Collapse Of Shale Gas Production Has Begun

This is a guest post by Steve St. Angelo of SRSroccoReport.Com. All opinions expressed in this post are his and do not necessarily reflect those of Ron Patterson.

The U.S. Empire is in serious trouble as the collapse of its domestic shale gas production has begun.  This is just another nail in a series of nails that have been driven into the U.S. Empire coffin.

Unfortunately, most investors don’t pay attention to what is taking place in the U.S. Energy Industry.  Without energy, the U.S. economy would grind to a halt.  All the trillions of Dollars in financial assets mean nothing without oil, natural gas or coal.  Energy drives the economy and finance steers it.  As I stated several times before, the financial industry is driving us over the cliff.

The Great U.S. Shale Gas Boom Is Likely Over For Good

Very few Americans noticed that the top four shale gas fields combined production peaked back in July 2015.  Total shale gas production from the Barnett, Eagle Ford, Haynesville and Marcellus peaked at 27.9 billion cubic feet per day (Bcf/d) in July and fell to 26.7 Bcf/d by December 2015:

Steve 1

As we can see from the chart, the Barnett and Haynesville peaked four years ago at the end of 2011.  Here are the production profiles for each shale gas field:

Steve 2

According to the U.S. Energy Information Agency (EIA), the Barnett shale gas production peaked on November 2011 and is down 32% from its high.  The Barnett produced a record 5 Bcf/d of shale gas in 2011 and is currently producing only 3.4 Bcf/d.  Furthermore, the drilling rig count in the Barnett is down a stunning 84% in over the past year.

Steve 3

The Haynesville was the second to peak on Jan 2012 at 7.2 Bcf/d per day and is currently producing 3.6 Bcf/d.  This was a huge 50% decline from its peak.  Not only is the drilling rig count in the Haynesville down 57% in a year, it fell another five rigs this past week.  There are only 18 drilling rigs currently working in the Haynesville.

Steve 4

The EIA reports that shale gas production from the Eagle ford peaked in July 2015 at 5 Bcf/d and is now down 6% at 4.7 Bcf/d.   As we can see, total drilling rigs at the Eagle Ford declined the most at 117 since last year.  The reason the falling drilling rig count is so high is due to the fact that the Eagle Ford is the largest shale oil-producing field in the United States.

Steve 5

Lastly, the Mighty Marcellus also peaked in July 2015 at a staggering 15.5 Bcf/d and is now down 3% producing 15.0 Bcf/d currently.  The Marcellus is producing more gas (15 Bcf/d) than the other top three shale gas fields combined (12.1 Bcf/d).

I have posted the Haynesville shale gas production chart below to discuss why U.S. Shale Gas production will likely collapse going forward:

Steve 3

 

What is interesting about the Haynesville shale gas field, located in Louisiana and Texas, is the steep decline of production from its peak.  On the other hand, the Barnett (chart above in red) had a much different profile as its production peak was more rounded and slow.  Not so with the Haynesville.  The decline of shale gas production at the Haynesville was more rapid and sudden.  I believe the Eagle Ford and Marcellus shale gas production declines will resemble what took place in the Haynesville.

All you have to do is look at how the Eagle Ford and Marcellus ramped up production.  Their production profiles are more similar to the Haynesville than the Barnett.  Thus, the declines will likely behave in the same fashion.  Furthermore drilling and extracting shale gas from the Haynesville was a “Commercial Failure” as stated by energy analyst Art Berman in his Forbes article on Nov 22 2015:

The Haynesville Shale play needs $6.50 gas prices to break even. With natural gas prices just above $2/Mcf (thousand cubic feet), we question the shale gas business model that has 31 rigs drilling wells in that play that cost $8-10 million apiece to sell gas at a loss into a over-supplied market.

Steve 6

At $6 gas prices, only 17% of Haynesville wells break even (Table 3) and approximately 115,000 acres are commercial (Figure 2) out the approximately 3.8 million acres that comprise the drilled area of the play.

The Haynesville Shale play is a commercial failure. Encana exited the play in late August. Chesapeake and Exco, the two leading producers in the play, both announced significant write-downs in the 3rd quarter of 2015.

Basically, the overwhelming majority of the shale gas extracted at the Haynesville was done so at a complete loss.  So, why do they continue drilling and producing gas in the Haynesville?

The reason Art Berman states is this:

What we see in the Haynesville Shale play are companies that blindly seek production volumes rather than value, and that care nothing for the interests of their shareholders. The business model is broken. It is time for investors to finally start asking serious questions.

Chesapeake is one of the larger shale gas producers in the Haynesville as well as in the United States.  According to its recent financial reports, Chesapeake received $1.05 billion in operating cash in the first three-quarters of 2015, but spent $3.2 on capital expenditures to continue drilling.  Thus, its free cash flow was a negative $2.1 billion in the first nine months of 2015.  And this doesn’t include what it paid out in dividends.

The same phenomenon is taking place in other companies drilling for shale gas in the other fields in the U.S.  This insanity has Berman perplexed as he states this in another article from his site:

This has puzzled me because the shale gas plays are not commercial at less than about $6/mmBtu except in small parts of the Marcellus core areas where $4 prices break even. Natural gas prices have averaged less than $3/mmBtu for the first quarter of 2015 and are currently at their lowest levels in more than 2 years.

The reason these companies continue to produce shale gas at a loss is to keep generating revenue and cash flow to service their debt.  If they cut back significantly on drilling activity, their production would plummet.  This would cause cash flow to drop like a rock, including their stock price, and they would go bankrupt as they couldn’t continue servicing their debt.

Basically, the U.S. Shale Gas Industry is nothing more than a Ponzi Scheme.

The Collapse Of U.S. Shale Gas Production Even At Higher Prices

I believe the collapse of U.S. shale gas production will occur even at higher prices  Why?  Because the price of natural gas increased from $2.75 mmBtu in 2012 to $4.37 mmBtu in 2014, but the drilling rig count continued to fall:

Steve 7

As the price of natural gas increased from 2012 to 2014, gas drilling rigs fell 40% from 556 to 333.  Furthermore, drilling rigs continued to decline and now are at a record low of 127.  Just as Art Berman stated, the average break-even for most shale gas plays are $6 mmBtu, while only a small percentage of the Marcellus is profitable at $4 mmBtu.

Looking at the chart again, we can see that the price of natural gas never got close to $6 mmtu.. the highest was $4.37 mmBtu.  Thus, the U.S. Shale Gas Industry has been a commercial failure.

Now that the major shale gas producers are saddled with debt and many of the sweet spots in these shale gas fields have already been drilled, I believe U.S. shale gas production will collapse going forward.  If we look at the Haynesville Shale Gas Field production profile, a 50% decline in 4 years represents a collapse in my book.

The Two Nails In The U.S. Empire Coffin

As I stated in several articles and interviews, ENERGY DRIVES THE ECONOMY, not finance.  So, energy is the key to economic activity.  Which means, energy output and the control of energy are the keys to economic prosperity.

While the collapse of U.S. shale gas production is one nail in the U.S. Empire Coffin, the other is Shale Oil.  U.S. shale oil production peaked before shale gas production:

Steve 8

This chart is a few months out of date, but according to the EIA’s Productivity Reports,domestic oil production from the top four shale oil fields peaked in April of 2015… three months before the major shale gas fields (July 2015).

Unfortunately for the United States, it was never going to become energy independent.  The notion of U.S. energy independence was built on hype, hope and cow excrement.  Instead, we are now going to witness the collapse of U.S. shale oil and gas production.

The collapse of U.S. shale oil and gas production are two nails in the U.S. Empire coffin.  Why?  Because U.S. will have to rely on growing oil and gas imports in the future as the strength and faith of the Dollar weakens.  I see a time when oil exporting countries will no longer take Dollars or U.S. Treasuries for oil.  Which means… we are going to have to actually trade something of real value other than paper promises.

I believe U.S. oil production will decline 30-40% from its peak (9.6 million barrels per day July 2015) by 2020 and 60-75% by 2025.  The U.S. Empire is a suburban sprawl economy that needs a lot of oil to keep trains, trucks and cars moving.  A collapse in oil production will also mean a collapse of economic activity.

Thus, a collapse of economic activity means skyrocketing debt defaults, massive bankruptcies and plunging tax revenue.  This will be a disaster for the U.S. Empire.

Lastly, it is hard to forecast how this unfolds, but the best plan of action is to be more self-sufficient in the country with wealth held in physical gold and silver.

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400 Responses to Collapse Of Shale Gas Production Has Begun

  1. Lightsout says:

    Good read but really just a recap of what we already know.

  2. oldfarmermac says:

    Steve has come up with a damned impressive set of arguments.

    About the only thing missing is some discussion of how long it will take to get the drill rigs and men back into the gas fields, and how high the price will have to go, to get production back up again.

    So far as I can see, he is not arguing that the gas is not there, but rather that the MONEY is not there.

    Maybe the economy will not support the prices necessary to make domestic gas profitable next year and the year after that, and on down the road.

    I believe the gas IS there, based on Rockman’s comments about it being there IF the price is right.

    For what it is worth, my opinion is that reduced upstream capex, in combination with depletion, will result in an oil and gas short supply situation which in turn will result in price spikes UP as sharp as the recent free fall down .

    I have no way of estimating how long this might be in coming about, but my guess is that it won’t be a whole lot longer, in historical terms, probably not over a couple of years.

    I am of the opinion that taken all around, the low prices of oil and gas have been EXTREMELY GOOD for the American economy, and the economy of all developed countries that import a lot of oil and gas. The return of higher prices is going to have a hell of a bad impact on the economy.

    • SRSrocco says:

      OldFarmerMac,

      Been a while since I responded to one of your comments. That being said, we must remember, MONEY = ENERGY. However, it’s not that we need more money to get more drilling, we need MORE DEBT. As Gail Tverberg implies in her recent articles, we are now at a conundrum. We can’t afford to service the debt we have right now, so it’s impossible to add even more debt to bring on more energy.

      This is the reason why we have Zero & Negative Interest Rates. The U.S. will never again have a normal interest rate, unless it gets rid of all its debt. And if the debt is forgiven, then collapse happens because the other side of that debt was assets in the public and wealthy hands.

      Thus, we are now facing the COLLAPSE of DEBT… which means we can’t really afford to bring on more expensive energy. Even when the price of NatGas increased from 2012-2014, the drilling rig count fell considerably.

      To really turn the Shale Gas Industry around, I would imagine a price of $7-$8 is needed. Don’t know if we ever get there again due to the massive debt already in the system.

      There lies the Rub.

      Steve

      • Dennis Coyne says:

        Hi Steve,

        Don’t defaults on private debt happen all the time? That is the price one pays for buying junk debt, high risk in exchange for high interest payments.

        There is a simple solution to low interest rates. More debt. If people are willing to lend to a government at zero or negative interest rates, then roll over old debt and replace it with low (or no) interest debt.

        In fact economic theory would suggest in an economy at less than full employment more government borrowing at low interest rates is very sensible. Increase aggregate demand by investing in water systems, roads, bridges, rail, grid improvements, and anything else deemed useful by society (education maybe). The increased demand leads to higher income and more profitable businesses that demand more loans.

        The increased borrowing drives up interest rates to normal levels at which point the government stops borrowing and gradually reduces the level of public investment (cutting spending) while gradually raising taxes if necessary to balance the budget.

        All that is needed is a functioning government (rather than what currently exists in the US). I imagine a parliamentary government with enlightened leadership (Canada might be a good example) could implement such a plan.

        • SRSrocco says:

          Dennis,

          I believe the debt defaults that are coming are much bigger than we have ever experienced. The day the U.S. Treasury Market defaults will be the BIG ONE. And it’s coming. I am not saying it’s coming this year or next… but probably by 2020.

          Regardless, Japan stunned the markets on Friday by announcing Negative Interest Rates. This was why we saw a surge in World Indices on Friday. However, this is not a long-term solution.

          When you hit Negative Interest Rates, it’s hard to go too negative. So, there is very little room to continue dropping interest rates. All that remains is QE to infinity. But, again… this next QE that is done will likely cause serious inflation.

          The U.S. Financial System will likely collapse more suddenly than most realize.

          Hence… Seneca’s Cliff.

          steve

          • Dennis Coyne says:

            Hi Steve,

            QE will only cause inflation if the economy is doing well.

            Very unlikely that the US would default on debt, at low interest rates the US government should try to spur investment through tax breaks or public private partnerships, or borrow to offer low interest refinancing of student loans, there are many possibilities for productive investments that can be undertaken when private business is unwilling to invest.

            The debt situation in the US is really not as bad as you think.

            • Hickory says:

              I respectfully disagree about the debt not being a problem.
              It can be defaulted on, but the consequences for that are generally severe especially for the huge debts we have.
              Our chances of outgrowing our debt is very slim (equivalent of this generation robbing future generations of funds).
              Unless we learn to live within our means (really too late for that),
              we are in for a bad lesson.
              BTW- I suggest seeing the movie The Big Short.

              • Dennis Coyne says:

                Hi Hickory,

                US assets about $200 billion and total debt about $45 billion. A 25% debt to assets ratio is not a big problem.
                Debt to GDP around 250%, also not a problem in my view.

                I agree lower would be better, if the economy continues to improve debt will decrease at the federal level as tax revenue will increase and spending on unemployment benefits and welfare will decrease.

                • Jef says:

                  “US assets about $200 billion…” 90% of which are blue sky/finance/bankster generated.

                  Please list those assets you claim and site refs.

                  For every slice of pie there are at least 100 claims on it.

                  You coyne are a nonentity…re. a computer generated response algorithm. You spew absolute nonsense.

                  Please everyone, stop allowing his posts.

                  • oldfarmermac says:

                    Jef you have your head up your own backside so far you will never see daylight.

                    Dennis has FORGOTTEN more than you can ever hope to learn.

                    He is a mainstay of this forum, and when Ron retires, which must happen before too long, considering his age, if ANYBODY keeps it going, perhaps with a new name, you can bet your ass Dennis will be one of the most important people involved.

                  • SatansBestFriend says:

                    You can’t liquidate the entire US economy.

                    There would be no one who could buy it, among other preposterous implausibilities.

                    Therefore those assets can’t be worth 200 trillion marked-to-market.

                    An asset is only worth what someones pays for it at purchase time. Otherwise, it is an estimate of what it is worth.

                    I don’t question that you can estimate that usa total assets are 200 trillion.

                    Unless Jesus multiplies the loaves, fishes and gold nuggets those assets cannot be exchanged for 200 trillion dollars.

                    Maybe we can sell the US military to China! They would be possibly the only country that could afford it based on what those assets are being valuated at.

                    Debt is accurate to the penny. It is a legal obligation. And interest rates will go up due to the laws of thermodynamcs. There is no such thing as a free lunch .

                    thanks!

                  • Dennis Coyne says:

                    Hi Satan’s Best Friend,

                    On selling the entire US economy, usually it would be done a piece at a time.

                    The 200 trillion dollar estimate was from 2009, it is probably more now, I kept it at $200 trillion to be conservative.

                    We could be even more conservative and cut it in half, we would still be at better than a 50% loan to value.

                    Did you read the Rutledge piece?

                • Hickory says:

                  Dennis- the student loan debt alone in this country is up to 1.4 Trillion$!
                  http://www.bloombergview.com/quicktake/student-debt

                  I wasn’t just talking about government debt. There is corporate debt, household debt, farmer debt, pension fund debt, etc.
                  Lets not even get into the groundwater debt.
                  Maybe you are comfortable with living far out on the edge of the thin ice, but I’m just not.

                  • Nathanael says:

                    Private debt is a huge problem. The best way to deal with it is… for the government to convert it into government debt and then inflate it away. Money problems are simple if you have a government willing to deal with them.

                    Real resource problems like global warming and peak oil are another matter entirely and much harder.

                  • SatansBestFriend says:

                    Nathanael,

                    Do you live on planet earth?

                    The best way to deal with private debt is to convert it to public debt and then inflate it away?

                    That is the way children deal with money.

                    The laws of thermodynamics prevent a free lunch.

                    There is no escape from the laws of mathematics.

                  • AlexS says:

                    Billion or trillion?

                  • Dennis Coyne says:

                    Thanks AlexS,

                    My mistake it should be trillion.

                  • Dennis Coyne says:

                    Hi Satan’s Best Friend,

                    If there is secular stagnation due to low labor productivity growth, interest rates will never rise and it may be that deflation is more of a problem than inflation.

                    If there is deflation then many private debts will be defaulted on. Yes debts are a legal obligation, bankruptcy is how the defaults are dealt with legally.

                    If we assume the debts are held mostly by the wealthy and liabilities belong mostly to poorer folks, the defaults redistribute wealth from rich to poor.

                    Now in a more normal economy there is at least some inflation so that the real value of debt in inflation adjusted money is reduced over time, this has been true since fiat money has been used.

                    Keep in mind there is a distinction between the real economy and the monetary economy. Thermodynamics applies to the real economy, but not so much to the monetary part.

                    Think of the price assigned to a good at an auction, how does thermodynamics apply there? Price is an arbitrary number assigned to an object based on the supply of and demand for that object, thermodynamics and physics have very little to do with it. Price discovery is a social interaction.

                  • SatansBestFriend says:

                    Hey Dennis,

                    I can’t tell if I’m responding to the right thread on my iPhone.

                    I have a sneaky suspicion u r actually smarter than me, so I better cut my losses. Lol!

                    Remember the economy is a balance sheet.

                    For every entity that is henefitting from low interest rates there is an entity that is getting killed by them.

                    Any entity engaged in bond laddering (like insurance companies and pension funds), is getting killed.

                    At some point the fed will have to back off or they will detonate half of the economy.

                    There is no escape from the laws of math and there is no free lunch.

                • VK says:

                  Hi Dennis,

                  The end of American growth is here. See economist Robert Gordon’s magisterial 768 page new book. Total factor productivity has been falling since the 70’s.

                  http://www.prospectmagazine.co.uk/features/growing-pains-united-states-end-of-economic-growth-productivity

                  • Dennis Coyne says:

                    Hi VK,

                    His opinions are not shared by many economists, I agree that growth in advanced economies will be slower, that is a good thing.

                    The unequal wealth distribution will need to be addressed, at some point the poorer members of society may get behind a populist that advocates real change to address the problem. The internet could potentially link many people together to form such a movement.

                    Using data from FRED:

                    https://research.stlouisfed.org/fred2/series/USPRIV
                    and
                    https://research.stlouisfed.org/fred2/series/GDPC1

                    I was able to look at US labor productivity from 1955 to 2015.

                    On average the rate of increase was 1.3%, but from 1976 to 1982 and from 2010 to 2015 there was no increase in labor productivity.

                    The hypothesis that this may be permanent is interesting, but as yet unproven.

                • Dennis Coyne says:

                  Mistake on my part billion should have been trillion.

                  • grs says:

                    You and the Keynesian shamans you read have forgotten one very important part of the system, without which it will collapse: CONFIDENCE. Billions or trillions, it doesn’t matter. What matters is confidence. When high-powered institutions realize the only remaining collateral is the kind of ad hoc idiocy that you are spewing, the system will collapse into something more manageable.

                  • Dennis Coyne says:

                    Hi grs,

                    Perhaps you have never read Keynes.

                    Confidence was central to his analysis in The General Theory, published in 1936.

                    It is the non-Keynesians that think the economic system is self regulating and requires little or no government interference.

                    Most mainstream economists are not Keynesians (there are a few, but they are no longer the clear majority, as was the case before 1980).

                    So you think that the value of the real assets in society do not matter?

                    Note when I talk about assets, I don’t mean stocks and bonds. I am talking about land, buildings, equipment, and other physical capital. I am not talking about financial assets, perhaps you should read the piece by Rutledge.

                    http://rutledgecapital.com/2009/05/24/total-assets-of-the-us-economy-188-trillion-134xgdp/

                    In the piece by Rutledge he notes that many sectors do not have data for tangible assets, such physical assets as farmland, and federal and local government assets(roads, bridges, buildings, water systems, public transport networks.)

                    http://www.federalreserve.gov/releases/z1/current/z1.pdf

                    Page 20 of the document above gives 2014 US net worth as $78 trillion, and $54 trillion is tangible assets, this excludes the market value of US corporations, if the tangible assets of those businesses were added we would be back up to $70 trillion in tangible assets.

                    Note that the value of federal, state, and local government land and the mineral rights associated with that land are not included (this might add another $3 trillion or so) so maybe $73 trillion in tangible (or real) assets. Total debt is about $50 trillion (government and private debt) so for the entire US economy the loan to value is about 70%, if we ignore the value of US corporations (their net present value is assumed to equal only their tangible assets).

                    If debt continues to grow faster than the economy, this may become a problem.

                    Note that this analysis has set all US corporations to half their market value in 2014 so it is fairly conservative.

          • Nathanael says:

            It’s not possible for the US Treasuries to default, unless a deranged President (Trump?) *decides* to make them default.

            What is possible is that the US will simply print money to pay interest on the Treasuries. This could cause inflation, but if the economy is in bad shape, it won’t.

            The private banks could all go bankrupt though.

            • Dennis Coyne says:

              Hi Nathaneal,

              Some banks might be closed, all banks is very unlikely barring an asteroid strike or World War 3.

            • SatansBestFriend says:

              Nathaneal,

              Not could cause inflation. Printing money, to increase the money supply, is by definition, inflation.

              You are talking about rising prices ( which is sometimes a consequence of increasing the money supply)

              If printing money and going into massive debt worked, we would all be sitting on the beach drinking coconut smoothies and laughing our arses off.

              It doesn’t work, that is why people have to go to work.

              It doesn’t work, specifically because the laws of physics won’t allow it.

              • Dennis Coyne says:

                Hi Satan’s Best Friend,

                When the economy is doing poorly. More money supply does not lead to inflation. The money just circulates more slowly if more money is created.

                Think of it in the following way. You print a trillion dollars and give it to the 10 wealthiest people in the country.

                Does spending increase? Hint, not very much.

                Does inflation increase by much? Again no, the rich just let it sit in their investment accounts, there is very little effect on the real economy.

                That is why the quantitative easing has not led to inflation.
                Money supply has increased a lot, inflation has been modest.

                • Javier says:

                  Dennis,

                  But at the slightest hint that that money is going to lose part of its value, those rich people are going to unpark it and use it to buy assets. At that point you are going to have an asset inflation like none before. Then inflation goes to the roof, and then money dies.

                  It is very easy to print money as it has been done. It is very difficult to unprint that money and recall it to be destroyed so it doesn’t hang like Damocles sword on us. Monetary expansion beyond economic growth is a fools game. It has always been, it will always be.

                  • Dennis Coyne says:

                    Hi Javier,

                    Potentially there could be some inflation of financial assets such as stocks and bonds.

                    Much of the excess money supply has not resulted in increased lending. Much of the bond buying has been the central bank buying bonds from big banks. If the banks don’t lend most of this money to private businesses (the money received in exchange for bonds), then there is little asset appreciation.

                    The point of the policy is to stimulate the economy, any lending which does occur tends to increase aggregate demand, which is the point.

                    Many worry about inflation from these policies, it doesn’t occur unless the economy starts doing well.

                    I agree the policy does not work very well, fiscal policy is much more effective.

                  • Javier says:

                    Dennis,

                    The money created out of thin air constitutes a claim on the same amount of riches (economic wealth) that support the monetary base. Therefore, used or not, it dilutes the claim from previously existing money.

                    Inflation is simply a measure of two things, the increase in monetary base in circulation beyond the increase in economic wealth and the increase in money velocity.

                    But you got it backwards. The problem is if the economy starts contracting, not if it starts doing well. If the economy contracts, and there is an excess of money, the claim of the monetary base on the economic wealth starts to go down and so money velocity starts going up as people try to exchange a money that is losing value for goods. The situation is described as “too much money chasing too few goods” and can easily lead to stagflation. Then there is no good choice. If allowed to reign, it can lead to hyperinflation, if checked by reduction of the monetary base it worsens the economic contraction.

                  • Petro says:

                    Javier,

                    although not entirely accurate (technically and theoretically speaking), for terms and sentences such as: “…too much money chasing too few goods…” and “…the increase in monetary base in circulation beyond the increase in economic wealth…” are Classical Economic Theory terms which do NOT reflect accurately the financialized, notional and interconnected global economy we have today (but more so the old “goods and services” based economy we used to have) – you have a far better understanding of these things than the overwhelming majority of economists and finance experts (some of whom are in decision making positions nowadays … unfortunately!).

                    I am impressed.

                    Be well,

                    Petro

                  • Dennis Coyne says:

                    Hi Javier,

                    If the excess reserves remain in the bank, the money supply will contract over time as loans are paid back. What you are forgetting is that as the economy contracts, the money supply contracts as well because the debt being repaid will exceed the money being borrowed.

                    Stagflation was a result of poor monetary policy in the US in response to the oil shock of 1979 to 1981.

                    We should be concerned more with deflation, the inflation fears are without much basis in economic theory, if the economy contracts, deflation is the problem and monetary policy is not a solution. Only fiscal policy will help.

                • SatansBestFriend says:

                  Hey Dennis,

                  Inflation is an increase in the money supply.

                  Deflation is a decrease in the money supply.

                  Sometimes inflation and deflation affect the prices of things, depending on other factors.

                  QE hasn’t produced as much price increase as expected because the amount of money printed by the fed is relatively small to the entire money supply.

                  Credit and bank loans dwarf what the fed has done.

                  • Don Wharton says:

                    Inflation and deflation are terms reflecting generally increasing or decreasing prices for things and services in the marketplace. The money supply MAY influence those prices but it is not the definition of of inflation or deflation.

                  • SatansBestFriend says:

                    Donald,

                    You must not be an Austrian economist.

                    I can only hope that Murray Rothbard and Ludwig von mises log in and give you a spanking.

                    Lol. Thanks for your input!

                  • Don Wharton says:

                    Obviously I am categorically opposed to the stupidities of the Austrians.

      • oldfarmermac says:

        Hi Steve,

        Read my comment, http://peakoilbarrel.com/collapse-of-shale-gas-production-has-begun/#comment-558059 , down thread, and tell me what you think.

        I believe actual future history is apt to play out somewhere between a hard uncontrolled collapse and Sky Daddy only knows how bad times, and my top down controlled collapse and winding down without collapse scenario, as described in my comment.

        Part of a controlled descent from current day business as usual WILL INVOLVE some new drilling for oil and gas, and some coal to liquid capacity being built.

        There is no doubt in my mind that the entire house of cards that is modern industrial civilization COULD collapse , and might collapse. Whether it does, or dose not, in my estimation, is mostly a matter of luck, such as which political parties and which special interests prevail in determining future policies at national levels. A few countries at least are sure to wage aggressive war on their neighbors near, and perhaps far, hoping to seize any remaining depleting assets such as oil, gas, metal ores, even farmland.

        Back atcha.

        I have a little gold and silver, and an equal amount of cash tied up in sealed containers of ammo, which will in my estimation be as easy or easier to trade in a doomer scenario as gold coins.

        My personal opinion is that any end of life as we know it scenario is very likely at least two or three decades down the road, barring very bad luck bringing on WWIII or something of that nature.

        Debts can and will be repudiated, when necessary. The consequences will be awful, but they need not include more than a very small percentage of the people in a rich western country dieing violently or of starvation and exposure.

        A lot can happen in two or three decades, and a lot of what happens will be VERY positive, such as substantially improved recycling of depleting resources, falling birthrates, enormously improved energy efficiency, draconian MANDATED conservation measures, substantially cheaper renewable energy, etc.

        With peaking and falling populations, most countries THAT MATTER will not need much at all in the way of new highways, electrical transmission lines, water treatment and sewage plants, or housing. Maintaining old stuff is expensive, true , but maintenance is dirt cheap compared to building new from scratch.

        The renewable energy naysayers never quit harping about the need for fossil fuel back up for wind and solar power, but they very CONVENIENTLY ignore the perfectly obvious fact that the necessary backup capacity ALREADY EXISTS, and must be maintained in any case, whether we run it around the clock around the calender on fossil fuel, or intermittently as necessary to supplement renewables.

        It is true that oil, coal , and metal ores were not in short supply in the thirties when the nazis came to power in Germany, but it is also true that Germany was a country economically prostrated, with many millions of her best men dead or crippled, and nevertheless, Germany built the most impressive war machine ever even imagined up until that time in less than a decade.

        MONEY didn’t build that war machine, PEOPLE built it, using what material resources were at hand, or could be begged, bought , borrowed or stolen.

        Folks such as MARX and LENIN were not complete idiots, they knew a few things.

        When the shit hits the fan, world wide, there will still be plenty of material resources and skilled manpower that can be diverted to doing something about energy troubles.

        The bigger and stronger the renewables industries at that time, the faster they will be able to expand. Hopefully they will be big enough to allow some of us to continue to live a life at least superficially similar to life as we know it today.

        Success is NOT assured.

        But neither is outright failure.

        • Stu from New Jersey says:

          “Maintaining old stuff is expensive, true , but maintenance is dirt cheap compared to building new from scratch. ”

          True, but maintenance does not win elections; neither does it generate the profits needed to adequately bribe (“fund”) the political parties. At least in NJ, which is the most paved state in the union.

          • oldfarmermac says:

            HI Stu,

            I imagine that when and if the shit hits the fan, really hard, damned few residential streets and side roads will be repaved, or even patched, anywhere at all.

            All the four by four vehicles that have never been off pavement will finally actually be USEFUL to somebody other than a farmer, or a Vermonter in winter- if gasoline enough to drive them more than a few miles a week can be had.

            Folks will be amazed at what they can GET BY WITH when necessity forces them to get by. Traffic will fall off eighty percent or more, on most streets. Potato chips will OUT, potatoes will be in, one load of potatoes in the place of ten loads of chips, and in reusable bags and boxes, rather than throwaway packaging.

            The places hardest to maintain, with the least reason for people to hang around, will simply be abandoned. Population will be falling, and there will be plenty of vacant housing in places where life is easier than a New Jersey industrial and commercial dead zone.

            Of course SOME New Jersey industry will survive.

            A good half of everything we do has little or nothing to do with people living a dignified if spartan life. When the shit hits the fan, we won’t be spending much on advertising, or high status restaurants, or fancy clothes, or luxury automobiles.

            But ” personal servant” will be a growth industry. I might get lucky and find a young pretty one for myself who will cook and clean for me and hoe the garden and pick beans and dig potatoes, for room and board and a few things to trade at the flea market, such as some of the potatoes and beans.

            Now if things get REALLY bad, my servant(s) might just murder me, and take possession of the farm. 🙁

            In that case, my worries will be over ANYWAY. 😉

      • commenter says:

        Sorry guys, money is not energy even if it seems like it is on the oil patch.

        P.S. Concerning all this “American Empire” stuff, is the name SRSrocco a joke? It looks a lot like SRs Россия, where SRs is a common abbreviation for the Socialist Revolutionaries.

        • SRSrocco says:

          Commenter,

          While you can come up with all the socialist propaganda to your heart’s desire, my screen name is quite harmless. It’s my initials followed by my middle name.

          LOL…. Steve

        • Petro says:

          Commenter,

          I am not sure about Steve’s, for he can explain that himself, but (judging by what you wrote) you presented us with only your last name.
          You forgot to write your first and middle names:
          Dumb F******
          Therefore your full name – so we know exactly where such wise and thoughtful comments akin to yours are coming from, would be:
          Dumb F****** Commenter

          Be well,

          Petro

      • Dennis Coyne says:

        Hi Steve,

        The debt situation in the US is really not that dire.

        Total assets of the US were about 200 trillion in 2009. Total federal and private non-financial debt was about $43 trillion in 2014 ($36 trillion in 2009) so debt to assets is only about 25%.

        See http://rutledgecapital.com/2009/05/24/total-assets-of-the-us-economy-188-trillion-134xgdp/

        Chart below shows federal plus non-financial private debt to GDP for the US.

        • SatansBestFriend says:

          I don’t agree with that.

          There is no way you could liquidate all those 200 trillion of “assets”. Therefore their value is not 200 trillion.

          The debt is accurate to the penny and a legal obligation.

          An asset is only worth what someone can pay for it. Who has 200 trillion laying around?

          Interest rates have hit rock bottom. There is no where to go but up.

          When they start going up, all the governments, companies, entities that have been playing the “roll your debt over to lower interest rates” games will be in deep shit.

          It will be “roll your debt over to higher interest rates that you haven’t budgeted for” game.

          And there are ALOT of those out there.

          thanks!

          • Dennis Coyne says:

            Hi SBF,

            When interest rates increase it will be because the economy is improving.
            Government revenues will be higher so some debt can be retired, and corporate profits will be higher so higher interest rates can be paid. Higher interest rates are the sign of a more robust economy. So we disagree and asset values matter. That is why the house is appraised.

            • SatansBestFriend says:

              Thanks for the response Dennis.

              Aren’t interest rates low because at treasury bond auctions the bidders are buying them at low rates?

              The Federal Reserve (who has a gargantuan and unsustainable balance sheet) is in there buying them to prevent the rates from going up.

              I don’t believe that can be gracefully controlled forever.

              When has the Federal Gov’t ever retired debt?

              thanks for your input, I have learned much from your posts.

            • SatansBestFriend says:

              Dennis,

              One more brilliant point! LOL!

              Housing prices increased because interest rates have been on the decline for the last 30 years.

              Housing prices rise, because some other idiot can borrow more money than the last guy did.

              When interest rates are going down, you can afford more with the same monthly payment.

              When interest rates go up. That is no longer true.

              Asset values do matter. But they are only worth what someoe who wants them can afford to pay.

              In the case of houses, in a rising interest rate environment, that will be lower and lower asset values.

              thanks!

              • Dennis Coyne says:

                Hi SBF,

                I agree that interest rates will influence the price of the asset for the reason you say.

                Consider the following thought experiment, how low would the price go due to higher interest rates? It would depend on the condition of the house and the cost to build something like it plus land cost in a similar neighborhood in the vicinity.

                Interest rates will influence the asset value, but they will not determine it, it will be mostly a matter of supply and demand in the housing market.

                Also keep in mind the interest rates will affect the value of all houses and the price of a house is a relative thing, how much is house A relative to house B.

        • Nathanael says:

          Dennis, the problem is the distribution of wealth. A few billionaires have all the assets; everyone else has all the debt.

          • Dennis Coyne says:

            Hi Nathanael,

            I agree wealth distribution is a big problem. The simple solution is elimination of tax loopholes and tax shelters, higher estate taxes (on inherited assets over 1 million adjusted for inflation), and more progressive income tax (similar to pre-1965 US tax code adjusted for inflation).

            If the private debts are defaulted on, that would accomplish a lot of wealth redistribution right there.

      • Steve B says:

        Steve, enjoyed the article and an investor in LT (2019) natgas futures, I hope your are correct about the following statement:

        “To really turn the Shale Gas Industry around, I would imagine a price of $7-$8 is needed. Don’t know if we ever get there again due to the massive debt already in the system.$6

        I see that you quoted Arthur Berman in reference to $6 breakeven. Only recent work i have seen from him was on the Haynesville shale – and he had a $6.50 breakeven number.

        Obviously, every play (even well) has a number. Not sure where you are getting $7 or $8 from….and the use of the word turnaround is a bit confusing given certain areas will “turnaround” at $3, then another set at…

        So, where do assume the marginal MCF will come from? And can you share more about how you arrive at your projection?

        (as an aside, was very excited to see this topic and looking forward to a discussion of natgas pricing – given all the focus on oil here…and just about every where else. It seems most here want to discuss inflation, debt, gold, silver, etc. While interested in that, was hoping to have a more focused discussion…then we can each apply all our theories on the end of the US, world, money, etc. Just a suggestion0

        • George Kaplan says:

          There is currently a world LNG glut which is going to grow over the next two years – at $6 it might be cheaper to import LNG than develop the shale, especially where there are pipeline bottlenecks in some areas.

        • Steve says:

          Steve/SRS,

          Disappearing act when questioned about the data supporting your natgas price projection?

          Anyway, thanks for pointing out production falls when the prices low enough for long enough. 😉

    • Stavros H says:

      @oldfarmermac

      You are 100% correct.

  3. VK says:

    The march towards doom continues unabated. Forward comrades!

    • Caelan MacIntyre says:

      “One unusual symptom associated with the syndrome is a feeling of ‘impending doom’. Patients have been reported as being so certain they are going to die, they beg their doctors to kill them to get it over with” ~ Wikipedia

  4. I agree with Steve on all the shale gas stuff but I am not at all sure about all that “U.S. Empire” stuff.

    The U.S. Empire is a suburban sprawl economy that needs a lot of oil to keep trains, trucks and cars moving.

    Yes we need all that but that is definitely not the definition of an empire that I have ever read anywhere. The economy is not an empire. I think Steve uses the term “U.S. Empire” for its dramatic effects. It just sounds so damn impressive to call it an empire.

    The U.S. Empire consist of Puerto Rico, The U.S. Virgin Islands, Guam and American Samoa. That’s a pip squeak empire if you ask me. 😉

    • Javier says:

      I would understand the US empire as an economic domination as reflected in the dollar’s role in the world’s economy.

      From the Spanish empire that was all about land dominance to the British empire that was built on commerce and the US empire on economic dominance, there has been an evolution of the empire concept as the world changed. The only constant is that the empire has always been backed by military supremacy.

      • The only constant is that the empire has always been backed by military supremacy.

        The dollar’s role in the world’s economy is not backed by military supremacy. Though the US does have somewhat of a military supremacy throughout the world, no country has guns pointed at them telling them: “You will use the dollar as your reserve currency or get shot.”

        The dollar is used as the world’s reserve currency purely for convince. Oil, and other world traded goods needs a common currency throughout the world. Otherwise no one would know what anything cost if everything was priced in local currencies.

        Any country however, is free to trade any commodity in their local currency. Japan already does that. Oil is priced in yen per kl on the Tokyo exchange. Other countries routinely ask that their oil be traded in some other currency than the US dollar. And some people think this is a big deal. It is not. It makes no difference whatsoever other than the inconvenience of having to exchange currencies on the FOREX. And the US Army never comes around to bother them about it.

        • Javier says:

          It seems I did not explain myself. The dollar’s role in the world economy is a reflection of the US economic dominance, not its basis. Quite a few countries have had their currencies pegged to the dollar or their economies directly dollarized.

          Military dominance is not required to enforce the role of the dollar, but to command the respect that makes it difficult to be challenged. US has used its military dominance to enforce its oil policy through several oil wars and interventions.

          • US has used its military dominance to enforce its oil policy through several oil wars and interventions.

            No it has not. The Iraq war may or man not have been about oil. But it was not to enforce its oil policy. The US has no official oil policy. All US oil companies and oil holdings are held by private companies or private people, not the US government.

            The first Iraq war was to kick Saddam out of Kuwait and all the ramifications that would have had had he kept it. The second Iraq war was just a very stupid US President wanting to have his own glory. He wanted to say he saved us from weapons of mass destruction. Or perhaps because they tried to kill his daddy. Neither was to enforce our oil policy because there is no such thing as a US oil policy.

            • Javier says:

              “According to academics from the Universities of Portsmouth, Warwick and Essex, foreign intervention in a civil war is 100 times more likely when the afflicted country has high oil reserves than if it has none. The research is the first to confirm the role of oil as a dominant motivating factor in conflict, suggesting hydrocarbons were a major reason for the military intervention in Libya, by a coalition which included the UK, and the current US campaign against Isis in northern Iraq.”
              Intervention in civil wars ‘far more likely in oil-rich nations’

              Fueling Conflict: The Role of Oil in Foreign Interventions

              “Oil Above Water”: Economic Interdependence and Third-Party Intervention
              Journal of Conflict Resolution January 27, 2015 V. Bove et al.

              US Oil policy has been to guarantee an adequate supply of oil from the Middle East at a stable affordable price. That has always been the motivation behind interventions, and alliances policy with the Middle East countries. All the rest is just lies for public consumption.

              • clueless says:

                Javier says he is smart – “foreign intervention in a civil war is 100 times more likely when the afflicted country has high oil reserves.”
                Right with respect to the US? Let’s see – Korea in 1950; Vietnam in 1965; Nicaragua in 1980’s; all “civil wars” but, NO OIL. Grenada in 1980’s – not a “civil war” and NO OIL.
                Iraq/Kuwait – Not a “civil war.” Iraq in 2003 – not a “civil war.” Afghanistan 2002 – “maybe” a civil war, but NO OIL.

                • Javier says:

                  Clueless, to have a clue about someone’s position perhaps you should at least glance at the information provided on which it is based.

                  From the third link (scientific article):
                  “The US for most of the period studied here provides an example at the high end of the oil dependence spectrum (i.e., high reserves, high demand for oil). Consistent with this we see recurrent US involvements in the civil wars and internal affairs of Angola from 1975 until the end of the cold war. The US was the country with the highest demand for oil during this period, and it was known from the 1970s that Angola had oil reserves. Oil in Angola was first discovered in 1955, and many US corporations, like Chevron, have been operating in the oil-rich Cabinda region for more than fifty years. The US has also intervened in a number of other countries with proven large oil reserves, such as in Guatemala, Indonesia and the Philippines over the period covered by our dataset (1945-1999).”

                  And no, I do not claim to be smart. That is something that it is either recognized by others or it isn’t. Instead of claiming to be smart you should start acting likewise.

                  • likbez says:

                    Javier,

                    Thanks a lot for your links.

                    As Colonel Bacevich noted the USA did not fundamentally change its foreign policy after the Cold War, and remains focused on an effort to expand its control and propagate neoliberalism all over the world, crushing any regime that offers resistance.

                    Skeptics of your position should read his book AMERICAN EMPIRE

                    http://www.amazon.com/American-Empire-Realities-Consequences-Diplomacy/dp/0674013751

                    It’s only $1 + shipping (used) on amazon.

                    As the only surviving superpower at the end of the Cold War, the U.S. should focus on world dominance according to former Under Secretary of Defense for Policy Paul Wolfowitz in 1991. His so called “Wolfowitz doctrine” was a blueprint for Iraq, Libya and Syria invasions and a set of neoliberal color revolutions accomplished by the USA since 1991.

                    See http://www.softpanorama.org/Skeptics/Political_skeptic/Neocons/wolfowitz_doctrine.shtml

                    May be neoliberal hegemony is a better term then empire.

                    The influential set of US politicians are called neoconservatives (that includes Jeb!, Hillary, Rubio and Cruz, but not Trump).

                    Foreign policy of all administrations since Clinton was based on the recommendations of the Project for the New American Century https://en.wikipedia.org/wiki/Project_for_the_New_American_Century

                    Compared with traditionalist conservatism and libertarianism, which are non-interventionist, neoconservatism emphasizes confrontation, and regime change in countries hostile to the interests of the United States. It is extremely jingoistic creed. The unspoken assumptions of neocons ideology have led the United States into a senseless, wasteful, and counter-productive posture of perpetual war. It is a foreign policy equivalent to Al Capone idea that “You can get much farther with a kind word and a gun than you can with a kind word alone”. It is very close to the idea that “War is a natural state, and peace is a utopian dream that induces softness, decadence and pacifism.” The problem here is that it’s the person who promotes this creed can be shot. Of course neocons are chickenhawks and prefer other people die for their misguided adventures.

                    John McGowan, professor of humanities at the University of North Carolina, states, after an extensive review of neoconservative literature and theory, that neoconservatives are attempting to build an American Empire, seen as successor to the British Empire, its goal being to perpetuate a Pax Americana. As imperialism is largely considered unacceptable by the American media, neoconservatives do not articulate their ideas and goals in a frank manner in public discourse but use “noble lie” approach.

                    == quote ==
                    Frank neoconservatives like Robert Kaplan and Niall Ferguson recognize that they are proposing imperialism as the alternative to liberal internationalism. Yet both Kaplan and Ferguson also understand that imperialism runs so counter to American’s liberal tradition that it must… remain a foreign policy that dare not speak its name… While Ferguson, the Brit, laments that Americans cannot just openly shoulder the white man’s burden, Kaplan the American, tells us that “only through stealth and anxious foresight” can the United States continue to pursue the “imperial reality [that] already dominates our foreign policy”, but must be disavowed in light of “our anti-imperial traditions, and… the fact that imperialism is delegitimized in public discourse”… The Bush administration, justifying all of its actions by an appeal to “national security”, has kept as many of those actions as it can secret and has scorned all limitations to executive power by other branches of government or international law.

                  • Guatemala and phillipines dont have large oil reserves. They never had.

              • Clueless, you forgot Somalia, no oil. All those places shoots the hell out of that “100 times more likely” bullshit.

                US Oil policy has been to guarantee an adequate supply of oil from the Middle East at a stable affordable price. That has always been the motivation behind interventions, and alliances policy with the Middle East countries.

                Yeah right. That’s the reason we went to war with Iraq when they tried to confiscate Kuwait? That being said, even if it was, just who the hell was the beneficiary of keeping Saddam from invading Saudi Arabia and eventually taking over the entire Middle East oil supply?

                Was it only the US? Or perhaps every importing nation on earth was just as much the beneficiary as was the US. We footed the bill and sacrificed the lives but Germany, Spain, Brazil, Japan, South Korea, and all of Europe got the benefit.

                If the US has a policy of trying to stabilize the world, then all the rest of the civilized world outside the Middle East is the beneficiary including your home country Javier. Or perhaps you would rather we let Saddam have Kuwait… then Saudi Arabia, then then the UAE, then Oman, then…..

                You know, sometimes this “knock America” bullshit just starts to wear thin.

                • Javier says:

                  Ron,

                  “All those places shoots the hell out of that “100 times more likely” bullshit.”

                  If you are going to contradict a published scientific study you should do it on something more than your opinion, don’t you think? The article analyzes hundreds of civil wars between 1945-1999 for third party interventions. Military interventions are very expensive. Being a country with significant oil reserves and oil exports makes a foreign military intervention a lot more likely. Had Kuwait not have any oil I doubt a lot of countries would have bothered.

                  Regarding “knock America” I do not espouse any of that. I have not criticized US policy. I just have stated what it is. I am a realist, but pardon me for not thinking that America’s main interest is to improve the world. Any country is primarily interested in defending its interests and USA is no different. My country being in the same alliance both benefits and pays a price, and stays in that alliance because it suits its interests.

                  • If you are going to contradict a published scientific study you should do it on something more than your opinion, don’t you think?

                    I did, there were 5 civil wars listed that had nothing to do with oil. 100 to 1 would mean there had to be 495 that did deal with oil.

                    The article analyzes hundreds of civil wars between 1945-1999 for third party interventions.

                    Welllllll, I have a problem here Javier. A quote from the article:

                    The report’s starkest finding is that a third party is 100 times more likely to intervene when the country at war is a big producer and exporter of oil than when it has no reserves.

                    That is pure bullshit. Of the top 28 countries, other than the US, all those that produce more than half a million barrels per day, only two, Iraq and Libya, did the US have any interface with.

                    But the article goes on to say:

                    The study, published in the Journal of Conflict Resolution, analysed 69 civil wars between 1945 and 1999,

                    69 ain’t hundreds Javier. And of all the countries in the world, only 29, counting the USA, that produced more than half a million barrels per day. And only two had American intervention. They are listed below along with the oil they produced in June 2015. The numbers are thousand barrels per day.

                    10,240 Saudi Arabia
                    10,234 Russia
                    9,296 United States
                    4,409 China
                    4,325 Iraq
                    3,608 Canada
                    3,300 Iran
                    2,820 UAE
                    2,550 Kuwait
                    2,500 Venezuela
                    2,396 Brazil
                    2,283 Mexico
                    2,220 Nigeria
                    1,850 Angola
                    1,595 Norway
                    1,567 Kazakhstan
                    1,537 Qatar
                    1,370 Algeria
                    1,010 Colombia
                    993 Oman
                    880 United Kingdom
                    867 Azerbaijan
                    822 Indonesia
                    771 India
                    620 Malaysia
                    541 Ecuador
                    534 Argentina
                    511 Egypt
                    410 Libya

                  • I am a realist, but pardon me for not thinking that America’s main interest is to improve the world.

                    Javier, get real. Our interest is your interest. If you don’t know that then I really don’t have anymore to say.

                  • Javier says:

                    Ron,

                    “That is pure bullshit. … , only two, Iraq and Libya, did the US have any interface with.”

                    The study is about every country, not about the US.

                    “69 ain’t hundreds Javier”

                    My mistake. It is hundreds of military interventions. As it says in:
                    Fueling Conflict: The Role of Oil in Foreign Interventions:
                    “In the 344 armed interventions in civil wars that took place from 1945 to 1999”
                    There can be military interventions from multiple countries in a single war as we have seen.

                    The data they have used is from other independent studies. Perhaps their study or their model is wrong, but I don’t see much reason to doubt their result. We all know about resource wars, and oil is the main resource. I don’t see that their result is controversial.

                    Our interest is your interest.

                    Mostly yes, but I oppose military interventions in foreign countries as a question of principle. I did oppose the second Gulf war, and I did oppose the intervention in Libya. My country participated in both in a supporting role. I guess my position has been vindicated by developments.

                  • He can quote me. Ron is right.

            • Jimmy says:

              Ron, the USA does have an oil policy. It’s called The Carter Doctrine. I can think of only one reason why the USA cares about the Persian Gulf. Unless there’s something other than oil behind the Carter Doctrine then I’d say it’s an oil policy within foreign policy.

              • Israel lobby. They are the boss. The USA is more like a colony.

                • Hickory says:

                  Yeh, and I suppose you think the world is flat too.

                  The USA policy regarding the mid-east and oil is to attempt to safeguard the export of oil from the sellers to all the buyers- including itself and places like Japan, Korea, Taiwan, Germany, France, India, China, Spain etc. The dependable supply of oil flowing from the gulf allows international trade and the prosperity that results. Simple as that.

                  • American políticians pledge unconditional support for Israel, a foreign power ruled by an extreme right wing ethno/theocratic regime whose population is crawling with racist Russians. As far as I’m concerned this implies the USA has become a quasi colony, with a brainwashed public and a cowardly suicidal elite.

            • Stu from New Jersey says:

              Come on, Ron. The issue in the first Iraq war was Kuwait doing horizontal drilling under the border. Iraq felt that this was tantamount to stealing its oil
              When Saddam complained to the Bush administration, he was told that the U.S. regarded this as purely an inter-Arab affair. The fact that Bush immediately jumped on the invasion as an excuse for war strongly suggests that Iraq was being “set up”.
              Or, Kuwait was being “set up” in order to agree to a big U.S. military presence. Either interpretation suggests a conscious extension of “empire”.

              • The fact that Bush immediately jumped on the invasion as an excuse for war strongly suggests that Iraq was being “set up”.
                Or, Kuwait was being “set up” in order to agree to a big U.S. military presence. Either interpretation suggests a conscious extension of “empire”.

                Yeah right! It was all one big conspiracy so Bush could extend the empire.

                I have never heard such a line of bullshit in all my life.

                • Stu from New Jersey says:

                  Actually, the simplest approach (“Occams Razor”) is to assume that the diplomat was following instructions.
                  Not such a huge conspiracy – just the type of thing that governments do all the time.
                  Very simple compared to FDR’s strategy of goading Japan to attack so he could enter the war against Germany. Or do you think that the majority of historians who interpret things that way are all conspiracy theorists?

                  • Stu, you are trying to justify a very stupid conspiracy theory by citing an event of WW2, which was not remotely related to the situation we are discussing. That is almost as dumb as your conspiracy theory.

                    I have never heard of any historian who thinks that the Iraqi ambassador was instructed to tell Saddam that he had free rein to invade Kuwait just to give Bush an excuse to start a war with him. But I am sure there may be one or two somewhere in the world. After all there are thousands of historians and all of them are not immune to very stupid conspiracy theories.

                    And Occam’s Razor does not support wild hare brained conspiracy theories. The simplest approach is not to assume Bush 41 hatched a plan to lure Saddam into invading Kuwait. Bush likely had no idea that Saddam and his associates would pay a visit to the ambassador and try to glean from her what the US might do if he invaded Kuwait. After all, she did not go to him, he went to her with his queries.

          • SW says:

            The “Empire” dissolved after the neocons got their war on in Iraq. This exposed the limits of military power in the 21st century and although we spend more than every other nation on Earth combined on conventional weaponry we demonstrated for all to see that this is insufficient to impose your will on a recalcitrant population. A lesson that the right wing in this country has yet to fully absorb.

            • oldfarmermac says:

              “that this is insufficient to impose your will on a recalcitrant population. A lesson that the right wing in this country has yet to fully absorb.”

              I would not be so sure and smug about that conclusion. The oil is still flowing, to anybody with the wherewithal to pay for it.

              Do you think it would be flowing freely if Saddam Hussein had been left in power? Do you think it will flow freely if ISIS is allowed to come to undisputed power in two or three major oil exporting countries?

              There is no good evidence, so far as I can see, to indicate that Uncle Sam, along with a few friends, will not send as many troops as necessary back to Sand Country to KEEP it flowing, if necessary.

              Those of us who are opposed to right wing type thinking and policies generally fail to recognize what CAN be accomplished with military power.

              It is true that we might have to go back to Iraq, etc, once in a while, but given the choice of paying that price, and paying the price of doing without a world market in oil, freely traded.

              HRC, or Bernie Sanders, or the Trump Chump, or whoever winds up in the White House, pay the price, again, if necessary, and send the troops. The opposition will go along, as it has gone along in the past.

              Fighting an unpopular war is less of a political problem than dealing with a deep economic depression,and the inability to import oil would certainly bring on a very deep depression very quickly indeed. ( And for what it is worth, the msm know which side their bread is buttered on, and that their existence is based mostly on advertising revenues. No bau, DAMNED LITTLE AD REVENUE! )

              The doves will make a lot of hay about five or ten thousand dead young Americans, but the truth is we kill that many in automobile accidents alone, as fast or faster than we have gotten them killed in combat in recent times.

              We will finally quit mucking around in Sand Country when there is no longer enough oil left there to make the mucking around profitable to us, or until oil becomes obsolete. I personally think the oil will run out sooner than we will learn how to get by with out it.

              I may come across as redneck warmonger, but that is not my intent. My intent is to be realistic. I am a hard core advocate of building renewables , pedal to the metal, from here on out, in large part to reduce the likelihood of more hot resource wars.

              We can’t prevent them all, but we can certainly reduce the number THAT MIGHT OTHERWISE HAPPEN.

              Yes, such wars are ruinously expensive, but they are still a hell of a lot cheaper than full blown economic depressions or outright economic collapse.

              • Those of us who are opposed to right wing type thinking and policies generally fail to recognize what CAN be accomplished with military power.

                Mac, driving Saddam out of Kuwait is something any US President would have ordered. It was our idiot right wing ambassador to Iraq who told Saddam we would not intervene if he invaded. Any goddamn fool should have known we would kick him back out, no matter who was in the White House.

                Our invasion of Iraq in 2002 was an entire different matter however. That was the work of an idiot right wing nut case president.

                • oldfarmermac says:

                  “Mac, driving Saddam out of Kuwait is something any US President would have ordered.”

                  Likewise any future president will most likely put the military boot the the ass of ISIS or any other outfit that actually threatens to cut off the flow of oil.

                  One application of the boot will probably be enough to keep the oil flowing anywhere from a couple of years to four or five years, maybe longer.

                  Repeated boot treatments will be administered if the doctor orders them, lol.

                  Nobody really gives a shit about Sand Country, once the oil is gone, all of us with a brain understand this much.

                  Saddam had to be kicked out of Kuwait, dead on.

                  HRC in my estimation has the morals of an alley cat and the judgement of a fool, but if she is elected, she is mean enough to go to war in heartbeat, if it suits her agenda, or becomes necessary. ( Self declared conservative or no, I hope to vote for Bernie. ) Trump and Cruz are imo worse than HRC.

                  IF it comes down to HRC versus trump, I will stay home and get dog drunk, and start posting about moving to New Zealand, lol.

                  WHOEVER winds up in power, the ships will sail, and the planes will take off, and bullets will fly, to whatever extent is necessary to keep the oil flowing.

                  Yes , invading Iraq later was a mistake. But WHO WHO WHO supported that invasion?

                  Shall I look up the votes, and speeches made, and post them?

              • SW says:

                Saddam Hussein as the boogie man was a creation of media hype. He was a garden variety psycho-dictator who was completely ruthless in his attempts to hold onto power. But he was our boy. And on one was more shocked than he was when we turned on him. You say you are interested in keeping the oil flowing from Iraq? What was Saddam going to do with it? Drink it? The falling out between Saddam and the Bushes was a personal issue. Stemming from the first Gulf war. He thought that Bush I had his back because of his fight with Iran and the fact that the Kuwaitis were stealing Iraqi oil via horizontal drilling. Of course he was an idiot, but there is little doubt that this is what he thought. Given our support of his regime in their struggle with Iran he had every reason to consider us his ally. THe fact that otherwise intelligent people buy into the revisionist history of this period still amazes me after all these years. Cast your mind back to the early 80’s when Iran was the devil that took our hostages and plucky little Iraq was fighting the good fight against these heathens. I remember a 60 Minutes segment with Leslie freakin Stahl in the trenches with Saddam damn near worshipping the fool. Even after he invaded Kuwait Bush wasn’t going to do a damn thing about it until Maggie Thatcher shamed him into it by questioning his manhood. Christ the whole thing is just a sick joke.

              • Stu from New Jersey says:

                But you’re not running the numbers:
                What is your estimate of the additional cost to the U.S. if there was less of an export market in petroleum?
                … and …
                How much do you think we could save by not trying to project military power around the globe?

                For instance, the F-35 program alone might pay the extra cost of the oil. And why would a U.S. in a basically defensive posture require an F-35 (or least one that actually worked)?

                • oldfarmermac says:

                  HI Stu,

                  Is your objection about running numbers is pointed in my direction ?

                  I have consistently advocated the fastest possible build out of renewables, etc, in large part because this will reduce our exposure to international oil markets, and reduce our chances of being involved in more hot resource wars.

                  This applies globally as well as nationally.

                  But IN THE MEANTIME, WE YANKEES MUST HAVE THAT IMPORTED OIL.

                  There is simply no way around this as a factual practical matter. It might be TECHNICALLY possible for us to get by without importing oil, but it is a political impossibility, for now, to even attempt doing so.

                  So for now, and for the easily foreseeable future, we will go to war, as necessary, to keep oil flowing.

                  • Stu from New Jersey says:

                    But we get most of our imports from Canada and Mexico.
                    Besides, the exporters will continue to *sell*, just at a higher price. And if we could shave a few hundred billion off the security budget, it would probably be more than enough to offset.
                    Might not even hurt our balance of payments that much, considering how much money is spent with foreign contractors in this age of “privatization”

              • wimbi says:

                “expensive, but hellofallot cheaper than”—going solar real fast?

                don’t think so, neither do lotsa heavy hitters in money world.

            • likbez says:

              SW,
              “A lesson that the right wing in this country has yet to fully absorb.”

              I do not think this process even started. May be with a new POTUS in 2017. And as for foreign policy Dems are not that different from the right wing. Obama administration actions were from the playbook of Bush II administration almost 100%. See also

              http://peakoilbarrel.com/collapse-of-shale-gas-production-has-begun/#comment-558230

        • SatansBestFriend says:

          The US Dollar is the worlds reserve currency as a simple function of math.

          The US is running the biggest trade deficit in the world. Therefore there are more dollars out there than any other currency.

          The US also has the largest capital markets.

          That is it. There is no master plan.

    • thrig says:

      The baton hand-off from the British Empire (sun never sets, etc) to the ________ Empire is quite distinctive, what with the joint rolling of that democracy in the middle east–the one where the Shah was installed. Also, note the habit of Empires (Russian, British, Soviet, ________) to roll around in Afghanistan. A map of military bases and carrier groups might also be indicative, or military spending, as mentioned elsewhere in this thread. Calls for walls to be built also have something of a history for Empires (Toynbee, a limey, terms this limen).

      • Phil Harris says:

        thrig
        Yes, I know an old guy who describes the British hand-over sometime in 1946, I think, of the key British naval base at Bahrein (think of the longstanding supply/trade route to Indian sub-continent and etc.). They simply pulled down the flag and handed over the keys to the ______ fleet waiting outside. First job of incoming Prime Minister was to get rid of the British Empire; it had gone from a paying to an unaffordable asset. Perhaps there is some level of comparison with any of us in our individual micro economy when we feel the strain and can’t sell our assets, but still owe the other fellow an arm and a leg?

        Edit PS – I could not resist this – I just read the quote on coal below. I know that apples and oranges are not the same thing but I keep reading stuff about “non-performing loans”, which term I think I understand. And then coal?
        Quote: “[Last] week we saw Alpha Natural Resources cancel an auction of 35 coal mines at the last minute due to a lack of interest, illustrating the fact that some mining assets burdened with outstanding liabilities and negative margins are left without any residual value,” Goldman [Sachs] notes.

    • Stavros H says:

      Not only is the US an Empire, but it is an Empire that puts to shame all preceding ones.

      After 1945, the US acquired at least partial dominance over all other Empires (British, French, German, Japanese, etc) I must note, that in a capitalist world, the countries most rich in capital, dominate those that are poor in capital. This is not a value-judgement, it is merely reality. If Africa were capital rich and Europe & North America were poor, it would have been the other way round.

      The US Empire, is different than let’s say the British Empire, in that it requires little if any direct political control. It is also less severe in comparison with preceding ones, as leverage can be exercised without permanent use of force. This benign character of the US Empire, is of course reserved for its core members, which are themselves extensions of this Empire. This would include Canada, Western Europe, Australia, Israel, as well as the GCC countries. Other members of the Empire are less privileged, especially those that were ex-European colonies to begin with, e.g. Colombia, Philippines, Indonesia, Kosovo etc etc. Those that are outside the Imperial embrace, are either Third World backwaters that can only obey orders (especially after the Soviet collapse and until the very recent rise of China) or are “strategic enemies” and have to face the consequences. China and Russia make up the strategic rivals of the Empire. Iran and a few others are lesser examples. The reason why Russia and China are targets for the Empire, is not remotely ideological (as some people naively still believe) but because they both have the potential to directly challenge US supremacy if they are left in peace, let alone incorporated into the US-designed-and-controlled global system on equal terms.

      NATO is the primary political/military mechanism through which the US manages its imperial affairs. As any random student of IR can tell you, NATO was specifically designed with three imperatives in mind:

      a) Keep the Russians out. (of Europe)
      b) Keep the Americans in. (Europe)
      c) Keep the Germans down. (as part of the Empire)

      Israel as well as the GCC countries are a further geographical and economic extension of NATO. The GCC countries have been provided with the US/UK/French security guarantee in exchange of massive recycling of capital in Western financial markets etc. In the case of the relation between the US/EU and the GCC countries, we see the classic operation of Empire, with money flowing into the metropolises.

      Control of Europe and Japan is maintained through the fact that the US is far bigger in any metric than the rest of the members, but even more crucially, because the US can always utilize the rest of the alliance against any recalcitrant member. Moreover, former foes such as Germany or Japan, despite being practically as advanced as the US, are incapable of acting independently not only due to the aforementioned reasons, but also due to their lack of access to hydrocarbons.

      This lack of direct access to hydrocarbons, is what allowed for the post-war magnanimity of the USA in relation to both Germany and Japan. The US strategists knew that both could not only be incorporated into a US-led global system, but that they could additionally act as useful proxies in the unfolding Cold War.

      Russia is the flip-side of Germany/Japan. Since Russia has direct access to massive hydrocarbon reserves, as well as other essential raw materials, she cannot be given a good deal or be incorporated into the US-led global system with anything remotely resembling tolerable terms. For Russia’s geographical characteristics will allow it to defy all and any US wishes. This has been demonstrated in recent years, with Russia openly defying the entire North-American-EU-Turkey-GCC-Israel complex despite a relative balance of forces that is on paper nothing less than catastrophic (for Russia) Now, imagine how Russia would be able to behave (in relation to Imperial interests) had it been a member of the global system on equal terms.

      All of Russia, China or Iran, attempt to navigate NATO-GCC pressure by utilizing the contradiction between the short-term (and even long-term) financial interests of western corporations and those of long-term strategic interests. If it was up to Western corporations, there would never have been any sanctions against Russia, it was 100% a deep-state decision. In this endeavor, China has succeeded to an astonishing degree. It also helped that western “experts” have kept forecasting a more or less imminent Chinese collapse for decades. Russia and Iran have been far less successful in this. Russia due to the disastrous “liberalizing” reforms of the 90s, and Iran due to its relative weakness. Iran is however now poised to enjoy significant investment inflows from all over the world and especially from European firms.

      Now, what is it that allowed the US to become the imperial center of the planet:

      a) The security afforded by two oceans. Bordering weak states.
      b) Competition and wars across Eurasia (the two World Wars being the apex of this process) relatively weakened all other major powers.
      c) Vast natural resources at home, excellent and plentiful farmland.
      d) European immigration. No pre-capitalist forms to retard economic progress. Well, one can point to the natives, but they were summarily dealt with.

      Foundations of the US Empire:

      a) Number one economy on the planet since the 1870s. By 1945 (the apex of its power) the US approached almost 50% of global output.
      b) By far the strongest Navy.
      c) Safe geographical location, hence, “freedom to roam”.
      d) Military presence around the globe, to a large degree surrounding its main rivals with military assets (containment)
      e) Significant influence (if not outright control) over all other highly advanced countries.
      f) Pre-eminent military presence in the Middle East.
      g) Unrivaled propaganda infrastructure, or “soft power”. Movies, TV, news networks, music, fashion norms, NGOs, English language, famous universities etc etc.

      All of the above (and more) can be leveraged against anyone in defiance of the Empire.

      Perils to the US Empire:

      a) China’s economic growth. While growth is good for US corporations, it will seize being so fun once China will be economically powerful enough to begin setting its own rules. We are at the cusp of that inflection point.
      b) Russian military presence in the Middle East/partial control of hydrocarbon reserves and corridors. Also in the works.
      c) Loss of control over prized “assets”. Germany, the GCC, South Korea may potentially look elsewhere at some stage. Not on the cards at the moment.
      d) Internal divisions. The US political scene has become increasingly polarized. A token of this is the rise of Trump and Sanders, both unconventional by US standards.
      e) A significant decline in domestic hydrocarbon production. Process commenced.

      A defeat of Russia in the current conflict(s) would greatly prolong US supremacy. A Russian victory will greatly accelerate US decline.

      • Javier says:

        The Roman Empire used extreme force to impose over its unwilling subjects and was very cruel in dealing with resistance, yet when it was gone it was sorely missed.

        • Stavros H says:

          I have not argued that the potential demise (or at least weakening) of the US Empire would make the world a better place. Did I give that impression?

          In any case, that is a separate question related to multiple contingencies, and points of view.

        • at the outset of the Industrial Revolution, the UK was sitting on a bigger hydrocarbon energy resource than Saudi Arabia has now, we used that to thrust outwards and build a global empire, using coal, iron ships and cannon.
          indigenous peoples were subdued or wiped out.
          Every empire, however briefly existing, must do the same thing, either use its own resources, or steal someone else’s.
          the Roman empire sustained itself by outward thrust, looting subject nations to sustain the central core. They sucked in the grain and slaves of Africa as their prime energy source.
          The USA might appear to be different, but not so. Just like the Romans and the Brits and many others, it was an empire that began and expanded by subjugating aboriginal peoples, and using resources as they became available and expansion progressed.
          The current extraction of shale oil and gas is effectively the stripping out of the last available energy resources on the continent. The oil wars of the middle east are the last struggle to keep energy sources available and flowing.
          When those resources have gone, the American nation will disintegrate, just as the Roman and British Empire did, and then (following the righteous dogma of the theo-fascists) begin to declare war on itself for the last remain energy source, the land itself.
          That will lead to the secession into 5 or 6 nation states–maybe more as time makes the situation more desperate.
          think how many nations the Roman Empire dissolved into—constantly warring with one another for 1500 years.

          • likbez says:

            Norman,

            “The USA might appear to be different, but not so. Just like the Romans and the Brits and many others, it was an empire that began and expanded by subjugating aboriginal peoples, and using resources as they became available and expansion progressed.”

            I would respectfully disagree. IMHO, at least on the current stage it si a different type of empire. American imperialism is mainly about financial domination of the United States and other G7 other countries (which in turn are dependent on the USA for their portion of loot).

            It is empire based not on direct occupation of nations but more of imposing specific social system (neoliberalism) which automatically gives the USA the role of the sole center of power. As it is based on neoliberalism dominance, this is a kind of neo-imperialism, although the USA has a history of “plain vanilla” (British style) imperialism, based on annexation and occupation of territories.

            The key here is that market economies have never existed independent of nation states. Neoliberalism is characterized by flow of the capital to the USA and other major western countries, rather than spreading the wealth from the wealthy center to the poorer periphery. By denominating a growing proportion as “third world” (and that includes some first world countries like Greece, Cyprus, Italy, Spain) countries are forced to accumulate debt in external currency (euro or dollars).

            This ensure the necessary level of political dependence on the USA and other major Western countries. “Dollarized” countries became political satellites, vassals of the USA (a classic example here is Yeltsin’s Russia), with weakened “privatized” economy (which amounted to sell of assets and natural resources to foreigners, mostly large transnationals, on pennies for a dollar). All of them were forced into debt slavery via the International Monetary Fund (IMF) and its sister institution, the World Bank.

            As professor Hudson noted (Financial Capitalism v. Industrial Capitalism, 1998):

            These institutions are imposing the same creditor-oriented monetarism that wrecked the world economy in the 1920s, triggering the Great Depression. Instead of helping the world’s poorer debtor economies develop, the IMF and World Bank programs ‘underdevelop’ them, polarizing their economies between a wealthy top layer and poverty for the vast majority. Turned into a U.S. Cold War arm under the stewardship of Robert McNamara, the World Bank has become a powerful arm of the new global class war, most notoriously Russia and East Asia.

            The upshot has been to leave the world’s poorer economies even deeper in debt, and so financially strapped that they are obliged to sell off to international financial institutions whatever assets remain in their public domain. While wealth and incomes have polarized as a result of the active intervention of the World Bank and IMF on behalf of the ruling kleptocracies throughout Africa, Latin America and Asia, the physical environments of these debtor economies have been devastated by the ecological consequences of the World Bank’s raw-materials export programs. Pandemics have broken out as public health programs have been dismantled as domestic budgets have been stripped to service the mounting foreign debt. This has impaired the ability of governments to contain new diseases and undertake ameliorative social spending.

            • The empire that is the USA was developed on the resources found within the boundaries of the contiguous land mass that comprises the lower 48, and the displacement/subjugation of existing inhabitants.
              These resources were hydrocarbons, minerals and a seemingly limitless source of food. This can be lumped together under the common term of energy.
              A simplification perhaps, but I can’t see how there can be any dispute over that.
              What happened in the secondary phase of empire is another matter entirely. Basically that surplus of energy was monetized.
              The British Empire panned out differently to the dozen empires that existed pre-1914, each driven by force of circumstance particular to the people and territories involved.
              My point was that an empire (or nation state for that matter) can exist only so long as it can produce sufficient energy to sustain itself–either from within its own borders, or by looting it from elsewhere.
              It cannot sustain itself by swirling money around indefinitely.
              When money circulation ceases, the state cannot remain viable, and so will collapse.
              When that will be, is the big guess of course. But it must happen, irrespective of the workings of international debt, the IMF and all the rest.
              We live in an energy economy, not a money economy

          • likbez says:

            Norman,

            “The USA might appear to be different, but not so. Just like the Romans and the Brits and many others, it was an empire that began and expanded by subjugating aboriginal peoples, and using resources as they became available and expansion progressed.

            I disagree. While the USA started as conventional, British style empire lately it transformed itself into a new type of empire (let’s call it the USA neoliberal empire).

            The key here is that market economies have never existed independent of nation states. Neoliberalism is characterized by flow of the capital to the USA and other major western countries, rather than spreading the wealth from the wealthy center to the poorer periphery. By putting in debt a growing proportion of “third world” nations (and that includes some first world countries like Greece, Cyprus, Italy, Spain) a new finance based mechanism of dominance ( “debt slavery”) emerged. Countries are forced to accumulate debt in external currency (euro or dollars) and that alone ensures the necessary level of political dependence on the USA and other major Western countries. “Dollarized” countries became political satellites, vassals of the USA (a classic example here is Yeltsin’s Russia), with weakened “privatized” economy (which amounted to sell of assets to foreigners on pennies for a dollar). All of them were forced into debt slavery via the International Monetary Fund (IMF) and its sister institution, the World Bank.

            As professor Hudson noted (Financial Capitalism v. Industrial Capitalism, 1998):

            == quote ==
            These institutions are imposing the same creditor-oriented monetarism that wrecked the world economy in the 1920s, triggering the Great Depression. Instead of helping the world’s poorer debtor economies develop, the IMF and World Bank programs ‘underdevelop’ them, polarizing their economies between a wealthy top layer and poverty for the vast majority. Turned into a U.S. Cold War arm under the stewardship of Robert McNamara, the World Bank has become a powerful arm of the new global class war, most notoriously Russia and East Asia.

            The upshot has been to leave the world’s poorer economies even deeper in debt, and so financially strapped that they are obliged to sell off to international financial institutions whatever assets remain in their public domain. While wealth and incomes have polarized as a result of the active intervention of the World Bank and IMF on behalf of the ruling kleptocracies throughout Africa, Latin America and Asia, the physical environments of these debtor economies have been devastated by the ecological consequences of the World Bank’s raw-materials export programs. Pandemics have broken out as public health programs have been dismantled as domestic budgets have been stripped to service the mounting foreign debt. This has impaired the ability of governments to contain new diseases and undertake ameliorative social spending.

      • a) China’s economic growth. While growth is good for US corporations, it will seize being so fun once China will be economically powerful enough to begin setting its own rules.

        Nuff said. 😉

      • Petro says:

        “…Our first objective is to prevent the re-emergence of a new rival, either on the territory of the former Soviet Union or elsewhere, that poses a threat on the order of that posed formerly by the Soviet Union. This is a dominant consideration underlying the new regional defense strategy and requires that we endeavor to prevent any hostile power from dominating a region whose resources would, under consolidated control, be sufficient to generate global power…” ~ 02/18/1992 Defense Planning Guidance (aka: the Wolfowitz Doctrine). Authored by Under Secretary of Defense for Policy Paul Wolfowitz and Scooter Libby.

        Dear Stavros,

        I have to say that your comment is a “must read” for the multitude of un-initiated commentators who naively think theUS is not an empire , or for those who have the 15 century understanding of “Empire” and think that to be an empire theUS must include more than Puerto Rico and the Virgin Islands in/on its map…
        The best and most synthetic comment (within the time/space limits of a blog akin to this) with regard to history and geopolitics of theUS Empire.
        With the exception of a few outdated and “linear” thinking passages (i.e.: “…with Russia openly defying the entire North-American-EU-Turkey-GCC-Israel complex despite a relative balance of forces that is on paper nothing less than catastrophic (for Russia)…” – what Mr. Fermi did in Chicago in 1942 and Mr. Oppenheimer et al, did in New Mexico in the Summer of 1945, reduce to irrelevancy the amount and size of the adversaries of countries like Russia and theUS when it comes to war…hint: there will be no adversaries left and nothing to conquer afterwards!), I fully agree with your assessment and comprehension of the “puzzle”.
        Hopefully after reading your comment, those who believe thatUS is not and empire, shall have at least a bit clearer understanding of the fact(s) that:
        -Japan, although de jure a developed democracy, is de facto the 51st state of theUS and it is not its democracy and economic might that keeps China from “sinking” it, but indeed the >50000 USMilitary personal permanently staged in Okinawa(and GOD knows how many more “civilian” personal). Young Chinese minds – whose most important history lesson taught in school to this day is : “The rape of Nankin” know that very well!
        -It is not the South Korean people’s will that keeps the fat, ugly Kim (and the other fatter and uglier Kim-s before him) from turning Seoul into an ashtray within an hour, but indeed the >50000 USMilitary personal permanently staged there….
        -USdoes not spend more than the next 20 countries COMBINED in war/military just for the fun of it – but indeed to secure its unchallenged hegemony throughout the world.
        -USdoes not maintain and pay for more than 200 military bases and installations (1/3 of them on a “permanent” status) throughout the globe just to enjoy the climate and eat sushi…, but indeed to “influence” affairs in EVERY corner of the globe.
        -By directly and indirectly creating, fueling and influencing every (and I mean that literally: every and all!) war and conflict throughout the world since WWII gives a full and complete meaning to:
        “Not only is theUS an Empire, but it is an Empire that puts to shame all preceding ones” ~ Stavros H

        I am impressed and will read you more attentively in the future.

        Be well,

        Petro

        • Stavros H says:

          @Petro

          Thanx for your kind words.

          Regarding my comment on Russia being “catastrophically” outgunned by the NATO-GCC-Israel complex opposing her, allow me to attempt a clarification/elaboration.

          Obviously, the existence of nuclear weapons (both tactical & strategic) and Russia’s very own formidable arsenal of such weapons almost certainly forestalls any hopes/plans that her enemies may have had in launching some kind of 21st century Operation Barbarossa/Napoleonic invasion. Notice that I say “almost” since at least a few western “security experts” believe that a surprise decapitating “First Strike” could potentially neutralize Russia’s nuclear deterrent and pave the way for victory.

          But, this being a 21st century Global Hybrid War, conventional/unconventional military assets are not the only factor at play.

          Russia is at a massive disadvantage vis-a-vis NATO-GCC in anything other than nuclear capability:

          a) Conventional Air and Naval Forces. NATO’s (read; US’s) fleet roams the oceans. NATO’s drone fleet also handily exceeds Russia’s in both quantity and quality.

          b) Geostrategic reach. US-NATO boasts proxies and military bases bestriding most of the globe’s surface. NATO even has proxies on Russia’s borders (a tremendous threat to Russia) That includes the Baltic states (only minutes of flight between them and St. Petersburg) Georgia in the Caucasus, as well most importantly and recently, Ukraine. Ukraine is now an open wound for Russia as well as an existential threat.

          c) Most importantly, NATO-GCC is immensely superior to Russia in economic terms. GDP, financial assets, ability to issue currency, you name it. This allows NATO-GCC not only to buy more influence around the global chessboard, but also to at least inflict short-term economic pain on Russia. If Russia fails to cope, it will become much more than that.

          d) “Soft Power”. The “West” culturally dominates the world. And when I say culturally, I use that term in its broadest sense. Not only films, music and fashion, but also in terms of language, education, political and behavioral norms etc. Moreover, and this is quite crucial, NATO-GCC outguns Russia in terms of propaganda outlets. Russia only boasts one state-funded TV network and a couple websites and also has to rely on several “alternative media” websites in the West itself (which it does not control or fund) but who are I think, its most prized asset in the “informational war” sphere. People who feel disenfranchised in the West itself (mostly the far-left and the far-right) have largely sided with Russia on this one. This is so for obvious reasons that I don’t have to go into right now.

          On the other hand, NATO, possesses an entire global behemoth of propaganda factories, some state funded, others partially so, others wholly private, but all of them with direct links to western Intelligence Agencies, pushing a particular narrative in myriads of ways, at all times adjusted to the targeted audience.

          You must also add the so-called NGO’s to the equation. In this arena, Russia owns little if any assets. Her enemies on the other hand, again possess entire armies of “international agencies”, “charities”, “watchdogs”, “think-tanks” etc. All are designed to push the NATO agenda around the globe, subverting any and all governments that step out of line. Their first and foremost target is of course, you guessed it. These include: HRW, AI, SOHR, PHR and so on and so on ad infinitum.

          Russia is of course scrambling to find asymmetrical ways to partially counter for this imbalance, with some success, it has to said. It is in this vein that I made that claim.

          • Petro says:

            Stavros,
            no arguments what so ever!
            Fully agree, but just for the sake of discussion:

            1- “Notice that I say “almost” since at least a few western “security experts” believe that a surprise decapitating “First Strike” could potentially neutralize Russia’s nuclear deterrent and pave the way for victory.” ~ Stavros

            Those who say that (i.e: McCain, Graham etc) are first class morons!
            Even if we had 90% success rate during that first strike would live them with 800+ high yield heads which will assure there will be no winners.
            Even if we had 99% destruction rate during the first strike (impossible even if we new where they hide them…and I mean all 8000+ of war heads they possess. They have more then all the others combined!) will still live them with 80+ deliverable high yield heads – which still assures NO winners!
            That is why smart people in the ’60s and ’70s called it MAD (mutually assured destruction).

            2- “Conventional Air and Naval Forces. NATO’s (read; US’s) fleet roams the oceans. NATO’s drone fleet also handily exceeds Russia’s in both quantity and quality.”

            Those are WWII technology which are successful against countries like Iran/Iraq/Vietnam/Granada/Libya/Argentina/Brasil etc, etc.
            But against Russia/China and the new generation hyper-sonic anti ship weaponry and EMP/electronic jamming technology they are truly and utterly VERY expensive sitting ducks.
            http://www.veteranstoday.com/2014/11/13/aegis-fail-in-black-sea-ruskies-burn-down-uss-donald-duck/

            Again, no argument with what you write. Fully agree.

            Be well,

            Petro

  5. R DesRoches says:

    Looking at the charts one thing jumps out at me, the production of natural gas shifted from South to North. The gains in production by the Marcellus made up for the declines in the Southern fields, and grow over all US production to the point that supply was greatly higher than demand.

    What is also interesting this gain in U.S. Nat gas production was done with an ever decreasing rig count, going from around 1600 rigs to about 200 rigs over the last five years.

    Now we are at the point that rig counts have fallen to the point where over all production has started falling

    Bottom line is if you stop drilling production will come down. That has happened in the Southern higher cost plays, being replaced with cheaper gas from the Marcellus.

    When the current very low nat gas prices increase as supply drops, prices will go up and then drilling will pick and supply will increase again, in a cycle that has gone on for over 50 years. What we are see is the market at work.

    • Jeffrey J. Brown says:

      An additional key factor was a shift from predominantly dry gas plays to liquids rich gas plays, so what is more relevant is the total US rig count.

      In regard to supply & demand, BP annual data for 2014 indicate that the US was still a net natural gas importer.

      Citi Research put the gross decline rate from existing US gas production at about 24%/year, which would be about 17 BCF/day per year, in the absence of new production. As I frequently note, Louisiana showed a 20%/year net exponential rate of decline in marketed gas production from 2012 to 2014 (net being the decline after new wells).

      In any case, based on foregoing, it would seem that, in round numbers, we need to put on line approximately the current production from a Marcellus Play every single year, just to maintain current production.

      And based on 2014 BP data, the estimated volumetric decline from existing US gas production (17 BCF/day) matches or exceeds the dry gas production of every country in the world, except for the US & Russia.

      • AlexS says:

        Jeffrey J. Brown says: “In regard to supply & demand, BP annual data for 2014 indicate that the US was still a net natural gas importer. ”

        The EIA statistics confirm that that the US has remained net natural gas importer in 2015. The EIA projects the US to reach the status of net exporter only by the end of 2017.

        US net exports/(imports) of natural gas (bcf/d)
        (Net exports=Pipeline Gross Exports – Pipeline Gross Imports + LNG Gross Exports – LNG Gross Imports ).
        Source: EIA STEO January 2016

    • Don Wharton says:

      The last gas directed rig count in the US was only 121.

  6. Jef says:

    Whats important:

    “The reason these companies continue to produce shale gas at a loss is to keep generating revenue and cash flow to service their debt.”

    and;

    “Basically, the U.S. Shale Gas Industry is nothing more than a Ponzi Scheme.”

    IMO this is true of much of the Global Economy at this point. The trend toward negative interest is the beginning of the unwinding on an epic scale.

    But hey… not to worry n 10 or 15 years we will all be rich, driving Teslas, and working 15 hour weeks

  7. Heinrich Leopold says:

    Agree with the article about shale gas. However, after an initial phase of economic weakness, lower US production will drive the USD down and increase worldwide economic activity again. The question remains how far the USD will fall and as a consequence volatility will rise. So, shale production does not mean the end of the world, yet increased volatility and the challenge how to control it.

    • Dennis Coyne says:

      Hi Heinrich,

      What has changed to make natural gas prices more volatile than in the past?

      In the case of oil we can point to a major change in the behavior of OPEC, do you think the volatility in oil prices will filter through to the natural gas market through the bond market? The energy companies produce both oil and natural gas so there is certainly the financial tie in as far as oil price volatility affecting the oil and gas industry in general.

      • Heinrich Leopold says:

        Dennis,

        The decline and legacy rates are huge for shale. According to the latest drilling report, the monthly legacy rate for all shale plays has reached nearly 400 000 b/d and month, which is annualized over 4 mill b/d of decline. Add the legacy rate for shale natural gas, which is nearly 20 bcf/d and year. Together with conventional oil and gas, the US oil and gas industry has to replace every year close to 10 mill boe/d which is 50% of capacity of oil and gas production. And the situation gets worse every year. The decline rate for worldwide conventional oil production is just 6%. The cost for 1 mill b/d (either buying from the shelf or building from scratch) stands around USD 50 bn. So the US oil and gas industry has to invest every year USD 500 bn for keeping production stable – and gets just 250 bn revenue for this investment. This is a financing gap of USD 250 bn every year. As the total high yield bond market adds up to USD 1500 bn, the oil industry taps 17% of the high yield bond market. I think this explains the high the leverage in the oil and gas market. The cost for keeping the USD stable is now astronomical. Something has to give here. Either the dollar or the bond market collapses or 3mill b/d come out of the market immediately.

        • AlexS says:

          “So the US oil and gas industry has to invest every year USD 500 bn for keeping production stable ”

          Heinrich,

          what are you talking about?

          At peak levels in 2014 total North American E&P spending was about $200bn,
          but this included Canada and US conventional

          That was sufficient to increase US C+C output by 1.25 mb/d and NGPL by 0.35mb/d

          • Dennis Coyne says:

            Hi AlexS,

            Thanks for that dose of reality.

            If we look at the increases in yearly average output in 2014 and 2015, it was 1250 kb/d vs 730 kb/d. So decreased investment of $70 B, reduced the production gain by about 520 kb/d.

            The decreased investment of $45B less in 2016 vs 2015.would be expected to reduce the production gain by 330 kb/d, so we could potentially see an increase in output of 400 kb/d (2016 average output vs 2015 average output) if the investment spending estimates are correct and the previous trend holds.

            This simple linear model is not likely to be correct because if we assume zero investment spending in 2016, the result is flat output, which is highly unlikely.

            I would expect output will be flat at best with 96 billion investment and oil is likely to be down by 500 to 700 kb/d.

            In inherent problem with the way I have done this is investment in natural gas production has been ignored. We don’t have enough detail here to know how the investment was divided between natural gas and oil, though we could divide it up based on gross revenue or some other metric.

            In any case, somewhere between 96B and 132B is enough to get flat output in the US (replacing about 500 kb/d of decline at a 6% annual rate or 920 kb/d if we assume a 10% annual decline rate).

            • AlexS says:

              Dennis,

              1) It is important to note, that today’s upstream capex will affect output levels about 6 months from now. So high capex in 2014 resulted in relatively high production levels in 1H15.
              But lower capex in 2015 will affect production in 2016, and even lower capex in 2016 will negatively affect production in 2017.

              2) Annual average growth in 2015 vs. 2014 reflects strong monthly growth in 2014.
              Monthly output was declining since April 2015 and will continue to decline in 2016 and probably for most of 2017. Furthermore, decline rates are likely to accelerate this year and may only moderate in 2017.

              The EIA expects annual average US C+C production in 2016 to be 0.7 mb/d lower than in 2015, including a 0.8 mb/d y-o-y decline in Lower 48 onshore output.
              They are projecting annual average decline of 270 kb/d for US C+C in 2017, including 380 kb/d in Lower 48 onshore.
              Even “shale optimists” like Goldman Sachs and Citi expect a decline of ~0.5 mb/d in 2016 (I do not know their longer-term projections).

              Under most plausible oil price scenarios, 2018 US production may be flat or only slightly above 2017, and growth in 2019 will still be moderate. I now think that 2015 record level of (9.7 mb/d in April) may not be reached even in 2020. However, with higher prices, peak levels could be achieved in the next decade.

              • Dennis Coyne says:

                Hi AlexS,

                I think the EIA may be too pessimistic. The annual decline rate trend for March to Nov 2015 is about 500 kb/d. (See chart). I think there will be some oil price rise by mid year (maybe to $45/b) and that the decline rate will moderate towards the end of 2016 as oil prices rise further (to over $60/b by Dec 2016). I think the average US C+C output levels will be about 400 kb/d less in 2016 compared to average 2015 output levels.

                See chart for trend (note the assumption of a linear trend which is likely to overstate the decline).

          • Heinrich Leopold says:

            Alexs, Dennis

            This was 2014 when legacy declines were much lower (around 20%). I am talking about 2016, which includes also the rest of this year (total legacy rate 50%). In addition shale represents close to two thirds of the oil and gas market in 2016. This share has been much lower in 2014. If the US oil and gas industry does not spend as much, production will decline accordingly. I cannot emphasize enough how much shale has changed the dynamics of the oil market. It is important to recognize the change in the markets and not rely on past numbers.

            • Dennis Coyne says:

              Hi Heinrich,

              The Bakken and Eagle Ford Models do not rely on past numbers except as a check on the model (the Bakken Model has actually been lower than actual output, the Eagle Ford has been a little closer, but also on the low side).

              Now I take a model which has matched actual output fairly well over time and assume well profiles remain the same as the past two years and that the new wells are added at half the rate of recent months (39 new wells per month rather than 78 new wells), a similar exercise is done for the Eagle Ford.

              Enno Peters work confirms what I have found for the Bakken (which is based on data gathered from the NDIC by Enno Peters.)

              What you consistently fail to realize is that the EIA’s DPR gives a very bad estimate of legacy decline.

              As fewer new wells are added the legacy decline gets smaller.

              Think about it a moment, if 200 new wells per month are added, the legacy decline is high and if 50 new wells per month are added the legacy decline will be lower (by roughly a factor of 4), surely you can see this.

              In the Bakken about 170 new wells per month were being added each month during 2012 to 2014, lately only about 77 new wells have been added, so legacy decline will be smaller.

              Bottom line, the DPR has Bakken legacy decline increasing and that is not correct, it will decrease until the rate that new wells are added each month starts to increase.

              • likbez says:

                Dennis,

                “As fewer new wells are added the legacy decline gets smaller.”

                This is an interesting (and counterintuitive) paradox. Like you pointed out it is based on the fact that the total number of wells is large and the decline curve flattens with years (after the third year of production).

                So paradoxically if you do not drill for three years you will get almost zero decline in output during the forth year as all your wells will be “legacy wells”.

                In other words even with minimal drilling Bakken and other shale/tight oil plays in aggregate are much more resilient output-wise that the decline of the production curve for a single well suggests. See http://peakoilbarrel.com/bakken-single-well-economics/

                So companies will have substantial financial losses but total output decline will be not that pronounced as each well produces oil for, say, 8 years.

                If it was Saudis gamble to drop oil price to eliminate the US shale production, they badly miscalculated. They need nearly a decade of low prices to eliminate substantial part of the USA shale output.

                Other factors such as exhaustion of “sweet spots” are probably more important in the future drop of production.

          • Heinrich Leopold says:

            AlexS,

            Your above table confirms my view about a strong production decline in 2016. USD 500 bn are necessary to keep production flat and compensate for future decline rates in 2016. If just USD 100 bn are spent in 2016, production of oil and gas will decline by 6 to 8 mill boe/d (more than 3 mill b/d of oil and the rest in natgas).

            • likbez says:

              Heinrich,

              I am confused.

              “The cost for 1 mill b/d (either buying from the shelf or building from scratch) stands around USD 50 bn.”

              It’s 30 million a day, if you buy it. So why 50 billion per year?

              And why you assume that AlexS table confirms your view about a strong production decline in 2016? I think we need to distinguish between production decline and financial losses (including E&P investment) of shale industry. Those are two different metrics.

              Dennis considerations (huge amount of legacy wells in shale patch with flattened curve actually make annual decline smaller not bigger, even if new drilling is minimal) apply only to shale oil production which will probably be more flat/resilient that you assumed.

              But that does not exclude huge financial losses (due to negative cash flow) and subsequent extinction of most shale players if prices stay low. Financial losses are a different metric and can be estimated as difference between “break even” price (which is probably around $60-$80 for shale producers) and the current oil price. At $30 per barrel losses are probably around $40 per barrel give or take.

              That makes an extinction/consolidation of large part of shale players in 2016 more probable, as if production remains resilient there will be no dramatic upswing in oil prices. Right?

              Sounds like a death sentence to the US shale industry and investors in it, unless a white knight in the face of Russia + OPEC saves it by implementing production cuts.

        • Dennis Coyne says:

          Hi Heinrich,

          The EIA’s estimate for legacy decline in the Bakken and Eagle Ford are incorrect.

          For the Bakken/Three Forks the legacy decline in Nov 2015 was 4 kb/d and if the rate that new wells are added remains at the Nov 2015 level the legacy decline rate falls to an average rate of 3 kb/d for Dec 2015 to Nov 2016, output only falls by 140 kb/d in this scenario.

          If no new wells are added over the next 12 months output in the North Dakota Bakken/Three Forks only falls by 350 kb/d. That scenario is not very likely.

          If 39 new wells per month (half as many as Nov 2015) are added each month for the next 12 months (somewhat plausible at low oil prices), ND Bakken/Three Forks output falls by 250 kb/d.

          The Eagle Ford will fall a little more maybe 350 kb/d, the Permian is likely to be flat, the rest of the US LTO might fall by 200 kb/d at most, so about 800 kb/d decline is about all we will see for LTO decline over the next 12 months.

          GOM output has been increasing lately so overall US C+C decline might be 700 kb/d from Dec 2015 to Nov 2016 (next 12 months of data).

          As I have said before, your method for coming up with a 4 million barrel per day decline in US output hits very wide of the mark, you are off by almost a factor of 6. Use the EIA’s DPR at your peril if you are an investor.

          • AlexS says:

            “If no new wells are added over the next 12 months output in the North Dakota Bakken/Three Forks only falls by 350 kb/d.”

            You are right Dennis.
            Enno Peters’ charts for ND Bakken show a similar decline of ~1/3 in combined output if no new wells are drilled

  8. Pingback: Collapse Of Shale Gas Production Has Begun – Olduvai.ca

  9. Daniel says:

    Well, please, stop this dramatic “we all going to die. Gold and silver will save you.”! What are you going to do with your gold and silver (when the economy has ground to a halt)? Eat it? Fill it in your car? Who wants to trade it against really useful stuff in this situation?

    Yes, the US is very energy intensive. Yes, I also believe oil and gas production will decline (and not only in the US). A few energy companies will default. Maybe we will have another recession – it is about time. But in the end, yes, you are going to die. Okay, tell us something new here!

    Be careful with rig counts: one rig 5y ago was very different than today (today they are longer, being fracked several times etc.)

    • AlexS says:

      “one rig 5y ago was very different than today (today they are longer, being fracked several times etc.)”

      what is longer and being fracked several times – rigs of wells?

      • Dennis Coyne says:

        Hi AlexS,

        Daniel may think the rig and well are the same thing. Many people think of old pictures of well blowouts where the old wooden rigs are in place and think that the rig remains in place after the well has been drilled.

        Personally the only rig I have seen in person was a small rig used to drill a water well on my property. (A toy relative to the rigs used for 20,000 foot wells in the Bakken.)

        I believe you have pointed out that the average rig in service in the US is more efficient at present because it is mostly the older rigs that have been stacked.

        So we are probably seeing more feet drilled per rig today than 3 years ago.

        Also Jeffrey Brown’s point that there is more associated gas from oil wells (particularly in the Eagle Ford) and more liquids focused gas drilling (aiming for gas with a lot of NGL) to improve profitability.

        US natural Gas output will decline a bit until natural gas prices and oil prices rise and make increased drilling profitable.

        This is really a problem of oversupply driving prices down and now the supply will decrease and prices will rise, eventually (after a 6 to 12 month delay) supply will increase.

        • It’s not only the rigs, it’s the rig personnel. Most old rigs are well kept anyway. You take a 10 year old 2000 hp rig with a top drive and an experienced crew, and it outperforms a 3 year old rig with the average crew they had in 2014.

          The same applies to everybody else, geoscientists, engineers, frac crews, truck drivers, and even management (although management is harder to upgrade).

      • clueless says:

        I would think that Daniel is noting that the “laterals” are longer and that they have gone to “staged” fracking. With staged fracking, instead of doing one frack per lateral, they are doing like 30 or more separate fracs in stages of a few hundred feet each in each lateral.
        If not, Daniel can tell us.

        • Multiple fracs per lateral is the norm. Staged means they do the fracs in one trip. It involves putting in drillable plugs, using packers and plugs which can be set and reset, opening and closing valves with pressure pulses and balls, etc.

          These techniques are essentially super improved versions of what we used 40 years ago. One of my first field jobs involved using a tool we activated with little steel balls we dropped down the work pipe. It was sort of new, we had a goofy hand who came from Houston to show us how it was done. When the time came to drop the stupid ball the guy had forgotten the bag where he kep them, and had to run back to quarters to get it. He came out the door, hit the steel stairs, tripped, dropped the open bag, and all the damn balls started clanging around in the dark. Some fell in the water. But eventually we found one, dropped it as per procedure, and went on. That day our morning report included “15 min. Looking for Halliburton technician’s balls”.

    • SRSrocco says:

      Daniel,

      The only reason I put in the plug for gold and silver is due to the collapse of paper assets going forward. We must remember, most retirement accounts and paper assets are based on an economy with a growing energy supply. When supply peaks and declines, then we have the DEATH OF NET PRESENT VALUE. And with it… the implosion in the value of most paper assets.

      No, you can’t eat gold or silver. However, you can’t eat soon to be increasingly worthless 401k’s either. I find this a very interesting dichotomy when it comes to Peak Oil folks. I would imagine most of them are quite bright and realize that Peak Oil will destroy debt, paper assets and etc in the future.

      So, why not at least own some gold and silver instead of soon to be worthless paper assets. Yes, you can’t eat precious metals or paper assets, but I would imagine gold and silver coins will offer individuals much better options in the future than one’s worthless 401k monthly statement.

      Just my opinion. Individuals are free to hold onto their paper assets right down to the bottom.

      steve

      • Joe Clarkson says:

        There are only two things of intrinsic value in the world, land on which to procure food, water and shelter and the means to defend that land. Land and guns; that’s it. It used to be land and spears, but we’re oh-so-modern now. Having helpful neighbors greatly increases the efficiency of land use and defense, but all the social support in the world won’t create even a sandwich without land.

        This is why everyone with paper assets should be converting them into land and learning the ways of living from that land. The amount of assets needed to acquire guns is minimal in comparison. Just about anyone can buy all the weapons they can really use with one or two paychecks.

        Gold and silver might become useful as a means of exchange well after the coming collapse, but they won’t help you get through it. When the crunch comes, no one with intrinsically useful assets will want to trade them for gold or silver. Maybe a few bottles of whiskey would come in handy to purchase a few square meals from those who have a little surplus food.

        Perhaps I should change my list; land, guns and whiskey. If you don’t have the first two, you can always drown your sorrows with the third.

        • T. G. Neason says:

          Joe Clarkson says: Land and guns; that’s it! I agree with one slight modification; adequately watered land, preferably gravity fed. I would also add essential skills and tools.

          I am working overtime to convert my paper assets to the above. Tuesday I will pick up another diesel tank. An extra tank or two filled with diesel is a far better investment than anything in the Wall Street casino. In my opinion, negative interest rates will not be contained in Europe and Japan. ZIRP for seven years did not work so the wise men are trying NIRP. Their desperation should tell the casual observer that, to quote President Bush, ”This suckas goin down”!

          I expect gold to spike given a some what controlled collapse as people panic. That will be the time to cash out and buy more adequately watered land and tools. Initially, I expect a lot of currently leveraged (mortgaged) resources to be available at fire sale prices; a fine time to convert gold to more land. Given a sudden hard collapse, gold and silver will be dead weight. In that scenario, I would not trade a dozen eggs for a gold Eagle.

      • Nathanael says:

        In a relatively peaceful area, there are other things of value. Solar panels. Machinery.

        • wimbi says:

          Yep. Don’t understand why PV panels aren’t widely hoarded. Guess most people just don’t know what they can do.

          I gave a little info seminar to locals on all the things just one panel all by itself could do for them, I was surprised that the demo they found most impressing was not the actually useful stuff, but was in fact just show-off. I took a thin ss wire and clipped the panel leads to it and it went off in a dangerous looking flash. Wow, real power!

  10. Paulo says:

    Very convincing graphs and arguments. As a simple energy consumer as opposed to an industry worker/professional, I have to accept the data as presented. Perhaps, with a price spike there will be frantic efforts at infill and new financing and production could increase even more? I would like to see some more knowledgeable media types ask, “If US is still a net NG importer, why then are the prices so damn low they are now killing the industry”? If US is still an importer, there still seems to be a very very tight market. Apples to oranges, if NG supply was rental housing, rents would be going through the roof (no pun intended). Yet all we hear about is glut glut and 100 year supply. It is all very confusing, and I have followed TOD and some of you posters etc for well over a decade.

    One more thing. When I read an article like Steve’s I try and imagine the reaction of my sister who lives in the US. She very much believes all the US hype, that the economy is doing well, energy supplies are not to worry about, etc. And I presume this article is written by an American, so that helps. But when she would read the word Empire, that would be the book closer. She would dismiss it as ” just another US hater author”. I don’t even think she would believe the data or even bother looking at it. She is 65, and a retired universtity educated professional as is her husband. She lives in the Pacific Northwest, and not Iowa. 🙂

    regards

    • SRSrocco says:

      Paulo,

      Totally agree with you about the CLOSE MINDED folks. I talk to some fund managers (who believe in owning some precious metals) and I can tell you they can’t get people to even consider buying gold or silver. Sure, a small fraction might, but very few.

      NOTE: Last year when there was a huge retail shortage of physical silver investment bullion, 80% of the buying was by the wealthy and 20% by typical publican.

      Unfortunately, the majority of the public will hold onto their retirement accounts and paper assets all the way down to the bottom.

      I do believe the next crash in the stock markets will be the last. I have to agree with Gail Tverberg… we are going to experience a market dislocation. Business as usual will be gone forever.

      What it looks like in the future… I haven’t a clue.

      steve

      • shallow sand says:

        Steve. What is your opinion of agricultural land in the future?

        Despite the commodity bust affecting grain prices for what is looking to be at least three years, land prices are holding up.

        I keep waiting for them to fall, but there have been some very strong prices paid at auctions this winter.

        A common theme I hear in discussing this with others is, “At least it cannot disappear.”.

        OFM. Are land prices holding up your way like they are in the Midwest?

        • clueless says:

          Land prices will hold up as long as the Federal Government guarantees that the landowner will receive an amount of “rent” [through crop guarantees using government insurance] that will easily pay off low interest debt incurred to buy the land. The really old joke – One farmer asks his neighbor, what it will take to pay off the new farm land he just bought. Who replies, “I figure with 4 years of bumper crops it will be paid off. On the other hand, if we have 3 years of crop disasters, it will be paid off.”

        • oldfarmermac says:

          Land prices here are holding up but not much more than that. Farm land in my area is not as profitable as it is in the Mid West, and so not as valuable, in more cases than not, but otoh, it is far more likely to be VERY valuable if close to a city or town, and the average price is hard to pin down. ONE farm may be worth a million, a better one ten miles down the road worth three times that, or half that, due to development possibilities, and the desire of rich damned yankee newcomers to live like country gentlemen, with the farms being of comparable worth AS FARMS.

          I just recently went into debt in a big way, considering my income, to buy a nearby tract of land that is well suited to small scale farming, which I expect to make a big comeback within the next decade or two.

          Obviously enough my bet is on farm land going up in price, long term.

          We learn how to produce more every year, but the gains in productivity are relatively small and incremental, whereas the losses of good farmland, due to development, mismanagement (erosion, etc), depletion of fossil irrigation water, etc, are accelerating and more or less permanent, even as the population grows.

          More natural materials such as wood will be needed , and so harvested, to use as substitutes for depleting resources such as metal used in building construction, etc, as time passes.

          Damned few parks are ever closed and sold for outright development, none I can remember, but more land is put into various sorts of nature reserves year after year.

          A farm once cut up into five or ten acre lots may have fifty percent of the acreage in timber, but the owners of those lots are not going to allow a logger on their property unless flat broke.

          You can offer a five acre field , for free, or for trivial rent, locally, to somebody who raises hay, but otherwise, a five acre field is actually a liability.You either keep money tied up equipment to keep it mowed, or hire somebody to mow it for you.

          Allowing it to go back to forest results in lower taxes, and harvestable trees, fifty or sixty years down the road.

          Farming has basically come to almost to a halt in ENTIRE COUNTIES in Virginia and North Carolina over the last couple of decades due to development.

          • clueless says:

            OFM – the odds of you seeing this are probably zero, but you said: “which I expect to make a big comeback within the next decade or two.”
            Please strike the “O” from your handle!

        • SRSrocco says:

          Shallow,

          I believe the value of Commercial Farm land will start to head lower once we get the next crash of the broader stock markets. We only experienced a small correction. Once we see another 5-6,000 points off the Dow Jones, then we will start to see falling commercial farm land values.

          This will also be true for most Commercial, Industrial and Residential Real Estate.

          While Commercial Farming practices will continue going forward, they will become less viable. The best is organic or permaculture. Unfortunately for the Suburban Leech & Spend Economy, that has to be more local.

          steve

    • Dennis Coyne says:

      Hi Paulo,

      A while back I looked at Natural Gas for the World. We don’t have a very good handle on how much natural gas might be produced in the future. See

      http://peakoilbarrel.com/world-natural-gas-shock-model/

      So the range for World Natural Gas URR is 13,000 TCF (Jean Laherrere’s estimate) to 26,000 TCF (based on estimates by the USGS, EIA, and Steve Mohr) with my best guess being the simple average of these two (19,000 TCF). Steve Mohr’s best guess (case 2) from 2010 is 18,000 TCF, but his best guess for oil was a little too low in my opinion and I will assume his natural gas estimate may be a little pessimistic as well.

      Toolpush suggested my “best guess” might be on the low side because natural gas has been relatively plentiful and we haven’t really looked hard for it due to low prices. So something to consider.

      Chart of model below, natural gas will peak between 2018 and 2050, 2035 to 2045 would be my best guess, if we assume demand for natural gas continues to grow.

      That assumption seems reasonable if oil and coal both peak around 2025 as I expect.

      • Paulo says:

        Thanks Dennis, appreciate it. Very interesting times ahead.

        Re: farm land on Vancouver Island.

        I live on Vancouver Island, north of Campbell River. The southern end is a modified Mediterranean climate and is quite productive, but it is in close proximity to Victoria which means vinyards and gentleman sheep properties. No one can actually afford to buy bigger farm properties unless they are multi-millionaires. Due to our Province’s long term freeze on taking ag land out of designation for other uses, (very very good policy), long term farmers with milk quotas or daff fields/markets do quite well. Beef farmers don’t make any money and haven’t for years. Berry farmers are doing okay, too. However, buying farm land already in production and expecting to get a return as an investment…..impossible.

        What I have seen these past few years is more land clearing on the mid-island. I’m not too sure of these are for rich horsey types, or if people are going to graze beef? There is a lot of 2nd growth being cleared as I write this. Lots of stump pile fires going on.

        I bought some land about 8 years ago. It is zoned residential, but I used to grow Christmas trees on it and raised Katahdin sheep. The sheep were a pain in the ass and I had an unending fight with predators. My growing areas are now fenced in with 8′ wire fencing to keep the elk out. Except for one field I keep for ‘looks’, the rest is reverting to bush and woodlot. I let anyone come and cut the Christmas trees and have thinned out hundreds….after planting thousands. (One year the elk ate the new tops off of 1500 noble fir seedings, (a type of balsam). They just walked along and snipped. They also used to paw up my spuds until I started fencing better. I have a small pond which trout are taking hold. For the price of two town lots I bought these 16 acres because it is very suitable for small ag, if you have the time. I grow about 500 lbs of spuds and have about 12 fruit trees on the go for just our family. That’s it. I joke they are the most expensive potatoes known to mankind. We have some pretty nice cedar sawlogs, with spruce, hemlock, and a few fir. The red alder can be used for firewood and furniture starting now.

        I bought the land as a prep, pure and simple. I figure if times get tough it will be nice to have it in the family. Down the road from me a few miles a Kiwi bought up 40 acres and has a market garden operation going. As far as I’m concerned for the work he does he makes about 10 cents an hour. His wife has a job and works away. What does work well for us are chickens. You don’t really make any money doing it, but we basically eat all the eggs we want for free as what we sell pays all the costs. And meat birds have an excellent conversion factor. We raise 30-40 meat birds every spring and freeze them.

        Some of my friends have golf club memberships. We bought land and have some walking trails. It seemed more practical than silver or gold coins.

        regards

  11. oldfarmermac says:

    Hi Daniel,

    So long as there IS some useful stuff still around to BE traded, there will be plenty of people who will accept gold and silver in exchange.This will not solve the problem once there is NOTHING to trade, of course, assuming things get that bad. They seldom have, and are not apt to anytime soon.

    Some people always survive even the worst famines and wars, without taking in all the extra notches on their belts.

    I agree with you about the hard core doomer drama talk. Somewhere down the road, the shit will really hit the fan hard and fast, but I believe most of us in this forum will be safely dead before that time arrives. We all seem to be old guys with time on our hands, lol. I drop in and out all day long, like an old guy who lives next door to his favorite bar, just to see who is around, and what they have to say.If I weren’t retired, and mostly stuck in the house, I wouldn’t post more than once or twice a week. I also come for the knowledge to be gained, but I could get that reading once a week or even once a month, without ever posting a comment.

    The ability of a rich powerful country, or even a broke country, to adapt to hardships is almost beyond the ability of most people to comprehend it.

    Once the necessity of doing so is utterly obvious, and simply CANNOT be ignored, countries with stable governments will go on a war time type of economic footing, and start REALLY working on energy efficiency, conservation, and all around economic adaptations necessary to survive in an energy poor environment.

    Let us suppose for a moment that when the shit eventually hits the fan in the USA what MIGHT come to pass.

    A make work program will be instituted, employing a million out of work construction guys to get busy installing new doors and windows and insulation inside and out on older houses. A million more will be kept busy manufacturing the materials. Three ton pickups will be forced off the road, except if the owner has a business license demonstrating he needs his f350.

    Cars will be built along the lines of the Chevy Volt, but vastly downsized, with a TWENTY mile electric range, instead of fifty, because twenty miles is enough to cut the gasoline consumption of the AVERAGE driver by half or maybe even three quarters, while the car will go fifty miles on gasoline alone. The sale of these cars will be MANDATED one way or another.

    Another million guys will be put to work creating walking and biking paths in urban areas, and zoning laws will be changed so that various small neighborhood businesses will be permitted damned near anywhere, so as to cut down on driving.

    Another million will be put to work building wind and solar farms, on the double time. A million moro manufacturing components, or grading the land, and installing the transmission lines. The cost, and the difficulties resulting for old line fossil fuel utilities, will be dealt with by a war time type economic management team reporting to the congress, prez, and the Pentagon.

    Anybody who thinks all this stuff CANNOT be paid for has never read any history, and so has never taken a good look at what supposedly BROKE countries have accomplished when going to war, either offensive or defensive.

    Money is only a means of keeping track of who owns what. Economic activity can proceed at a furious pace, so long as the necessary people are available, and so long as the actual material resources are available.

    We are NOT going to run out of ANYTHING abruptly, unless the shortage comes about as the result of resource nationalism, and some countries refusing to export certain materials.

    The jet fuel burnt by rich folks gallivanting around WILL BE diverted to running construction equipment to build new wind farms and new solar farms when the steel toed boot of necessity is buried between the buttocks of society.

    The assembly lines and auto workers devoted to building hot rod Cadillacs, Mustangs, and Camaros will be shut down, and the people and equipment will be diverted to building super efficient mini cars. Tesla will probably have to shut down S and X production, but by then Tesla will have a fore and aft oriented two seater ready which will sell for peanuts, stripped of everything except lights and turn signals, etc, and will cost no more than a typical el cheapo econobox these days. It will get two commuters to work on fifty cents worth of juice.

    Old folks in huge houses will take in a young couple who will do the housework and maybe pay the utilities, in exchange for free rent. As these old folks die, the new owners will convert these houses into duplexes and triplexes, zoning and busy body neighbors be damned, and the authorities are going to look the other way, because they are not going to be able to deal with countless people living on the street otherwise.

    New construction of houses and retail establishment will be almost nil, due to mandated diversion of materials and labor to building out renewables, or refurbishing existing housing for energy efficiency.

    Will BAU as we know it today survive? Absolutely not.

    But a substantial portion of industrial civilization may and probably will survive for quite sometime.

    A substantial portion of our species is also going to die a hard lingering death before this century is out, due to overshoot and environmental destruction.

    I am hoping myself to work out a deal with a young couple interested in farm life to come and live on my place, comfortably, in exchange for some work- while they mean time learn a lot of extremely useful skills, and also keep jobs in the nearest small city, for at least the first few years.

    They will be able to buy me out, on advantageous terms, at some point. IF I ever find them.

    • Joe Clarkson says:

      I am optimistic that the decline from BAU will be slow, but I am preparing for it to happen very rapidly. One reason for my fear of a rapid collapse is the complexity of our means of production and the necessity of the monetary system for managing that complexity.

      If money assets become worthless (we have experience with that happening virtually overnight in 2008) and stay that way, how will our domestic economy be managed? Do you think that there is a master plan to rapidly substitute a government-led command economy for the market economy? There should be, but I doubt it. Is martial law capable of keeping 350 million people alive?

      The people and the economic assets don’t disappear with the disappearance of money, but the economic organization does. The oil will still be in the ground, the crops will still be in the fields, and the trains will still be on the tracks, but without money they won’t move. In a world-wide financial collapse most people will be stuck scratching their heads trying to figure out what to do while they rapidly starve to death.

      • oldfarmermac says:

        Is martial law capable of keeping 350 million people alive?

        In my opinion, yes, given the technology and resources available to manage the job today.

        As far as a master plan is concerned, yes I believe a NUMBER of master plans exist deep within the bowels of the Pentagon, the FBI, Homeland Security, the Treasury, the Fed, etc.

        When the shit hits the fan, the various bosses of these agencies will be brought together , and hammer something out, pretty damned quick.

        A few million people might die in riots and local uprisings inside the USA, if things go reasonably well. If things are badly mismanaged, tens of millions might die.

        Most people will do what they are told to do, so long as they are reasonably assured of food, water and a roof over their heads.

        ENOUGH law abiding people own weapons in this country that folks who think they can live by raiding and robbery, as they sometimes do in places such as Somalia, will mostly have rather short careers in their now professions.

        A lot of people WILL die violently, in the event of a collapse, no doubt. But even among the people in a place such as Washington DC, if the shit hits the fan HARD, I expect that by the time a home invader hits his third or fourth house, he will be shot by a resident. I used to know people up that way, and while they keep their mouths shut about the pistol in their night stand, THERE IS A PISTOL or two around, in every fourth or fifth house.

        Every fourth or fifth hard core liberal democrat I know WELL tells me privately he owns a gun, women included. Of course these are mostly SOUTHERN liberal democrats, lol.

        Evictions on the grand scale will NOT come to pass, because the owners of the loans will not be ALLOWED to evict on the grand scale, and because they will have better sense. An empty house in a collapse will be robbed, vandalized, squatted in, with shit on the floor. It will finally be burnt for the fun of it.

        A house with the borrower living in it will still be worth SOMETHING to the owner/ borrower, and so to the lender, once things settle down. A pile of cold wet ashes in a burnt out neighborhood will be worthless for decades.

        Most people fail to think this sort of thing thru.

        If the shit hits the fan during my lifetime, I am prepared to more or less fort up, for as long as it takes for things to settle down, so it will again be reasonably safe to leave home. A few old friends have standing invitations to load up with useful stuff and fort up with me. I think the odds of ever my HAVING to fort up are pretty damned slim, for the next decade at least, and probably longer than that.

        Not many people could live a year or two without leaving home. I can , barring a critical illness, or accident, with a couple of weeks to get ready. Most of what I MUST have is on hand already, except adequate amounts of non perishable staple food.

        If it ever looks as if the shit is going to hit the fan hard, I will clean out the bank accounts, and stock up, paying cash, and then write bad checks , as many as I can get away with, if necessary.

        The sheriff is going to have plenty to do, besides chasing down folks who write bad checks, and a couple of sacks of flour and a ham or two for his less fortunate family members might be enough to make sure I am LOW priority, lol, for another month at a time.

        • oldfarmermac says:

          While I am not at liberty to name names, under any circumstances, it is the case that I happen to know a few retired military people who have been involved in disaster training exercises, whereby their instructions and orders made it clear to them that these orders and exercises obviously reflected the existence of master plans on the grand scale.

          One officer, retired , a person I know well, assures me with a perfectly straight face that contingency plans exist for the invasion of Canada. The word is that while the odds of their ever being even looked at is one in a million, except by folks tasked to preparing them, the top brass makes it policy to have the necessary data on hand to do anything that is considered to be physically possible. The odds of the data being wanted, in organized form, for some OTHER purpose, are higher , but impossible to estimate.

          It might be wanted one day for instance to determine how long it would take to seal the border, in the event somebody manages to slip an atom bomb into Canada, and is hoping to haul it in a truck into the USA, and set it off.

          • George Kaplan says:

            OFM – I read a report on a Pentagon study some years ago where they had determined that it would need only 5% of the working age population to be active to maintain basic services (energy, food, minimum medical, order) and keep the other 95% alive, if not exactly flourishing.

            • Caelan MacIntyre says:

              We may do well to take Bent-a-gone studies with grains of salt and look to historical lessons for any indications on what actually happens.

            • i think that assumes a hydrocarbon energy source and a food and medication availability on a par with what we have now.
              Pre industrial revolution, over 90% of the population spent their entire working lives providing sustenance for those who did nothing.
              It was called a feudal society—in case you think it sounds idyllic

            • wimbi says:

              Supports my oft-repeated observation that MOST of the energy we are using now goes to useless or even harmful stuff we would be far better not doing at all.

              I go around looking at the piles of crap in people’s store rooms. It is obvious from that that we could go at least a decade not making even one more car or lawnmower, and using that wherewithall to build up a permanent solar/wind/HVDC energy system.

              And as a side benefit, be able to say goodbye to the dogmaniacs in the middle east- all of ’em, including all those Israelis trying to push their brother Semites into the Wine-Dark Sea.

              • Supports my oft-repeated observation that MOST of the energy we are using now goes to useless or even harmful stuff we would be far better not doing at all.

                And I must again repeat my oft-repeated observation that Wimbi’s oft-repeated observation would lead to absolute disaster.

                If we stopped making all that stuff, and people stopped spending on everything they could do without, then over half the nation would be unemployed. The nation’s economy would go into a tailspin that it would likely never recover from. And it would likely spell disaster for China and a lot of other countries as well. After all, they are our manufacturing base. It would be a worldwide depression.

                All that being said, simply pointing out what might happen if everyone started behaving differently is nothing but a useless exercise in rhetoric. People never change their behavior until they are forced by circumstances to do so.

                • wimbi says:

                  I know we can turn on a dime because I saw us do it after Pearl Harbor.

                  We went from all the standard junk to military hardware right NOW, not later.

                  Sure, then we were indeed forced by circumstances. Seems to me we are being forced by circumstances right now, right here.

                  Nobody noticing.

                  We need a FDR to get on the horn and yell orders to match those circumstances.

                  Can be done; has been done.

                  Will be done? Probably not. So? Tough Shit, well earned.

                • wimbi says:

                  What I was saying was simply that we stop paying for junk and start the same paying for things that might save our ass.

                  as much or much more economic activity, except for producing worth and not for producing not-worth.

                  I sure would like to quit paying for all the advertisements for crap and start paying that amount for wind turbines. But I can’t stop paying for the ads. It’s built in. No escape.

          • Caelan MacIntyre says:

            Looks like things and people are coming unglued… but then, things where never really glued down properly in the first place…

          • Joe Clarkson says:

            I hope you’re right, but I still doubt it. Look how hard it is to keep this world market economy going even with the help of money and the market to organize everything. There may indeed be a plan for every contingency, but if planning alone were sufficient no war would ever be lost.

            With all the developed country markets in the world so interconnected now, parts for everything come from everywhere. If the US were forced to organize under military emergency powers, how well do think the Chinese would respond to a US military demand for critical components needed to keep vital infrastructure going?

            I think everyone should make their contingency plans on the premise that they will wake up some morning to find all the banks closed and the ATMs non-functional. If you can reasonably expect to have enough food in that circumstance, and thereafter, even if the banks never reopen, you are about as prepared as can be expected.

            On a side note: white rice is cheap calories and stores well in aluminized mylar with oxygen absorbers inside plastic buckets. A year’s supply of calories for one person fits in 17 five gallon buckets. Cost now, about $400, including everything; after collapse, priceless. Get your backup food before“the shit hits the fan hard”. You may not have time to “clean out the bank accounts”, much less kite checks.

            • oldfarmermac says:

              I won’t starve for a year, or be without gasoline and diesel fuel, for a year. I have three months or so worth of people food on hand, and a couple of TONS of livestock concentrate rations, stuff not usually considered suitable for humans, but certainly something that can be put in a pot, and boiled, and eaten, with satisfactory results, if not exactly great pleasure.

              Live stock feed concentrates are very high in protein, fat, and minerals.The remainder consists of almost entirely of good digestible carbs,with maybe a modest amount of indigestible fiber. They store very well. With a few greens, or canned veggies, and stuff out of the field, some of it growing wild, I will have a reasonably decent diet.

              You rotate your stock, as you feed it out, just like a person who is stocks up on people food. In the event of a collapse the animals that are getting it will be butchered, and eaten, rather than grown out and sold, and the supplemental feed will still be on hand.

              I have two small generators, and a big one, plus fuel, and a brand new spare well pump etc, NOT because I think I will NEED this stuff, some particular morning, but because life is just as cheap or cheaper, and more convenient , with it , than without it.

              The time to buy stuff is when it is on sale, if it is not perishable, and you have ample secure safe dry storage. I do.

              I recently bought a years supply of canned tuna, because it was on sale , buy one get one half price. Ditto laundry soap,I have enough for a year, bought at loss leader sale prices. Ditto almost anything that will not rot. Toilet paper, tooth paste, petroleum jelly, lubricating oil, fertilizer, some garden seed, some crop seed, pesticides, rat poison, nuts and bolts, nails, roofing cement, stove pipe, some pressure treated lumber, two good chainsaws, etc etc etc.

              This is a family tradition passed down for generations, from the time when whatever you got out of your crops had to last until the next harvest. My paternal grandfather had a creosote timbered, rat wire lined, set on piers personal WAREHOUSE, which he stocked up every fall, when he sold his crops. He bought by the ( mixed lot ) truck load, and got substantial discounts, compared to retail, for doing so, from local wholesalers. Shoes, pants, coats, dresses, nails, barbed wire, lubricating oil, rope, you name it, it was in that family warehouse. It was ALL at least twenty five percent cheaper, buying it that way. Less valuable things went into various barns and sheds.

              Of course he was buying for a household of TEN, plus some for various relatives and friends as well. A literal warehouse was a necessity. He kept a couple of quick to bark hounds, and that warehouse was within buckshot range of his bedroom window.

              Just the savings on gasoline and time, running to town to shop, added up to a substantial amount.

              It is true that the warranty has expired on my spare pump, with it still in the box, but it is also true that the price of that pump has gone up over twenty five percent, identical item, since I bought it. If I HAVE TO , I can get water out of the domestic water well closest to the house with a bucket and the old windlass,still in place, which I can remember doing as a kid.

              I can excavate a privy with my backhoe in five minutes or less.

              But so long as the uphill spring , which supplies gravity feed water to the house, continues to flow, I will be able to flush the toilet, as usual.

              The only item I have ever lost on, by buying and storing it, to any significant extent, is diesel fuel. I have some I paid almost a dollar more for than I could replace it for today. But on the average, over the last decade, I have profited handsomely by buying diesel in bulk, well ahead of my planned use of it.

              It is possible the shit could hit the fan overnight, and that I would not be able to buy a truck load of groceries tomorrow, but DAMNED unlikely.

              My second (Jewish ) wife lost her extended family in Germany and France to the Nazis, because they did not take the threat seriously enough to get out , before it was too late. I will not be caught with my pants around my ankles that way.

              If the news is BAD, I will go to town and buy what I want, well ahead of the crowd. I won’t LOSE anything by doing so, but I will get DAMNED tired of eating dried beans and rice, etc , lol.

              I might sell some of that sort of stuff at a loss, or donate it to a charity, to get rid of it, rather than force myself to eat it all.

              There are MANY potential advantages to living on a well organized small farm. Anybody who can handle country living ought to give it some thought as a retirement option.

              An ordinary house in a lot of places will sell for enough to buy a nice little farm with a decent house etc, already in place, so long is it is not within commuting distance of a large city.

              • wimbi says:

                all good. How long does that livestock feed last in storage. Would dog food be better? How about just plain oats?

                I wonder why you don’t go for some PV, even if it is just sitting in the box.

                Even DC only can do lots.

                I am working on easy ways to boost PV thru winter with biomass, of which I have gobs for nothing. Progress good but real slow since I am pretty useless and my man, very good, only works 12 hrs/week.

                Whathhell, what happened to all the handymen of my youth? Nowadays people don’t know shit. Really!

                And those who do don’t have time to turn around.

                • Fred Magyar says:

                  Hi Wimbi,
                  I just started looking into recycling old Li ion Laptop batteries and building battery packs out of the good cells! Most of the cells in an old laptop battery are usually good. Just to give you an idea a 24 V 24 AH battery for an electric bike costs about $500.00.
                  With a few discarded dead laptop batteries, some basic knowledge, a volt/ohm meter, a soldering gun, a good Li ion charger and a little patience you could build your own for about a 10th of the price.

                  Now repeat the process a couple of times and you can probably build your own TESLA style wall storage batteries for a heck of a lot less than the $3000.00 they sell for.

                  Maybe you can get some of the kids you work with to start building them. Google Lithium-Ion 18650 batteries.

                  Cheers!

                  • wimbi says:

                    Mighty good idea, Fred, as usual. I passed it on to the people here who do that sort of thing and they agreed.

                    “How far doth yonder candle cast its beams. So shines a good deed in a naughty world.”

                • Joe Clarkson says:

                  Aloha Wimbi,

                  You’re only in your late 80s; why do you need hired help? Wait until you are at least 90 years old!

            • T. G. Neason says:

              Joe Clarkson says: “Get your backup food before the shit hit’s the fan hard”. I agree, but the focus should be on providing food and other essentials in year two, three, etc. A store of food, tools, medicine, etc. will be essential for transition from today to a sustainable situation. If we only look at the short term store rather than planning for the long term, we are setting up for failure.

              • Joe Clarkson says:

                Absolutely!

                Stored food can only be a temporary backup to continuous food production from farming or gardening. One would certainly never be able to rely on stockpiled food to last a neophyte through the whole food production learning curve.

                But for those of us who are working every day to get to the point where we can grow all our food without any outside inputs, a bunch of calories in the “bank” is reassuring. I think the same would be true even for those with decades of experience. Sometimes the weather or potential pests and diseases just don’t cooperate fully. When that kind of thing happens, it’s nice to have a little food in reserve.

                • i rarely if ever see any mention of the calorific value of foods as printed on the label in SHTF context
                  if an average adult needs say, 2000 cal a day, then obviously that input has to come from somewhere.
                  the densest nutritious energy form would seem to be peanut butter. about 600 kcal per 100g, so a small 350g jar is sufficient for a day’s food needs. Monotonous I agree, —but fussy eating will be the least of your worries.
                  every year or so i open a jar to check it, even 10 years out of date it is in perfect condition.
                  based on price per 100 calories, again peanut butter seems by far the cheapest by that measure

                  • Joe Clarkson says:

                    Thanks for the information. I assume you store it in glass. Without your report, I would have thought that the oil would go rancid after not too many years.

                    My only reason for suggesting white rice is that it reportedly will last at least 30 years if stored as I described. I don’t rotate it because my wife won’t eat it unless she absolutely has to, whereas we could easily rotate peanut butter. For now, our main carb is home grown taro, which we eat every day.

                  • Bob Nickson says:

                    Might want to lay up some legumes and lipids along with that rice. Rice and beans together provide all required amino acids, but without fat of some kind, you’d still die.

                    Throw in some Vitamin C tablets too, while you’re at it.

            • Fred Magyar says:

              There may indeed be a plan for every contingency, but if planning alone were sufficient no war would ever be lost.

              The Art of War…

              The supreme art of war is to subdue the enemy without fighting.
              Sun Tzu

              • wimbi says:

                Good ol’ Sun. My kinda general. Ways to do it:
                Bribe the big guy’s thugs so he has nobody to order his evils
                Make the big guy so miserable he has no time for anything but his bellyache.
                Just welcome his troops and absorb them (“Mongols? Nah, I think maybe grandpa was partly one, but we’re all Han Chinese around here now.”)

                Have a contest- Best way to get rid of Saddam without killing anybody but maybe him. One megabuck to winner.

                And a lifetime supply of potato chips.

        • Dennis Coyne says:

          Hi OFM,

          Those southern democrats are dinos 🙂

  12. R Walter says:

    1989 1 141544 4566 103 1374 44

    http://www.dmr.nd.gov/oilgas/stats/historicalbakkenoilstats.pdf

    In 1989 there were 103 Bakken/Three Forks wells. Today, there are 10,314. In January of 1989, daily production averaged 44 barrels per well.

    2015 11 33581397 1119380 10314 3256 109

    In January of 1989, 141,000 barrels of oil were produced, in November of 2015, 33,581,397 barrels of oil were pumped from the Bakken/Three Forks.

    Even if the daily production would fall from the current 109 barrels per well to 1989 levels of 44, the production will still amount to 440,000 bpd.

    As you can see, 33,581,397 barrels in November of 2015 is greater than 141,544 barrels pumped during the month of January in 1989.

    33,970,560

    The number is what you get when you multiply 141,544 times 240.

    The number of wells has increased 100 times and the amount of oil produced has increased almost 240 times for 30 days of production.

    Has to reflect an improvement in being able to obtain more oil compared to past efforts.

    Can’t argue with success.

    May be and probably is a financial disaster and that’s too bad; however, a lot more oil is being produced and, more than likely, much more than expected.

    Don’t know until after you have tried, and if you don’t try, you won’t know. It booms, it busts. That’s life.

    What if nobody would go explore a place to search for and discover natural gas and/or oil deposits?

    Just wouldn’t be any for use, you wouldn’t be able to have any, none, it wouldn’t be there at all. Sorry.

    Is it better to have natural gas and oil as energy sources or should something else take their places?

    Of course there is that oil fossil coal and does come in handy, but if you lose natural gas and oil for use, there will be a lot of pain.

    • clueless says:

      R Walter says – “Has to reflect an improvement in being able to obtain more oil compared to past efforts.” [regarding current daily production per well]
      Maybe you are right, but, because of the steep decline curves with Bakken wells, I would like to compare the average age of the 103 wells in 1989 with the average age of the 10,314 wells. I do know that the frantic drilling that occurred 2012-2015 reduced the average age of the Three Forks wells, but I know nothing of the 103 wells in 1989.

  13. George Kaplan says:

    Nicely presented charts and argument.

    Are there any figures for liquids to gas ratio for the different shale fields – i.e. how much condensate and NGLs will be lost from liquid USA production figures as the gas production drops?

    Any guess on how many, if any, LNG cargoes are going to be exported from Sabine Pass and Corpus Christi (if it gets built)?

  14. Brad B says:

    This is a very one sided analysis. As production falls prices will rise…PERIOD. There is no world where US oil production decines by “30-40%” and global oil prices don’t respond. As prices rise, activity rebounds.

    As far as Art Berman, his criticisms are well known, but must be taken in context. Much of the billions invested by E&P companies in the early stages of these plays can be considered option value.

    When you hold acreage “Forever” through the HBP rules/lease terms, the economic analysis changes. Here is how it works…lets say you drill one well per section and are able to hold this section for as long as that well produces. Some Eagle Ford sections for instance had $10,000 per acre lease bonuses, equating to $6.4 million per square mile/section.

    Running economics by piling the full cost of a section on the NPV of that one well gives a negative present value. Ultimately, 20 wells or more may be drilled in the section, so to properly analyze returns, you would spread the costs over all…you of course don’t know the price, timing or future volumes, or improvements in technology, making the game VERY inexact…Berman glosses over this.

    Further, BOOKED reserves tell you little because there is a price component. Why do companies “bet the ranch” in this way. The answer is they know the rocks and therefore they know how much hydrocarbons is contained in the rocks.

    This is known as “resource” and companies are not allowed to disclose it in financial statements. They are confident that methods of extracting will improve in the future and that prices will eventually be sufficient for it to profitably developed.

    • SRSrocco says:

      Brad B,

      I would like to remind you that U.S. oil production declined significantly in the 1980′ & 1990’s… but U.S. & global oil prices did not rise all that much.

      Steve

      • Dennis Coyne says:

        Hi Steve,

        Good point. I think he assumes that the declines in the US won’t be filled in by increases elsewhere and that there will not be a major recession in the near term. So under that scenario of increasing demand and decreasing supplies (at the World level), what would you expect might happen to the price of natural gas?

        • SRSrocco says:

          Dennis,

          We are already heading into a recession. Wait until Q1 2016 Economic Indicators come out. China is imploding. They built dozens of cities to nowhere and now lots of workers who moved from the country a decade or so ago, are heading back.

          I really don’t think the typical American understands what’s happening here. Former Chief Economist for the BIS recently said, “The present economic situation is much worse than 2008.” Maybe he’s FOS -Full of Sh*t…. but I doubt it. He goes on to say the debt defaults coming can really take down the system.

          I believe we are going to see a systemic crash of the financial system and markets. Could be this year… maybe next. However, zero interest rates (or slightly negative) and QE are drugs that no longer give the HIGH they used to.

          steve

          • Dennis Coyne says:

            Hi Steve,

            Economists realize that QE and zero interest rates don’t work well. Kind of like pushing on a string, very ineffective as a policy tool.

            When the economy is in bad shape it is fiscal policy that is badly needed, many governments, particularly in Europe don’t seem to understand this basic fact.

            There will be some defaults on private debt, more than in normal times, but the system will remain intact. Maybe the Euro experiment will fall apart which will be very disruptive over the short term, but will be better for Europe in the long run until they are ready for a true political union.

            Separating the economic union from the political union, reflects a very poor understanding of political economics by the European establishment.

            GFC2 is certainly a possibility, but a permanent total collapse of the financial system is highly unlikely.

      • John S says:

        Brad,

        How will these companies pay off their debt while “waiting” to drill all of the HBP leases?

        You said that industry doesn’t know the price, timing, future volume or improvements in technology making the game very inexact ” and that……. ” they know the rock and therefore they know how much hydrocarbons is contained in the rocks” reminds me that you can’t “eat your cake and have it too”.

        I hope you keep your hard hat and steel toe boots on. I think you may need them when this starts crashing down on you.

    • There is no world where US oil production decines by “30-40%” and global oil prices don’t respond.

      Brad, the US is not the world. If US production declines by 3 million barrels per day while production in the rest of the world increases by 4 million barrels per day, then prices will very likely fall in that world. Also, demand must also be figured into the equation. If we have a severe recession then even if production did fall by 3 million barrels per day demand could very well fall more than that, causing prices to fall.

      Also, learn how to insert paragraph breaks in your posts. It makes them much easier to read. I have done that for you in this post. I am sure others appreciate it.

      • Dennis Coyne says:

        Hi Ron,

        I will ask the question that is often asked of me.

        Let’s say US and Canadian output declines by 4 Mb/d in 2016, what countries would increase output by 4 Mb/d or more in 2016 to make up this difference, especially at $40/b or less?

        Edit: What is below is incorrect. see bottom.

        Oh and this will be a very severe recession I would think, how much did demand fall in 2009?
        Based on BP data it fell by 2 Mb/d from 2007 to 2009, so 3 Mb/d would be very severe indeed.
        An oil shock of 3 Mb/d in a year is similar to what we saw over the 1979 to 1981 period and in that case we saw lower demand and higher prices.

        Ron is correct, 3 Mb/d is almost exactly how much World liquids demand decreased from 1Q2008 to 1Q2009 based on IEA data. This is probably why Ron chose that number, so we would be looking at GFC2. A difference here would be there might not be the large drop in oil prices that we saw in the 3Q and 4Q 2008. So a similar recession might lead to even more of a drop in oil demand unless there was also a further drop in oil prices (maybe to $15/b).

        • Let’s say US and Canadian output declines by 4 Mb/d in 2016, what countries would increase output by 4 Mb/d or more in 2016 to make up this difference, especially at $40/b or less?

          It is not bloody likely that anyone would. All I was doing is making the point that the USA is not the world. It is world production and world demand that determines the price of oil, not just what happens in the USA.

    • Jeffrey J. Brown says:

      You might want to look up: Pugh clauses in oil and gas leases.

  15. Huckleberry Finn says:

    We have peaked $2 gas. All of this peaking logic is going.to look incredibly silly at $8 natural gas, which will still be more than 50% inflation adjusted below the 2008 $13 price. You guys have been predicting the end of US empire since 2004 and a peak in NG supplyfrom before that. Hitting the snooze button.

    • Joe Clarkson says:

      Keep snoozing. One day you will wake up and your comfy world will be gone.

      • Huckleberry Finn says:

        I doubt it. I think prices are going higher but we have much higher to go in supply. You ducks have been predicting the end of the world forever and for 11 years u idiots have been wrong and I have been right. For the record I think the world will have a liquid fuel Crisis not an electricity crisis. Geothermal alone could be scaled up to supply All of our electricity and we are getting our doomer panties wet because something that supplies a portion of our electricity/heat has declined by 2% because prices hit a 20 year low. Retards.

        • Nathanael says:

          At $8 natural gas, it prices itself out of the market; solar and wind are cheaper.

          • Huckleberry Finn says:

            Solar supplies 0.6% of US energy. Even if solar is cheaper it is not scalable. Neither is wind to that extent. But I agree with you that we will have enough electricity at $8 NG 🙂

            • Dennis Coyne says:

              Hi Huck,

              See

              http://web.stanford.edu/group/efmh/jacobson/Articles/I/WWS-50-USState-plans.html

              The transition to renewable energy is viable based on the work of Mark Jacobson, Mark Delucchi, et al.

              • Hi Dennis,
                I am an optimist but Solar seems hard considering we use 10% of global mined Silver to produce our (world’s) current Solar panels. We would need to increase 30-50 fold from those levels to have a meaningful impact and that would require 300%-500% of globally mined Silver.

            • whether it is scalable or not is irrelevant
              energy isn’t fungible.
              you cannot build a foot of tarmac road from the energy output of a windfarm
              you cannot manufacture a single lightbulb using a solar panel, or the wiring necessary for its ongoing function, or any kind a battery necessary to store the energy for when it’s needed—ie in the dark.
              I could go on—but you get my point
              Electricity is useless without the means to use it, and that usage depends almost entirely on the availability of hydrocarbon based energy sources

              • Dennis Coyne says:

                Hi Norman,

                That is true now. There is a lot that can be done with electricity and the natural gas and oil saved by ramping up renewable energy and using more EVs and plug-in hybrids.
                Over time more and more processes will be converted to fully electric and fossil fuels will be conserved for those processes that can only be accomplished with fossil fuels.

                As far as roads, there is a pretty large resource of bitumen that can be used and if that ever runs out there is concrete and possibly recycling of old asphalt. Or we can let roads revert to gravel and do long distance travel and shipping by rail.

                The problems you foresee are all solvable. High fossil fuel energy prices in the future will provide the incentive to solve those problems.

                https://web.stanford.edu/group/efmh/jacobson/Articles/I/JDEnPolicyPt1.pdf

                http://web.stanford.edu/group/efmh/jacobson/Articles/I/DJEnPolicyPt2.pdf

                • Hi Dennis
                  our civilisation exists on the difference in energy-cost of extraction, and the energy- benefits gained through usage.
                  In the early days of oil extraction–that ratio was about 100:1
                  Now its less than 20:1—far less in shale oils and tarsands and so on.
                  That 100:1 was what allowed our cities to be built, and vast armies to go to war and stuff like that.
                  Nations are bankrupt because there is a denial that our cheap energy era is at an end.
                  When the overall ratio drops below 12:1 or thereabouts, our industrial civilisation will collapse. (That’s why we are going downhill right now)
                  Until now, we have lived (for the last 200 years or so) in a cheap energy environment. We cannot make the same systems work in an expensive energy environment.
                  Money will not solve the problem—without continually increasing cheap energy input, money becomes worthless.
                  Technology will not solve the problem, neither will printing money (quantitative easing sound familiar?)
                  Cheap energy allowed us to develop technology, technology will not create cheap infinite energy
                  —And i would pleased to be shown to be wrong in all this, other than in the sense of “wish science”.

                  • Dennis Coyne says:

                    The renewable energy resource is very large and as technology develops the EROEI of these types of energy will improve.

                    In the best locations wind and solar are already competitive with coal and natural gas. As the price of coal and natural gas increase, renewables will become relatively cheap in comparison.

                    Mature economies grow more slowly, we will need to adjust to that while developing economies catch up (because they are growing more rapidly).

              • Fred Magyar says:

                you cannot build a foot of tarmac road from the energy output of a windfarm
                you cannot manufacture a single lightbulb using a solar panel, or the wiring necessary for its ongoing function, or any kind a battery necessary to store the energy for when it’s needed—ie in the dark.

                Prove it! There are no physical laws that would be broken in either of those cases! Just because something isn’t being done now does not, in any way shape or form, mean it can not be done.

                http://goo.gl/JASRbF

                Clean Energy in Manufacturing: Gaining Ground in the U.S.

                As for this:

                Electricity is useless without the means to use it, and that usage depends almost entirely on the availability of hydrocarbon based energy sources

                Say what?! I can think of plenty of uses for electricity that do not depend on the availability of hydrocarbons.

                • use in what way exactly?
                  Without equipment on the end of wires, or until you can draw wires in vast lengths, electricity has little use. And if you can’t provide material for insulation, the laws of physics settle any argument about it anyway.
                  Such equipment is made by factory systems that are themselves a product of hydrocarbon input.
                  in 1822 Michael Faraday demonstrated the rotational energy available through an electric current
                  Electricity didn’t begin to have a wide function and use until Edison developed the first practical dynamo and lightbulbs—and you can’t light a city using lightbulbs made one at a time by a glassblower. Trust me on that one!
                  To use electricity–you need a great deal of ancillary equipment to give it a function.
                  Have you seen Edison’s workshop? He was no small time tinkerer. He had the means to make things work.
                  I repeat—You cannot make a functioning lightbulb without a backup factory “system”. or a length of wire in any usable sense (think miles of it) You can make “a lightbulb” but we use billions of them….exactly how would that production system function without a colossal factory backup?

                  Electricity can make a wheel go round—but as far as I am aware–it cannot make a wheel. I would be happy to be shown to be wrong of course.

                  Interesting link there btw—but you still cannot make a wind turbine from the output of a wind turbine.
                  Tesla batteries are the products of mining and refining, tesla cars run on roads that are part of the existing hydrocarbon infrastructure, Tesla solar panels require manufacturing to extremely fine engineering tolerances to be efficient. Wind turbines rely on sophisticated mechanisms, materials and transmission systems that will not survive a breakdown of industrial infrastructure,
                  You cannot build functional roads directly from the input of power from solar panels and windfarms.
                  Tarmac IS oil. We make roads by converting one form of material into another. Concrete or tarmac—I’d say that’s about it in realistic terms. Neither can be converted without colossal energy input.
                  We often see solar and windfarms stated as supplying sufficient energy to power XXX homes..
                  This is the big lie
                  A home might consume 2 or 3 KwH….but the overall infrastructure consumes 50 times that to remain functional—domestic power consumption is just a minor part of it.–But the home itself of course is effectively a block of embedded hydrocarbon based fuels.—for which there are no alternatives.
                  Don’t take my word for all this–read Prof David Mackay’s book: Renewable Energy, Without the hot Air
                  http://www.withouthotair.com/
                  (It’s free to download btw)He’s on a different intellectual planet to me, but says much the same thing in a very easy to understand form.
                  Highly recommended.

                  • Caelan MacIntyre says:

                    Careful there, Norman, you may be risking bursting a lot of people’s Hollywood Dream Bubbles.

                    You see, in those bubbles, there are Uber taxis and uber pizza deliveries by drones flown by teenagers in their first work-experiences; self-driving electric cars that have the ability to detect and then sweep any and all drunken revelers and free riders off their rooftops; self-spreading tarmac and tarmac that comes in giant sausages that roll to their destination, flatten trees along the way in the highway-building process, and automatically unroll by computer; happy cooperative work in ‘renewable’ industries, where everybody wears a sparkly-eyed ‘manga’ face and no one is a boss; large-scale centralized ‘government’ that gets its energy from the sun like Ultraman, and ‘steps in’ and solves stuff; large-scale international trade ships with kites attached where navigation is a breeze; robots that replace tedium; disruptive technology this and that; and, I guess, Jacque Frescoesque machinations and the like.

                    And free lollipops.

                  • Fred Magyar says:

                    Don’t take my word for all this–read Prof David Mackay’s book: Renewable Energy, Without the hot Air

                    Yeah, I’ve read it! It is a good read. But It’s references to the state of the art in technology are a bit outdated at this point. Of course that doesn’t negate the laws of physics and I do have a pretty good grasp of math, physics, chemistry and biology…

                    And yes I’ also well aware of Edison’s work!

                    However having said that, just as an example, coral reefs produce materials similar to concrete without the energy intensive industrial infrastructure that you seem to think is the only way to create anything. For the record you are fractally wrong!

                    There are better ways to do things! Watch this video to get an inkling of what I am talking about.

                    https://www.youtube.com/watch?v=sf4oW8OtaPY

                    I think more people need to go back to school and study basic science so they can understand biochemistry and ecosystems. Most people are very ignorant!

                    Just wanted to add this…

                    repeat—You cannot make a functioning lightbulb without a backup factory “system”. or a length of wire in any usable sense (think miles of it) You can make “a lightbulb” but we use billions of them….exactly how would that production system function without a colossal factory backup?

                    My guess is you have never sat in a rain forest watching a coordinated lightshow put on by millions of fireflies while listening to a symphony of tree frogs and insects? Maybe you need to take a hint from the production system that can produce that! It’s a hell of lot better that the one you are promoting!

                  • response to Fred Magyar
                    sooooo—the scientific answer to future roads and lighting is—

                    we use micro organisms to grow our roads
                    and fireflies to light our streets. or an adaptation of the biological function thereof.

                    bearing in mind that no organism, large or small can convert more than the amount of sunlight falling on the space it lives in, into the exoskeleton that allows it to exist and survive

                    forgive me—I must find a darkened room somewhere to go lie down
                    I shall dream of roadgrowing

                  • Fred Magyar says:

                    I shall dream of roadgrowing

                    That’s fine! Dream away my friend! While you dream others are burning the midnight oil and actually doing! My point, which you deliberately chose to misunderstand and ridicule was that we can learn an enormous amount by studying natural processes.

                    I can cite a thousand or more concrete examples, (no pun intended), without trying too hard. (oops another pun).

                    Here’s one.

                    http://www.gizmag.com/dupe-sand-urine-bacteria-concrete-machine/30804/

                    The procedure for creating biostone involves filling a mold of the final required shape with sand before pumping a bacteria solution of bascillus pasterurii (which has been grown in a nutrient broth) into the mold and leaving the mixture to establish itself overnight. A solution of calcium chloride, urea and nutrient broth is then pumped into the mold. The bacteria uses the urea as energy to absorb the calcium chloride and convert it into calcium carbonate, a cement-like mixture that binds the sand together within the mold.

                    So tell me why we couldn’t build roads with such materials.

                    If you saw the world the way everybody else did, how smart could you really be?
                    Comment by Steven Levy about Marvin Minsky
                    https://goo.gl/qIggr1

                  • Joe Clarkson says:

                    Norman,

                    Everything you say about our current dependency on fossil fuels for manufacturing is true, but as Fred indicates, there is nothing that is done with any form of energy that cannot be done with electricity. In principle, every step in the manufacture of anything can be done with electricity. With enough electricity we can manufacture all the oil anyone could want.

                    That said, just because it is technically possible, doesn’t mean it will happen. I like solar a lot. I use it every day for the energy to run my off-grid house, but the scale-up needed to use renewables for everything is far too great for the time remaining and the energy left to do so, even if the powers-that-be had the inclination to do it (which they don’t).

                  • Dennis Coyne says:

                    Hi Norman,

                    Most industrial processes can be performed with electrical energy, there is not a lot of primary energy use that cannot be replaced with electricity. Railroad engines can run on electricity, mining equipment can also be electric, much of the coal and natural gas used in the World is used for producing electricity (all of that can be replaced with Wind, Solar, and Hydro). A lot of natural gas is also used for heating buildings and water, that can also be replaced with heat pumps. Recycled steel can be produced with electric arc furnaces.

                    It will not be easy and cannot happen overnight, but either we transition to renewables and use energy more efficiently or society collapses catastrophically because we stubbornly maintain that no such transition is possible. I choose the former possibility and hope to help make it work.

                  • Caelan MacIntyre says:

                    But, guys, in all your dreams and midnight oil burns, what’s in it for the elite? What’s in it for some of them whose industries and plutarchies are part of what your dreams rely on?
                    What’s in it for a corrupted sense of entitlement? You have to get inside those heads. Perhaps they are among your own.

                    The fact that we’re in this state of affairs at this point when we were ‘promised so much after the war’ seems to suggest that that kind of thing is not a consideration or much of one. Or things would be different today, wouldn’t they? Project Venus or something like it by now? And if it is not a consideration, then will the outcomes be what some of you might (XL) pipe-dream?

                    So it would appear that our dreams need to align more realistically with reality, some of which may be evidenced from historical accounts and speaking with people regarding their senses of entitlement and vis-a-vis others ‘on the outside’.

                    Indigo Eyes

                  • in practical terms, it would seem that electricity can make wheels go round, but it cannot make wheels, or provide an ongoing purpose for their rotation.
                    Of course, given a full backup of industrial infrastructure, almost anything is doable. But in a SHTF situation, we are not going to have backup industry—and that is the problem that fantasy engineers and physicists choose to ignore. Those inhabiting the real world don’t ignore it.

                    We can have a hydrogen based ‘economy’—but unfortunately hydrogen is a battery, not a fuel. Ask anyone about hydrogen use—relatively few are aware it’s a battery, and requires more energy to produce than can be obtained by using it. (and that’s before you get to the problems of compression into viable volumes) So to produce the colossal quantities of hydrogen needed to sustain us we would need a solar/wind system to back it up, and a finely engineered installation system on the vehicle and the filling station.

                    There are hundreds of wild and wacky schemes out there—to produce this and that ‘critical’ item or fuel substitute—some possible, mostly not, but they all, without exception, depend on the web of industry that supports our cocoon of comfort as it now exists. Pointless and boring to try to cover them all.

                    Perhaps the ultimate fantasy lies in the purpose of it all.
                    Our civilisation exists through our ability to trade with one another. In the 10 millenia since hunter gatherers enclosed land and became farmers, any kind of prosperity has depended on trading of excess. We trade by buying and selling, and moving stuff (including ourselves) from A to B in order to facilitate that. The faster and more efficiently we shift ‘stuff’ the wealthier we have become.
                    Problem is that we have come to regard ‘movement’ itself as being a wealth creator, rather than the goods and services (effectively forms of energy) themselves.

                    Hence our focus on the necessity for wheeled transport: “as long as our cars and trucks run–we will be ok” is the basic mantra.
                    Missing the point, that in the SHTF situation, no one will be shifting 40 tons of melons from CA to NY, or (and this is the ultimate fantasy) have an ‘ongoing purpose’ to drive anywhere.
                    The delusion persists that wheels (on the scale we use them) have brought us prosperity, when in fact it has been our (temporary) prosperity that has allowed us to have wheels.—Therefore if we continue to produce wheeled transport able to travel great distances, our prosperous lifestyle will continue undiminished. —we will still drive to ‘work’. Get real!!!!!

                    Prior to the industrial revolution, travelling 150 miles on wheels might take a month’s wages– Now we can do it for a few minute’s wages–that is our concept of ‘prosperity’.

                    Ford figured out that by paying his workers high wages, they would go into debt to buy his cars—ad infinitum. His workers became ‘rich’ by any historical measure. They too could travel anywhere they wanted to.
                    What Ford was actually doing was extracting cheap materials out of the ground, and selling it as wheeled transport, feeding the delusion that it would go on forever. Right now we are at ‘forever’, scrambling desperatly to find the means to keep that delusion alive. This is why we must have wheels at any cost, it allows us to deny that we have run out of road.

                • Dennis Coyne says:

                  Hi Norman,

                  The wheels can be on rails for long distance and for shorter distances can be powered by batteries. The wind, Solar, and hydro energy system will be overbuilt so that less backup will be needed, during some periods there will be excess energy which will be used to produce hydrogen. The use of fuel cells will be very limited because hydrogen will be in limited supply and will be expensive.

                  For solar consider

                  http://rameznaam.com/2015/06/04/whats-the-eroi-of-solar/

                  for wind

                  http://energyskeptic.com/2015/wind-eroi-range-and-payback-time-also-solar-ng-geothermal-hydro-coal/

              • SW says:

                Its easy. Hydro. In the Southwest. Where direct insolation is at its highest. You use the electricity generated from hydro to build PV plants and deploy the pv in the desert. Soon there will be enough PV to run the plants. Like breeder reactors. They can spread throughout the desert. In Nevada. In Arizona. The transmission lines are already there for the hydro. You just have to do it.

                • hydro availability is already at or near its maximum
                  and i was under the impression there was a water shortage in the south west?

                  • Ulenspiegel says:

                    Wind turbines have an energetical pay-back time of 5-7 months, you can sustainably double wind power each 12 months.

                  • Caelan MacIntyre says:

                    “Wind turbines have an energetical pay-back time of 5-7 months…” ~ Ulenspiegel

                    Assuming that is true, it’s still a ‘canned statistic’.

                  • Ulenspiegel says:

                    “Assuming that is true, it’s still a ‘canned statistic’.”

                    The point is , that the electric out put of wind turbines replace fossil fuels, usually NG and coal. As long as we are not at 85% reneables we can simply use some of the substituted fossils for the “essential” stuff like chemical feedstock, fuel for airtraffic…

                    For the next decades a short pay back time is a real selling point. We could double PV/wind capacity each four years in a sustanable way.

      • Dennis Coyne says:

        Hi Joe,

        For US natural gas output, the decline has been pretty small so far, when we look at the 12 month centered moving average (which filters some of the month to month noise in the data) the decline disappears. We may see a plateau until prices begin to rise or possibly a small decline. The blue dashed line in the chart below is the 12 month centered moving average.

        Data is from the EIA

        http://www.eia.gov/dnav/ng/hist/n9070us2m.htm

    • Dennis Coyne says:

      Hi Huck,

      Eventually there will be a peak in oil output, coal output, and natural gas output for the World.

      It does not mean the end of the World, just higher prices and potentially a transition to other sources of energy over time as fossil fuel resources deplete. If such a transition cannot be accomplished through greater efficiency lower population and substitution, it will not be the end, but the World will be very different. By 2060 the World will look very different, although I won’t be here to see it, perhaps my children will (with any luck they will be grandparents by then).

    • George Kaplan says:

      Except for some OPEC countries oil production in the early 80’s it’s very difficult to see much correlation between prices and production for oil or gas in a country or region (e.g Australia, UK, Norway all started to peak when oil was cheap in the late 90’s and didn’t pick up again as prices rose afterwards) . The yearly average curves may not be perfect bell shapes but barring revolution, war or major accident (like Piper Alpha) they tend to monotonically increase, then plateau (possibly a bit bumpy) and then monotonically decrease (sometimes there are two separate peaks but they don’t seem to be related to price, more to discovery timing). The tight oil and gas production imposed on the overall USA curves are the big exception to this, but maybe in isolation they will act similarly to other regions.

      The Barnett and Huntsville declines continued in 2013 even as prices were rising. The gas can only be produced if it is there – if the companies have maximised production and depleted all resources just to stay afloat then it won’t matter what the price gets to, there isn’t any gas left.

      For tight gas things may be different and declines can be reversed, but there is also an LNG glut at the moment so at $8 it might prove cheaper to import than develop the poorer yielding parts of shale plays, especially if new pipelines are required to allow increased production from some areas.

  16. Pingback: Collapse Of Shale Gas Production Has Begun – Enjeux énergies et environnement

  17. Watcher says:

    Re: Ron’s Ronpost . . . anyone have a source for NGL prices?

    Previous Ronpost — Doug noted that in his experience every geologist in China doesn’t have their words filtered by Beijing. So there is truth to be found in provincial quotes of things oil related. If the matter became more overtly national security related, of course that would change.

    I’m reminded of how often EIA and NoDak’s DMR have quoted numbers in conflict with each other of late. Not that this need be conspiratorial. We somewhat know EIA numbers come from a model that likely is as worthless as most. This would be a case of provincial data having not been . . . filtered, or smoothed, or seasonally adjusted or whatever else is the change mechanism du jour.

  18. PAOil says:

    Someday there will be a peak in Marcellus and Utica production. But Steve may be quick to call peak at this time. In fact, natural gas prices in the Marcellus are not $2.50, they are less than $1. More than a function of NYMEX, the price paid for natural gas production is also a function of local and national transportation arrangements. Until the advent of the Marcellus, natural gas produced in the northeastern US enjoyed a “basis” bonus due to the proximity of the resource to the large natural gas market on the US east coast (NY, Phila, Boston, etc.). The Marcellus and Utica now supply ample natural gas to satisfy that market, and the flow of national natural gas lines in the northeast region has slowly reversed, now moving gas south. Consequently, in 2015 the Marcellus and Utica basis became negative, in most cases a $1 or more negative.
    Steve’s charts fail to account for a couple other factors. The Marcellus and Utica are enormous in geographic terms. It is truly hard to wrap one’s head around the extent of the plays. All of the acreage (thousands of square miles) became an active acquisition target several years ago and, as noted above, most of it was leased under instruments that require one or more wells to “hold” the acreage. The key, however, is that, generally, the parcels do not have to be immediately drilled in their entirety. Leases without Pugh clauses can be held by a mere one well–or sometimes even by a well on another parcel that is “pooled” with the parcel under lease. And even leases with Pugh clauses are generally subject to a “drilling requirement” that allows drilling to occur in future years.
    All of this is to say that the initial drilling in a field with the enormity of the Marcellus and Utica is not the most economic or efficient. Because locations are chosen with an eye toward maximizing the number of acres held, new wells are often spaced far apart. This consideration exaggerates initial well development costs because the pipeline, road and other infrastructure costs reflect the inefficient location choices. Stated another way, as the field matures the economy of scale–the already paid infrastructure–improves the economics of new well development.
    Another unaccounted factor is infrastructure development. Many Marcellus and Utica wells remain shut in waiting for pipelines to be constructed. Some already completed wells will not be brought on line until 2017.
    I am quite familiar with companies in control of hundreds of thousands of acres who have set aside new well development–or placed it into low gear–until infrastructure catches up, and, more important, until price relief arrives. That relief is expected to come both in the form of basis improvement (as new pipelines are opened thus expanding now crowded market opportunities) and as the very declines that Steve’s charts reflect, are taken into account in the market place.
    By no means am I asserting that shale gas is the panacea for our long-term energy troubles. Like any fossil fuel, natural gas will peak. But I think this is an early call on Marcellus (and Utica) peak.

    • shallow sand says:

      PAOil. What kind of price recovery does the Marcellus and Utica need? $1 doesn’t cut it, but, taking into account the area as a whole, what do you think would be needed to reverse the decline we are seeing?

      It appears to me gas rigs are running at a multi decade low, and the trend doesn’t seem to be stopping. Soon US onshore gas rigs will be below 100. CHK is a prime example of how tough the gas business is, I suspect it is even worse than oil, given the duration of the downturn?

      • PAOil says:

        S. Sand. I can’t produce spreadsheets or charts because my realm is conventional oil and gas. However, I have a fair amount of anecdotal information from E&P owners & employees as well as sand and frac companies. $2.50 would bring grim relief…meaning an uptick in drilling rig activity. At $3 we’ll begin to see relieved smiles. Those smiles will also come a little more easily in a year or so when certain pipeline projects come on line thus providing (expected) long term relief from the basis problem.

        • Nathanael says:

          They’re a bit optimistic. $3 is sweet-spot pricing; the margins of the field have breakevens of $4 or more.

          And they’re mostly cutting corners on environmental safety. When they’re forced to clean up that’ll raise the breakeven prices.

    • SatansBestFriend says:

      PAOil,

      I am really interested in reading your post. But I go crossed eyed evertime I try to read it.

      It is probably too late, but if you don’t add proper spacing and use simple and easy to read sentences, no one will read your posts.

      That kind of defeats the point in posting your thoughts!

      thanks!

    • coffeeguyzz says:

      PAOIL

      That is about the most accurate, concise description of the goings on in the Appalachian Basin that I’ve encountered in sometime and I thank you for posting.

      If I may expand a bit on some of your observations …
      “The Marcellus and Utica are enormous in geographic terms”.
      According to the EIA, the Marcellus covers more than 72,000 sq. miles, bigger than the entire state of North Dakota.
      The Utica has not even remotely been delineated, but it is well-recognized as being far more expansive, much thicker than the shallower Marcellus.
      (The folks at Penn State have some great maps showing this on their site Marcellus Center Outreach.

      Pricing? Dominion South – a transfer point now moving almost twice the volume of Henry Hub – pegged at 59 cents/mmbtu a few weeks back, when the Tetco-M2 point was pricing 63 cents.

      An October 29, 2015 article from Blomberg described how almost one billion cubic feet a day of Appalachian production was being shut in, NOT restricted/curtailed/postponed … actually shutting down active, producing wells due to abysmal realized prices.

      I thank you as well, PAOIL, for describing some of the particulars behind the drilling re HBP for the Marcellus/Utica as many of those particulars applied to the Williston Basin pre-2012/2013 also.

  19. John S says:

    Brad,

    How will these companies pay off their debt while “waiting” to drill all of the HBP leases?

    You said that industry doesn’t know the price, timing, future volume or improvements in technology making the game very inexact ” and that……. ” they know the rock and therefore they know how much hydrocarbons is contained in the rocks” reminds me that you can’t “eat your cake and have it too”.

    I hope you keep your hard hat and steel toe boots on. I think you may need them when this starts crashing down on you.

  20. Huckleberry Finn says:

    Can this “brilliant” author explain why the country which exports coal, imports 3% of natural gas, is self sufficient in Uranium and imports 50% of its oil will be in trouble before Japan which imports 100% of all of the above AND has twice the debt to Gdp of US and much worse demographics?

    • clueless says:

      Typo alert – “Japan which exports” should be “Japan which imports”

    • Nathanael says:

      Dependency. The country without the natural resources typically switches to alternatives faster. (Japan might not.)

  21. Andrew McKay says:

    I’m a bit wary of commentators claiming “collapse” and “disaster” in the near future because we have a heard it all before and as we all know it has never come to fruition.

    There are no doubt some serious challenges facing the oil and gas industry but the resilience (so far) of US shale is a good a reminder as any that there are multiple forces in action to avoid a disaster style collapse.

    Rewatching “The End of Suburbia” and Michael Rupert’s “Collapse” are interesting cultural studies. but they also so that some of the best minds of the times were badly wrong with their analyses.

    Gregor McDonald also makes the point that GDP has largely decoupled from energy consumption in many developed nations. I think this is largely to do with the ballooning of the financial (tertiary) economy and makes little real world sense, but the whole system is so convoluted and warped now it doesn’t really matter.

    Long story short disaster collapse scenarios are unlikely for the US or any other developed nation, especially with renewables increasingly coming online. They will soften some of the impact at least. I subscribe more to John Michael Greers view that we will see a long descent: recessions punctuated by increasingly shorter periods of recovery. What this means is people still hold on to the hope that things will get better and a bit of relief every few years only strengthens that view.

    • 70%H2O says:

      I agree but with one caption: WAR.

      You don’t get any more sudden collapse than that. And it is growing slowly more likely.

  22. Toolpush says:

    http://oilpro.com/post/21938/let-contagion-begin?utm_source=DailyNewsletter&utm_medium=email&utm_campaign=newsletter&utm_term=2016-01-29&utm_content=Article_2_txt

    Let The Contagion Begin!

    What is most important is that Lease Operating Expenses (LOE’s) are bloated to $15-$40 per barrel. Yes, LOE’s alone. Add finding costs for proven undeveloped reserves (PUDs) and those reserves become written off almost immediately. If one deducts from the above WTI benchmark of $31.50 even a modest $4.00 per barrel quality and basis differential, the margin squeeze (if there is any) because of high LOEs and field price differentials becomes catastrophic.

    • AlexS says:

      “What is most important is that Lease Operating Expenses (LOE’s) are bloated to $15-$40 per barrel. Yes, LOE’s alone.”

      Where these numbers come from????

      Oasis last week reported preliminary 4Q operational results.

      WTI (NYMEX) $42.07
      Realized Price for Oil (ex hedges) $37.67 – $37.87
      Oil Differential 10.0% – 10.5%
      Natural Gas ($ per mcf) $1.85 – $2.10

      LOE (per boe):
      4Q15: $6.80 to $7.00
      2015: $7.80 to $7.90
      2014: $10.18
      At mid-point a decline of 32% in 4Q15 vs. full-year 2014

      PV-10 as of Dec 31, 2015 (in millions)
      $2,022.7 vs. $5,481 a year ago (2.5 x decline)

      http://oasispetroleum.investorroom.com/2016-01-28-Oasis-Petroleum-Inc-Announces-Select-Operational-Results-Preliminary-Financial-Results-and-Reserve-Information-for-2015-and-Its-Preliminary-2016-Outlook

      • AlexS says:

        Other preliminary results and projections from Oasis Petroleum:

        Oil and gas production in 2015 was 50,477 boe/d, 10.6% higher than in 2014.
        Output in 4Q15 was 50,652 boe/d, which exceeded the high-end of the company’s guidance of 49,000 Boepd.
        4Q15 oil production: 43,307 b/d.
        The share of oil declined from 89.3% in 2014 to 85.5% in 4Q15, confirming the trend of increasing GOR in the Bakken.

        In 2016 Oasis expects to produce 46,000-50,000 boe/d, 1%-9% less than last year (-5% at mid-point)

        The company “Completed and placed on production 80 gross (62.4 net) operated wells during 2015 and 16 gross (10.7 net) operated wells during the fourth quarter of 2015.”
        For comparison, in 2014 Oasis completed 195 gross (147.4 net) operated wells.
        “As of December 31, 2015, the Company had 85 gross operated wells awaiting completion.” In other words, they have more DUCs than total number of completed wells in 2015.

        The company has hedges in place on approximately 60% of its estimated 2016 oil volumes at an average WTI price of $53.36.

        Oasis’ capex was $610 million in 2015, down 60% from 2014 and below $670 million projected.
        Planned capex for 2016 is $410 million, 33% less than last year.

        Preliminary capex plan for 2016 includes only $180 to $230 million for drilling and completions vs. $565 million, which was planned for 2015.
        They also “expect to invest approximately $140 million of midstream capital to primarily continue to develop Wild Basin infrastructure. However, the Wild Basin project may be contingent upon securing external funding.” So they can further reduce non-upstream capex without immediate negative impact on production volumes.

        Management says that Oasis “was free cash flow positive again in the fourth quarter of 2015″ and they are planning to spend within cash flow this year. “We are projecting that 2016 cash flow from Adjusted EBITDA less cash interest will cover our CapEx plan, excluding midstream, at approximately $35 per barrel WTI.”

        Oasis also announced a public offering of 34 million common shares for total gross proceeds of approximately $160 million. This represents a ~25% dilution of existing shareholders.
        “Oasis intends to use the net proceeds of this offering for general corporate purposes and to fund a portion of its 2016 capital expenditures.”

        • shallow sand says:

          AlexS. OAS hedges are the reason they did not burn cash. Have a decent, but lesser amount of hedges in 2016.

          I could not find mention of long term debt as of year end , but at end of Q3, was $2.38 billion. 12/31/15 PDP PV10 $1.8121 billion, using WTI of $50.16, HH of $2.63.

          • AlexS says:

            shallow sand,

            They did not disclose their LT debt as of 31 Dec.
            End 3Q net debt was $2.37bn, 103% of shareholders equity.
            Net debt to annualized EBITDA at ~ 3x
            Relatively high, but not critically high, I would say.

            As I said above, PV-10 as of Dec 31, 2015 was $2,022.7mn vs. $5,481 a year ago (2.5 x decline)
            But this includes undeveloped reserves.

            Their 5% projected production decline in 2016 is less than 11% drop expected by the EIA for US Lower 48 onshore C+C output.
            (although OAS 5% is for oil & gas)

          • AlexS says:

            shallow sand,

            OAS was indeed well hedged in 2015.
            In 2016 their hedge position is still one of the best in the shale sector.
            But 2017 is a completely different picture

            From OAS presentation:

        • John Keller says:

          OAS plays the game. “Adjusted EBITDA” is code for defining EBITDA however we want to. OAS is in trouble along with the rest of the Bakken players.

    • coffeeguyzz says:

      Push

      That is an outstanding thread on a very high quality site.

      If you did not view the video on Haliburton’s CobraMax DM BHA that Lenny Masseras (sp?) embedded in that thread, you may greatly appreciate checking it out.
      I think that is the approach Haliburton is pushing for both frac’ing and refrac’ing.

      Amazing technology.

  23. Patrick R says:

    However the flip side of the steep Shale decline curves in a high drilling environment is much flatter decline curves in a low drilling environment. So once the initial drop is weathered Shale oil will produce much more steadily albeit at a lower rate from existing wells. Add some drilling and completions and the supply from Shale will chug along undramatically. Even if a number or even all of the over-indebted players crash, their wells will still be there, snapped up cheaply and still produce.

    Still Shale has shot its bolt, done its worst, and the story of marginal supply turns back to the Middle East, after all, while so many in the MSM were banging on about the KSA or their arch rival Iran, it has been Iraq that added the extra 1 mbps over last 18 months: 3.2 to 4.2 mbps mid 2014-2015.

    Has this trajectory got more legs? If so it may happily replace Shales flop till it flattens out, preventing any major price correction to get the roustabouts rigging up again on baleful steppes of North Dakota.

    • George Kaplan says:

      How was the development in Iraq funded – my guess is various sources of very low interest loans? All the new production has involved western, Chinese or Russian oil companies which would have had low interest funds available and the IMF has made some money available directly to the Iraq government. Iraq and Kurdistan are going bust at the moment. So it looks a lot like the shale plays: cheap money -> over investment -> over production -> low prices -> pump harder to cover the losses -> bankruptcy -> something far worse in Iraq than will be seen in ND and Texas I expect.

    • AlexS says:

      Patrick R says:

      “…it has been Iraq that added the extra 1 mbps over last 18 months: 3.2 to 4.2 mbps mid 2014-2015.
      Has this trajectory got more legs? ”

      From IEA World Energy Outlook 2014:
      “Iraq remains the largest source of global oil production growth over the entire period to 2040, even though our outlook is progressively getting closer to the “Delayed Case” examined in WEO-2012, in which institutional and political obstacles were assumed to hold back upstream investment in Iraq.”

      Projected C+C+NGL production in Iraq and Iran (mb/d)
      source: IEA WEO-2014

  24. Enno says:

    To all who are interested in the Niobrara shale:

    I have added an interactive post about the oil production from the Niobrara formation, in Weld county (Colorado). About 2/3rd of the oil production in Colorado is produced there, from horizontal wells. As in the post about ND, you can see the total oil production, but also by company and formation. Also, you can see how wells have changed over time, for both the decline curve, and the cumulative curve. It is updated until July 2015, as not all companies seem to have reported all their production for later months yet. The average expected well life seems to me much shorter than the typical Bakken well.

  25. R Walter says:

    Back in 1981 or so after Reagan the liberal Democrat turned Republican was elected to the presidency there was a lot of brouhaha about a complete collapse of civilization.

    I was buying silver, buying hand tools, ready to go live in the boonies for a few days while the cities burned. The shit was going to hit the fan! All sorts of publications out back then predicting doom!

    One publication back then was called ‘The Duck Book’. After reading a few paragraphs of the content, you had better prepare and quick. You received a lifetime subscription, as long as the author of the duck book was alive, you received your weekly edition.

    People were going to be running around like chickens with their heads cut off. It was gonna be bad!

    It is all still here, I have some silver, plenty of hand tools and am prepared more than ever to keep on living after everything goes to hell in a hand basket. It might take another 35 years for it to happen and time will run out for me, I’ll be dead before the shit hits the fan again.

    It’s much easier to get up and shower, then go to work for the day to earn your daily bread… and beer.

    My advice is to hoard soap. You’ll make a lot of money collecting the silver and gold the preppers accumulated but forgot to buy some soap. har

    • Fred Magyar says:

      My advice is to hoard soap. You’ll make a lot of money collecting the silver and gold the preppers accumulated but forgot to buy some soap. har

      What a great idea!

      Then again, if you already have soap, why would you trade it for something useless like gold and silver?! Tell ya what, I’ll trade you some of your soap for a couple of rolls of toilet paper, I’ve got a whole barn full. Sure beats trying to wipe your ass with gold and silver. If you don’t believe me ask the Venezuelans… Har!

      • R Walter says:

        Fred, when you put together a Leyden jar, do you use gold leaf or toilet paper?

        I dunno, but I think gold and silver are more valuable than toilet paper, in good times and in bad.

        It is just my opinion and I very well could be wrong. har

        • Caelan MacIntyre says:

          Just get a few leaves; mosses; extra-soft community-/hand-made ‘toilet paper’; felt; rags; compostable/washable fabrics; some sort of ‘bidet’– a plant-spray bottle or child’s high-pressure watergun; soft hay/grass bundle; and/or a rainwater catchment system and a handheld shower hose; imagination etc., and you won’t need ‘toilet paper’.

          But, ya, how does one make home-made soap locally without imports…

          • Cracker says:

            Caelan,

            Good lye soap can be made from leftover grease from cooking and ashes from the wood stove, all locally produced by you, and easy to make.

            In the recent past, women in the southern US regularly gathered to work together to make soap, can (preserve) fruits, vegetables, eggs, fish, and meat in jars, dye cloth using home made vegetable dyes, and other activities suited to group work and sharing of components/ingredients. Quilting Bees come to mind.

            We can do a lot more for ourselves using a lot less than we think we can.

            But Ron is right, the world economy of consumption will be toast, and that will cause a lot of disruption. Europe’s ongoing invasion from MENA comes to mind as an early example.

            Transitioning a growing human population to using less and less will hurt a lot of feelings, especially those of us who are spoiled and think we are entitled to a huge share and it should always be so. Will we be victims or spectators?

            Jim

            • Caelan MacIntyre says:

              Agreed, Jim, and we’re already hearing about retail shelves and international dry-shipping indexes emptying.
              (One’s shimmering EV or PV, purchased with a negative interest rate loan, means little to them if either’s being indefinitely held up on a dock somewhere overseas.)

              That’s good news about soap-making, thanks, and a little research on it will be done that I’ve been meaning to do about completely-local soap-making and the precise methods.

              Soap-making, quilting, carpentry, boot/shoe-making, food-growing and preserving, etc., work/employment and in cooperative, local, community, egalitarian contexts seems the way to go, and a lot more attractive and fulfilling than the average ‘Establishment’ slave job that, for the most part, just feeds the pseudoeconomic/pseudogovernment monster that’s sending everything off the cliff.

    • oldfarmermac says:

      “People were going to be running around like chickens with their heads cut off. It was gonna be bad!”

      My maternal grandfather, in his extreme old age, got in the habit of washing and polishing his car , a classic with near zero miles and not a pin scratch on it , due to his buying it new just before he got too old to drive it on the highway.

      The problem is that the nice shade tree which was his favorite place to work was old and rotten, and he was apt to leave the car there, under the tree, rather than putting it back in the garage.

      Nobody , not even his oldest son, could convince him to keep the car out from under that tree, because , you see, SINCE IT HAD NEVER FALLEN, in the old man’s mind, it never would. ( He was REALLY old by then. )

      Fortunately he was not polishing the car when the tree fell on it.

  26. An excellent article—but as someone pointed out above, much of it we already know.
    However, what this piece fails to point out are the political consequences of the crash in US oil and gas production. This is going to be worse than the energy crash itself.
    Citizens of the United States, along with just about everyone else in the industrialised world are in denial mode right now. Everything is fine: gas pumps work and the lights are still on, what’s the problem?
    There is an absolute certainty that the energy crisis, if it should manifest itself to any meaningful degree, is merely a political problem that can be dealt with by voting the right leader into office.
    Back in 2011, in the run up to the 2012 presidential election, I wrote the following, (you’ll have to take my word for it):
    ——–
    1……It’s not the 2012 election you have to worry about, it’s 2016 or 2020.
    While a lot of us laugh at this kind of loonytoon politics, millions of desperate people don’t.

    2……Now look ahead to 2016 or 2020. We’ve already seen whack-job candidates up for election as president, luckily they were laughed out of court. In 4 or 8 years time when the economy has really collapsed, some real godnuts will surface to offer ‘solutions’ and voters will be ready to grasp at any form of insanity if it promises ‘salvation’ and restoration of ‘the American Dream’.
    ———-

    My only error was that Trump isn’t a godnut. He is however a fascist, which extreme religious type mania requires one to be.
    He promises to make America “great again” without the slightest idea of what made America great in the first place.
    He, and the millions who believe his rantings, are convinced that we live in an economy supported by endless cashflow that must of itself deliver endless prosperity. As this article makes clear, (obvious to anyone willing to think) we live in an economy dependent on endless energy flow.
    But very few do think, and the certainty persists that prosperity can be voted into office. It won’t work of course, and if by some insane twist of fate Trump got into office, his empty posturings will sow the seeds of anarchy as the nation sinks deeper into the mire of energy depletion.

    So by 2020, with Trump shown to be impotent, the next incumbent is likely to offer ever more radical solutions, and the desperate millions will vote him into office as a repeated act of desperation. The politics of 2020? Almost certainly a theocracy—nothing else will have worked by then. But prayers will not refill the oilwells either and there will be less and less energy available to hold the nation together. That makes break up inevitable, despite violent resistance to that breakup. The cracks are already there along ethnic, religious and geographic lines. Add in the inequalities of food and water production/distribution (entirely energy dependent) and you have the scenario for secession into at least 5, maybe 6 separate nation states, during the coming century, or maybe only a decade or two.

    • Fred Magyar says:

      It’s been a while since I have done any art, this is a very low rez version of a poster I created last night, it is inspired by world events!

      You can listen to this song while looking at it!
      Down by the riverside
      https://goo.gl/wIcASm

      Cheers!

      • Jef says:

        That would have made a great album (album? what the hell is that?) cover for my big hair band I had in the 80’s.

        • Caelan MacIntyre says:

          I had thought quite some time ago of doing a kind of anti-establishment experimental electronica ‘fusion’ project of stuff that borrowed from genres like industrial techno, classical, punk and whatnot, and calling it ‘Sinister Ass Scrub’ (with such endearing tunes as ‘Shred The Baby’ and ‘Live How We Dictate’). I suppose it’s still possible.

    • likbez says:

      Jef,

      “It seems to me the story here is that peak was avoided because 100s of billions in mal-investment opened up some new production and allowed expensive production to continue. In fact the true total is in the trillions when you include the global QE that was necessary because of economic collapse related to FF peak. ”

      Good point. Thank you !

      As Arthur Berman aptly said: “Shale is not a revolution, it’s a retirement party”.

      http://www.energypost.eu/interview-arthur-berman-shale-revolution-retirement-party/

      But some new technologies were also developed as they should such as continental fracking and long horizontal drilling as well as deep sea subsurface pumps, better platforms, etc), a better prediction where oil can be, which cuts the number of dry holes and allow finding small deposits.

      So there was some technological progress too out of this financing bonanza. Not all those billions of “unlimited financing bonanza” were wasted.

      IMHO it was like a mini-replay of subprime mortgages in “subprime oil” domain. When any company “with live breath” could get a loan or sell junk bonds.

      That definitely alloed the USA “prolong the agony” and postpone the next recession. But on a negative side it destroyed conservation efforts creating an SUV boom in the USA, drop of sales of EV and hybrids cars, almost completely stop of transitioning to natural gas of city public transportation (buses) and other negative for oil conservation developments.

      In this sense current dramatic drop of oil prices due to condensate glut , Saudis, Wall Street games, or whatever was a the “Last Hurrah”, just postponed facing cruel reality for, most probably, three years or so (AlexS now thinks that more then that).

      Now there are chances that oxygen will be abruptly cut to shale players.

  27. clueless says:

    The tsunami of expected bad news is starting. Freeport McMoran announced late last week that it is immediately idling all 3 of its drillships in the Gulf of Mexico. The 3 are under leases that extend into 2017 for amounts that average over $500,000 per day. They are recording a charge of about $1.5 billion IIRC. If they continued to drill with them, they said that their spend would be double that. So they are trying to conserve cash and also will be trying to negotiate amended contracts. Today Ultra Petroleum was downgraded to junk as it appears that they will not be able to meet a $62 million debt payment due in March. Restructuring ahead. Traded at $100 in 2008.

    The good news might be that 60 days from now, everyone will realize that either the oil industry is going away or that prices have to rise. By then, it should be obvious that production is going to fall significantly.

    Today, Michael Rothman [he used to be Merrill Lynch’s chief oil analyst for many years dating back to the at least the early 90’s, and who is now on his own] said that after the winter is over, it will be pretty obvious that supply and demand are in fairly close balance. His prediction – back to $85 by year end. He always was a very analytical numbers guy. He also said that once you start to see a draw in inventories, it will be a long time before they start building again.

    Today, Pickens called the $26.10 as the bottom, with a double by year end.

    In January, China had a record number of tankers under contract to fill storage. As you know, they are building an oil reserve like the US has. That should be “permanent” storage for the foreseeable future.

    I think that Ron’s call of an oil production peak for the 12 month period ending in October 2015 (?) should be good for at least four years, if not forever.

    • Patrick R says:

      See Alex’s chart on possible Mid East supply… sure above ground issues could prevent/delay much of that making it out the Straight of Hormuz, but perhaps what we’re witnessing is the end of that vain boast of US energy independence… well unless and until that great but wilful nation wakes up from the folly of oil and auto-dependence… Texas will always be the energy state, just that it won’t always be oil.

      http://oilprice.com/Energy/Energy-General/Texan-Wind-Is-Blowing-Away-The-Competition.html

    • oldfarmermac says:

      “I think that Ron’s call of an oil production peak for the 12 month period ending in October 2015 (?) should be good for at least four years, if not forever.”

      Looking at this like a man at the horse races, making his bets, it is looking more and more likely to me that Ron has called the peak correctly.

      By the time the overall world economy turns around, which might be a couple of years, or a decade, with prices going up enough to encourage new upstream capex, depletion of all the old legacy fields will have taken a big bite out of that old legacy production.

      The economy might NOT improve, the pessimists may well be right.

      As far as setting a new production record is concerned, the industry is looking like an old fighter, past his prime, trying to take back his former champion status from younger guys. Every year his chances of success are less.

    • I think that Ron’s call of an oil production peak for the 12 month period ending in October 2015 (?) should be good for at least four years, if not forever.

      Hey, I am not really all that confident about the exact months of the peak. I pick 2015 as the peak year.

      That is my prediction, 2015. The months of the peak is not a prediction, just a wild ass guess. The actual prediction I am making is 2015 will be the year C+C peaks… forever.

      • Jeju-islander says:

        The fact is you did predict the peak in advance. You did get the months correct. Predicting the peak before the price crash and the current economic uncertainty is far more impressive than doing it after the fact.

        • The price crash caught me entirely by surprise. I had not expected that at all. I simply felt that 2015 would be the peak year even if prices stayed high. I based that on the fact that so many nations were in decline in spite of very high prices.

          That and I thought every nation that was not in decline, and there were not too many of them, were producing every barrel they could, throwing billions of dollars into upstream work, to take advantage of those very high prices. And I thought that effort had almost reached its peak.

          • Javier says:

            The oil price crisis was not necessary to reach a peak oil in 2015 in my opinion. Ron could have been right even without the oil price crisis. The first response to the oil price crisis was to pump as much as possible, as economic theory predicts, to the point that producers that were not increasing their production did so, and even some countries have been able to temporarily stop their decline. So the oil price crisis has brought to the present future production of oil, while at the same time is eroding the investments needed to sustain (and increase) future production, so there is a double whammy on oil production waiting for us in the near future.

            Peak Oil could perfectly have been achieved in 2015 without the oil price crisis. The economy was starting to suffer in 2013 from the very expensive oil (start of China’s slowdown). If the mismatch between supply and demand had not taken place and oil prices continued around 100 $/b it is extremely likely that a global recession would have taken place by 2015. Unlike a price crisis, a recession reduces oil production right away, thus creating the peak.

            For the last year and half the OECD and China economies have benefited from low oil (and commodities) prices, yet despite that they are in a very weak state.

            The future of oil production is bleak. Everything that is being done is going to increase the decline rate of current production while there is going to be a huge deficit in new production due to funding cuts. While many people that see this situation are predicting high oil prices, they forget that to have high prices you need a well functioning economy to pay those prices. And you don’t have a well functioning economy in the midst of an oil reduction.

    • Ok, so it was 30, and this guru says 85 by year end. That’s 85+30 or 115 divided by two or $57.50….

      My crappy excel model said “$65 average over the next 12 months, more or less”.

      Lesson: the oil price is so hard to forecast you might as well have a monkey throw mango seeds at buckets and use the mango distribution to feed a computer to estimate prices.

  28. Hey, great article on the EIA. Revising the Past – US Oil Production Data

    This article is based on the EIA’s Monthly Energy Review which was released on 27th January and which states November 2015 production was 9,181,000 bbls/day. Oddly, the Petroleum & Other Liquids monthly data which was released on 29th January says November 2015 production was 9,318,000 bbls/day. Which one is the one the EIA intend us to use?

    As I have said before the US Energy Information Agency (the EIA) has a thankless task, compiling data from thousands of oilfields and operators to come up with an estimate of how much oil the USA actually produces. Some data is timely and accurate, Alaska is a case in point, some, not so much.

    So every month as well as giving us a new estimate for the month just passed, we get revisions of the historic data. It is instructive to take a look at that data to see how far off the early estimates were. Big revisions are a sign of a dislocation in the system, a sign that the old rules of thumb aren’t working any more. The EIA has suffered from this phenomenon on the way up, as US shale output outstripped any reasonable estimates of how it might perform; and now on the way down, as somehow the whole US oil industry did a passable impersonation of Wile E. Coyote, well beyond the edge of the cliff but somehow defying gravity.

     photo EIA Estimates_zpsacmet2gx.jpg

    • AlexS says:

      Monthly Energy Review data for November and December is forecast.
      MER data for the most recent 2 month has never been reliable.
      By contrast, Petroleum Supply Monthly numbers released on January 29th are more correct, in my view.
      There were some revisions compared with the previous PSM: September 2015 -11 kb/d;
      October 2015 +23 kb/d.
      The data for November was only -2 kb/d compared with the January STEO estimate.
      In general, the EIA has been making mostly upwards revisions for 2015 C+C production

  29. AlexS says:

    Shale Oil Production in Bakken, Eagle Ford Little Changed in December: Platts Bentek
    Year Over Year, Output from These Two Prolific Shale Plays Fell More Than 6% from December 2014

    Thursday, January 28, 2016
    http://www.oilvoice.com/n/Shale-Oil-Production-in-Bakken-Eagle-Ford-Little-Changed-in-December-Platts-Bentek/459c3fe97203.aspx

    Oil production from key shale formations in North Dakota and Texas dropped slightly in December versus November, according to Platts Bentek, an analytics and forecasting unit of Platts, a leading global provider of energy, petrochemicals, metals and agriculture information.

    Oil production from the Eagle Ford was relatively unchanged in December, increasing about 11,000 barrels per day (b/d), or less than 1%, versus the previous month, the latest analysis showed. This marks the first time since March 2015 that the Eagle Ford shale did not decline. Conversely, crude oil production in the North Dakota section of the Bakken shale formation of the Williston Basin dipped by less than 1% month over month in December, or about 9,000 b/d, continuing the trend of marginal decline that began in the summer.

    The average oil production from the Eagle Ford basin in December was 1.5 million barrels per day. On a year-over-year basis, that is down about 7%, or about 110,000 barrels per day, from December 2014, according to Sami Yahya, Platts Bentek energy analyst. The average crude oil production from the North Dakota section of the Bakken in November was 1.2 million b/d, about 6% lower than year ago levels.

    ‘The small increase in crude production in the Eagle Ford shale is attributed to a slight resurgence in drilling activity in the region,’ said Yahya. ‘In December, the number of active rigs in the Eagle Ford reached 80, an increase of five rigs over the previous month. The brief rebound of active rigs is likely due to producers balancing their drilling programs and budgets for the fourth quarter and meeting their goals for wells drilled for the year.’

    Recapping the year-on-year production drop in the Eagle Ford shale, Yahya emphasized the importance of efficiency gains realized in 2015. Back in January of 2015, the Eagle Ford shale utilized over 200 rigs, while now, in January of 2016, the number of active rigs shrunk to under 70 rigs, a drop of over 65%. And yet, production did not meet a similar fate. Producers back in January of 2015 could drill less than two wells per rig per month, compared to nearly three wells per month currently.

    ‘It is survival of the fittest: the best and most efficient rigs and crews remain standing on the field,’ Yahya noted. ‘The number of active rigs in the Bakken shale formation of the Williston Basin went from nearly 150 rigs in early 2015 to around 50 rigs currently. At the same time, producers were able to increase their drilling rates from about 1.5 wells per rig per month to about 2.2 wells per rig per month.’

    However, Yahya explained that going forward, crude production would need more than just efficiency gains to grow.

    ‘Last year, optimization and hedging programs helped production stay largely afloat. But unless the pricing of the oil barrel improve, producers are in for a difficult year ahead. Based on latest Platts Bentek forecast data, both the Eagle Ford and the Bakken shales are expected to continue declining throughout most of the year. Certainly, the availability of wells in backlog inventory where drilling cost is already sunk would be a helpful factor in partially sustaining production volumes in both shales.’

    ‘If prices remain sub-$40/barrel and producers are unable to further bring down completion costs, then they might defer completions until the pricing market makes a comeback,’ said Yahya.

    Platts Bentek analysis shows that from November 2014 to November 2015, total U.S. crude oil production has increased by about 265,000 b/d.
    —————————————-
    It is interesting to compare Bentek data with the latest EIA Drilling productivity report.
    According to Bentek, oil production from the Eagle Ford increased 11kb/d versus the previous month.
    According to the DPR, it declined 71 kb/d.

    Bentek: “The average oil production from the Eagle Ford in December was 1.5 million barrels per day. On a year-over-year basis, that is down about 7%, or about 110,000 barrels per day, from December 2014.

    EIA DPR: The average oil production from the Eagle Ford in December was 1.29 mb/d. That is down 22,4%, or 374 kb/d, from December 2014.

    According to Bentek, “crude oil production in the North Dakota section of the Bakken shale formation of the Williston Basin dipped by less than 1% month over month in December, or about 9,000 b/d”

    According to the EIA DPR, the decline in the Bakken was 19 kb/d .
    The y-o-y decline, according to bentek was 6% vs. 9.6% in the EIA DPR statistics.

  30. Skeboo says:

    Hey Ron,

    Have you ever published a table or an article summarizing the evolution of US (C+C) CONVENTIONAL oil production since 2000 (or even since the 60s)?
    Just to be able to see the decline and its pace…

    • Naw, if I had easy access to the data I would but I don’t. The EIA doesn’t separate conventional from non-conventional. Anyway, the peak doesn’t matter. Peak oil will be when both conventional and non-conventional peaks.

  31. clueless says:

    Way off topic! But, kind of funny?? Ron, delete ASAP as you see fit.

    http://www.infowars.com/video-hillary-supporters-endorse-karl-marx-for-vp/

    • Clueless, it is a bullshit article. It just shows that the average voter in the street is really stupid and hasn’t a clue as to what the hell is going on. It could have been Trump supporters, or Cruz supporters or whomever. They would all have said that some clutz that died 130 years ago would be welcome on the ticket. The fact that it was Clinton supporters is entirely beside the point.

      If I had been a reporter wanting to discredit Trump, or whomever, I could have asked similar questions of his supporters and got similar answers.

      • likbez says:

        Ron,

        Can you please look at your spam filter. Looks like it junked a couple of my posts.

      • clueless says:

        Ron – I COMPLETELY agree with you! The reason I posted it was just to show what the world is dealing with. In fact I almost added a comment just like yours, but I thought no, everyone will recognize that.

  32. Jef says:

    It seems to me the story here is that peak was avoided because 100s of billions in mal-investment opened up some new production and allowed expensive production to continue. In fact the true total is in the trillions when you include the global QE that was necessary because of economic collapse related to FF peak.

    ALL the optimist here seem to ignore this fact and believe that high prices will get things going again and the march toward global growth will resume, “renewables” will ramp up and the transition will occur.

    Can anyone flesh out this fantasy world a bit more? How does a more expensive everything world translate to an economy that can thrive and in fact transition? There is simply no historical precedent for this and indeed the physical world guarantees it can’t happen. Has everyone just read too many sic-fi novels and are unable to see things any other way?

    More likely is massive deflation where everything doesn’t get more expensive. In fact it gets less expensive but no one can afford it. How in this kind of reality does everything just cruz along and eventually transition? None of you flesh this out in any realistic way that holds water.

    • likbez says:

      Jef,

      “It seems to me the story here is that peak was avoided because 100s of billions in mal-investment opened up some new production and allowed expensive production to continue. In fact the true total is in the trillions when you include the global QE that was necessary because of economic collapse related to FF peak. ”

      Good point. Thank you !

      As Arthur Berman aptly said: “Shale is not a revolution, it’s a retirement party”.

      http://www.energypost.eu/interview-arthur-berman-shale-revolution-retirement-party/

      But some new technologies were also developed as they should such as continental fracking and long horizontal drilling as well as deep sea subsurface pumps, better platforms, etc), a better prediction where oil can be, which cuts the number of dry holes and allow finding small deposits.

      So there was some technological progress too out of this financing bonanza. Not all those billions of “unlimited financing bonanza” were wasted.

      IMHO it was like a mini-replay of subprime mortgages in “subprime oil” domain. When any company “with live breath” could get a loan or sell junk bonds.

      That definitely alloed the USA “prolong the agony” and postpone the next recession. But on a negative side it destroyed conservation efforts creating an SUV boom in the USA, drop of sales of EV and hybrids cars, almost completely stop of transitioning to natural gas of city public transportation (buses) and other negative for oil conservation developments.

      In this sense current dramatic drop of oil prices due to condensate glut , Saudis, Wall Street games, or whatever was a the “Last Hurrah”, just postponed facing cruel reality for, most probably, three years or so (AlexS now thinks that more then that).

      Now there are chances that oxygen will be abruptly cut to shale players.

    • Stilgar Wilcox says:

      “None of you flesh this out in any realistic way that holds water.”

      That’s because there is no way to realistically flesh it out. Good post, Jef.

    • oldfarmermac says:

      Jeff makes his points well, in rhetorical terms, at least.

      He may well be RIGHT, high prices are NOT necessarily going to get oil production up, at least not much and not over the long term. The world MAY go to hell in a hand basket. I believe it will, myself, most of it, later if not sooner, but not just yet.

      Now when he argues that there is no historical precedent, this is either true , or not true, depending on the parameters of the argument.

      There is PLENTY of evidence that game changing transitions HAVE happened .

      There is none that I find REALLY convincing that yet another CANNOT come about, meaning a transition to an economy based to a great extent on renewable energy, within the next couple of decades, while fossil fuels are still abundant, and mostly or almost entirely on renewable energy over the next half century or so after that.

      The world is NOT going to simply run out of ANY fossil fuel, abruptly, although the price of them CAN shoot thru the roof abruptly.

      It’s not just that renewables technologies are just now getting to the point of wearing LONG PANTS, and tieing their OWN shoes, and maybe walking out to get on the school bus WITHOUT MOMMY.

      It is also that there is PLENTY of room to at least DOUBLE the efficiency with which we use energy, taken all the way around, and TONS of room after that to simply change the way we live, ELIMINATING the need for huge quantities of energy.

      I am struggling mightily to compose an epic poem about the nature of the WONDERFUL,WONDERFUL MARKET AND THE INVINCIBLE INVISIBLE HAND, which will make me famous, for five minutes anyway, if I succeed.

      People who are pessimists when it comes to adaptation are just BLIND to the ability of people to change their ways over the space of a generation, or maybe two generations.

      The surviving members of my parent’s generation of my family are nearly all either hopeless sinners or Bible thumpers who believe they are going to Heaven. My generation has basically retained the trappings of serious religion, but pays it about half as much mind as our parents. The children, well the kids who are now approaching middle age go to church for Sunday school, and then go out to eat or shop, or to work, having forgotten the rule book within ten feet of the church door.

      The grand kids go to churh if they are small enough they have to attend along with their parents, and for weddings and funerals, otherwise, fuggeabout it.

      In the space of ONE generation, the family mostly abandoned the deep country farm lifestyle way of living, taking up the commute and punching the time clock.That’s MY generation, incidentally.

      The kids are not at all interested in country life, except as it allows them to live with plenty of space around them, and go hunting and fishing, and have some affordable privacy, etc.

      The grand kids, the ones with brains, have departed for the professional urban lifestyle. The only time they will ever even SEE the farm is if they come when it is auctioned off, when the old folks finally die.

      You can buy a car today that will take you forty miles , on wind and solar power, and then another three hundred, on the odd day you NEED to go three hundred, for no more than the price of the same sort of cars kids used to buy as status symbols, Mustangs and Camaros.

      And for the price of a tricked out Cadillac, or fully tricked out pickup truck , you can buy a land yacht Tesla that will haul the whole family and all the luggage needed to take that trip-AND EAT an ordinary Mustang or Camaro at the drag strip. WITHOUT burning a hundred bucks off the tires.

      The first portable transistor radios I saw cost a farm hand a weeks pay, and were not a whole lot smaller than an ordinary brick. Today I can buy one that works ten times better for a tenth of the price, in real laborer’s wages, and gets fifty times the battery life, that will fit behind and plug in my ear.

      Success is NOT assured. The whole world , and BAU are not going to survive and transition to a renewables economy.

      But there is a real possibility SOME of our descendants will survive and manage the transition.

      • There is a serious problem with your argument Mac. The world is ALREADY is serious ecological decline. I am not going to quote another liturgy of of god awful things that are happening to the world. I have done that so many times that I tire of it. But you know very well what I am talking about.

        The continuation of business as usual just insures that things will keep getting worse. But the collapse of BAU would, very suddenly, make things horribly worse.

        • oldfarmermac says:

          Hi Ron,

          Yer preaching to a regular member o th’ choir telling ME the world is already in serious decline. LOL

          I’m preaching the new gospel of ecological salvation, whereby IF we believe, and pull together, and keep the faith, and live by all the other old cliches about hard work and sacrifice, etc etc, SOME of us might pull thru and avoid going to Hell, winding up rather in a new sort of Heaven on Earth, albeit a very MODEST sort of heaven.

          Really about the only REAL difference between us is that you think we are ALL going to hell in a hand basket, and that in the process of doing so, we are going to take enough of the biosphere with us that it cannot recover sufficiently to support any human survivors comfortably, whereas I believe there is a possibility all is not lost.

          First off, while it is true that the ecological situation is bad, and getting worse, it IS getting better, in some respects, at least, in a lot of places.

          It seems very possible to me that we will mostly finish OURSELVES off, in practical terms, BEFORE we disrupt the environment beyond all hope.

          Biological overshoot is the name of the game, already, for humanity, and I always point out that I believe most of us will die a hard death before this century is out, with the population crashing hard.

          The people in position to survive are going to be the best educated, wealthiest, the best situated in terms of resources, geography, military power, etc.

          IF we make it here in the USA, for another forty years or so, with the example of many countries collapsing before us, day after day, we ARE collectively smart enough to take notice, and do things differently, so as to save ourselves, if we can.

          Success is not guaranteed, but failure IS, if we insist failure is inevitable, because we won’t have our hearts in the fight.

          Maybe you are right, maybe it IS already TOO LATE for even a small portion of our kind to transition to a new generation business as usual lite, meaning an economy based on low population, low energy consumption per capita, very high rates of recycling critical materials, etc.

          At one time I believed the same , but renewables have come on so fast, and birth rates have dropped so fast, etc, that I would have LAUGHED at any body predicting the magnitude of these changes a decade or two ago.

          Consequently I am now cautiously hopeful that we have at least a slim shot at managing a transition to a new model bau.

          A FEW OF US, anyway.

    • Dennis Coyne says:

      Hi Jef,

      The Global financial crisis resulted from a real estate bubble due to poor banking regulation and poor lending practices, not because of high oil prices.

      The World economy grew from 2011 to 2013 while oil prices were high, so your assumption that the World cannot afford high oil prices is incorrect.

      The QE done by World governments is a non issue, mostly it has been a failure as a policy and the lack of any fiscal stimulus from the European Union and too small a fiscal stimulus in the US is the reason that global growth has not been more robust.

      High oil prices was the reason that expensive oil reserves were developed, at low oil prices it looks like malinvestment, but very few were predicting oil prices at $30/b in 2016 a few years ago. Maugeri was suggesting a possible drop in price to less than $50/b (though the impression was an expectation of $45 to$50/b rather than $30/b). His expectation was that new supply from the US, Iraq, and Brazil which would come online between 2016 an 2020 would keep oil prices between $60 and $80 per barrel.

      In any case, inflation was not very high when oil was $100/b and currently wind and energy is competitive with coal and natural gas in many places (Great plains for wind, and much of the US for solar especially the Southwest at present).

      Maugeri paper

      http://belfercenter.ksg.harvard.edu/publication/22144/oil.html

      https://emp.lbl.gov/sites/all/files/lbnl-6809e_ppt.pdf

      Page 55 of DOE presentation above shows how competitive Wind power is with natural gas (which is currently cheaper than coal for electric power in the US).

      For utility scale solar PV see fig 15 on page 29 of report at link below:

      https://emp.lbl.gov/sites/all/files/lbnl-1000917.pdf

      Solar average power purchase agreement (PPA) falls to $50 MWhr (or 5 cents per kWhr for solar) in 2015.

      Note that costs have fallen by a factor of 2.5 ($125/MWhr) since 2009. Also fig 17 on page 35 is of interest.

      So we would expect as renewables ramp up energy prices will be reduced especially relative to natural gas and coal fired power which will rise in price as the fuels deplete.

      Also note that the installation of these new facilities creates jobs, the build out of all new technologies needed for a transition will create jobs.

      Also note that the EROEI of wind and solar are better than many of the more expensive oil and natural gas resources (those with the highest marginal cost). So moving to wind and solar creates more surplus energy relative to LTO, tar sands, and shale gas.

  33. likbez says:

    The article is weak and one-sided, but some facts (or more correctly fuzzy estimates) are interesting
    http://oilprice.com/Energy/Energy-General/Russia-Cries-Dyadya-Uncle-Is-Saudi-Arabia-Listening.html

    == quote ==

    …in the key Soviet-era fields in western Siberia, the annual rate of depletion is averaging 8 percent to 11 percent, while new projects are being curtailed.

    …According to the Telegraph [ article by Ambrose Evans-Pritchard ( 14 Jan 2016)], Transneft, the Russian crude and product pipeline monopoly, estimated that Russian crude exports could decrease in 2016 by some 460,000 barrels per day, based on producer applications for pipeline capacity. (http://www.telegraph.co.uk/finance/economics/12100609/Glimmers-of-hope-for-oil-as-Russia-poised-to-slash-output.html )

    • Patrick R says:

      I have long thought that if Russian or Saudi output were heading for a fall the first we would hear of it is an announcement of a decision to do just that; nothing out of their control is likely to be admitted. Additionally, in Putin’s case, if facing a drop in production then why not try to get some value from it like a pact with the KSA to ‘manage’ decline… I feel the wiley heads in the KSA will assume this is the case and refuse to buy that offer. Wait out for a Russian decline instead along with a Shale one. Oh happy day in the dunes!

      • likbez says:

        “Wait out for a Russian decline instead along with a Shale one”

        I am not sure that Russian production is headed for a fall in 2016, despite some early estimates with some as big as 0.5Mb/d, as Russian producers are partially isolated from negative effects of oil price slump by currency depreciation and Russian tax system.

        But Russia definitely can participate in OPEC production cut, if any.

  34. New projects have been frozen and output from the Soviet-era fields in western Siberia is depleting at an average rate of 8pc to 11pc each year. Russia’s deputy finance minister, Maxim Oreshkin, told news agency TASS that the oil price crash could lead to “hard and fast closures in coming months”.

    And this is where over 60 percent of Russian oil production is coming from.

    Who remembers Don Meredith on Monday Night Football when the outcome of the game was a foregone conclusion? “Turn out the lights, the party’s over. The time for all good things must end.”

    • likbez says:

      Ron,

      “Turn out the lights, the party’s over. The time for all good things must end.”

      That’s good !!! A very apt quote taking into account the current situation. If Russia production drops that much the game is over for “glut lovers”, so to speak. Among top ten exporters, Russia is probably the best prepared country for the drop of oil prices and if it experiences such pain then wheels will come off in weaker countries, if prices remain low. No question about it.

      Thank you !

      • If the Russian economy really starts going down the pan, the danger is that Putin will do what all beleaguered despots do, thrust outward to divert the attention of the people—i.e.— blame their misfortune on somebody else.

        • It’s actually a song by Willie Nelson. Back in the early days of Monday Night Football Don Meredith, ex Dallas Cowboys quarterback, used to sing it near the end of the game when one team was so far ahead there would be no way the other team could catch up.

      • It’s actually a song by Willie Nelson. Back in the early days of Monday Night Football Don Meredith, ex Dallas Cowboys quarterback, used to sing it near the end of the game when one team was so far ahead there would be no way the other team could catch up.

        I got the words of the second line slightly wrong.

  35. AlexS says:

    Russian oil output hits high in January amid OPEC deal speculation

    http://af.reuters.com/article/commoditiesNews/idAFL8N15H0JL

    MOSCOW, Feb 2 (Reuters) – Oil production in Russia hit a post-Soviet high in January, reaching an average of 10.88 million barrels per day (bpd), preliminary data released by the Energy Ministry showed on Tuesday.
    ————————————
    My comment:
    At 7.3 barrels / ton ratio, production in January was 10,834 kb/d vs. 10,76o kb/d (revised) in December 2015 and 10,613 in January 2015 (year-on-year increase of 2.1%)

    Russian crude and condensate production (mb/d)
    source: Russian Energy Ministry

    • Daniel says:

      wasn’t the original December volume also ±1.83 kb/d? Scaling in your chart makes the 0,6% increase look very dramatic 🙂

    • AlexS says:

      Two new mid-sized fields came onstream, one in December and one in January
      Several new field start-ups are expected for 2016, including a relatively large Filanovskogo project in Northern Caspian.

      The numbers in tons (as stated in Ministry’s report and in b/d)
      (sorry, the last column is January 2016)

      • Dennis Coyne says:

        Hi AlexS,

        Is the Russian energy ministry projecting a big increase for 2016 or relatively flat output?

        Thanks for the updates, you are awesome.

        • AlexS says:

          Dennis,

          They are forecasting flat output this year and potentially a slight decline in 2017

    • Watcher says:

      Voila.

      People are going to have to wrap their minds around reality. Production doesn’t have to fall because of price — especially in locales with total government control.

      We’re going on 2 yrs since the price decline began, what . . . about 20 months ago? Just how long is that long run we’re supposed to be waiting for to see sharp production decline?

      • oldfarmermac says:

        Watcher is talking his usual magical cow patty economics when he says production does not have to fall because of low prices, EVEN in the case of government controlled production.

        If he had inserted a qualifier, such as “short term” he would have a pretty good case.

        But there are to my knowledge no oil producing countries with sufficient economic clout, meaning other productive industry and commerce OTHER than oil production, to subsidize money losing oil production long term, or even medium term. Even the ultra uber rich House of Saud will be broke within four or five years producing oil at today’s prices.

        In any case, a subsidized price is a bullshit concept, from a realistic pov, to begin with. Whatever one consumer gets cheap comes as the result of some other consumer paying more for something else. The REAL PRICE is the selling price plus the subsidy.

        Can anybody think of a country that is actually apparently generating significant NET income, adequate to maintain investment, etc , at current oil prices?

        I do not believe such a country actually exists, although a couple , Saudi Arabia, might come pretty close. But the super giant Saudi fields are depleting , noticeably, and will deplete even faster as time goes on. If the Saudis don’t invest a lot of money in new production, they are going to go broke within the easily foreseeable future at current prices.

      • likbez says:

        Watcher,

        “Just how long is that long run we’re supposed to be waiting for to see sharp production decline?”

        Russian Rosneft is in trouble partially due to incompetence on the leadership level.
        http://www.bloomberg.com/news/articles/2015-03-13/putin-said-to-blame-energy-chief-sechin-after-rosneft-missteps

        Estimates of decline are varied from none to 0.5Mb/d, but when it can start and how sharp it will be is anybody guess.

        I think it will not be sharp as Russian producers are partially isolated from oil price slump by the currency depreciation and long term contracts that they typically use.

        But Russians might participate in a joint action with OPEC, if such materialize (saving the scalp of the USA shale producers as a side effect):
        http://www.oilvoice.com/n/Russian-Position-Moving-But-Deal-Still-Unlikely/20b76a123b12.aspx?src=sideslides
        == quote ==
        The economics of Russian production provide a glimpse of how painful current prices are. According to ESAI Energy’s analysis in the accompanying chart, when the Urals price is $30 per barrel, a producer’s net revenue after paying the crude export duty and Mineral Extraction tax is $17. But since their costs are paid in rubles, the value of which has plummeted, lifting costs and pipeline transport from West Siberia are roughly $8 per barrel. These numbers indicate Russian producers can withstand prices as low as even $20 per barrel without them having a significant impact on production in 2016. That said, oil companies like Lukoil and Rosneft, which together account for 5.5 million b/d of Russian production, might participate in production limits were the Putin regime to pursue them.

        • Watcher says:

          Putin has no reason to help US shale. In fact, given sanctions, he has every reason to do his utmost to damage or destroy it, which can be managed by selling oil at $29 regardless of higher bids.

  36. islandboy says:

    EIA: Natural gas topped coal for fifth consecutive month in November

    Before 2015, natural gas generation had never surpassed coal, but it did so last year in April, July, August, September, October and, now, November. Data for December will be available in about a month. Overall generation has fallen since the summer, declining from more than 400,000 GWh in July to about 300,000 GWh in November.

    There are indications the U.S. is moving away from coal. EIA said coal production last year was estimated to decline by 92 MMst, with the production declines occurring in all regions (led by the Appalachian region, with a 12% production decline). And carbon regulations under the Clean Power Plan, finalized last year, would make it nearly impossible to build new coal generation facilities without expensive pollution controls if the rules are not overturned in court.

    I’ve been meaning to post this since Sunday but, had some stuff to do. It echoes what I posted after the EIA’s most recent Electric Power Monthly came out. NG consumption for electricity generation is coming on strong, just as production is beginning to collapse due to the extremely ow prices that, have driven the increased consumption. Classic!

    It would be of academic interest only for me, were it not for the fact that my small island nation is hedging it’s bets on (L)NG.

    JPS begins J$2.7b Bogue plant conversion

    The project to convert the Bogue power plant in Montego Bay to operate on liquefied natural gas (LNG) kicked off two weeks ago.

    Jamaica Public Service Company said on its website that it is investing US$22.74 million or about $2.7 billion in the conversion, a job hired out to General Electric.

    On completion, the plant will be able to operate on either LNG or its current fuel source, automotive diesel oil.

    Work began at Bogue on January 11 with the removal of a gas turbine and heat recovery steam generator from service, clearing the way for GE to start installing equipment…..[snip]

    “Improvement in air quality is an essential outcome of this project. Gas provides an avenue for clean energy that is not intermittent and is available at night when our peak load challenges us. These benefits cannot be overstated,” said JPS President and Chief Executive Officer Kelly Tomblin. Gas will be supplied to the Bogue plant by New Fortress Energy, which began developing its terminal and pipeline at the Montego Freeport at the end of last year. JPS has no stake in that project.

    New Fortress will run its pipelines to the Bogue plant.

    U.S. LNG Replacing Diesel at Jamaica Power Plant”

    New Fortress Energy is part of Fortress Investment Group and supplies energy, logistical services and financing to end-users seeking to convert their operating assets from diesel or heavy fuel oil to natural gas.

    Fortress Investment affiliate American LNG Marketing LLC was recently granted U.S. Department of Energy (DOE) authorization to export containerized U.S. LNG to non-FTA countries, including Jamaica (see Daily GPI, Aug. 7). American LNG is developing LNG liquefaction facilities in Florida with the product intended for containerized export.

    “This agreement opens the door to a new era of energy diversity and independence for Jamaica and its citizens, enabling the region to benefit from cost-effective, stable supplies of U.S. natural gas,” said Fortress Investment founder Wes Edens. “Our vision extends far beyond Bogue. This will be the catalyst to establish Jamaica as an energy hub for the Caribbean and Latin America. Jamaica’s the ideal location to execute on this vision, and we intend to invest significantly in energy, port and logistics infrastructure on the island.”

    Bold mine. Now, isn’t that just dandy!

  37. oldfarmermac says:

    A political revolution is brewing in the USA.

    As I see it, tens of millions of democrats who will never say so publicly are damned eager to vote for anybody OTHER than a republican or HRC, and they may get their wish.

    For all intents and purpose’s, Bernie’s ragged little partisan band just mopped the floor with the mighty Democratic party establishment. This was not even a David and Goliath contest six months ago, it was more of a Goliath steps on a bug sort of thing.

    In my estimation, Trump’s amazing popularity is the mirror image, but on the opposition side of the contest, of Sander’s amazing popularity.

    I don’t think Trump can win a national election, unless the Democrats really blow it, and run a miserable campaign, in the event he gets the nomination-IF he gets it. The party establishment is going to do everything in it’s power to deny it to him. The Democratic Party establishment is going to do every thing in its power to make sure HRC wins.

    HRC is an old line, old time machine type politician, as good as they come, bar none, viewed from that perspective, and she OWNS the Democratic party machine.( This is not to say her POLICIES if elected will align with old line Democratic party machine politics, but my estimate is that would be the case. )

    Hence the game is RIGGED in terms of her winning the nomination, every thing else held even remotely equal, rather than Sanders winning.

    Sanders on the other hand owns the hearts of the young people, and that tells us all we need to know about where the country is heading. I have long maintained that demographics virtually guarantee the USA will gradually evolve to very closely resemble the larger Western European countries, politically.

    Sanders and Trump have at least one thing in common. Both of them have to win not only the voters loyalties, but also somehow defeat the party machine folk that would rather they fade away.

    My generation is on its way OUT, fading away FAST. With the economy changing in ways that make it hard to impossible for people to believe in the American Dream these days, and in future days, more and more people are going to see things in an us versus them light, and most of the people are going to conclude that the DREAM is morphing into a night mare.

    Liberal pundits have been going around for decades, poking fun at working class conservatives for believing in the Dream, asking rhetorically why they vote against their own interests.

    But in actual fact, until recently, most people who really WORKED at it, living modestly short term in order to do better long term, were successful in achieving the Dream, a home of their own, a nice car, kids off to university, etc.

    Times have changed, and it looks as if the typical working class man or woman on the street is gradually coming to realize the Dream is morphing into a daydream, for them.

    These people are getting to be sick and tired of spending a weeks take home pay in exchange for forty minutes of a dentist’s time.

    Lissenup, boys and girls.

    Working class people prefer believe in the DREAM, and struggle to JOIN the economic middle class, so long as they believe it is possible for them to do so. Joining has been a realistic goal for the last century or so, for the most part, barring bad luck.

    BUT if joining is OUT, LICKING them is the next best option. Working class conservatives are going to be joining up with the Bernie’s , maybe not enough of them this time around for him to get the nomination and the WH, but long term, that’s where we are headed.

    • likbez says:

      OFM,

      “Working class conservatives are going to be joining up with the Bernie’s , maybe not enough of them this time around for him to get the nomination and the WH, but long term, that’s where we are headed. “

      This is tough call. The party machine is strongly against Sanders. Do you think Hillary won primaries (by 6 coin tosses that all went in her favor ;-). It’s GS who won the primaries. Hillary is just a puppet.

      • Toolpush says:

        Likbez,

        When I heard about the coin tosses, and Hilary winning them all, it reminded me of one of Rockman’s stories.

        The prof asks, if a coin is tossed 30 times and it comes up heads 30 times. What is the chances of the 31st toss coming up heads?

        Standard probability theory, would say 50%.

        The Prof answerd 100% heads, as it is obviously a two headed coin!

      • It’s GS who won the primaries. Hillary is just a puppet.

        But of course, Hillary picks up the phone every morning and gets her marching orders from Goldman Sachs.

        The party machine? And I guess GS is the head of the Democratic Party machine? Who runs the Republican Party machine? Is Cruz just a puppet also?

        The idea that the Democratic Party is a machine run by Goldman Sachs has to be the wildest conspiracy theory I have heard in a long while. Damn, how did you ever manage to dream that one up?

        • Hickory says:

          The one (and only) thing I love about the current top 3 leaders of the politic race is that we have a women, a hispanic and a jew. Diversity is strength, if it is respected, tolerated and celebrated.

        • Jimmy says:

          I wouldn’t say GS runs both parties but it seems to me that within the American political frmework there is no way to vote against the interests of Wall Street or GS.

        • likbez says:

          Ron,

          “The idea that the Democratic Party is a machine run by Goldman Sachs has to be the wildest conspiracy theory I have heard in a long while. Damn, how did you ever manage to dream that one up?”

          I would be proud if I can claim this, but unfortunately no :-).
          When GS paid Hillary $200K for a single one hour speech it did it as an investment in a particular puppet, not out of generosity.
          http://www.zerohedge.com/news/2015-04-28/goldman-paid-bill-clinton-200k-lobbying-hillary-export-import-bank

          We all live under neoliberalism even if not everybody understand that term and its meaning. It’s like in Molière comedy Tartuffe the hero did not know that he spoke prose all his life.

          Simplifying

          neoliberalism == rule of financial oligarchy.

          As senator Dick Durbin aptly quipped about US Congress “Banks frankly own the place”.

          See, for example:
          https://idealistsoul.wordpress.com/2015/11/19/neoliberalism-introduction/

          and

          http://softpanorama.org/Skeptics/Political_skeptic/Neoliberalism/index.shtml

          • I would be proud if I can claim this, but unfortunately no :-).
            When GS paid Hillary $200K for a single one hour speech it did it as an investment in a particular puppet, not out of generosity.

            $200K? Are you shitting me? Goddammit man, get real. Learn a little perspective. Good grief man, you have to know better than that.

            Politicians, or ex politicians, are paid every day for their speeches. And in this case, it was a very small fee. And this makes you believe she was a puppet? Geeezee!

            EDIT: Politicians are allowed to make speeches for money as long as the proceeds go to their reelection campaign fund, not to their private bank account. Ex politicians are under no such restrictions. Bill Clinton and George Bush have often made speeches with fees that were often well above one million dollars per speech.

  38. oldfarmermac says:

    Techno optimists are going to LOVE this.

    Any reasonably open minded old fogey type will likely get a good laugh out of it .

    http://www.newyorker.com/humor/daily-shouts/a-self-driving-cars-drivers-ed-test

  39. Crude oil peaked ~2005: ExxonMobil

    David Hagen has posted a great commentary on ExxonMobil’s The Outlook for Energy: A View to 2040

    ExxonMobil released its 2016 Outlook for Energy: A View to 2040. Buried on page 62, its Liquids Outlook by Type clearly shows conventional crude oil (“Crude + Condensate”) peaked about 2005. Global conventional oil (“Crude + Condensate”) declines through 2040. ExxonMobil asserts “Growth comes mostly from non-conventional supply” but actually shows declining conventional supply – even after including “Deepwater” production. Only increasing use of higher priced Nonconventional hydrocarbons shows some global growth – but much lower than historical growth. Only by adding Bitumen (aka “Oil Sands”),”tight oil”, natural gas liquids (NGL), “other” and biofuels does ExxonMobil project about 20% total growth over 25 years (from the current 93 million bbl/day to about 112 million bbl/day.)

     photo Peak 2005_zpsiacglezx.jpg

    I think ExxonMobil’s estimate of future tight oil production is way overly optimistic. But not nearly as overly optimistic as their estimate of “new conventional crude and condensate development”.

    • Jeffrey J. Brown says:

      Here’s a somewhat different approach to my attempts, using available data, to differentiate between actual crude oil, generally defined as 45 API Gravity and lower crude oil, from condensate, generally defined as Crude + Condensate (C+C) with an API Gravity greater than 45.

      Since condensate, like Natural Gas Liquids (NGL), is a byproduct of natural gas production, it occurred to me that what is important is the estimated condensate yield per BCF of global dry natural gas production.

      US & OPEC 12 Condensate Production Estimates as Indicators of Global Condensate Production, 2005 to 2014

      Natural Gas Data

      US Natural Gas Production (BP):
      2005: 50 BCF/day
      2014: 71 BCF/day

      OPEC 12 Natural Gas Production (BP):
      2005: 42 BCF/day
      2014: 68 BCF/day

      US + OPEC 12 Natural Gas Production (BP):
      2005: 92 BCF/day
      2014: 139 BCFday

      Global Natural Gas Production (BP):
      2005: 270 BCF/day
      2014: 335 BCF/day

      Condensate Data & Estimates

      Implied OPEC 12 Condensate Production
      (EIA OPEC 12 C+C less OPEC Crude Only)
      2005: 1.2 million bpd
      2014: 2.4 million bpd

      Estimated US Condensate Production (45+ API Gravity C+C Production)
      2005: 0.5 million bpd
      2014: 1.7 million bpd
      (EIA puts US Lower 48 45+ API C+C production at 2 million bpd in 2015, and they estimated that US 45+ API Gravity C+C production increased by about one million bpd from 2011 to 2014)

      Implied OPEC 12 Condensate + Estimated US Condensate Production
      2005: 1.7 million bpd
      2014: 4.1 million bpd

      OPEC 12 + US Condensate Estimates Per BCF of Dry Gas Production
      2005: 18,000 barrels/BCF
      2014: 29,000 barrels/BCF
      (In terms of gallons of condensate per MCF of dry gas, it would be 0.8 gallons/MCF in 2005, rising to 1.2 gallons per MCF in 2014, if my math is correct.)

      Condensate, like natural gas liquids, is a byproduct of natural gas production. The US and OPEC 12 countries accounted for 41% of global dry gas production in 2014.

      If US + OPEC 12 estimated condensate production numbers per BCF of dry gas production from 2005 to 2014 are approximately indicative of world trends, estimated global condensate production in 2005 would be 4.9 million bpd (rounded off to 5 million bpd), and estimated global condensate production in 2014 would be 9.7 million bpd (rounded off to 10 million bpd), an estimated increase of about 5 million bpd in global condensate production from 2005 to 2014.

      Note that the increase in global C+C production from 2005 to 2014 was 4 million bpd (74 to 78 million bpd, rounded off to the nearest one million bpd).

      The foregoing analysis would of course suggest that actual global crude oil production (45 API and lower gravity crude oil) was down slightly from 2005 to 2014, down from about 69 million bpd in 2005 to about 68 million bpd in 2014–as annual Brent crude oil prices doubled from $55 in 2005 to $110 for 2011 to 2013 inclusive, remaining at $99 in 2014.

      • Jeffrey J. Brown says:

        Note that I am estimating that US + OPEC 12 condensate production increased by about 2.4 million bpd from 2005 to 2014 (from 1.7 to 4.1 million bpd), with an estimated condensate yield of about 18,000 barrels per BCF of dry gas in 2005 and 29,000 barrels per BCF of dry gas in 2014 (note that the condensate yield per BCF of wet gas would of course be lower).

        In any case, if the condensate yield for non-US + non-OPEC gas was the 18,000 barrels per BCF in 2005, but only rose to 24,000 barrels per BCF in 2014 (versus 29,000 barrels per BCF for US + OPEC), non-US + non-OPEC condensate production would have increased from about 3.2 million bpd in 2005 to about 4.7 million bpd in 2014 (again, if my math is correct).

        Based on the foregoing scenario, total global condensate production would have increased from about 4.9 million bpd in 2005 (call it 5 million bpd) to about 8.8 million bpd in 2014 (call it 9 million bpd), in implied increase of 4 million bpd, which would of course mean that rising condensate production accounted for virtually all of the 2005 to 2014 increase in global C+C production.

        In any case, note that the doubling in annual Brent crude oil prices from $55 in 2005 to $110 for 2011 to 2013 inclusive (remaining at $99 in 2014) provided an enormous incentive for global oil and gas producers to increase their liquids production, wherever and however they could. My principal point is that the available data strongly suggest that they weren’t able to show a material increase in actual global crude oil production (45 API and lower gravity crude oil)–despite trillions of dollars spent post-2005 on global upstream oil and gas projects, Qater being a perfect example.

      • likbez says:

        Jeffrey,

        Here is another argument supporting your position about distinguishing crude and condensate. They really should be reported separately in oil production statistics.

        Condensate energy content per unit of volume is less that oil as API gravity is an inverse measure of a petroleum liquid’s density relative to that of water.

        In other words a barrel of, say, 60 API condensate (average of a typical 45-75 range) has less energy (in BTU) than a barrel of 39.6 API oil (WTI). Using standard formula for number of barrels in metric ton (API+131.5)/(141.5*0.159) we will get 8.5 barrels and 7.6 barrels per metric ton, respectively.

        As the amount of BTUs per unit of volume is probably close to constant that means that energy-wise condensate with API 60 contains approximately 12% less of energy then oil with API 40.

        In other words, mixing them in statistics inflates the total amount of energy produced. If uniform statistics is desirable they should be counted using factor 0.9. This recalculation will make peak oil phenomenon more visible in all graphs of world and countries production.

        That also mean that countries and agencies reporting production in metric tons are doing better job then countries reporting production in volume measures such as barrels. In other words EIA sucks 😉

        • likbez says:

          Correction:
          “As the amount of BTUs per unit of volume is probably close to constant”
          Should be
          “As the amount of BTUs per unit of weight is probably close to constant”

        • Jeffrey J. Brown says:

          True about BTU content per volume, but as I said elsewhere, I prefer not to focus on quality issues. My principal point is that it appears quite likely that we are experiencing Peak Crude Oil, with the peak being obscured by still increasing global gas production and associated liquids, condensate and NGL.

          Qatar is good example, where the billions of dollars spent on upstream crude oil projects only served to slow the decline in actual crude oil production, while Crude + Condensate (C+C) continued to increase.

          In a similar fashion, globally I suspect that the trillions of post-2005 upstream global capex, spent on oil & gas projects, only served to keep us on an “Undulating Plateau” in actual crude oil production (45 API Gravity and lower), while global C+C production has (so far) continued to increase.

    • Jeffrey J. Brown says:

      Here is an interesting article, I think that was published in 2015, on crude oil versus condensate production in Qatar (of course, Qater is a member of OPEC). As I have previously discussed, the crude oil versus condensate quality issue is not my principal point.

      My principal point is that the available data strongly suggest that actual global crude oil production has been on an “Undulating Plateau” since 2005, while global natural gas production and associated liquids, condensate and NGL, have so far continued to increase.

      Note that the OPEC 12 data that Ron compiled for me show that Qatar’s reported crude oil production fell from 0.8 million bpd in 2005 to 0.7 million bpd in 2014 (OPEC crude only data), while EIA data show that Qatar’s C+C production increased from 1.0 million bpd in 2005 to 1.5 million bpd in 2014.

      Production of condensates rising in Qatar
      http://www.oxfordbusinessgroup.com/analysis/production-condensates-rising-qatar

      The global market is far more competitive these days, and 2014 saw a dramatic decline in oil prices, which continued into 2015. In March 2015 Brent Crude was retailing at $57 per barrel. Behind this is a global oversupply – Bloomberg reported that the UAE and Qatar estimated this to be in the region of 2m barrels per day (bpd) in mid-January 2015. This is primarily the result of surging US output, which was at a three-decade high. However, this output seems likely to taper off, as falling prices make some of the fracking on which US production is based no longer economically feasible. Furthermore, in 2014 Washington decided to allow exports of condensates for the first time – oil exports having been banned since the 1970s oil crisis. Thus, the global condensates market is also seeing a major supply surge, with press reports suggesting that the US could add up to 1m bpd of these light oils to the export market during the next 10 years. This is particularly relevant to Qatar, as condensates have come to represent a larger proportion of the state’s output than crude.

      DEPLETION OF RESERVES: This has been for two main reasons. First, there is the depletion of existing oilfields. Qatar Petroleum’s (QP’s) Dukhan field, the oldest, sent out its first export cargo in 1939, although it remains one of the two largest fields in the country, along with Maersk Oil’s Al Shaheen. Qatar National Bank (QNB) figures show that total output has declined continuously in recent years, from a peak of 845,000 bpd in 2007 to 733,000 bpd in 2010, 724,000 bpd in 2013 and 681,000 bpd in November 2014.

      This is despite major investment in enhanced oil recovery (EOR). Some $6.6bn has been invested in crude oil projects under Qatar’s 2010-14 development plan, with much of this going into EOR. At the same time, reports in local media state that Occidental is investing $3bn in water injection to sustain production at the Idd Al Sharqi field, while ExxonMobil has made further investments in Dukhan. Indeed, most of the investments currently ongoing in the oilfields are of this kind, with the aim of maintaining and stabilising production.

      “Our overall objective for the field is more to minimise production decline,” Guillaume Chalmin, the managing director and group representative of Total E&P Qatar, told OBG, referring to his group’s Al Khalij field. “This takes priority over increasing production.”

      . . . . CONDENSATES: The second factor affecting the condensates/crude balance is the huge North Field, and the consequent expansion of natural gas output in the country. This has led to a surge in the production of condensates on the back of new wells and projects aimed at feeding Qatar’s liquefied natural gas and gas-to-liquids sectors. Indeed, if the QNB figure of 724,000 bpd of crude is compared with the BP figure of 1.995m bpd of total oil production – which includes crude oil, light oil (from condensates), oil sands and natural gas liquids – then condensates are likely responsible for over 1m bpd of Qatar’s oil production. QNB figures quoted by Business Quartermagazine in 2013 stated that while crude oil reserves were an estimated 2.3bn barrels in 2011, condensate reserves were an estimated 22.3bn barrels, with condensate production exceeding crude oil production in 2012, when it hit 900,000 bpd. . . .

      HIGH-VALUE PRODUCTS: Condensates are hydrocarbons that exist in a gaseous state underground, but which liquefy during the production process. They are thus a low-density mixture of hydrocarbons and come from both oil wells, as associated gas, and from natural gas wells, where they exist alongside raw natural gas and are known as non-associated or wet gas. Condensates can also be produced from dry gas – natural gas that has no associated component – in gas processing plants; this variety is known as plant condensate.

  40. oldfarmermac says:

    Here is a long read that people seriously interested in the BIG PICTURE we discuss in this forum will want to read. It’s well written, and compared most such pieces, sticks mostly to demonstrable facts, and when it cites scientific authority, it cites WITH AUTHORITY, naming real ones, meaning large scientific organizations.

    It IS NOT a piece for those who are interested in sound bites, or those who have already made their minds up, one way or the other, about issues such as nuclear power and GMO’s.

    http://www.huffingtonpost.com/jon-entine/post_10952_b_9111688.html

    • From your Huffington Post article:

      “There is also a new, strange form of denial that has appeared on the landscape of late, one that says that renewable sources can’t meet our energy needs,” she wrote.

      Now wait just a cotton picking minute here. That is not a form of denialism. There is definitely no scientific consensus that says that renewable energy sources can meet our energy needs. Therefore holding the opinion that they cannot is not a form of denialism. It is simply an opinion. An opinion that may, or may not be, correct. But saying those who believe that renewables are not sufficient to replace fossil fuels are in denial… is nothing but bullshit hyperbole. And those who make such a claim have a lot less creditability in my eyes.

      • Oldfarmermac says:

        ” But saying those who believe that renewables are not sufficient to replace fossil fuels are in denial… is nothing but bullshit hyperbole. And those who make such a claim have a lot less creditability in my eyes. ”

        I have to agree with Ron.

        Renewables may never scale up sufficiently to replace fossil fuels, or even scale up enough to enable us to create a new generation BAU LITE, meaning a low energy but still modern society.

        But on the other hand…….. There are PLENTY of respectable physicists and engineers out there who DO believe renewables CAN be scaled up sufficiently to support a new generation low energy BAU LITE economy.

        I am neither a physicist nor an engineer, but I know the first grade stuff in both fields, and have read enough history to believe it IS possible that we can have a new generation bau lite economy. Some of us, at least. With luck.

        And while I am no genius, I AM smart enough to know that my belief is also an OPINION.

        It is possible to prove , technically speaking , that renewables CAN BE scaled up sufficiently.

        But the proof assumes PEOPLE will be willing to make large and long lasting and painful sacrifices, and there is NO WAY WHATSOEVER to guarantee that people will do so.

    • JN2 says:

      Thanks for the link, ofm.

      The climate system cares about greenhouse gas emissions–not about whether energy comes from renewable power or abundant nuclear power.

      But the taxpayer cares about the high costs of nuclear. Britain’s plan for a fleet of new nuclear power stations is … unbelievable … It is economically daft. The guaranteed price [being offered to French state company EDF] is over seven times the unsubsidised price of new wind in the US, four or five times the unsubsidised price of new solar power in the US. Nuclear prices only go up. Renewable energy prices come down. There is absolutely no business case for nuclear. The British policy has nothing to do with economic or any other rational base for decision making <<

      • JN2 says:

        Wow. My reply got messed up big time.

        1st quote is from original article.

        2nd quote (starting with Britain’s plan) should be prefixed with: “but the taxpayer cares about the high costs of nuclear”

  41. oldfarmermac says:

    The EIA predicts solar power production to be up 28 percent , and wind to be up 16 percent in the USA this year. This sort of growth rate may not be sustained or sustainable, but it seems rather likely that between wind and solar, even if the economy does ok, we will be using no more and maybe less coal and gas, in total, to generate electricity going forward.

    Holding down consumption holds down the price, as well as the quantities of coal and gas that utilities must purchase.

    The subsidies we pay to support renewables, collectively, may actually be saving us money, collectively, due to lower prices across the board for all the things that involve using lots of coal and gas in their manufacture.

    Cheap gas means cheap nitrate fertilizers, for instance,which mean cheap corn, and cheap corn means CHEAPER ribeye and hamburger.

    Hydro is expected to be up five percent ,but only because recent heavy rains are expected to continue and more water means more hydro generation. No significant new hydro capacity is coming on line.

    http://fuelfix.com/blog/2016/02/02/renewable-energy-forecast-to-grow-9-percent-in-2016/

    • Jef says:

      Old Mac – As usual you leave out the whole other 50% of the equation which means your comment is null and void.

      Fact; we live on a finite planet. Finite inputs AND finite ability of the biosphere to absorb civilizations waste stream. Both are feeling the constraints big time right now and both will determine our future. Oh, and throw in a little central banking just to make sure everyone is wrong on the timing and direction.

      Any prognostications that don’t account for both are just junk in – junk out.

      • oldfarmermac says:

        |It is VERY true that we live on a finite planet. I have made that point countless times in this and other forums.

        It is also true that our combined grand total waste stream, if we don’t do something about it, will destroy enough of the world wide biosphere to take us down, along with all the other species we have wiped out already, and will continue to wipe out.

        It is even true that basically free solar energy is a FINITE resource, at least in the sense that it arrives only at a certain rate, and that we can most likely do nothing to INCREASE the rate . ( Future technologies might involve gigantic orbiting mirrors that will focus MORE sunlight on the earth, but that sort of thing is for now only a theoretical argument, and irrevelant. )

        Now I think of my self as a realist, and a practical guy, and like Gandalf, I try not to worry about what might or might not come to pass in the far off future, for it is given to us to do today, what we can, with what we have to work with, and survive, and hopefully leave the world in as good or better condition for the next generation.

        The waste stream is mostly going to take care of itself, eventually, since most of it is based on cheap fossil fuel energy, which is a fast depleting resource. Of course “eventually” is too long, and a lot of us, and a lot of the biosphere, are going to pay the price before “eventually “happens.

        In the meantime, we are making very fast progress in LEARNING HOW to live with renewable energy and HOW to deal with our wastes. MAYBE we will manage both problems successfully, at least to the extent we don’t either wipe ourselves out, or revert back to a subsistence society.

        Unless we collapse all the way back to an ignorant, peasant type of society, with the surviving people mostly being unable to read, and the ruling class satisfied to keep things that way, there is no reason to believe that the population problem won’t solve itself as well, but again, that means “eventually” and eventually is NOT soon enough.

        This is why I continue to maintain that there will be a major dieoff of the human race within this century.

        BUT:

        We have a couple more generations, barring really bad luck, to get our act together, collectively, as countries and communities and individuals. I believe most countries are apt to fail to a substantial extent, with the poorer ones that are already overpopulated and dependent on imported food and fuel failing catastrophically.

        Some countries that are well situated, in terms of geography,military power, good allies, substantial remaining resources,stable or falling populations, with well educated people, reasonably sound government, etc, MAY pull thru the bottleneck without suffering on the Biblical scale in terms of people dying as the result of violence, famine, exposure, contagious disease, etc.

        It is up to us, as individuals, and citizens of our respective countries, to decide whether we do what we can to preserve a modern way of life, or give up and party hearty, convinced we are doomed in any case.

        Anybody who takes a hard crash or collapse seriously, and believes in either in the near or medium term, has the option of doing a number of things that will improve his own and his family’s chances of pulling thru whole, if not unscathed.

        Finding a job in an ESSENTIAL industry, or starting a business in an ESSENTIAL industry, would be a GREAT way to start.

        Adopting a life style similar to my own would be a great second step. I don’t do anything that can be considered an outright loss or waste of time or resources in terms of being a “prepper” but I still do a hell of a lot that will make life possible and MUCH easier for me and mine, in the event the shit DOES hit the fan during my lifetime. All the things I do improve my quality of life, hard crash or collapse , or no.

        ALL of them raise my living standard too , which is not always the same thing as quality of life.

        A great third step would be to find that job, and take up that lifestyle in a place that has a gentle climate,plenty of water, plenty of farmland, lots of timber, lots of open space, neighbors who have put down century long roots, well away from any large city that might spew out refugees by the hundreds of thousands or the millions, in the event of a catastrophic event such as a super solar flare, or a nuclear war, or a super volcano, or the emergence of an uncontrollable contagious disease, etc.

        The odds of any GIVEN sort of society wide catastrophe happening within any given decade are probably pretty slim, but the odds of A catastrophic event capable of upsetting the apple cart of business as usual within a couple of decades are high enough to be taken seriously.

        ONE reason I have a very hard time not just going ahead and changing my political plumage again, for the third or fourth time, is that the liberal element of this country seems dead set on allowing a hell of a lot more people into the country.

        If we want this country to survive, and be a great place for the kids of the people already here, one of the most important things we can do is slam the immigration door nearly shut. If we do that ,our population will peak and start to decline within the lifetime of some people reading this forum TODAY.

        • when one tribe recognises that another tribe has greater access to resources than they do, then invasion and attempts at conquest are inevitable.
          check back through history, virtually every conflict kicked off that way.
          Shutting borders won’t work unless you are prepared to back it up with force of arms.
          Ask yourself that question, and consider your answer thoughtfully. Answer it when you’ve read this.
          here in Europe we have been at war with one another from the time the Romans left, until 1945

          Then we decided to get civilised and like each other—sort of.
          That brought us a few decades of prosperity under the auspices of the EU. Which was formed incidentally as a common market for coal and iron originally–to prevent us fighting over it again.
          Like all such organisations it grew and grew–finding justification for its own expansion and existence.

          We got wealthy, while Africa and the Middle East got poorer, due in part to the predations of our empire building of the previous century.
          But they acquired our weaponry, and began to emulate our methods of wholesale slaughter.
          Now much of the Middle East and swathes of Africa are economic basket cases.

          So the instinct for survival being what it is, they are looking hungrily at Europe, just as we Europeans looked hungrily at Africa in the 17/1800s
          They see our prosperity, and want a piece of it. And so the invasion has begun. Poetic justice perhaps.

          And we Europeans, having become “civilised” offer a helping hand. Unfortunately that encourages more and more, so now we have a million migrants a year demanding to be let in.
          Now we are faced with a different form of conflict—so far a passive one. We Europeans don’t have wars any more—we want to “do the right thing”.
          But now we realise we have limits—and demand that our borders be shut.
          We can’t put up “CLOSED” signs, we can’t physically police 000s of miles of land and sea access.
          So now what?
          We cannot go on to 10m–20m, but they will keep coming unless stopped. The word is out that we currently have no choice but to accept everyone.
          So do we revert to more ‘traditional’ armed border guarding?
          And if we do—are we going to shoot at the boatloads of unarmed people crossing into Greece —sink the boats and let a few drown to deter the others?

          This is just hypothesis–but as the invasion continues, it will materialise in hard choices. Shut the door by all means–but face up to what must happen next.
          The refugees could easily head for the wealthy gulf states for refuge–they don’t, because they are aware of the reception they’d get.

          There is much comment on here about defending homesteads when the SHTF—well, as far as the Syrians heading for the plenty of Europe are concerned, the shit has already hit the fan. There’s nothing left for them to go back to.
          So this would appear to be a choice we are all going to have to make in the not too distant future.
          Right now, Europe can feed and house a million immigrants, but soon the European economic model will collapse, nevertheless our guests will still demand to be fed and housed.
          When it is is financially impossible to do that , when Europeans can’t even feed themselves, the adversaries in next European war will be clearly defined by desperation to survive.

          • Watcher says:

            when one tribe recognises that another tribe has greater access to resources than they do, then invasion and attempts at conquest are inevitable.
            check back through history, virtually every conflict kicked off that way.

            Things are a bit more homogenous now.

            You don’t have to secure resources. You can destroy competing consumption instead. Actually much easier.

            • Watcher
              Then you are securing your own resources at the expense of someone else’s. When you’ve burned through your resources, invasion to get more will be the only remaining option.—that might be food, trees, oil, land, slaves, whatever—but you are after energy in order to survive.
              Invasion and conquest take many forms, and what is happening in Europe is an invasion to secure resources, no matter how politicians dress it up with words.
              It might morph into a full scale conquest—it might not. But as the situation worsens across Europe, a struggle to survive is inevitable. Past history suggests that will be violent

              • Watcher says:

                Not what I had in mind. Homogenous.

                4+ million bpd flow up the Shanghai coast every day to Japan. No reason those ships have to allowed to do that. Divert them.

          • Oldfarmermac says:

            “We can’t put up “CLOSED” signs, we can’t physically police 000s of miles of land and sea access.”

            Sez who?

            That sort of claim is the sort made by people who want to see lots of immigration, controlled or otherwise, for reasons of their own, and who are stupid enough to believe people who think differently are dumb enough to believe them.

            There simply does not exist any country in the world today that is able to pull off an actual invasion of Western Europe, barring maybe the USSR or China or the USA and even then only AFTER nuking Western Europe.

            It takes only ONE gun boat to continuously patrol a LONG stretch of water, and stop any boat whatsover, excepting another well armed naval vessel.

            The old USSR was never a very productive outfit, but the commies had no trouble building a wall that kept people both IN and OUT of their territory, a very LONG wall.

            The Chinese built the one we call the GREAT WALL, by HAND. It’s sort of famous, you can go hiking on it as a tourist.

            A country with a reasonably functional government, roads, communications, armed forces, etc, can control its borders without straining itself, in terms of equipment or manpower unless it is attacked by another COUNTRY.

            It would take a literal army to penetrate the border of any Western European country, supposing that country has the WILL to defend itself.

            Border control is a question of will, rather than ability, excepting countries that are enocomic and military basket cases.

            A very few people can always slip thru, but not enough to matter.

            • i absolutely do not want to see unlimited immigration
              or any immigration for that matter
              i was making the point—that if an armed gunboat patrols a stretch of water, and comes face to face with a leaky boat full of women and kids—exactly what are they supposed to do?

              or—if you are in charge of the boat—what would YOU do?
              no point in ignoring the question….when it’s staring you in face.

              The million plus immigrants arrived in Europe have pulled off an invasion—all they have to do now is wait a couple of generations. Their presence consumes resources which are going to become tighter as the years go on.

              • Oldfarmermac says:

                Norman please accept my apology for misinterpreting your remark. I took it to mean you were saying controlling immigration is impossible, where as you meant it to point out the moral dilemmas involved.

                There is basically no solution to this sort of thing, other than having very hard nosed people in charge, who understand that the future prosperity and security of their own kids depend on their being bad asses, and turning back the immigrants, with gunfire if necessary.

                The extremely tarnished sunny side of this solution is that IF a country is really determined to control its borders, and forcibly turns back new arrivals, consistently, after a while very few will attempt the trip.

                Life is hard. Overshoot is hard. I am VERY glad I am not a sailor, or an officer , on a gunboat on anti immigration duty.

                I would personally probably wind up in prison for failing to perform my duties.

            • Jimmy says:

              I suggest walls will not do it. Shooting people will be required. And they will shoot back. Europe will lose that one. 200 million Africans and Asians will take what they want and conquer. As will the millions of South and Central Americans soon to be heading north. Everybody’s a Malthusian until its they that get the bullet.

              http://qz.com/605609/the-climate-change-refugee-crisis-is-only-just-beginning/

              • Oldfarmermac says:

                BULLSHIT.

                A HORDE of people, even a horde of well armed people, has about the same chance against regular troops, professionally trained, organized, supplied, and backed up with medical care, etc, defending a border, utilizing prepared defensive positions, has about the same chance as a very small snowball on top of a large red hot stove.

                Keeping people out can be a damned expensive proposition, but keeping them out will cost peanuts, compared to what it will cost if they are allowed in, in large and growing numbers.

                A dozen troops per mile,even half a dozen, with a no man’s land a half a mile wide, would be AMPLE to control our own southern border, with a hundred troops ready to roll on a moments notice every fifty miles.

                We have to have soldiers anyway, and stationing that many on the border would be a trivial expense, in relation to the national government.

                Western Europeans will make common cause , and share the expense of border control, in terms of men and machines, when the problem gets to be serious ENOUGH.

                Even a liberal democrat/ socialist will eventually figure out something as simple as this.

                The folks who make a big holier than thou deal out of accepting refugees by the millions generally believe that THEY THEMSELVES are insulated from the associated problems.

                My well educated, professionally employed liberal democratic friends are mostly all in favor of lots of immigration, because at least as they see things, it costs them nothing, and actually improves their own economic position.

                A semiliterate Mexican has a zero chance of landing a job as a teacher, cop, social worker, reporter, nurse , union truck driver, UAW member, IBEW member, etc. So that sort of people ( I used to be one of them) have zero worries about losing THEIR job. They have near zero worries about THEIR neighborhood going to hell, because poor immigrants can’t afford to LIVE in their neighborhoods, etc etc.

                But he comes in very handy, when you want to have four or five applicants as your lawn boy.

                LOTS AND LOTS of immigrants make for DAMNED CHEAP wages for working class people, and for THAT REASON, well off right winger hard core conservatives also are heartily in favor of lots of immigration, especially of poor folks. Businessmen from the Koch brothers all the way down to the owner of a local fast food franchise LOVE DIRT CHEAP LABOR.

                • 70%H2O says:

                  The problem in Europe now is housing. Especially in the north, where house building has been in to low numbers for a long while. There are not homes enough for everyone. Throw a few million imigrants on that, and you got problem. Also there are a burocratic problem with this, so from getting the idea to build a house to the building crew arriving on site takes a few years. The turning of a super tanker.
                  Germany and Sweden have accepted the biggest part of them, and housing market is getting clogged. With speculants, not with objects. Both countries have or have had tent camps for refugees.
                  As you wrote, even the ultra liberals will have to accept there are problems, sooner or later.
                  But then again, there are still people who believe earth are cooling down despite evidence, so who am I to tell anybody will learn anything?

      • oldfarmermac says:

        This short comment should precede my longer one replying to Jef.

        I am not arguing that renewables WILL allow business as usual to continue indefinitely. I am merely pointing out that the folks who constantly bitch about subsidies for renewables MAY BE entirely wrong about these subsidies being a bad deal for the tax paying public.

        If I were a young guy, and going to wear out another car, at say thirty mpg, and four bucks a gallon, , that’s around a hundred bucks a thousand miles, twelve hundred bucks or more a year for gasoline alone. For me, that would mean, since I drive a car till the wheels fall off, and put them back on a couple of times, personally, spending over twenty thousand bucks JUST for gasoline.

        As a matter of fact, the lifetime cost of putting gasoline in a well made car that is well maintained is more than likely, in the real world , will exceed the purchase price of the car.

        I have personal knowledge of many cars and trucks that sold NEW for a half or less of the amount of money that has been spent ALREADY on gassing them up, and they are still on the road.

        • clueless says:

          OFM – you are good at math. If your gasoline spend (volume) were equal to your bottled water spend, what would be the difference?

          PS: I think that your 4 bucks a gallon for gasoline is ???? Well, I will be kind – Not based on any reality over the past 40 years. [Give me a break! I did NOT say stupid!] I think that your real “bitch” is the price of a new car.

          I am going to give an analogy to today’s real world. STOP – I SAID I WAS CLUELESS!!

          I live in Oklahoma. A six ounce glass of cheap house wine is $6. Add 8% local tax and 13% liquor tax and you get $7.26. Now add a (cheapskate) 15% tip [I know, but most people do not know, – you are NOT supposed to tip the tax – look it up] So, let’s add $.75 to get $8.01. Now, what is more important in life to the “younger guys”. A glass of cheap wine that costs them $170.88/gal or 6 ounces of gasoline at your $4/gal, which would be $.03125/glass?

          If you did not stop as requested, please respond. I need something to read before I go to bed tonight.

          Wow – at today’s price (say $2/gal), that would be $.015625/6 oz. glass of gas. Talk about getting totally screwed on gas!!!!

          Using “your” figure of 30 mpg, I could have a glass of cheap house wine for $8.01, or, [at $2/gal] I could drive my car 120 miles. No contest – give me the wine.

          I hesitate, but, I think that Ron would agree. This is not sustainable.

          • oldfarmermac says:

            I agree gasoline is cheap right now, but do you really think it will STAY cheap, barring a few miracles? I used to pay twenty five cents for regular, and thirty cents for superpremium.

            Depletion and rust never rest, never take a holiday.

            The population is going to continue to grow for at least three more decades, barring either disasters OR miracles.

            I think four bucks a gallon , average, over the fifteen year life of reasonably cared for new car is a middle of the road estimate.

            I understand that this next thought is heresy of the worst sort, and might get me kicked out of the informal gear head club where I hang out occasionally with old friends who are car nuts BUT:

            Unless you are already old, and die before your time, you are likely to be paying a pretty high gasoline tax within fifteen years.

            Hey, we have a black prez, gay marriage, legal pot, some places at least, and telephones that are ALMOST small enough to wear them like a Dick Tracy watch, that do everything the DT watch did, and more. We have machines that can whip our ass playing chess.

            There are women so small they have to put an extra tall chair behind the bench, so as to see over the top of it, but they sit there wielding the awesome power of federal judges.

            We have this thing called democracy, and this difficulty called by many names, from economic maliase to a walking dead man economy.

            I expect more and more people to find themselves too hard up to own and drive a car , within the next fifteen years-ENOUGH more people to put the populist (or socialist) boot to the backside of the people who still drive and fly, by way of a high fuel tax.

            The political deal will be that the money is mostly spent on new mass transit or other measures that will hopefully enable the pofolks to get to work and to the store.

            At the very least, the fuel tax will likely be raised high enough that no general fund money need be spent on roads.

            Hey , guys ,even us old redneck conservatives turn socialist when we hit that old age jackpot called social security.

            I get more out now, every year, between the monthly deposits to the old bank account, and medicare, than I pay in.

            GO BERNIE!

            Things just recently happened this way in terms of health care, did they not?

            We have Ocare, which is neither more, nor less, than a law engineered to shift a huge part of the cost of health care insurance from people who have it ((either because they can pay for insurance out of pocket, or get insurance thru their employer) to people who do not have any at all or do not have good health care insurance, because they either don’t work for a company that provides it, or don’t have money to pay out of their pocket.

            The rich won’t give a hoot, they can afford a high gas tax , and it will enable them to enjoy their cars all the better, due to less traffic.

            The frugal and wise won’t be paying the oil tax, they will get off a lot cheaper, because the electricity tax won’t likely be as high, and electricity is MUCH cheaper to begin with anyway. They will be driving pure electrics or plug in hybrids, if they drive at all.

            Half of them will just hire a car, that far down the road, because hiring one once in a while, maybe even every day, will be far cheaper than owning a car sitting around depreciating away, consuming ten bucks or more , day after day, even if is not even MOVED.

            There is a lot to be said for OCARE , both good and bad, and I am not bringing it up to either praise or condemn it, but rather to point out where society is headed, more likely than not.

            Come to think of it, five or six bucks is probably a better price estimate for the average price of gasoline in the Land o the Free for the next fifteen years.

            This is after all a PEAK OIL forum. Sometimes I get carried away and forget that. LOL.

            So far as buying bottled water is concerned, I simply DON’T , except in an emergency, or a time pinch.

            I bought a gallon a while back because the time and gasoline to go someplace I could get it for free because the time was worth more than the purchase price. . I put it in a car with a leaky radiator.

            Real hillbillies such as yours truly may drink a little homemade wine, but if we buy alcohol, it is either beer or bonded.

            We don’t eat much quiche either. LOL.

            • clueless says:

              OFM says – “I used to pay twenty five cents for regular, and thirty cents for superpremium.”

              But, if you adjust for inflation as measured by the CPI from the time that you paid those amounts, you have to multiply by 8. So $2 and $2.40. More than today. And you were using 30 mpg for current use. Well, back in the days of $.25 gal gas, I bet that mileage was closer to 10 or 12 mpg – at least mine was. So, on a cost to drive a mile, the cost today [adjusted for inflation and mpg] is less than one half of what it was back in the good old days of 25 cent/gal gas.

              It is so much fun to bitch about the cost of gas, but reality is much different.

              • shallow sand says:

                What percentage was tax back then?

              • Oldfarmermac says:

                Inflation, depletion, rust , and taxes march on. I don’t believe the new normal for gasoline is two bucks or so. Every time the price of oil crashes, it goes up again, and the general historical trend is upward.

                I see no reason to think that oil won’t be back up again within a year or two, max, whereas there seems to be plenty of reason to think it WILL go up.

                And as far as inflation goes, some people have kept up, but most have not, with prices going up faster than wages or salaries for more people than not.

                Farm laborers in my are area for instance are just about breaking even, back then farm wages were around a dollar here, now they are around eight bucks. So an hour in either case buys about the same, then and now. But I could earn more, in terms of purchasing power, twenty years ago , as a tradesman, than I could earn today.

                What I am trying to get at, is that the total cost of driving an oil fueled car is a hell of a lot more than most people think, over the life of the car.

                Twenty or thirty thousand bucks worth of gasoline can be substituted by a quarter that much for electricity, and sun and wind do not deplete.

  42. Sean says:

    hmmm… looks like a similar collapse to mid 213….

  43. likbez says:

    I doubt that any negotiations will start before July meeting of OPEC by still looks like Russia is ready to save the USA shale drillers from the coming mass extinction period.

    http://www.dailyherald.com/article/20160202/business/302029913/

    == quote ==
    Foreign Minister Sergey Lavrov told reporters in the United Arab Emirates on Tuesday that Moscow is “open for other forms of cooperation, if there is general interest in holding a meeting between OPEC members and producer countries.”

  44. John S says:

    This is for all of you renewable guys. There are some graphics that accompany this article but I don’t know how to post them from an iPad.

    Here is a link to the Platts article: http://www.platts.com/news-feature/2016/naturalgas/global-gas/index?hootpostid=eb1205905f098e12ac14573ebc0b4369

    Wind blows ill for natural gas in Texas

    Global Gas Update: A Platts.com News Feature
    By Ross McCracken and Housley Carr

    February 02, 2016 – Utilities and merchant generators continue to develop natural gas-fired power projects in the Electric Reliability Council of Texas footprint, but low prices and the prospect of more tax-subsidized, low-cost renewable capacity has some wondering how many new gas-fired units will actually be financed and come online over the next few years.

    “Market prices just don’t support financing for new [generation] assets today,” Jeff Schroeter, managing director at Dallas-based developer/consultant Genova Power Advisors, said in January. “And now that the federal Production Tax Credit for wind has been extended, more wind farms are likely to be built, resulting in continued suppression” of market prices.

    The US Congress agreed December 18 to extend tax credits for renewables. These include a 30% Investment Tax Credit for solar and the 2.3cts/kWh PTC for wind, providing a long-term framework for investment. The PTC includes incremental reductions from 2017 before expiry in 2020, while the solar ICT is reduced gradually to 10% between 2019 and 2022. The rate of new build for solar and wind has historically been heavily influenced by these credits – booming when certainty exists and stalling when it does not.

    Analysis continues below…

    Watch the free webinar: Winter 2015-2016: Good tidings ahead?
    Listen to the webinar
    Join the analysts that support the Platts Bentek product line for a review of the natural gas markets winter-to-date and a forward look at the first quarter of 2016. Storage started the winter at all-time record levels and prices have seen dollar handles, but with a strong El Nino in effect, what will the beginning of 2016 have in store?
    REGISTER TO WATCH THE REPLAY HERE

    Phase 1

    The situation in Texas has clear parallels with the European experience and not for the first time. Texas West, where much of the state’s wind power is located, was one of the first US regions to experience negative power prices from the late 2000s. This was the result of local wind power exceeding interconnection capacity with other regions, causing power prices to fall below zero and generation to be curtailed, thereby undermining the incentive to invest in more wind capacity. At the time, Texas West had just 1 GW of interconnection capacity with the rest of the state.

    However, by early 2014, Texas, living up to its reputation for going large, had built 3,600 miles (5,794 kilometers) of new transmission lines capable of carrying 18 GW of power from its Competitive Renewable Energy Zones to consumption areas in the east and south of the state. At a cost of $6 billion, this massive project exceeds existing wind generating capacity by some margin. At end-third quarter 2015, Texas as a whole had installed wind generating capacity of 16,406 MW.

    Although rate payers have understandably been concerned by the cost of the project, its scale was designed to allow the further development of wind power in the state, and particularly Texas West, where wind capacity factors in some months can exceed 80%.

    Phase 2

    The build out of transmission capacity moved Texas from intermittent negative pricing in Texas West to a new phase of renewables penetration. Building interconnectors and coupling markets allows the more efficient use of wind generation and reduces curtailments, but also encourages further capacity build and spreads variable generation more widely across the system.

    This tends to depress average wholesale electricity prices and thus reduces the market incentive for gas-fired generating plant, which are used less often, and provide lower returns. It also disrupts traditional relationships between peak and off-peak pricing. Even if the transmission capacity exists, that doesn’t mean wind generates power when demand is highest, nor does it stop when demand is low.

    Texas last year continually broke new records for wind generation, hitting a peak of 12.2 MW October 22. On December 20, wind generation hit a record 13.9 GW, equivalent to 45% of the state’s electricity supply and accounted for 40% of demand for 17 hours straight.

    Local utility TXU and other retail electricity companies in Texas now offer plans that include free electricity overnight between 9 p.m. and 6 a.m. Texan wind farms often offer nighttime wind power into the ERCOT market at negative prices, helping to hold down the market price and reduce the capacity factor of existing gas units — and thus the expected capacity factor of prospective gas plants.

    Phase 3?

    Texas already has by far the largest installed wind generating capacity of any US state and continues to expand its lead. In third-quarter 2015, it added 771 MW of new wind capacity, raising the total above 16 GW, compared with second-placed California with just over 6 GW.

    Click image for larger view.

    According to US Energy Information Administration data, in the first three quarters of 2015, Texas added 2,308 MW of new wind, compared with the US total of 3,596 MW. At end-third quarter 2015, the US had 13,250 MW of new wind projects under construction, of which 6,300 MW are in Texas.

    The state appears to have thrown everything into its wind industry and its record on solar power is abject by comparison, despite have a state-wide solar resource equal only to California. In 2014, it installed just 129 MW of solar, in what was a state record, bringing the total to 387 MW. Around 260 MW is estimated to have been installed in 2015.

    The cause of this solar malaise is attributed to Texas’s renewable energy standard. This has specified a general target for renewables, rather than breaking it down by technology to create a specific target for solar. Wind proved cheaper and less risky. The state also does not have net metering, which allows residential solar users to sell excess electricity back to the grid at full retail price. Moreover, electricity in Texas is cheap, making it hard for solar projects to turn a profit based solely on the federal ITC.

    However, this looks set to change, owing to the steep decline in solar costs. Some utility-scale solar projects pitched last year were priced below $50/MWh, in some cases falling below $40/MWh, competitive with natural gas. ERCOT, despite the lack of state-level incentives, released a report in October that forecast 13 GW of solar capacity in the state by 2030.

    The realism of this forecast is open to question. It was a baseline scenario assessing the impact of the Obama administration’s Clean Power Plan. The forecast assumed that the PTC for wind would not be extended and included only 1 GW of additional wind capacity. It also assumed gradually rising natural gas prices, which would increase the attractiveness of solar.

    For the moment, solar development in Texas is slow, but with signs of acceleration. The US Solar Energy Industries Association’s project list of solar projects larger than 1 MW, updated September 29, 2015, shows 337 MW of utility-scale solar in Texas, 205 MW under construction and 514 MW under development, but the extension of wind’s PTC may again divert Texan attention from solar.

    Yet if solar does take off, the implications for gas-fired generation are profound, potentially replicating the German experience. As variable wind power has acted to depress average wholesale power prices, and disrupt peak pricing periods, solar takes another, more well-defined slice of the cake away from gas – the midday peak.

    In Germany, which has about 80 GW of solar and 40 GW of wind, midday demand comes primarily from industry. In Texas, it is predominantly air cooling demand; ironically solar power creates the midday peak and could in future also meet it.

    John Fainter, CEO at Associated Electric Companies of Texas, said low natural gas prices and low-priced wind power “are really making it tough” to finance new gas-fired projects. Additional wind and solar capacity developed as a result of the newly extended PTC and ITC will only add to that concern.

    Storage disruption

    Warren Lasher, ERCOT’s director of system planning, has also acknowledged that some of the gas-fired projects that were included in ERCOT ‘s Capacity, Demand and Reserve report, issued December 1, may not be financed and built as quickly as their developers have expected. But, “on the other hand, we continue to see projects advancing to construction,” he said, citing the 1,042 MW, combined-cycle expansion project now under construction at Exelon Generation’s Wolf Hollow station in Granbury.

    Genova’s Schroeter said he expects that the most likely gas-fired projects in ERCOT to advance next to financing and construction will be either combined-cycle projects with very low heat rates or peaking projects with very low capital costs. Developers continue to move prospective gas-fired projects into position, enabling them to advance the projects to financing and construction as soon as market conditions warrant.

    However, Fainter noted that an important factor — yet to be determined — will be whether the CPP survives its ongoing court challenges. If the US Court of Appeals for the District of Columbia Circuit issues a stay delaying implementation of the CPP “we’d have a lot more time” to develop new generating capacity, he said. But if the CPP is implemented as proposed, significant amounts of coal-fired capacity would need to be replaced by gas units, he argues.

    The CPP requires utilities to cut their carbon emissions by 32%, compared with 2005 levels, by 2030, although for some states the requirement could be as high as 45-47%. How states achieve this is up to them, but the likelihood is that states will have to increase investment in wind and solar to meet the targets, as well as ancillary technologies that aid the adoption of wider renewables’ use across the grid.

    This presents another challenge for gas-fired generation. It is no accident that, with its huge build-out of wind power, Texas is also the location of one of the biggest debates around electricity storage. Oncor, the biggest electricity transmission company in the state, last year said it should be able to support as much as 5 GW of battery storage on its system by 2020 as it prepares for implementation of the CPP. Oncor has 3 million customers and operates 120,000 miles of transmission lines in Texas.

    Robert Shapard, Oncor chairman and CEO, has said he agrees with studies that suggest batteries will be cost-effective by 2018. He said a 5 GW installment “would reduce the amount of additional [generation] capacity that is needed.” While a surge in solar construction could eliminate peak midday pricing, storage offers round the clock smoothing of power prices that effectively moves variable renewable generation more towards baseload power provision; storage itself takes on the role of peaking plant.

    While the threat to coal-fired generation from emissions regulation is clear, the impact of a suite of disruptive technologies – wind, solar and storage — looks equally challenging for natural gas. Texan gas plant developers might do well to look to the European experience, where despite a lack of emissions regulation directed explicitly at gas-fired generation, it is gas that is suffering, with plants, some virtually brand new, being mothballed or closed.

    • Patrick R says:

      A link that completely undoes the catastrophising post to which it is attached. So if gas production falls, what of it in a world where wind and solar are taking over electricity production? Looks like those export trains will indeed be needed; great for Texas, all that gas you don’t burn to run aircon can be sold for real money off shore. Not so great for the biosphere, but perhaps it is renewables that enables Texans to have their cake and eat it?

      Texas: oily and gassy, but windy and sunny too….

  45. Toolpush says:

    Not sure how this fits in to the theme of the guest post, but it appears to me that the increase in take away capacity and adequate demand, is what was required in the NE to increase production.

    http://www.bentekenergy.com/

    Northeast production hits all-time high on Feb 1

    Tuesday, February 02, 2016 – 5:50 AM

    Yesterday’s Northeast production estimate was revised up from 22.29 Bcf/d to 22.83 Bcf/d, making February 1 the new all-time high, surpassing the previous all-time high of 22.55 set just this past weekend. This was driven by an increase to yesterday’s Appalachian-Ohio figure of 0.25 Bcf/d and a 0.18 Bcf/d increase in the PA Northeast Dry. This helped drive a 1.3 Bcf/d upward revision to yesterday’s dry US production, bringing it to 73 Bcf/d, the highest it has been all year. Production fell 0.4 Bcf/d today with the Northeast and Texas accounting for the majority of this. US Demand increased by 2.9 Bcf/d, with ResComm accounting for about 2.4 Bcf/d of this driven by a 1 Bcf/d increase in the Southwest. Total powerburn climbed to 23.3 Bcf/d, as increases of 0.3 Bcf/d and 0.2 Bcf/d in the Southwest and Southeast, respectively, offset modest declines in Texas, the Northeast, and the Midcon Market.

    • coffeeguyzz says:

      Push

      Awhile back, we had a brief discussion on the challenges of keeping the fractures open over time in the deeper Utica wells. (Range had a big one that didn’t maintain high output).

      Well, apparently the proppant boys have come up with something that is not only ultra strong, it is ‘buoyant’ as well so slickwater can be used.
      The latest Deep Utica, Consol’s GH 9, is the deepest yet at 13,400′.
      Using these types of proppant along with diversionary particles during the frac to control the spread as well as greatly enhance complexity, should enable the continual development and delineation of the Deep Utica.
      Costs are coming down to the $14 million per with expectations of $12million per eventually.

      The output of these wells is HUGE with several exceeding a half billion cubic feet the first 4/8 WEEKS!

      New era upon us, Push.

      • Toolpush says:

        Coffee,

        Yes, I saw that about light weight proppant. Those deep high pressure wells were always going to have problems with proppent strength. It is early days for hp wells. They have the extremely high IPs, but their economics will depend on how long they can keep the formation open!

        PS If you come across a well schematic for these Utica wells, I would appreciate a link. Thanks

  46. oldfarmermac says:

    Anybody interested in Venezuela and the outlook for oil production in that country should take a few minutes to read this article.

    http://www.bloombergview.com/articles/2016-02-01/latin-america-shows-no-sympathy-for-venezuela

  47. Fred Magyar says:

    A bit OT perhaps but a really good essay nonetheless:

    The Establishment’s Last Gasp
    Jonathan Taplin
    https://goo.gl/PjgceS

    It has been my contention for the last few years that we are living in an Interregnum. The Italian philosopher, Gramsci defined the concept well:”The old is dying and the new cannot be born;in this interregnum many morbid symptoms arise.” This sense of being trapped between a dying establishment and a new order that is not quite formed, plays itself out in four areas. In our domestic politics we see a populist dead end battle as an older, whiter America invests its hopes in Donald Trump and Ted Cruz to stave off the multicultural state filled with immigrants and young people in which they are no longer the majority of citizens. In the world of business we see the giants of the carbon economy (Exxon Mobil, Koch Industries, Peabody Coal) fighting to preserve their businesses in a world that must transition to a clean energy economy. Similarly, the giants of Wall Street and Silicon Valley are fighting against real regulation of their businesses and serious taxation of their billions in capital gains. And finally in the world of international affairs we see the forces of the military industrial congressional complex battling to keep an $800 billion military budget in order to preserve America’s status as the sole hegemon, even as they realize that the future is a multipolar world.

  48. AlexS says:

    The median of 17 oil price forecasts compiled by Bloomberg since January 1st:
    WTI seen averaging near $46 a barrel in Q4; Brent at about $48

    http://www.bloomberg.com/news/articles/2016-02-03/oil-seen-surging-about-50-by-fourth-quarter-as-supply-eases

    • likbez says:

      Alex,

      I like the way Wall Street stooges like Bloomberg are thinking about this problem. They think about themselves as “masters of the universe” and everybody else need to serve them and enrich them. I hope this will not happen despite all their games with oil futures as in:
      == quote ==
      “While prices continue to fluctuate, buy the December 2016 WTI contract below $40 a barrel because prices are forecast to average $48 by the end of the year, according to Mark Keenan, the head of commodities research for Asia at Societe Generale in Singapore. There may be “meaningful signs” of shale production balancing in the second half, Keenan predicts.
      == end of quote ==

      Everything is possible, but the scenario with smooth sailing for the whole year with gradual increases of prices and $39 average for the year looks questionable. This is a typical Wall Street extrapolation (or statistical porno, if you wish). I doubt that in such an unstable system prices will behave so smoothly. Please remember that most future developments require price above $60.

      Let’s translate into common language what they predict in this graph (the article itself is more positive then the graph and to a certain extent contradict it):

      1. A death sentence for a large number remaining the USA shale players. With those prices they simply might not last till 2017. Looking at the smaller half of companies traded on the NYSE and Nasdaq, more than half of those companies are burning cash fast enough to be out within six months (based on their cash flow in the last two reported quarters).

      2. All deep water developments will also lose money this year and the exploration activity might grind to a halt as discrepancy between the current price and the price of production is too extreme. That spells troubles for future GOM production.

      3. Carnage in Canadian oil sands.

      4. Stripper wells production will be decimated.

      5. Several oil producing countries with higher costs or large budget deficit in 2015 will be on the wedge of bankruptcy at the end of the year.

      6. KSA will lose another hundred billions and might lose its current credit rating.

      7. Troubles in oil junk bond area possibly spilling into regional banks.

      8. Losses of investors might well black mark this area of investment for the next three years. Energy funds and ETFs shrink as “naïve” investors simply flee.

      • George Kaplan says:

        I’d add:

        9) 50 North Sea oil fields shut down prematurely and billions of dollars of decommissioning costs bought forward by several years.

        http://www.oilandgaspeople.com/news/7115/collapse-in-crude-brings-north-sea-fields-near-end-of-production/

        10) Iraq descends into Syrian style civil war.

        11) Brazil economy collapses completely, coupled with continuing drought or El Nino induced flooding and general ill feeling about Olympics costs and PetroBras corruption leads to widespread social unrest.

        12) At least 30 to 40% of oil industry experienced workers lost and not available to pick up development if prices ever do recover.

        13) Grants from Sunni nations to Egypt are reduced leading to increased Isis gains and further unrest.

        • Alberto says:

          Well, there was a lot of money to be made by not listening to these same analysts when they made their forecasts at the beginning of 2014. But as John Maynard Keynes said, markets can stay irrational longer than you can stay solvent.

      • AlexS says:

        Likbez

        I agree that the oil price curve for the rest of 2016 will not be smooth. But analysts are not trying to forecast the trajectory of daily oil prices. They are forecasting quarterly average prices. And the trend in quarterly average prices may be similar to their projections.
        See, for example, how oil prices were recovering in 2009.

        Daily and quarterly average Brent oil prices in 2009

        • AlexS says:

          likbez,

          As I understand, you expect a bigger drop in global oil production this year and hence a steeper rebound in oil prices.
          I cannot agree with most of your arguments.

          1. “A death sentence for a large number remaining the USA shale players.”

          Bankruptcies result in debt restructuring, changes in ownership, but oil and gas wells are not idled and production continues.
          In 2015, 36 U.S. E&P companies with a debt of approximately $17 billion filed Chapter 11, but the decline in U.S. oil production was much more moderate than expected. There will be more bankruptcies in 2016, but this will not result in a collapse in oil production.

          4. “Stripper wells production will be decimated.”

          A number of stripper wells in the U.S. were already shut in last year, which may have led to a ~100 kb/d decline in output. Further cuts are likely in 2016, but if, as expected, oil prices rebound to $40 in the second half of the year, the majority will survive. (Shallow sand knows it much better than you and I).

          7. “Troubles in oil junk bond area possibly spilling into regional banks.”

          If I’m not wrong, 8 of the 10 largest banks in Texas went bankrupt in mid-80s due to the bad debts of the oil companies. This time, some regional banks are at risk as well. But in general the U.S. banking sector is not particularly vulnerable to oil junk bonds. The size of this market is $250-300 billion, a small part of total US banks’ assets.

          Overall, I think that the EIA projections more than fully reflect potential risks to US oil production in 2016. They expect annual average Lower 48 onshore production to decline by 800 kb/d vs. 2015, December 2016 production to be 840 kb/d below December 2015 levels and 1.48 mb/d below the March 2015 peak. This is a very significant decline, not seen during the past periods of low oil prices, which can be attributed to high decline rates of shale wells. But an even bigger decline is unlikely, in my view.

          • Enno says:

            +1

            • likbez says:

              Alex,

              I generally agree with your arguments. So on those issues you mentioned I stand corrected (you might be slightly underestimating the level of interconnections between financial side of shale oil business and the volume of production).

              Thank you for such a high quality replies (as Enno already noted.)

        • AlexS says:

          Likbez,

          While in 2016 the supply-side response to low oil prices should be quite significant in the U.S. LTO sector, it will be more limited outside U.S.

          2. “All deep water developments will also lose money this year and the exploration activity might grind to a halt as discrepancy between the current price and the price of production is too extreme. That spells troubles for future GOM production. “

          A large number of new deep water projects were delayed in 2014-15, but this will impact production levels several years from now. Existing deep water production will continue as opex does not exceed $30-35. Most of the projects at final stages of development will not be postponed and will start production in time, like they did in 2015. One important exception may be Brazil, where some project start-ups could be postponed by 1 or 2 years. Also note, that outside Brazil, deepwater projects are operated by the oil majors, which have much stronger balance sheets than the US E&Ps or Petrobras.

          3.“Carnage in Canadian oil sands.”

          Some projects were delayed, but oil sands production will slightly increase this year, according to all forecasts.

          5. “Several oil producing countries with higher costs or large budget deficit in 2015 will be on the wedge of bankruptcy at the end of the year. “

          That does not mean that they will decrease oil production, the key source of fiscal revenues.

          6. “KSA will lose another hundred billions and might lose its current credit rating.”

          KSA’s foreign reserves decreased by some $100 bn last year, they might lose another $100 billion in 2016, but they will still have more than $500 billion. And how declining FX reserves should impact oil production?
          Russia’s credit rating was lowered in 2014, but production continued to increase in 2014 and 2015.

          8. “Losses of investors might well black mark this area of investment for the next three years. Energy funds and ETFs shrink as “naïve” investors simply flee.”

          Again, you mention what might happen in the future. How this can impact oil production volumes this year?
          And as soon as oil prices start to recover, investors will return. We have seen this many times in the past.

          In general, those who expect a quick supply-side response to lower oil prices ignore the fact that lower prices and lower investments tend to have a much delayed impact on production levels.

          • likbez says:

            Alex,

            With negative cash flow access to new funds is critical. So anything that deteriorate company financial position will affect production, because when the company became a sinking ship, everything suffers, including production.

            As for oil sands I think you are wrong to assume that you can make profit with $35 oil even for continuing production unless you already paid off the capex investment. Please understand that this is very expensive process that requires a lot of energy and dilutant. Approximately 1.0–1.25 gigajoules (280–350 kWh) of energy is needed to extract a barrel of bitumen and upgrade it to synthetic crude. That’s the energy of burning around 10 gallons of oil. Most of this energy is produced by burning natural gas, which so far is cheap. About two tons of tar sands are required to produce one barrel of oil. Several barrels of water needed for each barrel of oil produced, though some of the water can be recycled. The energy input to heat tar sand to make bitumen flow plus adding a 10 percent light crude diluent to keep it viscous plus the cost of heavy equipment, labor and overhead are close to $30 per barrel.

            Remediation costs (production pollutes a lot of water) also add to the total cost.

            Sancor will cut production this year. Total production is expected to average 525,000 to 565,000 barrels of oil equivalent per day, with the midpoint down 5 percent from the 2015 average of 550,000 to 595,000 boepd. Also the current trend to cut corners and associated with it neglect in maintenance makes accidents more likely which negatively affect production.

            Nexen Energy executives apologized on Jan 16 for an explosion at the company’s Long Lake oil sands facility in Alberta that killed one employee, left another critically injured and shut down the site for an indefinite period.

      • Heinrich Leopold says:

        likbez,

        In my view Wall Street has been surprised by the recent dynamics of shale economics. In below chart I have tried to develop an indicator which depicts at which speed the ‘Red Queen’ has to run.

        The production life indicator shows the production months left if there are no new wells drilled. So, in 2014 companies had to replace the current production within 13 months through new production. However, during 2015 this indicator shows that production has to be replaced within 8.5 months, which is 40% faster.

        The ‘Red Queen’ had to run 40% faster just to keep production stable – and needs therefore also 40% more capex – just to keep production even.

        Below chart also shows that this trend accelerates and it is very likely that the time for replacement of current production sinks to 5 months this year. In other words companies in the Eagle Ford have to replace current production twice every year, which is an enormous task and requires much more capital than in previous years.

        Capex for oil and gas has been around USD 200 bn in 2014, yet with the strong declines in 2016 close to USD 500 bn are required to keep production stable. The huge capital required significantly weakened the US bond market by end of last year and threatens to bring down the whole US economy.

        Something has to give now: either the dollar falls or the bond market weakens even further or at least 3mill bbl/d will come out of the market and oil will rise again.

        • Heinrich, I have inserted paragraph breaks into your post. It is almost impossible to read without them. Please learn how to do this on your own.

          It is far, far better to have paragraph breaks in the wrong place than to have no paragraph breaks at all.

          • Heinrich Leopold says:

            Ron,

            Thanks. I do not want to become my comments too long, yet it is better to do it as you have suggested.

            At least it is good to know that somebody reads my comments.

            • Javier says:

              Don’t be silly, Heinrich Leopold

              This is a high traffic blog. Most comments get read dozens of times. But most people have nothing to add to most comments. In fact you are a lot more likely to get a response from people that strongly disagree with what you are saying. That the level of many comments is so high further discourages many readers that think they have little to contribute.

              • Heinrich Leopold says:

                Javier,

                I am fully aware about what readers think about my comments.I was just curious who will reply to my above comment.

                The reason I am writing my comments is that I deepen my knowledge in this constructive confrontation. The comments, even if they are against my opinion, let me think about my own position and this gives me more insight, which leads to better decisions.

                I can also compare my opinion with the real response from the market as I get also a good historic track record. When I wrote my comment yesterday about the possible scenario of a dollar fall, the dollar fell immediately afterwards and is still falling. A falling dollar is still in my view the best option in the current situation as inflation is low and it avoids pain in the US economy.

                Thank you again Ron for your forum.

        • Dennis Coyne says:

          Hi Heinrich,

          If no new wells are added to the Eagle Ford after Dec 2015, a highly unrealistic assumption, output falls from about 1400 kb/d in Dec 2015 to about 400 kb/d two years later.

          I have pointed out on occasion that the DPR does not give a very good estimate of future output, especially for the Eagle Ford. Chart below shows this

          unrealistic scenario.

          Typo on chart should be Feb 2016 (not 2065)

  49. Nick says:

    There are a few flawed assumptions in all of this. I was an engineer on the ground in the Haynesville in 08/09/10 and I think I can paint a more accurate picture of the dynamics at play.

    When the Haynesville first started opening up gas prices were high and everyone was looking for the next big field, and this was all fueled by the industry being flooded with cheap credit. Improving oilfield technology (deviated drilling and HP/HT capable equipment) allowed the Haynesville to potentially be that big field. Everybody jumped in but then gas prices collapsed, the first wells completed were showing steeper than expected declines, and well drilling/completion costs remained more than double that of wells in other fields. This caused a mass exodus as companies moved rigs and equipment to more profitable fields. The remaining rigs were drilling wells primarily to maintain mineral rights, not to service debt.

    So what’s my point? The prolonged low gas prices only served to keep rigs drilling in the most profitable (or least unprofitable) fields. These are not the only fields available, the Haynesville could see that peak production matched with the same rig activity as before. When gas prices rise again with the falling production, the rigs will be reactivated and production will come back. Hopefully this time around though companies will use more capital and less debt to finance all of this, and will be more cautious about increasing production.

  50. R Walter says:

    Neoconservatives follow the philosophy of Leo Strauss, the father of the neoconservative movement.

    Whether is has been bad or good, hard to know.

    A little bit and a good read about the neoconservatives and Leo Strauss:

    “Neoconservatives hold the view that ‘American’ is the best bet for the world – America’s institutional set-up is a very useful combination of modern elements, having to do with the sovereignty of individuals together with the older idea of a substantial role for government – and that this is an idea that needs to be widely promulgated. Indeed, without its promulgation there can arise and persist major threats to the countries which do embrace this set up, such as the United States of America. In short, unless the semi-free democratic society is strong, and not only ready to defend itself but also willing to go on the offensive in support of its system abroad, it will perish. The neocon view is that either you’re willing to export liberal democracy or it will be crushed by all kinds of barbaric global groups.

    Now let us return to Strauss. Recall his prudential endorsement of classical liberalism as the best bet for philosophy. (Just exactly why philosophy ought to be cherished is not made clear by Strauss & Co; and their implicit or explicit nihilism calls the merit of philosophy into serious question.) Strauss’s embrace of classical liberalism – or at least a watered down version of it, as per liberal democracy – did appear to influence the neocons. They too believe – some of them because they were taught it by Strauss & Co – that their most important values are best advanced and preserved in a relatively free society, provided such a society is strong and wields power wisely, both at home and abroad.”

    https://philosophynow.org/issues/59/Leo_Strauss_Neoconservative

    For what it’s worth.

    • likbez says:

      “Neoconservatives follow the philosophy of Leo Strauss, the father of the neoconservative movement.”

      No. They follow the philosophy of Leo Trotsky with “proletariat” replaced by “international elite” and global corporations.
      http://softpanorama.org/Skeptics/Political_skeptic/neocons.shtml

      Neoconservatives are neoliberals with a gun, changing Al Capone maxim into “You can get much farther with a neoliberal recommendations and a gun than you can with a neoliberal recommendation (as in Washington consensus) alone.” Kind of attack dogs of neoliberalism.

      Using deception as a smoke screen in politics was actually introduced by Machiavelli, not by Leo Strauss; that’s why Bush II administration was called Mayberry Machiavelli (https://en.wikipedia.org/wiki/Mayberry_Machiavelli)

      What Leo Strauss introduced and what is used in neoconservative/neoliberal discourse is the concept of “noble lie” (which includes “false flag” operations; https://en.wikipedia.org/wiki/False_flag). Here is how Professor of History at Tufts University Gary Leupp defines their behavior:

      == quote ==
      Hersh notes the critical influence of the philosopher Leo Strauss (d. 1973) on Wolfowitz’s thinking. His article stimulated, among other articles, a substantial piece on Strauss by Jeet Heer in the Boston Globe (May 11), and another by William Pfaff in the International Herald Tribune (May 15), the latter noting that “Strauss’s thought is a matter of public interest because his followers are in charge of U.S. foreign policy.” Strauss, of German Jewish origins who taught for many years at the University of Chicago, mentoring Wolfowitz among others, was a brilliant man. No question about that. But also a man profoundly hostile to the modern world and to the concept of rule by the people. He believed it was the natural right of the wise and strong to lead societies to the fulfillment of their wise aims, using subterfuge when necessary, because speaking the naked truth won’t get the job done.

      Strauss’s point of departure is Socrates, who in Plato’s Republic denounces Athenian democracy (the rule of the untutored masses) and instead promotes government by “philosopher-kings.” Strauss had experienced the Weimar Republic (one of the more democratic experiments in modern history) and seen Germany fall into the hands of the Nazis. He understandably opposed the latter, but he derived some lessons from their methodology.

      The failure of the Weimar regime to prevent the rise of fascism, in his view, resided in its failure to put power into the hands of the strong and good, who inevitably, unable to acquire popular support through honest methods, should (like their Nazi adversaries) have cleverly used Big Lies (towards good ends) to nudge the people towards those ends. Only wise men, acting in secrecy, can do that.

      As Hersh points out, the neocons (just about a dozen officials—including Wolfowitz, Perle, Feith, Bolton, Abrams — operating in concert with the oil-baron contingent in the administration-Rumsfeld, Cheney, Rice, Bush—and providing them with intellectual guidance) refer to themselves (with smug amusement) as a “cabal” (a word with an interesting etymology).

      They have contempt for the masses, and feel utterly justified in wisely misleading those masses into a roadmap for global peace on their terms. That meant, initially, using 9-11 to produce support for the seizure of Iraq,

      That seizure is still in progress, messily, untidily, brutally and illegally, and with results no cabal, however wise, can really predict. Among the results might be a growing revulsion among the American people themselves at the neocons’ misanthropic arrogance, and perhaps (much though it should be regretted and fought) anti-Semitism. The latter might be provoked by the fact that persons inclined to embrace the most extreme factions in the Israeli political apparatus are disproportionately represented in the neocons’ cabal, and while the general movement of U.S. foreign policy is driven by broad geopolitical concerns, rather than the alliance with Israel, the neocons’ allegiance to what they perceive to be the interests of Sharon’s Israel is highly conspicuous.
      == end of quote ==

      See also

      http://www.counterpunch.org/2014/10/31/the-gloating-of-the-neocons/

      • R Walter says:

        I provide a link that has an objective perspective provided by a student gone doctrinaire, brainwashed by Strauss’ dogmatic purports. Looks good on paper. lol

        In other words, it’s pure propaganda.

        That noble lie stuff is a hoot. Neocons gone wild! har

        Those guys run around like chickens with their heads cut off . Makes me laugh the way they can twist words and come up with the stuff they do and always say it wasn’t me!

        The damn dumb brainless fools don’t have a clue to as how simple it all is. They even use their names, provide all sorts of documentation, on and on and on and on. It is hilarious.

        And still to this day, they continue to go on and on about it all for centuries on end, ad nauseam, ad infinitum. Easier than building a rocket engine, it ain’t rocket surgery what they do.

        They forget where they came from or how they got there.

  51. Trump 1.0 says:

    “The U.S. Empire is in serious trouble as the collapse of its domestic shale gas production has begun. This is just another nail in a series of nails that have been driven into the U.S. Empire coffin.”

    Clearly the writer of this article has Tverberg conservative debt mental collapse disease and is playing the fear card to promote his self serving gold and silver sales business.

    The U.S. dollar is at record strength. Most Americans walk around with a computer in their hand connected to the world which was not the case 5 years ago. Energy costs are at a 12 year low. Record job growth for the last 6 plus years. 60 inch hi definition flat screen tv’s for as low as $500. Rising health care costs now contained. Future transportation efficiency’s in the pipeline. Vehicle maintenance cost and quality better than ever. Solar energy costs declining. Iran signed a nuclear agreement. The U.S. ended a losing war that cost $300 billion per year.

    “The collapse of U.S. shale oil and gas production are two nails in the U.S. Empire coffin. Why? Because U.S. will have to rely on growing oil and gas imports in the future as the strength and faith of the Dollar weakens.”

    America’s shale oil and gas is now a known reserve that will be available for production when the cartel importers try to limit production for financial gain or the current price rises. Ten years ago all the peak oil doomers ran around The Oil Drum with their hair on fire calling for collapse in fear. Only to learn the lesson of economic substitution and increased supply from higher prices.

    Gold is worth one third less today compared to the dollar than it was 3 1/2 years ago. The 4 mbd increase of U.S. production over the last 5 years has cut the importing cost of oil to U.S. by over 80%.

    The United States of America is the one and only superpower of the world. Deal with it and don’t forget it!

    • Caelan MacIntyre says:

      ‘Nothing to see here, everything’s fine… please move along… and continue consuming… (because if you don’t and catch onto what’s actually happening, you might bail and help crash too quickly a system that’s already crashing itself.).’

      “Those who might come on here and anonymously astroturf for various industries that lay waste will be long gone to kick the crap out of by the successive generations as they struggle with their legacies. Maybe there will be a few former industry seniors left to bitch slap, if to little consolation.” ~ comment at The Oil Drum

      “All political systems that I know of, and most kings, have moved their whole nation to desert. And the things that we saw as most proud– the cities and the canals and irrigation and so on– are the things that killed their cultures. And it continues, unabated. If people don’t seize power back, and make their own gardens, and sit in their own gardens of Eden, then we’re all doomed, and the whole world ends in dust.” ~ Bill Mollison”

    • likbez says:

      “The United States of America is the one and only superpower of the world.”

      That’s true. But that does not exclude

      “The collapse of U.S. shale oil and gas production are two nails in the U.S. Empire coffin. Why? Because U.S. will have to rely on growing oil and gas imports in the future as the strength and faith of the Dollar weakens.”

      “Nails in the U.S. Empire coffin” is just rhetorical flourish, but nothing good is coming from the coming collapse of the US shale industry. It’s a crime to destroy infrastructure which was built with such an effort in pretty severe conditions by people who are now thrown out on the street. Remember how Wall Street banks were saved in 2008 at taxpayers expense ? So it looks like banks are much more valuable for the Obama administration then the US oil industry.

      The hope that most (including myself) entertain is that price will rise above “survival level” sooner then this destruction starts in full force (which is probably the third quarter of 2016, if prices stay low).

      http://seekingalpha.com/article/2828756-money-dries-up-for-oil-and-gas-layoffs-spread-write-offs-start

      == quote ==
      Layoffs are cascading through the oil and gas sector. On Tuesday, the Dallas Fed projected that in Texas alone, 140,000 jobs could be eliminated. Halliburton (NYSE:HAL) said that it was axing an undisclosed number of people in Houston. Suncor Energy (NYSE:SU), Canada’s largest oil producer, will dump 1,000 workers in its tar-sands projects. Helmerich & Payne (NYSE:HP) is idling rigs and cutting jobs. Smaller companies are slashing projects and jobs at an even faster pace. And now Schlumberger (NYSE:SLB), the world’s biggest oilfield-services company, will cut 9,000 jobs.
      == end of quote ==

      That’s real people who lost jobs in stagnant economy, where oil was one of the few bright spots. And they can find nothing even close to their previous level of wages.

      Lost IMHO due to all those financial machinations with “oil glut” bogeyman as it is impossible to detect overproduction of less then 1Mb/d based on accuracy of world oil production and consumption data. So “great condensate con” — glut of condensate — probably was artificially amplified by futures markets which do not operate with real oil, just with dollars, being nothing but a casino, where with sufficient number of HFT machines you can drive the price down for a fraction of your gains on shoring futures.

      • Fred Magyar says:

        That’s real people who lost jobs in stagnant economy, where oil was one of the few bright spots. And they can find nothing even close to their previous level of wages.

        Welcome to the new world of fewer and fewer jobs in all sectors of the old economy!
        I know of lot’s of people in their prime working years who lost well paying corporate jobs back in 2008 and never recovered. They’ve gave up trying to find jobs a long time ago and are no longer counted as unemployed. There are millions of these people all over the US.

        BTW, How come you are not expressing concern over the current pending layoffs of thousands of employees over at Yahoo? How about Walmart closing stores recently because it can’t compete with online businesses like Amazon.com? Don’t worry, there will be plenty of real people losing jobs. That is part of the whole idea of the shit hitting the fan so to speak!

        BAU is unsustainable so there has to be a reset sooner or later. The higher the horse you fall off of the more pain you are likely to experience.

        • Trump 1.0 says:

          BAU has never been sustainable since the day man learned to control fire or invented the wheel. We will evolve and the out come of our evolution will depend on our decisions we make as a society. The unskilled Tverberg conservative debt mental collapse diseased are guaranteed losers in todays capitalistic society. The Tverberg losers always seem to like to resort back to the dark ages of gardening and hunting.

          “That’s real people who lost jobs in stagnant economy, where oil was one of the few bright spots. And they can find nothing even close to their previous level of wages.” “It’s a crime to destroy infrastructure which was built”

          Likbez, Welcome to American capitalism. The infrastructure won’t be destroyed, but the jobs will go somewhere else. If you have a unique skill or education, it will be rewarded. Otherwise you will become a commodity of grunt labor. Grab a shovel or go back to school. It’s your choice.

  52. Jeffrey J. Brown says:
    • Javier says:

      For some reason that link did not work for me. Perhaps you are a subscriber to FT. I used this one: It could be too late to avoid catastrophe in Venezuela

      We are all seeing the venezuelan crash in slow motion. It is very sad. A clear example that good leadership might not be able to deal with a bad situation, but bad leadership can make things a lot worse very fast. Right now in Europe we are seeing a lot of people making bad choices at elections. We have seen Poland fall prey to extreme right that is also in serious ascent in France, while in Greece and Spain the extreme left is collecting the discontent. I wonder if there is something with democracies that do not work properly when the going gets rough.

    • Jeffrey J. Brown says:

      WSJ story this morning:

      Inflation-Wrought Venezuela Orders Bank Notes by the Planeload

    • clueless says:

      And things looked so bright only 10 years ago.

      OCT. 30, 2005

      CARACAS, Venezuela – Firmly in power and his revolution now in overdrive, President Hugo Chávez is moving fast to transform Venezuela’s economy by bucking free-market planning with what he calls 21st-century socialism: founding state companies, seizing abandoned private factories and establishing thousands of cooperatives and worker-run businesses.

      The populist government is reorganizing the country’s colossal oil industry, taking a bigger share from private multinationals. Planners are reorganizing the banking system, placing stringent restrictions on lending while creating state banks. Venezuela is also developing a state-to-state barter system to trade items as varied as cattle, oil and cement as far away as Argentina and as near as Cuba, its closest ally.

      “It’s impossible for capitalism to achieve our goals, nor is it possible to search for an intermediate way,” Mr. Chávez said a few months ago, laying out his plans. “I invite all Venezuelans to march together on the path of socialism of the new century.”

      http://www.nytimes.com/2005/10/30/world/americas/chavez-restyles-venezuela-with-21stcentury-socialism.html?_r=0

      • 70%H2O says:

        European socialists have held Venezuela as an example of modern socialism that is actually good. Finally, a case where socialism does not suck! I could name names but will refrain. Only to note that these socialists don’t comment much about the country any more.

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