BAKKEN – Single Well Economics

This is a guest post by Ciaran Nolan

Disclaimer

The opinions and views expressed in this presentation are solely those of the author and not necessarily those of any organisation.

Introduction

This presentation builds upon earlier work carried out by the author in May 2015 on the North Dakota (ND) Bakken / Three Forks Light Tight Oil (LTO) Play – ‘Bakken – the bubble has burst’*. 

North Dakota Industrial Commission (NDIC) production data (up to November 2015) kindly supplied by Enno Peters. Data analysed in Excel and IHS Kingdom.

Production decline curves generated for P10 – P90 type wells, based on8843 wells with 1 year full production (January 2007 – October 2014).

Discounted cash flow (DCF) models were generated by the author for single wells in the ND Bakken / Three Forks Play.

Break even oil prices for Net Present Values with a 10% discount rate (NPV10) determined for P10 – P90 type wells. NPV10 break even oil price map generated. Historical NPV10 generated for average wells for 2008 – 2015. NPV10 breakeven oil price determined for top ten Bakken Producers in 2014, for 2014 wells.

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ND – Bakken / Three Forks

Single Well Economic Model

Ciaran Model Inputs

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ND – Bakken / Three Forks

Historic Economics

Ciaran Historical Model Inputs

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ND Bakken / Three Forks Average

2014 production by company and

breakeven oil price

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Conclusions

Discounted cash flow models were generated by the author on a single well basis, for the North Dakota (ND) Bakken / Three Forks Light Tight Oil Play.

Breakeven oil prices for Net Present Values with a 10% discount rate (NPV10) determined for P10 – P90 type wells. NPV10 break even oil price map generated based on established relationship between NPV10 and 1 year oil production. Historical NPV10 generated for average wells for 2008 – 2015. NPV10 breakeven oil prices determined for the top ten producers in 2014, for 2014 wells only.

Point forward economics (net, post tax, based on average cost assumptions) indicate that at $55 (WTI) none of the ND Bakken / Three Forks is NPV10 positive. At $89 (WTI) 50% is NPV10 positive, at $121 (WTI) 90% is NPV10 positive. Historical NPV10s are negative for all years.

For an average 2014 type well, the majority of the top ten Bakken / Three Forks producers have forward breakeven oil prices of $70-75 (WTI).

Most Investment Banks are predicting oil prices below $60 (WTI) in 2016.

C. J Nolan Jan. 2016

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495 Responses to BAKKEN – Single Well Economics

  1. Fred Magyar says:

    Great post! Nice work. I have been reading in the MSM that prices will be below $40.00 per barrel or even less. So I have one question, when is this party going to be officially over? How long can this continue?

    • Fred Magyar says:

      http://www.wsj.com/articles/oil-rises-in-asia-due-to-iran-saudi-arabia-tensions-1451875967

      From WSJ, NYMEX Crude
      Jan 4th 11:26 AM ET
      $36.39

      By NICOLE FRIEDMAN and GEORGI KANTCHEV
      Updated Jan. 4, 2016 10:27 a.m. ET

      NEW YORK—Oil prices climbed Monday on concerns about increased tensions in the Middle East but weak economic data out of China capped the gains, an early showing of two themes that could help shape another volatile year for crude.

      Saudi Arabia’s execution of a dissident cleric on Saturday inflamed sectarian tensions, sparking some worry among traders that crude output in the world’s most prolific oil-producing region could be threatened. Saudi Arabia and several of its allies have severed or downgraded diplomatic ties with Iran.

    • Glenn Stehle says:

      Fred Magyar said:

      So I have one question, when is this party going to be officially over?

      Why the hurry? So the renewables party can begin?

      When donkeys fly.

      When the carbon party is over, the party is over, short of some miraculous new breakthrough in energy technology.

      • Fred Magyar says:

        I was actually referring to the banker’s party. For as we all know there is no end in sight for the carbon party! As for assorted donkeys, and quite a few other asses, they have been flying for years! http://www.minidonks.com/Transportation.html
        Cheers!

        • Glenn Stehle says:

          Fred Magyar says:

          I was actually referring to the banker’s party.

          I was too.

          The financial economy and the real (productive) economy are inextricably linked.

          But I suppose one would need to read some Marx, Fisher, Keynes or Minsky to understand this.

          • Fred Magyar says:

            Sure you were Glen!

            When the carbon party is over, the party is over, short of some miraculous new breakthrough in energy technology.

            Yep, that statement, without any doubt whatsoever, clearly refers to the ‘Banker’s Party! No one could possibly mistake that for a veiled attack against me and the views which you continually insist that I hold, right?

            I’m sure that by mentioning this :

            Why the hurry? So the renewables party can begin?

            I am the only one who could possibly have misconstrued your implied meaning as being about the ‘BANKER’s Party’

            What you were doing is called trolling and flame baiting. It also by implication is a form of ad hominem attack against me!

            On most blogs where civil discourse is valued you would at the very least have been admonished for such behavior and on a few that I frequent you would have been banned outright for repeat offenses.

            In any case this post of yours is a very clear example of why I keep saying that you are a dishonest broker who twists what other people say, sets up strawman arguments which you then set out to bat down and then you outright lie about what you meant.

            So please do me a favor in future do not address me or reference any of my comments or posts and I promise to do the same for you.

            Fred OUT!
            Final note:
            Apparently a lot of people need to read some Marx, Fisher, Keynes or Minsky to understand this.

            • R Walter says:

              Fred, it ain’t over ‘ til it’s over! Glen is always picking on you, get used to it. lol

              It won’t be over as long as there are a million barrels of oil being pumped out of the ground each day, the million barrels are going to flow to the terminals one way or another regardless of the costs and regardless of the price. One analogy us the US gov, as long as it is there, it will operate at all costs, even if those costs have to bear more debt for it to continue. 20 trillion in debt doesn’t matter, obviously, because that is what is happening.

              The debt doesn’t matter for the Bakken players either, what difference does it make if the debt is 30 billion and growing?

              As long as the oil is flowing at one million bpd, the costs do not matter at all. The continued financing, debt, will make it go, just like the US gov, debt makes it go, not much else anymore.

              It seems all too bizarre because it is bizarre.

              The party will continue for another 4 or 5 billion barrels.

              Oasis is one exception, it has an earnings per share of $1.40 with a share price of $7.25, there is maybe a future for them.

              Where as, Whiting is limping along losing 13 dollars per share with a share price of about 9 dollars. Your quintessential dead man walking.

              So, yes, the party will continue as long as oil is flowing, regardless of the debt, costs, and losses. The new normal, it works until it doesn’t, until the oil is gone, that is.

              North of Tioga, in the Corinth to Hamlet areas, it is all gas, no oil.

              Further north in Divide County, there is oil, SM Energy was drilling for oil along a road just south of the Canadian border.

              It was a five year drilling program with one rig moving along the same road from west to east.

              Drillers in Canada were drilling for oil ten miles north of the border in Saskatchewan in 2002 or so. Plenty of wells in western Manitoba and eastern Saskatchewan for many years now.

              I am going to travel on a short vacation and without oil, I would maybe make it 50 miles in three days with a wagon and a team of horses. Fortunately, I have a vehicle that will take me 30 times further with gasoline refined from oil. That’s the way it goes moving west and fortunately, that is the direction I’ll be heading.

              Horses are for joy rides at the dude ranch, not for travel. har

              • Fred Magyar says:

                I am going to travel on a short vacation and without oil, I would maybe make it 50 miles in three days with a wagon and a team of horses.

                Three days?!

                My family in Germany often take day trips by bicycle and easily cover 50 miles in a day and still have time to stop for food and refreshment. Paved roads and modern road bikes are pretty efficient. Heck you could always put an electric hub motor on the bikes and really cruise 🙂

                • Dennis Coyne says:

                  Hi Fred,

                  In rural areas of the US, biking can be pretty dangerous, the shoulders on the roads are often soft sand and drivers are not very attentive. Bikes work in the suburbs, but my guess is that on many roads in North Dakota it could be dangerous (though I have never been to North Dakota).

                  I am more familiar with New England and there biking on rural roads is not very safe.

                  • Fred Magyar says:

                    Hi Dennis,

                    In rural areas of the US, biking can be pretty dangerous, the shoulders on the roads are often soft sand and drivers are not very attentive.

                    Yeah, I’m actually aware of that and was just giving RW a gentle ribbing.

                    In Germany where my family lives there are designated bike paths and the culture is very bicycle friendly. I do ride my bike on the beach near where I live in Florida but would think twice about heading out on the open road with it.

                  • superkaos says:

                    For those of you who want to ride a bicycle but are scared of riding on roads, I highly recommend this: https://abea.bike/
                    Also this video about bicycling education is pretty good: http://iamtraffic.org/news-views/our-vision-video-from-the-colloquium/

                • R Walter says:

                  When I was 20 I could ride a bike for 55 miles in less than 6 hours, I could and I did. Forty years later, at the ripe old age of 24, maybe I’m lying there, I can now drive my vehicle 300 miles in about 4 1/2 hours. It beats a bike by 250 country miles. I am protected from the elements and enjoy the comfort of an upholstered car seat. If I would ride a bike for three hundred miles, it would take six days. The amount of food and drink I would need is replaced by gasoline and time.

                  As my Grandfather would say, “A lot of work just to give your ass a ride.”. 😅

                  • superkaos says:

                    Actually for me the point of riding a bike for many miles is the joy of the ride itself, not just the destination. Of course If I wanted to do it in less time I would drive, but that misses the whole point. I do however ride a bike everyday for practical purposes, I commute by bike but it is a short distance (8 + 8 miles) and it is faster than the subway where I live.

                  • Dennis Coyne says:

                    Hi R Walter,

                    When I was 15 I managed 25 miles in an hour and 35 minutes (starting and finishing point in same place so no net change in elevation) in a bike race, however I would not have been able to go another foot when I was done. It is astounding that elite runners can manage 26.2 miles in 2 hours and ten minutes, the best I did at that distance on foot was 3 hours and 20 minutes (again could not have gone much further.) Ten miles per hour on a bike is pretty leisurely, probably 80 miles a day is doable for most people in reasonable shape.

                    Takes a lot of time, but it beats walking, with a mountain bike, you don’t even need roads. Also it is good for your health, if you aren’t hit by a car.

              • The debt doesn’t matter for the Bakken players either, what difference does it make if the debt is 30 billion and growing?

                R Walter, that is just insane. The money has to come from somewhere. Shale oil drillers do not print their own money. Bondholders supply the money and they are all expecting a handsome return on their investment. When the bond seller, (banks, brokerage houses) say: “And…. it’s gone”. The bondholders will say: “What? Where did my money go”? The bond sellers will say: “Well…. shit happens. But now we need more.”

                I will leave it up to you to guess investors will say then. The idea that the drillers can continue to lose money forever while and investors will agree to continue to give them money forever, and lose their investment forever, is just insane. It will stop.

                And… it’s gone

            • Glenn Stehle says:

              Fred Magyar,

              You believe I’m the enemy.

              But I’m not your true enemy. I’m only the messenger.

              Your real enemy is factual reality.

      • Bob Nickson says:

        Nice opinion you’ve got there Glen, but you can’t predict the future any better than Fred can.

        When the carbon party is over, the carbon party is over, but whether another kind of ‘party’ will arise in its wake is unknown.

        Transport is mostly what we use petrol for. Electric cars are viable and it takes very little PV area to power one.

        Just this much:

        • Glenn Stehle says:

          Bob Nickson said:

          Nice opinion you’ve got there Glen, but you can’t predict the future any better than Fred can.

          I’m not so much focused on predicting the future, but observing what has already happened in the past.

          And if one does this, it looks like the wheels are comming off the much heralded “clean energy transformation.”

          • Bob Nickson says:

            Glen, there are many peaks like that to be observed in the history of oil production.

            Is it really your opinion that the all time peak of renewable energy capacity growth occurred in 2011?

            You did make a prediction, and it was that when the carbon party is over, the party is over. It’s possible, maybe even probable, but I’m not convinced that there is no other possible future.

            Twice now I’ve posted my graphic depicting the amount of PV panel area required to power an EV for 35 daily miles (U.S. mean). No one has commented on it either time, so perhaps Dunning-Kruger effect renders me incapable of understanding why it really isn’t remarkable. It seems absolutely amazing.

            100+ square feet of PV to power one of the most inefficient form factors for transport that we have. Any gas the EV doesn’t use can be used for some other purpose, like manufacturing solar panels. Those solar panels can power an EV for 650% more car miles than the gasoline would have in an ICE.

            Perhaps renewables really are nothing but a fossil fuel extender, but 6.5 times as much utility from a gallon of transport petrol could make for a survivable decline tail.

            EV’s (cars) may not be the ultimate solution to our predicament, but they may play a role in getting us from here to there without Watcher’s grim prediction being realized.

            • sunnnv says:

              Bob Nickson said:
              “… Twice now I’ve posted my graphic depicting the amount of PV panel area required to power an EV for 35 daily miles (U.S. mean). No one has commented on it either time, so perhaps Dunning-Kruger effect renders me incapable of understanding why it really isn’t remarkable. It seems absolutely amazing. …”

              Yep, real energy in that there sunlight…
              If one is lying in the sunlight, about 1 square meter of body surface exposed to the sun, one is getting something beyond 1 horsepower of sunlight on oneself. Doesn’t feel like it – does it?

              This 4 seater car has the cells on top, and won the “cruiser class” at the 2015 world solar challenge.
              http://www.solarteameindhoven.nl/stella-lux/

              From 2 years ago, when they toured the US.
              https://www.youtube.com/watch?v=y3FPK0KNZuc

            • Palloy says:

              > Twice now I’ve posted my graphic depicting the amount of PV panel area required to power an EV for 35 daily miles (U.S. mean). No one has commented on it either time.

              You need to qualify your graphic with where it is located, how it is tilted, over what period of the day, and period of the year, what the weather is like, and what kind of vehicle, and how long it has to spend charging. Without that, it is all pretty meaningless.

              I’m not saying you can’t come up with the numbers, but without them it’s pointless.

              I know that when it gets down to real, practical examples, it is important to try and be as efficient as possible, and a small, light, slow vehicle will prove to be the best bet. And yet look at the vehicles people actually buy (both electric and gasoline) and the way they drive them. No one in the US is ready to start thinking that way – “If 6 big panels won’t do it, I’ll get 12” is the attitude.

              • Bob Nickson says:

                Thank you for the valuable critique Palloy.

                My assumptions:
                2kW capacity array of 15% efficient c-Si panels @ 40°N w/40° tilt and 10% system losses. Yield was calculated using this tool:

                http://pvwatts.nrel.gov/pvwatts.php

                Annual yield: 3,195 kWh’s

                Car is 2015 Nissan Leaf w/ 30kWh/100mi efficiency per EPA testing (3.33mi/kWh)

                3,195 * 3.33 = 10,639 /365 days = yield of 29.1 miles per day.

                So I was mistaken. It is not 35 miles per day for the depicted car, although it’s worth noting that the BMW i3, Chevy Spark EV, Honda Fit EV, VW eGolf, and Fiat 500e all have better efficiency ratings than the Leaf.

                The same 3200kWh’s would still power a Tesla Model X P90D, a 7 passenger AWD ‘SUV’ w/0-60 acceleration of 3.2 seconds, for 23 miles per day.

                And that’s another interesting thing about electric cars. The efficiency difference between the econobox Leaf and the supercar performing Tesla is not very large.

            • Glenn Stehle says:

              Bob Nickson,

              If the energy technology you are touting is so wonderful, then why isn’t the clean energy “transformation” happening?

              The current poster child for the renewables energy “transformation” is Germany. But Germany’s government is not the first to decide it was going to use state intervention to make the renewables “transformation” happen.

              First there was Spain. And in Spain’s case, it was not possible to sustain the inordinate expenditure nor the political will to make the renewables “transformation” happen.

            • Glenn Stehle says:

              Next up to bat was Italy.

              Italy also struck out.

            • Glenn Stehle says:

              And the last up to the plate is Germany. But it doesn’t look like Germany is batting much better than Spain or Italy.

              Bob, are these what renewables energy “transformations” look like to you?

              • Bob Nickson says:

                “If the energy technology you are touting is so wonderful, then why isn’t the clean energy “transformation” happening?”

                I think it is happening. I don’t know the dynamics which are creating those investment curves Glen. I’m not that smart. I don’t think the story is over. Care to answer my question as to whether you think we are past global peak renewable capacity? It wasn’t meant as a rhetorical question. Do you think so?

                I’m just looking at the claim that we have no recourse to the inevitable fossil fuel decline, and the facts of what an EV+PV can actually do, how fast the normal fleet turnover rate is, and how much of the fossil fuels we produce are used for light duty transport lead me to the conclusion that we do have a viable path forward in the face of finite fossil fuel resources. Nearly 60% of the energy we now consume we reject. https://flowcharts.llnl.gov/content/assets/images/energy/us/Energy_US_2014.png
                That’s a whole lot of opportunity. Look at where most of that rejection occurs: power plants and transportation. Wind, solar, marine, and geo-thermal power, and EV’s do not have that problem.

                PV produced power is still an expensive form of electrical power, but it is very cheap compared to gasoline, even at $2./gl.

                Another couple of reasons why I personally would like to live to see the car fleet, if we must have one, transition to EV’s is that I hate the incessant roar of combustion that cloaks my city, and I hate choking down pollution from combustion that blankets it, acutely so in Winter. I’d love to go out for a run today, but the air quality is too poor. In the simplest terms, I would find it more enjoyable to live in a quiet place with clear air (is there anyone who wouldn’t?). Isn’t it a market failure that noise pollution and air pollution get to be done for free.

                One question that I’d love to have a solid answer to is how many actual kWh’s of electricity are embodied in a gallon of gasoline at the pump? How much electrical power did we actually use, well to pump, to deliver the fuel?

          • Dennis Coyne says:

            Hi Glenn,

            The past does not always give one an accurate forecast of the future. What might explain the decrease in renewable investment? Coal prices fell and global investment slowed down. When we look at the percentage of total global investment spending on renewables, we get the chart below.

            • Maybe Chinese investment in giant hydropower projects distorts that data?

              • Glenn Stehle says:

                Asia has been about the only bright spot around when it comes to the clean energy “transformation.”

                But in the first three quarters of 2015, this too shows signs of stalling out.

            • Glenn Stehle says:

              Dennis Coyne says:

              The past does not always give one an accurate forecast of the future.

              Yes, this is true.

              But on the other hand, it is not always possible to change reality so that it conforms to the human will.

            • Javier says:

              Dennis,

              Lack of affordability is what explains no increase or reduction of money allocated to renewable energy development. You insist in not seen what is evident. Collectively, 95% of us is less rich now than it was in 2007. Regardless of fossil fuels we cannot afford the increase in energy costs that renewable energy is bringing, so we either cling to cheap fossils or we consume less energy. In any case we do not transition. This means endgame.

              To add to the collection of Glenn Stehle of countries not transitioning.

              Australia, where GreenPower, a state run scheme where customers purchase energy from Green sources has been hit by increasing prices and has seen the percentage of national electricity that it manages go down from 1% to 0.5%.

              Climate change fatigue, cost hits renewable GreenPower scheme

              The climate change part is a red herring, as always. The huge majority of customers are unwilling to pay more for Green energy, and if Green energy was the solution to our problems it would not cost more. When/if fossil energy goes up in price we will use less energy, bringing its price down again. No transition is possible. All previous transitions have been economically favorable. This one is not.

              The elites will have their renewable energy, the masses will eat cake.

              • Dennis Coyne says:

                Hi Javier,

                I agree we will use less energy as fossil fuels become more expensive. I also agree that prices for fossil fuel energy may be volatile, but there will be a tendency for supply and demand to balance so that the market price will settle at a point where the cost to produce fossil fuel is equal to the market price for the highest cost fuels produced. At this market price there will be adequate market demand for the fossil fuel.

                The long term market price of fossil fuel (say coal or natural gas) will increase as fossil fuels deplete. That will in turn make wind and solar power more competitive in energy markets. You claim that the increased fossil fuel prices will increase the cost to produce all products, including renewables. I agree, but the increase in the cost of renewables from increased fossil fuel prices will be less than the increase in fossil fuel prices themselves.

                As an example of an extreme rise in coal and natural gas prices, 2008 the average World price for coal and natural gas rose by 64% over average 2007 levels (data from BP statistical review of World energy), but World inflation rates in 2008 (IMF data for average consumer prices) were under 7%, so the effect on consumer prices (which reflects underlying costs of production) is a factor of 9 less than the rise in energy prices.

                The point is that the rise in underlying fossil fuel prices will have a relatively minor effect on the cost to produce wind turbines and solar power PV panels.

                So the fact remains that in the long run the cost of wind and solar will continue to decrease and the cost of fossil fuels will increase as they deplete and wind and solar power will replace the current coal and natural gas fired power plants. From a pollution standpoint (and when externalities are considered) it will make sense to shut down coal fired power plants first, keeping natural gas power plants for backup to wind and solar power, eventually there will be enough wind and solar power so that less efficient natural gas power plants can be shut down as well, leaving only “peaking” plants that can be quickly fired up as backup for Wind and solar power.

                • Javier says:

                  Hmm, I see you still don’t get it despite it being very simple.

                  If we use less energy our economy goes bust. Then we cannot afford neither fossil fuels nor renewable. When the crisis is over fossil production has gone down, so the ceiling to growth is now lower. As soon as demand picks up and we get near that new lower energy ceiling the economy cannot grow and is back into recession, rinse and repeat. Every time we lose fossil fuel production and the increase we get in renewables does not compensate for the loses. Population decline and demographics, low labor participation, and unemployment make sure that our level of affordability does not allow us to escape the energy trap. Since we are in a constantly declining energy level it doesn’t matter what percentage comes from each fossil or renewable. Since we are in a constantly declining affordability level things like cost and price do not change the picture. As people don’t take it kindly when past promises are not upheld, social upheaval is likely to introduce rounds of destruction and extremist policies that are likely to introduce periodic harm in the system.

                  And yet you still think that renewables cost reduction due to increased demand and technological advance is going to save the day. What demand? I ask. The need is going to be there, but the demand is not, because the demand requires that you have the means to pay.

                  • Bob Nickson says:

                    “If we use less energy our economy goes bust.”

                    Is that statement true? Economy is money flow.

                    Can’t more efficient use of more expensive energy equal an economic wash?

                    Same amount of work done, some amount of money spent, different allocation.

                  • Bob Nickson says:

                    Also, my life is now equally illuminated by the 8 watt bulbs that replaced the 60 watt ones.

                    I still spend the money I save, I just spend it on something else.

                  • Dennis Coyne says:

                    Hi Javier,

                    You have a circular argument going. Why is it that the economy goes bust? Lack of energy. Why is there a lack of energy? It’s the lack of demand because the economy has gone bust. This is a chicken egg problem.

                    You prove that a transition cannot happen, by assuming it cannot happen.

                    I am not convinced.

                    You of course could argue that I assume a transition will happen, however I am less adamant that such a transition will occur.

                    I just don’t think it is unlikely.

                    Peak C+C output per capita was in 1979, since about 1985 it has declined very slowly and will continue this slow decline until about 2032, then the decline will become steeper, in the meantime it would be better to start the transition away from fossil fuels rather than pontificate about we should all give up because it is the end of days.

                  • Javier says:

                    No Dennis,

                    It is not a circular argument, although it has a reinforcing loop as it is often the case in economy. For an economy to work as intended, you need growing cheap energy, growing population with the right demographics and growing credit. The trends that poison economic growth were set in the seventies and only now are reaching end point:

                    1. Exponential increase in debt.
                    2. Reducing rate of oil production increase, and increasing cost of production (oil is just the most critical form of energy).
                    3. Labor compensation stagnation and increase of inequality.
                    4. Fertility rate decrease and population ageing.

                    Now we get to a point where we have
                    – Very expensive oil to produce
                    – Debt saturation
                    – Unfavourable demography
                    – Excess of labor and low compensation

                    So we essentially get a demand crisis that translates into low inflation or even deflation, and poor economic performance, so economic activities are hit by a double whammy, expensive energy and lack of customers.

                    Then the feedback cycle gets started. Lower demand -> lower economic performance -> lower energy production -> lower labor compensation (-> close the circle).

                    Who is going to pay for the transition? Who is going to buy those expensive EVs? The workers of the world are being paid less and they are credit worthless.

                    The predicament has no solution. After Peak Oil all the rest of the peaks are going to start taking place. Very few economists can understand this situation because they have not studied any of this at their university classes.

                  • Dennis Coyne says:

                    Hi Javier,

                    As population growth slows there will in fact be a labor shortage so labor will become more expensive. Also if this is not the case due to increased labor productivity, the work week can be shortened and labor paid more per hour. Energy that is expensive will be used more efficiently, there are people that have studied economics that see that oil will peak and have considered the problem, and there are a wide array of opinions on the matter from those that match your opinion to those that match mine.

                    So the answers are far from clear. Can a steady state economy work? It is hard to know as human population has been growing for 500 to 800 years (World population might have declined during the Black death in Europe, though records are not very good and Asian population may have grown while European population declined, so this is not clear.) Certainly from 1600 to the present World population has been growing while the economy has grown as well on a per capita basis.

                    All of your assumptions are what is needed for BAU which I believe will transform to some new normal that is hard to predict.

                    I see a difficult transition, but humans are highly adaptable creatures and despite our faults, I think Shakespeare had it right,

                    from Hamlet (Act II Scene II),

                    What a piece of work is a man! How noble in reason! how infinite in faculty! in form, in moving, how express and admirable! in action how like an angel! in apprehension how like a god! the beauty of the world! the paragon of animals! And yet, to me, what is this quintessence of dust? man delights not me; no, nor woman neither, though, by your smiling, you seem to say so.

                  • Javier says:

                    Dennis,

                    “there are a wide array of opinions on the matter”

                    Indeed, as it cannot be otherwise. But we don’t have a route from point A to point B and we are not even looking for a route because we don’t want to go to point B.
                    The economy is a self-assembled structure from every interaction. Although it can be influenced, it is not planned nor governed. There is no way to transform it, and when the fragile conditions that allow it to function change abruptly there won’t be any adaptation. It will crumble and collapse.

                    I already showed to you that international commerce is in deep trouble, in a situation that has never been seen in modern times. Once international commerce goes down globalization will start reversing, and localization will not support our standard of living. It will not even support current population levels.

                    I am not talking about what is needed for BAU, I am talking about what is needed to sustain a global economy, to sustain an education system and a scientific research system that can provide new solutions. I am talking about what is needed to sustain population levels without massive die-off.

                    And you always forget the most important factor because you have not studied human nature. You think that human is that wonderful adaptable creature with reasoning capacity. You forget that angry humans are one of the most destructive forces in the world and when they set in a destruction path they do not think about what is needed for their long term benefit. And there’s going to be a lot of angry humans when the shit hits the fan.

                    Human response is going to be a net negative factor in what lies ahead and your citing of Shakespeare shows that you are not even starting to realize.

                  • Armitage Shanks says:

                    Dennis – I think you need a different quote to support your position – at that point in the play Hamlet didn’t like humanity at all – he is basically being ironic, saying that while man aspires to nobility he is in reality no better than dust (see the recent Maxine Peake performance to see someone who’s really had enough of the world).

                  • Dennis Coyne says:

                    Hi Armitage,

                    Absolutely correct, Hamlet was being ironic, the poetry of Shakespeare is apt.

                    There is both a light and dark side to humanity. The tendency of many on this blog is to focus on the dark side, I see both and think mankind can find a balance, think grey.

                  • And you always forget the most important factor because you have not studied human nature. You think that human is that wonderful adaptable creature with reasoning capacity.

                    Ahhh but that is just human nature isn’t it. Most people are Pollyannas like Dennis. They see only the best in people and believe everything will ultimately come out just peachy.

                    The problem I have with Pollyannas is that they see everything in the future just fine for humans but they never mention the rest of the animal kingdom. The rest of the animal kingdom is already 90% destroyed and we will surely finish it off. Business as usual into the future would be the worst possible outcome for the rest of the animal kingdom.

                    But that is all academic, there are no good possible outcomes for the rest of the animal kingdom… or the environment of the natural world.

                  • Dennis Coyne says:

                    Hi Ron,

                    And the problem I have with Henny Penny is that he only sees the dark side of things. I see both sides, there is dark and light, and black and white, the world is mostly shades of gray.

                    So in some world views humans only do terrible things. However in reality humans are both bad and good.

                    Human population will peak and decline and the natural environment will recover. A few hundred years is a blink of an eye in natural terms. We could easily get to 1 billion by 2300 if total fertility rates continue to fall at the recent World rates.

                  • I see both sides, there is dark and light, and black and white, the world is mostly shades of gray.

                    You do? Let’s look at this sentence of yours and see if you truly see the dark side. Bold mine.

                    Human population will peak and decline and the natural environment will recover.

                    Yes, human population will peak and decline but the natural environment will not recover. Not in the next few million years anyway. That one sentence proves conclusively that you haven’t a clue as to what the hell you are talking about.

                    After the great die-offs in the past, it has taken literally many millions of years before the biodiversity recovered. And this die-off is at least as bad as the fifth great extinction 65 million years ago.

                    Dennis, you do not see the human population declining nearly enough to even allow the destruction of the natural world to stop much less recover.

                    EDIT: Suddenly I find myself so despondent. I now understand why I am such a doomer. It is because I realize that even if the cornucopians are right, even if they succeed beyond their wildest dreams and “renewables” become a dramatic success and the population thrives remarkably well, then this is likely the worst thing that can happen to the natural world. Total success of renewables would be the death knell for the natural world.

                    I will explain it all, hopefully, in a post tomorrow. It will likely be an open thread with a couple of charts plus “Confessions of a Doomer”.

                  • Dennis Coyne says:

                    Hi Ron,

                    I did not say how long it would take to restore biodiversity, did I? Human population will fall, it could do so with a demographic transition in a few hundred years. This will slow the rate of biodiversity loss. In addition developed countries have relatively low rates of biodiversity loss, so further economic development may help slow the rate of biodiversity loss. Education will help, especially on the population front, but it will help make people more aware of the problem of biodiversity loss.

                  • I did not say how long it would take to restore biodiversity, did I?

                    No Dennis, you did not. But in all honesty I really don’t think you meant a few million years.

                    And that is about how long it will take.

                  • Dennis Coyne says:

                    Hi Ron,

                    I agree, it will take a long time. The earth has suffered mass extinctions in the past, the Holocene extinction caused primarily by Humans ( the ultimate invasive species) will be lessened as human population peaks and declines. The sooner that happens the better, better education of women will help. Research shows that more educated women have fewer children.
                    This is true worldwide (in more developed nations there are a higher percentage of women with advanced education.)

                    We cannot change the past, but might influence the future.

                  • Cracker says:

                    Ron,

                    I feel your pain. I try not to think about it. But once the reality you explain is accepted, doom is apparent. Success of alternatives is failure for the biosphere and humans alike.

                    We are like yeast in a test tube. We are more intelligent, but not any smarter.

                    Jim

            • Dennis Coyne says:

              Hi Glenn Stehle,

              The reduced investment in renewable energy in Europe since 2011 was due to changes in policy. Europe decided on an austerity policy to deal with budget deficits caused by the GFC so subsidies to renewable energy were reduced and less was invested.

              Your story for Europe ignores this simple fact, it is like suggesting in 1984 that oil peaked in 1979 and failing to mention the Iranian revolution and the war between Iran and Iraq from 1980-1984.

              I used BP’s Statistical Review of World Energy to look at Germany, Spain, and Italy’s power output from Wind and Solar power from 2003 to 2014. Costs of Wind and solar power have been falling so you can buy more capacity in 2014 than in 2010 with the same investment dollars, so power output is the important metric, the rate of increase has slowed in these countries due to reduced subsidies, but consumption of wind and solar power continues to increase. Chart below.

              http://www.bp.com/en/global/corporate/energy-economics/statistical-review-of-world-energy.html

              • Glenn Stehle says:

                Dennis Coyne said:

                …the rate of increase has slowed in these countries due to reduced subsidies…

                Due to “reduced subsidies”?

                I think you’ve just violated one of Team Green’s speech codes.

                http://peakoilbarrel.com/doubting-the-peak-of-world-oil/#comment-553517

                The proper name for the massive amounts of money European governments have lavished on renewables is “NOT subsidies.”

                To call this money “subsidies” is strictly taboo.

                Be careful to use the approved name — “NOT subsidies” — or you’ll get in trouble with Team Green’s speech police, like I did.

          • Dennis Coyne says:

            Hi Glenn,

            Here is how you might have seen things in 1984 for World C+C output, clearly the peak was 1979 as the data showed. As I have said before looking at the past tells us little about the future. Chart for World C+C 1960 to 1983.

            • Dennis, as I have posted many, many times before, both here and on The Oil Drum, we knew exactly what caused the decline in oil production in the early 80s. No one but a few nut cases thought it had anything to do with peak oil. I was in Saudi Arabia during that time and I don’t remember the term “peak oil” or any related terms ever being mentioned. And I followed the news very closely during that period.

              What I do remember was that the Persian Gulf was so damn polluted with oil it was shocking. Huge tar balls by the thousands washed up on the beach at Ras Tanura. It was awful. It was the Tanker War

              Iran trapped or destroyed many Iraqi ships in port in the early stages of the war. But Iraq started the tanker war in the Gulf proper in 1981 by initiating attacks on ships steaming to or from Iranian ports at the extreme northern end of the Gulf. Iraq continued these attacks into 1984 without a parallel Iranian response at sea. In March of that year, however, Iraq increased the rate of its attacks and expanded their geographic scope by attacking ships serving more southerly Iranian points, particularly the oil-loading complex at Kharg Island. Two months later, Iran initiated its own attacks, and the tanker war became a two-way affair.

              • Dennis Coyne says:

                Hi Ron,

                Yes we know that, this was to show that one has to look beyond the data. Glenn Stehle does not seem to recognize this, there are also reasons that renewable investments declined. World coal prices fell and the level of World investment fell, both of these would tend to reduce investment in renewables. In addition there were policy changes in Europe which also affected the level of investment in renewables. A final point is that as the costs of renewable power falls you get more bang for your buck, so even with falling dollars invested the amount of capacity installed could have remained the same or risen.

                The output from Wind and Solar power increased and that is what matters most. Data from BP statistical Review of World Energy.

                • Bob Nickson says:

                  A final point is that as the costs of renewable power falls you get more bang for your buck, so even with falling dollars invested the amount of capacity installed could have remained the same or risen.

                  I thought that might be the case also Dennis. I wasn’t able to easily find y.o.y. capacity growth for all renewables, but I did find it for wind and solar.

                  Here is what that looks like:

                • Glenn Stehle says:

                  °°°°Dennis Coyne says:

                  …there are also reasons that renewable investments declined.

                  Well one can never fault your internal lawyer, which is hard at work, diligently searching for the most implausible of reasons why renewable investment declined, while ignoring the most obvious.

                  °°°°Dennis Coyne said:

                  …there were policy changes in Europe which also affected the level of investment in renewables.

                  So in your Alice-in-Wonderland world, political realities don’t count? When the state pulls the plug on “NOT subsidies” or other inducements to encourage spending on “clean energy,” spending on these alternative energy supplies invariably grinds to a halt.

                  °°°°Dennis Coyne said:

                  A final point is that as the costs of renewable power falls you get more bang for your buck, so even with falling dollars invested the amount of capacity installed could have remained the same or risen.

                  All this talk about capacity reminds me of when I was a kid.

                  That was the age of the muscle car.

                  So when a friend would get a new car, the topic of discussion invariably would turn to how fast it would run. But here’s the rub: a car that will run 130 mph won’t get you from Midland to Dallas any faster than a car that will run 90 mph. What matters is the average speed you can actually drive the car on your trip, not the maximum speed the car will attain.

                  °°°°Dennis Coyne said:

                  The output from Wind and Solar power increased and that is what matters most.

                  And the percentage of output from Wind and Solar counts for nothing?

                  What are we up to? Less than 1% of total world electric power generated from Solar? Less than 3% generated from Wind?

                  • Dennis Coyne says:

                    Hi Glenn,

                    Yes the amounts are small, but the growth rates are high. Output of wind and solar for the world increased by a factor of 4 in just 6 years from 50 Mtoe/a in 2008 to 200 Mtoe/a in 2014. In 2014 coal and natural gas use was about 7000 Mtoe/a and wind and solar output was only 2.8% of this level as you correctly point out.

                    Let’s say the 2008 to 2014 growth rate continues as fossil fuel prices rise and costs of wind and solar continues to fall. In 6 years wind and solar output grows to 800 Mtoe/a, in 12 years to 3200 Mtoe/a, and in 18 years to 12800 Mtoe/a. That would be about the same number of years as the rapid ramp up in nuclear power from 1968 to 1988 where nuclear power output increased by a factor of 36 over that period.

                    If wind and solar power ramped up at the same rate as nuclear power over 20 years (a slower rate than the last 6 years) output would reach 7300 Mtoe/a by 2034, more than current(2014) coal and natural gas consumption (300 Mtoe/a more).

      • Jimmy says:

        Troll alert

        https://en.m.wikipedia.org/wiki/Formal_fallacy

        I think Fred was referring to the investment party in the Bakken Glenn not global industrial civilization. I somehow think the carbon economy will outlast profitable business ventures in Bakken LTO. Perhaps that was missed on you?

        • Fred Magyar says:

          Yep, that’s about what I was thinking.

        • Glenn Stehle says:

          Jimmy,

          So do you believe “global industrial civilization” can survive peak oil? Is a green-washed BAU possible in a post peak oil world?

          And what about peak conventional (read “cheap”) oil?

          Some, including myself, believe we have already achieved peak conventional oil. The Bakken is not conventional oil. It is non-conventional (read “expensive”) oil.

          Do you believe “global industrial civilization” can survive peak cheap oil?

    • Jonathan Madden says:

      Excellent analysis, Ciaran, with substantial detail. A reference document that demonstrates Bakken production is indeed built on sand.
      Thanks very much.

      • Production of light oil from tight zones seems to need $80+ per barrel price. It’s not built on sand, it simply requires a higher price. The same applies to extra heavy, deep water, and EOR projects. The implication seems to be that most industry investments do require higher prices.

    • Phil Harris says:

      Party? I guess these guys (see below) don’t have the quality of analysis demonstrated in POB post, but FWIW I just received this quote from Tom Whipple at ASPO.
      Propheccy is difficult, but it would not be surprising if some people are called on to make sacrifices.
      The question might be better phrased ‘for whom is the party over’?

      Quote of the Week
      “By our calculations it will require additional debt formation of $39 trillion over the next decade to keep petroleum production operating. Where that funding will originate from, when it is very unlikely to ever be repaid, will be of tantamount importance. It will take very strong-willed societies to make such sacrifices. If those sacrifices are not made, the integrated global production system will have disappeared by 2026. 2016 will be witness to the beginning of this event with dramatically increasing closures and bankruptcies throughout the world’s petroleum industry.”
      The Hill’s Group — “an association of consulting petroleum engineers and professional project managers”

  2. Arceus says:

    So looks like more pain ahead for the oil patch.

  3. Ralph says:

    I do not have the knowledge to judge the quality of this report, but first impression is a detailed, stunning analysis of shale oil, answering a lot of difficult questions, and indicating that a break even price for most shale producers is $70-75 / barrel, and at below $50, every single well is losing money.

    This analysis only covers Bakken / Three Forks plays, but are other plays likely to be different?

    • Dennis Coyne says:

      Hi Ralph,

      The post seems excellent. At some point they stop drilling new wells and wait for higher prices,the sooner the better for all concerned.

      The Bakken is the best US LTO play, other areas would likely have economics that are worse than the Bakken, my analysis of the Eagle Ford has yielded similar breakeven oil prices as the Bakken. There is a lot of activity in the Permian basin lately so perhaps the economics are slightly better there, but that is a simple guess based on no data, simply news reports and rig counts.

  4. Arceus says:

    Seems like it might be a good idea to short the bakken shale players – HES, OAS, WLL, etc.? Might be a little crowded though.

  5. Obdacher says:

    What causes the discrepancy between pretax and posttax results ? Can that be influenced by management ?

  6. Armitage Shanks says:

    Ciaran – is there anything to be read into the fact that most of the high production wells for 2008 were in Mountrail, but currently there are only eight rigs (of 59) operating there, compared to 27 in McKenzie and 13 in Dunn? That would appear to indicate the sweet spots have been used up there, but I think you can get ahead of yourself in making such conclusions sometimes.

  7. C.J. Nolan,

    Excellent job on all the details of what is one of the biggest Energy Ponzi schemes in history. I spoke with a President of his own oil company in Texas and he won’t start looking for oil again until the price reaches $60-65. And he goes after the conventional stuff, not the resource shale garbage that really hasn’t made a profit in the past five years. And this is when the price of oil was for the most part, above $100… LOL

    I think the major factor that is overlooked in the Energy Market is the amount of debt. This is also true for the entire market. The massive amount of Debt in the markets cannot continue to be financed… which is why we have zero interest rates. Even though the Fed raised rates by a paltry 25 basis points, they are most likely going negative. World can’t sustain its massive debt at normal interest rates. There lies the rub.

    I see a bloodbath coming soon to a theater near you in the U.S. Shale Oil & Gas Industry. Time to place your short bets on the Dead Shale Carcasses before the vultures get to em.

    Professor MudFlap

  8. TechGuy says:

    Hi Ciaran,

    (not nitpicking but something to consider)
    I don’t think you included the financing costs since all of the drillers borrow heavily to fund CapEx and well as Opex. I suspect that the break even costs would be considerable higher with the debt financing costs included.

    Your analysis looks good to me.

    • Dennis Coyne says:

      Hi Techguy,

      The financing cost was included in the OPEX and/or monthly cost.

  9. R Walter says:

    “Deficits don’t matter,” said Dick Cheney. “Debt doesn’t matter either,” says Paul Krugman.

    http://investmentwatchblog.com/deficits-dont-matter-said-dick-cheney-debt-doesnt-matter-either-says-paul-krugman/

    There you have it, well economics can be negative forever!

    Don’t worry, be happy!

    • R Walter,

      LOL… good one. Anyone who listens to anything those MORONS CHENEY & KRUGMAN have to say… needs to get a Frontal Lobotomy.

      Professor MudFlap

    • Arceus says:

      Debt is never a problem – until you can’t afford the interest on it or until no one will lend you any more money.

      The U.S. has avoided this reckoning for many years – perhaps it can continue to do so for longer. Perhaps.

      • Dennis Coyne says:

        Now would be a good time to reduce the deficit in the US, either cut spending or raise taxes or do a bit of both as a compromise. A pretty simple overhaul of the tax code would be to reduce business tax rates but treat capital gains and dividends as ordinary income with no special tax treatment. Maybe a 50% tax bracket for income over $1 million (in 2015$) and adjust the bracket yearly for inflation, or not as such a change would be hard to get through congress. The budget should really be at a surplus when the economy is doing well and the debt paid down so there is room for more debt when the economy does poorly.

        • Dennis,

          One simple question. What world do you live in?. Do you honestly believe any debt will be paid down… I don’t.

          Unfortunately… individuals continue to look at the world with conventional wisdom when you should forget that nonsense and start thinking outside the Fricken Box.

          Professor MudFlap

          • Marlo says:

            Steve,

            Pull your head out of that hole and quit spreading your bullshit.

            “one of the biggest Energy Ponzi schemes in history”

            Your so called “Ponzi” has broken the back of the oil cartel. Reduced the United States oil imports by 4 million barrels per day and it’s importing cost from $100 to $40.

            You need to go back to school and learn the difference between free market capitalism and Ponzi scheme. The fact is shale will lower America’s energy costs for years.

            The only reason the federal budget isn’t balanced is because “W” gave all the money to his rich friends in tax breaks and started a war on lies.
            Dennis is only suggesting a reasonable approach and that is the rich pay for their war and crimes.

            • Marlo,

              LOL…. free market capitalism died years ago…. you didn’t get the memo? Goodgrief. Let me just say this. The folks I speak to in the real oil industry (conventional crude) would never drill for shale. They just aren’t that plum stoopid.

              Professor MudFlap

              • Marlo says:

                Professor MouthFlap,

                You get called out on your bullshit. So your response is to double down with more bullshit.

                “free market capitalism died”
                “the real oil industry (conventional crude) would never drill for shale.”
                “stoopid”

            • TechGuy says:

              Marlo wrote:
              “The fact is shale will lower America’s energy costs for years.”

              Shale didn’t lower oil prices, the collapse of the Emerging Market economies (China, Brazil, etc) did. Not only did the price of energy drop so did all commodities. If shale drilling was the cause of lower energy prices it would not have affected prices for other commodities (at least not to the extent current commodity prices have fallen) That said Shale drilling increase demand for some commodities (ie steel & concrete)

              “The only reason the federal budget isn’t balanced is because..”

              The Federal budget hasn’t been balanced since the early 1930’s. To suggest that it one president caused all the budget problems is ridiculous. So far under 7 years of Obama, the debt only has gotten worse, and Despite Obama’s promises to withdraw troops from the ME, they’re still there.
              The MSM claims about the US budget was misleading, the US never had a balanced budget during the late 1990’s. Even during the height of the dot-com bubble, the debt keep on climbing since the gov’t simply used the rising payroll tax collections to fund the general fund. It was the increased payroll tax revenue that made the budget appear more rosier than it really was. The only thing that happened that for a few months, the US federal gov’t didn’t need to issue any new treasuries, using borrowed money from the payroll tax instead. The amount of unfunded liabilities continue to grow. It was also based upon an unsustainable bubble (dot-com) which collapsed during the last year of the Clinton Admin.

              http://www.econlib.org/library/Enc1/FederalBudget.html

              ” From 1921 until the onset of the Great Depression (1930), expenditures relative to GNP were held constant and the budget was balanced. Unfortunately, decentralization returned during the depression. The process moved slowly at first, but accelerated significantly in the sixties and seventies as Congress created new programs and placed spending jurisdiction for them in an ever increasing number of congressional committees.”

              • Marlo says:

                Techguy,

                You live in the Republican bubble. Clinton handed Bush a surplus and Bush destroyed it with tax cuts for the rich and a oil war which he lost.

                World demand has only increased over the last 5 years with world production out pacing demand.

                “collapse of the Emerging Market economies”

                BULLSHIT- Subtract out the additional 4 million barrels of US production and the price of oil would be over $100.

              • Marlo says:

                Record production and demand

                • That includes NGL, biofuels, etc.

                • TechGuy says:

                  Marlo wrote:
                  “Clinton handed Bush a surplus and Bush destroyed it ”

                  Look here:
                  http://www.treasurydirect.gov/NP/debt/search?startMonth=01&startDay=01&startYear=1998&endMonth=12&endDay=13&endYear=2002

                  Spot the surplus. It doesn’t exist! Pure MSM Fiction!
                  FWIW: I am no fan of Bush, but Greenspan handed a popping dot-com bubble to Bush. Then Bush/Greenspan re-inflated the bubble with a housing bubble. Now we have a Bernanke Soveign debt bubble that is beginning to Pop.

                  Marlo wrote:
                  “World demand has only increased over the last 5 years with world production out pacing demand.”

                  Not in the last 12 to 16 months. After the 2008 crisis, the Emerging market economies went on a borrowing binge (as central banks drop rates to historic lows) and spent it on massive infrastructure projects which fuel demand for energy. Now many of the emerging market nations have reached peak debt as their currencies have declined against the dollar (debt is priced in USD), and now see bond yields increase. For instance Brazil’s 10 year is above 17%. China is in meltdown mode (see yesterdays crash) and the Chinese gov’t is forced to prop up its stock market.

                  If what you said was true, that Oil demand continues to grow, then Oil prices shouldn’t have collapsed. Production increases don’t justify falling prices because all commodities have been in a free fall. Many of the commodies began falling before Oil prices fell, which indicated a global economic slow down.

                  • The Budget and Deficit Under Clinton

                    Q: During the Clinton administration was the federal budget balanced? Was the federal deficit erased?

                    A: Yes to both questions, whether you count Social Security or not.

                    FULL ANSWER

                    This chart, based on historical figures from the nonpartisan Congressional Budget Office, shows the total deficit or surplus for each fiscal year from 1990 through 2006. Keep in mind that fiscal years begin Oct. 1, so the first year that can be counted as a Clinton year is fiscal 1994. The appropriations bills for fiscal years 1990 through 1993 were signed by Bill Clinton’s predecessor, George H.W. Bush. Fiscal 2002 is the first for which President George W. Bush signed the appropriations bills, and the first to show the effect of his tax cuts.

                    T.G. your chart is the debt, not the budget.

            • Jimmy says:

              the true free market is a kind of myth because it has never truly existed under industrial capitalism. Governments, rather than markets, have always determined the fortunes of corporations, through preferential contracting, tax breaks and direct subsidies.

            • Jimmy says:

              Que the Bakken pundits. Gotta pump those bonds.

            • Glenn Stehle says:

              Marlo said:

              The fact is shale will lower America’s energy costs for years.

              You, like all good market fundamentalists, conflate price with cost of production.

              Nevertheless, price and cost of production really are two different things.

          • Dennis Coyne says:

            Hi Professor,

            No I don’t expect debt will be paid down, I said it should be when the economy is doing well (low unemployment rates).

            The problem of debt for the World as a whole is not really very big. There are a few countries (Japan being the obvious example, as well as Greece and a few other European countries) where debt is an issue. It is those places where debt levels will need to be reduced, if it doesn’t happen eventually they may default.

            For countries that are EU members the lack of control over fiscal and monetary policy in individual nations is a serious problem.

            European nations need to make a choice a true political union with a strong European central government or dump the economic union, the current system is a disaster.

            • BC says:

              “The problem of debt for the World as a whole is not really very big.”

              That’s a chuckler. 🙂

              http://www.mckinsey.com/insights/economic_studies/debt_and_not_much_deleveraging

              http://tinyurl.com/hj9vpww

              https://research.stlouisfed.org/fred2/graph/fredgraph.png?g=32Gq

              US non-financial corporate debt to private final sales is back to the level in 2007-08 prior to the GFC and above the levels prior to the recessions in 1990 and 2000-01. A growing majority share of debt was taken on to buy back shares and pay interest on existing debt and dividends.

              US non-financial debt to GDP is at the levels of 1928-30 and Japan in 1987-93.

              Public debt historically increases to unsustainable levels as a result of excessive private debt and the resulting crises that occur about once a lifetime, i.e., the Long Wave debt-deflationary regime.

              But it’s much worse than this. Total global private debt to world GDP has soared since the GFC, particularly in China and the emerging markets, an overwhelming share of which is denominated in US$’s with the US$ strengthening and US$ payments becoming challenging, increasing the risk of a global debt-deflationary crisis LARGER THAN 2008-11.

              The next global crisis will not be caused by public debt but by AIG- and Lehman-like implosions in the global corporate, junk, and emerging market debt markets passing through to equities, real estate, the banking system, and resulting in yet another episode of massive central bank reserve printing, huge deficits to GDP, and further expansion of public debt to GDP to prevent contraction of nominal GDP per capita.

              The overwhelming majority of eCONomists and conventional eCONomic schools of thought virtually ignore the banking and financial systems and thus ignore private debt and its crisis-inducing effects following the end of the reflationary growth and debt cycle of the Long Wave and prior to the Schumpeterian depression of the debt-deflationary Long Wave Trough.

              The surge in private debt to GDP globally since 2008 ensures that the next GFC will be worse than the previous episode.

              • Dennis Coyne says:

                Hi BC,

                My reading of the McKinsey report is that the problem of debt is not as severe as many seem to think. So chuckle as much as you like. The report says there are a few advanced economies where there is too much debt, for the World as a whole the levels are manageable.

                • BC says:

                  If you don’t understand the private debt cycle, Long Wave, and the extent to which financialization has resulted in all value-added output being absorbed by the financialized sectors, then “debt is not a big problem”.

                  But that requires buying into the Establishment eCONomists’ paradigm that never anticipated (publicly) the GFC, and neither will the practitioners anticipate GFC II, including McKinsey.

                  But no one gets credit for pointing out the obvious that the emperor is buck naked and his ministerial intellectuals are blind to imperial nakedness. 😀

                  And that applies to the BIS, which has largely maintained its political “independence” (as voice of the Anglo-American and European rentier Power Elite) for most of the period since its founding in the 1930s; but the principals also answer to a “higher power” that vets the bank’s messengers and their messages at opportune points in the cycle.

                  • Dennis Coyne says:

                    Hi BC,

                    Perhaps the majority of economists are incorrect, I don’t put a lot of faith in long wave theory, there are cycles, yes, they are not predictable, if you could accurately predict them you would be a wealthy person (or perhaps you are).

              • Glenn Stehle says:

                BC,

                I think Dennis subscribes to the Nixon-Krugman-Cheney school of economic thought, along with its debauched Keynesiansm.

                As Nixon famously proclaimed back in 1971, “We’re all Keynesians now.”

                • Dennis Coyne says:

                  Hi Glenn,

                  Yes I think some parts of mainstream economics are pretty good, none of it is perfect, and there are lots of people that think that they know more than all those economists, I am not one of them.

                  I think Krugman’s views are pretty sensible and think that Keynes’ work is very important.

                  Most mainstream economists are not Keynesians, those views have lost favor in mainstream economics, much to the detriment of Europe.

                  In the face of a severe recession, government deficits should increase and any effort to balance the government budget should be abandoned.
                  Monetary policy can be tried, but when interest rates approach zero and unemployment is high fiscal policy should be used to increase aggregate demand, this could be as simple as reducing tax rates on middle and low income citizens (the rich will just save the money so those tax rates should be left as they are or raised). In the face of a dysfunctional Congress, tax rates could be tied to the unemployment rate so that at high unemployment rates taxes are automatically reduced and that tax rates automatically increase as the unemployment rate falls.

                  As with most things this would never get through Congress, but it would be better than the poor economic policy produced by most legislatures in Europe and North America.

                  • Javier says:

                    Well, I think Krugman is wrong about almost everything he says. Keynesian doctrine should be buried so deep as to never come back. It has completely and utterly failed in Japan, where every keynesian trick has been played to no avail. Krugman has ostensibly demonstrated he does not understand what is going on in Japan, and now we have a Japanization of the world and following Krugman’s advise will only get us deeper in the hole.

                    Debt needs to be reset, because it is the only problem that, being human controlled, can be solved. That means destroying current monetary system and ending dollar as world reserve currency.

                    With debt out of the way we can face in better shape the problems of resource depletion and demography, that cannot be solved, only ameliorated.

                    The debt problem will have to be reckoned. It can be done in a good way or a bad way. Krugman is an obstacle.

                  • Glenn Stehle says:

                    Dennis,

                    I have nothing against Keynes’ work. On the contrary, I’m quite an admirer.

                    What I take umbrage to is the way folks like Nixon, Krugman and Cheney vitiated it.

                    I’ll bet Keynes is turning over in his grave with what has been done, and is being done, in his name.

                  • Dennis Coyne says:

                    Hi Javier,

                    Well you should know being an expert on every subject. Have you read the General Theory? Can you point out some of its shortcomings?

                    On Japan I used Fred data below

                    https://research.stlouisfed.org/fred2/series/NYGDPPCAPKDJPN/downloaddata

                    To create the following chart. Growth per capita has slowed in Japan from the 1968-1990 rate of 3.3% per year to 0.7% per year from 1991 to 2014. They are a symptom of the demographic transition, fiscal stimulus is not the answer in this case, a gradual fiscal rebalancing with higher taxes and lower spending, might be a solution, if the problem was easy to solve, Japan would have implemented the policy in the past 25 years.

                    What is your solution, default on their debt? Eventually that might happen, for now interest rates are pretty low in Japan so not much sign of that happening.

                    https://research.stlouisfed.org/fred2/series/IRLTLT01JPM156N

                  • Javier says:

                    Hi Dennis,

                    If you knew that fiscal stimulus is not the answer in Japan’s case you should have told Paul Krugman, that since 1998 is insisting on the liquidity trap and has been recommending Shinzo Abe keynesian policies that have resulted in complete failure.

                    Japan: Why Paul Krugman doesn’t get it right and Martin Wolf has to move on
                    Japan in recession after following Paul Krugman’s Keynesnian advice
                    Paul Krugman Is “Really, Really Worried” That He Might Have Screwed Up Japan

                    We better learn before he insists we should do the same.
                    Of course Japan is a special case for you,… except that it is not.

                  • Dennis Coyne says:

                    Hi Javier,

                    Japan is a difficult case. Abe does not take his policies from Krugman, there are not easy answers when an economy has an aging population with fewer young workers to support the growing baby boom population, which tends to spend less because they have accumulated all the wealth they need. Perhaps higher estate taxes would work, there are no easy answers to this problem, but it will need to be solved. I have never visited Japan, my daughter has and her impression was not of impending social collapse, so your impresssions may be incorrect.

                    Note that since 2007 the EU has been doing worse than Japan on a GDP per capita basis, GDP per capita has basically been flat in the EU according to World Bank data from 2007 to 2014. Chart below

                  • Dennis Coyne says:

                    Hi Javier,

                    If we compare EU and Japan and the natural log of GDP per capita (to show growth rate trend) since 1966 (when the GDP per capita was about the same for the EU and Japan).

                    Japan has done better than the EU over that span of time, since 2002 the growth rates in GDP per capita have been very similar in the EU(0.69%) and Japan(0.64%).

  10. Arceus,

    Did you come up with that line… or did you regurgitate if from Krugman… LOL. Maybe you should spend some time reading some of Gail Tverberg’s work at Our Finite World instead of listening to the Morons on MSM.

    God Hath A Sense of Humor….

    Professor MudFlap

    • Arceus says:

      Debt is never a problem, until suddenly it is.

      Not sure what you don’t understand about that.

      • robert wilson says:

        When I was in a 1944-5 9th grade Civics class in Amarillo, a close friend and myself tried to filibuster about the WWII generated national debt. As I recall the teacher responded “It doesn’t matter, we only owe it to ourselves” Post WWII I decided that it doesn’t matter if it can be inflated away. That has partially happened. I can no longer buy an ice cream cone for 5 cents. However governments are finding that it is not always easy to manage inflation.

        • Dennis Coyne says:

          Hi Robert,

          In the OECD inflation has not been a significant problem in about 30 years, so managing inflation is not a big problem. For the debt is death crowd, deflation is difficult to manage, for if we want a balanced budget, there is not a lot that Monetary policy can do to combat deflation, kinda like pushing on a string.

          That is the time that government debt makes sense, at other times proper fiscal policy would either balance the budget of run a surplus and pay down the national debt. Unfortunately Clinton was the last president to balance the budget, though Obama was handed a pretty lousy economy where balancing the budget was difficult, a dysfunctional Congress didn’t help.

          • Marlo says:

            Republicans have been playing the debt fear card since 2009 holding back the recovery of the country. It’s all about politics and denial of the mess they handed Obama 7 years. There should have been more fiscal policy stimulus but the Republican know that would make Obama a bigger success than he is. Someone has to spend to grow an economy.

            Now the Republican base who got shit on by the republican establishment are pissed off. We are seeing the end of the Republican party as we know it.

            • We are seeing the end of the Republican party as we know it.

              And good riddance if you ask me. Donald Trump and Ted Cruz, the number one and two in the republican presidential race, are both clowns. This is the state of the republican party? Two clowns leading all the polls?

              • robert wilson says:

                What can the new president, regardless of party affiliation, do to prevent or mitigate peak oil related collapse in the years 2017 to 2020. Will the winning leader be blamed for any oily or economic
                debacle?

                • Dennis Coyne says:

                  Hi Robert,

                  A start would be to make a deal on tax policy: reduce corporate taxes implement other tax policy that the Republicans favor in exchange for a significant tax on carbon to move the economy from fossil fuels to alternative forms of energy (nuclear, wind, and solar).

                  Again this is unlikely, but it is the smart policy.

                • islandboy says:

                  What can the new president, regardless of party affiliation, do to prevent or mitigate peak oil related collapse in the years 2017

                  If somehow that president is the current underdog in the Democratic party, Bernie Sanders, then to quote him, “transform our energy system away from fossil fuels and towards sustainable, renewable energy.”

                  He certainly seems eager to take the fight to the oligarchs, who seem to have captured the US government and is not hesitant to call out the Koch brothers by name, for example. It would be really interesting to see a Sanders presidency.

                • R Walter says:

                  Anybody see the photo of Donald Trump next to Hillary with Bill next to her? It was at Chelsea’s wedding.

                  A clown to left of her, a joker on the right.

                  Nothing is sacred on this old earth, saints, politicians, especially Republicans and Democrats. Both have taken leave of their senses. Both deserve ridicule.

                  Here is a quote by Jack Benny that fits Donald Trump and his loyal supporters:

                  “A scout troop consists of twelve little kids dressed like schmucks following a big schmuck dressed like a kid.”

              • Old Oil Man says:

                Ron, you disappoint. Everyone has their own clown. Look at the alternative clowns running in the GOP; or the clowns running in the DNC.

                Personally, I never thought I’d see the Progressive Party move to the right by running a Socialist, but that clown is a very healthy improvement over the present clown in office.

                In the GOP, I must agree a more establishment clown, like say Jeb Bush would be a much better establishment match for establishment clown Hillary Clinton. Then if Hillary won, the country would be blessed with an even 12 yrs of Bush clowns, offset with 12 yrs of Clinton clowns. How good can it get for America? That of course would be an establishment clowns version of social justice.

                Now there has to be some establishment justice to the present clown in office and we have it; after all grand clown Obama is why there’s a Trump leading the polls.

                I look at it this way, it can’t get worse than it’s been in the past 8 yrs with clown Obama, or the 8 yrs before that with clown Bush.

                Isn’t America great. Everyone can love their clown and the best thing about all these clowns is… if your clown doesn’t win, the clown who does will then be your clown.

                Now before I sign off I have to give special mention to my personal all time favorite Democratic clown Johnson. That clown changed my life, ended the lives of some 58 thousand Americans and god knows how many millions of others in Viet Nam, Laos & Cambodia. A clown of tears, death and destruction to be sure.

                So who needs the establishment clowns put up by the “party”?

                • Dennis Coyne says:

                  Hi Old Man Oil,

                  Johnson made a mistake in Vietnam, Nixon continued that mistake. Johnson was also one of the most effective presidents in getting important legislation through Congress, Vietnam may have been the price paid to get those deals done. The war probably escalated far beyond what Johnson originally envisioned as asymmetric warfare was relatively new at the time.

                  It is amazing how far to the right the Republican party has moved since 1968, Nixon’s policies would be relatively middle of the road Democrat today, or at minimum he would be considered a RINO in today’s Republican party.

                  • Old Oil Man says:

                    “Johnson was also one of the most effective presidents in getting important legislation through Congress, Vietnam may have been the price paid to get those deals done.”

                    Dennis, one might say that’s cynical.

                    For me its a matter of perspective. You might feel a bit different if you were drafted by Johnson into the Army at 19 one fine summer day, to fight and die (as too many did) in some god forsaken jungle, in a place you never heard of, in a war that posed no threat to your county, had no clear objective to win but went on endlessly with troop build ups and 4 to 5 hundred American boys (most under 21) being killed every week with countless wounded (some you knew and grew up with); you just might feel a bit different about the “price paid to get those deals done”…when you are one of those (not asked) but forced to pay the price of a deal. So much easier when others pay the price.

                    Just saying you had to be there to really appreciate how “effective” Johnson was on the lives and death of so many young boys of my generation.

                  • Dennis Coyne says:

                    Hi Old Man Oil,

                    You are correct, it was a bad decision to escalate in Vietnam and a very deadly war relative to Iraq and Afghanistan for American soldiers. The anti-communist fervor of the time led to poor decisions.

                • Old Oil Man, you are the real disappointment. Why do you think Obama was so bad? Let me guess? And Clinton did balance the budget. So why is he a clown?

                  I just think you just a cynic and would criticize a saint if he were president.

                  The choice is almost never between good and evil. It is almost always between the greater evil and the lesser evil.

                  But this time around the choice is clear. Clinton is not perfect, she has her flaws for sure. But compared to the alternatives the republicans are throwing up, by contrast, it makes her look like a saint.

                  • Fred Magyar says:

                    But compared to the alternatives the republicans are throwing up, by contrast, it makes her look like a saint.

                    I’m not exactly a huge fan of HC and ‘SAINT’ is definitely not a word I would use to describe her!

                    What she does have going for her, is a much firmer grasp of international relations and the global nature of the world’s economy than any of the imbeciles amongst the current field of Republicans.

                    For that alone I would pick her as the lesser of many evils. This is not a time for xenophobia and isolationism!

                  • Bush made a huge blunder when he invaded Iraq. Obama compounded the problem by blundering into creating a conflict with Russia, and encouraging the Syrian civil war. I could add quite a few other examples, but why bother? USA foreign policy is run by trained chimps controlled by special interests.

                  • Old Oil Man says:

                    “Why do you think Obama was so bad? Let me guess?”

                    Ron, you obviously know I’m no fan of Obama, but you didn’t answer the question you posed to yourself …”Let me guess”.

                    I’d appreciate an answer to your “guess”.

                  • Arceus says:

                    “(Hillary) Clinton is not perfect, she has her flaws for sure.”

                    Hillary’s moral failings almost make Nixon seem virtuous.

                  • Old Oil Man, I think you don’t like Obama because he is a democrat with really big ears.

                    Arecus, Hillary has far more moral character than any of those very stupid republicans running.

                  • Carlos Perdue says:

                    “Why do you think Obama was so bad? Let me guess?”

                    Nice. Snarky, smarmy, hit & run, ad hominem insinuendo. OK for you to call Trump & Cruz clowns with no reasoning or facts to back it up, but a war veteran who thinks Comrade Obama is a clown *must* be a bigot. Ad hominem snark is an economical, if pusillanimous, way to poison the well while evading reason and facts.

                    Then when he calls you on it, you try to spin out of it: “I think you don’t like Obama because he is a democrat with really big ears.”

                    Uh huh…

                    “The choice is almost never between good and evil. It is almost always between the greater evil and the lesser evil.”

                    Wow! I’m sure no one here realized that.

                    “But this time around the choice is clear. Clinton is not perfect, she has her flaws for sure. But compared to the alternatives the republicans are throwing up, by contrast, it makes her look like a saint… Hillary has far more moral character than any of those very stupid republicans running.”

                    Gag me with a jackhammer. You’re really coming out of the closet here with the “Republican = Clown, Democrat = Statesman” nonsense. Hillary Clinton is the worst unindicted felon and traitor to ever get near the White House. From Whitewater to Benghazi, she’s a lying criminal fraud. But she’s a terrific commodities trader, I’ll give her that. Not. The only reason she’s is not in prison is because…

                    1. She’s a Democrat (aka, Lear Jet Eco-Communist). Virtually all Social Democrat politicians are corrupt and protect their own.

                    2. She and Bill illegally took possession of thousands of FBI files on politicians, so they can trash anyone who tries to prosecute her.

                    3. Most “Republicans” are corrupt, cowardly, and/or stupid RINOs who actively or passive-aggressively collaborate with the Social Ds, some because the Clintons or Comrade Obama have the goods on them.

                • Glenn Stehle says:

                  Old Oil Man,

                  You are a man after my own heart.

                  When I lived in San Antonio, my next door neighbor was George R. Brown’s granddaughter. Openly boasting about how much it cost to buy a United States senator was not unusual for him, and of course the senator he was talking about buying was Lyndon B. Johnson.

                  The south Texas political boss George Parr made Johnson, and Johnson in turn did everything in his power to make Brown and Root, which later became part of Halliburton. As Wikipedia reports:

                  The M. W. Kellogg Co., was merged with Halliburton’s construction subsidiary, Brown & Root, to form Kellogg Brown & Root. KBR and its predecessors have received many contracts with the U.S. military including during World War II, the Vietnam War, and the Iraq War.
                  https://en.wikipedia.org/wiki/KBR_(company)

                  A few years back I traveled to Washington DC with my brother. He’s dead now, but he had served in the Vietnam War. I will never forget what he said when we visited the Vietnam War Memorial.

                  As he searched for the names of all his friends and fellow soldiers who had died in that war, those who had made the ultimate sacrifice “for their country,” he lamented, “And it was all for nothing.”

                  Mythologies are powerful things, and national mythologies are no exception. Some, if not most, people never get past believing in them. This is true even when the distance between the myth and the reality becomes untenable.

              • BC says:

                Since the founding of the US republic (which ended in the 1870s-90s), about every 32-40 years (roughly a working lifetime and the time for a new peak demographic cohort to come of age and assert their interests and desires) there has been what Arthur Schlesinger, Jr. referred to as a “turning-point cycle”; that is, an economic, cultural/social, and political realignment and the demise of one of the major political parties.

                Historical examples were:

                Federalists to Democratic-Republicans.

                Democratic Republicans to Jacksonian Democrats.

                Whigs to the Republicans.

                The Populists to Progressives.

                The Harding-Coolidge pro-business Republicans to FDR New Dealers.

                Old New Dealers to Dixiecrats and Reagan Republicans.

                Now we are witnessing another turning-point cycle from what has evolved from the Dixiecrats and Reaganites to whatever is now emerging with changing demographics (Hispanics/Latinos, people of color, youth, women, LGBT, environmentalists, Silly-Con Valleyites, rentier-socialist oligarchs on Wall St., etc.) increasingly rendering the Republicans way out on the social and political fringe but still reflecting the values, anxieties, and fears of their base constituents.

                The Republicans will likely continue to play the role of “disloyal opposition” but steadily lose influence and power and be required to redefine and realign with what today would seem like unlikely allies regionally and nationally.

                But this is occurring within the context of the US having evolved for more than a century into what has become a militarist-imperialist, rentier-socialist, one-party corporate-state owned by the top 0.001%, who purchase the best gov’t money can buy as part of a system characterized by “no representation without taxation”.

                George Carlin on voting:

                https://www.youtube.com/watch?v=xIraCchPDhk

                “Free for All”:

                https://www.youtube.com/watch?v=HrvwGn8oPnw

            • Glenn Stehle says:

              Marlo said:

              Someone has to spend to grow an economy.

              That’s true.

              But the million dollar quesiton is this: Is it possible to grow an economy without a supply of abundant, cheap energy?

              Is spending the only criterion needed to grow an economy?

              • Dennis Coyne says:

                Hi Glenn,

                Abundant and cheap are both relative terms, as long as there is enough energy for the economy to function, then energy is both abundant enough and cheap enough for the economy to function.

                When energy is cheap and abundant we use it inefficiently, as it becomes scarcer and more expensive we will use it more efficiently, as far as fossil fuels go, we will also increase the use of substitutes such as wind, solar, and nuclear power.

                • Glenn Stehle says:

                  Dennis,

                  So why do you believe this to be just another run-of-the-mill crisis of capitalism?

                  Or in other words, why is it, to put it in Marx’s words, just another example of “overaccumulation of capital”?

                  Or to put it more in the language of Keynes, why is it just another case of “overproduction and underconsumption?”

                  Why do you believe there to be sufficient natural resources (oil and gas are but two of these) to sustain another round of real (productive) growth in the economy, like that which occurred in the decades following the Great Depression, to get the debt to GDP ratios back to a manageable level?

                  If the natural resources necessary to grow the economy do not exist, will any amount of Keynesian pump priming make the economy grow?

                  • Dennis Coyne says:

                    Hi Glenn,

                    There is no crisis at present on a World level.

                    There are enough of many resources, as resources become scarce they will be used more efficiently and recycled where possible.

                    Oil, Natural gas, and coal will be replaced with other energy resources as they deplete and become more expensive, energy in general will become more expensive for a time (during the transition, which will be very difficult) and will eventually decrease as alternative energy ramps to higher levels.

                    Note that as energy becomes scarce and expensive, people will work hard to produce more of it because it will be profitable to do so (the incentive for oil and gas producers which has worked pretty well for 150 years or so is the same incentive that will spur wind and solar power producers for the next 150 years.)

        • BC says:

          https://research.stlouisfed.org/fred2/graph/fredgraph.png?g=32RD

          Robert, total US local, state, and federal gov’t spending as a share of GDP since the 1970s-80s has been at, or near, the peak of spending in WW II.

          There are many ways to interpret and understand this phenomenon, but the period includes the end of the Bretton Woods regime and onset of the fiat petrodollar regime since the early to mid-1970s (now coming to an end); peak US oil production per capita; US deindustrialization, financialization, and feminization of the economy; health care to GDP increasing from 8-9% to 20% by the end of this decade; total US debt to wages and GDP achieving an order-of-exponential increase since the early 1980s; real wages for the bottom 80-90% being lower than 40-45 years ago; a record low for wages and salaries as a share of GDP; regressive taxation of earned income (and self-employment) and favorable taxation of unproductive unearned income and rentier speculation; and extreme inequality in which 40-85% of all financial wealth is owned by the top 1-10%, and 20-50% of income is received by the same caste.

          Now, imagine a political party or faction that would have set as its long-term objectives 35-45 years ago those outcomes for the US. Well, there was a highly selective, exclusive caste of individuals and like-minded interests who, in fact, did establish these goals and have worked tirelessly since, funding efforts against, and, when possible, co-opting the opposition.

          G-d bless America . . . ???

          • Dennis Coyne says:

            Hi BC,

            Yes the US tax code is very bad. A quick and easy start would be to eliminate corporate taxes in exchange for all income wages, interest, capital gains, dividends, and other categories I am not aware of (I am not an accountant) being taxed at the same rates. Note I am not advocating a flat tax just eliminating the special treatment of dividends and capital gains, I would also favor a 50% tax bracket on any income over one million (2015 $). That might be a bridge too far.

  11. John S says:

    Ciaran,

    Wow! Talk about destruction of wealth. A true “Field of Dreams” with no happy ending.

    Thanks for the post. Hope you do more. would love to see something like this on the Utica and Marcellus.

  12. Old Oil Man says:

    Great work & well presented. Finally, the application of a solid industry standard probability/risk analysis to Shale Oil plays; and further a comparison to shale oil “promotion” reserve/economics; it reveals an ugly past and bleak future. The results of excessive promotion (on un-risked “reserve/economics”) securing lots of relatively free capital on abstract “assets”.

    It is and always was a Ponzi scheme: Note the fine print under the WILL 2015 Well Economics graph; “All volumes shown are un risked”. That’s an SEC ass covering… since these are not RESERVES; that’s why WILL calls them “volumes” not “RESERVES”. Every shale company presentation I’ve seen plays the same game of deception. Having been in this industry for some 45 years as a PE in E&P, banking and as a CFO CEO; that’s a straight up CON.

    As long as banks and investors threw money at it (many billions & billions), everyone was happy. But when the price collapsed, it unmasked the ugly truth about unconventional “risk”. If you didn’t get your investment before the collapse, it’s gone. There’s not enough remaining “volumes” to get you through to a recovery on other side of a collapse’ since more than half the well’s “volumes” are produced in the first year and with the extremely high decline rate your headed to stripper production rates.

    http://www.bloomberg.com/news/articles/2014-10-09/ceos-tout-reserves-of-oil-gas-revealed-to-be-less-to-sec

    http://www.thestreet.com/video/13165519/shale-oil-is-a-ponzi-scheme-due-to-its-unique-production-process.html

    http://www.globalresearch.ca/us-shale-oil-and-gas-industry-is-a-ponzi-scheme-facing-collapse/5446392

    • Doug Leighton says:

      Old Oil Man,

      Excellent comment, thanks for your insight. Being an old retired oil guy myself, I’ve never understood how these shale people get away with defining reserves using their own criteria. “Volumes “explain it perfectly, they don’t have Reserves, they have Volumes.

    • shallow sand says:

      Old Oil Man.

      I like your comments.

      I see you have banking experience.

      I have been beating the PDP PV10 drum ad nauseam, drawing just a little interest. My point being that banks (prior to the shale boom) would not loan money on reserves to a company in excess of around 60-65% of said company’s PDP PV10, using the bank’s engineering and price deck. Furthermore, banks paid attention to all other company debt, not just whether they had the first lien. Loaning additional funds to a company whose bonds are trading at 10-30% of par seems worthy of OCC inquiry.

      It appears to me that almost all public E & P in the LTO/tight gas business will have more than 65% long term debt to PDP PV10 as of 12/31/15. I understand the SEC price deck is different than a bank’s, but given SEC WTI is $49 for 2015, it seems 2015 SEC may be too high compared to what a bank should be using for its 2016-2017 price deck.

      Would like to read any comments you have on this. I continue to be astonished at how many rigs are still running given almost none of the E & P are currently creditworthy.

      I also am astonished no bond holders are demanding that this activity stop, given it is their (partial) bond principal that is being burned in this unprofitable activity, and further, if the funds used are a prior lien to them, they are falling further behind in recovery in the event of BK.

      As I have stated, we are conventional stripper operators, and have not seen things this bleak, even in 1998-99 and 2008-09. 1986 was before my time, however, I have spoken to older operators and read enough to satisfy myself this bust is comparable, and will be worse if sub $40 WTI persists. I see onshore conventional collapsing all around the US, one just has to do a little research and see the lack of vertical wells being drilled and completed, plus the Baker Hughes rig count which shows under 100 vertical rigs turning. This, of course, is due to conventional operators using their own money, and/or borrowing from banks who follow the reserve lending rules I cite above.

      Take a look at where the EIA has the following states in October: CA, IL, KS, UT, LA and MS. These states have limited LTO. If EIA is correct, US onshore conventional is falling off a cliff.

      Anecdotally, we are experiencing our steepest percentage decline ever from 2014 to 2015, and 2016 is not looking so hot either.

      Glad to see another conventional onshore person post here.

  13. dclonghorn says:

    Excellent analysis. Thank you. I had seen a projection that when Bakken field density reached 11000 to 12000 wells, drilling results would likely diminish because the best spots would be gone. Current wells drilled are in that neighborhood. Do you have any thoughts on how future results might differ from historic results.

  14. Pingback: BAKKEN – Single Well Economics | Enjeux énergies et environnement

  15. Dennis Coyne says:

    For the average Bakken well using a similar model breakeven oil price is about $80/b, if natural gas is ignored (so that is different from the analysis in the post.) If we assume about $3/b of income from the sales of natural gas (and reduce OPEX by $3/b to account for this) then the breakeven oil price is $76/b for the average Bakken/TF well. In each case I have assumed the capital cost to complete the well is 8 million dollars.

    I have never gotten a very good explanation for why these companies can continue to borrow money to drill wells at low oil prices, nor does it seem to be rational economic behavior to drill new wells at such low oil prices. It really seems there should be no new wells drilled, but either the hope is that oil prices will rise or they need to do it to keep the lights on. It would seem to make more sense to just complete all the wells that have been drilled and wait for higher oil prices.

    I am not in the oil industry so I am probably missing something very basic.

    • The think they know oil prices will rise. You guys would have a blast watching a real meeting where decisions are made to drill (or not) individual wells.

      • Old Oil Man says:

        Fernando, I’ve certainly been a participant and held many of those meetings, but what I can’t understand is why there’s a drilling meeting in the first place at these prices?

        By the ND’s Directors Cut Bakken producers were receiving an average of $27/B in November when WTI was at about $37/B.

        Though current prices (Jan 2016) “appear” to have recovered some from Dec 2014 lows, WTI Avg December prices were even worse than Nov.

        If it makes no sense to drill long life conventional reserves at these prices, how can it make any sense to drill short life unconventional plays (from high IP’s to stripper production rates)? Because the development costs are 3 or 4 times higher for unconventional plays? Or could it be the attraction of higher but short lived IP’s of unconventional plays? That was the luring attraction at $100/B oil. Perhaps the objective is to convert the capital intensive development costs (OPM) and high depletion production rates of these unconventional plays into longer term losses for short term cash flow. The problem with the latter is we’re well over a year into this down cycle.

        • Dunno for sure. If I may speculate: they think prices will rise. I bet the meetings you attended didn’t necessarily address whether the price deck(s) used for economics were adequate? What I saw was separate bureaucracies, neither of which knew, or cared for, the full score.

          I’ve seen the craziest things in this life. Not too long ago I was asked to look over a fairly large property to double check their staff evaluation…the internal bid price was TWICE what I estimated – and I didn’t even consider changing their oil price forecast.

  16. MBP says:

    Well written. It’s nice to see another geologist here. I wonder what a similar look at the Eagle Ford and Permian Basin (though a bit more complex than a single formation play) would yield.

    • Same crap. Management over pays for acreage to make all of these plays look similarly mediocre. It’s different if you start with a blank sheet of paper. In that case you can sit down with the rights owner and lowball the offer.

      • R Walter says:

        A mineral owner that has a couple of acres of acreage on a 1280 spacing can hold out for top dollar or agree to participate, that is not sign the lease agreement at all. Non-participating has a penalty, after the penalty is paid, you receive 100 percent of the of oil income from the acreage owned, not just the 1/5 or 1/6 of the oil under the lease agreement. Non-participating is more or less a decision not to lease and not participate.

        You have to remember that the mineral owner owns 100 percent of the oil, not the oil company.

    • MBP says:

      The one way I do see unconventionals possibly working: the operator having the mineral fee acreage. It’s somewhat common here for unconventional wells drilled within the geographic boundaries of older conventional fields, and I do think it might make enough of an impact to make the wells profitable. But I don’t work unconventional assets so I couldn’t say for sure. However, I did see a decline curve from a Bone Spring well that only had 5 months of production but had already cum’d 133 mbopd and 211 mmcf, though that’s just an outlier of the average well production.

      • shallow sand says:

        MBP. Glad to see your posts.

        I have been harping that US onshore conventional (in which I include water and CO2 flood) is collapsing. Would be interested in your view on this.

        It shocked me when I looked at a non-operated interest in SACROC a couple months ago, and the total JIB was well over $40 per barrel for the last 6-9 month period.

        Further, I looked at some of the big TX secondary and tertiary recovery units, and most appear to be on the decline, although we need to see a few more months before that is conclusive.

        Finally, given the total collapse of upstream MLP’s, who operate big chunk of US vertical oil wells, I’d say we will see a higher onshore conventional decline than during any prior bust. But that’s my 2 cents.

        What do you see out there?

        • MBP says:

          I’m not sure about collapsing, but they will definitely increase decline this year. Historically, we’ve been able to keep most of our fields declining at 6-7.5%. There simply isn’t any free money to do the level of wellwork that we’ve done in the past, and our decline on the older secondary and tertiary fields will likely average >8% this year.

          Part of the high billing at SACROC could be charges associated with the start of the TZ/ROZ flood that could be underway there. It’s a pretty cost-intensive thing to initiate. It could just be how they run the field, I don’t know for sure, but our CO2 floods don’t have JIBs that high.

          • shallow sand says:

            MBP. I am referring to some reports I read awhile back on decline in US onshore conventional, plus looking a state data where there is little to no LTO, plus operators that have little to no LTO.

            I guess collapsing is maybe too strong, but losing up 10-15% annually in 2015 and 2016 looks like a real possibility for US lower 48 onshore conventional.

    • Dennis Coyne says:

      Hi MBP,

      It is much harder to pull individual well data from the RRC database because the RRC reports by lease rather than by well and most leases have multiple wells with different start dates. I pulled a limited amount of data a few years ago, but too few wells to do the kind of detailed analysis on the Bakken presented here.

      For the average Eagle Ford well the NPV10 at 10 years with 10% real annual discount rate, 27% in royalties and taxes, $4/b in transport cost, and a $7 million capital cost (2015$) to drill and complete the well, the break even oil price is $77/b. I have ignored income from natural gas sales, if we assume there is about $3/b of natural gas sales for each barrel of oil produced (in the Eagle Ford about 27% of the barrels of oil equivalent from oil wells are from associated gas, in the Bakken this value is about 20% on average) and assume this income is used to offset $3/b of OPEX, then the breakeven oil price falls to $73/b for the average Eagle Ford well. These calculations have assumed OPEX is $3500/month and $12/b when natural gas sales are ignored and $9/b when we assume $3/b of natural gas sales offsets $3 of OPEX. OPEX includes “true OPEX” plus other overhead and financial costs. A similar calculation for the Bakken (with well cost $1 million higher) gives a breakeven oil price of $76/b for the average Bakken/TF well, so drilling in the Eagle Ford loses a little less money than the Bakken/Three Forks for the average well.

      As before I do not understand why new wells continue to be drilled at the current level of oil prices, it seems to be a money losing proposition. As far as I can tell the oil guys who comment here don’t understand it either. Maybe the Queen of Hearts knows. 🙂

  17. Greenbub says:

    Thanks for an excellent post, Ciaran.

    Slightly off topic, Libya:

    http://www.aljazeera.com/news/2016/01/isil-attack-libyan-oil-terminal-reported-160104125643862.html

  18. oldfarmermac says:

    The only function of economic forecasting is to make astrology look respectable. ~John Kenneth Galbraith

    Regardless of what one might think of Bob Dudley of BP, he is a not a fool by any measure. Here is something he said recently:

    “There are all too many people out there claiming that the low price of oil tells us that the global economy is stalling, even about to fall off a cliff. It’s even possible that this could be true: but a low oil price is not ineffably a signal of that. It’s the balance between supply and demand that produces that price, not demand itself. Thus a low price could be simply a symptom of an increase in supply, not a fall in demand. We cannot thus simply take a change in a price as an infallible indicator of anything at all: other than that the balance of supply and demand has changed.”

    This statement is ENTIRELY consistent with what I learned back in the dark ages in what my transcripts refer to as Agricultural Enonomics 201, 202, 203 although I took these classes in the company of economics majors, in the same classroom at the same hour, and it was taught by an econ professor.

    Supply or production can temporarily out run demand or consumption, if producers are successful in increasing their output significantly, especially if consumers are feeling strapped and cutting back on consumption.

    When this happens, the price of a commodity virtually always declines substantially, and in the case of a commodity such as oil, it crashes, because the demand for oil in the short term is “highly inelastic” which simply means consumers in the short term to medium term are going to buy about the same amount, regardless of the price. The consumer MUST have oil, but has little or no use for MORE oil than usual, and will buy only a little more even if the price declines sharply.

    A lifetime of experience selling commodities leaves any farmer thoroughly convinced of the truth of these words. Excess supply, or short supply, is the primary determining factor, short term, of the price of just about any commodity.

    Ten years of very high prices and strong demand encouraged producers to bring on enough new production to eventually outrun consumers desire for oil, with a weakening overall economy additionally contributing to the low price of course.

    There is more wisdom in this one paragraph than in all the hot air coming from business pundits all put together.

    There is nothing wrong with the theory of supply and demand, but it can be overridden by other factors. I will have more to say about this in a follow up comment, time grows short and this one must be closed out.

  19. Jef says:

    I remember back over at the Oil Drum 2004, 5,or 6 a few of us wrote about the fact that limits to growth or peak everything was showing its ugly head and tptb decided that it wouldn’t be much of a problem as long as everyone was rich. So they cut loose all finance/banking regulation (something that was already beginning anyway) and let capitalism/freemarket take over with the belief that everything will shake out in the end.

    Well Banking/finance has had their fun and many have gotten rich, richer, and stinking rich but nothing has gotten better, nothing was solved, in fact it is clear that pretty much everything has gotten even worse with unprecedented inequality added to the mix.

    This problem also spills over to the “renewable energy” contingent in that they believe like tptb that everything will be fine as long as everyone gets rich enough to afford the future only thats NOT what is happening.

    • Dennis Coyne says:

      Hi Jef,

      The renewable energy people think that as fossil fuel depletes, renewables will be less expensive than fossil fuels, energy will be needed and it will be expensive, but the cost of renewables will fall as they are ramped up. This is always the case with new technology.

      • SW says:

        In the ’80s we had a program called PVMat which was a small scale manufacturing initiative designed to determine the feasibility of putting a basket of different PV technologies into large scale production and what that would mean to market competitiveness. The conclusions were that there were at least five technologies that could be winners but that it would require the active involvement at the government level (or some very large economic entity) to build out the factories so that the economies of scale could be realized and the products could be offered at prices that made them come close to being competitive with legacy fuels.

        The Twenty years later the Chinese decided to do this. They chose polycrystalline Si, not because it was the best technology but because it was the best technological fit to their unique circumstances. It was old technology that didn’t require a sophisticated technological base but rather a large infrastructure and a lot of cheap manpower. The rest is history. But the results of PVMat are still correct and there are many other technologies waiting to be exploited. The only impediment is ideology.

        • Longtimber says:

          Poly Si is getting pretty good these days. 265 watt what used to be 225 watt in 2011. Better looking than Mono’s since they don’t have Diamonds between the cells. Appears like a piece of slate. 4-8 of these would power what you “need”. Lighting, Comm, TV’s, Water, Ceiling Fans, etc. Affordable power. Racking and Instulation will exceed panel cost. http://www.canadiansolar.com/solar-panels/cs6p-p.html

        • Glenn Stehle says:

          SW said:

          The only impediment is ideology.

          Right.

          If only there is enough political will, nature will be putty in our hands.

          It sounds like you’ve been reading too much Fichte.

      • Jef says:

        “This is always the case with new technology.”

        Correction that was how it WAS during a period of massive abundance, seemingly endless resources, cheap almost free energy, exponential growth, enormous surplus across the board, etc.

        None of which is true now.

        The myth that “renewables” will keep getting cheaper is completely without merit. The only reason anything get cheaper now is because few can afford it. It may very well become cheaper than oil but not in a good way haha figure that one out.

        • Jef says:

          A small case in point;

          “If Michael Lewis ever gets around to making a sequel to “The Big Short,” he should tell the story of how Fed Chairman Alan Greenspan, SEC Chairman Arthur Levitt, Senator Phil Gramm (R-TX), Treasury Secretary Lawrence Summers, and many others, conspired to attack and discredit Commodity Futures Trading Commission Chairman Brooksley Born in order to make the world safe for credit derivatives and the big banks that traffic in them. This badly misguided action by these senior government officials make the acts of greed and stupidity so beautifully portrayed in “The Big Short” pale by comparison.”

          http://www.zerohedge.com/news/2016-01-05/big-short-great-movie-but%E2%80%A6

        • Dennis Coyne says:

          Hi Jef,

          It was true whether energy prices were high or low.

          I have said it before and will repeat, relative costs are what matter. Two forms of energy, one costs $2/MMBTU the other costs $8/MMBTU, which would you choose to produce your electricity, assuming you don’t care about the environment. I will assume that you will use some amount of energy, it would be best for the planet if you minimize this, but zero is hard to accomplish unless you are a corpse.

          Do you under stand now what relative cost is? In the future wind and solar will have a lower price than fossil fuel (they will be $2/ MMBTU relative to $8/MMBTU), the only way this will not be the case is if fossil fuels never peak.

          Perhaps you think there will be a fast crash for some other reason than a peak in energy resources. Or perhaps you envision a fast peak and decline with a quick peak in prices that causes a permanent recession forever? I just don’t see the scenario you are painting Jef, but you don’t see what I am saying either.

          There is not likely to be a sharkfin decline when the peak is reached, the decline will be gradual and prices will gradually rise. There is no scenario that makes sense where all resources suddenly become scarce, it is just not statistically likely. What is the event you foresee that makes things change so drastically, financial crisis, World War 3, an asteroid strike? I just don’t get it.

      • Javier says:

        Dennis,

        as fossil fuel depletes, renewables will be less expensive than fossil fuels, … the cost of renewables will fall as they are ramped up.

        This is a bad prediction based on a past with increasing available energy and resources within a growing economy.

        As fossil fuel depletes, renewables will become less affordable, because the economy will be worse and/or because the increased cost of fossil fuels will spread over as an input cost to the cost of renewables. As a result new renewables will be deployed only for critical functions while the common people will have less and less access to technological energy and will become more dependent on biomass energy.

        • Dennis Coyne says:

          Hi Javier,

          The energy input costs are not likely to be a problem. It is the relative costs of different forms of energy that matters. As fossil fuel prices increase the input costs will increase, making everything produced more expensive.

          The point is that renewables become more competitive as their relative cost falls.
          As the technology improves and the output scales up costs will fall (like HD TVs, laptops, smartphones, and more examples than I can list) and as fossil fuels become more expensive the relative cost of renewables will fall by more than any increase in production costs due to higher energy prices.

          So you are mistaken, it is a very good prediction. On the economy becoming worse, the ramp up in production of renewables will create jobs producing and installing the equipment which will have a positive effect on the economy. In addition higher energy prices will increase demand for refitting buildings with better insulation, better air sealing, better doors and windows, more efficient appliances, all of these things create jobs and improve the economy.

          There may be some disruption to the economy and at some point when people realize that peak oil has arrived the economy may become depressed, but it is unlikely to be permanent as long as the World response is not similar to the European response to the GFC. A focus on fiscal austerity in the face of an economic crisis due to a lack of aggregate demand is poor economic policy.

          I think one thing we can agree on is that we are both likely to be wrong about what the future will look like. My prediction probably is no better than yours, however renewable energy costs have been decreasing, even during times of high energy prices, and eventually oil prices will go back to $100/b and natural gas and coal prices will eventually rise as well, maybe around 2025 to 2030. New wind power is already competitive with coal and natural gas, in 10 years or so solar may get to that point as well.

          • Jef says:

            “The energy input costs are not likely to be a problem.”

            WoW!! The ease in which you dismiss THE most important element in the discussion of “renewables” is awsome. The rest of your comment is whereby negated.

            • Dennis Coyne says:

              Hi Jef,

              Less than 5% of World GDP is spent on oil, other fossil fuels are cheaper but even if we assumed they were the same price as oil Energy would be no more than 15% of World GDP. Much of the energy input into producing Wind and Solar is electrical energy, some of which comes from non-fossil fuel sources.

              When oil prices were high from 2011 to 2013 do you remember the high inflation? Neither do I, it was very tame and had very little effect on costs.

              The reason it will not be a problem is that even if renewables increase in cost a little due to higher fossil fuel prices they will not increase in price by as much as fossil fuels. There will still be innovation and economies of scale bringing down the price of wind and solar power.

              The rest of the comment explains why the input costs will not be a problem. It is pretty simple as long as there are other inputs besides energy into the product, the cost to produce the product will increase less than the cost of energy increases.

              In 2008 energy prices of fossil fuels went up an average of 55% from the 2007 level. World inflation was 6.4% in 2008, not all of the rise in energy prices feeds through to product prices, from 2010 to 2014 World inflation was between 3.4 and 5.2%, using IMF data for average consumer prices for the World.

              This is why I think the higher energy prices will not be a problem, as the price of fossil fuel gradually rises, more and more wind and solar power capacity will be installed, as this happens the price of wind and solar power will continue to fall making it even more cost competitive in a positive feedback loop.
              Eventually most fossil fuel energy will be replaced, except possibly for air travel and on the farm (for tractors and fertilizers). Eventually we will need to recycle sewage for fertilizer inputs, but we are a long way from that point (probably 50 to 100 years depending on population and the speed of the transition to renewable energy (I expect we can get to replacing half of current fossil fuel use by 2070 and 90% by 2100).

              • SW says:

                There is no reason not to locate massive PV plants in the shadow of our aging Hydro infrastructure in the Southwest in particular, and then deploying the resultant output in the same area to take advantage of the huge unharvested resource that is the direct insolation in the desert Southwest. No real impediment but ideology. I am not sure what the price of oil has to do with this sort of activity except for making it increasingly more attractive.

            • Cracker says:

              Jef and Dennis,

              Jef,

              That is a common version of denial, conveniently ignoring critical facts. The cost of energy inputs is critical to cost-affordable alternatives, or any system, for that matter.

              Without cheap energy to drive the system, very little is affordable to transition to something else. We must have huge extra gains from cheap energy if we are to keep BAU going.

              I haven’t seen anything that looks anywhere near cheap enough to do the trick, and I can’t see the current contenders getting there either.

              Sarcasm. We don’t need no stinking cheap energy, we’ll just borrow money to buy expensive alternatives we can’t afford, and insist that we will find a way, and we won’t have to give anything up to do it. Sarcasm off.

              You are correct. The cost of energy inputs to any system are critical.

              Dennis,

              I greatly value your comments, but this disconnect is astounding, and it does negate any credibility from this comment.

              Sorry Dennis, but you need to rethink this one. There is no free lunch when it comes to energy inputs to systems. And efficiency improvements are no magic bullet. The gross energy “profit” or excess beyond minimum system requirements is the key metric. It better be huge to allow the future you depict.

              Think about all the excesses beyond minimum requirements allowed by cheap oil (retirement plans, health care, education, agriculture, happy motoring, happy aviation, urban infrastructure, and modern society in total) and figure out how to continue with much more expensive energy, and smaller energy inputs into the system. If you do a thorough analysis, you will find that you have to do without some things, and you will be able to serve fewer people. Energy input cost matters a lot.

              Jim

              • Dennis Coyne says:

                Hi Jim (aka cracker),

                First I did not say that energy costs do not matter, I agree that they do. The point is we will need energy, possibly you agree.

                If there is energy type A which is less expensive and energy type B which is more expensive than type A, society will choose A. Type B is increasing in cost, and type A is decreasing in cost. Currently A is more expensive than B, in the future the reverse will be true.

                That is my argument. Some argue that as B increases in price, A will be more expensive than if the price of B had not changed, I agree. However the increase in the price of B will remain greater than any resulting increase in the price of A so the relative price of A to B will still fall.

          • Javier says:

            Hi Dennis,

            You are wrong because you are trapped inside a growing economy mind box. What you say “might” only be true if the global economy keeps growing.

            But your Before Peak Oil (BPO) examples are worthless as we are now in the APO era for which we are globally unprepared because we chose to ignore it. In APO renewable energy that can only compete with expensive fossil fuel cannot be deployed globally in sufficient amounts to compensate for the declining oil for transportation (plus 1,4% yearly increase that the economy requires, every year). Nor can expensive EVs (for average global car price) replace enough world cars every year.

            At that point the global economy goes into reverse mode. We get long periods of declining output interrupted by short periods of partial recovery. As a result massive amounts of people globally get laid off and they cannot afford anything. Fiscal stimulus becomes impossible because governments see their tax base very reduced, and lending becomes a thing of the past because lenders see that they don’t get their money back. Fiscal repression becomes the only choice for governments. They can destroy the money to erase the debts, but the economy will not restart afterwards due to the lack of cheap energy (low ERoEI) and all the rest of the peaks coming home to roost.

            People don’t need to know that PO has arrived to feel the pain. They might not even realize that it is all due to PO. If you care to look you can already see some early signs that it is already happening, but you probably won’t realize either that it is due to PO. Global trade is the first casualty. The sorry state of global trade is very worrisome. Since 2011 global trade has shown an anemic growth, but in 2015 it simply hasn’t grown at all, and it has shown several months of decrease outside of a recession for the first time in decades, unless we are in a recession, of course.

            And trade is showing this reduction despite low oil prices that make transportation of goods cheaper, and crashed prices for shipments as the Baltic Dry Index shows. So it is cheaper to trade globally, yet global trade is not growing.

            One of the predictions of APO is that we should also see a peak in global trade not much later, that anticipates the end of growth and the beginning of a reduction in globalisation. Renewable energy will not prevent all that.

            • Dennis Coyne says:

              Hi Javier,

              First, we may not be at peak oil yet, although peak oil per capita happened 35 years ago, with little effect. You assume the economy will not be able to adjust to slower growth, I think that is a bad assumption. As energy becomes more expensive there will be a gradual shift to other sources of energy along with more efficient use of energy. As always neither of us knows what the future will bring, though I do agree the transition will be very difficult, I do not think fossil fuel output will decline as quickly as you do, nor do I believe the transition will destroy economic activity it may create new opportunities, retrofitting homes and buildings to make them more energy efficient, designing new products to use energy more efficiently, building fuel efficient transportation to replace the existing wasteful system, installing an HVDC grid, wind turbines, solar panels, and the manufacture of that wind and solar. There may indeed be a severe recession in response to peak oil around 2030 (once the 2025 peak is finally apparent to most people), but it is doubtful that it will be permanent.

              • Glenn Stehle says:

                Dennis Coyne said:

                ….peak oil per capita happened 35 years ago, with little effect.

                Well I suppose if one is in the “debt doesn’t matter” camp along with Krugman and Cheney, one might come to that conclusion.

                • Dennis Coyne says:

                  The two might be related, though I think there are likely to be many reasons for increased debt, such as changes in Banking regulations in the US in the eighties, which led to excessive and poorly regulated mortgage lending. Not sure about Europe but perhaps they relaxed their regulations as well, since 1980 it has been all about free markets and rational expectations in much of mainstream economics, perhaps that is a more likely explanation for excessive debt.

                  Debt is less of a problem when it is properly regulated, this is the price banks should pay for FDIC insurance, without which there would be no banking system (or it would be far smaller).

            • Dennis Coyne says:

              Hi Javier,

              APO on a per capita basis started in 1979. I used my medium Oil shock model estimate out to 2040 and the UN low fertility scenario for population to estimate future oil output (C+C) per capita, it remains fairly level until 2033 or so.

              • AlexS says:

                Dennis,

                Peak oil on a per capita basis was demand-driven

                • Dennis Coyne says:

                  Hi AlexS,

                  It is always a matter of both supply and demand, you cannot have one without the other, not in the long run.

                  • AlexS says:

                    Dennis,
                    With 10-12 mb/d of OPEC spare capacity (about 20% of global demand) in mid-1980s, falling per capita consumption was mainly driven by oil substitution by nat. gas and other energy sources in power generation, more fuel-efficient cars, and shift in global GDP structure towards services and less energy-intensive industries.

                  • Dennis Coyne says:

                    Hi AlexS,

                    A lot of that spare capacity could not be accessed during the Iran Iraq war, the surplus capacity numbers for OPEC have always been pretty inflated, usually about 2 to 3 MMb/d higher than reality.

                    Yes there was substitution over time to coal and natural gas as well as to more efficient vehicles while oil prices were high.

                    In the future there will need to be substitution to wind, solar, and nuclear power as all fossil fuel prices rise and more efficient use of energy as all energy costs will rise. For liquid fuels there will be more efficient use of energy in transportation as hybrids, plug-in hybrids, and EVs penetrate the market when oil prices return above $100/b (2015$) in 2019. It will not be easy, but the decline in fossil fuel output may not be as rapid as some seem to believe, so it is certainly not impossible, I think the odds are 2:1 in favor of a successful transition (no Mad Max scenario).

                  • AlexS says:

                    Dennis,
                    Between 1979 and 1985, OPEC oil production declined by 14.1 mb/d. Excluding Iran and Iraq, the decline was 11.1 mb/d (I am not sure that total decline in these two countries’ production was due to destroyed capacity).
                    The first half of the 1980-s was a period of the most significant decline in both per capita demand and energy intensity of GDP.

                  • Dennis Coyne says:

                    Hi AlexS,

                    There was also a significant increase in non-OPEC production and slow growth due to the disruption caused by oil price volatility. A shortage of oil due to the Iran Iraq War drove oil prices up, then World growth slowed and there was a great deal of substitution and a push towards more fuel efficient vehicles which reduced the oil consumed per unit of GDP. Keep in mind it is the supply relative to demand that will affect oil prices. Whenever oil prices are very low, supply has grown faster than demand.

                    In any case the drop in oil per capita I see as being driven by a drop in supply due to the Iran Iraq war, this drove prices to historic high levels (at that point in time) which then forced demand lower, it also resulted in excess supply being developed World wide which kept prices low from the mid 80s to 2003 (with a blip due the first Iraq/US war.)

                    C+C output per capita has been remarkably stable from 1982 to 2015 with a very slightly decreasing trend.

                    Chart with 1982-2015 trend below

                  • AlexS says:

                    Yes, Dennis,
                    the mega-trends in the oil market in the 1980-s were a result of two oil price shocks of 1973/74 and 1979/80. These shocks were supply-shocks. And they were enabled by 1) a very strong global demand growth in 1960-73 and 2) a declining trend in US oil production started in 1970.
                    In that sense, I agree that demand-side and supply-side factors are interrelated.

                    What I wanted to say: the sharp decline in demand in the first half of the 1980-s took place when there was a significant oversupply in the market.

                  • Dennis Coyne says:

                    Hi AlexS,

                    I disagree that there was an oversupply in the market when the oil prices were high. In 1980 and 1981 the real oil price was about $100/b (2015$), in 1976 the real oil price was about $60/b (2015$). Demand dropped in response to high oil prices which were caused by a shortage of oil. Gradually oil supplies increased (in response to high oil prices) eventually causing an oversupply by 1986, when the Saudis tried to take back market share and real oil prices dropped to $30/b.

                    The demand response you speak of was in response to oil prices which changed by larger than normal primarily due to supply shocks in 73/4 and 80/81.

                    Possibly you believe that the LTO boom was a reverse shock of sorts where an unexpected increase in output occurred due to high prices. I think that the LTO boom is similar to increased non-OPEC output from 82 to 85 in response to the 2 price shocks in the 70s and early 80s.

                    Or maybe we agree and are expressing it differently.

                  • AlexS says:

                    Dennis,
                    the oversupply started to emerge in 1981.
                    It was masked by OPEC output cuts and rapidly increasing OPEC spare capacity.
                    But this did not prevent the decline in oil prices.
                    The decline in demand in the 1980-s was triggered by high oil prices, which were a result of supply shocks. But demand really started to decline when supply was already exceeding demand and oil prices were falling.
                    There was a usual time lag between changes in prices and changes in demand and supply.

                • Dennis Coyne says:

                  Hi AlexS,

                  In my view peak oil is not just a supply story it is about supply and demand at the market price.

                  So whether one claims the peak was due to demand or supply doesn’t matter. The peak in per capita output was 1979, it fell sharply from 1980 to 1982 as oil prices were very high (by a factor of 10 over levels 10 years earlier in 1970) and then stabilized from 1982 to 2015 (with a 0.65%/year decreasing trend). This was not the end of the world, though perhaps in the early 80s it seemed so. World real GDP per capita has increased by 57% from 1980 to 2014 or 1.34% per year on average.

              • Javier says:

                Dennis,

                Do you ever do a follow up of your models to see how they have performed after a few years? How did your pre-2008 models do afterwards? How after 2010? How after 2014?

                Your models are essentially worthless because they are an exercise in extrapolation, and we are getting disruptions every few years. Surprisingly you seem to not have learned that.

                I can already tell you that that graph is going to be wrong before getting to 2020, since population is still going up, and oil is going down from mid-2015 until we don’t know when. So two diverging tendencies will converge in making that graph wrong almost after the last point of data you put there.

                And you are going to be equally wrong in most of your predictions. That’s too bad because I like them better than mine.

                • Nick G says:

                  Do you ever do a follow up of your models to see how they have performed after a few years? How did your pre-2008 models do afterwards?

                  You might want to take a look at the many models presented at the Oil Drum blog, over 2005-2013.

                  You’ll find that that they were uniformly much too pessimistic.

                  • Javier says:

                    Of course, and models made between 2011 and 2014 were uniformly much too optimistic.

                    When one engages in extrapolation the only assured outcome is failure.

                  • Dennis Coyne says:

                    Hi Javier,

                    My 2012 model was too pessimistic. The models are not simple exptrapolation, they are based on reasonable estimates of C+C URR and continued increase in extraction rates that have been occurring from 2009 to 2014. You think my scenarios are too optimistic (and most here agree with you), others such as AlexS think my scenarios are too pessimistic and favor the EIA scenarios (AEO 2015) with 99 Mb/d of output in 2040, possibly Fernando agrees with this (I am not sure). In any case the fact that some smart people (you Ron, Doug, and many others think I am too optimistic) and other smart people (AlexS and maybe Fernando) think I am too pessimistic may mean the scenario is about right (the future will answer this). In the past I have tended to be too pessimistic, but perhaps this will change.

                  • Nick G says:

                    models made between 2011 and 2014 were uniformly much too optimistic.

                    I think that’s incorrect for The Oil Drum, this blog, and other PO sites. For example:

                    Ron Patterson September 27, 2012
                    “I am picking peak. Peak oil is already in the rear view mirror and the decline has already started.”

                    http://www.theoildrum.com/node/9495#comment-920822

                    I’d be curious to see examples of PO forecasts made between 2011 and 2014 that have proved to be too optimistic, based on actual production to this time – especially from The Oil Drum, this blog, and other PO sites. What have you seen??

                  • Javier says:

                    Nick G,

                    I wasn’t talking about Peak Oil models, those by definition are always pessimistic. I was talking about those models that extrapolated shale oil into US energy independence and replacing Saudi Arabia.

                    “The U.S. Energy Information Agency says U.S. oil imports will drop 20% by 2025. Oil giant BP projects the U.S. will get 94% of its energy domestically by 2030.”
                    U.S. energy independence is no longer just a pipe dream

                  • Nick G says:

                    I wasn’t talking about Peak Oil models, those by definition are always pessimistic.

                    Well, you might want to say that to Dennis. The things you’ve been saying would suggest you think the opposite.

                    “The U.S. Energy Information Agency says U.S. oil imports will drop 20% by 2025.

                    And, they did, only much faster than that. I don’t see much in that article that didn’t happen exactly as predicted.

                    Now, they didn’t predict the current over-supply and collapse in prices, which is bringing the expansion of LTO to an end, but that’s quite a different problem: the industry is a victim of it’s own success.

                • Dennis Coyne says:

                  Hi Javier,

                  Oil output will increase in the scenario until 2030 and peak at 83 Mb/d, chart below.

                  • Dennis Coyne says:

                    Note that the EIA expects C+C output will be 99 Mb/d in 2040 and that WTI will be $136/b in 2013$ in 2040. I expect oil prices will be higher ($175/b) and that C+C output will be 75 Mb/d in 2040 if extraction rates remain under 10.5% of proved producing reserves.

                    Also the EIA’s AEO 2015 has World C+C reaching 83 Mb/d in 2023 and 90 Mb/d in 2031, my scenario peaks at 83 Mb/d in 2031.

                • Dennis Coyne says:

                  Hi Javier,

                  I started doing these models in late 2011 and first published them in 2012, a few early attempts used discovery data that was not backdated so extraction rates were too high, those models should be ignored (the first two posts at my blog.)

                  The first decent model is at the link below:

                  http://oilpeakclimate.blogspot.com/2012/08/i-noticed-that-compared-to-model-by.html

                  This post was from August 2012 and used a very conservative URR of 2800 Gb (at the time this was my “high” scenario), currently my scenarios range from a URR of 3100 Gb to 3700 Gb, with my best guess at 3400 Gb. Fernando Leanme has suggested that this “medium URR” seems reasonable and has said that oil prices of $200/b could bring on supply of 100 Mb/d. All of these scenarios are the URR for C+C and do not include NGL or other liquids, Fernando’s 100 Mb/d may be all liquids, I doubt we will ever reach 100 Mb/d of C+C at any oil price.

                  For 2015 C+C output will likely be about 79.5 Mb/d (29,000 Mb per year), my 2012 scenarios are mostly below this except for a scenario that tried to match the 2012 BP outlook which peaks in 2035 at about today’s output level. All scenarios have C+C at 28 Gb/ year(76.7 Mb/d) or less in 2015, so the scenarios are too pessimistic relative to actual output in 2015.

                  • AlexS says:

                    “Fernando’s 100 Mb/d may be all liquids, I doubt we will ever reach 100 Mb/d of C+C at any oil price.”

                    Definitely. Nobody, incl. the IEA, EIA and OPEC expects C+C to reach 100 mb/d

                  • Dennis Coyne says:

                    Hi AlexS,

                    Well the EIA AEO 2015 forecasts World C+C at 99 Mb/d in 2040 which in the past you said was reasonable, I guess that extra 1 Mb/d is just too much. 🙂

                  • AlexS says:

                    Sorry, I though you did mean conventional C+C.
                    Their 99 mb/d in 2040 include 10.15 mb/d of LTO and 4.26 of oil sands

                  • Dennis Coyne says:

                    Hi AlexS,

                    Yes my “C+C” scenarios always include all C+C (including LTO and oil sands).

                    So I am correct that you think 99 Mb/d of C+C (all types) in 2040 is reasonable?

                    That would imply that my “medium scenario” (the one that peaks at 83 Mb/d in 2030) would seem too pessimistic to you. Am I understanding you correctly?

                • Dennis Coyne says:

                  Hi Javier,

                  Below is a scenario with lower extraction rates not rising above the 1979 extraction rate of 8.7% of proved producing reserves. It is consistent with Ron’s prediction of a 2015 peak.

                  The question is if we don’t assume there must be a severe recession shortly after the peak and that the World economy can continue to grow slowly on a plateau of C+C output (as was the case from 2004 to 2008), why can’t the extraction rate rise above 8.7%?

                  Note that in 2008 the US extraction rate from proved producing reserves was 13.3% based on EIA data. I think the scenario presented below is too pessimistic, do you think it is too optimistic?

                  It would also be interesting to hear Enno, AlexS, Ron, Doug, Fernando, Shallow sand, and MBP’s opinions. Too optimistic, pessimistic, about right, or (best answer) don’t know or care?

                  • Dennis, I believe you put far too much emphasis on reserves. Even if you are right about all those massive reserves, I hope you have figured out that all reserves are not equal. Most already produced reserves were in large giant, or super giant fields, and most of the rest were in shallow offshore fields.

                    It is a different story today. The lions share of remaining reserves are in deep water, or tight reservoirs, or in very small fields. Future production will be much harder and more expensive to produce and what is produced will decline much faster.

                    Your chart is overly optimistic.

                  • Dennis Coyne says:

                    Thank you Ron.

                    Yes it is true that not all reserves are equal, the oil sands reserves will not decline very rapidly and yes the oil will be more expensive to produce. If the oil becomes expensive enough less of it will be produced as substitutes for oil become more competitive, a lot less will be used for personal transportation as oil prices rise and alternatives and greater fuel efficiency will reduce demand. The more expensive reserves may never be produced, it is hard to say. What about the following lower URR scenario of 3100 Gb (including 600 Gb of oil sands). Also too optimistic? I think it uses too low a URR based on Hubbert Linearization which tends to underestimate URR.

                  • Javier says:

                    I estimate the chances of a severe recession in the 2016-2020 period at >90%. I don’t think it is a question of if, but a question of when.

                    Population is going to continue growing for decades unless we suffer an economic collapse, which I don’t expect before 2030.

                    Oil production however is not likely to grow above 2015 peak due to weak economic conditions and weak demand. The good old days are unlikely to return to shale oil. It should become a more mature industry stabilized on a lower production level. After all shale oil has been mined in Estonia since 1916.

                    Your models are based on reserves, and reserves are going to become irrelevant. Most of the remaining oil is going to stay right where it is. Our economy is not going to be able to pay for its extraction in big quantities. Most of our economic activities cannot produce enough profit to justify the expense.

                  • Dennis Coyne says:

                    Hi Javier,

                    I usually don’t assume what I am trying to prove. Why is economic recession so likely?

                    Hint, don’t assume it is because of lack of energy because the lack of energy is due to your assumption of economic recession.

                    Also note that if we define a severe recession as negative economic growth over a one year period so that real GDP is lower than 12 months (or 4 quarters) ago. This has happened 2 times in the past 115 years. A minor recession is possible, these happen much more frequently, but not usually at the World level.

                    World real GDP growth might be slower than the 2.5 to 3% level predicted by the IMF, but it is doubtful (less than a 1/3 chance) it will be negative before 2030.

                    If oil supplies are not plentiful then oil prices will rise. You seem to think low oil prices are due to slow growth, 2015 was not a great year (growth was 2.4% for the World) and the World bank has reduced its 2016 forecast to 2.9% (just 2 days ago) due to expected slowdowns in China, Brazil, and Russia. With low oil prices and continued World economic growth (note 2016 will be better than 2015) demand for oil will increase while supply will decrease (due to low oil prices and lack of investment).

                    You may believe the low oil prices will continue, they will not, by 2017 (at the latest) oil prices will rise, this will help Brazil and Russia to recover. China should let their currency float on the world market and stop trying to peq the US dollar.

                • Dennis Coyne says:

                  Hi Javier,

                  All forecasts are usually wrong, so that is not surprising, This scenario assumes the UN low fertility projection will be correct (it might be too low) and that my World C+C output scenario will also be correct (not very likely). My best guess is that the UN’s low fertility scenario will be close, and that after a small drop (500 kb/d) in World output in 2016, that World output will surpass the 2015 peak by 2020 and slowly rise to 80 Mb/d by 2021, to 82 Mb/d by 2025 and peak at 82.6 Mb/d in 2030, this scenario may be a little on the optimistic side, but it is well below the EIA reference scenario from AEO 2015. The scenario has roughly flat output from 2025 to 2033 (between 81.7 and 82.6 Mb/d) so the peak is likely to be in the middle of this range (2029 or 2030).

                  We will see in the future how good my guesses are, my medium scenarios in the past have been too pessimistic.

  20. shallow sand says:

    Some anecdotal on a couple of Bone Spring wells in the Permian operated by Apache:

    Well 1.

    Completion intervals 7600′ – 11700′ (rounded)

    10/14-9/15 cumulative oil 60,504, cumulative gas 150,897, average monthly LOE $31,949.00.

    Well 2.

    Completion intervals 7600′-11700′ (rounded)

    2/15-9/15 cumulative oil 25,613, cumulative gas 47,048, average monthly LOE $11,422.00

    These two wells have a royalty burden of 25%, which I understand is not uncommon in the Permian Basin. What is a ballpark of drilling and completion costs for wells such as these?

    • shallow sand says:

      My comment editor is not working, but I might add 9/15 daily production averages:

      Well 1 = 90 BOPD, 280 MCFPD.
      Well 2 = 42 BOPD, 117 MCFPD.

      Again, encourage comment on whether these are inferior, and an estimate of what they may have cost.

      At current prices, based on the LOE history, the two wells are generating roughly $70,000 per month, based on my estimates. Not good if they cost $3-4 million each to drill and complete.

    • MBP says:

      Look into XTO, Oxy, and Cimerax wells. From what I’ve seen their Bone Spring (if they are 2nd Bone) wells have been preforming pretty good.

      • Watcher says:

        Suggest a non constant company policy on choking can render analysis of superiority of technique or geology invalid. Later policy of opening choke to provide persuasive numbers to lenders could be in play more than profit perspective, long term or otherwise.

  21. Toolpush says:

    http://www.downstreamtoday.com/news/article.aspx?a_id=50513

    Interesting article on some of the regulatory issue that confront driverless cars.In the short term at least.

    What Do a Wheel and a License Have in Common?

    The answer to the question above is: they are the hurdles being put in place that will hamper the development of autonomous driving vehicles.

    In particular, they are hurdles being put in place by the California Department of Motor Vehicles that will dictate how it will be granting permits for driverless vehicles and licensing their owners. At the moment, the rules are preliminary and are subject to public comment at two planned meetings with the first scheduled for late January 2016 and the second in February.

    But my main question lies in the quote below and further down the article.

    Given that the average age of the U.S. vehicle fleet is nearly 11.5 years

    We see this statement very often, but surely it should read the age of cars scraped in the US is 11.5 years old?
    The first statement, indicates an average scraping age of much greater than 20 years, especially as many cars are scraped during their early years, due to crash right offs. This would mean there would be many late 1980’s -early 1990’s car on the road. Though I did see a few cars of this era, there were not many.
    Any opinions?

    • Fred Magyar says:

      The arguments against driverless cars are purely knee jerk reactions by ignorant luddites who don’t understand the technology! Well, there are of course enormous vested interests behind the fight against them but I doubt they will win. AS an example the Uber model has been fought everywhere on the planet yet they still won and they are one of the biggest proponents of driverless vehicles for obvious reasons!

      Case in point GM and Lfyt just entered into a partnership:
      http://www.reuters.com/article/us-gm-lyft-investment-idUSKBN0UI1A820160105

      From the article linked by Toolpush:
      According to a study by the University of Michigan’s Transportation Research Institute in Ann Arbor, Michigan, the accident rate for driverless cars is twice as high as that for regular cars; however, they have never been at fault. The problem is cars driven by humans that fail to religiously obey the rules of the road and highway speeds, although there have been situations where the autonomous vehicle had trouble knowing exactly what to do. Because California law requires driverless car accidents to be reported, we know more about Google vehicle accidents than any other test cars. The data show that Google cars have been involved in 17 minor crashes in 2 million miles of autonomous driving.

      But way way way more disruptive than driverless cars are driverless trucks which are even safer, certainly safer than human drivers by a couple of orders of magnitude.

      https://medium.com/basic-income/self-driving-trucks-are-going-to-hit-us-like-a-human-driven-truck-b8507d9c5961#.7viik98s7

      Self-Driving Trucks Are Going to Hit Us Like a Human-Driven Truck

      My money is on a much more rapid implementation of driverless technologies in transport services than what most people believe is possible. The vast majority of people don’t have a clue as to what is already out there.

      • Toolpush says:

        Fred,

        I am not denying that driverless are going to have a large impact on the way people get around, as many people don’t like to drive, and people with long commutes would prefer to use their commute for other purposes. I do take issue with some of the consistent grander claims. The main one being, car sharing will lower the number of cars. I agree with this. But then they say, it will lower the number of cars on the road. This is where I disagree. I see it will lower the number of cars in the car parks, but as cars relocate for the net fare or return to the family home, there will actually be more cars on the road, doing more total miles than the greater number of human driven cars they have replaced!

        PS Any comment on the average of the US car fleet?

        • Dennis Coyne says:

          Hi Toolpush,

          I think you are missing something on AVs. The car will not return home, it will park somewhere near work and recharge. The fleet moves to the city and parks and then returns to the suburbs in the evening. Some of the fleet can be used as taxis within the city during the work day. It is not clear that cars would return home unless energy becomes very cheap.

          The fewer cars argument is that many households may find it cheaper to hire a taxi service for the commute to work and own a single car for vacations and errands, or it may be cheaper to simply not own any car at all.

          If that becomes the norm there will be fewer cars needed as most cars sit idle most of the time. It may also reduce car travel because people will be paying for each trip and will plan their trips more efficiently, possibly there will be more ride sharing which will reduce costs for passengers and cut down on vehicle miles travelled.

        • Fred Magyar says:

          But then they say, it will lower the number of cars on the road. This is where I disagree.

          I don’t have the links handy but I have read some cogent arguments supporting that statement. In any case since what is at stake is the number of privately owned vehicles which should drop significantly if transportation service models such as Uber, Luft, and Zip Car continue on their current paths and that’s even without driverless technologies.

          But if I understand the technology correctly what will happen is that traffic will flow much more efficiently with less congestion once the majority of the vehicles on roads are all using driverless technologies especially due to sensors used to space all the vehicles with regards each other and without the interference of human errors.

          • Toolpush says:

            Dennis/Fred,

            I may have a pretty simple model in my mind. If we assume the number of trips stays the same, then we either have the same number of cars as we have today, with the AV parked near its owner, taking the same parking space as today, but connected to the power for recharge. Or we have fewer cars serving multiple passengers during the day. These cars will do all the same miles as today’s fleet plus relocation miles between fares. As these cars will be serving more than one passenger, they will not need the same parking capacity as what is currently required, but trade this advantage for the relocation miles.
            So with the same number of trips, less cars require more miles per car. You can’t get around the relocation mile!
            Of course everything I have seen, states “car sharing”. Which to me means one passenger or party of passengers per car. Now if someone mentioned “ride share” then that would be a different calculation altogether!

            • Dennis Coyne says:

              Hi Toolpush,

              If the AV is replacing a taxi or Uber type service that is already occurring, then these “relocation miles” already exist in the system.

              Consider the following. I drive to the mall, shop and drive home, let’s say its 10 miles round trip, in my own car.

              In the future I might call for a ride using Uber (using AV at this future time). The Uber vehicle may be right near my home (especially in the future when everyone is doing this), maybe half a mile away. It takes me to the mall, I shop, call Uber again and they are dropping somebody else off when I need my ride home. The Uber vehicle drops me at home and picks up someone else nearby for the next ride.

              The net effect is a very slight increase in travel as the cars move from one customer to the next, but as I said before, when you pay by use the travel will be done more efficiently. Also to save on cost people will have the option for several pickups/dropoffs on route to and from the mall, which will reduce convenience, but will reduce the cost of the trip as well. Overall I would expect a net reduction in road use as a result. Basically the new paradigm will affect the amount of travel people choose. Your thinking seems to ignore this possibility. It won’t be the same, it will be different. The key difference is you assume the miles of travel will be the same as before plus relocation, I assume there will be less travel than before because now one pays by the trip, and this more than offsets the “relocation”, which I expect would be small. Also just as someone can share a taxi, they can share an Uber fare as well, it will be a matter of convenience versus cost for the traveler.

              • Toolpush says:

                Dennis,

                For the taxi/uber fare, it is hard to see why the AV would act too much differently from the current taxi business, and that is the taxi takes a fare from the central point, railway station/mall etc, to the residential house. The most likely place for the taxi to get their next fare, is the central point. So the taxi returns to the railway/mall. If a call come in for a house to mall ride, a taxi usually leaves the central point and goes and pick them up. Some times the taxi is lucky and they can get a ride close by. But normally they don’t.
                The other point is most people travel in a tidal flow. If you watch peak rail/subways, you will see full trains running into town,and empty ones running out of town. If car sharing is to be used, the same will happen with the AVs, unless everyone has their own car, but that defeats the point of car sharing.
                Ride sharing will create many savings, but I have yet to read an article that mentions “ride share”. it has always been “car share”.

                One other point, decentralized cities like LA, things may work differently than say New York. I have no idea what Silicon valley looks like, but the layout of Silicon Valley may framed the thinking of the AV designers.

                • Dennis Coyne says:

                  Hi Toolpush,

                  Uber is different from a taxi, the driver can just sit at the most likely spot or stay where they are after drop off. With the smart phone app the drivers may have information on the best place to wait based on previous calls. The more it is used, the less “relocation”.

                  On the tidal movement. The AVs go to the city stay there, park and charge, drive around for fares if needed in the city and then return to the suburbs at the end of the day. A few might need to return to suburbs to handle errands during the day, but this demand is low so just a few cars would be needed. The ride sharing is pretty easy to implement and would reduce costs for those willing to use it, seems like a no brainer, surprised it is not part of the literature.

                  • Ves says:

                    “The AVs go to the city stay there, park and charge,”

                    It costs a lot of money to just park in the city. Who is paying for parking for the whole day, customer or Uber? 🙂

                  • thrig says:

                    Park in the city? A waste of real estate that could see much more productive use (uses that might even generate some tax revenue, build wealth and not yet more parking craters…crazy talk, I know).

                    http://www.strongtowns.org/journal/2015/11/22/my-car-pays-cheaper-rent-than-me

                    Perhaps with the repeal of silly parking minimums and the implementation of such outlandishly communist thinking as to charge market rates for parking on that valuable urban land, well, that would doubtless make the docile art of sitting in cars somewhat less viable. Uber?

                    http://prospect.org/article/road-nowhere-3

                    Medieval taxi company replaces medieval taxi company, only now with the high cost of a smartphone and some unicorns prattling on about “disruption” (the Klingon kind, from the looks of things). Eh.

                  • Dennis Coyne says:

                    Hi Ves and Thrig,

                    The cars that drive to the city at present park somewhere, this would be a business, the company would decide what is cheapest, park in city or in parking lot just outside city. This would depend on parking costs and the cost of the trip to remote parking.
                    Parking cost is covered by transport company and passed on in fees to customer, just like any business.

                    Come on guys, this is simple stuff. Whether customers decide to own their AV or hire a service will depend on prices (of car, insurance, registration, parking, tolls, etc, vs the price of the transport service.
                    Some may choose to own so they can travel for leisure, others may choose the transport service and choose to share their ride to work to reduce transportation costs.

                    The first step will be for the AV to become a reality, probably this is 10 years away for high end consumers. Then the market will sort it out.

              • Ves says:

                ” It takes me to the mall, I shop, call Uber again and they are dropping somebody else off when I need my ride home. The Uber vehicle drops me at home and picks up someone else nearby for the next ride.”

                Hi Dennis,
                Could you explain how Uber works when 10 million employees in LA each morning have to leave for work at 8:00 am in order to be at their desk sharp, at 9:00 am ? 🙂 Who gets a priority in the Uber pickup line? 🙂

                Solution is already available and it is public transportation 🙂

                Anyway, I was 2 weeks on sabbatical so I am out of the loop on oil situation. Do you know of any new insights that we did not know a year ago in terms of:

                1) Who is still drilling with 500 rigs in US? Are they conventional or unconventional producers?
                2) Why? (I guess the answer on this is worth at least Nobel prize in economics 🙂 )
                3) Is there a clear consensus if production of shale is declining, and how about onshore conventional?

                Thanks

                • Arceus says:

                  Ves wrote: “Could you explain how Uber works when 10 million employees in LA each morning have to leave for work at 8:00 am in order to be at their desk sharp, at 9:00 am ? 🙂 Who gets a priority in the Uber pickup line?”

                  Uber and Lyft are just an intermediate step as the U.S. as the world move away from “democracy” toward a totalitarian form of government. The removal of individual transportation will allow fairly broad and sweeping control of society along with control of information (and access to that information), banning of weapons and digital only currency. Future companies will provide automated transport for employees as part of their compensation for more efficient worker productivity (never late to work and can begin immediately) – what jobs remain will be for government owned entities mostly and the movement of those employees will need to be tracked.

                • Dennis Coyne says:

                  Hi Ves,

                  If we assume all 10 million ride in separate cars that would be one big traffic jam 🙂

                  But seriously there would be some ride sharing so let’s say 7.5 million cars or when we consider public transportation this might be reduced to 5 million cars or less. Does everybody start work at 9 AM? My guess is there is a little variation from 6:30 to 9:30 start times depending upon the profession.

                  The night before the transactions between individual Uber drivers and their customers will be set up and then taken care of the following day.

                  The data we have so far indicates relatively little drop in total LTO output in the Eagle Ford, Bakken and Permian basin, most of the drop in US output has been onshore conventional oil, probably temporary abandonment of low output wells and deferred maintenance causing the drop (along with very few new conventional wells being drilled).

                  As far as what is being drilled, there are about 536 oil rigs turning, with 77 of the rigs vertical, 38 directional, and 421 horizontal. If we assume all the horizontal rigs are LTO, then conventional is only 115 (and some of those may be offshore).

                  In the Permian, Williston(Bakken), and Eagle Ford plays there are 330 oil rigs turning with 286 of those rigs being horizontal.

                  Of the 286 (68% of all US horizontal oil rigs)horizontal oil rigs in the three big LTO plays, 171 (60%) are in the Permian basin, 64 (22%) in the Eagle Ford, and 51 (18%) in the Williston basin.

                  The focus seems to have shifted to the Permian basin. In the past 12 months the horizontal oil rig count in the US has fallen from 1100 to 421 based on Baker Hughes data. The total oil rig count fell from 1536 to 536 in the past 12 months.

                  http://phx.corporate-ir.net/phoenix.zhtml?c=79687&p=irol-reportsother

                  • Ves says:

                    Hi Dennis,
                    “If we assume all 10 million ride in separate cars that would be one big traffic jam”

                    Well the problem seems to me that people are not grasping the issues in a nutshell and that is that public transportation is in the interest of broad public and Uber is not. Once people understand that than there is no problem to determine what the better solution for the public is. But seems to me “Public” interest is dirty word in the society these days.
                    It is not only that 10 million employee would be potentially riding the Uber cars in LA at the same time but it would be also Granma going for grocery shopping at the same time because she would be competing with prime Uber time with everyone else because Uber would not be available at certain times after rush hour due to unsustainable profitable routes at slow time. Simple supply and demand 🙂

                    Public transportation runs all day long because it is supported by general public and Granma can go shopping off peak hours.

                    Dennis: “Does everybody start work at 9 AM?”

                    Well not everybody but great majority. What time banks, schools, university classes, offices, shops open? I would say between 8:30 and 9.

                    Dennis: “The night before the transactions between individual Uber drivers and their customers will be set up and then taken care of the following day.”

                    That looks to me very fragile system if I have to keep calling every night to secure a ride for the next day. And if I don’t, do I run a risk of losing a job if I miss few days at work due to not finding Uber? That is scary stuff to rely on.

                    Thanks for the rig overview. Do you find interesting that conventional is responding exactly how we thought that producers should respond in price downturn compared to unconventional?

                  • Dennis Coyne says:

                    Hi Ves,

                    I agree public transportation is a better option, but many people don’t like public transportation.

                    Also it is efficient at rush hour, but off peak AVs would probably be more energy efficient.

                    One would not have to call each night one could have a pick up arranged for each work day. It is an alternative to people driving their own car to work.

                    Personally I think whatever society decides will work best is what will be used. It does not have to be either/or, the answer may be both. The nature of most American metros is that they are not dense enough for a good public transportation system.

                    You are forgetting about janitors, sanitation workers, health care workers, construction workers, many restaurants and stores. All of these start at different times so not everyone will start work at 9 AM. University class schedules are not fixed, some students have theuir first class at 8, some at 9, some at 10, the same is true for professors.

                    Not surprised that conventional is different than LTO based on comments by shallow sand and Mike.

            • oldfarmermac says:

              IF self driving cars become very common, and I believe they will, eventually, THEN I personally believe there will be FAR fewer cars on the road, and that total miles driven, by human or computer, will most likely decline SUBSTANTIALLY.

              This has to do with the choices people will make it driving, where to, and how often, ESPECIALLY in the cases of people who have to keep a pretty close eye on their money;and after all, most of us DO have to keep a close eye on our money. As a matter of fact, tens of millions of relatively poor people drive only because they MUST.Every mile they cut back INCREASES the cost per mile of the remaining driving they do, because insurance, taxes, etc are fixed costs, and depreciation of autos still EATS money even if they are not driven very much.

              So- Let’s look at a suburban retired couple, who no longer have to drive to work. Given the choice of owning a car, and paying all the costs of driving it occasionally, they are almost sure to be able to eventually hire an autonomous car anytime they need it for a LOT LESS in total.

              Next, consider that such cars are almost for sure going to be available at OFF PEAK hours for considerably lower rates than at rush hours. Hotels and restaurants are always advertising off peak special deals, are they not?

              So Grandma will time her trips to avoid rush hour traffic, and take plan some longer trips specifically to AVOID peak holiday rates etc. Ditto housewives, folks who work odd shifts etc.

              Third, when you already OWN a car, then you mostly think only about the hassle of driving it, and gassing it up, in relation to any given trip, rather than the TRUE cost of driving per mile.

              I am prone to falling into that trap myself, even though I am hopefully a LITTLE smarter than the average driver. I think of a trip to town in my ancient ESCORT as costing me a couple of bucks for gasoline, and the time on the road, but in actuality, the cost of insurance alone ALMOST DOUBLES the real cost of my once or week a so trip to town in the car. Add in the cost of new tires, oil changes, repairs, the time spent working on the car, etc, and I am compelled to add another dollar at least to computing the cost of that weekly trip.

              If I were HIRING a car, the true cost of the trip, the TOTAL cost , would be perfectly obvious EVERY trip. I WOULD make fewer trips, because I would be charged the total cost right on the spot.

              Employers will have an incentive to arrange lower paid employees schedules so they can get to work while avoiding peak hour rates and traffic.

              And people with smart phones will no longer be even HALF so reluctant to share a ride with SOMEBODY THEY KNOW personally. They will after all not be responsible in the event of an accident. Furthermore, it is getting to the point that it will soon be safe enough to share rides with strangers, because pretty soon it will be possible to KNOW that a given person getting into a car with you is NOT a rapist or thief or whatever variety of scumbag. Right now I can snap a pic of a hitchhiker, and send it to a friend, instantly, before he gets within reach of my driver’s side door handle, if I choose to stop for him. A charged up but non paid up cell phone secreted in the clothing or beside a car seat can be used to dial 911 without attracting notice.

              We WILL be able to share rides without much worry in future times.

          • Dennis Coyne says:

            Hi Fred,

            That is my understanding as well, traffic will flow better and less time will be spent sitting in traffic jams, humans are not good drivers, changing lanes for no reason, waiting until the last possible moment before getting into the proper lane to exit from the highway. AV will eliminate many of these highway problems and traffic will flow much more efficiently.

            In addition ride sharing could easily be arranged which would reduce the cars on the road.

            • wimbi says:

              I am sure all you guys know that the simple solution to what does what in transport is a proper dynamic simulation, taking into account ALL of the things you have mentioned.

              About 20 yrs ago I had a great deal of fun with a Saturday Science Seminar, in which self-selected bright kids played around with such ideas. One of them did a very good simulation of our town’s transport, complete with known calendar events, ride sharing or not, random events, getting to work in a mob, etc, etc.

              He had it on a computer, with blinking lights showing the vehicles whizzing all over, and great stats on how much parking, how many vehicles on road at what times, how many riders doing what, and showed it to his highschool science teacher, who got him to a state prize.

              Now this kid is a very successful entrepreneur in another field who visited me recently. I told him if he had just followed up on that little saturday exercise he could have been a billionaire now. He agreed, but – “there’s lotsa other chances out there waiting to be noticed”.

              That’s the spirit I like to see.

    • Dennis Coyne says:

      Hi Tool Push,

      See

      http://www.rita.dot.gov/bts/sites/rita.dot.gov.bts/files/publications/national_transportation_statistics/index.html

      I would assume that very few cars and light trucks are on the road after they are 20 years old, so we would see few cars today that are older than 1995 (my parents drive my old 1997 Camry, but it will be replaced and probably scrapped by 2017). In 1995 the average age of the vehicle fleet was 8.4 years and it increased to 11.4 years by 2014.

      The size of the 4 wheel passenger car and light truck fleet has been pretty stable since 2005 in the US see link above and chart below (from Section B Table 1-11: Number of U.S. Aircraft, Vehicles, Vessels, and Other Conveyances )

      • Toolpush says:

        Thanks Dennis,

        Surprisingly the definition is, the average age of the cars on the road, or should I say registered for the road.
        A line from Wikipedia, is probably the information I was lacking.

        https://en.wikipedia.org/wiki/Passenger_vehicles_in_the_United_States

        ” many Americans own three or more vehicles. The low marginal cost of registering and insuring additional older vehicles means many vehicles that are rarely used are still given full weight in the statistics.”

        Hard to see them when they are parked in the garage!

        • Dennis Coyne says:

          Hi Toolpush,

          Old cars are very cheap to register and insure in the US, they don’t usually get a lot of miles (I recently traded in a 2004 Prius) which was a third car for my son, for the past few years it was driven about 5000 miles per year, but when it was new I was driving it about 24,000 miles per year (about 170k on the odometer when traded in and about 120k in the fist 5 years). Vehicle Miles travelled (VMT) for the US in chart below.

          • Toolpush says:

            Dennis,

            You do realize your 2004 Prius, is just average age! It is not even half of the expected full age. As many newish cars are crash right offs, therefore many cars are going to have to go well past the 23 year expected life if there was no early right offs.
            It is these 23+ year old cars, I didn’t see in abundance of when i was in the states, but if they are mainly parked in garages, and only brought to drive on Sundays, that would explain it.

            • Dennis Coyne says:

              Hi Toolpush,

              There are not that many of those older cars, I wouldn’t say the expected life of the car is 23 years, if we assume a normal distribution with a standard deviation of one third the average age, then 99% of the vehicles will be less than 23 years old and 95% will be less than 19 years old, and yes the old cars are left sitting in the driveway or yard (the new cars go in the garage) you don’t see many of them on the road. It depends where you go, many poor areas have mostly older cars and trucks.

              The other thing to consider is that different people drive more or less, my 2004 Prius needed repairs that I didn’t think would be worth doing so I traded it in, it may have been scrapped or someone may still be driving it, I drove it to the Toyota dealer and bought another Prius (my third). If someone only drives 10,000 miles per year, they might go 20 years before repairs get too expensive, when I need car repairs that are close to the book value of the car, I get a newer car, this usually happens before a car reaches 20 years, and is more likely when you get to 170k in 11 years time.

              • Toolpush says:

                Dennis,

                This was my point about the definition of the age of the car on the road.
                If 11.5 years was the average age of the car being scrapped, then you normal distribution would be correct for the cars on the road.
                Now for the 11,5 years to be the average of the car on the road, and if we make some unrealistic assumptions no early scrapping, all cars dies at the same age. This would mean every car would live until 23 years and then die.
                If we are being more realistic, and allow early scrapping due to crashes and people forgetting to put oil in engines and the like, then many cars have to go well over the 23 year mark, to balance the early disasters. This is not consistent to my observation, and apparently not consistent with your either?
                The garaging of old cars makes sense to me, but I hope now you see the point i am making and the distinction of average car on the road, verses, average of a scrapped car.

                • Dennis Coyne says:

                  Hi Toolpush,

                  I don’t have the age distribution of the cars on the road so we can only guess. We also don’t (or I don’t) have data on the average age of scrapped cars, probably there are fewer of the new cars (there are only so many wrecks) and more of the older cars, but again we would need the distribution.

                  Note that if we assume the wrecks are random among cars of all ages then the distribution doesn’t change much, but new cars (5 years or less) are driven more miles so probably get in more crashes.

        • Dennis Coyne says:

          VMT per vehicle (miles per passenger vehicle) in chart below. Pretty steady from 1996 to 2013 at between 12500 and 13000 miles per vehicle per year.

  22. Longtimber says:

    Just Imagine: Wordsmith JHK on Stockman’s site
    “Back at $100-plus a barrel, hardly anyone made any profit on shale. At $40 a barrel shale was a laughable loser. So, in 2015, the shale oil companies laid off thousands of workers, idled the drilling rigs, and kicked back to pray that the price would go back up. Which it didn’t.”
    —–
    “The rapid ramp-up in shale oil production from 2010 to 2014 was intended as a demonstration project to convince Wall Street to stuff ever more investment capital into oil companies. It was also part of an enormous PR campaign to allow the people running things in business and government to pretend that America’s oil problems were behind us.”
    http://davidstockmanscontracorner.com/pretend-to-the-bitter-end-a-contrarian-review-of-the-year-ahead/

  23. Toolpush says:

    Ciaran,

    On the heat maps, there is a large purple, high flow/good economics, in the middle on Montrail county, with just a few wells running laterals from the edge. Do you know the explanation for this? Is it geography, mountains etc, Indian reservation, or something else. I seems strange to not drill what seems to be the acreage early in the development of the area.

    • coffeeguyzz says:

      Push

      That’s Lake Sakakawea, running about 8 miles wide, 20 north/south.

      A few of those laterals running under the water are 15/20 thousand feet in length.

      The lake is part of the Missouri River and was formed when a dam was built down river a ways.

      The pink area to the upper right is the Parshall where EOG is yet to fully implement a development plan. The maze of wells due north of the lake is primarily the very prolific Sanish field area.

      • Toolpush says:

        Thanks Coffee,

        The oil companies must be really pissed of about that one. lol
        Maybe they will call for the dam/lake to be drained!
        Anyone for a few jack ups/swamp barges? At least it seems some of the best sweet spots will be held in reserve, voluntary or not!

  24. likbez says:

    Destabilizing effects of wind turbines on the grid:

    http://www.bbc.com/news/uk-scotland-13253876

    Scots windfarms paid cash to stop producing energy

    The REF said energy companies were paid £900,000 to halt the turbines for several hours between 5 and 6 April.

    • oldfarmermac says:

      From the link:

      “The National Grid said the network had overloaded because high winds and heavy rain in Scotland overnight on 5 and 6 April produced more wind energy than it could use.

      Spokesman Stewart Larque said: “One of our key roles is to balance supply and demand for energy.”

      He added: “On the evening of the 5th into the 6th of April, the wind in Scotland was high, it was raining heavily, which also created more hydro energy than normal.”

      Mr Larque said a transmission fault in the system meant the surplus energy could not be transferred to England and so generation had to be cut. Bold mine

      He also confirmed that the National Grid spent £280m on similar payments to the energy industry as a whole.

      A spokesman for the Department for Energy and Climate Change (DECC), described the incident as “unusual” and said more electrical storage was needed.

      He added: “In future we need greater electrical energy storage facilities and greater interconnection with our EU neighbours so that excess energy supplies can be sold or bought where required.”

      A Scottish government spokesman said electricity generated by renewables accounted for 27.4% of Scotland’s electricity use.”

      I hardly think any body who is truly trying to be even handed and intellectually honest would argue that the regulatory schemes in current use cannot be improved. Whether these payments are excessive is hard to say, but it is obvious enough that with renewables providing over a full quarter of Scotlands electricity, the country as a whole is saving simply ENORMOUS sums of money by avoiding the purchase of so much gas and coal otherwise needed to generate electricity.

      The local renewables industries keep jobs home, and money at home, and keep Scotland cleaner and nicer than otherwise, taken all around, although a lot of people do detest the sight of a wind farm.

      One of the somewhat paradoxical realities of renewable energy is that in order to make the best use of it, you do have to “overbuild” so that at times you have more than you can use.

      Just about EVERY industry runs into this problem, but the ONLY one you hear about having it, from fossil fuel advocates, is the renewable electricity industry.

      The COAL FIRED generating industry, when it is all coal, has to have extra capacity, the hotel industry has to have capacity that sits unused more days than not to have enough rooms for peak periods, airports have more runways than are needed at all hours, a commercial American farmer generally has two or three tractors, but may need all three only a few days out of the year.

      Whether wind and solar farms should be PAID to idle capacity is highly questionable in my opinion.

      It would be better NOT to do so, in my estimation, so as not to provide the anti renewable faction with ammunition. Raising the price a little paid for juice that is actually used would be better, so as to generate the same income level.

      Note that the regulatory authority spokesman pointed out that if part of the grid had not been down, the excess renewable juice could have been put to good use in England.

      Politics change so fast these days I am not SURE what the entire island nation is called, hopefully it is still the UK, but the entire kit and kaboodle of them have a damned big problem in that they are highly dependent on imports that they are most likely going to have a hell of a hard time paying for , later on, while simultaneously maintaining their accustomed standard of living.

      Exporting in competition with up and coming countries where wages are a LOT lower is a tough game to win, and depletion guarantees that coal and gas are going up in price, medium to long term.WAY UP, barring miracles.

      • oldfarmermac says:

        Another major point that I have NEVER known a fossil fuels partisan to acknowledge is that renewable electricity has a powerful but hard to estimate effect on the price of fossil fuels, this lowering the price of them FOR EVERYBODY, which is VERY good, for everybody, except of course the owners and workers of the gas and coal industries.

        We are getting about five percent of our electricity here in the USA now from wind and solar power, which means we are using pretty damned close to five percent LESS coal and gas to generate electricity. The less you use of a commodity, the cheaper you can buy it,meaning a home owner heating with gas saves money even though there may be no wind or solar electricity on his local grid. Cheap gas means cheap nitrates, which in turn mean cheaper food at the supermarket.

        EVERYBODY wins, in the end, except the fossil fuel industry. The environment suffers less abuse,taken all around. The pressure for resource wars is lessened.

        Barring some extraordinary good luck, meaning near miraculous breakthroughs in nuclear and or nuclear fusion power, I am one hundred percent certain that the little kids growing up today will be DAMNED glad to make their industrial and domestic hay with renewable electricity when the sun is shining, and the wind blowing, before they are nearly as old as I am today.

        If Old Man Business As Usual manages to stagger along that long, it won’t be all that hard for them, because there WILL be a lot more storage capacity,and a lot of long distance transmission lines. They will be using electricity far more efficiently.

    • Longtimber says:

      Economics + JIT Fuel sources + GeoChaos are hazardous to “The Grid”.
      The Future of Energy is Distributed.

  25. Venezuela update: last night President Maduro “legislated” on his own a new National Bank law, which gives him full control, and says the national bank doesn’t have to provide information to the National Assembly.

    Right now, at 10 AM US Eastern, the individual National Assembly deputies are attempting to make it into the assembly building, which is surrounded by a triple ring of police and national guard. It appears the majority made it through, but some have been pushed around and knocked to the ground.

    International and national tv cameras and crews are still sitting outside the security ring, with the exception of a couple of Venezuelan networks which managed to set up inside the ring, but outside the building. Update NTN24 made it inside the building. The Unity video streaming try it here http://unidadvenezuela.org/

    • oldfarmermac says:

      Hi Fernando,

      I must say I find it funny as hell that all the good people who rant and rave in this forum about the sins of capitalism have not yet had a WORD to say about the sins of a rotten to the core socialist regime.

      And so far I have not heard anybody who is part of the left wing establishment actually come out and call the Maduro regime for what it actually IS.

      And while it does not really matter, in terms of the big picture, if we call the MADURO regime communists, the historical connection, and the utter lack of ethics of the regime, tally up perfectly with every thing I read for years about the actual workings of commies.

      And for everybody else, NO, I did not study communism under the auspices of Fox news, or the hard core right, but rather by reading such actual news as made it out from behind the IRON CURTAIN, and especially by reading the books written by the refugees who managed to get out, usually at risk of their very lives.

      A little attention at last is finally being paid in the msm.

      http://www.nbcnews.com/news/latino/imminent-showdown-venezuela-opposition-takes-over-congress-n490386

      • Maduro says he wants to take the country towards communism. The hard core claims to be communist. But they are being mentored by the Cuban dictatorship. The Cuban regime is moving towards a Nazi like fascist regime. Apparently they intend to call themselves “the Patriotic Block”. I heard a government tv announcer refer to the unity faction as “the anti patriotic block”.

      • Dennis Coyne says:

        Hi Old Farmer Mac,

        There are bad rulers on the left and the right, to some it seems the focus on only the left looks like a pretty big blind spot. Hopefully things will improve in Venezuela.

        • oldfarmermac says:

          Hi Dennis,

          Birds of a feather flock together. We all know that.
          If you are in a right wing forum, such as talk radio, the shortcomings of right wing regimes are overlooked, deliberately.

          I try not to cut ANYBODY, including myself, any slack when it comes to recognizing and pointing out the truth, as best I can discern what the truth actually consists of.

          This is why I do not hesitate to point out that socialized medicine works better than our current American system, that free enterprise will not solve pollution problems, etc, even though I am basically a libertarian conservative.

          I just like to poke my stick in the eye of hard core liberals once in a while, because they are generally a damned sight worse hypocrites than right wingers, who mostly do not mind ADMITTING they are partisans out for themselves, at least in private.

          Also, there aren’t any hard core conservatives in this forum TO poke with my stick. If there were any , I would treat them the same, trust me.;-)

          To make an example, and there is always at least one to prove the rule, our fine host Ron is just about the only self described card carrying liberal democrat in this forum who TELLS IT LIKE IT IS, without pulling his punches or simply AVOIDING the subject, when it comes to whether Islam is a peaceful, humanitarian religion.

          Note-I have better sense than to defend the historical record of Christianity. LOL

          ALSO NOTE , given that I am a hard core Darwinist at the center of my intellect, I do not in the usual sense pass judgement on individuals or societies, any more than I pass judgement on foxes for eating baby rabbits, or one bull killing another, in order to control his harem of cows and territory.

          In the words of a noted biologist, historians are eventually going to be forced to admit that human societies compete, win or lose, just like all other life forms, on the basis of FITNESS for survival.

          Historians will have to face the fact that natural selection determined the evolution of cultures in the same manner as it did that of species.
          Konrad Lorenz

          BBC has this today, but you have to look WAY down the page to find it, as it is obviously rated as of much less importance than a few more victims of violence in places where hundreds die on a daily basis.

          http://www.bbc.com/news/world-latin-america-35231562

          It is not yet clear to me that Maduro will not manage to maintain himself as the dictator he is.

          South and Central America may be the backwaters of the world stage right now, but this will change over the next few decades.

        • Pelease show me a right wrong dictatorship as abusive as the Castro family’s or a regime as abusive and imbecile as Maduro’s, where people I know are suffering, and I’ll make sure I criticize it. The situation should be related to oil, and if I’m to discuss it I should be well acquainted with t.

          As it turns out, I see the Cuban dictatorship trying to take over Venezuela, serious abuses, and a looming conflict which ought to drop the country’s production below 2 mmbopd. To show you how bad it is, these guys were parading in Venezuela as the Unity assembly deputies were being sworn in.

          https://twitter.com/fernandoleanme/status/684707970773585921

  26. gwalke says:

    Good post, and if anything, too optimistic in one area at least – using first year production and modelling the remaining years has left out the fact that, though the first year is significantly better in 2013-15 wells, they decline faster in later months. It obviously remains to be seen if their cumulative beats 2010’s cumulative, but the North Dakota data shows 2014 is currently on trend to match 2013 cumulative in about month 34.

    Maybe the curve will flatten out, like the Whiting presentation says….

    • Dennis Coyne says:

      Hi Gwalke,

      The post looks very solid to me, most of the analysis uses the data from all wells from 2007 to 2015 that have at least 12 months of output data, a simpler analysis by me results in about a $76/b breakeven using very similar assumptions and an $8 million dollar well cost with a 10% annual real discount rate.

      It is a good observation that we do not know if 2014 wells will have a similar well profile to the older wells from 2007 to 2013, we also have no data beyond 7 years with the highly fracked Bakken/Three Forks wells, the decline beyond that point is likely to be exponential rather than hyperbolic at about a 9 to 12% annual decline rate, we can only guess at the future well profile (beyond 7 to 8 years.) Rune Likvern has often reminded me of this fact.

      • It’s a pretty good job. The only critique I can offer is that it was a tad too long. I think the audience in a blog sort of wears out when shown so much data.

      • gwalke says:

        Yes, it was only meant to be a very minor point on what is a very strong and comprehensive piece of analysis – Ciaran’s work is more than enough to show these guys are in serious trouble.

        If you benchmark month-to-month cumulative production for the average well for each year, you will get a graph like in the link below:

        https://pbs.twimg.com/media/CS40EksXIAE5F_o.png

        That’s from a few months ago – the trends back to 2010 for 2013-15 have continued.

        It should be clear that, if you just use the first year’s production to produce a calculated decline curve, wells from 2013-15 would significantly beat 2010’s cumulative output if they follow a similar decline curve. But after the first year they decline more quickly than 2010; and 2015 declines more quickly that 2014 which declines more quickly than 2013.

        This is not mainly a point about how these wells will perform in 10 years – it’s about how they perform in year 2, 3 and 4, which we are starting to see data for. And the point is: they definitely don’t retain all the gains of year 1, and if they keep following current trends they will give them all back within 4 years.

        However, you are right, it’s also a point about PDP. These guys are using higher 30 IP to give higher EUR figures. As you will be aware, Rune has already shown these are likely to be grossly inflated – and the benchmark data supports this.

        • Enno says:

          Nice chart!

        • Dennis Coyne says:

          Hi gwalke,

          I use a different well profile for the 2014 and later wells to account for the likely drop in output, essentially I assume their EUR will be higher by only the increased output the first year (about 10 to 15 kb) for the rest of the well life the cumulative output is assumed to match the 2008 to 2012 wells. This may still be too optimistic, we just don’t know how these newer wells will perform down the road.

        • shallow sand says:

          Gwalke. I have contended from the beginning that the first 60 months’ production is very important.

          WTI dropped below $33 tonight.

          Surely rig count drop will resume with intensity.

  27. Watcher says:

    http://finance.yahoo.com/news/madalena-comments-argentina-oil-prices-163500584.html

    A year old, but really not ever getting old.

    The regulators in Argentina have set January 2015 oil pricing at approximately USD $77 per barrel for Medanito crude quality oil compared to the December 2014 posted price of approximately USD $83.90 per barrel of oil. The USD $77 posted Medanito crude oil price in Argentina for January 2015 is approximately 37% higher than the comparative period Brent price of USD $56 per barrel.

    . . .

    With approximately 90% of the Company’s oil production priced relative to Argentina’s regulated oil prices, the Company continues to be well positioned and expects to fully fund the 2015 capital program with funds generated from operations and existing working capital. Madalena also expects to end 2015 with positive working capital.

    Management and the Board will continue to monitor its political, market and commodity price environment, with a view to protecting Madalena’s financial position in the context of its contractual and regulatory obligations.

    • Dennis Coyne says:

      Hi Watcher,

      Maybe the US should do the same, the oil industry would love it. 🙂

    • Jef says:

      The thinking is that the way to end the debt/deflation cycle is to artificially maintain high prices.

      Hows that working out for the real economy on the ground in Argentina?

  28. R Walter says:

    Uber is going to need oil to be viable. Just more business as usual, just looks like it’s not.

    I don’t care if cars become obsolete, but there still must be some fossil fuels left so Dale Chihuly can continue to create more chandeliers.

    That’s an order!

    http://www.chihuly.com

  29. Longtimber says:

    No Bueno –> Libya Issues `Cry for Help’ as Islamic State Attacks Oil Tanks
    “Libya, with Africa’s largest oil reserves, pumped about 1.6 million barrels a day of crude before the 2011 rebellion that ended Moammar Al Qaddafi’s 42-year rule. It’s now the smallest producer in the Organization of Petroleum Exporting Countries, producing 370,000 barrels a day in December, data compiled by Bloomberg show.”
    ?Africa’s largest oil reserves?
    http://www.bloomberg.com/news/articles/2016-01-05/libya-issues-cry-for-help-as-islamic-state-attacks-oil-tanks

  30. Watcher says:

    Monthly numbers out.

    Leaf sales Dec 2014 3102 Dec 2015 1347 sales growth -56%

    FYI: From the industry wide sales report: December’s strength is helped by having two more selling days than a year ago and, for the first time since 2012, five weekends. Sales made through Monday, Jan. 4, count toward 2015 because industry practice is to end each year on the first business day of January.

    hahahhahaahahaha

    Ford sales up 8%. GM up 6%.

    • Arceus says:

      Such strong numbers again for the aging ICE vehicles.

      But it would appear these buyers are not putting any gasoline into their new vehicles by the way the price of oil continues to drop. Just imagine how far oil will fall when vehicle sales actually start to decline.

      Oil workers may seriously need to consider the occupation of solar panel installer…

      • oldfarmermac says:

        I personally do not see any evidence that people the world over are putting any less gasoline in their cars.

        Production may have peaked, but this is still an open question, and the statistics are not yet in.

        Here in the USA, we just don’t need as much gasoline to go as far as usual, because the newer cars that we use for most of our driving are noticeably more efficient than the older ones we drive less.

      • islandboy says:

        Such strong numbers again for the aging ICE vehicles.

        Not so much in the $70,000 and over, where Tesla is trouncing it’s competition. See my 01/03/2016 at 4:11 pm comment for more details.

        • Arceus says:

          Tesla seems to be a very nice car, very advanced, so it is easy to see why it appeals to so many (plus the tax credits help quite a bit and Musk appeals to many as a visionary). However, if the lithium battery technology cannot stop randomly burning cars to a crisp, I would think that would eventually be a deal breaker for most. Who would charge such a car in their garage at night?

          • Bob Nickson says:

            Can you provide some data for your assertion that they burn often?
            There was the recent case in Norway where one burned while supercharging. No doubt they will learn a lot from their forensic investigation of the cause.

            Aside from that, I’m personally only aware of Tesla’s catching fire after an accident, and even then at rates far, far below ICE fire rates per passenger mile driven. What has there been, like four of them and zero fire related deaths?

            • Arceus says:

              You can google “lithium ion battery fire” or go here (not sure how up to date it is)…

              https://en.wikipedia.org/wiki/Plug-in_electric_vehicle_fire_incidents

              • Bob Nickson says:

                From your provided link:

                “based on the available data, NHTSA does not believe that Chevy Volts or other electric vehicles pose a greater risk of fire than gasoline-powered vehicles.”

                • Arceus says:

                  Bob, personally, I believe the risk is acceptable for many people, particularly if they have a detached garage and/or smoke detector and sprinkler system installed. Moreover, it may be possible for many people to charge the battery before going to sleep. There are always workarounds with newer technology – does not mean the end of the electric car by any means.

                  • Jonathan Madden says:

                    A sprinkler system would add fuel to the flames of a Lithium fire, adding explosive Hydrogen gas to the mix. Better to try and cover the conflagration with a heavy fireproof blanket. The trouble is that Li batteries, in particular charged ones, contain a redox mix so that starving the furnace of air won’t stop the reaction.

              • HVACman says:

                Per the NFPA, 287,000 vehicle fires per year in the US. This is from 2007, BEFORE there were any lithium-ion automotive batteries. Figuring about 300 million automobiles in the US, that means 1 in a 1,000 catches fire each year.

                How does that compare to the EV fire rate? The web site Arceus referenced listed a handful of fires. Given that there are now over 400,000 plug-in electric vehicles in the US, there should be hundreds of EV fires each year.

                LiON batteries will burn if abused enough, but conventional car fire rate per 1000 cars per year with ICE engines and big gasoline fuel tanks are an order of magnitude more likely to burn. I am much safer plugging in my Volt than fueling up my Subaru.

                http://www.nfpa.org/research/reports-and-statistics/vehicle-fires/vehicle-fire-trends-and-patterns

                • Arceus says:

                  Hman,

                  I hear what you are saying, and logically, I am with you. But in the real world, most people do not think that way. For example, you can tell a mother that if she lets her nine-year-old daughter walk to the park alone there is less than a thousandth of a percent chance that harm will befall her, and yet the typical mother will not be persuaded by your numbers. The small chance of a personal tragedy outweighs the remote probability of it happening. Right or wrong, logical or illogical, that is the way of most people.

                  • islandboy says:

                    Sorry but, I’m calling bullshit on that line of reasoning. If that was the case, why aren’t people bothered by the one tenth of a percent (one in a thousand as documented by the NFPA) chance that a car with a fuel tank will catch fire?

                  • Arceus says:

                    The known and familiar is trusted more than the new and unfamiliar. I suppose you know this on an instinctive level. Over time, things can change.

                  • islandboy says:

                    Be that as it may but, in the face of the evidence it seems that you are a victim of those who’s agenda is to to convince the public that, EVs (“the new and unfamiliar”) are less safe than conventional cars (“The known and familiar”)

                  • Bob Nickson says:

                    Arceus, your statement was:

                    “[…]if the lithium battery technology cannot stop randomly burning cars to a crisp, I would think that would eventually be a deal breaker for most.”

                    The pertinent fact here is that electric cars are not randomly burning to a crisp. The potential problem has been engineered for.

          • islandboy says:

            Who would charge such a car in their garage at night?

            Some sizable portion of the more than 100,000 people worldwide who have bought one since it came on the market in 2012. You can subtract the four or five that made the news because of accidents/incidents resulting in fires and the one that burnt while being charged at one of Tesla’s high power charging stations in Norway on New Years Day.

            I guess cars that run on gasoline or diesel never catch fire and if they do never in a garage.

            • Arceus says:

              I have nothing against EVs and would imagine they will continue to increase their market share despite any “issues” with the battery. However, lithium ion battery technology has well-documented problems whether the product is a notebook PC, a hoverboard, a video camera or a vehicle. Many house fires have started that way. Now, I will not say it is impossible for an ICE vehicle to combust while sitting in a garage overnight – but if it happened most people would consider it a very peculiar circumstance (assuming the engine is not running or some other obvious error in judgement).

              • islandboy says:

                but if it happened most people would consider it a very peculiar circumstance

                Which is even more the case for EVs, since as HVACman makes the case a little further up, the data from the NFPA does not support what you are suggesting. I also want to point out that average full fuel tank contains ten gallons or more, of a highly flammable liquid, containing significantly more energy than what is contained in the average EV battery.

                Repeating the worn out “EV fire” meme, makes you sound like you’re watching way too much Faux News.

                Edit: A minor correction to my 01/05/2016 at 5:25 pm comment above. Tesla has not sold 100,000 vehicles to date:

                Tesla Motors – Model S/X Road To 50,000+ Sales In 2015 & Cumulative Total Of Nearly 110,000

                Through the end of 2015, Tesla cumulatively delivered some 107,000 Model S (and the first batch of some 214 Model X).

                Add some 2,600 two seater Roadsters sold between 2008 and 2012 and you’re just shy of 110,000.

                • oldfarmermac says:

                  I know a man personally who burnt down his garage full of expensive tools and except for good luck might have burnt his house and some nearby neighbor’s property as well, because he parked his car off his driveway in some tall dry grass for some reason.

                  He went out the next morning, and started the car to warm it up, this was dead of winter, and the next time he looked that way, the car and the grass were going full tilt, and the grass fire was lapping at the walls of the garage.

                  The fire started because the grass was tall enough to be pressed up close to the catalytic converter, which might have been hotter than usual because the car engine was cold, thus the computer had it running rich, and it might have also been in need of a tuneup.

                  I have seen catalytic converters and exhaust pipes red as a cherry due to an engine having a bad igniton coil and thus running on four cylinders out of six. This ruins the cat pretty damned quick, not to mention the fire hazard. Cats are quite expensive.

                  The wind was away from the house, luckily, and the fire department got there in time to keep the fire from reaching his neighbors house downwind.

                  Tall dry grass in the winter is a hell of a fire hazard. A hot cigarette butt is enough to set it off sometimes.

                  Almost any old fireman has responded to at least a couple of car fires.

                  I have used a fire extinguisher on a car or tractor a couple of times myself. I keep a big one on all my farm equipment, this is VERY cheap insurance.

          • Longtimber says:

            I know of no Supercharges in a home Garage.
            can’t charge Lithium “cells” Full Blast Below 0C. Have to tickle them warm 1st. Bet it was temperature related and perhaps may have been a fluid leak. I’m looking at 4 Paks on my here on my Bench and the plastic tubing makes me nervous. Too many leak points. Supercharging is really pushing lot o limits. Even the Charging “Nozzel” is liquid cooled. Me thinks charging faster than 1C not a good idea. – Full capacity in one hours. If Elon can keep Falcon Heavy’s from Exploding, guess this seems trivial.

            • Longtimber says:

              Note the stainless liquid channels. Don’t need the Liquid for perfect even temp control in a stationary applications @ non Insane ie. normal charging rates. They will be in a Steel case JIC.. With a 60A Controller the Pak can receive a full charge in under 4 Sun hours. 444 – 18650 cells per bank. There are 16 in a P85.

              • islandboy says:

                Please pardon my curiosity but, may I ask, is that a picture of the internals of a Tesla battery pack? If so, may I ask, what it is that you are doing with it? (Don’t tell me if you’ll have to kill me if you tell me 😉 )

                • Longtimber says:

                  Donor Organs for a small 10kW Autonomous system to run 2 ductless 1 ton heat pumps. Donor car was just a kid, 12,000 miles. Theres a complete tear down of a P85 sled on the Tesla User Group site. Speaking of system, check this one out. Must have dueling hot tubs or something..
                  http://evtv.me/2015/12/as-salamu-alaykum-the-new-radicalized-evtv/

                  • Longtimber says:

                    Each Module is 6S – 74P = 444cells ~ 21-24 Vdc.

                  • islandboy says:

                    I thought that picture looked familiar. Then I saw the link and realized I read that page recently. Since AFAIK, the Outbacks don’t do 300+V batteries, are you guys re-wiring the packs for lower voltages?

                    In my neck of the woods, the circumstances discourage selling to the grid and encourage self consumption so, I want to implement a system that can sense when I’m about to feed the grid and divert that power to a battery pack instead. IMO off the shelf solutions cost too much, especially taking into consideration all the new stuff that’s coming down the pike. These organ transplants from wrecked EVs are starting to give me some ideas!

                  • Longtimber says:

                    Amazing Off topic images: Flacon 9 Stage One Leaves Planet and returns home. Super chilled Fuels boosts lift.
                    http://www.slate.com/blogs/bad_astronomy/2015/12/28/gallery_of_spacex_photos_of_the_december_2015_falcon_9_rocket_landing.html

    • Bob Nickson says:

      Why didn’t you cherry pick the Volt?
      The new and improved 2016 model had a 42% sales increase December 2015 over December 2014.
      http://insideevs.com/chevrolet-volt-sales-reach-2015-high-in-december/

      Or Tesla, whose sales saw a 52% year-over-year sales increase 2014 to 2015, and a 75% Q4 y.o.y. gain.
      http://bgr.com/2016/01/03/tesla-model-s-sales-2015/

      In Europe, the EV market as a whole saw a 48% sales increase year-over-year.
      http://insideevs.com/bev-sales-europe-increased-48-6-year-year-85000-november/

      It’s really not surprising that 2015 Leaf sales have declined awaiting production of the improved and longer range 2016 model. Anticipation of the upcoming 2016 Chevy Bolt or the highly anticipated reveal of the Tesla Model III expected in March may also be having an inhibitory effect on LEAF sales as both will be competing closely with the LEAF on price, but offer twice the range per charge.

      As bullish as I am on EV’s, things are happening so fast in that market that it would be a very difficult decision to take the plunge and buy one now.

      Besides, why are you initiating a post about EV’s on this oil blog? I thought you hated that.

      • oldfarmermac says:

        Ford is apparently dead serious about self driving cars, and imo about battery powered cars as well, but Ford does not seem worried about being the first big conventional manufacturer to market with a large scale ev roll out.

        This might or might not be the best strategy, but maybe three or four years down the road, when Ford probably WILL make a major move in the electric vehicle market, the first generation mass market Ford EV will probably hit other EV’s mid lifecycle, and so outperform them in terms of dollar value.

        There is no real reason an autonomous car cannot be powered by a conventional infernal combustion engine, or by a smallish battery and electric motor set up with a very small IC engine driving a generator to charge the battery. This would allow ten or fifteen miles of pure electric driving, and long range driving on the IC engine. Gasoline only fuel consumption would also be excellent.

        Since so many trips are short ones, the owner of a such a car could still potentially cut his gasoline consumption to the bone.A lot of people commute less than twenty miles round trip, and a lot of people shop near home.

        • oldfarmermac says:

          Most of us appear to believe that the so called “tech ” companies own most of the patents on self driving cars. I did myself until I read this link.

          NOT SO.

          http://www.nbcnews.com/tech/innovation/automakers-lead-tech-companies-race-driverless-car-patents-n490716

        • Bob Nickson says:

          Anecdotes are of very limited value of course, but my brother owns a car repair shop. He has a customer who owns a Chevy Volt. He drives about 14,000 miles a year, but fills his gas tank and changes his oil once.

          Chevrolet estimates that the average 2016 Volt owner will drive 1,100 miles per tank of gas.

          I’ve never lived in rural circumstances, but it sure seems like an PHEV such as the Volt would have incredible appeal to someone who does. A few solar panels on the barn could provide all the power they need for their day to day needs. They would only need to buy fuel for the long trips to town. Seems like a lot of gained independence. There’s no reason why this couldn’t be a truck either.

          • HVACman says:

            Via makes a Volt-inspired extended range electric truck. PG&E has about 100 of Via’s rigs as a pre-production test trial. Via takes a Chevy Silverado truck and replaces the conventional transmission with their own electrified transmission, plus adds batteries. Bob Lutz “father of the Volt” is on their board of directors

            http://www.viamotors.com/vehicles/electric-truck/

            I suspect GM has their own plans for something like this, too.

          • Paulo says:

            One reason why rural folks don’t seem to have Chevy Volts and the like is found in this statement:
            “2016 Volt LTZ.
            General Motors has announced Canadian pricing for the 2016 Chevrolet Volt: The 2016 model will start at $38,390 MSRP, plus a $1,600 destination freight charge. In case you’re wondering, that’s only $105 less than the Canadian price on the outgoing 2015 Volt ($40,095 including freight).May 20, 2015”
            insideevs.com/2016-chevrolet-volt-priced-canada/

            I live rural and I need a scrappy PU for hauling all kinds of things. I wouldn’t be too thrilled to pull my boat up the seaweed covered ramp with a $40,000 vehicle. I just came back from town with my 30 year old Toyota 4 banger 4X4. It is covered with salt and winter road grime. I hauled home plywood and framing lumber. My windshield is cracked to hell from road sanding.

            Simple cost/benefit analysis for my transport needs indicates that if gas increased to $2.50/litre, it would still be cheaper for me to run my old pickup.

            Furthermore, at +50 deg north I couldn’t fit enough panels on my roof to charge up much of anything. I can barely charge up an LED motion light flood.

            We don’t drive much around here, out in the boonies. For scooting around we use a Yaris or motorcycle. The only distance driving we really need to do is to town once in awhile. Only newcomers drive newer cars to town. Most use beaters because that’s what happens to your new car.

            regards

      • Watcher says:

        because it has a gasoline engine in it

        and because oil consumption will drive the inevitable Apocalypse

        • oldfarmermac says:

          Before I spent a hell of a lot of time thinking about it, over the last few years, I used to believe peak oil would hit the industrial economy like a Mike Tyson fist in the solar plexus, and that the economic and military aftermath would mean the end of industrial civilization.

          History might still play out this way. Nobody can be sure it will not..

          But now I have come around to believing that oil production will decline rather slowly, barring bad luck, and that peak oil does not by any means necessarily mean the end of life as we know it.

          Renewables are coming on fast, and we can without a shadow of a doubt DOUBLE the efficiency with which we use oil, directly, within ten to fifteen years, except in a few key industries, and maybe even in that few. At a hundred fifty to two hundred bucks, coal to liquid fuel will be viable. At well over a hundred mpg equivalent, even a little ethanol might be sustainable. You do after all have a LOT of high protein livestock feed left over after you ferment corn.

          Laugh all you like about the sale of LEAF automobiles, but my personal belief is that every last one of them that is not ruined by either rust or an accident will be on the road three or four decades, because batteries are getting cheaper, and swapping one out is only a semiskilled two hour or three hour job, max.

          High gasoline taxes are sure to come , sooner or later, and mandated improving fuel efficiency is already here.

          Self driving cars are just around the historical corner, and they will not only drive themselves, they will plug themselves in, between customers. So – if you hire one even for a long thirty mile one way commute, it will make it’s way to a nearby charging station, and fill it’s tummy with coal fired juice, if the wind and sun are not in the mood. Between times, it will haul a couple, or maybe five or six, people around in the neighborhood of the place you work, and be back at the office door to take you home again. Your retired neighbor will call for it, and use it to run to the supermarket, later in the evening, because that is when the fee for using it will be lowest.

          Weekends it will be hauling people to stores, and ballgames and maybe Grandma’s house if she lives within a couple of hundred miles. It will accumulate miles twice as fast as the average personally owned car.

          You will not be afraid to share it with a stranger, because it will automatically take a picture of every body who gets in it, and send it to the office, and record every instant it is moving, and where everybody gets in and out, etc. It can even be equipped with eyeball readers, or finger print readers, and accept only riders that have been pre approved by company management.

          And even if you have that long sixty mile round trip commute, it will be cheaper for you to hire the autonomous car than it will be to own your own car, and pay property taxes, insurance, repairs, maintenance, traffic tickets, and above all eat tens of thousands of dollars in depreciation.

          If you have a skull work job, you will be able to do enough work while on the road to more than pay for the cost of your ride.

          It is NOT JUST oil that is the problem. Oil is a KEY problem, but it is a manageable one, compared to war, overpopulation, depletion of some other natural resources, climate troubles, and stupidity in general.

          • Javier says:

            Oldfarmermac,

            Peak Oil will cause economic mayhem and could even cause economic collapse. It is possible that most people will not be able to see that it is Peak Oil’s fault, as demand for oil is likely to be low enough as to not cause any shortage. Everybody will look for an explanation to the economic problems that resonates with their beliefs. However the ultimate cause will be the disconnect between the cost of oil production and what the economy can pay for oil. This is equivalent to the ERoEI problem.

            • Dennis Coyne says:

              Hi Javier,

              Oil use per capita has been declining at about 0.65% per year on average since 1982, it dropped much more quickly from 1979 to 1982 and that was disruptive (mayhem not so much at the World level). Not much evidence that this was a problem, World output is growing and with the exception of 2009 has grown every year from 1982 to 2015, I would love to see a more equal distribution of income and possibly different income and estate taxes would help to accomplish that. Eventually oil prices will increase, if we don’t assume that the world economic growth per capita of 1.4%/year (1980-2014) will stop. Over the long run oil prices will adjust to match the cost of the most expensive barrels produced.
              Reserves will only be left in the ground if demand falls due to more efficient use of oil (higher GDP per barrel of oil consumed).

              This may indeed happen, but I am not that optimistic that a transition to less oil use per unit of GDP will happen quickly.

              Chart with GDP/capita (from FRED data), 2010-2014 growth is slower at 1.22%/year (vs 1.43%/year 1980-2014).

              • Javier says:

                You are carefully ignoring the most obvious evidence, Dennis,

                Every period of reduction in global oil consumption has been a period of economic difficulties and low growth.

                You will have to explain why you think this time is going to be different.

                • Dennis Coyne says:

                  Hi Javier,

                  I do not think the decline in oil output is due to a lack of demand, it is due to oversupply of oil. I expect 2016 and 2017 to be more like 1996 to 1999 when oil prices were very low due to oversupply and oil supply decreased while GDP growth was flat.

                  Sometimes the growth of oil output goes down because GDP growth decreases, in this case oil output will decrease because oil oversupply has caused prices to drop below profitable levels.

                  • Javier says:

                    Based on your comments, Dennis, I do not think you are reading that graph correctly. It is a growth rate (first derivative of consumption). Above zero it is always growing.

                    That graph does not imply anything about causes. Your assumption that oil decline due to oversupply will not cause a corresponding reduction in GDP growth is not based on evidence.

            • Dennis Coyne says:

              Oil has been being used more efficiently (more GDP per barrel) since 1982 with and average increase of 1.64% per year in real GDP (2005$) per barrel of oil pr0duced. Chart below with natural log of real GDP per barrel of C+C to show exponential trend (slope of the natural log vs time). Data from Fred (GDP/capita), UN (population) and EIA (C+C output).

              • Javier says:

                The increase in efficiency cannot be very relevant since global GDP and oil consumption continue being coupled after over four decades.

        • Ovi says:

          So what is the problem if the gasoline engine sits there for one year and doesn’t get used?

          • Bob Nickson says:

            From the WSJ:

            “A Chevy spokesman says the Volt, which uses a gasoline engine as a generator to power its electric drive system, will automatically burn off gasoline when it senses it may be getting old. The car’s electronics also keep track of when the engine should be run in order to circulate the oil and keep its moving parts lubricated. The car will let you know when it plans to run the engine, and you can override it initially. But eventually the car will take over and turn on the engine to start using up the aging gas.”

            This link explains the Volt’s system in more depth:

            http://www.plugincars.com/putting-thought-putting-gas-chevy-volt-69473.html

            Cecil Adams addressed the general question of the shelf life of gasoline in one of his columns. Here’s the straight dope:

            http://www.straightdope.com/columns/read/2668/why-does-gasoline-go-stale-so-quickly

            Cecil says: “What makes gas go stale? Usually the first thing that happens is the lighter chemicals in it evaporate, leaving behind a heavier, less peppy product. Gasoline is an ideal motor vehicle fuel partly because it vaporizes readily to form a combustible mix with air.”

            The volt’s fuel system is sealed and pressurized, probably for this very reason.

            • oldfarmermac says:

              The gasoline tank and fuel system on every late model car is sealed and pressurized. This sealing and pressurization is an integral part of the pollution control system, and prevents all but a small fraction of the evaporation of gasoline that would otherwise occur.

              I don’t actually know, but I would not be surprised if a VOLT has a BETTER SEALED gasoline fuel system than most other cars.

              The vapors that DO escape the tanks and fuel lines are diverted into a charcoal vapor canister, which traps most of them.

              When you run the engine, vacuum is applied to the canister, with air allowed into it in small amounts, so that these trapped vapors are drawn into the engine and burned, thus lowering the amount of raw gasoline that makes it into the atmosphere almost to nothing, compared to older cars.

              Nobody need worry themselves about stale gasoline in their car, so long as it is in good order, properly maintained, and they drive it at least once a year to burn out the old gasoline and replace it with fresh.

              I have seen DOZENS of late model cars start right up, within a couple of seconds of turning the key, after sitting without running for a couple of YEARS,and in some cases as much as four or five years. But after that long, it is sometimes necessary to give her a whiff of starting fluid, especially on a really cold day.

              Having said this much, it would be better to run an engine oftener than once a year, to keep it well coated with oil on the internal surfaces subject to wear, and allow it to heat up and drive out any moisture that has found its way inside.

      • Glenn Stehle says:

        Why cherry pick at all?

        Why not use total EV sales for the United States, regardless of brand?

        • Bob Nickson says:

          Why not worldwide?
          I couldn’t find a graphic, but global plug-in sales:

          2014 = 320,713
          2015 = 447,615 w/ December sales not yet included.

          Source:
          http://insideevs.com/monthly-plug-in-sales-scorecard/

          • islandboy says:

            Why not worldwide?

            Because it wouldn't fit the narrative. Neither would the fact that US pure electric (BEV) sales were up by 6.6%, according to data at hybridcars.com, December Monthly Dashboard. It is important that one only highlights “facts” that fit one’s narrative if one is trying to counter “facts” that don’t support it.

  31. Longtimber says:

    Are the Cows coming home?
    “debt fueled financing boom in the shale space will most likely never return.
    As a result, the industry will likely move to self-funding capital expenditures through free cash flow generation in an attempt to significantly reduce its reliance on leverage. Debt levels will initially have to be reduced, significantly fueling a cycle of dramatically lower capital expenditures and consolidation. This process is already underway, but still has a long way to go.”

    http://oilprice.com/Energy/Energy-General/What-Comes-After-The-Commodities-Bust.html

    • Arceus says:

      Saudis (and shorts) won – back to oil imports.

      Price per barrel should reach $100 shortly after most of the shale players are out of money or bankrupt.

    • Watcher says:

      How do you self fund capex if you have negative cash flow?

      • Arceus says:

        Sell assets for pennies on the dollar?

      • Longtimber says:

        Any one watched the Movie “The Big Short”? Some did notice the Garbage pile
        and acted. http://www.thebigshortmovie.com/
        Many I know lost chunks of retirement when Fred/Fanny hit the wall. https://www.youtube.com/watch?v=zYMD_W_r3Fg

        • Arceus says:

          Wish I had been smart enough to short some of the frackers, or any fossil fuel company, in mid 2014…

      • oldfarmermac says:

        There will be plenty of money available to put the tight oil industry back on its feet when prices get high enough to generate profits. If the banks won’t loan to the industry, people with money will finance it personally.

        A billion dollars is hardly more than chump change these days.

        Neither the Saudis nor anybody else can keep tight oil off the market, once the price of oil is high enough to make it profitable. Neither the Saudis nor anybody else can afford to sell dirt cheap forever, just to keep a small portion of the total supply of oil off the market.

        • Arceus says:

          OFM said: “There will be plenty of money available to put the tight oil industry back on its feet when prices get high enough.”

          Yes, that is true. The “vulture capital” money is waiting in the wings to buy up the better assets for pennies on the dollar. Brand new, debt-free companies will be formed and they will be ready to go public just as the price of oil starts to rise. Rinse and repeat.

        • There will be plenty of money available to put the tight oil industry back on its feet when prices get high enough to generate profits. If the banks won’t loan to the industry, people with money will finance it personally.

          Don’t be too sure about that. Most of those folks who invested in shale drillers when oil was around $100 a barrel lost most of their investment. If oil gets high again, what guarantee will investors have that oil prices will not collapse again? Once bitten, twice shy.

          • Arceus says:

            The difference this time is that private equity will be buying prime assets at the bottom of a commodity cycle that is essentially a turn-key operation with experienced management in place and with hundreds of drilled but uncompleted wells. They’ll make a killing, I imagine, then go public.

          • coffeeguyzz says:

            Just a few days ago, Hilcorp – one of the more successful, privately owned E&P companies – just entered into a partnership of sorts with the Carlyle Group in order to acquire assets.
            Carlyle is putting up one and a quarter billion bucks and Hilcorp will be providing the operational expertise.

            In addition to just dispensing $100,000 bonuses to each of its several thousand employees, Hilcorp is somehow managing to operate profitably in the northwest corner of the Pennsylvania … something pretty much unheard of.

            • Arceus says:

              I have heard, and perhaps you can verify, that the typical privately owned e&p companies have far superior assets to the typical small-cap, publicly traded e&p company.

              • coffeeguyzz says:

                Arceus

                Sorry, don’t know too much about that end of this business.

                Public or private, the pricing must be absolutely crushing.

                • coffeeguyzz says:

                  Shallow

                  Something came out in a press release last night that you may find of interest.

                  Samson Oil and Gas (small Aussie outfit) just paid $17 million for 51,000 acres, 41 wells and 700+ bopd in the Wilistson Basin.

                  A lot of the wells appear to be shut in.

                  The ‘punch line’ – to me came at the end of the story. Entire market cap of Samson is about $7 million.

                  This isn’t business … it’s freakin’ alchemy.

              • HVACman says:

                One example – the Rockman works for a private E&P company that has $$$$ cash and zero debt. RM said just a week or two ago on a different forum that the owner is just waiting, like a vulture, for the right all-cash bankruptcy-driven bargain. There are probably hundreds of other companies just like that.

                • shallow sand says:

                  I wish the bankruptcies would hurry up because the paranoid corner of my brain tells me that when the almighty money almagamations like the Carlyle Group swoop in and buy up all the distressed assets, we just might see oil prices rebound. The vultures won’t have the motive to short the heck out of oil, like they are now.

                  Keep in mind, just the paranoid part of me talking here, don’t know to what extent I believe this to be true.

                  • coffeeguyzz says:

                    An offshoot of the Blackstone Group – GSO Capital – just announced putting up a billion bucks to acquire upstream assets.

                    There are apt to be many deals such as these as this shakeout continues.

                    The hydrocarbons are known to be there (glance up at Mr. Nolan’s hydrocarbon-rich heat map), the knowhow to extract them has been effectively demonstrated for a decade, the lack of workable economics is the big, and transient, hurdle.

                    The Saudis recognize this and this, in large part, explains their actions.

          • oldfarmermac says:

            Hi Ron,

            They will gamble, just as they are gambling every time they put their money in any company. The risk of loss will be high, but it will be offset, in their minds, by the possibility of high profits.

            I expect most of the Bakken, Eagle Ford, etc to eventually wind up in the hands of a few larger oil companies.

            Oil simply cannot stay cheap more than a year or two, unless the world economy goes entirely to hell in a hand basket. Too much legacy production is depleting too fast, and any new production adequate to replace lost legacy production appears to require a high price, with the exception of maybe Iran and Iraq.

            Electric cars and conservation and substitution MIGHT just barely conceivably EVENTUALLY slay the oil depletion dragon, but not within the next ten to twenty years.

            There will always be people ready to invest their own money in any industry that looks as if it will earn money.

            I am a rather conservative sort of investor, but they ain’t making any more oil, or any more land. I just recently bought a good sized tract in the expectation the price will be going up because people are moving in droves to my part of the country.

            I would rather they did not, but since I can’t stop them, I might as well make some money off of them. If I am wrong, I will be eating a lot more beans than usual. I might even get to be so hard up I have to cut back on beans, lol.

            The world IS headed to hell in a hand basket, but so far as I can tell, not just yet, barring really bad luck.

            Twenty years is forever, just about, in terms of a man’s own life, but only a yawn in terms of history and nature. I will be lucky to even LIVE another twenty years.

        • Longtimber says:

          How bout Saudi Crude needed to make Steel, Rubber, Drill, Frack, Haul & Pump fluids, Truck and Rail mountains of sand across the continent for each well just for starters? I take it that China drill pipe was not part of the Recent Steel Import Tariffs ?

      • You use some of the DD&A.

  32. ezrydermike says:

    some recent info on the Porter Ranch gas leak…

    Southern California Gas Co. estimates that crews won’t plug the leak at the Aliso Canyon Underground Storage Facility until at least late February, possibly until late March.
    http://www.latimes.com/local/california/la-me-porter-ranch-delay-20160102-story.html

    A leaking natural gas well that has displaced thousands of residents in Porter Ranch lacked a working safety valve, sparking new questions about how the facility was maintained.
    http://www.latimes.com/local/california/la-me-0104-gas-leak-20160104-story.html

    Southern California Gas Co. crews are erecting mesh screens around the utility’s leaking natural gas injection well to prevent an oily mist from drifting off the site and across the nearby community of Porter Ranch, company officials confirmed on Monday.
    http://www.latimes.com/local/california/la-me-porter-ranch-20160105-story.html

  33. ezrydermike says:

    1/5/2016

    • Looks like oil price hit bottom

      • Dennis Coyne says:

        Hi Fernando,

        Next time I call a bottom in oil prices, the price will be closer to zero, but you know much more than me about oil (now that is an understatement 🙂 ) so you may have this right, when storage levels get back to normal 5 year average levels, any rise in oil prices might stick.

      • likbez says:

        Never try to catch a falling oil barrel 😉

  34. Greenbub says:

    Here’s one for you, shallow sand:

    http://seekingalpha.com/news/3014646-pioneer-natural-to-launch-10_5m-share-offering-lifts-q4-production-guidance

    “Pioneer Natural Resources (NYSE:PXD) -4.1% AH after announcing a public offering of 10.5M common shares, with an underwriters option to purchase up to an additional 1.575M shares.

    PXD says it plans to use the proceeds for general corporate purposes, including continuing to actively develop its acreage position in the Spraberry/Wolfcamp play in west Texas while maintaining a strong balance sheet during the current period of low commodity prices.”

    • Arceus says:

      Here is the money quote from Pioneer in explaining why they are doing a secondary offering despite outperforming expectations: “Capital spending will range from $2.4 billion to $2.6 billion this year, up from about $2.2 billion in 2015, in part because oil wells in the Permian Basin in West Texas have outperformed expectations, Pioneer said in a separate statement Tuesday.

      In other words, better production results means the company needs more money.

      • Greenbub says:

        Are they going to fund their operations going forward by issuing new shares? That can’t be right.

    • shallow sand says:

      Geez Louise. Almost makes me want oil to go to ten bucks, just to see them and the folks who buy the PXD shares bite it.

      I’m still not convinced of the LTO Permian. I sure see a lot of dogs on the auction. I guess maybe only the dogs go to the auction.

      Sometimes I think the Permian is still hot just because it is not as homogeneous as the Bakken and EFS. I guess we need some better data to see just how good these PXD wells are, on the whole.

      In any event, why can’t they just drill out of cash flow since they are apparently kicking so much ass? I guess maybe these actions are enough to bluff Wall Street. Their stock has only been halved.

      As Rune notesd recently, a big part of LTO is going to be sold on the cheap. Just look how much of it was sold in 2015!!

      • shallow sand says:

        Need to eat a little humble pie re PXD. They are better hedged than most in 2016. They do have some monster Sprayberry leases. Just can’t tell how many wells are on those.

        However, the additional barrels/mcf aren’t hedged, so seems odd to dilute shareholders to grow production past the volumes hedged.

        They are backing off on EFS.

        • shallow sand says:

          If you read deeper into their recent investor presentation, you will find they utilize much higher oil prices and gas prices than present. They are about 85% hedged for 2016.

          If it were me, I would try to produce no more than the amounts hedged.

          Over half of PXD BOE is gas and NGL. I can’t see BOE at $18-21 being a reason to grow production, especially through borrowing or dilution.

          • Enno says:

            Shallow,

            “If it were me, I would try to produce no more than the amounts hedged.”

            If your cost is higher than the current price, or better said, if your NPV is negative based on unhedged pricing, would it not be better to produce as little as possible, and sell those hedges for a profit? This is assuming you are the owner, and don’t have to keep up appearances..

            • That’s correct. Hedges have no direct ties to production. A company can sell the oil at the hedged price or just sell the hedge for the same amount of money.

              Whether you make money or lose money on a hedge depends on the price you hedged at and the actual physical price at the time you liquidate your hedge. You either make… or lose… the same amount of money whether you sell any oil or not.

              • shallow sand says:

                Enno and Ron, you are both correct. However, although it does not seem possible for a price spike in this environment, you do not want to go too short on production, in the event of a price spike which causes you to pay the counterparty.

                As for just liquidating your hedges, that presupposes you can call a bottom. Ask Harold Hamm about how easy that is to do. LOL. I suppose once we blow through $32 on WTI, the next support is the 1999 low?

                • shallow sand says:

                  Also, keep in mind we are speaking of going businesses here, with employees, equipment, holes poked all over the shale plays, new office buildings built when oil was $100, etc.

                  We would love to shut everything down and return down the road when the price rebounds, but it just doesn’t work that way.

                  That is why a producer should normally not cash in hedges. They are bought to mitigate against wild prices swings, which are common in oil and gas.

                  When you cash in the hedge, you are in effect saying you know what the future price will be, which is counterintuitive. You hedged because you had no idea what the price would be.

                  We have hedged with puts when we had debt. Figured when oil was $100 and we had no debt AND significant cash, we didn’t need to. We were wrong.

                • As for just liquidating your hedges, that presupposes you can call a bottom.

                  Hedges expire. They must be liquidated upon expiration. Of course they can be liquidated at any point prior to expiration.

                  • shallow sand says:

                    Ron, I am sure I am not using proper terminology sometimes. Sorry about that.

                    What I was referring to is like what CLR did, they cashed in (sold) all of their oil hedge positions when oil was $75, think that was the bottom. I have read that this cost Continental over $1 billion in 2015.
                    This is even after deducting the $400+ million they netted from the sale.

                    I know you have experience with hedging on the financial side. Are you surprised we have heard little about counterparty risk? I was always told to watch who you hedge with, and with the extreme crash in oil and natural gas, I am surprised we aren’t hearing about financial firms being in distress due to the large cash payments now being required of them.

                  • Are you surprised we have heard little about counterparty risk?

                    No, I am not surprised at all. That is because financial firms you speak of are just the middle men. Hedges, that is puts, calls, futures and other derivatives are held by the clients of these firms, not the firms themselves. By that I mean the investing public. Or to be more correct, the gambling public.

                    The same with bonds. The junk bonds these drillers sell are bought by the clients of the banks and brokerage firms. But in the case of bonds this is not always the case. That is, sometimes, the bonds are sold to institutions that bundle them and resell them to pension funds and such.

                    Bonds, along with mortgages, can sometimes wreck havoc with certain sections of the economy, like they did in 2008. But this is not usually the case with derivatives, which are the instruments of hedgers. Banks are not usually allowed to invest in derivatives. Some have in the past of course. And when they did it usually made the headlines, when they went bust as a result.

                    But individual investors go bust every day as a result of buying or selling derivatives. And it never makes the headlines.

  35. oldfarmermac says:

    http://www.bbc.com/news/world-latin-america-35238576

    It appears that the new legislators were sworn in and have assumed control of the government- to the extent that is possible,at this time.

    I was a LONG way from SURE they new folks would be allowed to assume their seats.

    The first order of business appears to be the release of political prisoners.

    This is a great day for Venezuela, but the country is a LONG WAY from out of the deep woods.

    Considering all the dirty tricks the Maduro regime has pulled over the years, and over the last few days, I will not be surprised to hear of more of the same.

    Nevertheless, things are looking up for this unfortunate country.

    I believe I have an excellent shot at living to see a free election in Cuba!!!

    The real old time true blue people who formed the core of the early Castro regime are now just about all ready for the compost heap, and the younger folks are almost for sure lacking in the deep sense of brotherhood and group loyalty the older generation possessed.

    A lot of the current day members of the Castro regime who are high enough up to know something about what life is like in the rest of the Western hemisphere may be secretly ready to give it up, if they see their way to doing so without too much personal risk.

    In the end, this had A VERY GREAT DEAL to do with the fall of communism in the old USSR as anything else. The people in and OF the party, the heart and soul that held it together, ceased to believe in communism, and realized they were just part of a faction out to look out for itself- a faction that could not provide a fully qualified doctor or engineer nearly as high a standard of living as a truck driver or auto mechanic in capitalist Germany or the USA.

    So nobody, excepting really rotten bad guys in high positions, WANTED the old commie system to survive.

    Ironically the old Russian commies fell like ripe fruit into the hands of the capitalists, in a manner of speaking.

    Maybe I am wrong, but I doubt there are very many people who are under fifty in the current regime who really and truly BELIEVE in it, if they are even marginally well informed about life in let us say FLORIDA.

    The Castro regime could conceivably collapse of its own rotten weight in another decade or two, maybe sooner, like an old house finally caving in.

    • Longtimber says:

      Can this Be? Mind Blowing this did not get much press in US.
      “Unknown to the US at the time, there were 100 other nuclear weapons also in the hands of Cuba, sparking a frantic – and ingenious – Russian mission to recover them.”
      http://www.bbc.com/news/magazine-19930260
      So the question – did Kennedy know ? Was Castro going to use them to find Oil?

  36. aws. says:

    TODO: flatten peak winter demand… it’s expensive.

    Coldest Weather of Season Sends New York Power Over $1,000

    Jonathan Crawford, Bloomberg, January 5, 201

    Spot wholesale power for Manhattan and its four neighboring boroughs spiked by $1,157.88, to average $1,172.75 a megawatt-hour during the hour ended at 10 a.m. on Tuesday, compared with $14.87 during the same hour Monday, grid data compiled by Bloomberg showed.

    Power in the Boston market jumped $69.91 to average $95.27 a megawatt-hour.

  37. Toolpush says:

    North Korea enter the Hydrogen economy, but not in a good way!

    http://www.skynews.com.au/news/top-stories/2016/01/06/concerns-quake-is-north-korean-nuclear-test.html

    North Korea detonates hydrogen bomb

    The United States Geological Survey reported a 5.1 magnitude quake that South Korea said was 49km from the Punggye-ri site where the North has conducted nuclear tests in the past.

  38. Lightsout says:

    Question.
    Has any shale oil production company ever been profitable?

    • shallow sand says:

      I think so. Some early wells in the bakken have cumulative of over 500,000 BO.

      Assume 20% royalty burden, cost then of $12 million to drill and complete, $80 oil price, $3 gas price, 600,000 mcf gross gas.

      $32 million of oil revenue.
      $1.4 million of gas revenue.

      Opex of maybe $4 million.
      G & A of maybe $1 million
      Severance and extraction taxes of maybe $1 million.

      Need to include some financing costs, but yes, those top 5% wells were good at much higher prices.

      Unfortunately many cumulatives to date are from 150,000 – 200,000 barrels of oil. And now prices are $25 for oil and $1.75 for gas. So even though well costs are way down, the wells wont payout.

      Assuming oil prices stay here or go lower, many shale companies will be irreparably damaged. Their assets are currently worth less than their debt using PDP PV10 as a valuation.

      For example, when oil was $35 we were buying stable, low decline production that had OPEX of $10-15 per barrel, 100% oil, for $10-20 thousand per barrel.

      Continental Resources, at $20 thousand per barrel, has assets worth about $4.5 billion, with debt of over $7 billion, and those assets are high decline.

      If we are realistic, almost all LTO is insolvent and should not qualify for any more debt. Given that none have significant cash, this should spell trouble.

    • AlexS says:

      Before the sharp drop in oil prices, most LTO and shale gas producers were profitable, but only a few of them were cash-positive.
      That means that they had profits in the profit & loss account, but their capex exceeded cashflow from operating activities.
      In 2015, most companies have shown net losses in the P&L account and their capex / operating cashflow ratio increased, despite significant cuts in capex.

  39. oldfarmermac says:

    Here is a question that is probably going to get a belly laugh out of whichever pro answers it for me, but better known as ignorant today than for a fool tomorrow.

    When you are out in the real boonies, such as the plains of North Dakota, and land is dirt cheap, why do oil guys seem to always buy just the mineral rights, and not just buy the land as well? Considering what they pay for mineral rights, and the cost of drilling, the land cost would be trivial.

    Of course ND land suitable for raising wheat is probably going for at least a couple of thousand bucks an acre, but that appears to be peanuts compared to the total cost of getting out oil. Good farmland farther south sometimes goes for close to ten grand.

    Now if for instance, I had been an oil guy and bought in ND, land as well as mineral rights, a few years back, today I would not NEED to drill a well to hold my lease by production. The price of the land would have been very well covered as a hedge against this possibility.

    And another question. Are the rights to oil and gas sometimes sold separately from the rights to other minerals?It occurs to me that eventually someplace, some time, a land owner is going to realize he gave away some nice sand and gravel deposit, or stone suitable for crushing for gravel, or a limestone deposit suitable for mining, or maybe even some extremely valuable metal ores.

    My guess is that buying only mineral rights has a lot more to do with taxes or some obscure regulations than with actual practical day to day operations.

    • Ves says:

      Mac,
      Cost of land is not trivial in the monetary system that has built in price inflation. Few hundred miles north of ND agricultural land goes for $8,500 per acre and that is not even higher quality potato land.
      In oil business you just buy mineral rights and lease small portion of land around the pump jack so the trucks can service it and tiny access road. Everything else that you would lease or buy would be just liability.

      I don’t think cash flow negative oil companies are drilling to hold a lease. That is baloney. They are drilling because they would be officially bankrupt if they stop. As long they are drilling extend and pretend game can continue for a little longer.

      • oldfarmermac says:

        Personally I have no idea, which is why I asked. But a lot of people seem to believe some wells are being drilled just to maintain leases rather than lose them.

    • R Walter says:

      OFM, oil leases in sweet spots were going for 20,000 dollars per acre. Not many like that, but that was the price.

      Raw land around towns like Williston sells for 100,000 dollars per acre.

      No farmer is going sell land for two grand per acre. Not any more.

      There are millions of tons of coal and potash too.

      Leases will be for oil only.

      • oldfarmermac says:

        I agree about good farm land, two thousand bucks is way too low. But I am thinking a lot of land in the boonies of ND may not be worth farming, or maybe can only be farmed as pasture land, or hay land. So some ND land might sell pretty cheap, if it is a long way out from town.

        I have never been to ND myself, but if I had not been busy looking after my old Daddy, I would have spent a couple of recent winters up that way, driving a nice cozy well heated mining truck or something of that nature.I have lived in a man camp before, and wouldn’t mind doing so again for a few months a couple of times in order to make a temporary six figure income. I used to manage this working nuclear plant shutdowns.

        Another fifty grand would be enough to just about finish off all the improvements I would like to make around the old home place, such as installing my own pv system.

        I have always believed anybody who believes in a new industry coming on really strong in a given area should invest in land and old existing housing in that area, rather than the industry itself, if they are in a position to do so.

        Consider:
        It is true that quite a few companies in the Silicon Valley have gone up like rockets and made it to orbit, and HAVE STAYED UP. But most of them have gone broke, or been forced to merge with a larger company. I am talking about the many little ones nobody ever hears about when I say “gone broke”.

        BUT virtually EVERY house in the area is now worth ten times what it used to be, and you could have bought any of them for five or ten percent down at one time, and would now have a HUGE profit on EVERY LAST ONE of them of ten to a hundred times your initial leveraged investment, not to mention a HELL of a LOT of free cash flow right along, after the first couple of years.

    • shallow sand says:

      Dan, thanks.

      The one that hits hardest, IMO, is $2.4-2.6 billion CAPEX just to grow production 20-25K BOEPD.

      Paying $100K plus per BOEPD in a $20K of less environment.

      I thought this management lived through 1986? Did Joe Parsley drill like this in the wake of the 1986 bust?

      Someone should bring that up. I’ll bet he pulled in his horns in 1986.

      • Jeffrey J. Brown says:

        When we see an oil and gas price recovery, and presumably an attempt to increase drilling and completion efforts, one wonders how many service companies will still be in business, when E&P companies start calling about drilling and completing new wells.

        It seems to be an article of faith among most analysts that US oil & gas companies can increase production on a very short notice, but I think that a point that almost all analysts are missing is that the US rig count number in 2014 was the result of about a 10 year plus increase in US Lower 48 service company infrastructure and personnel.

        That service company infrastructure and personnel base, which took 10 years or more year to build up, is fading away now, literally on a daily basis. And of course, as many people have pointed out, it’s going to be much, much more difficult for tight/shale players to get debt financing going forward.

        Also, the annual volumetric loss of production from existing wells, due to depletion, increases as total production increases and we have also seen an increase in the annual volumetric loss of production due to the huge increase in the underlying decline rate from existing wells. Let’s assume existing US wells lost 0.25 million bpd of C+C production in 2008 (5% of 5 million bpd). At a 15% annual loss from a production base of 9.1 million bpd, the industry would have to put on line about 1.4 million bpd of new C+C production every year, just to offset declines from existing wells.

        • AlexS says:

          US drilling rig fleet is sufficient to support a significant increase in drilling activity. While a number of older rigs were scrapped, most of the rigs are idled and ready to restart the work. And, in general, drilling rig fleet is now much more efficient than 5-7 years ago.

          Getting debt financing should indeed be a big problem for shale players.
          While debt levels are generally manageable, debt ratios are not too high, and most of the debt is maturing beyond 2020, shale players need large amounts of new financing just to keep flat production.
          Although banks have refinanced most of US E&Ps’ credit facilities in 2015, they did not provide new loans.
          There was a lot of new bonds and equity issues in 1Q-2Q15, but this source of funding started to dry up in the second half of the year as investors understood that low oil prices are likely to stay for longer.
          My guess is that even when oil prices start to recover, both shale players and their lenders will be much more cautious than in the years of the shale boom.
          LTO output is likely to recover, but its growth rates will be relatively modest (a few hundred kb/d per year, rather than 1 mb/d on average in 2012-14).
          And by the end of this decade we will likely see the effects of declining productivity in the sweet spots.

          • Jeffrey J. Brown says:

            We shall see. But a lot of equipment is rusting away and literally degrading on a daily basis, inclusive of everything from drilling rigs to frac units to workover rigs. On the personnel side, many people that have been laid off won’t come back, and many older workers have retired, or are retiring or passing away, or have become unable to work. In regard to field work, many of those that do come back will have to be retrained and pass drug tests.

          • Doug Leighton says:

            “US drilling rig fleet is sufficient to support a significant increase in drilling activity. While a number of older rigs were scrapped, most of the rigs are idled and ready to restart the work. And, in general, drilling rig fleet is now much more efficient than 5-7 years ago.”

            Totally agree. Having gone through several “cycles” the mechanical part of any business is never a significant constraint on a rebound. Any “restraint” is related almost entirely to financing with a small component attributable to availability of skilled labor — which never lasts long. Even state of the art offshore rigs can be assembled fairly quickly.

        • Jeffrey J. Brown says:

          US Rotary Rig Count (oil & gas) Versus WTI Crude Oil Price Chart

          Note that it took about five years to go from around 1,000 rigs to around 2,000 rigs, circa 2003 to 2008, and it looks like the rotary rig count, except for the 2009 “V” shaped oil and rig count crash, has been around 1,800 to 2,000, until the recent oil price decline, which is much more extended than the 2008 oil price decline (which bottomed out in December, 2008).

          And note that even during the “V” shaped decline in 2009 it looks like it took about two years to get back to around 2,000 rigs, from a low of less than 1,000 rigs.

          As noted above, a lot of rigs that were in dry gas plays, like the Barnett, moved to oil and liquids rich plays, starting in 2008. As also noted above, a reasonable estimate is that the US oil industry had to put on line about 0.25 million bpd of new C+C production in 2008, just to offset declines from exiting wells, whereas they probably now have to put on line somewhere around 1.4 million bpd of new C+C production per year, just to offset declines from existing wells.

          On the gas side, assuming about a 24%/year gross rate of decline from existing wells (note the 20%/year net rate of decline in Louisiana’s gas production from 2012 to 2014), the US has to put on line about 17 BCF/day per year of new gas production, just to offset declines from existing wells. Based on 2013 EIA data, just to offset declines from existing wells, the US has to put on line more new gas production than the 2013 levels of production of every country in the world, except for Russia and the US.

          In any case, my guess is that, for all the reasons discussed above, even given a rising oil price environment, the increase in the rig count will look more like the 2003 to 2008 rig count increase, rather than the 2009 to 2011 rig count increase.

          • AlexS says:

            We should separate between active rig count and rig fleet.
            The current rig fleet utilization rate is only ~50%. And it is mostly composed of newer rigs. With shorter drilling times, increasing share of pad drilling and larger share of moving rigs less rigs are needed to drill same number of wells.

            U.S. available vs. active rigs, 1955-2015
            Source: World Oil

            • Enno Peters says:

              Alex,

              Exactly. This is why the # wells drilled has fallen off much slower than the rig count. See the graph from ND, which shows the rapid increase in efficiency over the last months, as less efficient rigs/crews/methods were dropped: rig efficiency has more than doubled compared with a couple of years ago, and is about 50% higher than just a year ago. It’s not enough to keep production up, but it helps.

              I think it also means that a further rig count drop may be more noticeable, as we then may see also the high-powered rigs leaving. During the last webcast in December, Helms mentioned that there were 65 rigs drilling, but that in the first half of 2016 it could drop to 55. Currently with 57 rigs drilling, and 3 up for stacking, that may come sooner than he expected.

              • AlexS says:

                Thank you, Enno.
                As we can see from yours and Ciaran Nolan’s charts, there was only a very modest increase in average well productivity in the Bakken. So the key factor supporting output levels was more efficient drilling: more wells per rig

                BTW, many thanks for your excelent post on refracking in ND!

      • shallow sand says:

        PXD stock fell $9.02 today.

  40. Ralph says:

    With the strong discussion on this site about the benefits or otherwise of autonomous vehicles, it has suddenly hit me like a light bulb exploding of one other demographic who will be cheering their development to the rafters.

    Terrorist bombers.

  41. Jeffrey J. Brown says:

    Regarding US light vehicle sales, 2015 was an all time record high.

    WSJ article:

    Big SUVs Fuel U.S. Production Boom

    The tables have turned for the U.S. auto industry and Arlington, Texas, is among the biggest winners, straining to meet demand for its hulking sport-utility vehicles despite running three production shifts a day.

    • Doug Leighton says:

      But it can’t be…. all those cute little EVs are taking over, aren’t they?

      • oldfarmermac says:

        Hi Doug,

        Knowing you, I am sure you would have added a smiley face, if it had occurred to you some people might not recognize a bit of humor.

        Would you venture a guess how long it might be before total world wide oil production drops off say ten percent? OR oil is at or above a hundred fifty per month for twelve consecutive months?

        Family lore has it that some of the old folks hit the ground on their knees to get right with Jesus in a hurry when the first barnstorming airplane passed over this neck of the woods. They had HEARD of airplanes, but they didn’t believe in them. They did however believe in the Book of Revelations.

        My maternal grandfather never believed when he was a kid that tractors and trucks would displace horses and mules, but he personally owned both a tractor and a truck by the time he was in his mid thirties. I still have his LAST tractor.

        My personal opinion at this time is that the price of batteries will come down enough within ten years that many millions of pure electrics and millions more plug in hybrids will be sold every year, assuming Old Man Business As Usual is still staggering along ten years from now.

        People who are hard up will learn to live with range limitations, and people with money will just continue to own a conventional or plug in hybrid, PLUS they will own an electric for day to day use because it will be just as nice a car, but much cheaper to own and drive.

        If you are rich enough, you can afford to eat at McDonalds. Both Bill Gates and Warren Buffet are reputed to do so.

        But according to a recent conversation supposedly overheard between a man and his wife about to buy a new car, they decided they were NOT WELL ENOUGH OFF to drive a Buick, and so were compelled to buy a LEXUS in order to maintain appearances.

        • Doug Leighton says:

          LOL “Would you venture a guess how long it might be before total world wide oil production drops off say ten percent? OR oil is at or above a hundred fifty per month for twelve consecutive months?”

          Sure Mac. My GUESS is worldwide oil production will have dropped off by 10% in 3.128 years. Of course my projection (guess) is based on what I know (or think I know) about depletion in legacy fields (such as Prudhoe Bay) combined with shrinking exploration budgets. But, guesses are useless. One big bomb in Riyadh (for example) could change everything and there is always something unexpected coming along.

          • Doug Leighton says:

            Meanwhile,

            OIL PRICE FALLS BELOW $35 A BARREL TO FRESH 11-YEAR LOW

            “Brent crude sank by 4.2% to $34.88 a barrel, surpassing its late December fall, and taking the price to its lowest level since 1 July 2004. The price of US crude dropped 3.3% to $34.77 a barrel. Analysts said fears over the worsening relations between Saudi Arabia and Iran, which had initially raised concerns about possible supply disruptions and boosted the oil price, had now been overtaken by pessimism over oil cartel OPEC ever agreeing on a production ceiling…”

            http://www.bbc.com/news/business-35243442

            • Watcher says:

              Ya Douglas, this is all because for 19 months now people have been placing orders for oil they don’t need and that they are going to put into storage and not use. Perfectly rational scenario.

      • HVACman says:

        Hey, I’m an EV fan, but I don’t begrudge the auto manufacturers for making what sells. It’s just business. The auto manufacturers have finally learned a few lessons about oil price fluctuations and how they affect their business and bottom line. Make SUV hay while the sun shines on low oil prices, but have EV’s and hybrids already developed and on the market, ready to ramp up production when the oil price turns ugly again (at least ugly for the consumer, but not for the E&P’s). Guess you could say that EV’s are their oil price hedge contracts.

        Also, there are the US CAFE standards and state CARB standards they have to meet to sell in the US…they need to sell x number of zero-emission vehicles (or buy credits from other manufacturers).

        Plus, EV technology is ramping up so fast that many of the non-energy benefits of electric drive (quiet, high low-end torque, low service requirements) are starting to creep into the mainstream market. Expect in the near future to see hybridized full-size SUV’s and pickups using electric assist to improve towing capacity while also increasing mpg and providing a smoother, quieter ride.

  42. Longtimber says:

    Bankers List
    “It is these companies which find themselves inside this toxic feedback loop of declining liquidity, which forces them to utilize assets even faster, thus even further shrinking the borrowing base against which their banks have lent them money, that will be at the forefront of the epic bankruptcy wave that is waiting to be unleashed across the US.

    http://www.zerohedge.com/news/2016-01-05/next-default-wave-banks-have-quietly-shrunk-these-25-energy-companies-credit-facilit

    • Jeffrey J. Brown says:

      My previous comment on “Net Cash Flow Math.”

      Net Cash Flow math is actually quite similar to Net Oil Export math, to-wit, given an ongoing decline in gross cash flow from production sales, unless total costs (lease operating expenses plus G&A overhead) fall at the same rate as, or at a faster rate than, the rate of decline in gross cash flow, the resulting rate of decline in net cash flow will exceed the rate of decline in gross cash flow and the rate of decline in net cash flow will accelerate with time.

      This has “Interesting” implications for the remaining cumulative net cash flow from developed producing properties. Of course, the gross cash flow from producing properties can decline when (not if) that production declines and/or if the price declines. This implies a tremendous mismatch between remaining cumulative net cash flow and debt levels (especially for tight/shale players).

    • AlexS says:

      From Seekingalpha:

      E&P Chapter 11 Bankruptcies: 2015 Review And 2016 Outlook – A Preview Of The Walking Dead?

      Jan. 5, 2016
      http://seekingalpha.com/article/3789316-e-and-p-chapter-11-bankruptcies-2015-review-and-2016-outlook-a-preview-of-the-walking-dead

      In North America, 42 companies with $17 billion in debt filed in 2015, the highest level since the financial crisis in 2008. Of these filings, 36 companies with $16.7 billion in debt filed in the U.S.

      • Heinrich Leopold says:

        AlexS,

        It will be interesting to see how the current unfolding bond market implosion will affect the US economy. So far, any implosion of the bond market had serious consequences on the overall US economy (see chart below).

        • AlexS says:

          Heinrich,

          Unlike the 2008 subprime crisis, the total amount of high-yield oil&gas bonds at risk of default in 2016 is not that big to trigger an overall crisis in U.S. economy. But there could be some negative impact.

  43. oldfarmermac says:

    This is sort of off topic, but relevant to the bigger question of sustainability.

    http://www.japantimes.co.jp/opinion/2015/09/24/editorials/coming-crisis-housing/#.Vo02QU-aiUl

    Japan will soon, and Western Europe not quite so soon, will have falling populations, barring truly major demographic suprises, such as a fast RISING birth rate. This means all sorts of long lasting infrastructure from houses to office buildings will most likely be in excess supply.

    The most interesting thing about such articles is they NEVER mention the upside.

    Your stereotypical middle aged thumb sucking boomer still living with his mom is NEVER going to have to buy a house, OR pay rent. He will inherit.

    As Ron has pointed out occasionally , resources as such might not be the knock out punch in terms of economic collapse. UNEMPLOYMENT might be a much knottier problem in the near and mid term,hitting us sooner. What are all the people in the housing industry, and related industries, going to do to pay their bills, when the industry shrinks to mostly just making repairs and swapping titles from one generation to the next?

    Folks in shrinking industries might have to give some thought to making a new career as a personal servant. My sarc light is OFF.

  44. Toolpush says:

    Oil is down to $34 today due to the EIA weekly report. But is looks very fishy to me.

    http://ir.eia.gov/wpsr/wpsrsummary.pdf

    Summary of Weekly Petroleum Data for the Week Ending January 1, 2016
    U.S. crude oil refinery inputs averaged over 16.6 million barrels per day during the week
    ending January 1, 2016, 65,000 barrels per day less than the previous week’s average.
    Refineries operated at 92.5% of their operable capacity last week. Gasoline production
    decreased last week, averaging about 8.8 million barrels per day. Distillate fuel
    production increased last week, averaging 5.0 million barrels per day.
    U.S. crude oil imports averaged over 7.5 million barrels per day last week, down by
    382,000 barrels per day from the previous week. Over the last four weeks, crude oil
    imports averaged about 7.8 million barrels per day, 5.9% above the same four-week
    period last year. Total motor gasoline imports (including both finished gasoline and
    gasoline blending components) last week averaged 602,000 barrels per day. Distillate
    fuel imports averaged 164,000 barrels per day last week.
    U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum
    Reserve) decreased by 5.1 million barrels from the previous week. At 482.3 million
    barrels, U.S. crude oil inventories remain near levels not seen for this time of year in at
    least the last 80 years. Total motor gasoline inventories increased by 10.6 million barrels
    last week, and are in the upper half of the average range. Both finished gasoline
    inventories and blending components inventories increased last week. Distillate fuel
    inventories increased by 6.3 million barrels last week
    and are near the upper limit of the
    average range for this time of year. Propane/propylene inventories fell 1.4 million barrels
    last week but are well above the upper limit of the average range. Total commercial
    petroleum inventories increased by 7.3 million barrels last week.
    Total products supplied over the last four-week period averaged 19.7 million barrels per
    day, down by 2.5% from the same period last year. Over the last four weeks, motor
    gasoline product supplied averaged 9.0 million barrels per day, down by 3.6% from the
    same period last year. Distillate fuel product supplied averaged over 3.5 million barrels
    per day over the last four weeks, down by 9.3% from the same period last year. Jet fuel
    product supplied is down 0.9% compared to the same four-week period last year.

    Refinery inputs down 65,000 bopd, usage at 19.7 mmbopd, yet gasoline plus diesel rose 2+ million barrels per day??
    It appears to be more of an anomaly to me, but the market has bought the story, hook line and sinker.

    • likbez says:

      The system is destabilized by the positive feedback provided by “naked” futures which are settled in cash. So short term movements does not reflect anything, but the fact that is destabilized and that HFT players amplify moves further increasing this destabilizing effect of futures.

    • Toolpush says:

      http://www.downstreamtoday.com/news/article.aspx?a_id=50573

      COLUMN-Don’t Be Fooled by Year-end Rise in U.S. Gasoline Stocks
      by John Kemp Reuters

      LONDON, Jan 7 (Reuters) – The 10.6 million barrel jump in U.S. gasoline stocks last week, reported by the Energy Information Administration on Wednesday, sent gasoline futures tumbling 4 percent and intensified the selloff in oil prices.

      Estimated gasoline consumption was also down 1.2 million barrels per day (bpd), over 13 percent, compared with the prior week, adding to market alarm about the health of fuel demand.

      But most of the increase in stockpiles and apparent drop in fuel consumption was likely due to year-end seasonal quirks rather a sign of slackening consumption.

  45. Greenbub says:

    Sorry to belabor this point, but it directly relates to Ron’s peak oil prediction:

    http://www.zerohedge.com/news/2016-01-06/pray-us-libya-issues-cry-help-isis-advances-oil-fields

    Oil is down over 5% at the same time.

  46. Factor in potential for unrest in Venezuela. They are in session right now, voted to accept the three representatives from the Amazinas state, they come from an area inhabited by native tribes, were denied access yesterday by the socialists.

    This sets up a clash. The former assembly president walked out and stated to the media the whole assembly should be ignored by the executive and other authorities. This amounts to a call for a coup. Now let’s see what the national guard surrounding the building do. They are known to be commanded by a radical socialist who backed the proposed December 6 coup attempt by the commies.

  47. ezrydermike says:

    down $2 from yesterday

    • Javier says:

      Looks to me that it is going to $29 to check that support.
      It has a fair chance of stopping there. If not I guess anybody with an empty bucket might want to fill it at those prices.

      • Greenbub says:

        Headed that way at $32.87. Now everyone is going to have to pump more to cover their debts.

  48. ezrydermike says:

    more on the Porter Ranch gas leak…

    Gov. Jerry Brown declared a state of emergency Wednesday in Porter Ranch, where thousands of residents have been evacuated due to a massive gas leak.

    In declaring the emergency, Brown noted the widespread disruption the gas leak has caused and reiterated the state’s efforts to help fix the problem.

    Under the order, “all state agencies will utilize state personnel, equipment, and facilities to ensure a continuous and thorough state response to this incident,” according to a statement released by the governor.

    http://www.latimes.com/local/lanow/la-me-ln-brown-declared-emergency-at-porter-ranch-amid-massive-gas-leak-20160106-story.html#nt=outfit

  49. Watcher says:

    One more time, sportsfans.

    If you’re an oil producer, you don’t pump oil unless you have orders for it. If you DID pump oil without orders for it then your storage and ONLY your storage would grow. You don’t ship it without getting paid for it and no one will pay for what they didn’t place an order for.

    So who out there is clamoring to have oil shipped to them they aren’t going to use? The Saudis have said for years they produce oil to meet orders. It’s 19 months now. Who out there is placing orders for oil they aren’t going to use and paying for it so they can put it into storage? I’m good with advance orders forcing taking delivery they don’t need now. I’m okay with a scenario of people placing orders for a month ahead and discovering no customers for it and having to take delivery. I’m not good with that scenario happening for 19 months.

    The whole narrative is bogus.

    • oldfarmermac says:

      A SIMPLE and entirely adequate explanation for where all the oil is going is that a little of it is winding up in storage, maybe, but the vast majority of it is being bought and burnt, or manufactured into petrochemicals, on a day to day basis.

      Why does anybody have to ASSUME more oil is constantly being produced than is constantly being used ?IF it is being produced , SOMEBODY is using it, excepting a small amount that MIGHT be going into long term storage.

      I can’t find anything in the news about any oil company dumping oil the way dairy farmers have occasionally dumped surplus milk. LOL

      If diesel is still dirt cheap when spring arrives, I am planning on putting a thousand extra gallons thru my backhoe, digging myself a nice little personal lake.Better dig it while the digging is good , and cheap.

  50. ezrydermike says:

    TransCanada Corp sued the U.S government on Wednesday to reverse President Barack Obama’s rejection of the Keystone XL pipeline, calling his decision unconstitutional.

    TransCanada also sought $15 billion in a separate action under the North American Free Trade Agreement (NAFTA), saying the pipeline permit denial was “arbitrary and unjustified.” The company’s lawsuit in federal court in Houston does not seek legal damages but wants the permit denial invalidated and seeks a ruling that no future president can block construction.

    http://www.reuters.com/article/us-transcanada-keystone-idUSKBN0UK2JG20160106

  51. ezrydermike says:

    Las Vegas — Chevrolet hopes its all-new Bolt EV will be an affordable option that will eliminate electric car range anxiety.

    The Detroit automaker unveiled the Bolt at a Wednesday press conference at the CES technology show.

    The five-seat car will have a range of more than 200 miles and take nine hours to fully charge, according to General Motors Co. officials. It can get to an 80 percent charge in 60 minutes. The Bolt starts at $30,000 — including a federal tax credit — and will go into production late next year at the automaker’s Orion Township plant alongside the Chevy Sonic.

    http://www.detroitnews.com/story/business/autos/general-motors/2016/01/06/chevy-bolt-ces-electric/78349028/

    General Motors just beat Tesla Motors in the race to produce a truly affordable electric vehicle with triple-digit range.

    Moments ago, GM CEO Mary Barra unveiled the all-electric Chevrolet Bolt at CES, providing the first look at what may be the most significant vehicle the automaker has built in decades. The little EV may look like just another five-door compact, but two figures make it an engineering masterstroke: 200 and 30,000.

    That first number is its range: 200 miles on a fully charged battery. That’s a number exceeded only by Tesla, whose cheapest model starts north of $70,000. And that brings us to the second number. Chevy promises the Bolt will cost less than $30,000 after the $7,500 federal tax credit. Together, they make the Bolt the first EV that delivers excellent range at a great price. It is the electric car for the masses.

    http://www.wired.com/2016/01/meet-the-chevy-bolt-the-first-electric-car-for-the-masses/?google_editors_picks=true

    • Watcher says:

      How many minutes does it take to fill 80% of a gasoline tank?

      • Fred Magyar says:

        Well, let’s say we have a compact car with a 50 Liter tank and we use a standard eyedropper which dispenses 0.05 ml per drop. If we are really adept at using the eyedropper say it takes 5 secs. to fill it with gas and another 5 secs to dispense it into the tank so we are talking 1 secs per dose of 0.05 ml of gas dispensed into the tank. 50 liters is 50,000 ml. 50,000/.05 = 1,000,000 doses at 1 secs per dose, that’s 1,000,000 seconds. That’s roughly 11.6 days, I’ll let someone else figure out the 80% of that… 🙂

        • Doug Leighton says:

          But one suck fills the dropper to about 2/3 of its height which should be roughly 1.0 ml. So, you’re not dispensing at 0.05 ml per squirt but more like 1.0 ml per squirt. I think it would be dumb to fill the tank one drop at a time.

          • Fred Magyar says:

            I think it would be dumb to fill the tank one drop at a time.

            LOL! I guess I’ll have to redo all the calculations 🙂

            Maybe someone could design a larger eyedropper, call it a fast dropper, granted that might present a greater fire hazard…

            • islandboy says:

              C’mon guys, let’s be serious for a little. Watcher does have a point and that is, most people are used to spending just a few minutes to refuel their (light) vehicles. Most people wait for their fuel level to drop to a certain level and then visit a gas station and top up their tanks, although re-filling habits vary widely from person to person (in my neck of the woods gas station attendants have told me that some taxi drivers never buy more than a gallon at a time and always seem to be running close to empty).

              What Watcher is not acknowledging with his question is that, the refueling habits for BEVs will probably be quite different. By far the most convenient way will be, to plug in every time one gets back home with no plans to go out again for a few hours. Plugging in and out again only takes a few seconds.

              I just updated my “US BEV Sales” spreadsheet using data from hybridcars.com and here are some interesting points:

              December 2015 set a record for BEV sales at 7,954

              2015 BEV sales were up on 2014 sales by 6.6%

              US cumulative BEV sales up to the end of 2015 stand at 206,508

              That is over 200 thousand vehicle owners who are adjusting to the new paradigm.

              Edit: Found an interesting web page with charts for cumulative sales to date for plug-ins and BEVs broken down by model at:’

              http://www.casteyanqui.com/ev/usa_sales/index.html

              • Watcher says:

                uhm no.

                Batteries designed for non deep discharge, like those on spacecraft, don’t do well if you demand they deep discharge and then recharge. Non deep discharge is called float charge.

                Conversely, batteries designed for float charge don’t do well if you deep discharge them.

                So if you have batteries designed to deep discharge, and then recharge (in ampere hours replaced per minute it takes longer to fill up an empty battery than a full battery, duh), but ask them to float charge instead with frequent refill stops, the battery will die faster.

                • HVACman says:

                  There are those that talk about technological “revolutions” that are nothing of the sort . Hz drilling and fracking comes to mind. But it is the truth about batteries. We are in the middle of a revolution that is turning upside down the long-held understanding of battery charge/discharge cycles, depth of charge/discharge, power vs energy, temperature, etc. More billions of $ have flowed to all kinds of electrochemical storage research and engineering in the last 10 years than probably have flowed in the entire century before.
                  Here’s a link to LG Chem’s advanced automotive battery site. They are making the traction batteries for the Volt, the Bolt, and a lot of other auto manufacturers.

                  http://www.lgchem.com/global/vehicle-battery/car-batteries

                  Automotive LiON traction batteries now have a longer warrantied life (in California, 10 years/150,000 miles) than any ICE engine made. That does say something, doesn’t it?

                  • likbez says:

                    You are mixing warranty for the engine with the warranty for the gas tank.

                    For a gas tank 10 years/150,000 miles) is just a warmup ;-). I think 100 years, unlimited miles are achievable. There are still some Ford Model T cars with original tanks.

                    “That does say something, doesn’t it?”

                  • islandboy says:

                    Well, the if you want to compare apples and apples, the warranty on the Tesla drive train, that is, the electric motor , reduction gear and differential, is eight years/unlimited miles. That’s right, unlimited miles. It is unlikely that honoring this warranty is going to cost Tesla a great deal.

                    Think of all the motors in elevators, escalators and moving walkways in airports and other buildings all over the world that basically run non stop every day. The only parts in a three phase induction motor that can wear out, are the bearings at either end of the motor shaft. I put it to you that, any time you see an escalator, elevator or moving walkway closed for maintenance it is NOT a motor issue but, some other mechanical part.

                    Your typical ICE will start showing signs of wear between 200-300 thousand miles or less if not properly maintained and will invariably need an extensive engine overhaul at some point thereafter. Similarly the battery is the main part of the EV that will degrade over time with batteries being rated by the number of charge/discharge cycles before they degrade to a point where their performance is considered inadequate, at which point the battery must be replaced.

                    So, in a BEV, your battery replacement is the equivalent of your ICE engine overhaul. The only thing is, engine overhauls have not become less expensive over the years while it is likely that replacement batteries will.

                    With over 200 thousand Nissan Leafs out there in the wild, there is going to be a huge market for replacement batteries once the warranties on the batteries start expiring. It is very likely that the replacement batteries will be better than the original and will also have to have warranties of their own.

    • ezrydermike says:

      LAS VEGAS — Although sales of electric and hybrid vehicles have struggled, automakers are charging ahead to bring new battery-powered vehicles to market.

      http://www.nytimes.com/2016/01/07/business/carmakers-forge-ahead-with-electric-vehicles.html?_r=0

    • ezrydermike says:

      some more strange stuff from Faraday. Revealed their concept car at CES2016

      http://www.faradayfuture.com/ces2016/#theces

    • oldfarmermac says:

      I wonder how long it will take Nissan to catch up. Two years max, my personal guess., and when Nissan does come out with the third generation Leaf, it will be a doozy sure enough.

      My thinking is that Ford is not in any big hurry, and will wait for the Bolt and the LEAF to be in the mid part of their life cycles, and come out with a two hundred mile range electric Ford not too far down the road. This will put Ford behind in market share, but it will also allow Ford to leapfrog the competition with a new model, fresh, and likely a better deal, dollar for dollar, than the BOLT or LEAF, and at the same time leave the heavy lifting of getting the driving public into electric cars to GM and Nissan.

      Being first to market is not always as big a deal as people think it is. FORD OWNED the auto industry in the early days of the Model T, but GM had better management, and put Ford in second place in short order.

  52. Lightsout says:
    • Arceus says:

      Guess they can subtract 2 million barrels of oil from the global supply chain. Thanks Isis!

  53. R Walter says:

    The number of vehicles on the planet replaces all of the animals that are dwindling in numbers.

    Iffin you haven’t noticed, cars and trucks are growing in numbers. Not a little, a lot. One occupant per vehicle when there could be at least four, but no, there can be only one. In some places, that is all you see, and people too.

    Cars and trucks need air to be able to operate and too many animals are in the way, so if you run them over, that means there is more room and air for cars and trucks. No sense in having it any other way.

    I did see two moose and a coyote here the other day, so they’re not all gone yet.

    I spotted a few dead deer on the roadsides, so cars and trucks are winning the war on animals. Saw only one rabbit and it was still alive! Something wrong there. A pogrom against rabbits, don’t need more of those, not only do they breathe, they also eat some vegetation. It is a crime!

    Be that as it were, greetings from cool Colorado and the front range of the Rockies. Lots of rocks, must be why they call them the Rocky Mountains.

    I do think there should be more cars and more gas stations.

    Here in Boulder, a mecca for the intelligentsia, it is obscene the number of cars with just one occupant in them. Gotta get to the NCAR complex somehow.

    The planet can be saved someplace else, I guess.

    Ecosystems can take a backseat.

    It should take eleven days to fill your gas tank. Good grief. Improving well economics is a mistake.

    • oldfarmermac says:

      Cars are an evolving, competing form of life, and pretty soon the world is going to be chock full of automobiles without ANY humans inside, the symbiotic human partner will no longer be necessary. LOL

  54. The OPEC Basket Price closed yesterday at $29.71.

    The number of North Dakota Drilling Rigs stood at 54 this morning. Only one is still listed to stack.

    • dclonghorn says:

      There are 3 rigs which have been designated MIRU for quite a while. Nabors x 24 has been MIRU since 09/03/15. Cyclone 37 and 38 have been MIRU about a month each. I’m sure there’s a reason they remain listed on the report, but I doubt they are actually rigging up.

  55. islandboy says:

    UK: solar outshines hydro, drives down coal in 2015

    Solar PV pumped 7.1TWh of electricity into Britain’s electricity grids in 2015, surpassing hydro (6.84TWh) for the first time. Wind electricity production also grew sharply, to 32.4TWh, along with biomass, with 19TWh.

    Renewables across all sources accounted for 65.4TWh, or 21%, of total electricity supply in the UK in 2015, only a fraction behind nuclear power at 21.1%.

    The solar PV result surprising, because if you look at the DECC [Department of Energy and Climate Change] forecasts for solar output, it wasn’t expected to hit these levels until 2020 to 2030 at least,” EnAppSys’ Rob Lalor, an energy analyst and one of the report authors told pv magazine, “We’ve seen a lot more solar earlier than expected.”

    All the more surprising when on considers that country’s reputation for being cloudy and gray.

  56. Here is the story that should scare the hell out of everyone:

    Chinese Stock Plunge Forces a Trading Halt, and Global Markets Shudder

    HONG KONG — The market turmoil in China spread around the world, as global investors grew more anxious about the country’s currency and the health of its economy.

    Chinese stocks plunged on Thursday, by more than 7 percent, forcing officials for the second time this week to halt trading for the day — in this case, after just 29 minutes.

    The aftershocks carried over to Europe and the United States, where markets fell sharply once again. Coming off a sell-off on Wednesday, the Standard & Poor’s 500-stock index and the Dow Jones industrial average fell 1.6 percent in the opening minutes of trading.

    This story has been unfolding for some time now. The Chinese stock market is collapsing because the Chinese economy is on the verge of collapse.

    It should have been obvious. You just cannot keep building apartments, office spaces, shopping malls and whole cities for year after year and leave them sitting empty. It has to stop sooner or later. And when it does the economy that has been kept afloat by all this building will collapse.

    • islandboy says:

      Smoke and Mirrors! At some point the smoke has to clear. Maybe they should have tried to invest more in a renewables build out instead of the unproductive assets these ghost cities represent. What a mess!

    • AlexS says:

      China’s equity market is somewhat disconnected with the economy. There is too much speculative investors.

      From Bloomberg:

      China Panic Clashes With Outlook for Modest 2016 Growth Slowdown

      http://www.bloomberg.com/news/articles/2016-01-07/china-panic-clashes-with-outlook-for-modest-2016-growth-slowdown

      • Markets and the economy `have been distant cousins at best’

      The panic seen in Chinese financial markets this week, with a sliding yuan and stock trading suspensions, is increasingly out of whack with what economists anticipate will be another modest slowdown in the world’s No. 2 economy.
      While stock sell-offs in economies like the U.S. can pose major economic challenges because of the impact on household wealth, that’s less been the case in China. Retail sales grew through 2015 despite a market rout that at one stage erased $5 trillion in value, underscoring how a policy-driven shift to a consumption and services-fueled economy, instead of heavy industry, is gaining traction.
      “Sentiment about China is so downbeat right now that there’s a good chance of a positive surprise over coming months,” said Mark Williams, chief Asia economist for Capital Economics Ltd. in London, who previously worked on China issues at the U.K. Treasury. “There are signs that policy stimulus is having an effect. Most of the more reliable indicators of activity have stabilized.”
      Monthly indicators due Jan. 19 are poised to show continued gains in retail sales, and some acceleration in industrial output from November to December, according to Goldman Sachs Group Inc. Meantime, evidence indicates that house prices are steadying, metals prices have picked up from historical lows and demand for credit is reemerging. Surveys of the services sector, while mixed, remain in expansion territory.
      China’s gross domestic product growth will slow this year by just 0.4 percentage point, according to the median forecast of Bloomberg economists — the same as in the past couple years and much less than the roughly 2 percentage point deceleration of 2012, a year when Chinese equities eked out a gain.

      • Javier says:

        I agree. China’s leading indicators are stabilizing.

        The world might still go into recession this year. The chance is about 65% according to CitiGroup historic analysis. If there is no recession China should recover for some time. The general public usually knows about these things when it makes the news and by then the action is already past.

        This figure is from the last Composite Leading Indicators available for the public from OECD (October). See by yourselves. There was no figure for the Emerging Markets that are in complete disarray, half of them in recession.

    • SatansBestFriend says:

      Anybody who thought China could grow at 7% per year forever needs to go back to 6th grade math class and study an exponential curve.

    • Arceus says:

      The Saudi oil has peaked or the royals are packing up and moving stateside?

    • Arceus says:

      Who wouldn’t want to invest in a well-past-its-prime Ghawar field in a country surrounded by powder kegs?

      It could be the new AAPL…

    • AlexS says:

      If Aramco is listed on a foreign stock exchange, they will need a reserve audit by western standards.
      So we will know all their secrets.

      • That is not likely to happen. If ARAMCO does go public, which I really doubt, but if they do then it will very likely be “Saudi public only.” That is only Saudi citizens will be allowed to purchase the stock. And the Saudi stock market can write their own rules.

        • AlexS says:

          I think you are right.
          If Aramco goes public, it will be listed in SA, shareholders will be locals. And disclosure rules for locally-listed companies are very different from other countries.

          From Wiki:
          “SABIC (Saudi Arabia Basic Industries Corporation) – is the largest public company in Saudi Arabia, as listed in Tadawul, but the Saudi government still owns 70% of its shares. Private shareholders are from Saudi Arabia and other countries of the six-nation Gulf Cooperation Council (GCC).”

          • Greenbub says:

            I know that they’re filthy rich in SA, but is there really enough private wealth to buy up Aramco? Trillions?

            • Arceus says:

              No. And it would make no sense for them to buy Aramco stock – the whole country already is deeply “invested” in Aramco. As the oil age comes to its end, geographic and industry diversification anyone?

              • Javier says:

                Right, they are selling the golden goose before it runs out of eggs.

                If anybody needs further proof of the impending decline of oil production by Saudi Arabia needs to look no further.

            • AlexS says:

              1) They will likely separate the listed company and the parent company, which will remain 100% controlled by the state. The listed company will not own all of the current Aramco’s assets, and most probably, not all of the country’s oil reserves.

              2) They will likely start with the sale of a small stake (not exceeding 10-15%, or probably 5%, as Bloomberg suggests).

              3) The sale price of this stake will certainly not cost USD trillions

              4) Shareholder base may include citizens of the 6 GCC countries. There is enough wealthy people in these countries.

              5) If they allow western investors to buy share in Aramco, they will likely need a reserve audit. But as I said, the listed company will not own all of KSA reserves, so we will not know all their secrets.

              • Arceus says:

                Lovely, so they are hoping the Iranians, the Iraquis, the Kuwaitis put billions into Aramco?

                • AlexS says:

                  “Gulf Cooperation Council (GCC), is a regional intergovernmental political and economic union consisting of all Arab states of the Persian Gulf, except for Iraq. Its member states are Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates.”

                  • Arceus says:

                    Point is, those countries are going to supply the House of Saud with capital so they can continue to pump oil into an oversupplied market and take marketshare from them? Okay.

                  • Arceus says:

                    If they hire Goldman to do the IPO, Goldman can come up with the money. In fact, it would be ideal for them.

                  • Ves says:

                    Arceus,
                    It’s turn for wealthy Granma’s and Granpa’s of GCC to fund this “Who can dump more oil on the market” game.
                    I wonder where did they learn that game? 🙂 (Shale)

  57. AlexS says:

    Spot prices for the Western Canadian Select grade fell to $19.81 a barrel on Wednesday

    http://www.bloomberg.com/news/articles/2016-01-06/world-s-cheapest-crude-hits-record-low-as-oil-slump-deepens

    • Ves says:

      and the folks in Calgary are wondering can the price go negative 🙂
      you just never know.

      • shallow sand says:

        The posted price on Flint Hills Resources bulletin yesterday was $3.25 for ND sour, so its getting pretty close in some corners.

  58. oldfarmermac says:

    The new opposition legislature in Venezuela appears to be ready and willing to play hardball.

    http://www.bbc.com/news/world-latin-america-35241525

    I sort of doubt the country’s Supreme Court can muster enough backbone to support anything that can be realistically described as rule of law, since it appears all the justices are more or less OWNED by the Maduro regime.

    None of them made a public statement when Maduro appointed a dozen new extra justices for instance.

  59. Toolpush says:

    http://news.yahoo.com/shale-drillers-could-soon-default-212943865.html?nf=1

    Interesting article, on how the banks are quietly squeezing the weak players. A few names we will all recognize.

    Curtesy of Rockman on PO

    • Synapsid says:

      Toolpush,

      There’s an article in today’s OilPrice that is a list of oil companies by how much their borrowing capacity was reduced by their banks.

    • Synapsid says:

      Toolpush,

      Same information. I hadn’t read Rockman’s post yet.

  60. Arceus says:

    Iran, India ditching the dollar for oil trades

    Ditching the dollar, Iran and India have agreed to settle all outstanding crude oil dues in rupees in preparation to future trade in their national currencies. The dollar dues — $6.5 billion equaling 55 per cent of oil payment — would be deposited in National Iranian Oil Co account with Indian banks.

    http://indianexpress.com/article/business/business-others/iran-india-to-settle-outstanding-crude-oil-dues-in-rupees/

  61. ezrydermike says:

    related to the up thread discussions about biking…

    Germany, the country famous for its speed-limit free stretches of Autobahn, is building car-free Autobahns for bikes. The Radschnellweg (“fast bike path”) RS1 runs 62 miles between the cities of Duisburg and Hamm, passing through eight other cities along the way.

    http://www.fastcoexist.com/3055053/germanys-62-mile-bike-autobahn-connects-10-cities

    • oldfarmermac says:

      These cities are apparently packed in like sardines, with the entering one and leaving the other signs on the same post, LOL.

      Germans do understand that they are going to be competing, going forward, in a world where fossil fuels are scarce and expensive, and are doing what they must do to get by with less fossil fuel.

      It is worth noting that they think the savings in health care costs will be five times the cost of building this bike highway.

      It is hard for the average person who is afraid to ride a bike on public roads to believe it, but even here in the USA, a person who habitually rides his bike on public roads is statistically likely to live a substantially longer and healthier life than a person who sticks to driving. The exercise more than offsets the risk of getting hurt or killed by a car.

  62. Doug Leighton says:

    Hi Dennis,

    I agree with Ron that you put too much emphasis on reserves. It’s dicey making projections based on iffy reserves that include heavy and very heavy oil, etc. And, apart from economic considerations every year there is more talk about stranded reserves owing to environmental considerations. As an example, for many people tar sands are about as attractive as coal in terms of AGW. Offshore arctic and ultra deep water are extremely expensive and with their own special risks. The rather small number of REAL oil people I talk to these days seem to agree that many of the future (and final) straws will be concentrated on EOR projects rather than new ventures: I confess that I have always underestimated the EOR effect on the ultimate production numbers from some significant reservoirs such as Prudhoe Bay. Personally I hate any discussion that puts ANY credence on TRRs — but you already know that. Perhaps it’s time to think about dragging the Vela Pulsar over here and harvesting energy from its X-ray jet. I’m currently raising seed money for this so anyone interested can send their check………..

    • oldfarmermac says:

      Hi Doug,

      Maybe I am too cynical, but when it comes to burning all the oil that can be extracted at a profit, or subsidized, I tend to think it WILL be burnt, barring miracles on the renewables front.

      My good fishing buddy and attorney puts it this way, paraphrased.

      My girls ( young adult professional women now ) are all in favor of paying a little more for this and that and protecting the environment, and they make enough they aren’t going to miss the money, not really. They are ok with smallish cars, so long as they are VERY NICE STYLISH cars, and wind and solar power and all that sort of thing.

      They are also fine with EVERYBODY ELSE riding buses, and subways, and living in apartments, or itty bitty houses. THEY have nice places, plenty of space, and like to fly north in hot weather, and south in the winter, and they eat air freighted veggies in January.

      The day any of this environmental shit means THEY have to give up a significant portion of their own personal lifestyle, they will start voting republican.

      He raised them and put them thru university , so I guess he knows.

  63. ezrydermike says:

    A group of 24 geoscientists on Thursday released a bracing assessment, suggesting that humans have altered the Earth so extensively that the consequences will be detectable in current and future geological records. They therefore suggest that we should consider the Earth to have moved into a new geologic epoch, the “Anthropocene,” sometime circa 1945-1964.

    The current era (at least under present definitions), known as the Holocene, began about 11,700 years ago, and was marked by warming and large sea level rise coming out of a major cool period, the Younger Dryas. However, the researchers suggest, changes ranging from growing levels of carbon dioxide in the atmosphere to infusions of plastics into marine sediments suggest that we’ve now left the Holocene decisively behind — and that the proof is already being laid down in polar ice cores, deep ocean sediments, and future rocks themselves.

    https://www.washingtonpost.com/news/energy-environment/wp/2016/01/07/scientists-say-humans-have-now-brought-on-an-entirely-new-geologic-epoch/

    Science 8 January 2016:
    Vol. 351 no. 6269
    DOI: 10.1126/science.aad2622

    •Review

    The Anthropocene is functionally and stratigraphically distinct from the Holocene

    http://www.sciencemag.org/content/351/6269/aad2622

    • Arceus says:

      Nature will take care of any overpopulated species. Always has, always will. But before nature takes its course, you can bet there will be some humans that will attempt to manage the rapid depopulation process themselves as they look our for their self-interest.

    • Javier says:

      Already the naming of Holocene period is kinda stupid. The Pleistocene, that expands the present Quaternary Ice Age and thus makes a lot of sense, contains 19 glacial periods and 19 interglacials.

      The decision to name Holocene the 20th interglacial as if it was a special period is not warranted. Neither in geology nor in biology there is anything radically different between this interglacial and previous one. There has been some extinctions, but almost every species alive today was alive during past interglacial, including us.

      It is history (extending into prehistory through archaeology) that is pushing a policy of naming periods progressively shorter and shorter. Upper paleolithic, Mesolithic, Neolithic, Early Bronze, Late Bronze, Early Iron, Classical Ages, Middle Ages, Modern Age, Contemporary Age. I guess we should be entering the Post-Modern Age any day now.

      It is convenient to give periods a name and a definition as to know exactly what we are talking about, but it should be clear to all that the Holocene is not a geological or biological departure from previous periods. The Holocene should be the name of this interglacial within the Pleistocene, that should end the day the Quaternary Ice Age is over and both poles are defrost. The Anthropocene is just risible and completely anthropocentric. If we knew our proper place in nature we would behave much better.

      Notice the changes of scale in the figure:

      • Fred Magyar says:

        The decision to name Holocene the 20th interglacial as if it was a special period is not warranted. Neither in geology nor in biology there is anything radically different between this interglacial and previous one. There has been some extinctions, but almost every species alive today was alive during past interglacial, including us.

        Wow! Are you really serious?!

        The Holocene extinction, sometimes called the Sixth Extinction, is a name proposed to describe the ongoing extinction event of species during the present Holocene epoch (since around 10,000 BCE) mainly due to human activity. The large number of extinctions span numerous families of plants and animals including mammals, birds, amphibians, reptiles and arthropods. Although 875 extinctions occurring between 1500 and 2009 have been documented by the International Union for Conservation of Nature and Natural Resources,[1] the vast majority are undocumented. According to the species-area theory and based on upper-bound estimating, the present rate of extinction may be up to 140,000 species per year.[2]

        The Holocene extinction includes the disappearance of large mammals known as megafauna, starting between 9,000 and 13,000 years ago, the end of the last Ice Age. This may have been due to the extinction of the mammoths whose habits had maintained grasslands which became birch forests without them.[3] The new forest and the resulting forest fires may have induced climate change.[3] Such disappearances might be the result of the proliferation of modern humans. These extinctions, occurring near the Pleistocene–Holocene boundary, are sometimes referred to as the Quaternary extinction event. The Holocene extinction continues into the 21st century, with overfishing, ocean acidification and the amphibian crisis being a few broad examples.

        Source:
        https://en.wikipedia.org/wiki/Holocene_extinction

        • Javier says:

          What part did you do not understand Fred?

          On biological grounds you do not name periods because you loose species. You name periods because you replace species.

          The misnomer of Holocene extinctions is completely wrong, from people not very well informed. They are usually called Late Pleistocene extinctions, as they started in Australia and Eurasia 50,000 years ago. They are unmistakable associated to human expansion.

          In Australia, all 19 species exceeding 100 kg and 22 of 38 species 10-100 kg disappeared, along with three large reptiles and the 450lb flightless bird Genyornis. Miller et al. used eggshell dating to show that Genyornis disappeared suddenly around 50,000 years ago, very shortly after the first arrival of humans. The megafauna extinction in Australia was completed by 40,000 years ago, with still 30,000 years to reach the Holocene.

          Extinction was delayed in America and Pacific Islands until humans spread there. It started in North America right after the Last Glacial Maximum, when the low level of the sea allowed crossing.

          The megafauna extinction had nothing to do with the Holocene, as it started 40,000 years before.

          Assessing the Causes of Late Pleistocene Extinctions on the Continents
          Anthony D. Barnosky et al. Science 306 70 (2004)

      • There has been some extinctions, but almost every species alive today was alive during past interglacial, including us.

        Do you have that backwards? Of course almost every species alive today was alive during the past interglacial. That is because such a short time is not enough time for many new species to evolve. So few new species have evolved since then, therefore your statement is true. But if you meant almost every species that was alive during the past interglacial is still alive today then you are so wrong it is absurd.

        Yes, it is true that the extinctions started with Homo sapiens as an invasive species, so to speak. But as the human population has expanded the extinctions have sped up and today species are going extinct at the fastest rate in 55 million years.

        • Javier says:

          My point is clear, Ron.

          Different periods are defined either on geological terms due to a change in geological processes or on biological terms due to a replacement of species that can be appreciated in the fossil record. As we know that a replacement of species has not taken place, and present species are the same as species in the previous interglacial minus those that have gone extinct, then there is no biological reason for a new period to be introduced. As geological conditions are the same as previous interglacial and we have no evidence that present Ice Age has come to an end, then there is no geological reason for a new period to be introduced. The introduction of the Holocene as a separate period from Pleistocene lacks scientific reasons.

          The introduction of the Anthropocene is just hilarious. This thinking that we are the center of the Universe is getting us in all sort of problems. We are just an ephemeral species on a very old planet.

        • Javier says:

          Ron,

          I was taking a shot at the naming of Anthropocene, which I see as ridiculous, however if you want to talk extinction, I am most than willing.

          Species extinction is one of the serious problems that we have with the environment, but not the worst by far. The worst problems are the reduction in wildlife populations and the destruction of habitats. But somehow the media loves the extinction stories because they are so… definitive.

          The main problem with all those claims about extinction rates and mass extinctions is that we have no idea how many species are there in the world and we even know less about their rate of extinction. So you get an idea the claimed rates of extinction in scientific literature go from 500 per year to 36,000 per year. there is very little that you can claim when you don’t even know the extinction rate by two orders of magnitude.

          Let’s get a little bit of sanity into the debate from the experts:

          Nature 516, 158–161 2014
          Biodiversity: Life ­– a status report
          Species are disappearing quickly — but researchers are struggling to assess how bad the problem is.
          Richard Monastersky

          “Nature pulled together the most reliable available data to provide a graphic status report of life on Earth…
          One simple way to project into the future would be to assume that the rate of extinction will be constant; it is currently estimated to range from 0.01% to 0.7% of all existing species a year…
          At the upper rate, thousands of species are disappearing each year. If that trend continues, it could lead to a mass extinction — defined as a loss of 75% of species — over the next few centuries…
          At the low end of the estimated range, a mass extinction would not happen for thousands of years.”

          Check the nice graph at the end that shows that over two thirds of species loss is due to exploitation and habitat degradation and change.

          Nature 516, 144 2014
          Editorial Protect and serve
          Nations must keep expanding conservation efforts to avoid a biodiversity crisis.

          “There are some hopeful signs. Countries are rapidly expanding the areas they shield from destructive human activities. The United Nations Environment Programme (UNEP) announced last month that countries have set aside 6.1 million square kilometres of ocean and land habitat since 2010, which increases the total protected areas to 15.4% of Earth’s land and 3.4% of its oceans. According to UNEP, countries are on track to meet a 2020 goal established under the Convention on Biological Diversity to protect 17% of land areas, although reaching the 10% target for coastal and marine regions will require further efforts. The total areas set aside now equal the size of Africa.”

          A very nice conservation essay:
          Rethinking extinction
          The idea that we are edging up to a mass extinction is not just wrong – it’s a recipe for panic and paralysis
          Steward Brand

          “Most extinctions have occurred on oceanic islands or in restricted freshwater locations, with very few occurring on Earth’s continents or in the oceans. The world’s greatest conservation problem is not species extinction, but rather the precarious state of thousands of populations that are the remnants of once widespread and productive species.”

  64. oldfarmermac says:

    International relations simply cannot be meaningfully discussed in sound bites.

    And byzantine relationships complicated by religion, economics, and great power politics, all mixed up with critical resource issues such as the world oil supply, can hardly be truly discussed in less than book form.

    But here is a piece from the HINDU that does a pretty good job, that can be read in a few minutes.

    I think maybe the HINDU has some pretty sharp people on staff.

    http://www.thehindu.com/opinion/op-ed/saudi-arabias-deadly-gamble/article8073519.ece

  65. oldfarmermac says:

    What is it going to cost us the NEXT time California REALLY floods?

    Hardly anybody is aware of the floods that happened there during the Civil War era, due to the war occupying the press.

    I have mentioned these floods to dozens of people over the years without yet running across the first person, personally, who knew about them.

    http://www.scientificamerican.com/article/atmospheric-rivers-california-megaflood-lessons-from-forgotten-catastrophe/

    If we think of nature as sleeping peacefully, and waking in a bad mood once every century or two, and throwing a tantrum this way, well…………

    How bad will the NEXT superflood be considering we have been in effect poking her with sharp sticks by vastly modifying the land scape?

    I am only half serious in saying that maybe the rest of us ought to ENCOURAGE California to leave the union. The cost of bailing California out next time around is going to be enough to break the country.

    I don’t know if my sarcasm light should be on or not.

    There seems to be a substantial amount of evidence that megadroughts are as likely on the West Coast as megafloods.

  66. oldfarmermac says:

    http://www.bloomberg.com/news/articles/2016-01-07/too-big-to-value-why-saudi-aramco-is-in-a-league-of-its-own

    I have a great deal of respect for economists, really I do, at least some of them , some of the time. LOL

    Now let us suppose that APPLE, one of the worlds most highly valued companies, were to simply go POOF tomorrow. The turmoil in the stock markets would be awesome, but so far as I can see, Apple does not have a single product on the market that cannot be for all practical purposes replaced on a moment’s notice by something for sale by dozens of other countries.

    Nothing really important would NECESSARILY crash and burn.

    • Arceus says:

      Typical bloomberg article, rushed, not particularly thoughtful, lots of misdirected hype.

      Says Aramco with daily production of 10 million boe might be worth $2.5 trillion

      Then says Rosneft with daily production of 5 million boe is currently worth $35 billion.

      And Petrobras with daily production of 2 million boe is currently worth $25 billion.

      Aramco might issue stock for 3-5% of the company, they might be lucky to get 2 billion for those shares. Currently lots of risk and uncertainty surrounding oil stocks right now, even those with pretty good disclosure and a long history of paying dividends.

      • AlexS says:

        There are reserve-based valuations, production-based valuations, financial valuations (P/E, P/CF, EV/EBITDA, etc.).
        The market never values an oil company based only on its reserves, especially if these reserves were not audited.
        Besides, we don’t know if the new listed company will own all of Saudi Arabia’s reserves.

  67. shallow sand says:

    As oil has crashed back to 2003 levels, I am hearing a lot of MSM talk that the current price is really the long term historical average price, that 2005-2014 was a gross anomaly, and that we should be in the $20-40 range for years to come.

    That would be fine, except I highly doubt much oil outside the Middle East, some in Russia, and maybe a few other places, can be developed at that price. Almost nothing in North or South America is profitable at those prices, given the risks involved. Likewise, I can’t imagine much offshore anywhere in the world at this point will work at a $20-40 price band.

    Second, I am also hearing the “end of oil talk” quite often on the MSM, and I find that pretty incredible. China’s economy is apparently tanking, yet oil demand is not declining. India is rising. Africa is rising. The Middle East is rising. World wide demand growth for 2015 and 2016 combined looks to be about 3 million bopd. Yet, the reason Saudi is doing what they are doing is to avoid stranded oil, better to sell it for $30 than leave it in the ground.

    I guess I am not going to buy either of the above premises. I may be wrong, and will suffer financially, but man I am just not seeing the evidence.

    Yes, alternatives are the rage, but last I knew, population was still growing by quite a bit worldwide, and the infrastructure and subsidies needed for alternatives to replace fossil fuels is enormous.

    I probably need to throw my tv, computer, tablet, satellite radio and I phone in the lake out back. Maybe I will.

    • Heinrich Leopold says:

      shallow sand,

      This is not the end of oil, it is now over the next half year an excellent entry point for investments. China is actually not slowing. Chinese oil imports increase 50 % every five years. So, Chinese oil consumption will be close to 500 mill t per year, which is enormous (see below chart). As soon as the stand off between shale and conventional oil is over, oil will be soaring again, which I think could be at the end of 2016.

      • Javier says:

        “China is actually not slowing”
        We can certainly argue what China is doing right now or what China is going to do in the future, but there is no arguing that China has slowed its economic growth during the period 2013-2015, as a ton of evidence from economy, starting with GDP increase, and energy consumption attest.

        • likbez says:

          Javier,

          Mist likely China oil consumption will continue to grow in 2016 but at slower pace. Most oil is burned in transport, so the slowdown of economy and slowdown of growth of electrical consumption does not automatically mean that the oil consumption decline as long as sales of new cars are rising.

          2016 world oil demand growth is still expected to be around 1.3 Mb/d.

          See http://www.rigzone.com/news/oil_gas/a/142270/Xinhua_China_Sees_Energy_Consumption_Rising_In_2016

          The same situation exists in other countries notably in the USA – slowing of the economy can for a while coexist with the growth of oil consumption as long as sales of SUVs are booming.

    • Jeffrey J. Brown says:

      Economist Magazine: The next shock?

      http://www.economist.com/node/188181

      Thanks to new technology and productivity gains, you might expect the price of oil, like that of most other commodities, to fall slowly over the years. Judging by the oil market in the pre-OPEC era, a “normal” market price might now be in the $5-10 range. Factor in the current slow growth of the world economy and the normal price drops to the bottom of that range. . . .

      The supply situation is even gloomier for producers. Unlike 1986, oil supplies have been slow to respond to the past year’s fall. Even at $10 a barrel, it can be worth continuing with projects that already have huge sunk costs. Rapid technological advances have pushed the cost of finding, developing and producing crude oil outside the Middle East down from over $25 a barrel (in today’s prices) in the 1980s to around $10 now. Privatisation and deregulation in such places as Argentina, Malaysia and Venezuela have transformed moribund state-owned oil firms. According to Douglas Terreson of Morgan Stanley Dean Witter, an investment bank, this has “unleashed a dozen new Texacos during the 1990s”, all of them keen to pump oil.

      Meanwhile OPEC, which masterminded the supply cuts that pushed prices up in the 1970s and 1980s, is in complete disarray. The cartel will try yet again to agree upon production cuts at its next meeting, on March 23rd, but, partly thanks to its members’ cheating on quotas, the impact of any such cuts will be small. OPEC members fear that Iraq, whose UN-constrained output rose by 1m barrels a day in 1998, may some day be able to raise production further. Last week Algeria’s energy minister declared, with only slight exaggeration, that prices might conceivably tumble “to $2 or $3 a barrel.”

      Nor is there much chance of prices rebounding. If they started to, Venezuela, which breaks even at $7 a barrel, would expand production; at $10, the Gulf of Mexico would join in; at $11, the North Sea, and so on (see map). This will limit any price increase in the unlikely event that OPEC rises from the dead. Even in the North Sea, the bare-bottom operating costs have fallen to $4 a barrel. For the lifetime of such fields firms will continue to crank out oil, even though they are not recouping the sunk costs of exploration and financing. And basket-cases such as Russia and Nigeria are so hopelessly dependent on oil that they may go on producing for some time whatever the price.

    • Enno Peters says:

      Shallow,

      Synergy Resources just released their Q1 for FY 2016. I think you will find it interesting (in $m for the quarter):
      – revenue : 26
      – total expenses (excl impairment) : 36.4 (incl GA of 14 )
      – impairment : 125
      – total loss : -135
      – well costs & other capex : 39 (excl acquisition capex of 35)

      So, a massive loss, and still CAPEX is 150% of total revenue. Their wells are worse than the average Niobrara well, I think they will do on average probably less than 120 kbo (stated EURs are 350kboe – 750 kboe) , and have an average life of about 5 years.

      They don’t have much debt, but doubled the outstanding share count over the last 3 years, and just increased the authorized # of shares by another 50%. In 2015 they already increased the share count by 35% (stock issued at 10.75, which is now just above 7).

      So this thoroughly loss-making operation is completely funded by “investors”. It really makes you wonder who is buying into this. Oh, and the CEO just left.

      Good luck competing against that..

    • likbez says:

      “As oil has crashed back to 2003 levels, I am hearing a lot of MSM talk that the current price is really the long term historical average price, that 2005-2014 was a gross anomaly, and that we should be in the $20-40 range for years to come. ”

      “Second, I am also hearing the “end of oil talk” quite often on the MSM, and I find that pretty incredible. ”

      That puzzles me as well. All I can offer is a conspiracy theory. I saw a comment on NakedCapitalism blog that perhaps US banks got a wink&nod from the Fed and or Treasury that their oil loans will be backstopped and implicit request to keep the financing of shale patch flowing because of importance of “oil independence” and “Evil Russia. ”

      “I probably need to throw my tv, computer, tablet, satellite radio and I phone in the lake out back. Maybe I will.”

      I feel your pain. I probably need to do the same. Evidently systems with positive feedback loops respond irrationally to adverse inputs. In no way the current situation is sustainable but market players behave as if it is. Very interesting situation indeed.

  68. R Walter says:

    The Great Missoula Flood

    Google it, it was a glacial lake formed from an ice dam 2000 feet tall. When it gave way, it released enough water that equaled the volume of 60 Amazon rivers. Boulders the size of cars were swept down stream for over 500 miles.

    The dam was formed and burst some 80 times. Eastern Washington State terrain shows the evidence of the actions of the flood waters.

    The size of the lake was about the sizes of Lake Huron and Lake Ontario combined.

    Had to be some loss of life.

    • oldfarmermac says:

      The AUTOMOBILE had not EVOLVED at that time, nor had BANKERS yet appeared on the scene, lol.

      So it was OK, it was everybody, every bear and every bison for himself back in those days, lol. Our days in this Vale of Tears are short in any case.

      These repeated floods are another example of why I tend to think of establishment science in times past as consisting of pompous stuffed shirt nincompoops in all too many cases. If they could not come up with an explanation for an obvious fact, they just denied the existence of that fact in many cases. This is a MOST UNSCIENTIFIC way of dealing with honestly observed facts.

      In science and history, we often have to wait for the old folks to die before younger folks have their say.

      I predict that when the next superflood hits the Shaky Side, the hard core right wingers who live there will instantly morph into liberal democrats and insist on a super bail out to make whole their flood losses.And of course the Shaky Side is home to more hard core left wingers than the rest of the country to begin with.

      We might come close to fighting a second American Civil War, because some states might decide to withdraw from the union rather than be bankrupted paying for Californian losses. I am only HALF serious.

      Such a flood NOW, or anytime going forward, will be trouble enough to BREAK the back of OLD MAN BUSINESS AS USUAL.

      We have ENOUGH refugees ( internal, not international) in my neighborhood already. They are like mice, once you have a few, shortly you have a LOT. If I were young, I might think about moving up into the backwoods of Canada, where I could still take a leak outside without much risk of getting arrested.

      • Synapsid says:

        OFM,

        There won’t be another Missoula flood, if that’s what you’re referring to, until the next ice sheet comes down from Canada. It was a lobe (the Pend Oreille lobe) of the last one that blocked the Clark Fork River and formed Glacial Lake Missoula.

        • oldfarmermac says:

          The Shaky Side is California, which is old truckers lingo, with the East Coast being the Grimy Side.

          I was referring to the most recent California superfloods, which occurred in the eighteen sixties during the American Civil War.

          With runaway warming on the calender the next ice age is probably at least a few thousand years off, thank Sky Daddy. 😉

  69. Jeffrey J. Brown says:

    Re: Migrant/Refugee Crisis in Europe

    Most media coverage of Middle Eastern and North African migrants/refugees seems to focus on families with children, but probably around 70% to 80% of recent migrants/refugees are single males. What could go wrong?

    Some Drudge Report Headlines:

    MIGRANT SEX ASSUALTS SWEEP EUROPE:

    Unprecedented harassment in Helsinki…

    Attacks in Sweden…

    Gang rapes in Germany…

    And a NYT article on New Years sexual assaults in Germany:

    http://www.nytimes.com/aponline/2016/01/05/world/europe/ap-eu-germany-sex-assaults.html?_r=0

    BERLIN — A string of sex assaults and robberies during New Year’s celebrations in Germany has fuelled debate about the country’s ability to integrate large numbers of migrants, after police said that men who targeted dozens of women in the western city of Cologne appeared to be of “Arab or North African origin.”

    Political leaders including Chancellor Angela Merkel condemned the attacks, though many also warned against hasty conclusions about the perpetrators. But to some Germans already uneasy about the one million asylum-seekers their country took in last year the incident seemed to confirm simmering fears.

    “Is this the ‘cosmopolitan and colorful’ Germany that Merkel wished for?” asked Frauke Petry, leader of the nationalist party Alternative for Germany.

    Petry’s party, known by its German acronym AfD, has called for a clampdown on the number of asylum-seekers allowed into the country, a sentiment shared among a growing number of supporters in Merkel’s own center-right bloc.

    “It’s unacceptable that women are sexually molested and robbed by young migrants on the streets and public squares of German cities at night,” said Andreas Scheuer, general secretary of the Christian Social Union, the Bavarian wing of Merkel’s party.

    The old joke about a conservative being a liberal who was mugged the night before seems relevant.

  70. oldfarmermac says:

    http://www.forbes.com/sites/brucedorminey/2016/01/08/sun-still-capable-of-monstrous-super-flares-say-astronomers/

    “An X1000 event would likely take out the electrical grids for weeks or even months; knock out most communications satellites and shower unprotected astronauts in Earth-orbit with lethal doses of radiation.”

    Such a powerful flare is predicted to be extremely rare, but if one were to happen, we would probably lose most of the grid, or maybe all of it, because there are not enough major spare parts on hand to replace even one percent of what would be destroyed.

    Powerful central governments might be able to FORCE electrical utilities to simply SHUT DOWN, using every available man, and put emergency crews to work severing connections between long lines and big transformers etc, and get enough major equipment isolated fast enough to get the grid up again…………. maybe.

    It is questionable whether a president or prime minister would have clout enough to actually implement such an emergency response………… and whether he or she would even have the WILL to do so. Tens of thousands of people would die as a result of such an effort to SAVE the grid, so as to save tens of millions later.

  71. Toolpush says:

    The Bakken drillers have gone crazy!

    During the week, 3 rigs stacked, count went down to 53 from memory, now the count is back up to 58! All with oil sitting around $33 /barrel. edit $32.77

    Baker Hughes in out in a few hours. It will be interesting to see what they have to say on the ,matter!

    PS. As someone noted before, there is a bunch of rigs sitting in MIRU mode, and have been for quite some time. I would love to know the background of what is going on.

    • oldfarmermac says:

      It could be that a few rigs have been moved to new well sites, from the last previous finished job, although site owner is not ready to drill immediately. It wouldn’t cost much if anymore for a rig to just sit ide at the next job site than it would to let it sit idle someplace else.

      Who knows how much it costs to move a rig from one site to another?

      I have known of some instances when construction machinery has been moved to a job site well in advance of the start of a job, so as to avoid moving it twice, when business is slow. Maybe some of these rigs are moved in but not really rigging up to run right away.

      What I actually know about hands on drilling could be written on a postage stamp with a four inch brush, but my impression is that preparing a well site requires putting down a lot of expensive gravel and concrete, and that once a well is actually drilled, the rig HAS has to be moved, in order to make room for the actual production equipment to be installed. Parking a drill rig on soft ground sounds like a MAJOR mistake, it might sink in and freeze and if so it would cost a bundle to get it out. The ONLY practical way to get an ordinary truck sunk in to the frame rails in ground that then freezes is to wait for a thaw, which might be months away. Sky Daddy alone knows what it might take to get an oil rig sunk into soft ground out and back onto a solid road. .

      Or maybe the trick is to dump a few hundred tons of gravel, to make a temporary parking area, and the scoop that gravel up ( most of it ) and use it again at the next well site. Gravel is cheap if the haul is real short, but expensive if you have to move it a long way.

      In a place like the Bakken , I am guessing a rig might be moved only a mile or less sometimes, but I have no idea, really.How far is a typical move, and how long does it take?

      • Toolpush says:

        OFM,

        OFM, under normal circumstances, a rig moving on site and rigging up, is classified as such. If a rig is waiting off site, especially for weeks on end, it will be in a warm stack situation. These days numbers seems to twisted to the point of not knowing what to trust.
        We will see what comes out in the wash. I don’t think BH will be counting those long term MIRU rigs in the active rig count due out shortly.

  72. Toolpush says:

    deleted

  73. AlexS says:

    U.S. oil rig count:
    Oil rigs: down 20
    Gas rigs: down 14
    Virtually all key states and basins are down.

    Oil rigs:
    Williston down from 53 to 49
    Eagle Ford: down from 68 to 65
    Permian: down from 209 to 200

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