gas production was 14 BCF/day. Based on the Citi report, in order to maintain current US dry gas production we need to put on line the productive equivalent of all of Canada’s current dry gas production, every single year, times 1.2. Or, over the next 10 years in order to maintain current dry gas production, we need to put on line the productive equivalent of 12 Canadas.

            • toolpush says:


              I agree with your points and decline rates and replacement production, and it is when, and not if, whn the peak occures but it amazes me how reliant the US is planning to become on the Marcellus. The spreadsheet from EIA, has so many pipelines currently being built, or reversed that when they come on line it appears the Marcellus will nearly supply all of the US plus part of Canada, and why did I forget Mexico. This is not in 30 years time, all these pipelines will be on line in the next 4 years.
              Either a lot of people are going to loose absolute fortunes or the Marcellus is really really big. I don’t have the answers, but we will not have long to wait to find out. If the big money is wrong, and supply can not keep up with the decline rates, the US is going to be in deep shit very quickly.
              I am just a spectator from a far, with some money in LNG companies at home, so I actually don’t want the Marcellus to too successful. You are the people that are going to live it. I don’t believe, due to the way the shale plays are developed, that it will be easy to fine tune the total production rates. The US is either going to awash with gas or the gas market will fall over and you will be paying LNG import rates for your gas.
              It will be a fine line between those two extremes. All I can say is good luck, because you will be needing it.

              • Jeffrey J. Brown says:

                Here are the latest EIA estimates for the Marcellus Play:


                Another way to illustrate the decline rate problem is that, in round numbers, we need to put on line (slightly more than) the productive equivalent of current Marcellus production, every single year, just to offset declines from existing wells.

                Given 70 BCF/day of US dry gas production in July, 2013 and 70 BCF/day in July, 2014, the increase in Marcellus production + new wells in other areas only served to offset declines from existing wells, from July, 2013 to July, 2014.

              • Synapsid says:


                The current pipeline buildout does look like the Marcellus is expected to be huger than seems, um, modest, but all that infrastructure will serve Utica output too, so maybe the Utica will help make dreams come true.

                The Utica isn’t presented here, I’m guessing because it hasn’t much production history yet.

                • coffeeguyzz says:

                  Synapsid, toolpush, et. al, I am glad someone finally brought up the Utica because – in case few have noticed – these past few months (weeks, in the case of Magnum Hunter Resource’s well), the results of the now-being-drilled wells in the dry gas areas of the Utica are stunning, to say the least.
                  Rice Energy had a 41 million cubic foot IP well in May (700 million cubic feet in less than two months production) in a well situated in Ohio. MRH had the monster of all monster wells with a 46.7 million cubic foot IP a few weeks back in West Virginia. Shell announced a 26 million cubic foot IP in a well 400 miles north in Tioga county, PA.
                  All these wells are in the Utica formation.
                  The Utica is far larger than the Marcellus in areal extent and – at 900 foot thick pay zones – actually thicker than the Mighty Marcellus.
                  Any and all predictive analysis (such as Mr. Hughes recent release) that does not include the Utica’s potential is destined to be woefully inaccurate.

                  • Synapsid says:


                    Thanks for this. That’s more Wow! than I’d anticipated.

          • SRSrocco says:

            Toolpush & Jeffrey,

            Anything can happen in the short run. Just look at the precious metals. Lord have mercy… being totally decapitated. However, we in the gold and silver community understand this is a temporary situation as demand for these metals goes up exponentially at these bargain basement levels.

            Regardless…. the U.S. is producing a lot more total natgas production, however we are SUCKING more than ever from the NATGAS TEET. Matter-a-fact, last year we consumed over 26 Tcf.

            The little men running around the U.S. Govt believe the hogwash that we have a 100 year supply of natgas, so they are gutting the Coal Fired Plant industry. Even though we produced a RECORD amount of natgas, we still import nearly 10% of our supply from our friendly Canucks north of us.

            I would imagine the GUTTING of the Coal Industry will continue as Americans get a warm-fuzzy knowing they are doing their part in stopping the negative impacts of GLOBAL WARMING (hehe).

            Who knows if we will ever export LNG. But if we do, I doubt it will be the SILVER BULLET that saves the U.S. Shale Gas Industry.


        • Allan H says:

          I came across large ant nests out in the woods. The cleared area of the nest at the surface ranged from about 6 feet to 15 feet in diameter. The ants themselves ranged quite far from their nests. The limiting factor for resource gathering seemed to be other ant nests in the area which limited the range and area they could travel. Basically, they bumped into each other.
          Well, we have been bumping into each other for a long time now. Our range of gathering is dependent upon a combination of fuel sources, industrial and military might. In reality we have been gathering from the other side of the world via ships and planes for a very long time now. There is not any further to go and we keep bumping into each other politically and militarily.
          So beside the limited nature of some of our resources, we simply have run out of planet.
          I don’t see scavenging or trading with the moon or Mars as a viable resource. Nor is empty space full of food, water and other resources.
          It’s not just the malls that will go.

  3. Old farmer mac says:

    This comment is pretty far afield given that this forum is about oil and energy mostly but we do occasionally discuss whether we can trust the government and the mainstream media to tell us the truth.
    So perhaps it is worth thinking about this quote which pretty well typical of the coverage of the case of the cop shooter in Pennsylvania who was caught today.

    Frein’s capture may finally shed light on some of the questions that have baffled authorities and the public since the shooting, including a motive for the ambush and how Frein was able to stay one step ahead of the intense search for so long.

    THE PART that is simply fucking totally inexcusable is that just about every acticle or reference to this case has alluded to a supposed lack of a known motive.

    There could not possibly be even a barney fife cop or a reporter worthy of the name in the entire US who doesn’t know with about 99.99 percent likelihood what Frein’s motive is.

    I won’t waste any more space on it.

    Anybody just interested can just google his name. The rest of the story is freely available.

    I am not so cynical about the media as some regulars here but I grow more cynical in this respect from one year to the next.

    It is no wonder that people are so easily mislead by the media because most of us are too busy and too lazy to investigate any question beyond whatever is in the headlines and the first paragraph of whatever the MSM puts out in a sound bite.

    • Old farmer mac says:

      The first day I saw this guys name on the net I googled it and read a couple of articles about him being badly assaulted by some cops.These articles seem to have vanished.

      Ron may well want to delete these comments as too far off topic.

      • Dave_P says:

        Funny how they have vanished isn’t it!?

        Don’t worry, the media NEVER means to deceive or mislead.

    • Ilambiquated says:

      people are so easily mislead by the media because most of us are too busy and too lazy to investigate

      People actively want to be misled by the media. It’s much more fun than worrying about reality.

      Look at the rants of Watcher and SRSRocco here. Think what a rush it gives them to write that stuff. Heart beating a little faster, sweaty palms… Eschatology is sexy in America.

      Being obnoxious is a competitive sport, which explains the comments section of a lot of web sites.

      Look at this:

      They are so proud of themselves.

      The media is there to feed people fake facts to make it seem real, and to get people riled up. It attracts viewers. Fox News claims it’s entertainment when it gets caught lying. Check out the insanely bad advice Jim Cramer spews out. Listen to the background music. It is designed to give you an adrenaline high.

      • Keyser Soze says:


        I think (my experience tells me that) there are ‘mainly’ three things (happening) intersecting within ‘Bread & Circuses’ (massmedia brainwashing):

        With the Men: Preconceived ideas. Men possess more the intellect to inquire, but have problem to overcome the indoctrination.

        With the Women: They just don’t want to hear. They’re too selfish to even inquire on these big issues.

        And the third: Religion and Education Indoctrination.

        Religion: Inability to face the truth. Give me easy answers and solutions. Predispose to myths and conspiracies.

        Education: The high the education, the more of the inability to tell the truth. Predispose to corruption and hypocrisy.

        So, you’re right when you wrote: “People want to be misled… It’s much more fun than reality.”

        Just not sure that anyone at ‘Peak Oil Barrel’ fit that ‘People’s’ label of being easily brainwashed.

      • SRSrocco says:


        I gather your “Definition” of my posts here as RANTS is about as good of a term as any. However, I believe there is a lot of factual and circumstantial evidence to support my rants.

        Today, many Americans have become quite SMUG thinking they have outsmarted the rest of the world by believing those Trillions of DIGITS in an account are wealth. We here who understand PEAK OIL realize those DIGITS are ENERGY IOUS.

        I will continue to RANT now and then.. if you don’t mind. But, I would imagine in say 3-5 years, the world will be a much different place. Let’s just see how things unfold.


      • Eric29 says:

        Fox News is by far the most watched news channel in USA. Clearly your in the minority and incredibly clueless….Hope you and your communist party get the thrashing you deserve in the upcoming elections. Obama is currently ranked the worst ever president in the history of USA, 39% approval only from his base of all the illegals, blacks, and those who is recently out of prison.. .They love to keep people poor because if they actually got a job and made serious money and actually had to pay a cent in taxes, they wouldnt vote for the communist Obama party anymore.

        Dem’s say Republicans are the party of the rich while Obama goes and parties with the hollywood tree hugger sluts, all the while laughing at those who live in the slums that are stupid enough to keep voting for him…Sickening

        Lets see I have 2 choices here for this election:

        A) Vote republican and get rewarded for getting an education, hard work, driving a F350, and living in a large house in good neighborhood
        B) Vote democrat and watch the lower class get worse off, middle class be stagnant, support more illegals, sit on my ass and collect welfare, weak leadership from behind foreign policy, be told I cant have any guns for protection, cant have a campfire every night in my backyard, no big Trucks & SUV, more job destroying regulations, etc..etc.

        Here is my indirect answer:

        O – One
        B – Big
        A – Ass
        M – Mistake
        A – America

        • Ilambiquated says:

          That was… beautiful. All that is missing is the illustration.

        • Fox News is not a news channel at all, it is far right wing commentary. This site is a Peak Oil site not a political commentary site.

          However we do tolerate some political comments, at least from people who post on energy as well. You have had your political commentary, now you can post on peak oil or related subjects.

          • Lloyd says:

            Hi Ron.
            Re: Eric29
            Normally, when I come to your site, I feel like I’m hanging with my peers, most of whom know more about the topics at hand and politely tolerate my presence. But this …this is a guilty, guilty pleasure. Makes me feel smart (probably in a bad way), makes me laugh, and makes me feel like the end of the world is rushing at us at an ever increasing pace and that there’s nothing we can do about it. Kind of like the scene in Dr. Strangelove where General Turgidson explains that Major Kong’s plane has an excellent chance of getting by the Russian air defenses.


        • DownToTheLastCookie says:

          “A) Vote republican and get rewarded for getting an education, hard work, driving a F350, and living in a large house in good neighborhood”

          I always viewed it as some of the rewards for getting an education and hard work was an F350 and a large home. I didn’t realize one gets rewarded for driving a F350 and living in a large home. Just call me old fashion. Clearly one of America’s big problems is buying the F350, large home and watching Fox News before getting the education(starting with grammar) and hard work(borrowing to buy the house and/or truck with little or no money down, think 2008 financial crisis which happened under a Republican President).

          If we all voted Republican and owned an F350, the price of fuel would be $20 a gallon because of the lack of ability to produce enough oil for every individual to drive to the store in their four ton toy. Is that really the vision of the Republican Party ?

          I think the F350 owners should be thankful for the Leaf owners who don’t compete for the use of oil based fuels.

  4. Andy Hamilton says:

    Please go back to 25 comments a page. I find it helps me quickly know whether anything new has been published (as compared to a lot of the inter-comment discussion which has become huge).

  5. Cave Bio says:

    Hello everyone,

    I have a question that has been stirring in the back of my mind for a couple of weeks, and now that I have a moment I would like to throw it out to the distinguished oil minds that occupy this blog.

    Based on the data I have seen over the years, it seems highly probable that the Saudis are on the verge of terminal decline in their oil production. If that is true, why are we seeing so many news articles like this:

    Gloves off over oil: Saudi Arabia versus shale

    EXCLUSIVE-Privately, Saudis tell oil market: get used to lower prices

    I could post more stories like this and I am sure such stories have been posted here in other areas. The reason this is making me scratch my head a little bit is it would seem that the Saudis could use this pull back in oil prices to reduce production and save oil for “future generations”, something the Saudis have in the past publicly declared they would like to do:

    The Saudis must know that shale is a bubble waiting to burst. They also must know what their own oil situation is.



    • Watcher says:

      “EXCLUSIVE-Privately, Saudis tell oil market: get used to lower prices”

      Folks who have never been fierce competitors typically don’t understand situations like this.

      The Saudis, who had nothing to do with the price decline, have an opportunity to take the US shale oil industry in their fists, and crush it. They achieve this by doing largely nothing, or maybe shorting Euros and Sterling with their Sov. Wealth Fund (or printing up Riyals with their CB) and drive the dollar up. If the yardstick gets longer, that which you measure with it gets smaller (aka price of oil).

      They can smash that industry ruthlessly, and if they are playing to win, that’s what they should do.

      • Dennis Coyne says:

        Hi Watcher,

        Why should they do that? This means selling their oil for less now. The shale operators could shut down operations (as far as new drilling) for a while and wait for the Saudis to come to their senses. The oil will still be there to be extracted later. Why sell your oil now for less, bragging rights? That’s great as long as you don’t mind getting less revenue for your oil over time.

        It is about greed, greed is good. The Saudis must like giving their oil away at a discount, not good business. Some companies might be driven out of business in the US, but price wars usually benefit no one. Maybe the Saudis believe the hype from the EIA.

        • Cave Bio says:

          Hi Dennis,

          I agree that it makes no sense to sell oil at a discount. But is it really possible that the Saudis are completely ignorant of the financial reality in the shale plays and that they are relying on the EIA for information? Maybe I am simply assuming that the folks running things in Saudi Arabia are competent. Maybe that assumption is not valid. But something seems amiss.


        • Watcher says:

          All right.

          First of all, the Saudis haven’t done anything at all. They didn’t ramp up production to produce the oil price crash. So the discussion about them “doing something” to raise prices . . . is required how? Anyone can do that something, if they believe that in the absence of any data indicating a supply spike in the past 3 months (or a demand collapse) there is something they should do to supply to achieve their goal. Not really any point in it since there is no indication either supply or demand in the past 3 months varied from 6 months ago.

          But more to the point.

          Greed is good? Power is better. Victory trumps greed. Crushing a threat is goes far beyond potentially meaningless pieces of paper. Saudi Arabia could dictate policy to the US if the US starves without Saudi oil.

          And as I have pointed out, once NoDak evacuates a return to high price will not restart that activity. The junk bond lenders will have been defaulted on. They won’t lend again. NoDak will have to pay to cap and abandon all those wells owned by bankrupt LLCs. They will pass legislation requiring huge escrow any time in the future there are signs of another boom. If we think $60 shuts it down now, these added costs and realities and the absence of population who all left will make that price $160 to restart.

          KSA . . . or Russia . . . has a chance for to permanently eliminate US maneuvering room. You think global dominance gets trumped by having to accept 30% less money for oil? That’s just silly.

          • Watcher says:


            Odds are 50/50 the government will intervene and subsidize the companies. The politics will be very difficult.

            There are lots of precedent for this. All kinds of weapon systems are provided contracts to keep the assembly line staffed and expertise fresh, and the votes are often bipartisan.

          • Nick G says:

            That’s highly unrealistic. The Saudis need their income far more than the US needs their oil.

            First the U.S. could easily cut oil consumption dramatically overnight and eliminate oil imports without starving: look what it did in WW2. Heck, the average car only carries 1.2 passengers and only gets 22MPG. If the US dramatically cut consumption, it would never return anywhere close to previous levels: KSA would lose that market forever.

            Second, the production capability of LTO would not go away. Companies might go bankrupt, others would just buy the leases, and equipment, and return to production with a much lower cost base.

          • Dennis Coyne says:

            Hi Watcher,

            Wells don’t need to be capped, new wells just won’t be drilled. The companies that are in better financial shape will cut back on their expansion plans, but will not necessarily go bankrupt. The oil industry goes through these kinds of shake out every time oil prices drop.

            Nobody is saying Saudi Arabia made prices go up. Usually when prices drop Saudi Arabia cuts back on production to bring prices back up.
            They usually do not behave the way Watcher thinks they should. Maybe they read this blog and are following your advice 🙂

            • Watcher says:

              Can’t leave a non producing well uncapped. Illegal. A bankrupt LLC won’t collect any oil and the courts dividing assets among creditors will be facing quite the backlog.

              It will take years. Gotta cap it.

              • Nick G says:

                Somebody buys the assets, not the debt. The story is as old as the oil patch.

                You wouldn’t destroy a producing asset, the creditors would never allow it.

              • Dennis Coyne says:

                Hi Watcher,

                Once the well is drilled the $9 million spent on the well is a sunk cost. The cost to pump the oil is only about $4/barrel.
                The wells will still be producing, if companies go bankrupt the wells will be sold to solvent companies, the wells get capped when they are down to 7 b/d after 20 to 25 years.

                No new wells will be drilled if prices fall far enough (to under $55/b), but that does not mean that all the wells get capped, just the wells that are at the end of their productive life.

                • Watcher says:

                  I specifically said it would take years. A bankrupt company doesn’t go to court until there’s a slot on the docket. The regs require cap and abandon after a short period of no flow. Done.

                  Hell, you think asset distribution happens fast? There are STILL foreclosed houses on bank balance sheets. Why would oil wells be different? Do you really think the high yield market is going to leap forward to provide DIP financing for this avalanche?

                  The wells will cap. NoDak will have to fund it. And then pass legislation requiring escrow for future players, which will raise the price reqd to get underway again — but if the need for oil is desperate enough it won’t matter. Gov’t will step in and provide the DIP money.

                  • Dennis Coyne says:

                    Hi Watcher,

                    My guess is that these things do not necessarily work the way you think they do.

                    Do you think that the government will move quickly to cap the wells? Do governments do anything quickly?

                    Until the company is actually in bankruptcy court they can continue operations. The oil is worth $60/b and costs $4/b in OPEX to get out of the ground, subtract taxes and you have a $41/b net. I would think until the court case takes place that this oil will be pumped. You think differently, it would be interesting to hear the perspective of some oil men that have some idea how this works in the real world. I will admit that I don’t know, I am not in the oil business, nor have I ever owned a company that has gone bankrupt.

                  • Watcher says:

                    Fair enough.

                    You are “in bankruptcy court” via a filing. You may not have a case heard for years after that filing.

                    This is a big deal. There are a lot of wells in question and when people start to see paycuts / hour cuts then it gets easier and easier to leave town and not endure that winter.

                    You probably should do some reading on Debtor In Possession financing.

                  • Nick G says:

                    Don’t be silly.

                    The rules are adapted to fit the case. No bankruptcy court or local government is going to order or allow producing, profitable wells to be capped.

                    A special administrator will be appointed, creditors will be allowed to take over operations – something will be done.

                    Look at GM: despite the idiot suggestions of Republicans, things were arranged so as not to dismember the company and disrupt the entire industry (supplies would have been bankrupted – even Toyota objected to a simple liquidation).

    • Frugal says:

      At this point I think the Saudi’s backs are against the wall and they will produce all out regardless whether prices are $120/barrel or $60/barrel. Today’s Saudi Arabia needs billions of dollar to pay for welfare, health care, subsidize their gasoline and diesel, cover their princes opulent lifestyles, and keep their oil production from dropping dramatically. And yes, they’re secretly hoping the recent price drop will wipe out a good portion of US light tight oil production. On the other hand, they don’t necessarily like the current 25% loss in revenue but what can they do about it?

      • Dennis Coyne says:

        Hi Frugal,

        Let’s think about this. Prices were $100/b now they are $85. At about 10 Mb/d, this is a loss of $15 million per day of income. Lets say the Saudi’s cut production by 1 Mb/d and prices increase to $100/b, they come out ahead by $5 million/d in this scenario. If prices only rise to $94.40/b they will come out even. It may be that they are trying to punish the LTO producers in the US, but they if my guess about cuts and prices is correct, it is an expensive strategy.

        • Hi Dennis. Like everyone else I really don’t know what is going inside Saudi decision makers heads, but I can guess. And my guess is that Saudi is damn tired of being the only one expected to cut production.

          Back in 08 everyone cut production but before one year was out everyone but Saudi, Kuwait and the UAE were back at full production. Then when high prices returned everyone was back at full production. But both the UAE and Kuwait have instituted massive infill drilling programs and both are now over 200,000 barrels per day above their 2008 peak. And no OPEC nation shows any signs of cutting production.

          I will just bet that when OPEC next meets Saudi will lay down the law. They will say that we will cut production when everyone else cuts production but we will damn well not be the only one to cut production… or something to that effect. 😉 But until they get concessions out of other OPEC nations they will do nothing.

          • Cave Bio says:

            Hi Ron,

            This does make sense. It will be interesting to watch–could make for an interesting post?


            • HouseBent says:

              Hey Tom,
              I really think your comment speaks to the most interesting thing going on in the Oil world now. How to make sense of the Saudi response.
              If they are seriously concerned about “maintaining market share” they must be expecting a long period of no/low economic growth. But still, why should they be concerned about market share loss, when they can always get it back (with lower prices) later. The other question is who, long term, has the capacity to take more market share, especially at the cost of selling cheaper. I don’t think anyone has cheaper production cost than KSA.
              I’ve always thought the biggest concern to KSA is (should be) really, really high oil prices. So, why not sell a little less now, and stockpile for the future. It seems to suggest (assuming they are behaving rationally) that KSA is genuinely not worried about being able to meet any demand spikes that could de-stabilize the system by driving price to dangerous levels failing a rapid spike in production. I know Ron doesn’t believe they have that kind of spare production, which has been my gut-feeling as well, but this response seems to suggest they think they do. Or that they don’t foresee any such demand spike for quite a while, maybe never.

          • Dennis Coyne says:

            Hi Ron,

            That could be the case. I would think that all OPEC countries are being hurt by lower prices. If the low prices stick your call for an early Bakken peak may turn out to be correct (you expect a Bakken peak by the end of 2015 at the latest as I recall.)

            • canabuck says:

              I agree. Low prices now mean low investment in 6-12 months, and that takes a big cut out of initial production spikes.
              And when the Bakken peaks, the world may peak as well. Or it may not. The peak has been delayed so many times, one thinks that it will never happen.

              As I recall Lloyds of London and the U.S. Joint chiefs of staff said that 2015 was a likely date for the peak.

              • Dennis Coyne says:

                If prices remain at $80/b or less 2015 sounds right to me. If prices go back to $95/b or more before 2015, I think a more likely date is 2017 or 2018.

        • Ronald Walter says:

          At ten million barrels per day, the 15 dollars is 150 million dollars short each day.

        • Cave Bio says:

          Hi Dennis,

          You hit the point exactly–they could take a little stress off their fields and likely not cost themselves too much if anything in the process. Ron’s suggestion below that they no longer want to be the only producer to cut production does make some sense. But in the context of their own looming peak and the fact that tight oil is on the verge of peaking, I am still left to scratch my head a bit.


    • Jeffrey J. Brown says:

      Some normalized values for Saudi Arabia, for 2005 to 2012 (no material change in 2013, same trends continued):

  6. Watcher says:

    The Saudis will have enough for themselves for a long time. They don’t really need anything more than that.

    • Dennis Coyne says:

      Hi Watcher,

      They need more than oil, they need the money that it brings in. What are they going to eat, sand?

      • Frugal says:

        That’s right, they import almost 100% of their food. Without oil exports, they’re dead.

        • Watcher says:

          You don’t have to do 9 mbpd to buy food. And that’s part of “having enough for themselves”.

      • Synapsid says:


        Is Saudi Arabia one of the countries buying up farmland in Africa and maybe elsewhere?

    • Old farmer mac says:

      Barring some entirely unlikely unforeseen miracles on the agricultural front they are going to have to import most of their food for the duration of their population boom. Unless most of them die from a plague or in a war this must mean that they are going to be importing vast quantities of food for many decades at least even if they were to lower their birthrate to well below replacement.

      And it seems unlikely that any of the sand country oil exporters will be able to develop enough indigenous industry to supply their own needs for most things ranging from a to z….. so they must export substantial amounts of oil or die of starvation while sharing rides on their grossly inadequate fleet of camels.

      • Watcher says:

        Big chunk of that population are not Saudis. Imports. Could be deported.

        • Watcher says:

          And for the 10th time, why are we talking about the Saudis? THEY DIDN’T DO ANYTHING.

          Why is the presumption it is they why must cut production?

          Why must anyone cut production? There was no 3 month supply spike or demand collapse.

          • Ilambiquated says:

            Exactly, it’s just random finger pointing. It is sort of entertaining for someone that lived through the seventies to hear people accusing the Arabs of ruining America by making oil too cheap though. 😉

          • Dennis Coyne says:

            Hi Watcher,

            Something must have changed to cause prices to decrease by 15%. Typically OPEC responds by cutting production to a fall in prices.

            Note that the dollar has gotten weaker against the British pound and Euro over the last year, so this is not likely to be the explanation for the fall in oil prices. A weaker dollar means that imported goods, like Brent Crude would tend to increase in price ceteris paribus.

            • Watcher says:

              Nope. The time frame is the time frame. The dollar has spiked in the relevant months. The last year or so isn’t relevant; only the relevant time frame. Other commodities have fallen in the same time frame, priced in the longer yardstick.

              Go look at .DXY, the dollar index, since June.

              • Dennis Coyne says:


                You are right that the dollar is stronger not weaker and most of the change has occurred over the July to Sept period. The change in exchange rate does not explain all of the change in oil prices. If you look at the change in Brent in Euros it fell by 9% from June to September, if we do the same in US Dollars (June to Sept) the fall in Brent is 15%.
                The Brent price has fallen further since September.
                As of Oct 27 the Brent price has fallen by 26% in US dollars and 17.5% in Euros.

                So the strong dollar (relative to the Euro) explains 8.5% of the fall in Brent crude prices (in US Dollars). We need to look at supply and demand for oil to explain the 17.5% fall in Brent prices from June to October (4 week average spot prices from the EIA) in Euros (I used monthly average Euro/dollar exchange rates for June and October to convert Brent prices in $/b to Euros per barrel.)

                • Ilambiquated says:

                  As I wrote a couple of threads ago, there is a feedback loop going on here. The strong dollar pushed down the oil price, and the cheap oil pushed up the dollar — because fewer dollars get sent overseas to buy oil. Weak demand in China and Europealong with reduced US imports thanks to LTO could have started the loop.

                  another interesting thing is that chaos in the Mideast doesn’t seem to make people s panicky as it used to.

            • Dennis Coyne says:

              No I am wrong above. Dollar has gotten stronger relative to the Euro not weaker, the price of a US Dollar in Euros has gone from 0.73 Euros to 0.79 Euros (roughly) in the last 12 months, clearly this is an increase in the price of a dollar which means the dollar is stronger not weaker by about 8%.

              The increased strength of the dollar explains about half of the 17% fall in the price of Brent Crude (from $100/b to $85/b).

              The rest of the change is either a change in the supply curve or a change in the demand curve (or perhaps a bit of both).

              • Watcher says:

                I last did this examination several weeks ago and the explanation was then about half as well. If you understand DXY you’ll understand the yuan is not well represented and they are lot of oil involvement.

                I phrased it at least half, but you also need to be aware that this is a spike. This is a huge short term move on the dollar. And you’ll find that Japan just made it even worse. The Yen crashed Friday (which means the dollar spiked even more).

                This is not the way the world used to look. You had to have a country conquered to get currency moves like this pre 2008.

        • Big chunk of that population are not Saudis. Imports. Could be deported.

          No they could not. No one is in Saudi who is not doing a job for the Saudis. If they sent all the expatriate workers home then they would have to shut down production.

          • El Ukuku says:

            Saudi Arabia does seem to have some slack considering migrants, they deported 4% (370,000) of their stated migrant population (9 million) in a period of 5 months up to March 2014.

            Interestingly the final guardian article is dated October this year and has a link back to the first one I’m linking, the link description however has changed the figure from 250,000 to 2 million people deported.

            I’m not saying that they’ll deport all their expatriate workers but it definitely appears big changes are afoot in KSA.


            The interior ministry said late on Tuesday that the foreigners had been residing in the country illegally and were in violation of labour laws. It did not elaborate.

            The deportations began after 4 November with a nationwide campaign targeting many of the kingdom’s 9 million migrant labourers after years of lax law enforcement.

            Not sure about the sources for this article

            Saudi Arabia is to deport more than one million people who live and work illegally in the kingdom.

            The kingdom announced on March 2014 that it had deported over 370,000 foreign workers in the previous five months. Of these, thousands were Ethiopians, accused of having illegally crossed the country’s border through Yemen.

            And one final article that popped up as I dug

            The public sector can no longer absorb the 200,000 young people leaving university every year, witness their 11.5% unemployment rate

            Companies are now required to employ a minimum quota of local workers: 7% in building, 50% in insurance and 90% in banking

            Ministry of Labour figures show that real progress has been achieved on Saudisation and jobs for women. The share of private sector jobs held by Saudis has risen from 7% to 16% since 2011

            • Ilambiquated says:

              If the oil runs out, I don’t think exportation of foreign nationals will really be necessary. The Saudis will get taken out and shot and the place will go back to being called Arabia.Most of the foreigners will leave in a hurry.

  7. Watcher says:

    Well, the news is out.

    It turns out “sanctions on Russia” has a new meaning. It means “send them cash directly” without bothering to concern yourself with who is going to burn the nat gas you’re paying for. The EU and IMF appear to be paying Ukraine’s bill — both back billing and for billing in advance.

    Now that’s how you surrender quietly.

    • Dave Ranning says:

      NPR continues their hit job on Russia over Crimea.
      But Russia holds all the good cards at the moment.
      It will be interesting how long welfare for Willy Wonka and his gang of friends will last.

      • SRSrocco says:


        Amazing how the RIGHT & LEFT now all BEND OVER for their corporate masters. Believe me you, I don’t think Putin is an angel. However, this strategy to destroy Russia will certainly backfire when PUTIN and CHINA finally say enough is enough.


        • Dave Ranning says:

          If you are a neoliberal economist, Russia is a wasteland.
          If you are a reason based materialist, it is just the opposite.

          • Ilambiquated says:

            Russia has a long way to go to become a well run country. That last thing it needs is more land. The Crimea is worthless compared to the vast stretches of the Russian steppes.

            The Crimea was important in the 18th and 19th century. It isn’t any more. That the Russian government is ready to sacrifice its relationship to the outside world for the Crimea is a very bad sign –like the Serbian government’s attempted suicide over Kosovo, which was a big deal in the Middle ages.

            Putin’s frets about the survival of the Russian language are understandable. Russian has crashed since the cold war ended. But he is just turning more and more people away from it by saber rattling. It’s hard to find anyone in Eastern Europe these days who admits to speaking Russian fluently. Grabbing the Crimea will make it even harder.

            • notanoilman says:

              Wasn’t there something about a big gas find off the Crimea? If that is so, then Russia achieves 2 things. One, they gain access to that gas for themselves. Two, they prevent Ukraine from getting that gas and becoming independent of Russian gas. Any thoughts?


              • Ilambiquated says:

                I am pretty sure Putin’s motives are 90% nationalist here. The Crimea is a red flag for Russian nationalists. “Rescuing” the Russian diaspora in Eastern Europe and Central Asia is another huge thing.Putin has more or less said he considers himself president of all Russians, whether they live inside the current borders or not, and he aims to defend them.

                I was in our Prague office last week and everyone I talked to was very annoyed and apprehensive. Nobody believes there are any motives except nationalism. Lots of WWII comparisons.

              • Watcher says:

                Probably nothing there.

            • Synapsid says:


              The headquarters of Russia’s Black Sea Fleet are in Sevastopol. This is not a minor matter to Russia.

      • Anon says:

        Russia’s economy is bleeding to death. They have zero aggregate growth, inflation pushing 10% and a collapsing currency, plus the $20+/barrel miss in oil prices in their budget. They also will shortly have declining oil *production*, by their own admission.

        There’s nothing to like over there.

        • Finally…. Someone who knows what the hell they are talking about.

          • Robbo says:

            Or maybe just words YOU agree with because you are an Obamabot

            • I have no idea what an Obamabot is… I am an American from Alabama.

              However the Republican’s have been all over Obama for not doing more to support the Ukraine. The right, and Fox News, are staunch of their condemnation of Putin, putting down Obama at every turn for not acting firmer against Russia. The Ditto Heads blast Obama at every opportunity because he has not sent arms to the Ukraine.

              I have noticed those who support Putin never miss a chance to condemn, not just Obama, but America’s every action anywhere in world. I will never understand this hate America campaign.

            • Ilambiquated says:

              Wow, doesn’t it feel cool and sexy to call people names?

        • Watcher says:

          “Russia’s economy is bleeding to death.”

          Measured in joules?

          “They have zero aggregate growth, inflation pushing 10% and a collapsing currency, plus the $20+/barrel miss in oil prices in their budget.”

          What’s Japan’s growth? Italy’s? France’s? Dare I say it . . . Germany’s? And you do realize Japan would love 10% inflation? Are begging on their knees for, please, 10% inflation?

          What does collapsing currency mean? Measured in joules, I mean? How is the Ruble doing per domestic joule produced? How’s the Pound Sterling doing per domestic joule produced.

          Is anyone starving in Moscow because of a change in price of barrels measured in dollars?

          This is not the world of the past. That is all gone as of 2009. It’s never coming back.

          Beside’s which, did Germany’s Reichsmark value vs the French franc matter at all in 1939 to who would be master and who would be slave? Japan’s yen in 1989 was hugely powerful. What did that matter to their future?

          You either pump enough oil for yourself or you are at the mercy of those who do.

          • dave Ranning says:

            Yea, but the bankers and neoliberal economists don’t care about reality.

            This is not the world of the past. That is all gone as of 2009. It’s never coming back.

            So true, but most can’t even comprehend it.
            But we will probably still using Russian Rockets to salvage what we can.

          • Anonymous says:

            Or you go electric.

            Oil is expensive, dirty and risky. It’s obsolete. Time to kick the habit.

            • There is nothing that is as portable as oil. Coal and natural gas are cheaper than oil but they are both fossil hydrocarbons. Oil will become obsolete when something cheaper takes its place. Nothing has. Oil is not a habit, it is necessary to help feed, clothe and house 7.2 billion people.

              • Nick G says:

                “There is nothing that is as portable as oil.”

                Not really true – batteries work very well for 90% of transportation.

                “Coal and natural gas are cheaper than oil but they are both fossil hydrocarbons. ”

                Electricity from almost any source is cheaper than oil.

                “Oil will become obsolete when something cheaper takes its place. Nothing has. ”

                A Nissan Leaf is the cheapest car on the road to own.

                “Oil is not a habit, it is necessary to help feed, clothe and house 7.2 billion people.”

                There are no uses for which there’s no replacement.

                • Not really true – batteries work very well for 90% of transportation.

                  I would say that long haul trucks, ships at sea, riverboats pushing barges and aircraft make up far more than 10% of transportation.

                  Let me repeat, there is no form of energy as portable as liquid petroleum.

                  • Nick G says:

                    Yeah, I’m speaking too loosely. What I really mean to say is that those applications of liquid fuel that cannot be easily eliminated, might add up to roughly 10% of current oil consumption.

                    So, for instance, long-haul trucks will be mostly be replaced by rail, not batteries.

                  • DownToTheLastCookie says:

                    Long Haul trucks will be mostly NG

                  • Dennis Coyne says:

                    Hi Ron,

                    Ships can use coal, or biofuels, trains can replace long haul trucks ( though clearly this cannot happen overnight, but as oil prices go up gradually trains will replace trucks and will gradually be electrified.

                    You are certainly correct that petroleum is convenient, the question is how much we have to pay for that convenience, the more that oil prices increase, the fewer long haul trucks and the more that ships will conserve fuel by slowing down or switching to other forms of energy like coal or biofuels. There may also be less World trade in things like autos. Rather than ship cars built in Japan to the US, the Japanese will open factories in every continent and ship cars by land (on electric trains), though without much petroleum there will be fewer cars and a higher proportion of cars would be EVs.

                    Such a transition(and whatever form it takes) will by no means be easy, and it may not even be likely, but I do not think it is impossible. The sooner that mankind realizes that peak oil, followed by peak natural gas, followed by peak coal is a reality, the sooner we can get to work on the transition to more wind, solar and nuclear power, more electrified rail and light rail, and more high voltage DC transmission to upgrade the electric grid.

                  • Techsan says:

                    Long-haul trucks can easily be powered by overhead wires along the interstates, with only enough battery for local delivery. The overhead wires are already used for buses in some cities, e.g. Seattle.

                  • DownToTheLastCookie says:

                    Techsan, They could be switch to over head wires, but that is a huge infrastructure task and maintenance nightmare. Some traffic will go rail. But CNG will be a much easier and cheaper first step. EV’s and CNG Hybird EV’s for local deliveries. City buses have been doing it for years with almost twice fuel economy.

                  • thrig says:

                    … and those overhead electric lines for the quite short-range buses in Seattle (one says “Mt. Baker” on it though certainly does not get as far as that mountain, while a diesel bus readily can) have delightfully high capital costs, usually requiring a fed grant or somesuch to be affordable, hence most of the bus fleet burning surprise of surprise, Carbon. Granted, Metro is mostly stuck trying to serve unservable sprawl, but that’s America for you. Maybe with the collapse back down to actually walkable neighborhoods and folks not coffined up in cars, there might be a few electric lines that can be maintained where there is demand for such? This, of course, assumes that road maintenance in the face of higher energy costs will remain affordable, versus the alternatives, such as letting the roads crumble, which they are doing a quite splendid job of at the moment.

          • Dave Ranning says:

            Yep, most on this blog are like the Austrians in 1913 arguing who their next Hapsburg ruler is going to be.
            We really need a larger box to view things.

            • Watcher says:

              The larger box of pre-emptive nuclear strike to suppress competing consumption seems to be . . . for some reason . . . more horrible than losing big chunks of one’s own population.

              It’s very odd.

              • Nick G says:

                Well, I’m pretty confident that you’re not serious.

                Still, it’s worth saying for other readers:

                If Chinese consumers choose to invest in vehicles that are that are oil dependent, that’s their problem. Please note that the Chinese government is investing heavily in electric rail, and that more electric bikes are sold than gas-fueled cars.

                Oil is an albatross. It’s obsolete. Competing to consume it is like competing to consume opium.

  8. Old farmer mac says:

    This is a rather long article that goes into much more depth and detail than most about the history. economics and politics of the Canadian tar sands industry and well worth reading.

  9. toolpush says:

    The EIA must be a big place and nobody must talk to each other. In the graph AEO preliminary report, they have the Marcellus falling next year, by my eye balls, yet on today weekly gas report, they talk about the Marcellus being pipeline retrained, and link a wonderful spreadsheet itemizing how many projects are coming on line, starting from last week through to 2018.

    Now there are going to be a lot of empty pipes with producers paying take or pay contracts or the graph above is a total miscalculation. We will soon find out, but it appears the AEO, thinks the Marcellus is going to run out and the Hainsville will need to grow to replace it? It doesn’t look right to me?

    • Watcher says:

      As we’ve discussed, all it would take is an oil-commensurate crash in NGL price to defund those fields.

      • toolpush says:


        NGL prices have crashed.

        They have only recovered some due to exports and the very cold winter last year. Most ethane is burnt as Nat gas as it is not worth while to separate it out and pipe it some where.
        The Marcellus is producing cheap Nat gas, any NGL is cream, after seeing all the pipelines being built, the question is can the Marcellus support the whole USA nat gas market on its back. I feel it must break somewhere, but a lot of people have put a lot of money into take or pay contracts, so we are going to have to wait, but NGL is not the main story, it is just a little extra on the side.

        • Watcher says:

          toolguy, that’s a February article. The relevant crash would be just 3 months old, if NGLs are following oil (and I think they always have).

          Hard to see how natgas pays the bills. I am pretty sure I read quotes about how wells would not be drilled if they were not expected to be wet.

          • toolpush says:


            You are very good at the short dismissive answers and no back up.

            “I am pretty sure I read quotes about how wells would not be drilled if they were not expected to be wet.”

            Don’t just think it show the proof.
            The gas will be produced as those pipelines don’t get federal approval unless a market and a viable supply is proven.

            • Watcher says:

              Nah that wasn’t intended to be glib. Lemme find some of the quotes:


              “Hopper said NGL production is propping up the economics of shale gas production.”


              That link seems to flesh out the first:

              “An unprecedented spread between oil and natural gas prices in the US has made NGL more valuable than dry gas, Hopper said. As a result, shale gas drilling in the US and Canada is predominantly focused on liquids-rich areas—notably the Marcellus and Utica shales.

              Data from Baker Hughes Inc. show that drilling in dry gas shale plays, like the Barnett and Haynesville, has dropped off sharply in recent years due to weak US gas prices.

              Hopper said NGL production is propping up the economics of shale gas production.”

              • Dennis Coyne says:


                The NGL helps in plays that are running out of sweet spots.
                For the Marcellus it helps too, but Hughes analysis suggests there is plenty of room left in the Marcellus sweet spots.
                Most of the other shale gas plays such as the Haynesville, Fayetteville, and Barnett are likely to be past their peak unless an increase in natural gas prices increase drilling rates in those plays.

                • Watcher says:

                  “As a result, shale gas drilling in the US and Canada is predominantly focused on liquids-rich areas—notably the Marcellus and Utica shales.”

                  • toolpush says:


                    It looks like RBN energy reads this site, as today they have an article on the Marcellus /Utica and how it will effect Henry Hub.

                    They do make your note of wet gas producers being producing down to $2 mcf, but also state dry gas producers at $2.50 mcf. This was the point I was trying to make, it is not just the wet gas producers that can produce cheap Nat gas, and the fact that a mass of pipelines are due to open shortly, is likely to effect Henry hub. Note they even mention today’s, lower NGL prices.


                    “Today the opponents are Northeast gas versus gas from Texas, New Mexico, Oklahoma and North Dakota. And the productivity arms race has changed the battle plan. Many producers in Northeast Pennsylvania can profitably produce gas at prices less than $2.50/MMbtu. Many wet (high BTU, high NGL content) gas producers in Southwest Pennsylvania, West Virginia and Ohio can operate profitably at prices well below $2.00/MMbtu by selling higher value NGLs (even at today’s lower NGL prices).”

                    Actually NGLs may be a liability soon, if they can’t find a home for the ethane. In one of your references it mentioned the massive amount of ethane being rejected into the Nat gas stream and it was approaching the max BTU that is allowed. Once this limit is reached, ethane becomes very much like nat gas in the Bakken, the cost of disposal becomes greater than its use, and therefore it will have a negative value.
                    Once these pipelines start opening or reversing, then it will be time to see how good the Marcellus/Utica is?

  10. Watcher says:

    The Bank of Japan just . . . it’s hard to provide a metaphor.

    They will buy more bonds next year. 70 Trillion yen this year will become 80 Trillion yen next year. Their ETF buying (yes, equities in the Japan stock market) will be 3 Trillion yen next year.

    At 110 yen to the dollar this is 727 billion dollars. $60 Billion USD per month next year. I believe at Bernanke’s worst he was at 80B/month and only 40 of those were US Ts. Japan’s GDP is less than 1/3 US.

    So, we still think money . . . means what? That money is created from nothingness. The announcement moved the yen : USD just 1 penny. It all . . .means nothing.

    • Old farmer mac says:

      At some point they will create enough money to crank up inflation unless they can figure out a way to destroy it at about the same rate it was created without killing the patient due to the withdrawal pains.

      My gut feeling is that the economy in many places may now be as badly hooked on government handouts as any drug addict is hooked on herion.

      What all this printing of money basically amounts to is that increasingly large parts of the economy are in fact as surely on welfare as any food stamp recipient with the only real difference being that it is make work welfare rather than just check cashing welfare.

      This cannot end well.

        • El Ukuku says:

          The FSB, a global financial policy group comprised of regulators and central bankers, found that shadow banking increased most rapidly in Argentina, which saw a 50 percent jump, and China, where growth was more than 30 percent.

          China tried reining in shadow banking last year realising what a risk it posed, their attempt promptly failed and caused a scare that another crisis may occur.

          The Chinese Banking Liquidity Crisis of 2013 was a sudden credit crunch affecting China’s commercial banks evidenced by a rapid rise on 20 June 2013 in the Shanghai interbank overnight lending rates to a high of 30 percent from its usual rate of less than 3%.

          On 19 June 2013, instead of injecting additional funds and easing its monetary policy, China’s central bank People’s Bank of China (PBOC) told commercial banks to “make full use of incremental funds and revitalize stock options.

          There were concerns even that the “massive, shady trade”[3] in over-the-counter credit could place China’s financial security and social stability, at risk.[3] By 2011 half of the loans in China were in shadow banking with no regulatory scrutiny.

          • Dennis Coyne says:

            Remember that the Shadow Banking system has to be looked at relative to total World Wealth which is $263 trillion, so about 28% of assets are in the shadow banking system. Note that half of the wealth is owned by the top 1% and the top 10% of wealthholders account for 87% of total World assets. In most cases the Shadow Banking system is debt held by wealthy people that is owed to other wealthy people.


            • Boomer II says:

              In most cases the Shadow Banking system is debt held by wealthy people that is owed to other wealthy people.

              That’s a big reason why I think we can work around debt non-repayment. Much of the wealth appreciation in the world today is driven by trading back and forth among the wealthy. They own stocks, they own art, they own expensive homes. These things are considered wealth because other wealthy people are willing to buy them. If there were no market for them, that wouldn’t necessarily impact the 99%.

              • Boomer II says:

                Think about it. Wealthy individuals and wealthy corporations aren’t really investing much right now to create industries and jobs. They are focusing on wealth accumulation. So it isn’t like the world economy is booming and if they would redraw the capital, everything would crash. They have already been withdrawing capital, so that’s the way we are going already, I don’t think debt or lack of it would impact all the people in the world who don’t have it already.

                • Lloyd says:

                  Except that they have monstrous homes (7,000, 10,000, 20,000 square feet) that are heated and air conditioned, they fly in private 737’s (and they fly a lot), they own collections of dozens, if not hundreds of cars…they need that money to buy all the fuel they’re using, and the real estate and other property they own is priced to reflect the energy it took to build it.

                  They aren’t accumulating it- they’re spending it.


                  • Boomer II says:

                    they own collections of dozens, if not hundreds of cars…they need that money to buy all the fuel they’re using, and the real estate and other property they own is priced to reflect the energy it took to build it.

                    They can only drive one car at a time. Those collections of cars aren’t using fuel. They are sitting in a garage. Similarly, the wealthy are only in one house at a time. Their other homes aren’t using much energy because they are empty.

                    The wealthy consume far less than if that wealth were spread around to the middle and lower classes. From that perspective, having a few very wealthy people and lots of poor people is better for the environment because it significantly reduces global consumption.

                  • Boomer II says:

                    Lloyd, I answered as if you were serious. But it just occurred to me that maybe you were kidding.

                  • Lloyd says:

                    Boomer: it takes a lot of energy to make a cubic foot of concrete: more and bigger houses, more energy consumed, or more embedded energy purchased. Not to mention the mansions that are torn down and rebuilt because the owner only wanted the lot (afraid I used to read Vanity Fair a lot…)

                    Houses have to be climate controlled to avoid mould, warping, etc. I don’t think the super-rich are pinching pennies and letting those oil paintings on the wall degrade and the floors buckle; this can happen in cold or hot climates. Every square foot they own is 70 degrees. Unless they’re going bankrupt.

                    The embedded energy in a collection of cars is enormous.

                    Those cars are frequently in climate controlled storage, and there was an article in Wired today about how expensive cars from the Middle East are transported to London when the owners visit. ( My guess is that they fly them there.

                    From that perspective, having a few very wealthy people and lots of poor people is better for the environment because it significantly reduces global consumption.

                    This article ( gives us a peek inside the private 747 of Prince Al Waleed. I’m pretty sure that even with his entourage included, they are using dozens of times the fuel even a business class passenger uses. And consider that this thing is not a hangar queen- he bought it because he uses it. So he flies much more than the average person, and he uses exponentially more fuel each flight. Oh, and he has a few other planes as well.

                    We are using up all the oil we produce, and if you read this blog, you should realize we are producing essentially all the oil we can produce. It will all be used whether the poor use it or the rich use it. The rich are not doing us a favour by using up all the oil to save us from ourselves. They are using that oil because they want the Bentley in Los Angeles by Tuesday. Simple as that.


                  • Boomer II says:

                    So you are serious.

                    The consumption by the wealthy is in no way comparable to using that same wealth to provide basic living for millions of people.

                    As the 99% in this country get poorer, what the wealthy are spending will not drive the economy if the economy is based on consumption. Like I said, the wealthy are doing their part for the world’s environment. Fewer cars purchased and driven. Less energy use in homes. Smaller homes lived in. People are downsizing because they don’t have the money. Now, I suppose we could encourage them all to take on debt again, but then we’re likely to have another boom-and-bust.

                  • Boomer II says:

                    Here, this is what I am talking about.


                    MPC and nature of country

                    The MPC is higher in the case of poor than in case of rich people. When a person earns a higher income, the cost of their basic human needs amount to a smaller fraction of this income, and correspondingly their average propensity to save is higher than that of a person with a lower income. The marginal propensity to save of the richer classes is greater than that of the poorer classes. If, at any time, it is desired to increase aggregate consumption, then the purchasing power should be transferred from the richer classes (with low propensity to consume) to the poorer classes (with a higher propensity to consume). Likewise, if it is desired to reduce community consumption, the purchasing power must be taken away from the poorer classes by taxing consumption. The marginal propensity to consume is higher in a poor country and lower in the case of rich country. The reason is same as stated above. In the case of rich country, most common of the basic needs of the people have already been satisfied, and all the additional increments of income are saved, resulting in a higher marginal propensity to save but in a lower marginal propensity to consume. In a poor country, on the other hand, most of the basic needs of the people remain unsatisfied so that additional increments of income go to increase consumption, resulting in a higher marginal propensity to consume and a lower marginal propensity to save. This is the reason MPC is higher in the underdeveloped countries of Asia and Africa, and lower in developed countries such as the United States, the United Kingdom, Singapore and Germany.

                  • Lloyd says:

                    I’ll have one more go at this, Boomer; meet me at the bottom.


      • Watcher says:

        Sigh. Old normal thinking.

        It Doesn’t Have To Mean Anything. Whatever has to be done . . . not to fix the problem . . . but to merely keep the wheels turning will be done. Anything. No limits.

        Money supply growth is supposed to reflect the needs of a growing economy. This is why gold has no function anymore. Money supply cannot be limited to gold supply that has no connection to population gain or GDP gain. If a few tons of gold were put on a rocket and launched into the sun, you cannot allow that to shrink the economy.

        And this is the reality of old normal vs new normal. Money supply no longer reflects anything but CB flailing. It should not be discretionary. It is not supposed to be a tool for dictating economic behavior. It is supposed to reflect, not define. The tool for managing (what is supposed to be free markets) is interest rates. What destroyed that was getting to 0% and realizing destruction was continuing. So Bernanke decided . . . about 6 weeks before a prez election, that he would uncork $80 billion/month of new money.

        As for the “At Some Point” meme, not a believer. They will do anything. They will frame people for rape (Dominique Strauss Kahn), they will interfere in national elections (Greece), and they will keep printing and manage yardsticks to define prices.

        Oil is the only thing that can stop this. Nothing else.

      • SRSrocco says:

        Dave & Farmer Mac,

        The markets today are totally INSANE. Just look at the Dow Jones… at another ALL TIME HIGH…LOL. And if that isn’t crazy enough, the Japanese Nikkei had to be halted last night as it reached its daily limit. For pete sakes, you can’t make this stuff up.

        The broader stock markets today are nothing more than RIGGED CASINOS to keep the poor PAPER MACHE INVESTOR SLOBS invested in a financial system whose life expectancy is growing shorter each and every passing day.

        Ironically, CNBC viewership is at an ALL TIME LOW as the DOW is hitting new records. Looks like the BS Propaganda Machine is losing some creditability.

        God Hath A Sense Of Humor…..

        • Watcher says:

          Oil just dropped to $79.xx.

          Some reasonable people, one would think, will ask . . . why is Japan doing this? Abe and Kuroda said things would going great.

          Maybe none of it is working.

  11. Dean says:

    Yesterday, the North Dakora light priced 66 $/bbl. Today, probably lower:

    See also here for the current nasty (oil) rail economics:

    Therefore, I am very skeptical about future oil production from Bakken.

    Actually, we do not have to wait much to know who is right: the next 2-3 years will be crucial, and already next summer/winter will give some important indications, since some models expect the Bakken to reach its maximum oil production in the summer 2015.

    • Dennis Coyne says:


      Those links are great thanks.

      Bakken at $65.72 on Oct 31.

      Another good RBN article is

      Where prices stand today, Bakken producers would get there best price by using pipelines to get their crude to Cushing (transport cost of $9/b) or the Gulf coast (transport cost $11/b).

      With WTI around $80/b and assuming a $2/b discount for Bakken crude a producer can net $69/b by shipping their oil to Cushing rather than selling at the wellhead. If the Louisiana Light Sweet(LLS) oil price is more than $2 above the WTI, then the “netback” oil price will be higher for Bakken producers if they ship by pipeline to the Gulf Coast.

      Based on this information, the average Bakken well producing 320 kb over a 23.5 year life needs $58/barrel at the wellhead to breakeven, this is equivalent to a WTI oil price of $69/b.

      Chart below reflecting a new scenario reflecting $11 for transport and Bakken discount with WTI oil prices starting at $80/b, remaining flat until August 2015 and then rising 1.8% per year until 2040, reaching $125.40 (2014$) in August 2040. Well cost is assumed to be $9 million (2014$) and is unchanged over the 2014 to 2037 period (when drilling stops at 31,500 wells).

  12. Rune Likvern says:

    I have a Bakken “Red Queen” update up at Fractional Flow
    Growth in Global Total Debt sustained a High Oil Price and delayed the Bakken “Red Queen”

    • Watcher says:

      Haven’t read that yet, Rune, but I am about to. Wanted to pontificate a thought first.

      If shale is destroyed by low price and NoDak evacuates and leaves tons of trash and open holes behind, my previous theory was that would be forever. The HY (junk) bonds that have been funding things will default and the lenders will be burned.

      So . . . if the oil price then rises again and the industry wants to ramp up, I have been thinking those junk lenders will not be interested in another burn experience and there would be no money available for the drillers.

      WRONG. The Fed can buy those bonds. I have no idea why it took Japan to re-inform me of “They Will Do Anything To Keep The Wheels Turning”. Of course the Fed would buy those junk bonds to get shale going again.

      It’s all bogus. KSA has their own CB and so does Russia. They have access to the same infinite money as the Fed. The true meaninglessness of it all may become more clear to the masses soon.

      • Rune Likvern says:

        To me anyone who ends up with taking any losses (bond holders, fed, tax payers) it means that the Buyers got a good deal. The Buyers did not pay the full costs for their oil.
        If we play around with this reasoning a bit further and if some of the LTO is exported, it means Buyers (who may be Chinese) is getting NA LTO subsidized by those who takes any losses.

        The population may be an element, but changes in total debt (affordability issues) are IMO more important.

        • Watcher says:

          Ten years ago my position on things financial would have been bizarre or at least extreme. The world changed.

          Debt is a problem? Expunge it. By decree. Greece’s debt was expunged. Nothing like that is going to be allowed to starve people. If you HAVE to have the oil, economic constraints won’t be allowed to stop it.

          The analysis of breakeven and things like that are only relevant on this side of the precarious threshold of financial chaos, and if financial chaos is advantageous to someone, they will push things into chaos. Once past that threshold, no one will care what oil costs. If it costs $80 million to get 10 barrels of oil, they’ll spend it. The $$$ are all arbitrarily valued anyway. (Note I said the dollars, not the oil).

          • Rune Likvern says:

            Total debt is and will be a problem. How one will work around it, I do not know.
            Some have floated the idea that given the strategic importance of oil that nationalization of it may be an outcome. $$$ may be viewed upon as a proxy for energy.
            Our economies are in reality thermodynamic flows (which makes things and move these around), where the financial system acts kind of the operating system for a PC.
            Nationalization implies stricter control of use through rationing.

            • Watcher says:

              Nationalization? Absolutely credible. Then there don’t have to be costs, or at least, there doesn’t have to be accounting of them.

              But be aware that there have already been comments here and there by politicians . . . of this sort:

              Oil is too important to be considered anything but a global asset. No country should be allowed to make policy concerning it. A global management of all oil reserves is appropriate.

              Naturally, the speaker of those words was from a country that has none.

            • Dave Ranning says:

              A good exchange on debt and possible jubilee:

              • Boomer II says:

                Thanks for posting this. It is a good rebuttal to the idea that civilization must always grow in order to repay debts, and when we hit peak oil, the growth stops, the debt repayment stops, and as a consequence homo sapiens disappear.

                The article points out that throughout history debt forgiveness has been quite common.

                • Boomer II says:

                  To make my comment a bit clearer:

                  It is a good rebuttal to the idea that civilization must always grow in order to repay debts.

                  It’s a good rebuttal to the belief that when we hit peak oil, the growth stops, the debt repayment stops, and as a consequence homo sapiens disappear.

                  I’m not saying that something couldn’t wipe out civilization. There are scenarios which might cause that.

                  But I am skeptical that civilization will collapse because peak oil will end growth, which will mean debts won’t be paid, which will lead to civilization collapse. I don’t see civilization’s existence hanging on debt repayment.

                  • El Ukuku says:

                    Debt repayment is part of our current system. Our current system is based on confidence that the system works, confidence was knocked in 2008 and massive repercussions followed. A further knock to confidence such as major defaults on debt would instil fear and that would again ripple out. It wouldn’t be a civilisation ending event but like the current financial crisis it wouldn’t be pleasant. The tools we hit the last financial crisis with have been blunted, they are not as efficient at instilling confidence as they were when the crisis first hit. If another crisis of confidence occurs it will be further reaching in scale than 2008.

                  • Boomer II says:

                    Over on Gail Tverberg’s blog, there is an unwillingness to consider any forms of economic systems that don’t run on debt. So the assumption over there is that when debt collapses, the entire world collapses. But historically, we see that at various times debts are forgiven and then societies rebuild from there.

                    And when it is shown that the world isn’t dependent on growth to repay debts, we can look at possible sustainable economics down the road that don’t depend on growth.

                  • Yes, Eluku makes a very good point. There will be many causes that will eventually cause collapse. Peak oil, or declining energy availability will be just one of them, but a very big one of them.

                  • Rune Likvern says:

                    “What if there is no spoon?” Matrix

                    This is an interesting discussion.
                    Our financial system is virtual. Out in the physical world there will still be human, social, built and natural capital (the sun will rise and set) irrespective of what happens to the financial system and global oil production in the near future.
                    Debt is simply a vehicle to pull demand forward in time. If too much debt is/becomes a problem then there will be political/social solutions to this. We may not like these, but so what?

                    Less net energy means less economic activity. That is far from a life threatening event, it requires adaptions and perhaps other social/cultural/political criteria for successes.
                    To be clear we will need a kind of operating (financial) system.

                    Could we have become captive of ideas/concepts over centuries/decades which makes it hard for us to envision different trajectories?

                  • Boomer II says:

                    Could we have become captive of ideas/concepts over centuries/decades which makes it hard for us to envision different trajectories?

                    That’s what I see on Gail Tverberg’s blog. Some of the folks over there are so convinced that the world can’t survive without the debt/growth/oil scenario that they won’t discuss anything else.

                    But those of us who are willing to explore the concept of sustainable, or no-growth, economies, don’t feel it is a given that humanity will totally collapse if debt isn’t paid back.

                    Much of what we consider as wealth today only exists on computers. And as we are seeing, those computers are quite hackable, so it is possible to mess with the financial system without having anything to do with oil. I’m waiting for the masses to begin to realize that the wealthy are primarily wealthy because we say they are wealthy. If we don’t acknowledge that wealth, the wealthy may not have as much power or sway.

                    I saw this the other day. Seems relevant here.


                  • Boomer II says:

                    It’s kind of like telling the masses you are a god or the divine right ruler and something awful will happen if they challenge that. But what if some brave souls challenge that and don’t die as a result. In time, perhaps, people become skeptical that the gods and rulers are all powerful and the power disappears.

                    So what if people challenge the concept that the world will collapse if the wealthy aren’t allowed to maintain their virtual wealth? And what if the world then doesn’t collapse as predicted? Then maybe that virtual wealth becomes meaningless.

                    Yes, the world operates better when there is trust. But destroying trust in the financial system that props up the 1% may not mean all trust is gone. Perhaps trust in the current financial system will be replaced with trust in something else.

                    I would say that increasingly the average person no longer believes the stock market is trustworthy. It exists to enrich a few people. And it’s all paper wealth anyway, so if it falls apart, it might be the wealthy who are hurt most.

                  • Watcher says:

                    “Debt is simply a vehicle to pull demand forward in time. ”

                    Pretty good quote by the Rune man.

                    Might be worth noting that there are times when it may not be discretionary. It may be necessary. A military threat — and not the pansy type of recent years when a victory doesn’t result in slavery of the vanquished — but a real threat the defeat by which will send your young population off to clean toilets somewhere warrants borrowing money for weapons.

                    Then it’s only a short step to deciding that roads and bridges spending is somehow the same magnitude “need” as defeat of an effort to force your young population to clean toilets as their only possible path in life.

                    Point being, it doesn’t have to be as capricious as wanting a big screen TV now rather than later.

    • Watcher says:

      The article does mention consumption, but there is no mention of population gain. Might be worth noting.

      Thumbs up on embracing Enno’s key chart on contribution from wells of different age in the Bakken. That’s about the best visual we have for that whole field.

  13. Ronald Walter says:

    I dunno, but black olives from Lebanon or somewhere from that part of the world are good and need to be exported to the US so they can be available for purchase here. I suppose I could fly there and buy some at a market, but that is too costly, I’ll wait for the shipments to the US and just buy them here. Some lemon, garlic, oregano, a little more olive oil for good measure, you’re in like flint. Black olives for breakfast is a treat.

    Olive oil is a great oil, almost as good as sunflower oil, the very best oil for use in food that you can buy. Edible oils make life a little bit better.

    Imported olive oil from the ME is a good thing, crude oil from the ME isn’t that big of a deal, plenty of it everywhere.

    Canola oil, rape seed, is a good lubricant and fuel for a VW Rabbit, but don’t ingest it, it is inedible.

  14. Boomer II says:

    With well decline rates being what they are in current fields, how can the tight oil production plateau extend so long after peak? Won’t there be a limit to how many new wells can be drilled to maintain production or how much extra oil can be obtained by re-fracking the old wells?

    • Watcher says:

      Not if you don’t care what a well costs to drill. You can drill 1000 in a month if the Fed provided the money to hire enough people to do it, regardless of profit. You can get every drop of oil out if you don’t care that a 10 million dollar well might only tap 100 barrels of total oil.

      That’s what would happen if there were no profit motive but total desperation to have oil.

      • Boomer II says:

        Do you think this AEO report is reflecting that? A profit-be-damned, get-the-oil-out-whatever-it-takes approach to keep oil flowing from these fields through 2040?

      • Watcher, I think you are mistaken in believing that the government will be the oil supplier of last resort. The price of oil will always support what the demand for oil is and the oil companies.

        After peak oil, the price will go up driving demand down. When the price of oil goes up the price of most everything else will go up also. The economy will suffer and we will go into a recession, driving the price of oil right back down. We will see this up and down economic cycle but each up will not be quite as high as the last and each down will be a little further down than the last.

        The government will not jump in and bail it all out. They will do what they can but every country in the world will be in the same boat. And the oil companies are multinational companies. What would we do about that? And what about Japan and South Korea and everywhere else in the world that don’t have enough oil to keep their economies up. We now have a globalized economy, and when the global economy crashes the world crashes.

        Our government cannot save us because our government cannot save the whole world.

        • Watcher says:

          Ron, no one’s government will be trying to save the world. They will be trying to save their citizens at the non financial expense of any lesser human that doesn’t happen to be a citizen of that country.

          I see this often on left wing perspectives. There is always a presumption that smooth, gentle flow to misery and more importantly, evenly distributed misery, will be the order of the day. It not only doesn’t have to be that way, but it would be almost treasonous for actions to be taken to make it that way.

          Each country’s leadership has a moral duty to take care of their own country at top priority and if others have to suffer for that to happen, too bad. We’re seeing a bit of that play out now . . . if sealing off the US from ebola victims in some way makes the disease harder to defeat in Africa, well, all it will take is 10 US deaths for that to become the law of the land. After 10 American deaths, sealing off influx and to hell with Africa will be the unequivocal reality — and that is likely the proper configuration for any country’s leadership. Their salaries don’t get paid by Africans.

          And so, if driving less is forced on US people so that Chinese can ramp consumption and have conveniences, there is no way those policies are going to win any elections. If money causes this to happen, then something non money will have to be done to satisfy the voters.

          • Colin Boyle says:

            Maybe that is why the left believes in international solidarity – precisely to avoid right-wing nationalistic beggar-thy-neighbour approaches to global problems.

            • Watcher says:

              True. So insist that candidates the left might support make clear that they will not give Americans priority in decision making. See if the electorate signs on.

            • Dave Ranning says:

              The Left is so crippled by identity politics, it is hopeless in its narcissistic actions.

              • Ilambiquated says:

                The left splits society horizontally, the right vertically.

                • Watcher says:

                  Well, it’s Friday night and since I didn’t learn what eschatology means in either grad school I went to so I probably could not understand what horizontal and vertical means either.

                  Though, society is separated. By IQ. Classic The Bell Curve demo. Think of 10 people you know well. What % have college degrees or advanced degrees? If you have one, your reply will be a % much higher than national average.

                  • Ilambiquated says:

                    Eschatology is end-times theology, Jesus-style. You now, the last shall be first the kingdom of heaven is nigh, repent and be saved.

                    The key is scary predictions based on esoteric knowledge.

                    Keyser Soze nailed it when he pointed out that men react differently to fake news shows than women. Eschatology is a chimpanzee style dominance display.


                    Mike the chimpanzee Jesus ruled for decades thanks to his gasoline can dribbling skills.


                    Note the thunderstorm remark. Yahu (aka Jahovah etc) was a thunder god.

                    About Horizontal vs Vertical, I was talking about income vs “groups” of various definitions. Leftists say it’s the rich against the poor, regardless of race or creed, rightists say its nation against nation, the rich and the poor stick together because tradition or whatever.

                  • Watcher says:

                    Hmm. I think I recall someone claiming it derives from learning to compete, usually in athletics.

                    USAFA, West Point and Annapolis are far harder to enter than Harvard. Academic reqmts are a little stiffer than Harvard, but the big difference is the academies also require a cadet have a history of high school sports and there must also be a congressional recommendation (each congressman and senator can recommend 2 HS students per year to each academy).

                    This is far beyond Harvard’s requirements, mostly in athletics because of the training in competition. Obviously a nation wants a military that wins, as a top priority.

                  • Watcher says:

                    Cool chimp stuff.

                    Look, unlike scenarios where Mike gets deposed by someone stronger, oil scarcity configures the world for a permanent alpha.

                    When people will starve and die without oil, and the entity with the oil is perfectly willing to supply it . . . with mild, painless conditions, then those conditions will be met.

                    “You can have this oil at cost provided you shut down all alternative energy research and in fact criminalize any activity that pursues it. We will not force you to do this. You can always reduce your population using any means you wish to fit the oil you have available. But you don’t have to. We’ll help you keep those people alive, and as you are aware, there will be no gradualism in this. You do it now or you make your choices on who dies.

                    Or, simply do the painless things we insist on and stop trying to stab us, your reliable supplier, in the back by finding alternatives. Let us know in 48 hours.”

                    This is a perfectly reasonable position to take — as soon as things get desperate. This is not about dominance. This is about permanence. That entity is going to be alpha forever, or at least until their oil runs out, at which time the population shrinkage outside their own country is going to happen anyway — but on day one they can claim willingness to share whatever they have forever, provided their customers . . . bend the knee.

          • Old farmer mac says:

            I know a good many of the idealistic left winger types who want to run the world and make sure that ”evenly distributed misery will be the order of the day”. A I used to know some of them very well indeed and I have spent lots of hours reading and listening to what they have to say.

            They do not intend to share in the misery. They expect to work eight to five with lots and lots of meetings with plenty of time for personal calls and lots of paid holidays and lots of personal days and a raise every year and a lifetime position and pension and health benefits.Of course overshoot applies to all walks of life and they aren’t necessarily going to get what they expect. Nosiree.

            And of course they are like the employees of the Twentieth Century Motor Factory in Atlas Shrugged who swallowed the socialist line and kept raising the salaries of machine operators and floor sweepers at the expense of the master machinist who kept the plant running because he didn’t need the money( not having any children etc ) as bad as the laborers ( who had children of course) until he finally quit.

            The presumption in that sort of thinking is that we ”have a littles” will just take and share what the rich ”have too much” people have.

            But in reality the rich do not have any huge amount of actual assets such as food or clothing or houses or automobiles or anything else except pieces of paper that say they own a company or a mine or a thousand acre farm or whatever.

            It is true that any given rich person could convert his fortune into clothing and food and automobiles and houses .But the unnoticed and yet undeniable fact is that there are not that many rich people.

            You can confiscate their money but that money cannot be converted into food and cars and houses for the poor people who confiscate it- for the very simple reason that the food and cars and houses do not exist in sufficient quantity.And for the most part the capacity to produce these goods in such quantities does not exist either.

            Warren Buffet may eat caviar at every meal, or something even more expensive. But you can bet your last can of beans that he does not eat much more than any laborer working for him in the United States in terms of calories and absolute quantities of food.

            He may have fifty cars. But his fortune were to be divided among all the people who work for him it would not likely buy one nice new car per employee, never mind a house full of nice furniture per employee.

            If the Walton family distributed the entire profits of Walmart to employees there would not be enough profits to pay those employees as well as the janitors in public school systems around here are paid. And beyond that there would be no Walmart anyway. The company exists because it makes huge profits. If it weren’t for those profits there would not be a Walmart near you.

            If the company were to pay substantially better wages then those wages would have to be paid -everything else held equal – by raising prices- and the poor people shop there but don’t work at Walmart are highly dependent on the low prices of Walmart groceries , clothing and junk.So what the employees gained would be lost a little at a time by every body else who shops there.

            What I am trying to say is that things must exist before they can be consumed.If the things in question are manufactured goods the raw materials and needed energy sources plus the necessary capital must exist in order for them to be manufactured.

            Things cannot be forced into existence by printing money- not for very long.

            If the government tries to supply oil by throwing money that is printed at the oil industry then that industry will suck up the steel ,concrete,trucks, wire, electric motors, pumps, computers and a thousand other things, especially human talents needed to produce that uneconomic oil.

            Those necessary inputs can be bought with printed money.

            But the supply of each and every one of those inputs is limited and if the oil industry uses it then the home building industry cannot.If oil workers eat all the hamburger then auto mechanics will have no hamburger.If the tar sands companies use up all the natural gas heating up the bitumen so as to be able to mine and process it then electric utilities will have no natural gas to generate electricity…

            PRINTED MONEY IS A TAX THAT IS GIVEN OVER TO WHOEVER GETS THEIR HANDS ON IT. EVERYBODY ELSE pays that tax thru being able to buy a little less with whatever money they have.

            So printed money can generate temporary prosperity for whoever gets it but only at the expense of every body else who does not share in the giveaway.The amount of goods and services provided by the folks who get the handout is always going to be less than would be provided by people paying their own business expenses in terms of dollars of input going in versus units of goods or services coming out.

            When the supply of oil starts getting really tight- and it will eventually- there is just not going to be enough human capital and real capital to force production up very much.

            Raising production that way will starve too many other essential industries of talent and materials.

            It just won’t work over the long haul.

            • Ilambiquated says:

              i>Warren Buffet may eat caviar at every meal, or something even more expensive.

              Pretty sure he prefers Dairy Queen

            • Ilambiquated says:

              PRINTED MONEY IS A TAX

              Wow, that’s a good thing. Taxes are a good thing because they provide a society new capabilities and thus new opportunities.

              I thought people around here were anti “fiat currency” but you’ve obviously had a change of heart.

              • Old farmer mac says:

                I am personally not opposed to fiat money although I do actually have any love for the concept. So far as I am personally concerned my belief is that fiat money is like democracy- the worst possible choice except for all the other possible choices.

                I have argued here many times that a gold standard is simply unworkable in the modern world and while I have not said so in so many words that if gold doesn’t work then nothing else is going to work either as a tether to anchor money.

                The only thing that can work is the confidence of the people in the government.But governments have a way of promising more than they can deliver and thus the long term fate of a fiat currency is to die with the government that issued it or to be inflated to such an extent that only a fool would loan his money out long term at a low rate of interest.

                I refer to myself as the resident odd conservative of this forum but conservatives are in actuality no more opposed to taxes than liberals- other than as a matter of degree and the uses to which the taxes are to be put.

                Damned near every conservative I can think of among my acquaintances is in favor of spending more of SOMEBODY ELSE”S money on more highways for instance.Ditto the military establishment. Also unfortunately on locking up kids for smoking pot etc if you ask them in public.

                In private a good quarter of them are old long hairs who still indulge.

                The anti tax rhetoric works exceedingly well and will always work exceedingly well among the working class because they rightfully understand that they are paying while somebody else is consuming when they go thru the checkout line at the supermarket and see people who are not working eating better than they are themselves.

                I have seen this personally many times- watching a cartful of food stamp premium groceries roll out to a much nicer car than my old and ancient Escort while I necessarily economize with chicken rather than a beef roast.

                People make choices. Give working people the choice of staying home with a rent subsidy and free lunches and free clinics and food stamps and not having to bother with going to work and after a while they give up their pride and go for it. There are plenty of opportunities to game the system by doing a little babysitting a little pushing a little cutting grass and fixing cars and a thousand other things to get some money. After a while watching the bums live easier the ones that work at hard low paid jobs figure out the score and make the decision that if they can’t lick ’em they can always join ’em.

                Now as to people who are usually self supporting and find themselves out of work – I have no objection to welfare so long as it does not become a life style.

                I can count fifty households on welfare that are doing quite as well as fifty more in my immediate neighborhood where steady work is still the norm.This is easy for me since I know the owner of the biggest local grocery store quite well and he knows precisely who has food stamps for sure. I have a nurse in the immediate family who works in an almost free clinic where I would be welcome based on my current income except I saved my money and own a little farm instead of spending it on new cars and beer.HIPPA doesn’t mean much when you are around a family table discussing politics.

                Unfortunately I have no more idea of a good solution to this problem than anybody else. Cutting off the checks now would be the worst possible solution.

                Training people for new jobs who are mostly only semiliterate in the first place is nearly impossible.Been there and had a hand in it and seen it tried.

                Not many make it into new careers and with the economy headed to the pits because of overshoot there are never going to be enough good new jobs anyway.

                We have a whole pack of tigers by the tail these days ranging from a to z.

                Welfare is actually one of the smaller ones compared to such issues as climate change or the potential for fighting WWIII over a few barrels of oil or a lack of clean water.

                I have no problem with one of my neighbors collecting food stamps who is in truth very often unable to find work while my cousin the mail carrier is getting about three times the salary and benefits the job would actually pay if the post office hired the way local companies hire.

                Beyond that there is no reason at all why we should be paying for mail delivery more than a couple of times a week any more. The whole effing post office exists in the greater part as a welfare agency for the people who work in it.They have succeeded in carving out for themselves a piece of turf and of course nobody in his right mind expects them to give it up without a fight to the death.What they are doing is in essence no different than what any big business does- they are just doing it on a smaller scale as individuals.( The post office as a whole is a big outfit of course.)

                Ignorance is THE key problem in the world today and unfortunately we are losing that battle very badly indeed…

                • Dennis Coyne says:

                  Hi OFM,

                  People cannot be on welfare forever any more, the time is limited to 5 years of lifetime benefits.

                  The Food Stamp program is different, there is no limited benefit, but able bodied adults without dependents are limited to 3 out of 36 months unless they are either in a Job training program or work 20 hours a week.

                  As you said, this is not really that big a problem and the income limit is about $10,000 per year for a family of 4.

                • Ilambiquated says:

                  What I think the american government should be doing is investing in things that make it cheaper to live in America. For example, over here in Germany you can pretty well get by without car. Also electricity is expensive, but a lot of money is spent on energy efficiency. Also the government should be seeing to it that the cost of health insurance goes down, and people are covered, and preventative care is financed (which is what Obamacare does).

                  That way if people do get welfare money they don’t have to spend it on things like gas or medical bills. It also means that if oil runs out, we won’t fall as far.

              • Dennis Coyne says:

                Hi Ilambiquated,

                Only a small minority are in the “gold is the one true money” camp.

                • SRSrocco says:


                  You are correct if an individual is in one of the BRAIN DEAD Western Countries. Funny, how we tend to look at life from where we stand.

                  I remember listening to a fellow in the military whose job was to assist processing the Vietnamese who fled the country after the Vietnam war into the United States.

                  He said, there would be little old people who would open their purse and bring out several coins of gold. Those who were processing these Vietnamese, would take their gold and exchange if for Dollars.

                  Then, they would get some who would bring a suitcase of Vietnamese Currency… and the guy would look at him and say… “CAN’T GIVE YOU ANYTHING FOR THAT NOW WORTHLESS MONEY.”

                  Again the Supposed SMALL CAMP are mostly in the West…LOL.


            • Dennis Coyne says:

              Hi Old Farmer Mac,

              You do realize that when the money is “printed” (not really how it works, but for a simple explanation we will assume it is) it is not “given away”. The money is created through loans, which have to be repaid. Possibly you think that loans are a bad idea, I doubt that however.

              By keeping interest rates low, this tends to increase investment spending (real investment in oil wells, factories, buildings, etc.) which benefits the people hired to drill the oil wells, work in the factories, build the houses or office buildings. These employed people then spend their earned income which raises overall aggregate demand, leading to more real investment and employment.

              Can you explain why all of this is a bad thing?

              Inflation in the United States has not been a problem lately as the chart below shows (based on data from FRED.)

              If you are concerned about inflation, it is under control

              • Old farmer mac says:

                I should have made it clear that I was thinking about printed money that is not repaid rather than loans. Unimaginably vast sums of money are printed these days that are not even intended to be repaid and other vast sums that are printed are never going to be repaid regardless of intentions and paperwork.My own ” welfare check ”which faithfully arrives on the third Wednesday of every months is not even supposed to be repaid.

                Now as to inflation being in check- there are more ways than one for inflation to manifest itself in strange ways. Consider for a moment that wages should be rising everything else held equal if productivity is rising.Productivity has been rising to the best of my knowledge right along but wages are stagnant. I contend that stagnant wages in the face of rising productivity is a manifestation of the purchasing power of the working population being diverted to consumption by non working classes- and by no means do I just mean people on food stamps.

                The billions that were granted to build ethanol refineries was pissed away and never repaid. Most of the billions that were printed and spent to bail out the banks have in effect been handouts given to the managers and stockholders of the big banks all of whom should have been bankrupted before a public dime was spent on bailing out their sorry hypocritical asses given that they believe in capitalism when things are profitable and socialism when things aren’t.

                The auto industry should never have been bailed out. The assets and the workers who were needed would have been very quickly put to use by better managers and future managers and union workers would have had the example to use better sense that to run a company into the ground the way GM and Chrysler were run into the ground.

                Loans are a necessary thing and I don’t know of any better way to increase the money supply which obviously must increase in a growing economy with a growing population. Maybe somebody will discover a better way someday.

                If we were compelled to live with gold money a coin big enough to see it without a magnifying glass buried in a glass or plastic crystal to prevent wear and loss would be worth ten grand or maybe even a million bucks. This would be an absurdity of course but what other outcome would be possible? There is not enough mined gold in existence to run the world as money.

                The end result of all this printing of excess money is that it is allowing us to consume past our real means.This cannot end well.

                I am well acquainted with the basics of conventional economic theory and the theory of growth in particular and probably believe in it to a greater extent than most members of this forum.

                This is why I believe we can at least theoretically successfully adapt to peak oil and continue to live a modern industrial life style in the face of very scarce and expensive oil- assuming that it does not grow too scarce and too expensive too fast which is entirely possible and would result in an economic crash so deep we might never recover from it.

                But most of my training is in the physical sciences being an ag guy and there is no doubt in my mind that there are hard physical limits to economic growth imposed by biological and geological and climatic etc realities.

                ( I will not argue that the conventional economic arguments are doomed to fail in the short or near term – there are plenty of measures that can be implemented that would allow growth to continue for some time to come perhaps for several more decades. And it is at least theoretically possible that there may be cultural and life style changes coming about that could forestall overshoot.)

                Try thinking of our overall situation as the evolution of dinosaurs. Their time came to an end when for one reason or another they found themselves overly specialized to existing conditions and were unable to change.

                We are setting ourselves up in a similar situation by maintaining the consumption of goods and services that are not always going to be available.

                In times past when there was no work in a town or community some people moved out and the remaining work was enough to support the ones who stayed after some fashion. Some no doubt starved among both the movers and the stayers but mobility ensured that fewer overall starved.

                Now a days we are creating huge blocks of people and industries which are unsustainable over the long run but people are staying put in their physical locations and their line of work.

                I guess what I am saying in the end is that printing and giving away vast sums of money is just another manifestation of overshoot, a band aid repair that will keep an unsustainable system functioning a little longer but not forever.

                And overshoot means the end of business as usual, sooner or later.

                If I remember correctly it was our own Jeffrey Brown who first said ” Get thee hence to the non discretionary side of the economy ” in so many words.

                Handouts personal and corporate are not going to be sustainable forever.

                I just hope my own lasts as long as I do because I would be in pretty bad shape without it.My little farm would not support me with hired labor and I am getting too old to do the work myself.

                • D Coyne says:

                  Hi ofm

                  so it seems you are complaining about deficit spending. I assume you have read Keynes general theory and as a student of history I would think you can imagine what would have happened if the government did nothing during the financial crisis. In fact the economic history of the great depression is Bernanke’s area of expertise.

                  The point is to try to get the economy back to full employment, then wages may rise.
                  Capitalism isn’t perfect just better than other systems.

            • Dennis Coyne says:

              The CPI from FRED below using a log scale because a steady 2% inflation would be an exponential rise in the CPI, a log scale would make this a straight line.

        • Anonymous says:

          “After peak oil, the price will go up driving demand down. ”

          There is nothing terrible about that. Low value uses, like driving SUVs, will decline.

          “When the price of oil goes up the price of most everything else will go up also.”

          That’s not what happened 2004–2008. Prices for non-oil goods and services did not rise.

          • That’s not what happened 2004–2008. Prices for non-oil goods and services did not rise.

            Current US Inflation Rates: 2004-2014

            This is the age of the internet when any statistic you wish is right there at your fingertips, and that includes inflation rate statistics. The years 2004, 2005, and 2007 were the highest inflation rates in this decade. And 2006 was pretty high as well. Only when oil prices crashed in 2008 did inflation crash also.

            Next time you should check.

            • Nick G says:

              Look more closely: the general inflation rate that you looked at can be divided into “core” and non-core inflation. Core inflation excludes food and energy, and of course non-core is food and energy.

              Much of the inflation you see was due to the rising price of oil, and oil products. Core prices rose much less than the food and energy component of the CPI.

              Also of course, the world was in a boom phase of the business cycle, when even core prices got a little bit of inflation. All commodities rose in price, simply because of the normal boom and bust cycle. And, heck, employees even got a little bit of a raise.

              Not everything is about oil.

              • Core prices rose much less than the food and energy component of the CPI.

                Hey, what’s your argument? Core inflation is a fudge factor the government put in to keep the cost of living index down.

                The CPI is the true inflation rate. And that’s what the chart shows, the true inflation rate.

                • Nick G says:

                  Well, you argued that another rise in oil prices would cause crippling inflation.

                  I argued that high or low prices didn’t increase the cost of non-oil goods and services between 2004 and 2008. That’s the point behind the difference between core and non-core inflation. Why is it important? Because you can address the effects of the increase in oil prices by… Not using oil.

                  It’s also worth pointing out that every business cycle at its peak has inflation: Oil is only one component of a boom and bust cycle in a wide variety of goods and services especially other commodities

                  On the other hand, even though these arguments are valid, they’re not even necessary.

                  Look at the level of inflation from 2004 to 2008. By any standard it’s not very high. It’s certainly not crippling. If a 5X increase prices only caused less than 4% inflation at it’s peak, why would another increase be expected to do any worse?

                  • I have never said that high oil prices would cause crippling inflation. In fact I don’t believe I have ever used the word “crippling” in any argument about high oil prices. And in fact I have never argued that they will even cause inflation, though they would have to have some effect on inflation.

                    I think it is really silly to argue that high oil prices have no effect on inflation. The current low oil prices, if they remain low long enough, will definitely lower the inflation rate, even core inflation because everyone’s delivery and production cost will be lower.

                    What I have said, many times in the past is that high enough oil prices for a long enough time will cause a recession. And eventually as the recessions get deeper, it will be a depression and later a collapse.

                    Please don’t put words in my mouth that I have never used and “crippling inflation” are two words that I have never used. On the other hand “recession” is a word that I often use and “depression” is a word that I use but far less frequently. “Collapse” is a word that I often use but pointing to a point in the future, not something that has ever happened, so far, in the USA or the entire world.

                    It will be, primarily, job loss that will cause the deep recessio, not inflation.

                  • Dennis Coyne says:

                    Hi Ron,

                    High oil prices might lead to job loss or as people buy things to get around high oil prices, such as electric cars, heat pumps and insulation. There might be investment in wind, solar, and nuclear along with more light rail and electrification of existing rail and expansion of rail networks. All of these things could lead to more employment rather than less employment.

                  • Boomer II says:

                    High oil prices might lead to job loss or as people buy things to get around high oil prices, such as electric cars, heat pumps and insulation. There might be investment in wind, solar, and nuclear along with more light rail and electrification of existing rail and expansion of rail networks. All of these things could lead to more employment rather than less employment.

                    Switching the country over to alternative energy seems to me to be the only potential job booster on the horizon. There would be a ton of jobs resulting from that, and I would think it would be a true boost to the economy by creating infrastructure which would add to the health of the country. But damn, we’ve got rich folks like the Kochs fighting it. I don’t know how we’re going to convince voters that by trying to recreate the past they are killing their futures.

                    I have also hoped that the Chinese would embrace alternative energy in such a big way that the we-want-war types in the US would see that we are falling behind and would make alternative energy a necessary defense strategy. (I know that the military wants to convert to alternative energy technologies as much as possible, but some in Congress are fighting them on that.)

                  • Nick G says:

                    I have never said that high oil prices would cause crippling inflation

                    Well, this is what you said:

                    “When the price of oil goes up the price of most everything else will go up also. The economy will suffer and we will go into a recession, driving the price of oil right back down.”

                    You seemed to be suggesting a causal link between inflation and recession. This is a plausible argument: that PO would cause inflation outside of oil products, inflation would cause central banks to tighten credit, and tightened credit would cause recession.

                    So, I showed that wasn’t the case.

                    So, what’s the causal link between PO and recession/depression?

                    James Hamilton showed one: that oil shocks caused fear among car buyers, who put off purchases, thus reducing overall capital investment, thus reducing aggregate demand, causing recession.

                    The problem: this is a short term effect. Other research at the St. Louis Fed, which I can show you if you want, shows that oil shocks only cause short term recessions.

                    So, what’s the causal link between PO and recession/depression?

            • Nick G says:

              And, of course, even general CPI didn’t rise very much.

            • Dennis Coyne says:

              Hi Ron,

              Those are not very high inflation rates compared 1974 when inflation was 12%,1975 7%, 1976 5%, 1977 6.7%, 1978 9.7%, 1979 13.3%, 1980 12.4%, and 1981 9%. After 1981 only 1990 at 6% was above a 5% inflation rate for the year and from 1991 to 2004 inflation stayed below 4%.

              The inflation due to a rise in oil prices is much less of a problem now than in the 1970 to 1981 period.

              • Tim E. says:

                High inflation in the 1970’s was caused by Nixon repudiating Bretton Woods and removing the Gold Standard which previously backed the privately issued Federal Reserve Notes!

                Nixon Ends Bretton Woods International Monetary System

              • Watcher says:

                There is no more or less insulation from oil as regards inflation. And for God’s sake stop with the gold stuff. It was and remains irrelevant.

                The 70s has problems because of the widespread presence of labor unions indexed wage contracts. A transient inflation event got embedded in a broad manner throughout the entire economy. This is not trashing unions. This is about the prevalence of indexed contracts (because unions were so much bigger then).

                Volker crushed this by spiking interest rates and essentially forcing lots of firing, which deprived unions of clout and undid the indexing. Not long after, Congress added the 2nd of the Fed’s dual mandate. Not just inflation, but also unemployment.

          • Ilambiquated says:

            Exactly. High prices simply provide niches for alternative technologies. Once those niches are established, they can grow.

  15. The Wet One says:

    More evidence of the effect of peak oil and its effects?

    Maybe, I don’t know. Whatever the case, no one else (cited above anyways) even seems to consider the possibility. However, over the long term, based on what I understand of oil and energy matters, we’ll be seeing more and more of this economic under-performance compared to expectation, due to a fundamental and critical change in the systemic conditions that totally undoes the basis for future expectations that no one realizes, or alternatively, properly accounts for.

    • Ilambiquated says:

      The only difference I see is the dip from the Bush recession, which was caused by financial shenanigans, though I suppose the oil price spike didn’t help.

      There is so much room for improving energy efficiency it isn’t even sort of funny.

      Societies that adapt will flourish. Societies that don’t will disappear.

  16. sunnnv says:

    NY Times has a piece on the world’s largest “ship”, really a floating LNG plant, bound for waters off Australia when it’s completed.

    The main picture didn’t show on Firefox, but did on Safari – go figure.

    • Patrick R says:

      That vast thing has an absurd name: What is it a prelude too?

      Possibly the investors loosing their shirts if gas price fails to sustain the necessary heights to pay for its construction and operation? Anyone seen what that figure might be?

  17. sunnnv says:

    Another big ship for the oil industry. A mere 3 Billion dollars for a specialized transporter of fixed offshore production platforms. I’m surprised that offshore platforms last long enough to be re-used. Or is it that offshore fields are not lasting as long as they used to? Maybe when you’re at the bottom of the barrel, doing in-fill of mid-depth offshore.

  18. Ronald Walter says:

    If you think you can get by in this world without using fossil fuels, you can stop now, find out the hard way just what is going to happen. I’ll tell you what is going to happen, you’ll starve to death. Just give it a try, don’t use electricity, don’t buy a single gallon of gas, don’t visit the grocery store to buy groceries trucked to where you live. Go without fossil fuels for two weeks and let the experiment prove the results. I double triple dog dare you. You’ll be chopping wood with an axe, no, you won’t, the blade of the axe was forged using coke or electricity. You’ll be in the woods gathering wood and hauling it all with an all wood constructed sled lashed together with rope. Good luck to ya.

    I’m taking a vacation from the left versus right, liberal versus conservative, communist versus capitalist never ending argument of what is what. Tired of it, had it, enough is enough. Do you like weekends off? You’re a liberal. Do you like vacations? You’re a liberal. Do you want others to live a better life than what poverty has to offer? You’re a liberal. Therefore, I never take weekends off and never take vacations. I’ll be damned if I am going do all of the stuff liberals have forced on society. It is a travesty of a mockery of a sham. Damn it all. I going to become a breatharian and join the poor schmucks out there who’ll never have a thing, nothing.

    If you have a swimming pool full of gold like Scrooge McDuck and hoard it all, eventually, it will all be gone, no matter what. Charles Boycott found out the hard way what not to do to get something done.

    Do you like to work? Doesn’t matter if you like it or not, everything you do is work, it keeps you alive. Can’t be any other way. Sleep is work, if you don’t sleep. your work will suffer. Eating is work, if you don’t eat, your work will suffer. EVERYTHING you do consists of work and if you don’t believe me, don’t do a single thing and find out what happens. If you just sit there, it won’t last. If you like to work, you’ll have a helluva time around here.

    I don’t watch Fox News and I don’t carry my copy of Das Kapital with me like a bible. I’ve got one and should probably sell it, God forbid I should make a dime selling a used copy of the screed. I bought it, the stupid capitalist that I am, buying a copy of Das Kapital is downright hypocritical, the book should be distributed for free by the publisher. What are they doing publishing and distributing a book to sell to make a profit written by a nut who didn’t work to earn a decent living and spent all of his time sitting on his ass in the library while his wife and kids wallowed in poverty. All Karl had to do was find work that paid some money and bring home some cod to eat, but no, he had to sit and write total el toro poopoo all day long. Mr. Marx never did learn a thing or two about a thing or two, he just thought he might just by writing a few words. Another one for the books and it has made a lot of people of lot of money with the stupidest ideas about economies the world has ever witnessed.

    I just can’t sit there and stare at all of the seed potato willing them thar potatoes to plant themselves and hope they all land on my plate fully cooked and ready to eat. It would be a dream come true, but, if the potatoes don’t get planted, the nightmare of what will happen scares the hell out of me.

    That’s when the work starts and the rants stop.

    How are those Tesla’s going to be built without coated wires and a set of tires, grease for the bearings and, most of all, a workforce that must travel to the factory that needs electricity to build all of those electric cars? Tesla’s depend upon fossil fuels just as much as any other product out there.

    If you like oil, you’re probably a liberal. Jesus, strike me down now.

    • Tim E. says:


      • Tim E. says:

        Actually what you have described is the Wage Slave’s way of life – versus the Tax Farmer he elects!

        Life was to be enjoyed!

        Not be a burden!

    • Ilambiquated says:

      How are those Tesla’s going to be built without coated wires and a set of tires, grease for the bearings and, most of all, a workforce that must travel to the factory that needs electricity to build all of those electric cars?

      Here’s my science fiction answer to your question:

      The last part is easy, they’ll drive electric cars. Or better, they’ll take public transportation.

      As for the rest, oil and its chemical derivatives are just a bunch of hydrogen and carbon atoms arranged in a specific way. The synthetic path is pretty basic organic chemistry. Plants do it all the time. People don’t do it because the stuff is cheaper to pump out of the ground.

      IF we solve the energy problem, making oil is not really hard. Big if, of course, but Musk thinks solar will do it. Lockheed claims fusion is the future. Lots of people (including the Bush admin, remember them?) claim fission would do it.

      Incidentally the same is true for other things like fertilizer. Fertilizer is mostly nitrogen. Nitrogen is extremely abundant but in the atmosphere it is two N atoms bound together with a high energy bond that most biological systems can’t break. You need ammonium to make something useful, which has four weaker bonds to hydrogen atoms per nitrogen atom. Biological systems can work with that. You don’t need oil or gas to do that, just energy.

      • Ronald Walter says:

        A reply I have been expecting, thought it would be posted sooner or later, and won’t diss it, I am in agreement and it probably can be done, will be a goal to a accomplish, so the future is bright.

        Plant legumes and they’ll fix the nitrogen right in place, nothing else needs to be done.

  19. Old farmer mac says:

    Way to go Ronald. You may make it onto a tv show someday.

    Here’s a link to a story about what the Russians may or may not be able to do in the face of sanctions. No doubt they will put a great hurting on the Russians for now and for a few years but let’s not forget that they have the oil and we don’t .

    We are still the big economic dog overall and militarily but that may change a lot faster than anybody thinks. The Chinese want that Russian oil and they have the capital and the industrial base now to manufacture anything the Russians can’t.

    The Russians are in my estimation holding the cards that will eventually force other countries to supply them with the engineering resources and capital needed to develop their own tight oil and far north deep sea drilling capabilities.

    I expect that such items as subsea well heads are available even at scrapyards on some occasions and that the drawings needed to build older models are to be easily found someplace or another if you have plenty of manpower trained to look for such things. The patent office itself is probably willing to freely dispense all the real information needed to build this years models with a little additional work on the part of a large group of engineers- and we don’t have a monopoly on engineering talent.

    We are probably looking at a replay of the Cold War era with the game pieces changed but the old rules very much the same. The West needs Russian oil and gas a hell of a lot worse than Russia needs our consumer goods.

    Hopefully we will live thru it.

  20. Jeffrey J. Brown says:

    A question for the LTO analysts

    Approximately what percentage of current Bakken and/or Eagle Ford Crude + Condensate production comes from wells completed in the most recent 12 and 24 months?

    • Dennis Coyne says:

      Hi Jeff,

      For wells that started producing in Jan 2013 or later, in June 2014 66% of output (based on my model) came from those wells that are 18 months old or younger, hope that helps. Also based on my model out to 2040 at 24 months the percentage is 72% and at 12 months 56%.

      I don’t know about the Eagle Ford as I haven’t updated that model recently.

    • Watcher says:

      Jeffrey, Enno’s very best chart, in fact the most meaningful chart I have seen on the Bakken period, is included in Rune’s article referenced in this thread and addresses this question of what % is from wells of varying recency.

      Bottom line 70% is from well less than 20 months old.

      • D Coyne says:


        enno’s chart is for all ND output not just the Bakken.

        • Watcher says:

          This matters why?

          • Dennis Coyne says:

            Hi Watcher,

            Kind of simple really. Jeff’s question was about the Bakken, Enno’s chart is for all of North Dakota so the Bakken may be similar but not the same as all of North Dakota, if you mean that the nonBakken part of output is small, that is correct, it is only 6% of output.

    • Jeffrey J. Brown says:

      Thanks guys. Pretty amazing number–roughly two-thirds of current production comes from wells completed in previous 18 months.

      • Jeffrey J. Brown says:

        Or, in the alternative, only about one-third of the production in June, 2014 came from wells completed in December 2012 and earlier. Or, if no new wells were completed after December, 2012, crude + condensate production would have dropped by two-thirds 18 months later, in June, 2014.

        • Jeffrey J. Brown says:

          “Or, if no new wells were completed after December, 2012, crude + condensate production would have dropped by two-thirds 18 months later, in June, 2014.”

          That would be incorrect.

          • Watcher says:

            This is a matter for qualitative awareness. Stop drilling and the production fall is sharp.

            Much sharper than the math would suggest because people will see their pay plummet and they WILL leave town for warmer climates and not be there to haul oil from wells already drilled.

          • Dennis Coyne says:

            Hi Jeff,

            Yes that is incorrect, it will not drip by 67% in 8 months. In Dec 2012 output was 704 kb/d and the model estimate was 712 kb/d, if no wells were drilled and the wells drilled followed the average well profile of the 2008 to 2012 wells already drilled, then output would have fallen to 349 kb/d by July 2014, a drop of 51%, a 67% drop is to 235 kb/d and would be reached in Dec 2015 or in 3 years time.

  21. Shuffling Along says:

    From the Department of the Obvious:

    An article that takes to task the pundits who have been lamenting that young people are not buying cars and houses.

    ““Millennials,” announced the authors of one such piece of punditry, “have turned against both cars and houses in dramatic and historic fashion.” Among the many reasons given for this curious circumstance are new mobile technologies “enabling a different kind of consumption” and patterns of re-urbanization.”

    From the article: “Here’s another thought: they’re broke…it’s awfully hard to buy a house or car when any of the following apply:

    You are in student debt up to your eyeballs.
    You can’t find a job.
    When you do find a job, that job is insecure, low-wage, with few to no benefits.”

    ” Millennials have the highest unemployment rate of any generation.
    They have more student loan debt than Gen Xers and Boomers did at their age.
    More millennials live in poverty than previous generations did at the same stage of life.
    They make up 61 percent of Americans making minimum wage.
    Having entered the workforce during an economic downturn, the effects on their future wages will likely
    be permanent, even if the economy bounces back.”

    There are 80 million of them (25% of the U.S. population).

    Ron, this is exactly what you have said over and over: if people consume less, then the economy will shrink, and more people will lose jobs and/or have pay reductions and have less and less money…a spiral down.

    According to this article from The Economist, some folks are very worried about a potential deflationary spiral:

    Ladies and gentlemen, welcome to the future…the future starts now.

  22. Old farmer mac says:

    Reagan like all other politicians said pretty much what suited the agenda of his party at the time.

    Later on he came to understand the implications of ninety percent income tax rates on personal earnings which had as much or more to do with turning him into a republican as anything else.

    Truth is a scarce commodity in political speech.Not quite as scarce as chicken teeth but definitely as scarce as gold and precious stones.

    • dave Ranning says:

      Sir Ronnie The lessor was a great politician, a trait B Actors seem to excel at (The Governator, for example).
      However, he may have been the most toxic organism ever to exist on Earth, as he cluelessly set us on the path of casino capitalism that will lead to our and most species extinction.
      But it was not that premeditated- he was the puppet in charge when it went down.
      Not the brightest porch light on the block.

  23. nNgass says:

    All the many of comments do not mention the latest publication of the Post Carbon Institute that would shed some light on several topic discussed:

  24. Watcher says:

    Went back and looked at the last two months of Bakken data (which are really July and August).

    Production has truly been poor with lots of new completions per month, in the middle of summer.

    Beyond all the talk of breakeven issues (which did not exist July/Aug), something else is going on there.

    The flaring regs don’t enforce until Jan and as noted, there have been a LOT of completions in both months, and yet, anemic growth.

    • Boomer II says:

      That’s why I was wondering how the Bakken could be projected to have decades at a plateau. Where is the replacement oil going to come from as the old wells decline?

      • D Coyne says:

        Comment below was in reply to watcher.

      • Anon says:

        My thought on that is that the EIA isn’t actually modeling shale wells (or ultra-deepwater), rather treating them as if they are traditional reserves.

    • D Coyne says:

      It has followed my model pretty well. This is rune likvern’s red queen effect.

  25. Lloyd says:

    Hi Boomer-back to the rich saving us from ourselves by using all the oil so the poor can’t just waste it on things like food and shelter.

    Your original argument was that the rich were just regular guys with a lot of stuff, and that since they could only drive one car at a time, they didn’t consume too much more than average. You have ignored my comments that the embedded energy and fuel to maintain large properties, multiple vehicles and to use private aircraft frequently put them in a different class of energy use. I hold that this is an excellent response to your argument.

    The MPC is higher in the case of poor than in case of rich people.

    The marginal propensity to consume might be important to this discussion in a theoretical society where energy resources are unlimited, as fiat money is. My argument is around the rich using their money to purchase fuel. “We are using up all the oil we produce, [and it] will all be used whether the poor use it or the rich use it.”, I said. If all of a resource that can be produced is being used (and I am of the opinion everyone is producing flat out,) it doesn’t matter that the rich person using the oil to fly his car to London has a lower MPC than the poor person who might use the oil to feed his family. All the oil is still being used.


    • Boomer II says:

      If all of a resource that can be produced is being used (and I am of the opinion everyone is producing flat out,) it doesn’t matter that the rich person using the oil to fly his car to London has a lower MPC than the poor person who might use the oil to feed his family. All the oil is still being used.

      But there have been suggestions that demand for oil has dropped as a result of worldwide recession. As the rich get richer, everyone else can’t afford to use the oil. If people don’t need to get to work because they don’t have jobs, driving becomes more of a discretionary expense. If people are broke, they don’t book vacations on airplanes.

      If we sink into a worldwide depression, oil consumption will likely go down even further. Impoverish most of the world and we can drag out our oil supplies for an even longer period of time.

    • Boomer II says:

      “The global recession reduced the demand for oil in many sectors including transportation, manufacturing and construction. In April 2010, the IEA reported that world oil demand fell by 1.3 Mb/d from 86.2 Mb/d in 2008 to 84.9 Mb/d in 2009.24 Oil demand declines were most pronounced in the Organization of Economic Development (OECD) countries, while the rate of oil demand growth slowed considerably in key emerging economies, such as China and the Middle East.”

    • Ilambiquated says:

      Your original argument was that the rich were just regular guys with a lot of stuff, and that since they could only drive one car at a time, they didn’t consume too much more than average. You have ignored my comments that the embedded energy and fuel to maintain large properties, multiple vehicles and to use private aircraft frequently put them in a different class of energy use.

      More importantly, public money in America is spent on infrastructure to make like easy for people who waste resources instead of on infrastructure for the frugal.

      All the people in this picture could easily fit into a single streetcar. And they would travel a lot shorter distance as well, since a large part of your commute is actually spent diving past car parking lots to get to your destination.

      • Ilambiquated says:

        Attempting to publish a picture…

      • Boomer II says:

        I am all in favor of finding ways to reduce oil use. More public transportation and more energy efficient public transportation is a good thing.

        And I am not fond of rising income inequality. But the upside, as I said, is that the way things currently are, the richer a few people get, the less oil the rest of the world can afford to use. Consumption patterns being what they are, the rich people may own a much higher percentage of the world’s wealth, but they don’t use the same percentage of the world’s oil. It’s been the rising middle class around the world and the industries that support them that have been consuming so much oil. Eliminate them, and oil consumption goes down. The wealthy are going to put their money in things like art, that don’t use much oil.

        I don’t think the wealthy think like this, particularly since some of the wealthy are wealthy because of oil and have done whatever they can to encourage global oil consumption. But if income inequality results in more recession or depression, then global oil consumption may plateau and even go down.

        • Dennis Coyne says:

          Hi Boomer,

          A secondary counterargument is that all the wealth spent on large homes (10,000 sq ft and larger), exotic cars, boats, and so forth could be spent on railroads, public transportation, research on fast nuclear reactors, upgrading the grid.
          It would be most efficient if the private sector did much of this (though public transportation would likely be a government enterprise or a heavily regulated private enterprise).

          So if less wealth were in the hands of the wealthy, more might be invested productively. Your observation that most of it would just be consumed is probably correct. One way to increase public investment is through increased tax rates on upper incomes and possibly a carbon tax of some type with the taxes collected on carbon used to reduce income taxes for the middle class and a gas card (with tradeable gas credits) for those will lower incomes (similar to SNAP as far as income guidelines). Neither of these will happen in the US until peak oil hits and a crisis approaches, even then every other possible solution will be tried (a la Churchhill) before a good policy is chosen.

          • Boomer II says:

            A secondary counterargument is that all the wealth spent on large homes (10,000 sq ft and larger), exotic cars, boats, and so forth could be spent on railroads, public transportation, research on fast nuclear reactors, upgrading the grid.

            You guys realize, don’t you, that I am not justifying the ever increasing income inequality. I am just pointing out that as the wealthy suck all the wealth out of the world, it potentially could have a secondary effect of reducing oil consumption.

            I’m all in favor of using the world’s wealth to transition to alternative energy technology. And if people such as the US voters would get a clue, that’s what they would be pushing for, too.

            • Some Guy says:

              What I wonder is, given that we believe we need to have or at least claim to have ‘growth’ at all costs, and given that maybe we can’t actually grow our actual consumption, given resource constraints, if the only way out right now isn’t to reroute all the income to the wealthy who won’t actually try to turn that income into consumption (since they are already consuming all they need since they are already rich) but will instead just bid up asset prices.

              So the statistics show ‘growth’ but they also show that only the wealthy are seeing an increase in income and actual measures of consumption (vehicle miles traveled, etc.) aren’t really growing while asset prices just go up and up and we have bubble after bubble as all that fictional income sloshes around trying to find a yield that can’t exist without actual growth in consumption.

              • Boomer II says:

                So the statistics show ‘growth’ but they also show that only the wealthy are seeing an increase in income and actual measures of consumption (vehicle miles traveled, etc.) aren’t really growing while asset prices just go up and up and we have bubble after bubble as all that fictional income sloshes around trying to find a yield that can’t exist without actual growth in consumption.

                Yes, very insightful.

                And I think that for this reason some people say that GDP is a terrible way to measure economic well-being. It measures the wrong things.

  26. John B says:

    EIA’s latest energy monthly report shows the US produced 11.5 percent of it’s energy for renewables so far in 2014. This percentage is also increasing every year.

  27. Old farmer mac says:

    About the rich and oil consumption- while any individual rich person may fly a lot in a private aircraft or spend a huge sum of money on a personal residence it is my belief that there are so few truly rich people that their personal consumption of oil is really only a very very minor consumption of overall consumption. Now by rich I do not mean upper middle class people such as a typical lawyer or doctor or businessman – there are quite a lot of that sort around but I doubt most of them spend a WHOLE LOT more on gasoline or jet fuel that typical middle class folks since their time is limited and there are also many other desirable ways to spend their money.Beyond that the number of well to do doctors etc is pretty small compared to the overall population.

    My personal guess is that a moderately successful construction guy employed by the hour making fifty grand probably consumes a whole lot more oil than the average doctor for two reasons-because he is apt to do a lot of comparatively long distance commuting and drive a pickup truck that does no better in terms of fuel economy than a typical luxury car.Beyond that his house may be smaller but it is probably on average not so energy efficient as the doctors house given that a doctor can afford better windows better heat pump more insulation etc without problems getting his house financed and built.But the fifty grand construction guy is going to keep his house as warm and cool as he pleases.

    Plenty of relatively poor people burn a hell of a lot of gasoline because they have learned that an hour on the road to and another hour back on the road from work is their cheapest option in terms of finding acceptable living quarters.

    I seldom travel by air but my impression when I have done so is that most of the people on planes do not have a hell of a lot of money and the few that do appear to have it appear to wish they weren’t on a plane in the first place -probably because they travel mostly on business and are tired of it.I know a couple of doctors and a couple of lawyers who are doing quite well and when they vacation they go to expensive places but they still go only once or twice a year due to the necessity of looking after their practices.

    So it is my impression that the overall consumption of oil and energy by rich people is not much of a problem. The problem with energy consumption is that there are hundreds or thousands of times as many ordinary folks who probably use two thirds as much per capita as there are rich people.

    I do foresee a time when populist politics will make it substantially harder to own a private jet or a large pleasure boat. Yachts and jets may be prohibitively taxed. There is also likely a time coming when electricity and gasoline will be sold on a sliding scale with a modest amount available to each person at the market price and any amount above that used for non business purposes incrementally costing more and more as the amount purchased increases.

    Electricity is already priced this way in a few places unless I am mistaken.

    My reasoning in this respect is that the poor and working classes are getting to be more successful at getting what they want via politics if it is something that government can deliver. They want more benefits and one way to get them is luxury taxes on their rich and relatively rich neighbors.

    Such luxury taxes are an easy sell for politicians and will hardly bother the rich in reality since the amounts they will be spending on fuel and electricity even at triple ordinary prices is still pretty much trivial in respect to their incomes.A prohibitively high tax on the yacht or jet itself will be a lot harder sell but as peak oil bites harder and harder such taxes may nevertheless come to pass.

    People who are well to do but not rich may have to give up their big fishing boats and Greyhound sized motor homes and twin engine flying hobbies. The really rich folks won’t mind at all that there are fewer boats on the water or small planes using the airport so long as usage doesn’t fall so low the airport closes.

    • Ilambiquated says:

      As a frequent business flyer, I think it true that air travel has gotten worse and worse recently, and it’s not just me whining.

      But it makes sense really. Flying is basically just burning jet fuel. Prices for fuel are so much higher than they used to be the airlines have to cut corners somewhere.

      • toolpush says:


        “As a frequent business flyer, I think it true that air travel has gotten worse and worse recently, and it’s not just me whining.”

        I also fly a little, my commute to work each month can entail 2 or 3 long haul sectors, though at the moment I have a nice little 8 hr flight, which I consider short haul. Yes, flying has definitely gone down hill in the last few years. I do everything I can to avoid the Australian and the US airlines. The Asian airlines are my pick, and flying into the US, I do everything I can to make it a international flight to my destination city, even it it takes a stop in Canada to make my last leg international.
        Why, because sardines get a better package then some of the airlines that are advertising Premium, but are really budget in concept. By the way, I fly coach, not Business unfortunately.

  28. Average Joe says:

    I am so impressed about the _incredible_ precision of IEA’s forecasts. How do they know that Eagle Ford will start to decline in 2031, and that Marcellus will start to boost its production in 2028 (with a larger scale of the graph we could even anticipate the exact month)?
    I suppose they got now the latest hi-tech crystal ball (TM) technology, which enables them to deliver ultra-precise predictions – which will never ever fail (well, unlike before)…

    So guys, start now to buy your bets on oil companies in 2037!!!

    • Boomer II says:

      I am so impressed about the _incredible_ precision of IEA’s forecasts. How do they know that Eagle Ford will start to decline in 2031, and that Marcellus will start to boost its production in 2028 (with a larger scale of the graph we could even anticipate the exact month)?

      I was wondering the same thing. Especially the part about how the Bakken will keep chugging right along, even as the wells decline.

      • Doug Leighton says:

        They probably rely on Dennis Coyne’s long term projections. 😉

        • Dennis Coyne says:

          Hi Doug,

          Yes I do all long term forecasting, I am consulted by the EIA, IEA, UN. Nothing can get done without me. 🙂

          The forecasts that I do are based on a set of assumptions, the assumptions will always be incorrect as not even I know the future with certainty 🙂

          This is why I call it a scenario. If the average well profile changes (EUR will decrease) in the way I have specified, the number of new wells added follows the path that I predict, the cost of new wells follows what I have guessed, the discount rate is appropriate, royalty and tax rates do not change, transport costs are unchanged, other costs (including financial costs) are unchanged and the price of oil follows the path that I predict from 2014 to 2040, then the scenario will be accurate. What could possibly go wrong? 🙂

      • Patrick R says:

        Well I guess we can assume that the EIA is not really aiming for accuracy in their predictions with all that focus on precision:

        Is this a subtle message that their technocrats know that what they are producing is not only inaccurate but also precisely wrong?

        • Doug Leighton says:

          Good gracious Patrick, what a cynical view: Are you suggesting a civil service bereft of service? Perhaps its technocrats turned into politicians that we should really fear. In China, all but one of the nine members of the Politburo Standing Committee are engineers; let’s see how that works out. Better than lawyers metamorphosed into politicians I’d bet. But then, I’m an engineer (albeit a retired one).

  29. Ronald Walter says:

    The past 12 months show a production of approximately 338 million barrels from Bakken, Three Forks/Sanish formations. The very bottom of the chart has the last full year of production.

    Subtract the total from all previous years, and you can have an idea of how much more of the oil can be extracted from those three formations. If the expected total production is between 3.5 and 4.7 billion barrels for those three formations, the number of years of continued production at monthly levels of 33 million barrels is going to be 4 or 5, the peak is probably 4 or 5 years down the road. After that, the decline rate is going to be a factor and decreasing production will be the norm.

    The Cliff Iverson well was drilled to 11,630 to 40 feet, produced 240 bpd initial production, the total barrels of oil pumped was 585,000 barrels over 28 years. A daily average of 58 barrels per day for 28 years. It’s from the real world, so an estimate of what can be drilled and pumped can be more on the money than not. Maybe not a Bakken pay zone, nonetheless, I’ll use the well as a prime example.

    I’ll burn some wood in my knot head and do some cipherin’.

    58 x 30 x 12 x 28 x 8287 (number of Bakken, TF/S wells to date), the total estimated production will range in the area of some *wood burning now* here it is: 4 844 911 680 barrels of earl. No commas, the European method.

    Less the 338 million already gone plus all of the other years of production in the Bakken Formation since 1951, there is still some 4 billion barrels left to go, just a wag, close enough. A peak in 2019 plus 23 years of low production, 23 bpd or lower, the end will be in 2042. Until better technologies come along to extract more of the total ooip, that is as good as it gets for now.

    Production by formation chart shows a cumulative total for the Bakken at 831 million barrels, add in the TF/S, and it is the range of the estimate of what might still be there.

    Thanks to an online calculator, I saved my brain from burning too much wood. Those verdant hills up there are still green, not scorched. lol

  30. Doug Leighton says:


    “…The Intergovernmental Panel on Climate Change says in a stark report that most of the world’s electricity can – and must – be produced from low-carbon sources by 2050. If not, the world faces “severe, pervasive and irreversible” damage….

    ….Those who choose to ignore or dispute the science so clearly laid out in this report do so at great risk for all of us and for our kids and grandkids,” Mr Kerry said in a statement….”

    • dave Ranning says:

      But they bring such beautiful landscapes:

    • wimbi says:

      “Severe pervasive and irreversible”.
      Yep,yep, yep. We know all that.

      Now, as we were saying, what about the price drop of oil, and the decay rate of tight oil, and how much we might find in the arctic, huh?

  31. Doug Leighton says:

    THOUGHTS ON ALASKA OIL AND GAS From Brad Keithley’s Blog

    “…The current state [ALASKA] budget, which already was $1.6 billion in the red when it passed, is predicated on oil prices averaging $105 per barrel. (The breakeven price for the budget is roughly $117 per barrel.)

    After the last two years of record deficit budgets and last year’s (irrevocable) transfer of $3 billion from unrestricted savings to the dedicated PERS/TRS account, Alaska currently has roughly $11 billion (or roughly $15,000 per capita) remaining in unrestricted savings. If spending and price levels continue at current levels, that will be fully depleted in roughly 6.5 years at $105/barrel oil, 4.2 years at $95/barrel oil, 3.6 years at $90/barrel oil and 3.2 years at $85/barrel oil…”

    NB: Having helped with some reservoir characterization work on the North Slope (eons ago) I follow the Alaska oil scene pretty closely (out of habit) and must say that generally find Brad’s assessment of things quite good, though perhaps a touch Naive at times. Square bracket contents are mine.

    • Anon says:

      Alaska needs to stop the fantasy and get real. Their production ain’t coming back, time to transition to running a normal state. Either that or implode and be colonized by hippies fleeing CA.

  32. Doug Leighton says:


    “…OPEC secretary general Abdalla el-Badri called this week for calm over plunging oil prices, saying fundamentals of supply and demand did not justify the extent of the slide and that OPEC crude output was unlikely to be significantly different in 2015 from that of the current year….”

    • Watcher says:

      When currency fall explains probably more than half of the price decline, he’s right. Unequivocally. It’s not a supply/demand thing. Nothing huge happened to either supply or demand in the past 3 months, at least that we know of.

      Dollar spike (note I’ll address some REAL conspiracy theories on that someday), ISIS/Kurds selling below market price.

      You don’t have to cut production to raise price. You can bomb the Libyan fields. Who would even notice anything unusual in that?

      • Watcher says:

        Or maybe you could bomb ISIS or even the Kurds. Oh, I forgot. Underway. As you were. Carry on. Well thought out.

      • Dennis Coyne says:

        Hi watcher,

        It is not half of the change explained by exchange rates, the oil price move has been a drop of 30%, the Euro has dropped roughly 10%. So a 20% change in price is a large change, OPEC is missing something, either supply or demand for oil worldwide (the supply and demand curves) have shifted so that the market equilibrium is lower.

        Pretty simple really.

        • Watcher says:

          Didn’t you just confirm the .dxy showed a spiked dollar explaining over 1/2 the oil decline? Or was that yesterday?

          • Old farmer mac says:

            If all the sellers of oil who are getting paid in fewer but stronger dollars then when they convert the dollars into other currencies they will get more of these currencies.

            I haven’t the data on hand to run the numbers but let us suppose the Saudis are selling for dollars and buying imported cars and other goods with Euros. Just how much purchasing power have they lost compared to a few months ago on a tanker load of oil?

            ARE THE SAUDIS REALLY LOSING purchasing power in proportion to the rise of the dollar?Somehow I find this hard to believe.

          • Dennis Coyne says:

            Hi Watcher,

            June to Sept was 50% but dollar stabilized and oil continued to drop.
            When I looked at it from June 30 to Oct 31 it was 10% change in exchange rates, but a 30% drop in the oil price.

  33. Ilambiquated says:

    I wonder what the exact scenario would be for the lower oil price to stop or slow drilling in Bakken or Eagle Ford. The drillers there are already cash flow negative without regrets, so it won’t be running out of cash in the shot term.

    Is the expectation that Wall Street will pull the plug? If so, how long will that take?

    • Frugal says:

      Once they run out of cash, the drilling will stop. And they will run of cash sooner with $80 oil than with $100 oil.

    • Dennis Coyne says:

      In 2013 GAAP net income for Continental Resources (CLR) was $764 million in 2013. If output levels remain the same in 2014 as in 2013 and the average selling price for oil dropped from $90/b in 2013 to $70/b in 2014 net income would still be positive in 2014.

      The observation that CLR is burning cash is correct, the cash provided by financing was 30% of investment (real investment in exploration and development). The fall in oil prices may lead to lower exploration and development for the fourth quarter. Note that in 2012 58% of investment was financed so 2013 was a better performance in this regard.

      I would expect oil field development will slow down if oil prices remain low.

      • Frugal says:

        How can CLR have positive net income and be burning through cash at the same time?

        • Ilambiquated says:

          Because the company’s asset valuations are increasing. These are non-cash profits. Sadly for CLR, a lot of these assets are mineral rights whose valuations are highly dependent on… (drumroll) the price of oil.

          This explains in a nutshell why some people accuse the shale drillers of running a pump and dump scheme. The fact is that CLR has sold more than $10bn (I think $14bn?) in assets since the beginning of 2013 to keep its cash flow at all respectable. The value of those assets seems questionable now as well, but they’re not on CLR’s books any more.

          • Watcher says:

            Singapore futures have WTI at $80.20, down 50 pennies.

            Euro and Yen down sharply against USD. GBP flat.

      • SRSrocco says:


        While CLR – Continental Resources magically states a NET INCOME of $764 million, their Liabilities grow towards the heavens. I wouldn’t call it burning through cash, rather a better term would be… BURNING THROUGH FINANCING.

        Continental’s total liabilities is now $10 billion, half of their market cap of $20 billion. Furthermore, Continental’s annual interest expense was $235 million in 2013 up from $76 million in 2011. I would imagine their 2014 interest expense will be $275 -300 million.

        Continental is an ABORTION of a company. I have communication with people in the energy industry. Anyone in the industry who is serious about OFFERING A DECENT INVESTMENT RETURN would stand clear of Shale Oil & Gas.

        Breaking Even (or in many cases losing money) on a POINT FORWARD BASIS, is not an investment….

        It’s STUPIDITY.


        • Dennis Coyne says:

          Hi Steve,

          At current oil prices I agree, at $100/b for oil, I think CLR can make things work until 2017, when the Bakken goes into decline everyone will run away from CLR.

          Note that I don’t own any CLR, so I have probably not looked at their financials as closely as Steve may have.

    • Anon says:

      Depends how quickly it becomes impossible to fund new stages. Many of these guys have to drill if physically possible because they will blow covenants if they don’t.

      Most of the operators will keep going right until they default to someone.

  34. Boomer II says:

    Here’s something to add to the discussion.

    It addresses the future and how free markets can’t deal with some scientific issues.

    “How does the free market prevent acid rain or climate change? It doesn’t. How do we know about the potential harm to individuals or the environment? Because of science. And how does one prevent harm? With regulation. To prevent regulation, we’ve had this campaign of doubt-mongering about science and scientists.”

  35. Jeffrey J. Brown says:

    Campaigning for ISIS in the West

    There are at least 500 U.K. citizens fighting in Syria and Iraq and every week, according to British police, another five recruits join the fight. British jihadis have been on the front lines with ISIS from the very beginning. In the group’s recent videos showing the executions of western hostages, the masked man holding the knife speaks with a London accent.

    The spike in western fighters may be in part due to this man, Anjem Choudary, a British-born lawyer turned Islamic preacher, who lives in London and has for years been asserting his democratic right to call for an end to democracy.

    Anjem Choudary: I believe Islam is superior. And will not be surpassed. So I believe that the law of God is much superior to man-made law.

    Clarissa Ward: So, in that sense, you believe that Islam and democracy are mutually exclusive? That they can’t exist side-by-side?

    Anjem Choudary: Allah is the only one to legislate. So, obviously, in that sense it’s completely, diametrically opposed. You cannot have man legislating and playing God in Parliament, and at the same time believe that Allah is the only legislator.

    • Boomer II says:

      I wish the Christian extremists and the Muslim extremists could fight out amongst themselves and leave the rest of us out of it. And, I suppose the Jewish extremists could join in too. If we’ve got to reduce the world’s population, I wouldn’t mind if those who are the most belligerent took each other out.

    • Doug Leighton says:

      “asserting his democratic right to call for an end to democracy” Isn’t there some kind of contradiction in that statement? Anyway we can vote on that soon enough and then move on. “the law of God is much superior to man-made law” Well he’s not saying God’s law is perfect, just superior to democracy. OK Is this God, whatever in hell he/she is, generous enough to allow this Dude to make such profound judgements about relative superiority? Perhaps Islam then gives us the right to call for an end to Islam. If so, that’s my decision and I’m hereby exercising that right. Or maybe we should forget this crap and move along to some legitimate dialogue. No offense Jeff.

  36. Ronald Walter says:

    December oil price to increase one dollar:

    OFM: I read the story from the link, sanctions on Russia translates to Goldman Sachs wanting to limit the supply to make their futures contracts pay, imo. Too much supply in the pipes makes them worry. Just an thought, no real reason. No other reason for the action to implement sanctions other than to make some more money rather than losing your shirt.

    Russia said that the rig could not leave the arctic waters, so it is a win for them and Exxon, it looks like, too. Russia confiscated the oil rig, more or less.

  37. sunnnv says:

    No mention of peak oil per say, but NY Times is highlighting the terminal decline of the North Sea.

    Clock Is Ticking for Oil and Gas Industry in Britain

    layoffs, salary cuts, … new exploration wells finding less than current production …
    happy times are here to stay I guess 😉

  38. Watcher says:

    Trying again, to put something at the end.

    Oil futs in Asia and with Europe about to open say $80.08 with both the pound and the euro joining the yen in falling. Which of course drives the USD up.

    Wow, if I had a central bank of my very own (aka infinite money) and I wanted to destroy the shale industry, I think I’d short the big three and then cheer when Kuroda fires his bazooka . . . oh and look, Super Mario Draghi has a meeting this Thursday. Imagine that.

  39. Old farmer mac says:

    I will put this comment here since it will be missed most likely way upthread where I was ranting about deficit spending.

    I am not opposed to deficit spending in and of itself. Borrowed money is often the only money available to do necessary work and deficit spending is after all merely public borrowing.

    The question as to whether deficit spending is justified depends on what the deficit is SPENT ON. If we were spending most or all of it on efficiency, conservation, renewable energy and other things that would enhance our future safety and prosperity then I would be all for it and more to boot.

    But WAY WAY too much is being spent on things that are actually going to prove to be counter productive over the long run such as propping up industries that are useful to us as a society only because they provide jobs to those employed in them.

    Way too much is being spent on subsidizing life styles which are not sustainable over the long run without the subsidy being continued – and it is going to prove impossible to continue the subsidy over the long run.

    There is a parable in the Bible about grasping thorns which is entirely relevant. Sometimes you are way ahead when you take a hold of a problem and solve it immediately at the expense of some immediate pain and trouble instead of allowing the problem to grow until it will require many times the expense and trouble to correct it- or until it is beyond correction.

    (Those who are adamantly opposed to religious convictions would still do well to read and study the KJB- as I have said before it contains more wisdom in respect to human affairs than any other book of the few thousand I have read over my lifetime as well as more foolishness than most others.Winston Churchill saw thru Hitler sooner than any other prominent Englishman in part because he troubled himself to actually read Mein Kampf . Excuse my spelling if I have that title spelled wrong.)

    Encouraging hundreds of thousands and millions of people to invest their working lives and savings into industries and lifestyles that cannot continue via subsidy is fertilizing the thorn rather than uprooting it.

    When economic conditions change all those people are going to be up shit creek without a paddle whereas had there been no subsidies they would have gradually found other ways to earn a living and adopted different lifestyles as a matter of necessity before it was too late to do so.

    I am not advocating cutting off welfare checks or food stamps. Such programs are both morally justified and pragmatically justified. The problem is that we don’t know how to stop the people of this or any other country from adopting the dependency lifestyle. While it is true that a lot of new rules have been put into place that are supposed to and do actually reduce outright fraud and sloth to some extent the fact is that the people are like bankers and constantly finding ways to stay ahead of the regulators.

    One of my neighbors for instance has official custody of three grandchildren who are getting a check each from social services until their maturity since grandpa has only a social security check – officially. He manages to make a few hundred more every month at his former trade.His son the father of these three kids lives on the premises in actual fact although he maintains and address down the street . The son is a very capable worker when he is short of cigarette money but I have heard him brag on numerous occasions that he does not have to work except when it suits him.He has ways of earning money that are best not mentioned here since these are real people who live only a couple of miles away. These are all white folk with anglo names in case anybody is wondering.

    I am about to rent a house out I may put on section 8 which means the people who will be living in it get a PERMANENT rent subsidy which in effect means they will have more discretionary money for beer and cigarettes and cable tv and a fairly decent automobile and gasoline for it.Just about every household in my neighbor hood in the 8 program seems to have all these things. Some of them are hard workers who just can’t find better jobs. Some are on disability – permanently- although I see them out and about doing some pretty strenuous things for cash on the side or just the fun of it such as hiking the local mountains with a deer rifle. Deer season just opened.I will say any deer they get will not be wasted. If they don’t eat it they will give it to a neighbor who will.

    Stopping all this is not possible because it would result in not only too much suffering but actual social chaos. Once you have a tiger by the tail turning it loose is a very tough nut of a problem.

    BUT it cannot continue forever . It is all just part and parcel of overshoot and efforts to paper over the unsustainable problems associated with overshoot.

    I should also point out that while I judge these lifestyles to be morally corrupt from the pov of my personal culture I am able to transcend that pov with no problem and make a practice of doing so in trying to understand the world I live in. All these people are just doing whatever they find the easiest and most reliable thing to do in order to get a living. Some of us drive trucks others farm some of us marry money some of us live on inheritances some of us teach because we get summers off and the hours are short if you manage the job right.Some of us rent houses. Some are cemetery plot salesmen. Some have found their niche in collecting benefits that are easily collected and leave them with tons of free time. Expecting them to do other wise would be the height of foolishness when they have little or no hope of doing better pursuing some other strategy.

    So from an intellectual pov I find no reason to condemn them. They are obeying the biological imperative to live as best they can and as easily as they can.

    Millionaire businessmen collect many times as much in subsidies even though they are already rich.

  40. Old farmer mac says:

    There should be an ”except ” in there up above changing the meaning to ” cannot continue without subsidy” at one point.

  41. Old farmer mac says:

    People blogging like us may eventually be numerous enough to have a real influence on public policy at all levels from local to world wide.

    There are some cracks starting to appear in the fortress of denial for the need of family planning aka known as birth control.


    Pretty soon the people in places such as Egypt are going to have to face up to the problem that they don’t have arable land enough to grow enough to eat and that they don’t have enough of anything the world must have to sell to get money to pay for imported food. Tourism and artifacts aren’t going to pay the grocery bill in the post peak oil world.

    Their political and religious leaders are probably going to fight each other to the death the more authoritarian ones insisting on literal interpretations of their holy works and the more practical ones insisting on new interpretations that allow for change in policies such as the distribution of THE pill.

    I think that after a few years of desperate infighting change will come about and that the pill will be freely distributed.But it is already too late to prevent a crisis there and in many other countries.

    There aren’t going to be any more real miracles in agriculture.There is on currently known viable path forward towards self sufficiency in food in a place such as Egypt.Any such path posits the availability of fuel and fertilizer and machinery and irrigation water in quantities the local people are not going to be able to pay for.

    The green revolution is not repeatable. The science is well understood and there are only going to be marginal improvements in production and small marginal ones at that. It is certainly possible to breed a variety of corn for instance that will be substantially more drought resistant than current varieties.

    But any idiot of a biologist who is not being paid to say otherwise will tell you that this resistance will result in corn that produces less per acre because water is a primary input that in limited supply limits yields.It may actually be possible eventually to grow a plant that has a potato root and a cabbage top but both the potato and the cabbage will be of diminished size and nutritional value such that growing the two crops separately will still yield about as much and probably more food.If nothing else the amount of sun that falls on the plant sets an upper limit to it’s productivity.What goes into the root cannot go into the crown.

    Crops such as switch grass are never going to be the panacea some agricultural scientists are talking up because even switch grass depletes soil. Ya just ain’t gonna grow the stuff on hilly ground consisting of stones and sand in places with little or no water without adding fertilizer by the ton and using mega amounts of fuel sucking expensive machinery to harvest and transport it. And it isn’t going to produce very much anyway except in wet years.And one spark in a dry year will be all she wrote for that year.

    It won’t take very long for some bugs to find a home in a switch grass monoculture – bugs that have never been problems previously- but in a monoculture they will have to be controlled by spraying with insecticides more than likely. Of course there may eventually be viable biological control methods but developing such methods is chancy and very time consuming.

    People who are paid to say things will say them. Ag people who are not getting paid to say good things about switch grass and other so called miracle crops will tell you what I am telling you.

  42. Longtimber says:

    Heresy in the Patch – Today WSJ – Google — big-oil-feels-the-need-to-get-smaller

    “The reason for the shift lies in the rising cost of extracting oil and gas. Exxon, Chevron, Shell, as well as BP PLC, each make less money tapping fuels than they did 10 years ago. Combined, the four companies averaged a 26% profit margin on their oil and gas sales in the past 12 months, compared with 35% a decade ago, according to the analysis.”

    As Steve Martin says.. you gotta get small

    Someone noted in comment – Big oil pays more in Taxes than Profit. .. Most successful business do, that ‘s a nice problem to have. but taxes paid is not straight forward to account 4. Of course it’s different if you buy your own politico or bringing good things to life like GE’s meltdowns or a TBTF Bankster. Completely fair, like “Don’t let anyone tell you that it’s governments that tax people.” Hillary Clinton Oct 24, 2014

  43. aws. says:

    Enthusiasm over small fall in EU emissions masks underlying apathy on 2°C

    Kevin Anderson, October 29, 2014.

    “Delivering on 2020 climate goals shows that Europe is ready to step up its act. And better, still: it shows that the EU is delivering substantial cuts. The policies work.
    Connie Hedegaard [1]
    EU Climate Action Commissioner

    The above is Connie Hedegaard’s response to the Commission and European Environment Agency’s Progress Report on climate action, in which, “according to latest estimates, EU greenhouse gas emissions in 2013 fell by 1.8% compared to 2012 and reached the lowest levels since 1990. So not only is the EU well on track to reach the 2020 target, it is also well on track to overachieve it.”[1]

    Below is my alternative take on the same announcement.

    In the context of international commitments to stay below the 2°C characterisation of dangerous climate change, hand wringing or fist waving over irrelevant 2020 targets is all part of the fog that continues to thwart any meaningful action on climate change. The consumption-based emissions (i.e. where emissions associated with imports and exports are considered) of the EU 28 were 2% higher in 2008 than in 1990[1]. By 2013 emissions had marginally reduced to 4% lower than 1990 – but not as a consequence of judicious climate change strategies, but rather the financial fallout of the bankers’ reckless greed – egged on by complicit governments and pliant regulation.

    In the quarter of a century since the first IPCC report we have achieved nothing of any significant merit relative to the scale of the climate challenge. All we have to show for our ongoing oratory is a burgeoning industry of bureaucrats, well meaning NGOs, academics and naysayers who collectively have overseen a 60+% rise in global emissions. Even the wealthy EU presided over rising emissions until the financial debacle hit home. Certainly we have a fledgling renewables industry, some public awareness and a press that has jumped on the opportunity to polarise yet another complicated and nuanced debate. A few prominent climate-change advocates and sceptics have done very nicely out of it, as, of course, have a cadre of bankers and financiers who successfully convinced governments that converting carbon into money would enable them to trade the problem away. But whilst a bewildering array of financial instruments and offsetting ‘products’ may have succeeded in lining their pockets, they singularly failed to make any dent in our emissions.

    More at the link.

  44. aws. says:

    There will be… ketchup.

    Tomato Demand Spurs Record California Crop Amid Drought

    By Michael B. Marois Nov 3, Bloomberg, 2014 12:01 AM ET

    California farmers who grow a third of the world’s processing tomatoes, the kind used for pasta sauce and soups, nurtured a record crop this year even as the state’s drought damped production of other vegetables.

    “The price was at a point where guys felt they could take the water risk and put their limited water supplies on tomatoes instead of other crops,” said farmer Aaron Barcellos, whose family grows tomatoes and other crops on 7,000 acres about 110 miles (179 kilometers) south of Sacramento. “Processors needed to pay a price that would get the acreage in the ground.”

    With 82 percent of California suffering from extreme drought after three years with record low rain and snow, the water distribution system is rationing supplies to the nation’s most productive agricultural region. Growers have been forced to drill wells, sapping already depleted groundwater. The dry spell is likely to boost food prices nationwide as farmers leave some land unplanted because they can’t irrigate, according to the U.S. Agriculture Department.

    • aws. says:

      Threat to world’s water security greater than thought

      Pilita Clark,, November 3, 2014 7:59 am, Environment Correspondent

      Crucial supplies of water in China, the US, India and other major economies are dwindling so fast that the threat to the world’s water security is far worse than is commonly understood, a prominent hydrologist has warned.

      The groundwater stored below the earth’s surface in soil and aquifers accounts for up to one-third of the water used globally and is the main source of water for more than 2bn people.

      It accounts for around half the irrigation water used to grow the world’s food and is an especially important reserve during serious droughts, such as those gripping California and Brazil at the moment.

      But it is being pumped out so rapidly in some of the driest regions that it can no longer be easily replenished naturally, according to research by Professor Jay Famiglietti, senior water scientist at NASA’s jet propulsion laboratory at the California Institute of Technology.

  45. Ronald Walter says:

    The interest paid on the US govs debt has been 300 to 400 billion a year or some other number, check the IRS website, the numbers are there.

    Wall Street loves deficit spending and debt, it pays the mostest.

    You’ll have a Manhattan condo with 27 foot ceilings. Your yacht will take you places most dream of going. Thanks to the hapless taxpayer and Washington’s profligate spending, you’ll have money to play with for fun and games. Polo horses to break the boredom of counting all that money all of the time, what not and so on, everything at your beck and call. Private jets, the whole shebang.

    When you producing 9.7 million barrels of oil each day, you can afford a new 787 Dreamliner, junk the 747, fill the tank with jet fuel in the new jet, go for a joy ride, the fun is just beginning. 50 thousand gallons of jet fuel is no problem when you have 9.7 million barrels of oil each day. You’ve got money to burn and jet fuel to burn too.

    This is interesting:

    And we worry about how the poor are getting away with a few hundred bucks each month? They’re worn out, they’re doing the best they can under the circumstances.

    Can’t point your finger at the poor who have a tough go of it who do everything they can to get by in this world when the central bankers are making sure that the chances of just getting by are less each day. Finger pointing is bad bidness, Wall Street bankers provide enough incriminating evidence all by themselves, so finger pointing isn’t necessary.

    It’s easy to point with pride and view with alarm.

    Take me back to the days of the Robber Barons, the Union Pacific, Jay Gould cashing in on the stock scam, at least there was a job there to lay track and you had to work like a mule to earn what you later went out and spent like a jackass. Anyway, that is what Diamond Jim Brady lamented about railroad workers back in those days. At least people had it figured that you had to do something to eat. The corruption was rampant, but you ate by the sweat of your brow. The poor didn’t have a barrel of money back then either.

    What else can the post-modern era offer? No jobs out there for them to have gainful employment that can provide enough income to make it worth the while, therefore, they need to work to scavenge what they can anywhere it is. 50 million on food stamps is more than enough proof. The US gov happens to be the easy touch, the mark. No other choice for them except for sloth.

    If the gov provides the means, Wall Street jumps for joy.

    “It is no shame to be poor, to be ashamed of it is.” – Benjamin Franklin

    • SRSrocco says:


      The idea that the FED could raise interest rates is absurd and insane. The Fed will never allow interest rates to rise… which means QE4 and QEinfinity is on its way. I am surprised that anyone believes anything coming from the FED.

      If interest rates increased just 2% for our outstanding debt of nearly $18 Trillion it would double the $350 billion of interest expense to nearly $700 billion.

      Then, if we actually had REAL MARKET RATES of interest which should be above 6%, then you are looking at nearly $1 Trillion in interest on the debt.

      REPEAT: The FED can’t stop MONETARY PRINTING. If it does, then the whole system comes down. Which is why the Japanese just did a MASSIVE QE that pushed their Nikkei up 1,600 points in a few day…LOLOL.

      You can’t make this stuff up. WE HAVE GONE COMPLETELY MAD.


  46. Longtimber says:

    OFM, speaking on political leaders, Money Talk Radio Show Sunday eve and they had the Gatsby from Polling company predicting it’s possible the DNC will surrender the Senate over Bruce Braley’s comments
    referring to opponent Mr. Grassley as “a farmer from Iowa who never went to law school.”.
    WTF, Farmers growing squash without law degrees? Let’s get pass Nov 4th.

    • Watcher says:

      Grassley is not his opponent. He’s a long time GOP senator from Iowa.

      Braley seeks an open seat, from Tom Harkin’s retirement. His opponent is a lady named Joni Ernst.

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