The Case For Peak Oil

All charts below were created with data from JODI, the EIA and OPEC MOMR. It is in thousand barrels per day and the last data point is September 2015.

JODI World C+C

World crude oil production has taken off during the last two years due primarily to US shale oil production and higher output from OPEC. However very high oil prices has enabled many other countries to increase drilling rigs and production.


Low oil prices are having an effect on Non-OPEC oil production though not nearly as much as a lot of people thought they would, and not nearly as soon either.

Big 5

Five nations, Saudi Arabia, Iraq, Russia, USA and Canada, have been responsible for way more than 100 percent of the increase in oil production in the last decade. 

World Less Big Five

The world less the five nations charted above is down 5,000,000 barrels per day since 2005. This decline is despite the fact that oil prices, during much of that time, has been above $100 a barrel.

A look at the Non-OPEC segment of this group.

Russia, USA and Canada

The combined production of these three nations peaked in March and is down 431,000 bpd since then, back to basically where they were in October 2014.

Non-OPEC less Big 3

There is little doubt, given that oil prices are where they are, that the rest of non-OPEC will continue to decline. Though they have been relatively flat for seven months now, I expect them to head down sharply in the fourth quarter and next year.

We have already discussed Russia and the USA. Just about everyone expects the USA to drop sharply next year but many believe Russia will stay flat for the next two decades. That is not my opinion of course but at least these folks don’t expect much, if any, increase in Russian crude production. 

But what about Canada? 

JODI Canada

The below is EIA Canada. The data is only through April 2015.

EIA Canada

Canada NEB

I have inserted Canada’s total oil production according to Canada’s National Energy Board. The data is through December 2015 with the last few months being mostly projections. The peak month, so far, is February 2015.

A lot of prognosticators expect Canada to massively increase production during the next couple of decades. I don’t. Notice that Canada’s production started to stall in April 2014, well before prices started to fall.

Canada’s rig count has fallen by about 60 percent and capex has declined considerably in the oil sands. I expect Canadian production to decline and even if prices return to $70 a barrel, (they ain’t going much higher than that,) it will still be years before Canadian production reaches 4 million barrels per day, if it ever does.

Production decline, throughout the world, seems to be lagging the rig count by about one year. This should not be a surprise because this is historically the norm, whether rig count is increasing or decreasing. But a lot of people seems to have expected the decline a lot sooner. And that includes Lukoil Vice President Leonid Fedun. The below article was written in March.

Lukoil predicts 8 pct Russian oil output decline in next two years

* Lukoil’s Fedun says drilling to drop steeply in Russia

* Refining hit by new tax changes, some refineries to close

* Sees oil prices returning to $80-$100/bbl by year end 

By Dmitry Zhdannikov

LONDON, March 3 Russian oil output is expected to fall 8 percent in the next two years, the steepest fall since President Vladimir Putin took power at the end of 1990s, as low prices force companies to cut back on drilling in Siberia, a top Russian oil executive said.

Leonid Fedun, vice-president and a large shareholder in Russia’s top private oil firm Lukoil, said the drop could amount to as much as 800,000 barrels per day (bpd) by the end of 2016.

His forecast is one of the most pessimistic yet by a Russian oil executive since the country was hit by sanctions and a steep drop in oil prices.

By contrast, the energy ministry expects Russian output to be steady this year at around 10.56-10.60 million bpd. Oil and gas sales account for half of Russia’s budget revenue.
Russian oil output halved in the 1990s following the collapse of the Soviet Union but has recovered by more than 70 percent on the back of high oil prices since Putin took over as president in 1999. Russia is the world’s largest oil producer.

Sanctions imposed on the country over its role in the Ukraine crisis have drastically limited Russian firms’ access to Western capital and technology over the past year while low oil prices are forcing them to slash exploration budgets.

“Everyone will reduce production because everyone is reducing drilling,” Fedun said. He said he expected drilling in Siberia to drop by as much as 15-20 percent.

Fedun said Lukoil’s output was likely to stay flat or drop slightly in 2015 as the company was drilling fewer wells in Siberia. In 2016, it could recover as it brings new fields in Russia on-stream, he said.


Fedun said he saw oil prices returning to $80 per barrel or even $100 by the end of the year as production around the world was set to drop due to lower drilling activity.

“We are seeing a decline in drilling rigs in the United States. We see this happening in Russia … Latin America is also actively cutting drilling and in Nigeria we expect production to decline significantly. These are also difficult times for the North Sea,” he said.

“In the second half of the year, we can confidently say we will see oil surpluses in storage and production beginning to disappear”.

Fedun also said he expected U.S. shale oil to deter risky and expensive exploration such as deep water in the decades to come.

Of course Fedun is very wrong concerning the price of oil. It shows no signs of recovering any time soon and most definitely it will not recover very much by year’s end. And I think Russian oil production will not decline as fast as he predicts. However on that count he is wrong only in the fact that he is too early with his prediction.

Unless oil goes above $100 soon then I must conclude that the USA has peaked. Ditto for Canada. Russia has peaked regardless of what oil prices do. Ditto for Saudi Arabia. The only one I am not so sure of is Iraq. But they have serious political problems and my prognosis is that they have far more downside potential than upside potential. 

The political situation in North Africa and the Middle East will get a lot worse before it gets better. That could prove to be very bad for many Middle East and North Africa oil producers.

I am more convinced than ever that 2015 will be the final peak in world oil production. And we may know well before a lot of people realize. It all depends on the decline rate… and on the state of the economy… and on the political situation in MENA… an on…

Ther Baker Hughes Rig Count is out. Another big drop in US Rigs.

Baker Hughes

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538 Responses to The Case For Peak Oil

  1. John says:

    Ron, why can’t oil soar above $100 if the production lag from dropping rig counts turns sharply lower?

    • It can John. What we are talking about here is what is most likely to happen, not what possibly can happen.

      • Dennis Coyne says:

        Hi Ron,

        The question then would be, is a severe recession lasting 10 years (or perhaps forever) the most likely scenario? I think your answer would be yes. I would say it is highly unlikely until we have high oil prices coinciding with peak output. That is when we will truly know that we have reached peak oil. The current peak in World C+C output (probably the 12 months ending in June or July 2015,) is likely to be surpassed when oil prices rise above $100/b. I think it most likely that will occur by at least mid 2019, and my best WAG is 2018 for oil prices (in 2015$) climbing above $100/b (12 month average price).

        Of course, I rarely get oil prices right, perhaps Heinrich Leopold could give us his current guess for future oil prices.

        • Dennis, I think we have a different idea about what the economic future holds for the world. No, I do not expect a severe recession to suddenly happen. What I do expect is for things to get gradually worse as time passes. After all they have gotten gradually worse since 2008. I see no reason to be optimistic and believe things will turn around.

          I am sure neither of us expect peace to break out all over the world any time soon but what I expect is for the situation to get gradually worse, as it has for the last several years.

          Dennis, all I am really expecting is for the economic situation to get gradually worse, for the terrorist situation to get gradually worse, for the Arab Spring to intensify and for the turmoil to get gradually worse…. as it has for the past several years.

          So yes, I see the above scenario as, by far, the most likely.

          • Dennis Coyne says:

            Hi Ron,

            I think things tend to go in cycles. They get worse, then they get better, rinse and repeat. Pretty much the story throughout human history, no guarantee it will continue. The idea that things will get gradually worse forever, I don’t buy it.

            • Dennis, if this is a cycle it is the very first cycle of its kind. There has never been a time in history like today. China has built hundreds of ghost cities, almost all empty. They have 65 million empty apartments that the average Chinese will never be able to afford. That cycle has never happened before. Over the last few years their stock market tripled, now it is crashing. That cycle has never happened before.

              Total US National debt is 18 trillion… and climbing. That cycle has never happened before.

              The Arab Spring is not a cycle, it just gets worse every year.

              World population is at 7.3 billion. That has never happened before. The population is increasing by 82,000,000 per year. That is not a cycle, it just keeps going up.

              The number of failed states is increasing each year. They now number about 25, depending on your definition of a failed state. Yemen just became a member of that group. This is not a cycle, it has never happened before in such numbers. And in the last two decades no failed state has become “un-failed”. Their number will likely only increase.

              I have no idea what you are not buying, but if you think the situation the world is in right now is just some kind of cycle then you have just not been keeping up with the situation.

              • ChiefEngineer says:

                Hi Ron,

                I believe part of your alarm about what you see going on around you is not because it’s new stuff, but because of the information age. Most of the things you list are not new. The debt has always been at record level. The population has always been bigger than the year before. Poor failed states aren’t new either. Before Bush opened up Pandora’s box there was plenty of killing in the Middle East. It just wasn’t in our face like it is today.

                Fifth teen years ago, you read the local newspaper with mostly local news and got the 6 o’clock nightly news. The rest of the world was out of sight and mind.

                Now I’m not saying there aren’t a lot of big problems that aren’t getting bigger. I’m just saying, this shit has been going on a long time and will go on a lot longer.

              • Dennis Coyne says:

                Hi Ron,

                Things have gotten worse better, worse, better over time.

                That is the cycle I am talking about. On population, it will peak and decline. The old models that proposed an eventual stable total fertility ratio(TFR) of 2.1 are likely incorrect, based on what some demographers think. I do not know the field well enough to know what the mainstream view is, but many countries have gone below 2.1 for total fertility (in fact more than half the World’s population lives in nations with TFR less than 2.1 (excluding the population of the People’s Republic of China). The average TFR for these counties is under 1.7.

                If the rest of the World (with higher TFR) follows the past trajectory of the now low TFR countries, population will peak around 2050 and then begin to decline.

                There are good things happening in the World along with the bad, you choose to focus on the negative. I believe my view, which sees both the good and the bad, is more balanced and more realistic. Time will tell.

              • Nick G says:

                The number of failed states is increasing each year.


                what you’re calling a “failed state” is nothing new. The remarkable thing is how many countries are doing better than that.

                Have you ever read A Tale of Two Cities?? Go back and read the first few pages, and be reminded of how much England of two centuries ago sounds like Yemen now.

            • TechGuy says:

              DC wrote:
              “I think things tend to go in cycles. They get worse, then they get better, rinse and repeat.”

              The US has kept interest rates at Zero for the past 7 years. This isn’t by any means just another “cycle”. We would have been in a long term depression if it wasn’t for ZIRP and QE.

              The world is now going to the Japan economic model which has been in a permanent decline since 1989 with some short term blips. For the past 7 years its been the Emerging Market Debt bubble that has propped up the global economy. However the EM debt cycle is reached its peak. The West (EU, US) had been helped as Emerging Market consumers bought western made products (Heavy machinery, cars, trucks, etc).

              I think we will see another rise of Military Keynesium as major powers turn to extreme methods to prop up their economies. I see a military build up in China as it civilian economic bubble pops. Other nations will match China’s (Japan, India, US, EU, etc). We been through this in the pre-WW1 era through the WW2 era.

              • Glenn Stehle says:

                I don’t think military Keynesianism will work this time.

                The planet simply does not have sufficient natural resourses to sustain another round of growth (which brings those debt to GDP ratios back in line) like that which followed in the wake of WWII.

                This, of course, will not prevent the world powers from trying it.

          • Nick G says:

            things… have gotten gradually worse since 2008.

            What makes you say that?? Check the chart (overall GWP growth from 2008 through 2015, as well as an estimate for 2016, according to the International Monetary Fund (IMF)’s World Economic Outlook database. )

            • TechGuy says:

              Need to plot that against a growth in Debt. Global debt has been increasing about 10 times world growth. Without the expansion of debt there would have been no growth and a global retraction (ie depression).

              The Debt growth cycle has reached its peak as all of the emerging markets have peaked and now will be forced to pay back trillions in borrowed money (which they do not have).

              Remember, that debt based growth creates short term demand at the expense of future demand, since debt has to be paid back causing consumption of fall as more cash flow is used to service the debt.

              FWIW: The world is now in a recession, You can see it in all of the commodities (base metals, energy, even some grain foods). Unless the central banks collectivity start printing money and make it more ready accessible to consumers the global economy will be heading towards a deep recession or depression.

              • Nick G says:

                debt based growth creates short term demand at the expense of future demand, since debt has to be paid back causing consumption of fall as more cash flow is used to service the debt.

                Uhhmmm…..who is the debt paid back to? This is the whole world we’re talking about. For every debtor there’s a creditor who’s receiving income. That means the net impact on consumption is different. It’s not quite zero: if the income is being reallocated to wealthier people who don’t have as high a propensity to consume, it might hurt. OTOH, KSA is certainly consuming all of it’s oil income AND it’s creditor income right now…

                Have you read “This Time Is Different – 8 Centuries of Financial Folly”??

                • TechGuy says:

                  “For every debtor there’s a creditor who’s receiving income. That means the net impact on consumption is different.”

                  Sorry Nick, Its “NOT Different this time”. Unsustainable debt will not be paid back. The Creditors will be losing their shirts as defaults unfold.

                  Nick Wrote:
                  “It’s not quite zero: if the income is being reallocated to wealthier ”

                  Actually most of the money originates from the middle class savings from pension plans, insurance funds, etc. All the OPM has been spent into mal-investments. The Rich just play with OPM, by leveraging it into investments and collecting fees and 2% of the paper profits. Its very easy to get into a high risk investments and show paper profits. Liquidating investments is not so easy.

        • farmboy says:

          Dennis My guess is, the price drop, in commodities across the board, will, with time, make for a lot less usage for oil. Mining, transport, steel mills, construction, etc. are all taking a hit. China “Imports plunged 18.8% year-over-year to $130.8 billion, after a 20.4% cliff-dive in September, the 12th month in a row of declines. This isn’t weak global demand, but a swoon in demand in China. Part of the plunge is due to falling commodity prices and weak demand for commodities in China. But even then: for the first three quarters of the year, import volume, which eliminates prices as a factor, was down 4%.”

          ” And now Maersk CEO Nils Smedegaard Andersen told Bloomberg, “We believe that global growth is slowing down,” and is worse than forecast by the IMF and others, as trade is “significantly weaker than it normally would be under the growth forecasts we see.””

          And just as in the shale business, we also have overproduction/malinvestments in copper, due to QE money.

          Even US freight not counting commodities droped 5.3% y/y in Oct.

          Bottom line is; it is taking so much energy to extract, refine, and deliver oil these days that there is little energy left to power the economy, and the monetary policies of our time have financed the producers but done little for the majority of consumers, so that the consumers can not increase income, while expenses like housing, insurance, and healthcare keep increasing. So the consumers end up buying less stuff, and stuff is manufactured, delivered, and often made from, oil.

          • Dennis Coyne says:

            Hi Farmboy,

            Bottom line is; it is taking so much energy to extract, refine, and deliver oil these days that there is little energy left to power the economy…

            As long as the oil produced and sold has the same energy per gallon as it has had in the past (about 124,000 BTU/gallon for gasoline), the fuel will be as useful as it has been in the past.

            The fall in commodities is due to an overvalued Yuan hurting Chinese manufacturers.

            • oldfarmermac says:

              Money is not the same thing as resources, either physical or human. The commies understood that much, at least, which is more than quite a lot of people in this forum understand.

              There is no doubt in my mind that most of the debt in this world will never be repaid, except in sharply depreciated money, which essentially means the same thing as partial default.

              When debts are not repaid, the true effect, first, is that the people who do not repay them have IN EFFECT “EARNED” or made a lot of money, and the people who don’t get paid in effect made bad investments, just as they could have made bad investments in the stock market.

              The quantity of ACTUAL PHYSICAL and HUMAN RESOURCES does not change appreciably, unless the resulting shit storm escalates to war, or the resulting economic depression is so deep that people retire, etc, without new people coming into their trade or profession.

              Defaults large and small, from the fifty I recently loaned to a dead beat so called friend to entire national debts, are historically as common as ants at a picnic.I HAVE a copy of “This Time It’s Different” around here someplace.

              (That so called friend will probably never repay me.It is well established farmer wisdom that a very effective and economical way to get rid of less than desirable relatives and so called friends is to loan them a modest amount of money. They have a way of disappearing from your life for as little as fifty bucks, which can be money extremely well SPENT. I will not be bothered with this fellow again, wanting to borrow more money,or tools, or anything else. )

              Defaults on a large scale result in troubles such as major economic depressions, which can and sometimes do escalate to outright war between debtors and lenders, right up to the nation state level. But unless the depression lasts so long (it can and does happen this way ) that people lose their trades and professions , IN THE LAST ANALYSIS, the quantity of physical and human resources remains about the same as before the default.

              Money is merely an extremely useful tool, but not one that actually does anything except as act as a medium allowing people and resources to be used efficiently.

              The deadbeat I loaned the fifty in effect made or earned or got that fifty as a gift. I lost it as a bad investment. The ownership of fifty dollars worth of real resources changed hands, the quanity of real resources existing in the world did not change.

              SO- DEBT might kill us, the same way enemy bullets might in a gunfight, or a contagious disease might kill us. . But there is a significant possibility, on average, of surviving a gun fight, and with a little luck, you don’t catch the disease, and if you do, you may still live over it.

              The people who are SURE debt is going to bring down the world economy are not on entirely solid ground. I am not saying debt won’t be the straw that breaks the camels back, by any means, but rather that the camel might live.

              Confidence always returns,eventually, and money is always eventually available for the lending, after a default, at any level.

              Sometimes nations that are in desperate economic straits and flat broke, according to the usual standards,and unable to borrow a dime, nevertheless manage to pull off economic miracles. Confidence is the key, not electrons.

              I won’t name the best example so as not to encourage somebody to call me a XXXX.

            • farmboy says:

              “As long as the oil produced and sold has the same energy per gallon as it has had in the past (about 124,000 BTU/gallon for gasoline), the fuel will be as useful as it has been in the past.”

              Of course, I agree, A gallon of gasoline is the same as any other gallon past or future. The problem is, that the percentage of the population involved in producing petroleum products needs to keep on increasing. So that means we have less people to put this fuel to good use and with time they are no longer able to pay the prices that they could at one time.

              Its like having an increasing portion of the population, busy building the pyramids. while less and less people are employed in supplying the necessities of life. In both examples, the total population becomes poorer and poorer. Printing money will not help any in the medium let alone the long term.

              • Dennis Coyne says:

                Hi Farmboy,

                More inputs will need to be allocated to produce energy (labor, natural resources, and capital) and the cost to produce the energy will increase. The economy will over the long term shift to the cheaper sources of energy and if externalities are taxed appropriately we will gradually shift away from oil , coal, and natural gas.

                In addition as energy becomes more expensive we will use it more efficiently.

        • Heinrich Leopold says:


          I have just seen that you have cited my name in your post. If you really want my opinion, I can only say that US production has to come down significantly until oil prices can rise in the short term. Legacy decline in Eagle Ford stands at 149 kb/d and at 84 kb/d and month in the Bakken. So this makes for Bakken Eagle Ford and Bakken alone 250 kb/d and month, which is annualized 3 millb/d of decline and year. Of course production from new wells, which is around 120 kb/d and month compensates somehow for the slowdown yet new well production slows down very sharply as long as oil prices stay low. So, if shale companies are wise, they cut production as much as possible and start production again when prices are high. If shale companies choose to produce as much as possible, an oil price rise will take much longer. In my view shale production is only sustainable at much higher prices as decline rates are very high. Recently Marcellus has reached a decline rate of 50%, which means current capacity has to re-drilled every two years. Overall US producers have to drill 3mill b/d (or 18 bcf/d of natural gas) of oil equivalent in natural gas and 3 mill b/d of oil every year to compensate for an overall decline of 6 mill b/d per year. Total world decline is the same, although total world production is four times higher. So this is a significant competitive disadvantage for US producers. It will cost US producers and investors astronomic amount of resources to wait until the worldwide low cost production expires. So, it is in my view better to cut production now and produce the remaining resources when prices are much higher.

          • Dennis Coyne says:

            Hi Heinrich,

            I was wondering about your oil price prediction (and looking for a number and date).

            The legacy decline is not fixed, as fewer new wells are drilled its absolute value will become smaller. This is a fact which you seem not to grasp. I have shown in several ways that a 3 million barrel per day decrease in US output by the end of 2016 is virtually impossible.

            The only exception might be a financial crisis in the interim on the level of 2008/2009, even in that case, US C+C output will be likely to remain above 6 Mb/d through the end of 2016. Maybe WW3 would do it though.

            I will give up trying to explain it further.

            • Heinrich Leopold says:


              Yes, the decline rate will go down when production goes down, yet the percentage of the decline towards the total remaining production is actually still growing. So the real decline will probably be a little bit slower compared to a linear decline, yet just a few months. The decline of production from new wells is already -50% yoy and soon trending to zero growth from new wells. So, the decline is luckily accelerating. It is not possible to give an exact date for an oil price rise as this depends from the behavior of the players in the market. If shale players stop production from new wells, US production will be at least 2 mill b/d lower by the end of 2016 and then the oil price can rise, very likely sharply. In 2016 conventional production will fall as well, so the decline could be higher than 3mill b/d. If producer fight on it will take at least until 2020. Shale players can survive lower production if they do not invest in new drilling and serve debt from existing production.

              I have also copied your statements and I will remind you and show you your comments again by end of 2016. So far , my statements have been spot on about the oil price. Beginning of 2015 I have warned you to accumulate UWTI. The value of this investment is now down manifold. In spring 2015 you have predicted an oil price of over 70 USD per barrel in September and over 80 USD per barrel in November 2015. I have reminded you in October 2015 about your wrong predictions when new predictions came out (some oil veteran experts predicted oil far above 80 USD per barrel by the end of 2015) and wrote that oil is much more likely to go below 40 USD per barrel than to go to over 80 USD per barrel. Here we are at the end of 2015 and oil is on the brink of falling below 40 USD per barrel. So far all my predictions have been spot on and you were out of everything. I am wondering that you still have the confidence to make such strong statements.

              • Heinrich Leopold says:


                Here is some quote from, which shows that I am not alone in my assessment.

                Quote of the Week

                “U.S. production is about to have a Wile E. Coyote moment where it literally falls off a cliff. One-hundred-and-twenty-thousand barrels, maybe even next month, will drop off…. The supply and demand mismatch will probably come in 2017.”
                Emad Mostaque, analyst with London-based consultancy Ecstrat

                • Dennis Coyne says:

                  Hi Heinrich,

                  I used similar terminology the other day (Wile E. Coyote) to describe a Minsky moment where everyone runs for the door at once. Even in that case the decline in US C+C output will be no more than 2500 kb/d, and a more likely value would be about 1750 kb/d decline from the peak until Dec 2016 for a worst case scenario.

                  Also we are in agreement that output in the US will fall and that oil prices will rise in the future.

                  I just think output will fall by more like 1250 kb/d in the US (from the April 2015 peak to Dec 2016), where you have predicted that US C+C output may fall to under 6 Mb/d by Dec 2016, a fall of 3599 kb/d from the April 2015 peak.

                  My guess is that this estimate will be off by about a factor of 3.

              • Dennis Coyne says:

                Hi Heinrich,

                I have mentioned that your predictions have been better than mine on the oil price. I thought before that what you are now predicting for 2016, would happen during 2015. I was wrong. Now I may understand better how these boom busts might play out. Your argument that high output wells will be abandoned does not make sense from a financial perspective. The money has already been spent on a producing well, it is a sunk cost. Do you think that most of these LTO focused companies are in a position to shut in a well that is generating cash and wait for higher prices?

                Let’s assume your answer is no.

                In that case you may expect that all of these companies will go bankrupt and that all (or most) producing wells will be temporarily abandoned. From the big three LTO plays (Bakken, Eagle Ford, and Permian)there is only about 3700 kb/d of output. About 500 kb/d of Permian output is conventional and I have deducted this from “LTO” output. You are suggesting a 3300 kb/d drop in US output by Dec 2016. I will remind you of that prediction which I think will be as good as my oil price predictions in the Spring of 2015.

                I notice you have said nothing about price that could be pinned down ( basically you have said they will rise in the future, a pretty bold prediction which I agree with).

                So you were almost right (as oil prices are not below $40/b) and I was wondering what your crystal ball says for 2016 as you seem to be clairvoyant.

            • Enno Peters says:

              Dennis, I completely agree with you.

              • Dennis Coyne says:

                Thanks Enno.

                Your Bakken analysis and that of FreddyW, Shallow sand, and of course the master, Mr Likvern are the best analyses that I have seen, much of what I have learned from all of you I try to apply to the Eagle Ford (but the data is much more difficult to collect in Texas), for the Permian I simply have some output data, no information on the number of new wells and such.

                Does my WAG of 1000 kb/d to 1500/d decline for the big three plays (B,EF, and P) seem in the ballpark, if prices remain under $60/b for the next 12 months?

          • TechGuy says:

            Heinrich wrote:

            “So, if shale companies are wise, they cut production as much as possible and start production again when prices are high”

            They cannot. They owe a collective $300 Billion, and need cash flow to support the debt. The Shale drilling model was never sustainable. It was mostly about drilling for Money on Wall street.

            • Heinrich Leopold says:


              Shale companies are definitely in a difficult position. However, if they cut production as much as possible they increase the chances for an oil price rise. If they carry on, the situation gets even more difficult. In my view it is possible, that companies could manage the decline in production by serving the debt from existing production and in some cases with the help from banks. The alternative is just a total collision. Probably this is how the system works.

            • Dennis Coyne says:

              Hi Techguy,

              They will not cut producing wells unless they are cash flow negative. Drilling new wells (or even completing wells that have already been drilled) only put them further into debt at this point and eventually more credit will not be available and the game ends.
              Maybe by Jan, they may be waiting to see what OPEC does.

              • TechGuy says:

                Heinrich Leopold Wrote:
                “However, if they cut production as much as possible they increase the chances for an oil price rise.”

                I don’t think you understand the point I was driving at. They are already losing money, and need every damn penny to service the debt. Cutting production does not cut their debt servicing costs.

                For a simple analogy, consider if your trapped in a room with a fire (falling Oil prices). if you cut off the oxygen supply (oil production) the fire will go out, but you’ll also perish since you need oxygen to breath (no cash flow to service the debt).

                DC Wrote:
                “They will not cut producing wells unless they are cash flow negative.”

                They are already been cash flow negative. They been cash flow negative since they started drilling. they used Money from wall street (stocks) for CapEx. When the WallSt. money punchbowl was taken away they turned to the bond market to keep the pumps turned on. Most have turned to the legal loan sharks (aka junk bond market) and are paying yields north of 10% just to keep on breathing.

                This is like a home owner who took out a jumbo loan, then a home equity loan, and then leveraged any remaining assets they had to hold on to their home. The home was lost many moons ago, but the homeowner tried to hang onto it hoping for a miracle.

                No matter what OPEC does is irrelevant since the Shale drillers are will never recover. Any price increases in energy is own going to cause demand destruction. The reason why Oil prices have fallen so much is because demand is collapsing in the emerging markets. Its not just Oil that has collapsed, but all commodities (Steel, Copper, Cement, lumber). Rising prices would only re-enforce further demand destruction, cause even further price declines a few months later.

                FWIW: Icing on the Cake will be if the FED falls through with its “promised” rate hike next month. Although I doubt they will raise. I think we could see Oil in the low 30s sometime in the spring. The situation in the Emerge market is bound to get worse.

                • Dennis Coyne says:

                  Hi Tech guy,

                  For a producing well the CAPEX is a sunk cost, now the question becomes is the revenue from the oil produced greater than OPEX plus downhole maintenance. For a Bakken well producing 30 b/d or more the answer is yes. So at the well level the well is cash flow positive in the sense that shutting down the well leaves you less cash than continuing production.

                  • TechGuy says:

                    CapEx originated from “borrowed” money. Debt needs to be serviced long after the Money was spent. We’ll call it DebtEx 🙂

  2. Paulo says:

    Current Canadian production is 4.3 million bbl/day. It remains flat with infrastructure in place in the Oil Sands. Drilling is certainly off, for sure. You expect a 25% decline in production?


    • The EIA and JODI have totally different numbers for Canada. I heard the reason for that a few years ago but I cannot recall it now but I think it has something to do with in situ oil sands production. Perhaps someone on the list can enlighten us. I have now posted the EIA chart for Canada as well.

      • Dennis Coyne says:

        Hi Ron,

        It is probably best to use the data from Canada.

        Data through July (except estimates from BC and NS) and estimates by the NEB for Aug 2015 to Jan 2016 in chart below.

        • Dennis, I cannot locate a legend on those Excel charts. What is the data in? Not bpd for sure.

          • aws. says:


            We’re metric in Canada, but being right smack dab next to our American cousins we’re also out of necessity imperial. The NEB reports in metric tons if I recall. Though they do have some data in barrels too.

            • Okay thanks. Now how many barrels per ton do you guys get. I would guess that with all that heavy bitumen it is less than 7.

              EDIT: Looking back over my old Excel spreadsheets I found where I had something using the Canada NEB files from 2013 and earlier. I used 6.2898 Canadian barrels per ton. I don’t remember where I got that number but to be precise to the fourth decimal point I must have gotten it from somewhere official.

              • Dennis Coyne says:

                Hi Ron,

                There are two sheets in the Excel file, one is in cubic meters and the other is in barrels per day. A conversion from barrels to cubic meters is unaffected by the density if the oil.

                It is 6.29 b per cubic meter.

              • You converted using cubic meter. Last time I visited Calgary we used the term “cubes”.

                • Thanks Dennis and Fernando. I have a handle on it now. I will convert everything to barrels and insert that into my JODI spreadsheet and use the NEB data from now on.

                  I only use JODI data when there is nothing better. I have better OPEC data and now I have better Canadian data.

                  • Jorge says:

                    Actually, the legend is at the top (kb/d) stands for kilobarrels/day so this chart shows that they´re hovering between 3.5 – 4 million barrels a day, but they state these numbers are estimates from May on and less than 1 million daily is conventional oil, the rest is “upgraded bitumen, condensate and heavy oil” So, if I get this right, these data from Canada equals to what others report as “total liquids” and 75%-80% of canadian output is unconventional/not oil.

                  • Dennis Coyne says:

                    Hi Jorge,

                    Unconventional oil is still oil, it is crude plus condensate, with most of it being crude.

                    Note that when oil sands crude is refined into gasoline, it gets my car down the road just as well as gasoline refined from “conventional” crude.

                    Jeffrey Brown complains that much of C+C is from condensate with API gravity above 45 degrees. That is not a problem with oil sands which is very heavy stuff with API gravity of 10 or less.

      • Ovi says:

        I think the OPEC report itself provides the clue to why the Cdn production numbers from the EIA are different than those from Jodi. In the attached OPEC table, US production is shown to be 13.6 Mb/d in Q4-15. This number is composed of C+C+NGPl +processing gains. From this I presume that the Jodi number for Canada could be either C+C or just C.

    • Dennis Coyne says:

      Hi Paulo,

      That is IEA data which is total liquids, the NEB data has C+C at about 4 Mb/d, which suggests that NGL+ Other liquids is about 300 kb/d. I prefer to focus on C+C because it requires less hand waving than trying to estimate crude only.

  3. Graywulffe says:

    From the summer of 2004 to the summer of 2008, world oil production (c+c) hovered around 70-72 million barrels a day (mbd). There was a temporary drop afterward during the oil-shock-triggered Great Recession. Production rates elevated after the initial economic shock of 2007-2009, with perhaps a little delay following the second oil shock of 2011, and have reached 74-76 mbd in 2015. That is, roughly speaking, a growth rate of about 5% over a decade. Compare that to the oil production increases in the 1950s and 1960s and the crisis becomes obvious. It seems like an “undulating plateau” has been underway since the 1970s oil shocks, again roughly speaking.

    • Watcher says:

      Jeffrey will weigh in here regarding all oil not being the same.

      • Nora Kearney says:

        Jeffrey has a point

      • Jeffrey J. Brown says:

        As I have periodically noted, in my opinion the only reasonable interpretation of the available data is that actual global crude oil production (45 API and lower gravity crude oil) has been approximately flat to down since 2005, while global natural gas production and associated liquids, Condensate & Natural Gas Liquids (NGL), have (so far) continued to increase.

        Global Gas, NGL & C+C 2005 to 2013/2014 Rates of Change
        (EIA, 2013 for gas, 2014 for other data)

        Gas: +2.6%/year
        NGL: +2.6%/year
        C+C: +0.6%/year

        OPEC Gas, NGL & C+C and OPEC Crude Only 2005 to 2013/2014 Rates of Change
        (EIA + OPEC, 2013 for gas, 2014 for other data)

        Gas: +5.1%/year
        NGL: +1.3%/year
        C+C: +0.2%/year
        OPEC Crude Only Data: -0.2%/year
        Implied* Condensate: +8%/year

        *EIA C+C less OPEC Crude Only

        Link to essay & graphs:

        My point is that it seems quite likely that despite trillions of dollars in upstream capex since 2005, we have seen little or no increase in actual global crude oil production, while global natural gas production–and associated liquids–have so far continued to increase. It seems to me that this might be an important point, since it would also be known as Peak Crude Oil, but I seem to be very much in the minority.

    • Dennis Coyne says:

      Hi graywulffe,

      I would call it a plateau from 2005, but that is a pretty wide plateau if we include all C+C, if we redefine oil at specific gravities we can probably get any result we want as the data is not very good when you slice and dice too much.

      We don’t really know what will happen when oil prices go back to more reasonable levels (above $80/b) and remain at that level or higher for a couple of years. Maybe a 2015 peak will be surpassed, my guess ( a WAG) is that once oil prices increase, output will return to 2015 levels or higher.

      My WAGs are probably less informed than Ron’s educated guesses, but I think 2020 to 2030 is a more likely time frame for the final peak.

      • Dave P says:

        Don’t sell yourself short Dennis, your knowledge and guesses are probably as good as anyone’s.

        I’m an ‘armchair’ peak oil enthusiast – have followed it since 05′ – and my own personal guess is that it will be around about 2020 before the peak occurs. I think the 2015 is a bit premature but it’s impossible to say due to all of the variables it involves.

        • oldfarmermac says:

          Ron thinks oil will stay cheap for a long time because he thinks the economy is headed to hell in a hand basket, according to his comments below.

          • Dennis Coyne says:

            Hi Old Farmer Mac,

            I agree. My guess is that Ron is pre-mature on that as well. I think it more likely the economy will do poorly once the true peak is reached, which in my view is when high oil prices (say $150/b in 2015$) can no longer increase output, this may not be until after 2025 ( see my scenarios down thread). Those are just possibilities, nobody knows of course, though my guess is based on a model ( from Webhubbletelescope using Jean Laherrere’s data) and reserve growth similar to that experienced in the US from 1980 to 2005 (2.9% annual reserve growth, prior to the LTO reserve increases which began in 2007). That does not make my guess correct, but makes the assumptions behind it very clear.

  4. Stilgar Wilcox says:

    After watching the ups and downs of the oil industry over recent decades, I conclude that this is just another up-down cycle. At prices north of $100 a barrel the incentive was for every producer to go full out on exploration/drilling/fracking/tar sands, etc. and the result was an over supplied market, leading to a much lower price. Once the oversupply ebbs, price will rise to a consumer affordability level in the $70-80 dollar range and the oil industry will have regained incentive for new drilling to insure future supply. It won’t be over a hundred to satisfy many countries spend wish lists, but supply-demand will balance out for a while and a new peak will occur in 2016-2018.

    • ChiefEngineer says:

      Hi Stilgar,

      I agree with you, your simple analysis without counting all the drilling and ground holes is most likely spot on or as good of probability as anybody else. I’ll give you a big wet KISS( keep it simple stupid).

      “The Energy Report 11/19/2015

      Getting Through the Glut

      Global oil demand growth is at almost a 20 year high but will it be enough to sop up the extra oil supply.

      Global oil demand is up close to 2.0 million barrels a day or 2% growth the fastest pace in 20 years assuming you dismiss demand recovery in the depths of the global financial crisis. Low prices are curing low prices from the demand side of the equation but at what point will it start to impact the supply side? Demand expectations are rising, not only for the rest of this year but next year and 2017 and beyond. Instead of China leading the way the biggest demand growth will instead come from by a rapidly growing India.

      In today’s Wall Street Journal Saudi Arabia’s oil minister Ali al-Naimi said, “There is a big drop in the production capacity of oil wells across the world, estimated around four million barrels a day, which means the petroleum industry needs new additional production capacity of around five million barrels a day every year.”

      • Javier says:

        The demand outlook for 2016 is likely to return to long-term trend, as recent downgrades to the macroeconomic outlook and expectations that crude oil prices will not see repeats of the heavy losses of 2015 filter through. Global demand growth is expected to slow from its five-year high, of 1.8 mb/d in 2015, to 1.2 mb/d in 2016.

        It seems that the fall in prices by >50% has increased demand a modest 0.8% for three quarters. It is clear that low oil prices have very little impact on demand. This is like having a huge sale and nobody shows up. Yet somehow, some people see this as a positive.

        • Arceus says:

          >>It seems that the fall in prices by >50% has increased demand a modest 0.8% for three quarters. It is clear that low oil prices have very little impact on demand.

          I really wouldn’t read too much into that. Oil is not so unusual in that regard – it could laundry detergent. A drop in price of 50% for laundry detergent will not result in a huge increase in demand for laundry detergent in the short term – only more washing machines being sold will. An increase of 50% in the price of laundry detergent will not greatly reduce demand for it either.

          • Look up credit suisse report which shows China demand. It is up 600,000 barrels a day, YOY.

            • Arceus says:

              Did I ever say Chinese oil demand was shrinking? Of course not. China is the single biggest beneficiary of the huge drop in oil prices. It makes perfect sense that demand for oil is increasing in China. If it wasn’t that would indicate something very serious. China is still growing, car sales I believe are still growing – no analysts that I have heard are saying the Chinese economy is shrinking – it is growing at a slower rate than in the past, but still growing. Look for huge growth in Asia in the coming two decades with Chindia at the forefront.

        • AlexS says:

          “It seems that the fall in prices by >50% has increased demand a modest 0.8% for three quarters. It is clear that low oil prices have very little impact on demand.”

          The fall in oil prices has increased demand growth by 100%, from 0.9mb/d in 2014 to 1.8 mb/d this year, the highest annual increase from 2010.
          Oil demand is price-inelastic, so, if you were following the oil market for many years, you should understand that this acceleration is quite significant..
          Also note, that global GDP growth this year is slightly slower than in 2014.
          Particularly important is a slowdown in China’s economic growth.
          Finally,for most countries , oil price decline was mitigated by depreciation of local currencies vs. the dollar

          • Javier says:

            I would agree that it is quite significant if it is long term (for as long as prices remain at <50$), but if it is just for three quarters as predicted, then it is just a small bump in the graph, barely noticeable. A total increase of less than 1 mb/d for a huge drop in price that has created the biggest oil crisis in years, perhaps decades.

            For the moment I fail to be impressed.

            • AlexS says:


              Are you driving much more than a year ago thanks to lower oil prices?

              • Javier says:

                Hardly as I don’t own a car. I get to use my girlfriend’s car whenever I need one, but I wouldn’t use it more than I need to even if oil was free. Collective public transport and a bicycle are my preferred methods of transportation.

                I may not buy into the global warming scare, but as a biologist I try to be as eco-friendly as possible.

                • Dennis Coyne says:

                  Hi Javier,

                  Does your girlfriend drive more because oil prices are lower? Most people’s habits are not affected much by lower prices, over the longer term some people might buy less fuel efficient vehicles due to low fuel prices, but that takes some time.

                  • Javier says:

                    I know some people drive more due to lower prices. It must be difficult to contemplate for many here, but there are quite a lot of people that run out of money before the month is over and have to drive less because they cannot refill the tank until they get their monthly salary. If fuel is cheaper they get to fill the tank more often or with more fuel.

                  • Dennis Coyne says:

                    Hi Javier,

                    No doubt that happens to some very small degree. The more likely scenario is that the savings on lower fuel expenditures (due to lower fuel prices results in higher demand for other goods and services. There will be a very small bump in fuel demand due to lower fuel prices and a small bump demand for other stuff, some of the money saved on fuel might also be used to pay down debt (which does not increase aggregate demand) or is saved for future demand.

                  • Glenn Stehle says:

                    This from NY Times:

                    When gas prices fall, Americans reliably do two things that don’t make much sense.

                    They spend more of the windfall on gasoline than they would if the money came from somewhere else.

                    And they don’t just buy more gasoline. They switch from regular gas to high-octane….

                    The JPMorgan study compares gas spending between December 2013 and February 2014, when prices averaged $3.31 a gallon, with gas spending by the same people in the same period one year later, when average prices were one dollar lower. The study found that the average American spent $136 per month on gas during the high-price period and $114 per month on gas during the low-price period. While the price of gas fell by roughly 30 percent, spending on gas declined by only 16 percent.


        • Dennis Coyne says:

          Hi Javier,

          The demand for oil correlates much better with real GDP than the oil price.

          Run a simple regression and it is very clear. In the short term the oil price has a minor effect on demand for oil.

          • AlexS says:

            “The demand for oil correlates much better with real GDP than the oil price.”


            “In the short term the oil price has a minor effect on demand for oil”

            And this is called low price elasticity of demand

          • Javier says:

            Hi Dennis,

            I understand and mostly agree to that since oil is an input, not an end product. And you don’t use more input than you need to to get your end product.

            I have two things to add, though. The first is that oil price can and will destroy demand if high enough and in that sense oil price can have a major effect on demand.

            The second is that in the link above to the IEA oil market report, it says clearly that:
            The demand outlook for 2016 looks markedly softer as… …expectations that crude oil prices will not repeat the heavy declines seen in 2015, filter through.
            So it looks like IEA does think as I do that the fall in prices has had something to do with the increase in demand seen in 2015. I got tired of reading how the Chinese were taking advantage of low prices to build up their strategic reserves.

            As the new price becomes “permanent” the incentive to buy the cheap oil before prices go up disappears.

            • Dennis Coyne says:

              Hi Javier,

              I didn’t say there was no effect, I said it was minor. I agree 100% that over the long term high oil prices will reduce demand for oil. We will see this mostly as lower demand growth rates as energy is used more efficiently and people move to public transportation, more fuel efficient ICE vehicles, hybrids, plug-in hybrids, and EVs. In addition there may be a move to better designed neighborhoods that are more walkable (to local market, restaurants, pharmacy, etc).

    • TechGuy says:

      Stilgar wrote:

      “After watching the ups and downs of the oil industry over recent decades, I conclude that this is just another up-down cycle. At prices north of $100 a barrel the incentive was for every producer to go full out on exploration/drilling/fracking/tar sands,”

      Who is going to afford $100 bbl? Prices in the past was supported by soaring debt. We are likely to see a wave of bankruptcies in the Emerge Markets (EM), and the Energy sector as the Boom/bubble has popped. Lots of investors will lose large fortunes and there will be a lack of investor money to support the a recover in energy.
      High prices also cause consumers to cut back spending as they need to spend more money on energy and less money on other goods and services. Its cheap and abundant energy resources that fueled the global economy over the past century. For the past 2 or 3 decades its been cheap debt that has fueled\sustained the global economy, but that cycle is now coming to end, as now the last debt expansion in the Emerging Market (China, India, Brazil, etc) has peaked. The tsunami of debt is coming back home and there is no way the world can afford to pay it back, even at near Zero interest rates.

  5. Enno Peters says:

    Thanks for the post Ron.

    There was a question 2 posts back about the number of Bakken wells that were producing with a low daily output. The following table shows all producing MB+TF wells, grouped by their daily oil output in September, and also shows their share of water and gas production.
    E.g. the # of Bakken wells that were producing less than 50bo/d in September was 29.8% (6.9+22.9), their share of Bakken production was 8.1%, their share in water production was 13.5%, and gas production of 8.2%. The actual totals are listed below (in barrels/MCF for the whole month).

    • Dennis Coyne says:

      Thank you Enno,

      Exactly what I was looking for. If all 695 wells producing 20 b/d or less were shut in output would be 208 kb/d lower. I doubt that wells producing over 30 b/d would be shut in so going up to the 20-50 b/d category would be too extreme in my view.

      Just for kicks, it would be a 2400 kb/d drop in output if all wells producing 50 b/d or less were temporarily abandoned. That’s 2873 wells, not a realistic scenario in my view, but I have not been able to get anyone else to venture an opinion.

      Heinrich Leopold thinks US C+C output may fall to under 6 Mb/d by Dec 2016 if oil prices remain under $50/b, that is about a 3500 kb/d decrease from the April peak.

      So I looked at the Bakken and Eagle Ford with no new wells completed or connected to sales after Sept 2015 until Dec 2016. The decline from the two plays combined would be about 1650 kb/d from April 2015 to Dec 2016. We could throw in a WAG of 700 kb/d decline if no wells are completed in the Permian basin (I have no model for this so very much a WAG) for a 2350 kb/d decline.

      Needless to say such a scenario strikes me as very unrealistic.

      To get to the 3500 kb/d decrease that Heinrich thinks plausible he suggests producing wells will be abandoned, we might get another 600 kb/d if the Eagle Ford and Permian are similar to the Bakken in numbers of low output horizontal wells.

      That would get us close to 6.5 Mb/d.

      Maybe I am the only one that thinks this is far fetched.

      • Enno says:


        The oil actuals are in barrels/month, not per day. So you got to divide by 30.

        Heinrich has not shown a detailed model to support his extreme forecast.

        • Dennis Coyne says:

          Hi Enno,

          Yes you are correct as usual. Thanks. It is 208 kb/month produced by wells producing 20 b/d or less so 6.95 kb/d. I was off by a factor of 30 too high.

          So the 600 kb/d for Bakken, Eagle Ford, and Permian would be about 20 b/d, not very significant.

          If we use all wells of 50 b/d or less it would be an 80 kb/d drop for the Bakken/Three Forks and 240 kb/d for all three plays (assuming the Eagle Ford and Permian are similar to the Bakken).

          With the correct calculations and using all wells 50 b/d the total decline would be about 360 kb/d less than my original calculation of 600 kb/d for low output wells (which should have been 20 b/d).

          In any case, a scenario with no new wells being completed in the Bakken/Three Forks, Eagle Ford, and Permian is not realistic and shutting in all wells producing 50 b/d or less is even less realistic.

          A more sensible (but still very pessimistic scenario) would be a US decline of about 1300 kb/d from April 2015 to December 2016, if oil prices remain under $50/b on average over that period.

      • Heinrich Leopold says:

        Dennis, Enno

        I have just made an analysis of Marcellus data from the latest EIA drilling report. The EIA drilling report exists just a few years, yet the data revealed an huge change of the legacy decline rate as percentage of the total production. The rate has been moderate in 2013 and went to -50% by 2015. In other words companies have to drill new capacity every two years if they want to keep production flat. This meets exactly my point that monster wells experience also a monster decline after some time. A similar analysis of Utica wells show that Utica has decline rates of below 30%, yet Utica is still in its infancy and the decline rate will follow Marcellus to -50% very soon. In my view this will show up quite soon in the overall production rate, which is just down by 4% year over year. In my opinion I have a point here and time will tell if this evolves accordingly.

        • Dennis Coyne says:


          The DPR does not get the legacy decline correctly, the report should be ignored (or at least the legacy decline).

          As fewer wells are connected to sales the legacy decline becomes smaller (in absolute value).

    • shallow sand says:

      Enno. Thanks for the post!

      Are you able to break this down further by completion or first production year?

      • Enno says:


        I think the cumulative curves may be a better way to visualize that, as those already show how production progresses over time. Also creating, posting and analyzing the above table for each year since production started is a bit of hassle. I could add the average age in each category? Do you have a suggestion of what you’d like to see and keep it somewhat simple? 🙂

        • shallow sand says:

          Enno. I didnt realize how much time is involved. I should just break down and pay for the data, lol.

          I’m interested in later years. Do wells converge in a narrow range?

          • Dennis Coyne says:

            Hi shallow sand,

            I can send you Enno Peters data file to play with, just let me know, I can find your e-mail so you don’t have to post it here. I assumed that you were already getting this data.

    • R Walter says:

      0.004*9641=38, 38 wells producing 1000 bpd and more.

      0.023*9641=221, 221 wells producing 500 to 1000 bpd.

      259 wells pumping a minimum of 138,000 bpd.

      9,382 wells the remainder of the oil produced.

      0.108*9641=1041, 1041 wells producing a minimum of 208,000 bpd.

      1300 wells producing a minimum of 346,000 bpd. 10,380,000 dollars from 1300 wells.

      8,341 wells producing 640,000 bpd, 76 bpd average per well. 76*30=2280 dollars per day, 19,200,000 dollars per day from 8341 wells.

      29,580,000 dollars per day from 9641 wells.

      Have got to be losing 60 million dollars each day. Shut the 8341 wells producing not much, operate the 1300, but that means job losses and idle wells, so it is more important to have the labor pool on the job, buys stability and provides jobs, even if it is some loss, it still pays.

      Sitting at home with nothing to eat doesn’t pay.

    • AlexS says:

      Thanks Enno, very interesting information, as always.
      Your table shows that the share of wells with very low daily output in total Bakken oil production is insignificant. Given that shutting down wells may cost more than continuing production, I don’t think there will be massive shut downs of producing wells.

      • Dennis Coyne says:

        Hi AlexS,

        I believe you are correct. When the calculation is done correctly (I forgot to divide by 30 days per month) shutting in all wells producing 20 b/d or less amounts to 7 kb/d less output, so relatively insignificant. Most of these wells are probably older wells that have been paid for and as long as revenue is greater than OPEX, royalties, taxes, and G+A (overhead) they will not be abandoned as they are generating cash.

        • Glenn Stehle says:

          Dennis Coyne says:

          Most of these wells are probably older wells that have been paid for….

          Given the financials of the companies which operate in the Bakken which Shallow Sand has so generously provided us — which almost ubiquitously reveal growing debt structure and a failure to generate free cash flow — I wonder about the veracity of that statement.

          Perhaps the sunk cost terminology would be easier to defend.

          • Dennis Coyne says:

            Hi Glenn,

            Most of these low output wells are from 2010 and earlier (some probably going back to 1990. During the high price periods most of these wells probably paid out (and on average this is virtually certain). Also these wells were probably much less costly to drill and complete.

            However, the sunk cost argument will do as I am not going to sift through data for 9500 wells to back up my argument.

            • Glenn Stehle says:

              Hasn’t someone done average cumulatives of wells of various vintages drilled in the Bakken?

              If so, it would be interesting to do some back-of-the-napkin calculations to see which vintages have achieved payout.

              • Dennis Coyne says:

                Hi Glenn,

                The Average well from 2008 and earlier probably was fine.

                It would have produced 228 kb after 7 years, using real oil prices from the EIA real oil prices viewer, the net present value of the oil produced by an average 2008-2014 Bakken well that started producing in June 2008 would be about 10 million 2015 dollars. This assumes an annual discount rate of 10% nominal (7% real rate at 3% inflation rate), 27.5% royalties and taxes, $12/b transport costs, OPEX $4/b, and other costs $4/b. These are similar assumptions to what Rune Likvern has often used.

                Some of the lower flowing wells might not have paid out, but many of these wells are probably older than the June 2008 well analyzed above.

                • Glenn Stehle says:



                  Those wells drilled in 2008 probably cost less than $10 million to drill and complete, and land cost would be lower then than now. So it looks like you’re correct, and the average well drilled in 2008 would have payed out by now.

                  According to the graph Enno Peters posted below in his 10:14 a.m. comment, it looks like the median well drilled in 2008 is still producing 40 BOPD.

                  Only 20% of the wells drilled in 2008 are currently producing 20 BOPD or less.

                  The most amazing thing his graph reveals, however, is that production from the better half of the wells has been flat for the past couple of years: I discern no decline at all. That’s remarkable. If that trend continues, these wells may actually have the 40-year lives that their promoters have promised, a claim which I was always highly skeptical of.

                  • Dennis Coyne says:

                    Hi Glenn,

                    That may be true of the better wells, for the average well, it is not really the case.

                    Keep in mind that Enno filtered out wells that are no longer producing, so the picture is incomplete. I include all wells in the analysis to avoid a positive bias.

      • Enno Peters says:


        I think you’re right, and indeed even if that would happen the reduction in output will be quite low. Also, the NDIC seems to be more lenient to operators to just temporarily abandon wells than regulators in other states.

    • Enno Peters says:


      Interesting question. I tried to answer it with the graph below.
      The graph shows for each 10% percentile of producing Bakken wells the daily production after x months since first flow. Wells that didn’t have any reported productive day in a month are filtered(!). The 50% percentile is the median well at each moment in the well life cycle. The vertical axis shows the daily production in a logarithmic scale to visualize the differences better.

      I removed 2007 wells, as they had a very distorting (negative) effect on this result after 6 years. The last point is after 88 months, when the population still contained > 100 wells.

      For example, 70% of the wells produce <= 80 bo/d after 4 years (48 months).
      50% of the wells produce <= 40 bo/d after 5.5 years, and then they seem to enter a bit of a steady state.

      • Dennis Coyne says:

        Hi Enno,

        Nice chart thanks.

        It is interesting how the high output wells skew the average. For the average well (rather than the median well) for 2008 to 2014 wells, using a hyperbolic model to match the data, the output doesn’t fall to below 40 b/d until 7 years. So a smaller number of higher output wells are making up for a greater number of low output wells.

        • shallow sand says:

          Thanks very much Enno.

          Dennis states what I suspected.

          Also, Dennis, see if you can find a post of mine about two Duperow wells Condor had for sale recently. They were early 1980s vintage. The cumulative oil was 300K+. They were now making around 30 bopd gross (15 each). OPEX was over $40, operating at around a $10 per barrel loss in 2015. Yet not shut down.

          As discussed many times, lots of reasons to keep producing, even at a loss.

          However, ND has a lot of pre LTO boom wells shut in. When I reviewed OAS Bakken TFS, I noticed many of OAS non Bakken TFS wells were shut in. I suspect all were losing at least $10 per bopd. MT, CO and WY sites show the same. Shallow stripper wells are hurting economically, but the deeper are likely worse.

  6. Does anyone know what is happening to those horizontal wells in Saudi Arabia?

    Tech Talk – Improving Horizontal Well Flow at Berri and Ghawar
    April 2012

    Tech Talk – Saudi Arabia and Production from Safaniya
    June 2012

    Tech Talk – Saudi Arabia and What Lies Ahead
    July 2012

    Tech Talk – Saudi Arabia Then and Now
    July 2012

    More here:

    Articles tagged with “ghawar”

  7. Mario says:

    I don’t know nearly as much about this as you do, but I’m not sure I agree with the assertion that the rest of the world outside of USA, Russia, Canada, Saudi… will suddenly see a steep decline after the last seven or eight months have actually seen a bit of a bounce. The reason I wonder about that is that I assume a lot of these projects that have led to the recent bounce were long lead time projects and that more are still coming on stream that were committed to before the collapse in prices so that it may be a fair bit longer before we see a significant decline in those areas again.

    Why do you think the bounce will be so short lived?

    • Dennis Coyne says:

      Hi Mario,

      Good point. I imagine there will be decline while prices remain low, how steep it will be is unknown.

      I usually give a wild guess, but I am out of my depth (more so than usual.) 😉

    • Bounce? I don’t see any bounce. I see lots of ups and downs in the general downward trend. And I would expect to see a lot more as the downward trend continues.

      • Dennis Coyne says:

        Hi Ron,

        He is talking about 2014.

        • I know what he was talking about Dennis. He was talking about the last hump, or increase in production. There were lots of them but he was only talking about the very last one.

          I was talking about the whole chart, or at least the whole downward trend. There are lots of ups and downs. There will very likely be a lot more.


            Ron, Have you read the book this discusses? I doubt we will get a global shale boom at these prices, ever, but do other countries have similar shale resources as US?

            • No I have not read this book: The Price of Oil
              But from your link:

              In our recent interview with Roberto Aguilera he explained that the twin technological revolutions of fracking and horizontal drilling, which allowed for a massive explosion in US oil production (see chart above), will inevitably expand to the rest of the world. Given that the US only sits on a small fraction of total shale reserves, ample supplies will be unlocked in countries like Russia, China, Australia, and elsewhere, which in some cases hold much larger deposits.

              They expect low oil prices to remain almost forever because of shale oil. But are they missing something, or am I missing something. Production of shale oil exist only because of high oil prices.

              Yes, shale oil deposits do exist in other parts of the world. The Bazhenov Shale in Western Siberia for instance. Russia saw that as way too expensive to produce even when oil was above $100 a barrel. Building the infrastructure in such a remote and frozen area would be a daunting task.

              I just don’t see shale oil as keeping prices cheap. The shale oil boom happened because of very high oil prices and it will disappear at very low oil prices. But I would love to hear others take on this.

              • Dennis Coyne says:

                Hi Ron,

                I agree. If prices rise above $80/b, LTO in the US can be profitable in core areas. Low prices (less than $75/b) will not enable the LTO in the US to recover.

                My main difference is that I expect lower oil supply will drive oil prices above $80/b by mid 2017 at the latest. In the mean time 2015 may well be a temporary peak, but when oil prices rise it will be surpassed in 2018 or 2019.

                The peak could be as late as 2025, it will depend on oil prices, demand and how fast oil output recovers.

                • TechGuy says:

                  DC Wrote:
                  “I agree. If prices rise above $80/b, LTO in the US can be profitable in core areas. Low prices (less than $75/b) will not enable the LTO in the US to recover.”

                  I don’t know if $80 would be enough. Shale drillers now have close to $300 Billion in debt. Yields have been rising 8% to 15%. Servicing all that debt is going to take a lot of extra cash. I think 90% of current drillers are now insolvent even if Oil suddenly bounced back to $100.

                  Plus in the US, they are only drilling in the sweet spots. What happens when the sweet spots reach depletion? ROI outside the sweet spot required even more expensive Oil.

                  • Dennis Coyne says:

                    Hi Techguy,

                    Where we have the most information is in the Bakken. The average well breaks even at around $77/b. If oil prices go to $100/b, the Bakken producers will be fine, the Eagle Ford is pretty similar for the breakeven price, $100/b will also be fine there, the Permian I have no data on, but many companies have moved their fous to the Permian basin so my guess is that the economics are best there.

                    When the sweet spots get fully drilled then the new well EUR will decrease. When this will happen and how quickly the EUR will decrease is unknown.

                    I have guessed about this based on USGS estimates for the Bakken/ Three Forks.

                    I depends in part on the rate that new wells are drilled and the price of oil, nobody knows that either. So one has to climb very far out on a limb to estimate future output in the LTO plays. I do that on a regular basis, which you can find on this blog.

                    In fact anyone can give me their predictions of future oil prices and I can show how that fits into Bakken or Eagle Ford production. I have given up trying to guess the price of oil.

                  • TechGuy says:

                    DC Wrote:
                    “we have the most information is in the Bakken. The average well breaks even at around $77/b. If oil prices go to $100/b”

                    I am sure this is not include the exploding debt servicing costs. The majority of Shale drillers turned to the Junk bond market with yields above 10%. At this point the cost of servicing high yield debt is going to raise the break even costs. Its likely that the higher interest rates is going to push the break even near $100 bbl.

                    I believe Arthur berman said the breakeven was between $80-85 bbl. Don’t forget that LTO sells at a steep discount to conventional crude.

                    FWIW: The Shale drillers all went bust a year or more ago. They leveraged assets to acquire expensive loans (ie junk bonds) to keep the Potemkin village standing.

              • AlexS says:


                Much of the infrastucture, including pipelines, power lines, roads, etc. in Western Siberia already exists.
                The Bazhenov shale is a source rock for conventional fields in this region and is located just below those fields.
                However I agree with you, even with $100 bbl oil LTO production in Russia would grow much slower than in the U.S. On my estimate, based on company plans, it would not exceed 400 kb/d by 2020 and would never reach the levels of the U.S. At $40-60 oil most plans will be postponed, not just in Russia, but in other countries as well. The only exception could be Argentina:

                WoodMac: Vaca Muerta output to double by 2018

                HOUSTON, Nov. 19

                Production from the giant Vaca Muerta shale play in Argentina is expected to double by 2018, according to a new development study from research and consultancy firm Wood Mackenzie Ltd.
                While a marked ramp-up can be expected by 2020, the study highlights that oil and gas output in 2016 should be moderate with year-over-year production at 10%. WoodMac estimates total capital spending for 2016 to reach $1.2 billion as companies prepare for full development.
                Horizontal wells will become the development of choice as operators are increasingly able to target the most productive intervals of the play, the firm says, adding that it anticipates 200 wells will be brought online in 2015 and fewer in 2016 as vertical wells are phased down. Currently 460 wells are producing.
                “YPF [SA] and its [joint venture] partners continue to decrease drilling and completion costs aiming to move into ramp-up and development phases,” explained Horacio Cuenca, WoodMac research director for Latin America.

                • coffeeguyzz says:

                  Alex, Mr. Patterson

                  Regarding the potential global spread of shale development, it will be a matter of where and when, rather than ‘if’, as is the case with Argentina.

                  The $10/$8 million cost for drilling and completing unconventional wells has plummeted to the $4 million dollar range in the Permian and Niobrara. (Tiny Bonanza Creek is spending $3 million per).
                  The early $18 million Duvernay wells are closer to $12 million and the Deep Utica’s are expected to cost $12/$14 million per and yield between 30/50 Bcf EUR.

                  Granted, a significant portion of these savings stem from unsustainable cost reductions from service providers, but the efficiency gains are continuing and spreading as this entire ‘unconventional’ industry gradually morphs into the norm. A quick glance at the vertical/horizontal rigs in the Permian from 2012 to today should clearly show thus.

                  I am halfway through reading a 200 page PDF on ‘Best Practices’ in maximizing optimal, long term conductivity in fractured horizontals in various formations . Kinda wonky but fascinating as the body of evidence continues to grow that these well recognized decline rates in shale wells are largely due to fissures NOT remaining open over time.
                  As there remains 90%+ of the OOIP, strenuous efforts are being exerted to both understand and overcome this problem.

                  No, the politics and macro economics will greatly influence the spread if this technology, to be sure. But the ability to identify, target, drill, fracture, produce and transport hydrocarbons via unconventional means is continuing to be both operationally and economically feasible, this despite the immense heterogenous nature of these formations.

                  • Dennis Coyne says:

                    Hi Coffeguyz,

                    There will be some cost reductions and innovations, at the same time more frack stages and increasing amounts of proppant per well tend to increase costs. In the Bakken/Three Forks for the standard well average costs per well were reduced from $9 million per well to about $7 million per well, but wells that are “super-fracked” with many more frack stages and much more proppant cost about $2 million more than the standard frack job, bringing us back to $9 million per well. So far the “super fracks” have had little effect on the average new well EUR, with a possible increase of 10 kb over the standard well EUR of 350 kb ( a 3% increase in EUR).

                    The closer spacing of wells will also increase the cost per barrel of EUR. Eventually the sweet spots in all these plays will be fully drilled and new well EUR will start to decrease (again raising costs).

                    You have also suggested water or CO2 floods to increase the recovery factor. Again this will increase costs.

                    I would suggest that you look at the hype a little more critically.

                • AlexS says:


                  One of the key conditions that enabled the shale boom in the U.S.A. was access to cheap financing and ability to indefinitely increase debt load and burn cash.

                  Oil and companies outside U.S. could not have negative cash flows for 18 years out of 20 last years, like did Chesapeake.
                  Therefore shale developments outside the U.S. will be much slower

                  Chesapeake Energy free cash flow, $ per share

                • Argentina subsidizes oil prices to sustain activity. I lived and consulted in Argentina, the industry costs were low until the Kirchners took over, nowadays there’s a lot of union hassles and logistics problems, but there are work arounds. However, if the government weren’t subsidizing prices the whole industry would collapse.

          • Dennis Coyne says:

            Hi Ron,

            I ignore the bumps up and down, since Jan 2014 the downward trend seems to have flattened, you think it will continue downward at the same rate, but perhaps it has flattened somewhat, like what has happened in the North Sea. Trends can change, I doubt there will be an increase, but the rate of decrease may become smaller.

  8. Nick G says:


    I hope you’re right, and that we’re seeing Peak Oil. That would be a good thing for the world. I’d be a little surprised, given that Russia and KSA seem able to keep production at least level for a while, and the US seems likely to bounce back if prices rise. If we’re seeing peak, then that would suggest that oil prices will never rise significantly above, say, $70. And that only seems possible if the transition to electric transportation accelerates dramatically.

    That kind of acceleration in the next year or two doesn’t seem likely to me, but it’s conceivable: here’s Audi: “the brand is targeting at least 25% of its US sales to be e-tron—i.e., plug-in hybrid or full electric—models by 2025.

    Further, Keogh said, Audi will support the broad adoption of EV technology in the US by developing a nationwide 150 kW fast charging network that would charge the 95 kWh battery pack of the e-tron quattro to 80% in only 30 minutes—enough for 200 miles worth of driving in the battery-electric SUV. The network will be in place for the launch of the fully electric SUV in 2018. Audi is one of the very few automakers to now put out a firm aspirational target for electric-drive vehicle sales. Volvo had earlier said it expects 10% of its total sales to be electrified by 2020.”

    There is enormous potential for reduction of marginal consumption by SUVs and inefficient cars.

    The idea that PO will cause collapse seems to be based on the fact that oil shocks have contributed to past recessions. The idea that PO would cause collapse is what one PO blogger might call “ruthless extrapolation” – it doesn’t follow. Especially if there’s no price shock.

    Hubbert didn’t think PO would make things collapse. He assumed nuclear would be the energy source, and I agree that nuclear would work, though it wouldn’t be my preferred source. The first PO enthusiasts just assumed that other energy sources wouldn’t work. I don’t know why they dismissed nuclear, but it was kind’ve understandable that they didn’t put any faith in the immature wind and solar industries. That has changed – wind and solar are clearly workable. And, of course, we’re not at peak coal or NG yet.

    Finally: free markets (that invisible hand) aren’t perfect, but they do work pretty well when combined with just a little planning and regulation, some of which is in place. EVs and hybrids are ready, and available when we finally price properly for pollution and supply insecurity. The recent failure of VW’s diesels to achieve required efficiency/pollution levels points in that direction.

    • Dennis Coyne says:

      Hi Nick and Ron,

      Can you guys explain why oil won’t rise above $70/b and we are at the peak.

      I agree with Nick it would be good if 2015 was the peak, but I think it will be a short term peak and oil output will continue to rise once oil foes above $80/b. If oil prices remain low long term, and the World economy continues to grow, and oil output starts to decline the story makes no sense.

      A pessimistic outlook for the World economy makes the story consistent, but it is far from clear that such a scenario will be correct. Even 2.5% World growth will be enough to get oil prices higher once output starts to decline, I am doubtful that World growth will fall below this level for very long, if it even falls to that level. A near term financial crisis could do it, but the world is likely to recover within a couple of years. It is also not clear that oil output will continue to decline once oil prices rise above $80/b, if supply becomes short oil prices will climb above $100/b and a new peak will be reached between 2020 and 2030.

      This is a new scenario based on a new adjustment to Webhubbletelescope’s Oil Shock Model.

      • Nick G says:

        Oh, I basically agree.

        My point was that PO in 2015 implies a sharp reduction in oil demand. That could come from a sharp recession in 2016, or it could come from a dramatic policy initiative towards efficiency and electrification.

        Neither seem likely at this point.

      • Dennis, of course we don’t know what will happen. We can only try to figure out what is most likely to happen.

        It is my opinion that the world is in a lot worse financial shape than most people realize. I believe the terrorist situation will get worse, not better. I believe the economic problems of Europe will only get worse, not better. I believe the people’s ability to afford higher oil prices will decline. This will keep a ceiling on oil prices even though production continues to decline.

        If I am wrong and all the world’s economies recover, if China’s growth rate returns to what it was just a couple f years ago, then prices will return to the $100 range. But I would bet my bottom dollar that this is just not going to happen. Every day things get a little worse, not better. And Dennis I am talking about something that is happening today, not some future prediction.

        All that, plus the reasons I gave in the post above, is why I believe we are at peak oil right now.

        But hell, I may be wrong. Peace may break out all over the world. Nations will figure out how to pay off their massive debts. Economies may recover and families will pay off all their debts, or at least get them under firm control and they will start buying again and all the world’s economies will start booming again.

        Fat chance of that happening!

        • SatansBestFriend says:

          “But hell, I may be wrong. Peace may break out all over the world” /Sarc

          I aint the sharpest plastic knife in the Kentucky Fried Chicken basket, but Ron P has been on the money since I started reading him.

          With Russia, France and USA bombing Syria, Peace seems unlikely at the moment.

          Of course, Russia and NATO (France and USA) are bombing different strategic targets.

          Russia and China want to keep Assad in Power; NATO wants to control Syria because it provides great access to the Meditteranean Sea ( a back door if you want to control Middle East Oil supplies and bypass the Strait of Hormuz).

          IMO, Military movements are leading indicators. These guys are not dumb and they have the best information.

        • Dennis Coyne says:

          Hi Ron,

          There is a middle ground between doom and gloom and everything coming up roses. That is where the likely scenario lies. If oil peaks and the World does not go into a permanent state of very low growth (say less than 1% per capita income growth permantly). Then oil prices will rise, this may lead oil output to rise as well, at least to 2015 levels or maybe higher.

          Even China at 4 or 5% growth, along with India will create a lot of oil demand.

          • Glenn Stehle says:


            My brother is head of oil and gas lending for one of the medium-sized banks in Houston.

            I don’t know who he gets his marching orders from, but I can tell you that his bank is optimistic about a rebound in oil prices in the next few years.

            The view is that this is just one more of the boom and bust cycles that the industry frequently experiences.

      • I think we will see oil production around this year’s level for up to 20 years. The key developments will be in Venezuela and Russia. Venezuela’s political problem is acute, I’m getting information I can’t disclose, but I sense there’s declining oil production, some of it caused by equipment malfunction due to very poor maintenance.

        Elections will take place on December 6. The OAS Secretary General sent a letter to the Venezuelan electoral authorities warming them the elections were tainted.

        I’ve also noted the emergence of a group of “honest communists” opposed to the Maduro regime. They are running their own assembly candidates under the party designation “Socialist Tide”. But poll results show an advantage which ranges up to 20 points for the united opposition, which may indeed win in spite of the heavy gerrymandering, jailing of their leaders, and the flood of buyer voting and pressures being used by the Maduro regime. I don’t think Venezuela will recover easily from what’s coming. The communists did it again, they wrecked the hell out of Venezuela.

        • Dennis Coyne says:

          Hi Fernando,

          Wouldn’t you expect higher oil prices if supply remains about where it is? That seems to imply either no demand growth, or very slow demand growth (if output increases a little). This may be possible if higher oil prices lead to more efficient use of oil so that real GDP per unit of oil consumed increases enough to prevent a recession. Is that what you have in mind? Maybe substitution of natural gas, coal, NGL, and biofuels for some of the oil use (along with efficiency gains)?

          You usually think through these things pretty carefully, so your take would be interesting.

          • Sure. Level production implies gradual oil price increases. The industry is too heterogeneous to make a reliable prediction, but we all know it can’t stay down for long.

            I noticed you guys focus a lot on the USA shakes, but elsewhere there’s a gradual erosion in production capacity.

            I can’t put my finger on the reason why the Saudis keep trying to flood the market. Evidently they are losing a shitload of money, and they already scared the crap out of the industry. So I tend to think this is a political issue. They are trying to screw somebody. But I’m not sure about the real target.

      • Caelan MacIntyre says:

        “Can you guys explain why oil won’t rise above $70/b and we are at the peak.” ~ Dennis Coyne

        Hi Dennis,

        Perhaps in a fractional reserve debt-based uneconomy, the uneconomic engine runs both hot and blind, if we see money as perceptually-distorted (by law) energy credits/tokens for work done (exergy/emergy?).

        It runs in a perceptual distortion of ‘reasonable terrestrial thermodynamic considerations’; hot from the fraction (multiplier) and blind from the debt (‘crystal ball of hopes and promises of future prosperity/growth’ [that increasingly fail to materialize]).
        So if this uneconomy hits fuel and quality-of-fuel constraints like (peak) oil, then the work it can do, wants to do, think it can do, and can afford to do (fractional/debt-based) is going to plummet. In line with thermodynamic reality.

        A thermodynamic reality-check.
        (That maybe so-called governments are ignoring.)

        This doesn’t just cover oil, but other concentrated/scaled-energy forms– their effects of our misuse on the planet– and I seem to recall Burgundy talking about this kind of thing over at The Oil Drum.

        “Emergy is a type of available energy (exergy) that is consumed in direct and indirect transformations needed to make a product or service. Emergy accounts for, and is, therefore, in effect a measure of quality differences between different forms of energy.” ~ Wikipedia

        Chinese ghost cities, by the way, appear simply as one kind of physical manifestation of these kinds of effects. They are cities built on perceptual distortions (of myth!) from certain forms/qualities of energy and future promises/hopes that will unlikely materialize. So maybe they remain as apparitions, with no one in them. Ever.
        Maybe they represent the shape of things to come for our civilization.

        So this uneconomy is fundamentally-flawed in at least 2 ways. 😉

        “Dennis, of course we don’t know what will happen. We can only try to figure out what is most likely to happen.” ~ Ron Patterson

        And that’s a problem that debt-based/fractional-reserve uneconomies set themselves up for especially in these kinds of times. Massive, unmanageable, unworkable risk.

        Perhaps I’m doing exactly what should be done insofar as shifting/questioning/swapping certain forms of work done in certain contexts (pre-peak everything) for other forms of work in other contexts (post peak everything).

        “The important thing to understand about collapse is that it’s brought on by overreach and overstretch, and people being zealots and trying too hard. It’s not brought on by people being laid back and doing the absolute minimum. Americans could very easily feed themselves and clothe themselves and have a place to live, working maybe 100 days a year. You know, it’s a rich country in terms of resources. There’s really no reason to work more than maybe a third of your time. And that’s sort of a standard pattern in the world. But if you want to build a huge empire and have endless economic growth, and have the largest number of billionaires on the planet, then you have to work over 40 hours a week all the time, and if you don’t, then you’re in danger of going bankrupt. So that’s the predicament that people have ended up in. Now, the cure of course is not to do the same thing even harder… what people have to get used to is the idea that most things aren’t worth doing anyway…” ~ Dmitry Orlov

        But this also boils down to ethics and real democracy (‘the natural course of things’), in large part since…

        “…Traditional communities do not often voluntarily give up or sell the resources on which their communities are based until their communities have been destroyed. They also do not willingly allow their landbases to be damaged so that other resource– gold, oil, and so on– can be extracted. It follows that those who want the resources will do what they can to destroy traditional communities.” ~ Derrick Jensen, ‘End Game’

        (Which is why I have written in a recent comment to the effect that communes and ecovillages and the like may have a hard, if not impossible, time existing alongside, or perhaps more accurately, within, this perceptually-distorted crony-capitalist plutarchy dystopic system. It is a psychotic machine. Perceptual distortions of various kinds seem almost the very thesis of psychosis! Which is also why I write that we have to transcend it and engage in discourse and shift the narrative to that effect. I mean, you don’t suffer from psychosis, too, do you?)

        And see also:

        The paper highlights the analogues of the thermodynamic axioms to money dynamics. Within this context the idea of an ideal money system is developed, based on the original ideas of Silvio Gessel who visualized a monetary system that would follow the natural course of things. [This, naturally, walks right into the ideas and practices of ethical, truly democractic, local currency systems.] Additionally, fundamental attributes of the modern financial system were presented in order to demonstrate the level of distortion of the natural course of the economic process. Through examples it is shown that under certain circumstances the periodical financial crises– that become economic– have very good chances of becoming environmental. According to this framework of analysis, periodical crises are not considered unavoidable as they are a pure product of the structural fallacies of the monetary architecture [thus, legal structure]. It is suggested that natural money system –similar to what Gessel had suggested at the previous century- should substitute the dominant financial paradigm as a way to resolve many of the world’s combined financial, economic and environmental issues.” ~ Marc A. Rosen

        “Premise Ten: The culture as a whole and most of its members are insane. The culture is driven by a death urge, an urge to destroy life.” ~ Derrick Jensen

        “If you still have a job, get everything in order, and quit. Do it as soon as you can, because we’ve never had a more important work to do.” ~ Kyle Chamberlin

    • Jef says:

      Nick – There you go again painting a scenario completely dismissing the fact that nearly 90% of the world population is experiencing steady, long term economic contraction. In other words becoming poorer. With nothing in sight to reverse that trend and with nearly every constraint becoming worse.

      But hey I guess it will all be fine as soon as they put up their PV array and buy that new EV.

      Did you bring enough MDMA for everyone?

      • Nick G says:

        nearly 90% of the world population is experiencing steady, long term economic contraction

        I’d be curious to see statistical evidence for that.

        • SW says:

          I think it is almost the reverse of that. But the gains in the world have come at the expense of the middle class in the industrialized first world and with obscene gains made by the very top in the capitalist countries. But if your perspective is that of a middle class person in one of the major industrialized countries particularly the US it is easy to convince yourself that the entire world is going to hell.

          • Nick G says:

            Sure. If you’re a middle-aged white guy without a college degree in the US, things look very discouraging, because you and your friends are getting laid off right and left. That’s primarily due to automation, secondarily due to off-shoring to workers elsewhere in the world (who are likely getting a pay increase).

            • Glenn Stehle says:

              Nick G said:

              …workers elsewhere in the world (who are likely getting a pay increase).

              Workers in Mexico have not had any pay increase, as the graph below shows. They’re probably not making any more now than they were in 2008.

              This comes after a couple of decades of losses. Since 1982, the purchasing power of the average union worker’s salary in Mexico has decreased by a little bit more than 50%.

              • Caelan MacIntyre says:

                I would imagine that BC, for example, might suggest hereon something along the lines of that salaries in North America have not gone up much for the majority since the 80’s. So why should they increase anywhere else, (except for maybe the .001%-1%)? Because that would seem to run counter to what I just wrote in this thread about the internal logic of the system.

                So-called competition and a race to the bottom?

              • Nick G says:

                Who’s included in that chart?

                • Glenn Stehle says:

                  Nick G,

                  The workers included in that graph are the workers enrolled in IMSS, or Mexico’s social security system. Most Mexican workers, however, are not enrolled in this system.

                  According to INEGI, Mexico had a total of 49.8 million workers who were “occupied” during the first quarter of 2015.

                  Of these 49.8 million workers, there were 21.2 million occupied in what is called the “formal” sector. These are the workers included in the IMSS figures.

                  The other 28.6 million workers were employed in what is known as the “informal” sector. These people, even though many may have regular jobs for which they receive renumeration, are not enrolled in IMSS and therefore are not entitled to receive the benefits which that system offers.

                  The informal sector is a very diverse group, and includes everything from domestic workers and the limpiaparabrisas who clean your windshields at stop lights to self-employed millionaires. Even though there is no systematic accounting of the salaries of those who work in the informal sector, as there is for those employed in the formal sector, studies have shown that those who work in the informal sector on the average fare much worse than those employed in the formal sector.

                  So the situation on the ground in Mexico for workers is actually worse than what the IMSS figures portray.

            • Caelan MacIntyre says:

              Not really, Nick G.

              Offshoring and layoffs are effects or symptoms of the logic/legal setup of your crony-capitalist plutarchy dystem– the cause (unless you want to run it even further back of course).

              I also mention here today about the ‘structural fallacies of the monetary architecture’ [thus, legal structure, thus governpimp structure], for example.

              Much of this seems to boil down to domination and hierarchy, to which I invoke Jay Hanson’s contentions contained in his Overshoot Loop.

              He suggests that we lot are blind to it, like water to fish. Perhaps like you? Or, if not blind, then maybe, somehow corrupt?

            • Jef says:

              College degree or not the FACTS are bleak.

  9. AlexS says:

    Canadian C+C production forecast
    Source: CAPP (June 2015)

  10. AlexS says:

    Brazil liquids production forecast (mb/d)
    Source: Wood Mackenzie (2015)

  11. AlexS says:

    Iran liquids production forecast(mb/d)
    Source: Wood Mackenzie (2015)

    • Alex, if it’s forecast then it must be true, it must happen just like it is forecast. After all, all previous forecast have always proved to be absolutely correct. Haven’t they?

      • AlexS says:


        Totally agree with you. It’s just a forecast

      • Dennis Coyne says:

        Hi Ron,

        At least for 2015 the CAP forecast looks pretty accurate, and to me that forecast looks pretty reasonable, if oil prices recover, their forecast will be close. Even if the World economy grows at 2.5% rather than the 3.4% predicted over the next year, oil supply will fall if oil prices are low and demand will continue to increase (but at a slower rate due to slower GDP growth) so that eventually oil prices will increase to levels that make it profitable to produce the oil sands in Canada.

  12. Suyog says:

    Isn’t oil production a function of price? If the price goes above $100/barrel, expensive (e.g. shale) production will come on line once again and overall production could surpass 2015.


    • Of course it could. And the price could drop to $20 a barrel and production would soon drop to half what it is today. It could, it could it could. Almost anything could happen. What we are trying to ascertain is what most likely to happen. What is the most likely scenario?

      You have one? We would all like to hear it.

      • Dennis Coyne says:

        Hi Ron,

        There are a few on the fringes that think economic growth will be very low or negative long term. Most in the mainstream believe economic growth will continue. Is it possible that the fringe will be correct? Of course. Is it likely? I don’t believe so.

        Economic growth will likely slow down when energy resources become constrained. Too sharp a focus on oil only misses the possibility that rising costs for oil and other fossil fuels will lead to a gradual transition to wind, solar, nuclear, and other kinds of alternative energy. I think it unlikely that such a transition will be smooth and easy, but I think it equally unlikely that it is impossible.

        A big difference is that you assume economic collapse is imminent, in my view that is not impossible, but is very unlikely.

        Chart below from FRED, World Real GDP per capita 1960-2014

        • Just curious Dennis, but are of the Julian Simon school? That is do you believe that growth can continue for the next few million years? Of course you don’t believe that but just how many years do you thing growth can continue?

          Dennis, just when do you see the end of growth occurring? I am not trying to be funny, this is a serious question. This has a lot to do with my economic outlook. I see the end of growth beginning right now. Oh of course we still have growth but at a slower rate. And it will continue to get slower and slower and slower until we have no growth… then negative growth.

          • Doug Leighton says:

            Well, 10 billion may be the uppermost population limit where food is concerned. Because, it’s unlikely that everyone will agree to stop eating meat. So growth stops when we get to the Big 10. Personally I’m a fan of maximum carrying capacity of the Earth (people) being two billion. My accountant INSISTS that growth can never stop in any viable economic system. What are these opinions worth anyway? SFA

          • Javier says:

            That is do you believe that growth can continue for the next few million years? Of course you don’t believe that but just how many years do you thing growth can continue?

            That is an interesting question, Ron. Based on the graph below I would say that economic growth would have stopped by 2030. Already some parts of the world like Japan and Europe have stopped growing, and the US will stop growing around 2020-2025.

            • Dennis Coyne says:

              Hi Javier,

              I think a focus on per capita growth makes more sense. Especially in Japan growth has slowed in part due to a population peak.

              • Javier says:

                Hi Dennis,

                I don’t think so. Recessions are not defined in terms of growth rate per capita. If the economy is contracting it doesn’t make much difference if the population is contracting even faster. Indeed it is probably worse. The economy only has a functioning state which is growing. If it doesn’t grow it stops functioning correctly.

                • Dennis Coyne says:

                  Hi Javier,

                  Data is available back to 1960, show the whole series, so that we don’t cherry pick.

                  • Javier says:

                    Hi Dennis,

                    I have the graph for world GDP since 1960. I don’t think the energy will not follow GDP in those 6 years.

                  • Dennis Coyne says:

                    Hi Javier,

                    I prefer to do the correlation by plotting GDP against energy, my point was you chose 1966, it is not clear why.

                    Based on your second graph, it looks like the trend changes in 1980 and levels off. So perhaps growth will stop later than 2030 based on your second chart. If we looked at the trend from 1980 to 2014 we get a different result, there is a statistical test to see if the change in trend from 1960 to 1986 and 1987 to 2014 is significant.

                    A cursory bit of research suggests a Chow test would work to test this. I will have to play with the data to see if there is a structural break in 1985 or so.

                  • Dennis Coyne says:

                    Hi Javier,

                    Comment with Chow test result showing structural break at link below:


                    Bottom line the trend changed in the mid eighties as your second chart also suggests.

                    I just confirmed using a Chow test.

                    If the future follows the 1986 to 2014 trend than the growth in real GDP per capita falls to 1% by 2040. Eventually Population peaks and declines and GDP growth will eventually stop. Society will have to change if it cannot function with no growth.

                    Potentially growth on a per capita basis might continue while total real GDP falls, we have to speculate pretty far into the future for such a scenario.

                  • Javier says:

                    Hi Dennis, I already answered there. You have to look for the probable cause for the change in trend to know how sustainable the new trend is.

          • Dennis Coyne says:

            Hi Ron,

            I also believe growth will slow eventually, just not as soon as you do. I think that population will peak in about 2050 at around 8.4 billion and that total fertility ratios for the World will fall to between 1.5 and 1.75 births per woman by 2150. So growth in per capita income can continue at a slow rate while population declines with total economic growth becoming negative in 2087 in the scenario below.

            A guess at World GDP to 2100 in chart below. Based on UN low fertility scenario and gradually slowing GDP per capita gowth.

            • Everything bad happens well after we are all dead. How convenient. Even our children will be dead by that time. Oh what a comfort that is.

              • Dennis Coyne says:

                Hi Ron,

                Not everyone is the same age as you. Population will peak and economic growth will slow. The growth in income per capita is what matters and as the rest of the world’s income levels rises closer to OECD levels, less economic growth will be necessary. If the capitalist system cannot function at steady state there will be a gradual transition to a post-capitalist system, whose structure I cannot guess any more than someone in 1600 could have guessed at today’s social structure (which is not monolithic, but in the OECD many similarities are shared).

                You asked what I thought, now you don’t like it because I don’t agree there will be a sudden collapse. Clearly this scenario may be wrong, as could yours. In fact the transition to lower growth may happen sooner, this will make an energy transition to alternatives easier. Energy use correlates linearly with real GDP.

          • Nick G says:


            The consumption of hard goods: steel, oil, food, cars, homes, washers & dryers, etc, has already stopped growing in the US and other OECD countries. It stopped decades ago. People can only eat so many calories. They can only drive one car at a time They can only live in one house at a time, one room at a time.

            Steel production and consumption plateaued in the US decades ago. Car sales peaked around 1975.

            What’s growing? The value of services, and the quality and features of hard goods: faster, safer, more reliable cars, etc. Phones that do more stuff then they did last year. That can grow forever, until…no one needs more services than they already have. Then the economy will stop growing. And no one will care that it’s stopped growing.

            • Caelan MacIntyre says:

              What we desperately need in terms of ‘growth’ as a species is one of ‘self-actualization’.
              This will not be met with yet more adolescent ‘things’ and ‘stuff’, like faster cars and ‘phones that do more stuff’. It will be met with the human race finally maturing and realizing that real community, ethics and democracy, etc., are what really matter for ultimate survival and comfort; are what cannot be bought or sold for any price; and are what you can’t get through yet more for-money-profit-for-more-land-&-labor-grabs.

              Oblique Firefly Overlocker

        • Dennis Coyne says:

          Hi Javier,

          I talked above about looking for a structural break in the data. We have GDP per capita annual growth rates from 1961 to 2014. I f we look at the 8 year moving average of the annual growth rate, we see there is a change around 1982. I divided the data into two groups, 1961-1985 and 1986-2014 and used a Chow test to test the null hypothesis that there is no structural break in the trend. The F statistic for this case is about 70 and the p value is less than 0.001.

          In this case we have a 99% probability that the null hypothesis is rejected if the Chow test gives us a result of 5 or greater, and our result is 70.

          So there was a change in trend in the mid eighties.

          Chart below.

          • Javier says:

            Thanks Dennis,

            That looks interesting. I think we know what changed in the early eighties that can affect GDP. It does not bode well either because it can be even less sustainable. Perhaps I have been too optimistic in thinking that we can have growth until 2030.

            What your graph also says is that without debt exponential growth the world would have stopped growing in the early 90’s.

            • Dennis Coyne says:

              Hi Javier,

              The US is not the World.

              Credit and debt are not the same. I have a Home equity line of credit, but I am not using it, I also have lots of room to expand my debt on my credit cards, I don’t use that either.

              Debt is what matters not credit.

              What changed in the eighties is that fossil fuel prices increased, but it was temporary, they fell again from 1988 to 2002 and then they rose.

              The rate of decrease in per capita GDP slowed markedly.

              One possible explanation is that growth rates were very high as the World recovered from World War 2, then growth slowed down. As long as debt grows at reasonable levels it is not an issue.

              Since 2009 household debt to GDP has decreased in the US from 100% to 80%. There is also about 100% of GDP owed in government debt, the rest of the US debt(150% of a 330% total) is owed by private businesses.

              If we are concerned about energy constraints, typically lower GDP means lower energy consumption. So per capita GDP growth of 1% or less with lower population growth (falling to zero in 2050 to 2070 and declining thereafter) will make the transition away from fossil fuels easier.

              • Dennis Coyne says:

                Looking at World Debt (government debt from the economist) it is about 78% of World GDP. The private debt is less of an issue. Proper bank regulation helps to keep private debt in check. A problem in the US was the banking deregulation in the mid-eighties, not sure if this applies to Europe which I believe did not regulate banks as closely (this might only be the UK).

              • Javier says:

                This debt chart is for the world. Only changes the amounts.

                • Dennis Coyne says:

                  Hi Javier,

                  Notice the change in slope around 2008, as long as debt grows slowly enough things will be fine. The OECD has much higher debt levels than the emerging economies and as debt has grown closer to OECD levels the World level of debt increases.

                  Japan is the poster child for too much debt, growth in GDP per capita is slow, but so far no collapse. Chart below uses data from FRED,


              • Javier says:

                And this one explains the effect of debt on GDP. Please note the effect after the early 80’s.

                These charts are from a site that explains in simple terms the debt problem that is looming on us.


                • Glenn Stehle says:

                  Now that takes Smith’s labor theory of value and turns it on its head.

                  What would you call that, a “natural resources” theory of value?

                  Where has this wealth come from?

                  More people laboring in the global economy?

                  New and improved technology?

                  Or to put it in Marx’s terminology, it is “fictitious capital,” not being wealth at all?

                  • Javier says:

                    Most new wealth is based on debt as we know very well.

                    That graph only reflects the ascent of debt as the primary supporter of economic growth.

                  • Glenn Stehle says:


                    I’ve always thought of production as being the basis of most wealth.

                    For instance, let’s say you loan someone the money to build a new manufacturing plant. If, after that plant is put into operation, that person can’t sell the products he produces for enough to pay his labor costs and the cost of natural resource inputs, plus enough to pay you back your loan with interest, then what’s your loan worth?

                    Can you cite a single historical example of a great world hegemonic power like the United States that, once it had lost its productive might, managed to retain its financial dominance of the world for more than a few decades?

                    Here’s how Joseph Chamberlain so eloquently put it to a group of bankers in London in 1903, after the once-great British empire was already in irreversible decline:

                    Granted that you are the clearing-house of the world, but are you entirely beyond anxiety as to the permanence of your great position? Banking is not the creator of our prosperity, but is the creation of it. It is not the cause of our wealth, but it is the consequence of our wealth; and if the industrial energy and development which has been going on for so many years in this country were to be hindered or relaxed, then finance, and all that finance means, will follow trade to the countries which are more succesful than ourselves.

                    So how important are abundant and inexpensive natural resource inputs to the production process? I believe they’re pretty darned important. And as they become scarcer and more expensive to extract, their importance will become increasingly apparent.

                  • Javier says:

                    I completely agree.

                    In Occident we have increased our debt to increase consumption, while production was taking place in Orient.

                    At least in the US part of the debt has been used to extract oil, creating tens of thousands of jobs and associated industries and producing billions of barrels of valuable oil. That is in my opinion the main factor explaining why US has fared much better than Europe. Our increase in debt has been for nothing. Just to inflate GDP and keep the can rolling.

                • Dennis Coyne says:

                  Hi Javier,

                  Do you really buy that theory?

                  Its a new LTV, where the L has shifted from labor to land? I will go with mainstream economics, which is far from perfect. One could argue that wealth can be created by combining resources with labor and technology, don’t you think?

            • Dennis Coyne says:

              Seems like you are expecting financial collapse, I suppose it is possible, but we will recover from that as well, especially if Europe doesn’t follow poor economic policy in response as it did in 2008/9.

              • Javier says:


                Debt cannot continue growing exponentially forever. When we reach the limits of debt we will suffer a crisis like none before. We could certainly recover from that unless we are at post-Peak Oil and lack the necessary cheap abundant resources to recover.

                We are about to discover the limits to growth and we are not going to like it. I expect intermittent worse and better times within a general worsening situation until around 2030-2035 when we are likely to suffer a catastrophic failure of our economic and monetary system. We will not completely recover from that, and from then on we should enter a Roman style decline, with ups and downs. An industrial civilization like ours has been made impossible by our dispersal and burning of raw materials probably for millions of years if not forever. Survivors will have to find another path. I hope a wiser one.

                • Dennis Coyne says:

                  HI Javier,

                  I agree debt will not continue to grow exponentially, as long as it grows a little more slowly than gdp it will be fine.

      • Javier says:

        I do have one probable scenario and one less probable one:

        I believe we are probably going towards another global recession in the short term. Recessions are a cyclical feature of our economic system due to imbalances amplification, and frequency analysis indicates it is about time for the next. Global economy is getting weaker, not stronger. Japan just entered a new recession, China’s growth is lesser every passing quarter compared to a year before, international commerce is falling, and commodities-dependent countries are in a worsening situation.

        The only question is if the global crisis finally materialises, how are oil producers going to fare? Oil exporting countries would have to adjust their fiscal balances and this will be extremely painful, with the risk of civil unrest and revolutions. The unconventional North American oil companies would be under extreme duress shunned by investors. Oil production could take a plunge and if this causes price volatility within a recession, the economic crisis could become systemic and amplified. If this nightmarish scenario does not occur and prices remain depressed through the recession we would come out with reduced oil production and difficulties to grow, and Peak Oil would have taken place.

        If a global recession is averted and somehow we go through a period of reduced growth recovering afterwards, a combination of supply reduction mostly from unconventional oil producers (plus conventional decline) and demand increase would see prices partially recovering during the next couple of years improving the situation of all surviving oil producers. Peak Oil would become a plateau and we would get a few more years to prepare for oil decline if we are wise enough. It is a lower probability scenario.

        I will not consider at this time scenarios that involve armed conflict between nations, even though they cannot be discarded.

        • Dennis Coyne says:

          Hi Javier,

          Your scenarios sound reasonable, eventually the economy will start to recover from a recession or depression in your more probable scenario. Eventually things will bottom out and as things turn around energy availability may be constrained, or if not there will be plenty of energy at low prices.

          I think it unlikely we will see a great depression, unless we forget completely what Keynes has taught us. Another great recession (like 2008/9) is more probable.

          • Javier says:

            Hi Dennis,

            We must not forget that we haven’t recovered completely from 2008 and aftershocks. A lot of countries, mostly from OECD are now worse off than they were in 2007. This could be a cue of things to come. Very serious crisis with only partial recovery between them could lead our civilization downwards in the after Peak Oil world. As we become poorer every cycle, we won’t be able to transition to a new paradigm based on renewable energies that requires huge investments and technological developments. Governments won’t be able to fulfill their promised unfunded liabilities, so much less fund a major energetic transition.

            • Dennis Coyne says:

              Hi Javier,

              The growth of alternative energy may lead to growth, the reverse of what you expect. The OECD is growing more slowly than the past, that is fine, eventually China and India will grow by selling goods to their own populations and to each other.

              A big problem with the OECD is the Eurozone which was a big mistake. Individual counties should have control of their fiscal and monetary policy. Spain would be better off if it left the Euro Zone and reintroduced the peseta.

  13. islandboy says:

    I suppose this is as good a place as any to post about something I read last week but, have been waiting for the right opportunity to post it. Early last week the IEA released their 2015 World Energy Outlook, in which they put forward their projections for what the world energy situation will look like through to 2040. One of the solar news aggregators I read every day posted this

    IEA talks Energy Transition, but still low-balls future growth of wind and solar

    Among publications on the future of global energy flows, the International Energy Agency’s (IEA) World Energy Outlook (WEO) holds a special place. While the IEA is one of the most prestigious agencies for producing information on global energy across sectors, WEO forecasts consistently fail to keep pace with reality regarding the rise of renewable energy.

    This flaw is continued in WEO 2015, which was released today. The report notes that there is an “energy sector transition underway in many parts of the world”, and that renewables have already become the second-largest source of electricity, due to 130 GW being installed in 2014.

    However, even in its “New Policies” scenario IEA predicts that renewable energy growth will essentially flat-line, with only 144 GW installed annually through 2040. This is in stark contrast to decades of sharply growing wind and solar deployment, and IEA gives no explanation for the divergence between this odd assumption and historical growth rates…..[snip]

    While describing the agency’s solar forecast as “overly conservative”, Liebreich calls the 2015 report a “landmark WEO” due in part to the statements about the transition to renewables.

    The rate of this transition to renewable energy is still hotly debated. Here, IEA’s track record is very poor.

    A report by Energy Watch Group released in September found that the 180 GW of solar PV which WEO 2010 projected would be installed in 2024 was achieved in January 2015. The report similarly found that wind capacity in 2010 exceeded 260% and 104% the agency’s 2002 and 2004 projections for that year.

    Apart from a post by AlexS last week, there has been no (little?) discussion of this IEA publication on this site to date. My guess is that none of the regulars here have access to the full report or if they do, they have not had the time to go through it and analyse it yet.

    I continue to be somewhat puzzled by the propensity for both the IEA and EIA to be optimistic about future oil production and pessimistic about the growth of renewables. I was astounded by an EIA forecast for wind and solar that I encountered back in September and wrote a post about it.

    • wimbi says:

      Along the same line of puzzles:

      I am an investor looking for a good bet. I look at the energy picture. I see two general types of energy source:

      F source is the major one at the moment, but is threatened in the near future by high probability of heavy taxation as a result of its toxic side effects, those effects rapidly becoming ever less deniable and more burdensome to the public.

      So the return on investment in F is at the moment highly uncertain and getting more so by the minute.

      The global sources of F are intrinsically limited in time and place

      Energy source S is at present somewhat more expensive out-of-pocket, but far less so when its consequence of use is factored in, as they are highly likely to become. S is predictably becoming rapidly cheaper and is already, in favored sites, less expensive than F. This rate of fall in cost has solid basis in history of technological development.

      The global sources of S are unlimited in time and place.

      So, knowing all that, what do I do as a cautious investor?

      I put my pile on F, which might be a looser at the moment, but might be a winner later on, since after all, it sure was 100 yrs ago.


      Goddam it.

      • Glenn Stehle says:

        wimbi said:

        I put my pile on F, which might be a looser at the moment, but might be a winner later on, since after all, it sure was 100 yrs ago.

        That sort of investment strategy, however, runs counter to the current dominant model, which prioritizes short-term profits over long-term profits.

        The priority is now on higher shareholder value.

        In The Macroeconomics of Finance-dominated Capitalism and its Crisis, Eckhard Hein says one may expect two things as a result of the higher shareholder value orientation:

        1. Shareholders impose higher distribution of profits on firms, and the ability to invest for the future suffers, and

        2. Shareholders impose renumeration schemes based on short-term profitability and financial market results. The preference for growth, and hence the willingness to invest in projects that may not payoff until some distant future, suffers.

        • wimbi says:

          My point, which I wrongly thought obvious, was that after looking at the facts cited, an investment in F would be stupid, but lots of people still do it.

          ??????? was intended to imply that.

          • Glenn Stehle says:

            And my point was best summed up by John Maynard Keynes, after he lost his shirt following investment strategies such as yours:

            The market can stay irrational longer than you can stay solvent.

            • wimbi says:

              Gee, you guys seem to insist on attributing to me a strategy I keep labeling as stupid – invest in F.

              I invested a perfectly bearable amount in S for my house and car, and am now set for domestic energy for the rest of my life, with no further action required.

              Can ignore the ups and downs of energy market from here on.

              I call THAT a good investment.

              Similarly, investing my carbon budget in insulation, instead of fuel oil. The insulation is a one time job and lasts forever, more or less. Investment in fuel oil to be as comfortable would just keep on demanding more .

              Of course, you can define return on investment as in $ only.

              I call that stupid.

              • Glenn Stehle says:


                So what happened to all that talk about “I am an investor looking for a good bet,” or qualifiers like “they are highly likely to become” when talking about the future downsides of fossil fuel investments?

                You yourself admitted that “S is at present somewhat more expensive out-of-pocket” than F.

                But now, all of a sudden, your “good bet” has miraculously converted into a sure thing?

                And the returns on your “investment” are not in dollars and cents, but peace of mind, as you believe you “Can ignore the ups and downs of energy market from here on”? That sounds like a fantasy right straight out of Walden Pond to me.

                And furthermore, any investment that doesn’t conform to your predictions for the future is “stupid”?

                And layered on top of that, most investors hardly consider the money they spend on the house they live in or the car they drive to be “investments.” Most consider these to be expenses. So when you talk about “investing,” you’re not talking about making money at all. You’re talking about cutting your living expenses, or satisifying some need other than making money.

                And you call that “investing”?

                Go figure.

                • wimbi says:

                  Like I said. Defining return only in $ is stupid.

                  Proof, look where that has got us. Nufsaid.

                  As in:
                  “If ya gotta ask, ya ain’t never gonna get to know.”

                  • Glenn Stehle says:


                    Don’t get me wrong. I’m not trying to defend scientific materialism. But that is, for better or worse, the dominant ideology of our mass consumer society.

                    So I’m speaking of what is, not what ought to be.

                    And sure, it’s possible to get an ought from an is, as Patricia Churchland explains here.


                    Transforming an ought into an is, however, is hardly a sure-fire bet.

                  • Dennis Coyne says:

                    Hi Glenn,

                    It is a pretty simple concept. Wimbi is the change, he is showing people how it can be done. It would be great of he could find a helper to put up a website so he could reach more than just his neighbors and a few of us on POB. I would be happy to put stuff up for him on my blog (but nobody would see it).


                • Fred Magyar says:

                  To those in power who believe that only strength counts, and that people are always self-interested, I say “We tried it your way, and it didn’t work. Let’s try something new.”
                  Simon Anholt

                  • Glenn Stehle says:


                    It’s very clear that what you and wimbi really want is to transform the values of the society so that they conform to your own.

                    But if values can’t be transformed by the means of open debate and persuasion — and opinion polls and consumer behavior show those sharing your values to be at most 20%, and declining — then what?

                    Is it then time to break out the rubber truncheons and the castor oil?

                  • Glenn Stehle says:


                    Your comment also highlights one of the great internal inconsistencies which inheres in the technotopian, or California, ideology.

                    Richard Dawkins has become the patron saint of the technotopians, despite the fact that he is also the high priest of the cult of the self-interested.

                    Combine this with Saint Dawkins’ material determinism, and this is hardly an ideology which is conducive to transforming the domiant values of our mass consumer society, which pretty much mirror those of Dawkins.

                  • Fred Magyar says:


                    It’s very clear that what you and wimbi really want is to transform the values of the society so that they conform to your own.

                    But if values can’t be transformed by the means of open debate and persuasion — and opinion polls and consumer behavior show those sharing your values to be at most 20%, and declining — then what?

                    I won’t pretend to speak for wimbi, though I suspect he and I would find a lot in common if we had the chance to chat over a few cold beers!

                    As for my own values and wishing to transform those of society at large, I think societies’ are already well underway towards transformation without a whole lot of help from me…

                    I just tend to report transformations that I see already happening.

                    BTW, I have no idea as to what exactly it is that you are referring to when you say:
                    “opinion polls and consumer behavior show those sharing your values to be at most 20%, and declining”

                    But for the record, I think we could start with the fact that a growing number of people strongly resent to being referred to as: ‘Consumers,’ I know I do!

                    Furthermore, I think, it is also important to look at the data, look at the data again and look at the data a third time and then and only then, come to a conclusion…


                    Why Civil Resistance Works

                    “After the breathtaking events of 2011, can anyone doubt that non-violent civil resistance is an effective tool for political change? In this provocative, well-written, and compelling book, Erica Chenoweth and Maria Stephan demonstrate that non-violent civil resistance is usually a better way to force political change than taking up arms. They identify the conditions that favor its success, and provide a convincing explanation for why non-violent resistance is so effective. The analysis is rigorous yet accessible and their conclusions have profound implications for anyone seeking to understand—or promote—far-reaching social and political reform.” — Stephen Walt, Robert and Renee Belfer Professor of International Affairs, Harvard University

                  • Dennis Coyne says:

                    Hi Glenn,

                    I think what they really want is that the Earth is livable for their grandchildren.

                    Maybe you are different, or don’t have children, I don’t know.

                  • Glenn Stehle says:

                    Fred Magyar said:

                    As for my own values and wishing to transform those of society at large, I think societies’ are already well underway towards transformation without a whole lot of help from me…

                    I just tend to report transformations that I see already happening.

                    You mean “transformations” like this?


                  • Glenn Stehle says:


                  • Glenn Stehle says:

                    Or this?

                  • Glenn Stehle says:

                    And if we look at whether people are willing to put their money where their mouth is — this is what is known as “consumer behvior” — the picture gets even bleaker for team green:

                    Nearly three-quarters of Americans see global climate change as a “very serious” (45%) or “somewhat serious” (29%) threat, and two-thirds (66%) say people will have to make major changes in the way they live to reduce the effects of climate change, according to a Pew Research Center report released earlier this month….

                    Using the Environmental Protection Agency’s climate change website for suggestions on ways people can reduce greenhouse gas emissions, we analyzed available data to gauge the extent to which Americans are heeding advice on living more climate-friendly lives. Among the indicators we looked at, actual changes ranged from significant to minimal to nonexistent.

                    This is entirely consistent with consumer behavior over the past few decades. What we see is that Americans are good at talking the talk when responding to hypothetical questions about global warming on opinion polls, but when it comes to walking the walk, and writing that check to pay for their ideals, it’s an entirely different story.

                  • Glenn Stehle says:

                    Dennis Coyne says:

                    I think what they really want is that the Earth is livable for their grandchildren.

                    Maybe you are different, or don’t have children, I don’t know.

                    Well Dennis, I notice how, by painting me with the face of evil, you deftly dodged the problem, which is how you are going to bring the public around to your point of view.

                    Do you have any solutions to offer in that regard?

                    As I stated before, I live in the world of what is, not in the world of what ought to be. But it doesn’t seem to have even dawned on team green that there’s a difference between those two worlds.

                  • Dennis Coyne says:

                    Hi Glenn,

                    Higher prices for fossil fuels will help.

                    Not painting you as evil, just suggesting that there are people that have changed their behavior because they care about what kind of planet will be left for their grandchildren. Others make different choices for whatever reason, they live life in the present or think future technology will take care of future problems perhaps. Maybe they believe the fossil fuel lobby and that climate change is just a hoax by socialists.

                    I ascribe no evil intent to someone who disagrees with my views, as they are just one person’s opinion.

                    This does not mean they are plotting to rule the world as you imply in some nefarious green cabal, they simply lead by example and hope others follow.

                    Things can change for the better, look at recent progress on gay rights in the US.

                    Your point that attitudes on the environment have a long way to go is correct.

                    When there is a peak in oil, coal, and natural gas, the prices of those fuels will rise. At some point it will become sensible from an economics perspective for people to switch to alternatives. As production ramps up costs for PV, Wind, heat pumps, and HVDC transmission will fall and at some point much of fossil fuel use becomes like the buggy whip.

                    That is how I propose things will change, it will take 30 to 40 years, so by 2050 (when I am dead) such a transition may be nearly complete, at least in the developed world, the BRIC nations may lag 5 years behind and currently less developed nations maybe another 10 years (2065).

                  • Fred Magyar says:

                    Glen said:

                    As I stated before, I live in the world of what is, not in the world of what ought to be. But it doesn’t seem to have even dawned on team green that there’s a difference between those two worlds.

                    Are the members of ‘Team Green’ also part of the ‘New Atheists’?! Those are both strawman groups not real people or organizations.

                    Personally I subscribe to ideas proposed by very real people and organizations doing very concrete and real things.

                    Like the Ellen MacArthur Foundation:

                    The Buckminster Fuller Institute:

                    Or the Rockefeller Foundations Resilient Cities Project:


                    Just to name three for now… If you look at the people, governments, policymakers, businesses and many top corporations behind those three organizations alone, I think you will find that these are not your father’s green hippies. (In case you are wondering that’s a reference to an old Oldsmobile ad)…

                    We all have choices to make, I’m making mine. And yes, I most definitely have an agenda and a vision and I hope to leave a better world for my own offspring and for future generations as well.

      • Bob Nickson says:

        It’s going to be interesting to see it man when the S really starts to hit the F.

        Best hopes for a future that doesn’t repeat and doesn’t rhyme.

  14. anon says:

    In order to believe that oil production and consumption will peak in 2015 and that the price will peak at $70 one must believe that the global central banks and governments will not do much beyond what they have currently done to stimulate growth and inflation. One must also believe that the dollar will continue to maintain an incredibly high degree of strength relative to the emerging economies’ currencies (particularly vs Asian currencies) in order for the price not to breach $70. I do not believe in any of those things. I believe that the central banks and governments will do all they can to stimulate growth and inflation, and that negative interest rates will happen if necessary (probably will be). I also believe that the dollar will weaken versus the emerging economies in the future probably to a fairly significant degree. For me, it’s not a question of if these things will happen, it’s when and that’s a really hard call. So I have no doubt we will see a significantly higher oil price in the future (well above $70) and higher production. However, I do believe that production/consumption growth will flatten as the higher price makes alternatives more economically viable. I’m sure I will now be called stupid, but that’s OK.

    • Mario says:

      I don’t think that’s stupid at all. I think US dollar strength is a very big factor in weak oil prices, and like all things, this too shall pass.

      In addition, while demand over a very long period will wane with substitutes becoming more competitive, over shorter periods, not so much.

      Supply will ultimately be constrained in the face of lower short term prices for crude

      Put all these factors together and higher prices are an inevitability.

      How much additional supply can be brought to market in reasonable time frames will determine how high the next price peak will reach

      • anon says:

        I know it’s not stupid, it’s actually really smart and balanced. However, that doesn’t mean others who post here won’t disagree and resort to name calling when they do….

        • twocats says:

          stay strong anon, I thought your post was well composed. As far as comment boards go Peak Oil Barrel is pretty mild. The host himself is probably a bit more aggressive than your average host. But then again, it’s difficult to watch some of the drivel that passes by on the screen, so it’s hard for me to blame him. It would be interesting to talk to him in person. Sometimes if someone takes a nasty snap at me I’ll try to look back at their older posts, maybe that’s just their manner, and its not personal or particularly mean spirited, that’s just how they roll!!

          • anon says:

            I know twocats, I was being a little facetious. I think this is a tremendous site with excellent information. I also find that when you dig through a lot of the noise in the comments (and at times there is a lot of noise) you can find extremely helpful succinct informative posts. I applaud and thank everyone involved. CalculatedRisk blog from 2005-2009 was the gold standard in my opinion in both the blogger’s posts and comments.

    • Dennis Coyne says:

      Hi anon,

      I also agree with your analysis. The more pessimistic forecasts assume debt will not be able to expand much further and that low economic growth will be the result. I do not agree with that analysis, I think if debt growth slows a little that economic growth will make the debt levels manageable.

      It is interesting the shift in analysis from 20 years ago when most economists were concerned about too much public debt crowding out private debt, there was a time when nobody worried about private debt (back when banks were regulated properly). The inadequate regulation of banks has made private debt more of a concern, the solution? Go back to better regulation of the financial industry. Maybe create two markets a regulated market where the government insures deposits, and an unregulated market where you can take your chances on the bank making bad loans and your deposits may be lost.

      I am guessing when framed in this way banks would realize that they would not get a lot of deposits and realize that proper regulation is the price they pay for the faith the public puts in banks.

    • Javier says:


      Most people when they talk about prices in the future they refer to constant price. Of course if we see a 10,000% inflation in the US we would see a 1,000$/barrel, but in constant price that would still be below 70$.

      You are of the type of person that believes central banks and governments can keep the party going indefinitely. Blessed you. I used to believe in Santa Claus when I was a kid, but I lost that innocence a long time ago. Central banks and governments are protecting the very rich by setting up schemes that will suck up everything from the middle classes and the not so rich while upping the systemic risk; and then they will run for cover when the sh*t hits the fan.

      By increasing the debt to humongous size, we have robbed from the future. The only problem is the future has arrived and we cannot increase the debt indefinitely because we are running out of collateral. As we start to accept sh*t as collateral, the entire pile is going to fall on us. An economic crisis is almost certain. A debt crisis is quite sure. A currency crisis is very probable. When all three hit us we won’t be able to recognize the world. And you will lose your faith in central banks and governments.

      • ChiefEngineer says:

        Hi Javier, do you have a Tverberg vegetable garden in your front yard too ? Because if you do, we can be friends after the collapse.

        • Javier says:

          I try to be precise with language and I have come to realize that collapse is not the proper word. A person collapses when one instant he is on his feet and the next he hits the ground. After studying with some detail the Roman Empire to learn from precedents, I have come to the conclusion that decline is a much better word. Declining civilizations are plagued by a succession of crisis and peaks as they reduce their complexity until finally they fall.

          This figure represents my analysis of current knowledge on the decline of Rome. Please observe that the first peak in commerce took place much earlier than most people consider when the decline started. Then you can go and find out when the peak in commerce took place for our industrial civilization (between other things you can check the Baltic Dry Index).

          • ChiefEngineer says:

            Javier, I agree with you. Collapse is a lot like the word love. It means something different to everyone.

            I’m not convinced humanity is decline yet. Sure there are a lot problems, but the new Apple I-phone 7 big screen will be out soon. Global GDP is still growing. In a lot of aspects life couldn’t be better. You get my point. Now the polar bears, their screwed.

            Above, I wouldn’t put us anywhere on the CE side of the chart.

            • Javier says:


              I am of the opinion that our civilization progressed very rapidly until the early 70’s. Comparing with 45 years earlier (mid 20’s) the progress was astounding. By the early 70’s we had reached the Moon, were developing supersonic commercial airplanes, had already performed the first human heart transplant, the middle class worldwide had automobiles and home appliances. By extrapolating almost everybody thought that by now (45 years later) we would have reached Mars, have cities in the space, have commercial space flights, cured cancer and significantly expanded human life span, have flying cars and robots at home. Instead the advances have been a lot more modest. We haven’t gone back to the Moon, we are again developing supersonic commercial airplanes and we have better cars and better medicine, but without any radical changes. Our lives are not that different from the early 70’s with advances mainly in communications and computers, that require little energy.

              Progress has slowed probably because going further in the physical realm required a lot more energy per capita than we have available and we never got fusion to work. We could have gone instead into social and cultural evolution changing our society, but we are not as sapiens as we thought and for that we should have controlled our population growth.

              I see techno-optimism as unjustified and technocopians get it as wrong now as they got it in the 70’s and early 80’s. I should know because I was one then, but I learned from error. With the largest mass of human brains dedicated to research in history we are getting less progress, not more. The correct extrapolation is that sometime in the future progress should essentially stop, and perhaps go backwards like it did in the middle ages.

              • Glenn Stehle says:

                Javier said:

                Our lives are not that different from the early 70’s with advances mainly in communications and computers, that require little energy.

                Javier, I certainly agree with the rest of your comment, but on that one point I’m not so sure. I suppose the amount of energy we use in communications and computers pales in comparison to the amount we use in other areas, but

                The iPhone is just one reason why the information-communications-technologies (ICT) ecosystem, otherwise known as the digital economy, demands such a large and growing amount of energy. The global ICT system includes everything from smartphones to laptops to digital TVs to — especially — the vast and electron-thirsty computer-server farms that make up the backbone of what we call “the cloud.”

                In his report, Mills estimates that the ICT system now uses 1,500 terawatt-hours of power per year. That’s about 10% of the world’s total electricity generation or roughly the combined power production of Germany and Japan. It’s the same amount of electricity that was used to light the entire planet in 1985.

                We already use 50% more energy to move bytes than we do to move planes in global aviation. No wonder your smartphone’s battery juice constantly seems on the verge of running out.


                • Glenn Stehle says:

                • Glenn Stehle says:

                  • Javier says:

                    You are right Glenn,

                    Even if it is 10% of electricity and less than that of total energy, it is still a lot more that I thought.

                    Yet when we look at that energy per capita graph that you put above, I would bet money that the final increase after the 70’s that has taken place in the 00’s corresponds to Asian development and not to ICT growth.

                • Dennis Coyne says:

                  Hi Glenn,

                  Has the energy savings in less travel, less paper, filing cabinets, copiers, etc. been calculated as well?

                  My guess is that we would find a net energy savings from the ICT system, not to mention the increased human productivity that results from the existence of that system.

  15. AlexS says:

    U.S. oil rig count:

    Permian 219 (-5)
    Eagle Ford 63 (+1)
    Bakken 63 0
    DJ-Niobrara 27 (-1)
    Other shale basins 58 (-2)
    Other (Conventional) 134 (-3)
    Total oil rigs 564 (-10)

  16. twocats says:

    An extremely good post and a good time to make an assessment. There is a surplus of unwanted $80 to $110/barrel oil. Eventually (one assumes) it clears out and production will catch down to demand. When that magical day happens oil prices will begin to rise, and it more than likely will create an increase in expenditures of exploration and likely some increased production. When that happens will the demand stay strong enough and will the production turn-around swift enough?

    One does get the impression that the massive credit binge that fueled most of the increases over the past 7 years, right into the teeth of peak oil (or bumpy plateau – which is just harder to type really), is experiencing somewhat of a hangover and the global economy could just drift sideways or downward for years and years to come.

    If that happened peak oil might happen but it would never be acknowledged as such. It would be called peak demand due to lack of economic productivity. Only when real shortages begin for people who make news programs and articles will the word peak oil ever be used seriously. When is that going to happen? There I start to agree with a 2025 timeline. This bullshit could easily drag on for another decade. Also, don’t underestimate the ruling classes willingness to destroy the planet to eke out a few million more barrels.

    • If that happened peak oil might happen but it would never be acknowledged as such…

      No, not a chance. It might be possible for the world to look upon peak oil as “peak demand” if and only if we have a very smooth transaction to solar, wind and alternative fuels. And I know some see that as a possibility but I see it as a pipe dream.

      However if we have peak oil due to economic hardship then it will be peak oil pure and simple and will be regarded as such. Perhaps begrudgingly late by some but it will eventually be regarded as peak oil by almost all. Never all of course because there will always be deniers as the folks on this list already know.

      If we have peak oil because the world cannot afford $100 oil, which I think is what is happening right now, then that is peak oil pure and simple. I pick $100 oil but it could just as easily be another number, $87 oil for instance or some other number. The point is as the cost of energy rises and the economy worsens there is a point where the price of energy, or more specifically oil, depresses the economy enough that the price can rise no further. Then it becomes uneconomical to go after the more expensive oil and production begins to decline. Or perhaps did begin to decline.

      • twocats says:

        Well retorted, I retract my statement. I was thinking about the flim-flam that’s been going on with Global Warming and the near complete discrediting of peak oil in the majority of the popular public opinion sphere. I studied propaganda for many years and most are familiar with its power. But I believe you are correct when it comes to the science AND the economics. I think for many the lies will ring hollow and the charade won’t last long after its clear peak oil has set in, whether it’s 2015 or some other year. Already, for peak oil, reality is presenting the bill and as a species we have begun negotiating: “all of the above”, renewables, efficiency. I agree these negotiations will not be kind to humanity.

      • Nick G says:

        However if we have peak oil due to economic hardship then it will be peak oil pure and simple and will be regarded as such. Perhaps begrudgingly late by some but it will eventually be regarded as peak oil by almost all.

        Ron, that just baffles me. Right now oil investors (the Kochs, Exxon-Mobil, etc) have managed to hide the true costs of our oil addiction. So, they’ve managed to keep us from doing the simple and effective things that would eliminate oil.

        But if everyone understood how much harm oil does to us….we could kick oil pretty quickly. We have superior substitutes for most of our oil consumption.

        Think what a $5 per gallon tax would do. Think what CAFE requirements for 75MPG would do.

  17. Caelan MacIntyre says:

    “As Watcher says, ‘I don’t have to find the murderer.’ So burden of proof is silly, any one can say ‘prove it’, it says nothing at all.” ~ Dennis Coyne

    Unsure it is understood what you’re referring to exactly, but I was thinking along the lines of what this quote by Chomsky suggests, which I’ve posted before, hereon and/or at The Oil Drum:

    “Anarchism [anarchy] is participatory… it’s based on the assumption that any authoritarian or any structure of authority and domination has to justify itself– none of them are self-justifying– whether they’re in individual relations, or international affairs or the workplace or whatever… They have a burden of proof to bear, and if they can’t bear that burden– which they usually can’t– they’re illegitimate and should be dismantled and replaced by alternative structures which are free and participatory and are not based on authoritarian systems…” ~ Noam Chomsky

    “I am not familiar with Canadian Law. In the US we have the Clean Air Act and the Clean Water Act.
    Is this legislation perfect? No.” ~ Dennis Coyne

    It’s a crock.
    But here’s something for you that I have also posted before:

    “In view of the foregoing arguments, we might well restate Olson’s ultimate economic conclusion on anarchy as follows: If a population acts to serve its common interest, it will never choose the state. In reaching this conclusion, we need not deny the countless problems that will plague the people living in a society without the state; any anarchical society, being peopled in normal proportion by vile and corruptible individuals, will have crimes and miseries aplenty. But everything that makes life without a state undesirable makes life with a state even more undesirable. The idea that the anti-social tendencies that afflict people in every society can be cured or even ameliorated by giving a few persons great discretionary power over all the others is, upon serious reflection, seen to be a wildly mistaken notion. Perhaps it is needless to add that the structural checks and balances on which Madison relied to restrain the government’s abuses have proven to be increasingly unavailing and, bearing in mind the expansive claims and actions under the present U.S. regime, are now almost wholly superseded by a form of executive caesarism in which the departments of government that were designed to check and balance each other have instead coalesced in a mutually supportive design to plunder the people and reduce them to absolute domination by the state.” ~ Robert Higgs, ‘If Men Were Angels: The Basic Analytics of the State versus Self-government’

    “Have they improved the water and air quality in polluted areas of the US? Yes.
    For some context on pollution. A neighbor upstream from your property on a river, routinely dumps his sewage in the stream? He refuses to change his practices when asked nicely. Your move.” ~ Dennis Coyne

    See aforementioned quotes. Need elaboration? Just let me know.

    • Dennis Coyne says:

      Hi Caelan,

      How does your proposed society deal with coercive behavior by bad actors without resorting to coercion? The water pollution example you avoided altogether. I will assume you have no answer.

  18. Reluctant Realist says:

    Peak Pampering:

    The truth hurts…these folks need to put on their adult clothes and deal with reality.

  19. ChiefEngineer says:


    Trouble for Tesla?

    “What about brands who sell only green cars? “You will no longer be able to create an entire brand philosophy, like Tesla did, around electro-mobility,” asserts Ellinghaus, “because it will become something that is standard. All automotive manufacturers are working on it, or need to have it to meet the CAFE legislation.”

    “Asked if Cadillac will have a dedicated green car going forward, Ellinghaus responds: “No. The very opposite. We need to walk away from a dedicated model. It needs to be a standard, in our regular lineup.”

    It’s not if, it’s how soon

    Change is coming

    • islandboy says:

      Huh? I don’t get it. The reporter grabs on to something said by “Cadillac chief marketing officer” and translates that to “Trouble for Tesla?”.

      This displays a complete lack of understanding of what Tesla is about. Tesla is not tweaking existing technology to try and make incremental improvements, they have broken the mold and are building vehicles with a radically different drive train and fuel supply than existing manufacturers, like Cadillac (GM). There will be “trouble for Tesla” when GM successfully launches their 200 mile, battery powered, sub $40,000 Chevy Bolt (2017) or when Audi launches their 300 mile, battery powered SUV (2018). By the time Audi launches their SUV, the current Tesla SUV, the Model X will have been in production for two years. There will be trouble for Tesla if Volkswagen can get the range of their e-Golf up to 200 miles. while keeping the cost under forty grand.

      As it is, Tesla has been manufacturing their all electric premium sedan for just about three years and there is not even one manufacturer that has even offered a concept that competes in the same space. Tesla’s founder has not kept it secret that he saw the premium segment as the best avenue for introducing all electric vehicles but, none of the established manufacturers think he’s on to anything?

      IMO these are signs that a business disruption is under way. The lukewarm reception and in some cases downright dismissal of the new technology by the established players is an attempt to hide the fact that, they are threatened by it. I for one would love to see “Trouble for Tesla”, as it would mean that other manufacturers are offering more compelling, affordable alternatives in significant numbers but, as of today this is not the case and I wont be holding my breath waiting for that to happen.

      Edit: What does al of the above have to do with Peak Oil? In 2007, when I first became aware of Peak Oil there were exactly zero battery electric cars you could walk into a show room floor and purchase. Just a couple nights ago, I was looking at used Nissan eNV200, all electric work vans, selling online in the UK for under £12,000 (US$18,000). Is the world better prepared for Peak Oil today? In some ways, yes. See Infographic: State of the Plug-In Electric Vehicle Market, October 2015

      • oldfarmermac says:

        I for one believe Tesla will be able to compete, going forward, assuming there are no really major cost breakthroughs on the part of the big legacy car makers.

        Consider-Tesla has in house battery manufacturing capacity, with the construction phase of that capacity nearing completion. I cannot see any real reason to think that Tesla will not enjoy a cost advantage , or at the very least, cost parity, in batteries.

        The company has no legacy issues to deal with involving pension funds, unions, health care benefits, or obsolete plant and equipment, the facilities Tesla owns are pretty close to state of the art.

        Tesla imo is apt to win the battle when it comes to dealerships, since it is so unquestionably hypocritical for politicians to say they believe in free markets while keeping Tesla out of their states. That battle will take a while, but Tesla is going to eventually win it, in the court of public opinion.

        Tesla is not dealing with corporate deadwood. There are not hundreds and thousands of people on the payroll just doing enough to get by, with management reluctant to fire them, for fear of disrupting the entire organization.In a really fast changing business environment, old men expert in the hot technologies they invented and know best are not necessarily the front line soldiers you want.

        The real question, in my mind, is what a TESLA will be worth when it is eight or ten years old, competing with an eight or ten year old GM or TOYOTA or FORD or NISSAN.

        The USED CAR buying public is not going to be very interested in cars that cost an arm and a leg to repair. TESLA is going to have to get real when it comes to pricing repair parts, and making them readily available, and providing independent garages with all the technical data needed to repair mechanical problems and wrecks.

        It might be within the realm of possibility that TESLA can sell extended warranties on older second third or fourth hand cars, and keep the repairs in house, but I wouldn’t bet on it.

        That giant touch screen is probably a dedicated, custom built, custom wired item, with enough black box soft ware connected into it that the CIA would need to put a whole building full of techs on it for a year to replicate one. Nobody is ever going to buy one at NAPA, and there are never going to be enough in wrecking yards to cover the need for replacements.

      • Glenn Stehle says:


        The facileness with which you throw off these figures — like $40,000 for the 2017 Chevy Bolt — never ceases to amaze.

        I just bought a new Honda HRV for my significant other. The total cost out the door, with taxes and everything included, was 279,000 Mexican pesos, or about $16,800.

        That’s probably about $5,000 less than what you could buy the same car in the United States, but even then you’re talking a big difference between that and $40,000.

        At 15,000 miles per year, 31 mpg average fuel economy, and $3.00 per gallon gasoline (the current price in Mexico), total yearly gasoline cost to operate the Honda HRV figures to be about $1500.

        Even if the energy cost to operate the Chevy Bolt were zero, we’re looking at over 15 years to payout the additional cost of the Chevy Bolt over that of the Honda HRV.

        Also, I have a question about your claim: “The lukewarm reception and in some cases downright dismissal of the new technology by the established players is an attempt to hide the fact that, they are threatened by it.” Does that mean that the old saw about “build a better mousetrap and the world will beat a pathway to your door” has now been turned on its head? We’re to believe that if you build a better mousetrap, the world will run away from you?

        • Dennis Coyne says:

          Hi Glenn,

          And if fuel goes to $6/gallon the pay out is 7 years. Also maintenance costs will be much lower for an electric car, the drive train would last almost forever, so the out years, would be very cheap if the car is driven for at least 10 years.

          For some it is more than just about dollars and cents, they are willing to spend a little more because they want to reduce their carbon footprint. Such people will also be investing in solar or buying green tags for similar reasons, so the electricity comes from coal angle usually doesn’t apply.

          • Glenn Stehle says:


            I am speaking of the world of what is, as opposed to the world of what if or the world of what ought to be.

            There’s also the issue of whether people can come up with the extra $20,000+ to plop down when they purchase their car.

            Car dealers in Mexico don’t offer the 0% financing for 72 months like US car dealers do. Financing is much harder to come by, and negative equity car loans don’t exist here as they do in the US. Financing can only be obtained for 80% of the new car cost, and at interest rates of 10% and more, depending on one’s credit score.

            • Dennis Coyne says:

              Hi Glenn,

              I agree the Bolt will probably be very expensive, in the US people pay $40,000 for SUVs and pickup trucks quite often, $30,000 for a high end Camry (with all the options) is pretty common.

              Just a matter of what one wants to pay. What was the cost of gasoline in Mexico back in 2013? I imagine in the US gasoline will be back to $4/ gallon by 2017, if the peak arrives in 2020, prices will rise to $5 or $6 per gallon.

              As there is more competition the price of EVs will become competitive. At this point, without subsidies, the EV is not competitive in an economic sense, on that point I agree, as gasoline prices increase this may change.

              • Glenn Stehle says:


                In 2013 the gasoline price in January was 10.92 pesos per liter, and 12.13 pesos in December.

                So that works out to about $3.47 in January and about $3.73 in December, using the exchange rates that existed during those months.

                Speaking as someone who’s in the royalty check endorsing business, I sure hope you’re right about those $4/gal prices by 2017 and $5 to $6 in 2020. But I’ve ridden these ups and downs so many times, and learned that my price-predicting abilities aren’t worth diddly squat, that I don’t want to get my hopes up.

                • Dennis Coyne says:

                  Hi Glenn,

                  My ability to predict oil prices is probably not as good as yours.

            • SW says:

              As Dennis said, there are lots of reasons why people spend $40K on a car when you can buy one cheaper. Luxury, Performance and like it or not, environmental concerns and avoiding the oil industry as unfathomable as that may seem to someone involved in it is a growing motivational force among a certain fraction of the market. If a portion of that price differential is mitigated by rising fuel costs that makes the choice more attractive. But for many, it is not the primary consideration. If price were the only consideration everyone would be driving the least expensive most fuel efficient car available and this is clearly not the case.

              • Glenn Stehle says:


                I agree that there are many considerations which go into a car-buying decision.

                But as to the question of whether other people will prioritize the same considerations which you do? Well, maybe so, maybe not.

            • Dennis Coyne says:

              Hi Glenn,

              Under those circumstances fewer cars are sold and people save their money to purchase a car. I don’t live in Mexico, so I was not aware. As you know things are different in much of the OECD.
              There are a lot of new cars sold in the US and Europe and that is where the newer technologies will be rolled out.

          • Dennis, don’t use payout cost. Use pv at say 5 %. That’s a decent number since most individuals pay interest at that rate or higher. I run costs for battery cars and they just don’t compete with hybrids. And that’s not counting the temperature issues. This morning we had to run the car heater pretty hard to take a drive uphill to visit friends (climbed about 800 meters). The way I see it, I would have had a panic attack taking that drive in a normal battery car.

            • Dennis Coyne says:

              Hi Fernando,

              Yes I was doing a very simple back of napkin calculation similar to Glenn’s. I am assuming all your friends don’t live at the top of a hill? One could purchase a plugin hybrid and run the numbers.

              In the US a new car loan for a customer with excellent credit is financed at 0% interest. Also risk free investments ( a money market fund or savings account for example) pay almost no interest at present. So one could reasonably just look at simple payout.

              • Plus in hybrids aren’t practical because there’s no infrastructure. I live in a luxury condo complex with enclosed parking spaces, but wiring the parking lot with individual supply and meters will cost a bundle. Things are much worse for people who live in regular buildings nearer downtown, they use street parking.

                I suspect most of you can’t visualize the set up around here. The better solution is a small hybrid.

                • Dennis Coyne says:

                  Gotcha. I forgot, no access to electricity for the car makes a plugin much less useful 🙂

      • Bob Nickson says:

        It’s simply not enough for the Bolt to match the range and price of a Tesla M3. Where is GM or anyone else’s Supercharger network?

        Supercharging is what makes BEV a viable complete substitution for IC. Tesla is very far ahead in this regard.

        This exchange in the comments at InsideEvs summed it up nicely. The article was about Audi announcing a commitment to >150kW charging:

        Khai L: “When while [sic] they start deploying them? When can we start to use them? And when will we get 80% nationwide coverage?”

        TomArt: “A long time after Tesla does.”

        Rich: “VW aka Audi talks about a supercharger network, while Tesla opens a new charger almost every day.”

        Dohn Joe: Exactly!

        Reminds me of an anecdote from a number of years ago. I recall the players as being Toyota, and some aspiring Russian or Chinese auto manufacturer. The story was about Toyota giving a factory tour to the executives of the other player. At the end, they asked Toyota “how far ahead of us do you think you are? Five years? Ten Years”. Toyota’s response: “We are forever ahead”.

        We live in interesting times. A real nail biter.

    • Glenn Stehle says:

      One of Mexico’s leading ecologists is a fellow by the name of Victor M. Toledo.

      All the transnational corporations which operate in Mexico have succumbed to the “glorious enchantment of ecology,” he observed in a recent article. They vie to see which one can flout their ecological credentials with the most “color, delivery, elegance, glamor and spectacle,” he notes.

      “The list of companies with green campaigns is endless: Walmart Exxon, through Coca Cola, McDonald’s, Volkswagen, Ford, Kellogg, Bimbo and so on,” he continues.

      Toledo compares the corporate green campaigns to the behavior of a rich man, who, on his way out of church, tosses off a coin to a beggar at the door. It’s “a magic act by which the predatory nature of corporations is transformed into sublime devotion to save plants, animals, forests, rivers, lakes, nature and the planet itself.” But “the alms committed to this ministry” pale in comparison to the exorbitant profits of the corporations. Nevertheless, the alms allow the corporations to “hide their claws.”

      For the real game the corporations play is what Toledo calls “ecocide.”

      Toledo is taken aback by the ease by which consumers are “brain washed” by the “image washing” of the big corporations.

      “The glamorous charm of ecology,” he bemoans, “has become one of the most effective anesthetics in the modern world.”

      “The future that comes, fortunately or unfortuneately, will be a rude awakenig as the dream built from a false consciousness becomes the inevitable nightmare of reality,” Toledo concludes.

      • Jef says:

        Good one Glen – A prime glimpse at the invisible hand in action.

        The technotopians here simply do not understand how this works in the real world.

        • Fred Magyar says:

          Too bad you and Glen missed the ‘Disruptive Innovation Festival’
          You can still catch up if you wish, as most of the sessions have been recorded.

          It is really quite a contrast to read comments like Glen’s and then head on over there to get a feel for some of the things that are already happening all over the world today! My money is on the innovators and disruptors they are everywhere.

        • Glenn Stehle says:

          Talking of the technotopians, did you see All Watched Over by Machines of Loving Grace, which can be seen on the internet here:

          The technotopians believe they have found salvation in the cultural and sociopolitical models being promoted by Silicon Valley. But as the film’s maker, Adam Curtis, shows, what they in reality have found is something very different.

          One cannot help but be gobsmacked by the internal contradicitions that inhere within the “California Ideology,” another term Curtis uses to refer to technotopianism. As Wikipedia explains:

          Curtis ends the episode by saying that Hamilton’s ideas [which were later popularized by Richard Dawkins] that humans are computers controlled by the genes have become accepted wisdom. But he asks whether we have accepted a fatalistic philosophy that humans are helpless computers to explain and excuse the fact that…we are effectively unable to improve and change the world.

          • Nick G says:

            The technotopians believe they have found salvation in the cultural and sociopolitical models being promoted by Silicon Valley.

            This is an odd strawman.

            I think we can dramatically reduce our fossil fuel consumption, if we choose to do so, as a society. There’s nothing in that general concept about bringing the new millenium, or curing cancer.

        • Glenn Stehle says:

          Another reminder that technotopianism is not what it’s billed to be is this article published a couple of days ago by Pando:

          “Silicon Valley vs Civilization”

          The lead-in photograph to the article pictures Mark Zuckerberg hugging Indian prime minister Narendra Modi at Facebook’s Menlo Park headquarters.

          As the article’s author, Mark Ames, goes on to explain:

          While Silicon Valley swoons over Modi’s talk of Digital India and SmartCities and bullet trains and the rest, back at home Modi has talked up a very different and very violent, far-right game. And it seems just about everyone in the world who isn’t a far-right Hindu chauvinist understands just how bad and how dangerous Modi is.

          Everyone, that is, apart from Silicon Valley’s “smartest guys in the room.”

          Ames says Modi rose to power by inciting religious and communal violence (Hindu on Muslim), and then capitalizing on it. It’s not a new game, as anyone who has studied the history of 1930s-40s Germany and Italy, or the Jim Crow south, can testify to. As the Rev. Martin Luther wrote, these “close-minded reactionaries…gain prominence and power by the dissemination of false ideas, and by deliberately appealing to the deepest hate responses within the human mind.”

          “None of this, however, seems to have put even the slightest damper on Silicon Valley’s love affair with their favorite world leader,” Ames concludes. “Ignorance is no defense; particularly when you pride yourself in being boy-geniuses, with the best information of anyone in the world. Silicon Valley’s Modi problem is apparent to everyone in the world but Silicon Valley’s billionaires.”

          “Modi crossed our radar precisely because he was such a favorite of so many big-name Silicon Valley leaders — Pierre Omidyar, Zuckerberg, Eric Schmidt, Sheryl Sandberg, Tim Cook. . . .,” Ames continues. “And yet, what we’re seeing is that one of the most divisive, intolerant and dangerous leaders in the world has charmed the socks off of Silicon Valley’s best and brightest, against all information and opinion and evidence out there. Our tech leaders are literally the last people in the world to get it.”

          • Nick G says:

            I expect leaders of computer companies to understand computers.

            I don’t expect them to do much better than anyone else at understanding Indian politics.

    • Nick G says:

      That would be great!!!

      Tesla’s mission is to bring EVs to everyone. If Tesla goes broke because everyone else is selling better and cheaper EVs….that would be fabulous.

      I think it’s unlikely. Tesla is singlehandedly dragging the rest of the industry towards EVs, but ICE manufacturers hate the greater longevity and dramatically lower maintenance costs of EVs. ICE companies are deeply conflicted about EVs, and their efforts are almost always half hearted.

      The dealers especially hate EVs, because more than half of their profits come from repairs and maintenance. Dealers and their salespeople typically try to steer buyers away from EVs.

      The problem is that EVs are cheaper and better. If ICE companies don’t respond, Tesla will chew it’s way down the price ladder, and eventually force the issue. ICE companies know that, but they STILL have trouble responding effectively – top management may get it, but many of the employees have based their career on technical knowledge of ICEs, and they’ll fight the transition as long as possible…


      GM/Cadillac exemplifies this problem. They’ve created great plug-ins in the Volt and ELR, then they over priced them, quite badly. Look at this quote: ” electro-mobility is no longer something you can build a brand upon. It’s not a differentiator, it’s an entry ticket into the luxury segment.” ”

      Wow. They don’t get it. EVs are not an entry ticket into the luxury segment, they’re in every price segment.

      • ChiefEngineer says:


        GM has been selling the Chevy Spark for sum 2 or 3 years now. Cadillac doesn’t do entry level. He’s going to make it luxury or performance. The point is everyone is going EV’s. They have done their little tests with the Volt, ELR and Spark. Their moving forward across the board. Just like airbags, power steering, Automatic Transmission and Air Conditioning. It’s what almost every car will be in 10 years.

        Trust me, Tesla is not singlehandedly moving the big boys to EV’s . CAFE legislation passed in the late Bush and early Obama administrations is the reason. It’s more like Tesla is a product of CAFE legislation.

        After the recessions of 1980 and 2008 with the high price of gasoline/oil contributing sales collapse and bankruptcies’. Why wouldn’t the auto manufactures want to switch to endless power from the sun? Your right about the dealers profit center. The model is to try to break even on the sales department to get them on the street and the factories turning. All the profit is in the parts and service for the dealer.

        “The problem is that EVs are cheaper and better”

        I really don’t think you can say that has been true for the last 3 years and it clearly hasn’t been proven. Plus there is range, charging, battery life, style availability, variable gasoline costs, resale value that are all issues. The career technicians will retrain.

        Smile, the worlds going electric

        • Glenn Stehle says:


          I realize that green technotopians believe they’ve found their silver bullet in EVs, but I’m not sure I’d take that victory lap just yet.

          To begin with, there is a significant price hurdle that EVs must overcome. If this cannot be overcome, then manufacturers may choose, if this is their customers’ preference, to pay the penalties rather than comply with the CAFE standards.

          Also, if the price hurdle cannot be overcome consumers might opt for smaller and ligter cars instead of electric. This would signify consumers preference to sacrifice on performance, features and safety in order to keep the price down and the fuel economy up.

          Americans across the political spectrum tend to agree that we need to reduce our oil usage. According to a 2007 Pew Charitable Trusts survey, 86% of voters believe that the auto industry should be required to improve fuel efficiency.

          However, it is not at all clear how much switching from oil-fueled cars to EVs will help towards that end. It may be that this is another boondoggle, driven by special interest, like the corn ethanol scam was. Here’s how Emily Guy Burken describes the problem:

          In the quest for lower fuel consumption, we can sometimes ignore the additional environmental impact that alternative technology offers. For example, hybrid cars have often been touted as a great short-term solution for our fuel woes. However, hybrids run on batteries in order to improve their gas mileage – usually either nickel metal hydride batteries or lithium ion batteries. While it is certainly true that driving a hybrid car reduces your specific consumption of fossil fuel, it does not necessarily reduce your carbon footprint.

          Mining the metals necessary to create these batteries is expensive and fairly arduous. Then, the raw materials must be transported to the plant where the batteries are manufactured, and then transported again to the car manufacturing plant. Not only does all of this additional work add to the price of your hybrid car, it also has an environmental cost.

          According to the technology research consultant Ricardo in a 2011 study created for and in collaboration with the Low Carbon Vehicle Partnership, hybrid vehicles do have a slight edge over standard vehicles in carbon emission, with 21 tons of CO2 emitted over the lifetime of the car versus 24. But 31% of their emissions occur in production, before the car has been driven a single mile, as opposed to 23% for a standard vehicle. If a hybrid car is driven for many years, the total environmental cost is lower, but not all cars make it through a “lifetime” of driving. With their larger front-end carbon footprint, hybrid cars have to drive for some time before they reach (and then surpass) the footprint of a standard car.

          While driving a hybrid car may somewhat reduce your personal dependence on oil and help you save money on gas, it is not necessarily a better environmental choice, nor will it solve America’s energy crisis. It is simply exchanging one specific consumption problem with a different one. Ultimately, driving a hybrid car and driving a standard car both contribute to America’s overall carbon footprint. The environment will pay the cost, regardless, whether that cost is primarily paid in manufacturing or driving the vehicle.

          2011-2025 CAFE standards for each model year in miles per gallon

          • oldfarmermac says:

            The embedded energy in a hybrid or pure electric car no doubt matters in environmental terms, but in practical terms it is apt to be a non issue, and forgotten.

            Electrically powered cars are going to win the environmental argument hands down in the case of environmentally motivated new car buyers. Such buyers expect to drive on renewable electricity, to a substantial extent, and they know that almost one hundred percent of their new electric car will eventually be recycled in any case, and that if it is well cared for, it is likely to be kept in use for years longer than a conventional car.

            The embedded energy argument is not going to keep them from buying an electric..

            • Glenn Stehle says:


              But how many “environmentally motivated new car buyers” are there?

              And when the rubber meets the road, how many of them are, or will be, willing to put their money where their mouth is?

              Only time will tell.

              • Dennis Coyne says:

                Hi Glenn,

                There are not many environmentally motivated buyers in my view. The cost of gasoline and diesel will increase and people will gradually move to hybrids, to plug-in hybrids, and eventually to EVs. How quickly this occurs depends on the price of the car and the price of fuel.

                The Prius costs about 6k more than a comparably equipped Corolla. The Corolla gets about 34 MPG, the Prius about 50 MPG (I have owned 3 Prii and the 50 MPG estimate is conservative).

                Let’s assume 150k on the odometer 10 years down the road on each car. That’s 3000 gallons for the Prius and 4412 gallons for the Corolla, so 1412 fewer gallons for the Prius. Gasoline would have to average $4.24 per gallon for this to make economic sense (for those who the environment damage has zero impact on their decision.)

                In reality, we have to consider the opportunity cost of the extra 6k spent on a Prius, if the car is financed we could consider the 6k financed at 5 years at 3% interest. In that case the 6000 becomes 6500 with interest and we need average fuel prices at $4.60/gallon to break even.

                Fuel costs will increase (or fuel taxes could increase) to make the decision a good economic one.

                At two dollars a gallon, only environmentalists buy hybrids, plugin hybrids, and EVs.

                Hopefully fuel prices will increase to $5/gallon sooner rather than later. Europe is already there, but they are a little smarter than people in the United States.

                • Glenn Stehle says:

                  At two dollars a gallon, only environmentalists buy hybrids, plugin hybrids, and EVs.

                  Hopefully fuel prices will increase to $5/gallon sooner rather than later.

                  So the manufacturers of EVs and I are on the same team when it comes to pulling for higher gasoline prices, at least as a result of diminishing oil supply and not increased gasoline taxes?

                  Who wudda thunk it?

                  • Ralph says:

                    I am an environmentally conscious car buyer. That is why the last car I bought was the smallest, cheapest, most fuel efficient that was big enough to hold my family (We are a one car family). That is why I am particularly annoyed that the engine manufacturer lied and cheated about the exhaust emissions. That is why the next car I buy will be electric. However, I also follow WestTexas’s “Economise, localise, produce” model, and I have deliberately neglected financial income for a more humane and sustainable lifestyle, so I will not buy another car at all unless there is a significant change in my circumstances demanding it, and with my IT skills being outdated and the UK middle class being financially squeezed by the elite government, I don’t see my circumstances changing for the better financially.

                    I am collapsing ahead of the rush.

                  • Glenn Stehle says:


                    Yep. Things just keep getting curioser and curioser.

                    For the third year in a row, the German carmaker tops the Strategy& list of research and development spenders.


                • Brian Rose says:

                  Hi Dennis,

                  I own a Chevy Volt.

                  Purchased for $16,500 (~$18,000 after taxes/fees).

                  I’ve driven just over 7,000 miles now. I have not used a full tank of gas yet.

                  Specifically, I’ve used 6.9 gallons of gas in 7,048 miles.

                  Comparing a Prius to an EV is a poor comparison. A Prius doesn’t qualify for the $7,500 Federal Tax Credit.

                  I could have bought a 50 mpg Prius for $24,000, but instead I purchased a 1000 mpg Volt for $17,000.

                  Once the tax credit expires the cost of batteries and EVs will be competitive with ICEs in the market place. The first manufacturer to experience the phase-out of the tax credit will be Tesla. It will begin phasing-out about the same time that the Model 3 is released.

                  Yes, a $35,000 EV is out of many peoples price ranges, but here’s the catch – the MSRP on my 2013 Volt was, wait for it… $35,000. I bought it used, and got the tax credit.

                  I’d imagine a used Model 3 in 2020 will be a very affordable option for the average American.

                  • Dennis Coyne says:

                    Hi Brian,

                    At some point the subsidies will expire.

                    I thought the tax break was only for new cars? I guess you mean the used car price was very low. So in that case we have to compare the price of a used Prius with a used Volt.

                    One problem with the Volt is future reliability. I trust Toyota as I have had good luck with that brand since 1984, my 2004 Prius went about 167,000 miles before I traded it in.

                    I wanted a Volt, but our experience with a Chevy Chevette in the past has forever soured my wife on GM cars.

                    I anxiously await the release of the Model 3 by Tesla.

          • Dennis Coyne says:

            Hi Glenn,

            The problem with that study is that it rolled development costs into the equation, as more and more hybrids are sold the development costs per car sold goes down, most of the costs are represented in the price of the car and not all costs are equal in their carbon footprint.

            Based on research by the Argonne National Laboratory, the emissions from manufacturing a hybrid and ICE vehicle are similar at about 2000 kg of CO2 in manufacture and assembly. Over a 150,000 mile life the prius at 50 MPG would release 24,000 kg of CO2 and the average vehicle at 25 MPG would release 48,000 kg of CO2.

            The argument that a manufacture of a Prius with 200 kg more emissions than a conventional ICE car in manufacture and assembly would match the extra 24,000 kg from the average ICE, is specious at best.

            Study at link below:


          • Dennis Coyne says:

            Hi Glenn,

            The cost to manufacture and assemble a Prius emits about 2000 kg of CO2, roughly 200 kg more than a comparable ICE (Corolla), over the 150,000 mile life of a Prius the fuel used emits about 24,000 kg of CO2 (assuming 50 MPG), for the Corolla the emissions from galoine burned over 150,000 miles would be about 36,000 kg of CO2.

            If CO2 is a concern, the Prius beats the Corolla with total lifecycle (including fuel use) of 26,000 kg CO2 vs 37,800 kg CO2 for the Corolla, about 45% better as far as carbon emissions.

            For Wimbi, powering a Nissan Leaf with PV panels the car manufacturing and assembly would have to be 12 times greater than the Prius for it to be worse, I believe for an EV the carbon emissions for vehicle manufacture and assembly(VMA) is about an extra 1200 kg of CO2 emissions, but after that for Wimbi emissions are zero (or very low).

            Wimbi may have done the calculations for emissions to produce and install the PV and the likely energy produced over 25 years, but it would be about 50,000 kWh of electricity needed to drive the Leaf 150,000 miles (equivalent to gasoline at $1.67/gallon).

            I found one estimate from the NREL of about 75 g CO2/ kwh, so that would be 3750 kg of CO2 from the PV panels so adding the extra 1200 kg of CO2 from building the car that would be roughly 5000 kg, vs 24,000 kg CO2 from the Prius and 36,000 kg from the Corolla.
            So for “fuel emissions” the Leaf is about 5 times better than a prius and 7 times better than a Corolla as far as CO2 emitted from gasoline or PV carbon emissions.

        • islandboy says:

          “GM has been selling the Chevy Spark for sum 2 or 3 years now.”

          Yes but have they put any effort into selling this car. Answer, no. It is a “compliance car”, designed to help GM comply with certain California Air Resources Board regulations and avoid the fines for not doing so. One way to judge whether a car is a “compliance car” is to look at the markets where it is sold. Cars sold only in California and the few other states that have enacted similar regulations are more than likely compliance cars. The Toyota RAV4 EV is the epitome of a compliance car. The other thing is, if you were to ask Tesla founder Elon Musk, the spark is exactly the wrong way to try and advance electrification. Here’s a two minute video in which he compares his strategy foe advancing EVs with the advent of mobile phones. He has also used portable computers as an example.

          “It’s more like Tesla is a product of CAFE legislation.”

          It most certainly is not. Again I have watched many videos featuring Elon Musk in an attempt understand the driving force behind Tesla Motors and SolarCity and Musk is a liberal who believes that fossil fuels are finite and thus unsustainable, as well as believing that climate change is an existential threat to our civilisation. He has made it part of his life’s mission, to engage in ventures that aim to do something about it so, Tesla is a product of somebody’s concern about FF usage both in terms of it’s sustainability and in terms of it’s impact on the biosphere. Finding sound bites on youtube proved to be like finding a needle in a haystack so you can take my word for it or watch a few hours of Elon Musk interviews/presentations.

          Anybody who would like to understand Musk’s motivations can view any number of videos on a youtube channel called Every Elon Musk Video.I selected a few that I thought would help viewers have a better understanding of his motivations.
          “I think sustainable production and consumption of energy is the most important terrestrial problem that we face in the 21st century” at min 23 of 35
          About a minute and a half of explanation leading to the above statement
          The whole video: Elon Musk on energy being the most important challenge of the 21st century (9.16.13) 35 min 10 sec
          Elon Musk pessimistic about climate change (6.18.14) 4 min 48 sec
          ElonMusk – Thoughts on transitioning to 100% renewable energy 4 min 20sec.
          Elon Musk on the stupidity of fossil fuels dependence 14 min 32 sec
          Elon Musk urges us to solve the sustainable energy problem 51 sec
          Elon Musk on why he started Tesla (8.10.13) 2 min 35 sec
          Elon Musk on why doing Tesla Motors (8.11.09) 5 min 50 sec
          Elon Musk on accelerating solar energy development (9.5.13) 2 min 29 sec
          Elon Musk Debuts the Tesla Powerwall 18 min
          Elon Musk on the Future of Energy and Transport (11.14.12) 1 hr 26 min 18 sec (Oxford University)

          “Smile, the worlds going electric”

          If EV technology progresses at anything like the rate of mobile phones, mobile computers or digital cameras, to name a few, Peak Oil could conceivably be a non event in the near term., a view put forward by Stanford lecturer in business disruption, Tony Seba.

          Those who are discounting the current crop of EVs should be reminded that they represent the EV equivalent of the first or second generation Motorola cell phones and will take a few years before they are a compelling replacement for entry level cars. Tony Seba estimates that 200 mile range EVs will drop to about US$22,000 by 2023 and that ALL new cars will be electric by 2030.

          Do I believe that this will happen? Well, back in 2007 when I first became aware of Peak Oil, I thought that we’d be well into the decline of world crude production by now. That did not happen and I made some bad investments as a result. Nobody can accurately predict the future and that’s why disruption often catches so many people by surprise.

          • ChiefEngineer says:

            Hi Islandboy,

            I don’t think GM’s goal was ever to fill the market with Sparks. I’m sure with a couple more million dollars of pricing discounts. There could have been a lot more sold. I would think the Spark was more about being a learning process. Flooding the market with a much of EV lemons would have been costly regards to money, image and future sales. These large companies don’t turn on a dime like most believe.

            The CAFE legislation laid the ground work of required improvements in fuel economy direction which Tesla needs. Tesla gets to sell mileage credits to other auto manufactures that can’t meet the standards. It’s part of Tesla’s earnings strategy.

            I became aware of peak oil back in the 70’s when building the Alaska pipeline was controversial. I am in total support of EV’s and believe if their technology never improved from today level. The world should be required to transform to asap to end the production of new ICE. We could all live comfortable lives with 80 range and 5 hour recharging times, but that’s not even an issue.

            2030 is a reasonable time frame that all new passenger vehicles be required to be EV’s. I believe there is a good chance of it happening too.

            • Bob Nickson says:

              Dennis wrote: “At two dollars a gallon, only environmentalists buy hybrids, plugin hybrids, and EVs.”

              Not really true for Tesla.

              If you want a car with 2.8 second 0-60 acceleration, nothing matches its price for performance value. Nothing.

              2.8 seconds. 7 passenger sedan.

              Use of premium electricity is optional.

              • Dennis Coyne says:

                Hi Bob,

                Its a great car if you have 85k lying around. I might consider the Model 3 if its 40k or so, if I can get the wife on board.

                • Bob Nickson says:

                  It’s an impressive car, but I wouldn’t buy one even if I could. It’s just too flashy for my tastes, and frankly, I hate that massive touch screen.

                  What I want is one of these:

                • Brian Rose says:


                  To exemplify your point the Ludicrous Mode upgrade requires:

                  the P90D base = $105,000
                  Range Upgrade = $3,000
                  Ludicrous Mode = $10,000

                  Total Cost= $118,000

                  Cost breakdown here;

                  Auto-pilot features, premium sound, air suspension, etc would also be upgrade options on top of the $118,000.

                  Then again, it is a sedan that nearly beats $450,000, two-seater supercars. So that’s nice.

                  • Dennis Coyne says:

                    Yes I would not go for the highest end model,

                    I am not interested in car racing, just a car with decent range and some of the other features. I would not spend the money if I had it, but might consider the model 3.

            • Dennis Coyne says:

              Hi Chief engineer,

              When just out of college my wife bought a used Chevy Chevette, which was by far the worst car she has ever owned. We have never bought a GM product since and probably never will (which is unfortunate because the Chevy Volt seems like a nice car, but I could not talk my wife into it). If the Chevy Spark is anything like the Chevette, GM would be best off to sell as few of these as possible(if they want to remain in business).

              My next car was a 1980 Toyota Tercel (purchased in 1984 with 60k on the car), I drove it until 1990 and it had 250k on the odometer. It was not the best car I have owned, but I have been driving Toyotas (and one Honda, also a nice car) ever since.

            • Dennis Coyne says:

              Hi Chief Engineer,

              I think it best to give people a choice, people don’t like being told what to do. The best policy would be a carbon tax of some type, but that is as doubtful in the US as required EVs by 2030 (for new sales). Higher prices may reduce the number of ICE vehicles sold anyway, and plug in hybrids are nice if you need extended range.

              • ChiefEngineer says:

                Hello Dennis,

                I agree with you about people(also about most things you post). I think the way to do it is to rise the fuel economy standards now for 2030 to the 80 to 100 mpg range. That would give the manufactures the time and flexibility to push drivers into EV’s and they won’t even know what happened to them. I also agree with you about a carbon tax and the sooner the better. This is a prefect time with current low energy costs, needed highway work and jobs. But, we have one party that would prefer to cut off a arm and a leg before rising taxes(an to go without health insurance). So don’t get your hopes up.

                My first new vehicle was a 74 Toyota HiLux truck. By the time I unloaded it. I never wanted another Toyota again. Those are the old days when emission devices were just being introduced. Pretty much everybody builds good cars now.

                Your Chevette experience is exactly why I don’t believe GM wanted to sell many Sparks. Back in the 70’s the 4 cylinder entry level market was new to GM and they got it wrong. It hurt them dearly.

                I remember the Tercel. In 81, I had a girlfriend who had an orange/gold one with a 5 speed. The only way she would drive it was to redline it in every gear during acceleration. I was amazed that it held together. She’s gone by the way. I would never treat anything of mine like that.

                • Ah, there’s nothing like a centrally planned economy in which the state planning ministry decides the optimum vehicle efficiency based on a spreadsheet and forces the citizenry to use the answer spelled out in cell KP1389.

                  • Dennis Coyne says:

                    Hi Fernando,

                    Carbon taxes would be much more efficient, but we can just wait for prices to increase in the US, Europe will be much better prepared for peak fossil fuels because they already tax petroleum products appropriately.

                    I don’t really like the CAFE standards much, higher fuel taxes would be better.

                  • ChiefEngineer says:

                    Oh Fernando,

                    Sometimes an economy needs leadership to protect it from it’s self. Free market capitalism isn’t always the best long term approach. Read Brian’s post below. I can’t explain it any better.

                • Brian Rose says:

                  Hey ChiefEngineer,

                  That’s exactly the current plan. A Carbon tax plan couldn’t get through Congress (even though it was THE Republican plan during the Bush Administration, and economists universally agree it is the cheapest, most effective, free market solution).

                  So, the Obama Admnistration said “bucket”, and is implementing CAFE standards that effectively accomplish the exact same goal as a carbon tax – at least for consumer vehicles. Then, they announced the Clean Power Plan that does what a carbon tax would have done for utilities.

                  It is a piecemeal, non-preferable solution. However, it is the least worst option given current political gridlock.

                  As CAFE standards rise manufacturers are forced to produce EVs. For now, adapting means the Ford F-150 gets an all aluminum body. In 5 years it means every major manufacturer has EV products.

                  I do see why the auto-makers have to be dragged from ICEs to EVs. We mislabel them as CAR companies. Their expertise and intellectual property is in producing IC Engine systems that are unparalled in efficiency, quality, and value. They then put a frame around that incredibly complex ICE and sell it to consumers.

                  A decent parallel are the oil companies. People mislabel them as energy companies. Then, they wonder why these energy companies don’t start making wind mills and PV. Afterall, they’re energy companies!

                  But oil and gas companies are not ENERGY companies – they don’t specialize in energy, they specialize in oil and gas. They excel at exploring, discovering, and producing oil and gas. The technology, partnerships, specialized employment base, sunk costs… There is not a single aspect of an oil and gas company that allows it to enter the market for PV or wind power.

                  Not a perfect analogy since auto-makers can transfer over a large number of exterior and cabin components from ICEs to EVs. However, it is the state-of-the-art, highly refined engine compartment that is central to the world’s auto manufacturers.

                  ICEs really are marvels of engineering. The number of interacting parts, the stresses it encounters in daily operation… It really is incredible. If I spent 100 years perfecting this incredibly complex machine I’d have a very, very hard time throwing it all out, and starting from scratch on a completely unrelated electric motor and battery system.

          • Ralph says:

            My 10 year old mobile phone has a 10 day battery life on standby. Most smartphones have a 2 day battery life on standby. I refuse to “upgrade” until the old one finally expires. 15 years ago I got by fine without a mobile. Today I use maybe 5 texts and 1 call a week on it.

  20. Bill Morgan says:

    Maybe life is not so complicated. If we are at peak oil – we are at the time of the most plentiful supply of oil. Given the relativity inelastic demand – you would expect (what a surprise!) a glut.

    • Arceus says:

      It’s certainly possible, and perhaps probable, that peak oil could last a decade or even several decades. By definition, of course, peak oil can only occur on one day or perhaps one year, but oil production can likely remain near that peak for a fairly long time.

  21. oldfarmermac says:

    I just ran across this at SALON.

    The title is sort of click bait, but the article is well worth reading for the historical background of climate research and as usual at SALON, it is well written and a pleasure to read, as opposed to a chore.

    This particular article is an excerpt from a Simon book, one of my favorite historians, since he is not only good but a pleasure to read. Most historians are lousy writers, even though they are generally quite competent professionally.

    • Arceus says:

      Interesting article, Mac. If the author’s thinking is a trending indicator, it would appear global-warming climatologists may be starting to believe that global warming will not be the end-of-world scenario at all – it will have regional impacts but NOT global.

      Here is a summary of the author’s thinking using his own words:

      A consensus of a sort appears to be building. Not a few climatologists are coming now to believe that because of its immense appetite for absorbing the solar heat, the Pacific ocean could in time actually be seen as the savior of the world’s living creatures. It will be so by taking in all that destructive heat from the sun and from the excesses of carbon emissions and, rather than allow it to scorch dead the inhabited earth, employ it to warm itself up, slowly and sedately, as befits the dominant entity on the planet, and thereby enable itself to carry the world’s heat burden on its own.

      The effects of all that absorption of warmth will be locally dramatic, for sure. There will be bigger and more destructive typhoons. There will perhaps be a more urgent need to evacuate islands that will be inundated more swiftly than was thought. Maybe there will be bigger snowfalls in the Cascades and the Sierra. Maybe the forests of Sarawak will be consumed by fire.

      Locally, there will be mayhem. But globally, less so. The planet, perhaps, will manage to heal itself. The world and its creatures will survive, and all will eventually allow itself to come back into balance, just as the geologic record shows that it survived and returned to balance after any number of previous cycles of excess and danger. And once that happens, the Pacific Ocean will be seen, uniquely, for what many climatologists are coming to believe it to be: a gigantic safety valve, essential to the future of the planet.

      The ocean’s monstrous size puts it in a position to let the planet go thermally wild for a time, to wobble dangerously. But then, like a formidable gyroscope, the Pacific will dampen the excess, will help bring sanity back, and will restore calm, serenity, and normality.

      The Pacific Ocean as the world’s pacifier—the thought is maybe born of all too little science. But it is a thought endowed with poetry, and is now held by many. And in the gloom-dimmed world of today, even such a thought is surely a most welcome one.

      • Doug Leighton says:

        “Ocean acidification sometimes called “climate change’s equally evil twin,” and for good reason: it’s a significant and harmful consequence of excess carbon dioxide in the atmosphere that we don’t see or feel because its effects are happening underwater.”

      • Tran says:

        Realistically, earth’s climate has been changing since the day it was formed. So that begs the question, just what is the correct climate for our planet? At one time the atmosphere of the world contained a lot more CO2 than at present and much less oxygen. Over time, these conditions allowed for the growth of blue algae which eventually changed the initial conditions and lowered the CO2. Then throughout the eons our planet sequestered any increases in CO2 in plant materials which ultimately became the coal and oil we rely on for our comfort and civilization.

        So with all that said, it’s important to keep in mind that the CO2 levels currently observed in our atmosphere are within historical norms on a geologic time scale of many thousands of years, and as the CO2 goes up in the present era the plants love the addition because they are able to quickly turn that CO2 into carbon compounds in their stems and leaves. The result of this is that more oxygen gets added back into the atmosphere and we can all breathe a little easier. Nature sure can be great when everything works as intended.

        Now to the effects of climate change. Dry areas might get more moisture and wet areas might get drier, but there’s noting new there, look at the Sahara Desert. Oceans may rise but it won’t happen all at once over night, so we will have time to move to or away from the newly emerging coastlines. Some areas that supported agriculture may not produce crops any more but plenty of areas in the northern latitudes that are currently too cold for farming will warm enough for crops, and there will likely be an exciting period of booming economic growth as people stake out the newly opened land and move in. And all that could just be the beginning of some amazing economic opportunities for the future capitalists and entrepreneurs of the world.

        • ChiefEngineer says:

          Hi Tran,

          “So that begs the question, just what is the correct climate for our planet?”

          Let me “keep it simple stupid”

          One that humanity can flourish

          • Arceus says:

            “So that begs the question, just what is the correct climate for our planet?”

            Would be hard to get any sort of consensus on that. The average punter would have no idea on the subject. Even the highly educated likely have little to no opinion on the matter other than to have a vague feeling the world is getting too crowded. Of course, the Earth First! advocates do have strong feelings on the matter with some wanting to reduce the world population to a billion or so an others to just 100 million people. I can certainly understand the attraction to a smaller, more communal civilization, but the kicker is that going from 8 billion to 100 million humans would be a fairly messy process and not at all sure I would be one of the remaining (likely not) which certainly lessens the appeal of such a movement more than a bit.

          • Javier says:

            Humanity was bred in the tropics. Everything indicates that we are a heat resistant species with all those sweat glands and so little hair. We are capable of getting rid of a lot more heat than most mammals.

            Statistics show that cold weather kills a lot more humans every year than warm weather despite all that warming.

            It looks like global warming has done us all a huge favor since LIA was killing people from cold and famine by two digit percentages of the population. There are indeed estimates that a third of the world population could have died in the seventeenth century, many of them due to climate change.

            That some people actually believe than humankind could be better by returning to pre-industrial climate is really surprising to me. Is that ignorance of what pre-industrial climate was like? Perhaps they should read more.

            • oldfarmermac says:

              “Humanity was bred in the tropics”

              Dead on, but you can take off only so many clothes. Nude is nude.
              We can function ok,properly dressed, even at thirty or forty below but some parts of the world with large current day populations may get hot and humid enough we will not be able to live in those places.

                • Javier says:

                  That scenario is so laughable.

                  It hasn’t happened in 600 million years even when CO2 concentrations in the atmosphere were 10 times more elevated than now. Somehow they forgot to mention that little fact that makes this a fantasy scenario.

                  A big comet impact has a much higher probability.

                  • As with most topics in earth sciences, there is a lot more to be understood.

                    Two of the most famous oddly periodic phenomena El Nino and the QBO of upper atmospheric winds are likely forced primarily by the moon. This goes at odds with the consensus climate science, but the simple model is too straightforward to ignore.


                    It’s actually easy to find this stuff out. All you have to do is go after the contrarians in Earth Sciences, whether it is someone like Michael Lynch when it comes to fossil fuels and Peak Oil denial, or someone like Richard Lindzen when it comes to global warming denial.

                    These people are trying to hide something, and so when you start turning over the rocks, you end up finding the actual explanations.

            • SW says:

              Its the opposite.

        • Arceus says:

          Tran wrote: “Then throughout the eons our planet sequestered any increases in CO2 in plant materials which ultimately became the coal and oil we rely on for our comfort and civilization.”

          There is an intriguing symmetry to what is going on. Fossil fuels, such as coal, was formed from ancient CO2. Burning coal is now returning that CO2 to the atmosphere from which it came. According to a well known Princeton physicist, this is a good thing in that he believes the world is in a CO2 famine, and that increased levels of CO2 will increase crop yields and benefit agriculture. He even goes on to say that it is a certainty that “carbon dioxide is the stuff of life, the foundation for life on earth,” and that Co2 has provided the basis of life for at least 3.5 billion years.

          • Caelan MacIntyre says:

            Ok, Arceus , seeing as you’re on about ‘intriguing symmetry’, give us the flip side to increasing C02 in the atmosphere.

            • Arceus says:

              “Flip side” meaning negatives I presume? One negative certainly would be that coal combustion (necessary to release the CO2 and produce energy) produces emissions containing arsenic, mercury, uranium and other substances. However, I am optimistic that technology will prevail here meaning that at some point in the future these emissions will be captured enabling coal to be the cleanest energy source available.

      • Synapsid says:


        Look into recent work on the connection between the Pacific Warm Pool and the Indian Ocean.

        The Pacific is indeed a tremendous sink for heat, and moves it around in various ways that we need to understand better, but not all of that heat remains in the Pacific. A great deal passes through the Indonesian throughflow and into the Indian Ocean, and there it has an impact on the Indian or South Asian monsoon which is critical for the lives of about 2 billion human souls.

        Check Nature Geoscience for June, pages 423 and 445.

      • oldfarmermac says:

        Please note that this article is an EXCERPT from a book, and the author is careful to say that the Pacific MIGHT POSSIBLY buffer climate problems to the extent the worst case scenarios involving climate change and species extinctions will not come to pass.

        He does not say he thinks so, or that most or even a large minority of researchers think so. He acknowledges the possibility.

        He is intellectually honest in pointing it out. Most writers stick to the bad news because bad news sells more copies.

        Nuance is everything, in such discussions. A few pages or a few paragraphs excerpted from an entire book can create an impression in the mind of a person who does not read the entire book that is entirely at odds with the authors overall message.

        I will be ordering copies of his two books one each about the Atlantic and the Pacific this week.

      • ezrydermike says:

        it’s not just the oceans….

        “As temperatures rise, the world’s iconic northern lakes are undergoing major changes that include swiftly warming waters, diminished ice cover, and outbreaks of harmful algae. Now, a global consortium of scientists is trying to assess the toll. ”

    • Weird, my climate model output says El Niño will peak the first week of December.

  22. oldfarmermac says:

    WARNING, this is a nit picking comment about the nuances of our language. Skip if bored with nuance.

    A couple of days back there was some discussion of whether geology will necessarily eventually force oil to peak.

    In the long run context, meaning half a century or longer, I don’t know of any knowledgeable person who thinks we can continue to produce more and more oil.

    But in the shorter run, say within the next five to ten years, the argument that prices, investment climate, taxes, interest rates, economic conditions etc etc could mean production could go up for a few more years COULD be sound. Peak oil might still be a few years down the road, although my money is with Ron and Jeffrey Brown has a point or two worth taking seriously.

    There is obviously be plenty of oil, in terms of the very short term at least, to over supply the market, at a price approaching a hundred bucks. I see various figures thrown around that it it will take a price of about seventy bucks or maybe higher for the Canadians to invest more money into NEW oil sands development.

    Most of the hands on people in this forum seem to think that North Dakota tight oil can be profitable at around a hundred bucks, and that drilling will resume at the usual rate there if/ when the price gets back to a hundred. But nobody seems to be arguing that ND will not peak, regardless of the price, within a decade at the outside.

    Maybe so, I understand these arguments, but I cannot evaluate them as to their actual accuracy, being a layman.

    But I can draw an analogy between my own field and the oil industry. I have some land that COULD be put into production, but costs would be higher than usual. I have MORE land that could be put into production at even higher costs, and even more beyond that which could be put into production at utterly prohibitive costs,because there IS a limit to what the market can bear, even in the case of food.

    I can grow apples on good land for ten bucks, on not so good land for twelve, on marginal ground for fifteen, and on a near vertical stony hillside for forty. I suppose I could go into the middle of a mountain desert someplace and grow apples for a hundred bucks, prices in bushels, the biggest problem being the cost of piping in irrigation water in that extreme case.

    So- and I know that any answers to these question will be more speculative than otherwise- how much is it going to cost to produce NEW oil, going into new territory, once the big legacy fields are declining fast, and the tar sands are ramped up etc?

    Is anybody SURE there is plenty of tight oil that can be had in the hundred dollar range, on a world wide basis, using fracking technology ?

    How likely is it that Iraqi and Iranian production can ramp up enough to offset the decline of other big legacy producers, producing out of fields that are now at or past peak? For how long?

    If maintaining or increasing total oil production means going into the ARCTIC and spending say one hundred fifty dollars a barrel, geology may not represent a hard limit. Maybe the economy can eventually support an oil price of one fifty, not this year of course, but ten years from now? Ten years from now the average OLDER , USED car is going to be getting over well over thirty mpg.

    But if it turns out that production cannot be increased without going into the ARCTIC,or some other equally expensive potential new fields, wet or dry, and ARCTIC oil costs TWO hundred to produce,
    in that case we have a limit, if the economy cannot support two hundred dollar oil.

    Is it a geological or an economic limit?

    My deceased brother used to build churches, and I often heard him say that the terms “front” and “rear” are absolutely undefined when it comes to a church. If you are at the “front” door, the “front”‘ of the church is at the opposite end.

    The preachers and building committees and contractors all found out it is necessary to be extremely careful in using these two words in relation to the lay out of a church. They only occasionally meant the same thing to any three people in a conversation.

    • Dennis Coyne says:

      Hi Old Farmer Mac,

      It is both a geologic and economic limit. One thing that many people miss is that there is a fair amount of probable and possible reserves that we know about and that these reserves get converted to proved reserves over time as oil prices rise and as we drill more wells and gain new insights into the geology of producing fields. If you look at EIA reserve data for the US from 1980 to 2005 (before LTO really got started), the proved plus probable reserves (which I estimate at 1.7 times proved reserves based on UK North sea data where we have 1P and 2P data) grew at 2.9% per year (not including new discoveries).

      If we assume World reserves also grow at 2.6% per year (slightly less than the 1980-2005 US rate), and we use Jean Laherrere’s conservative estimates for new discoveries after 2010 (only 200 Gb), as well as his estimate for 2P reserves in 2010 (850 Gb of C+C less oil sands oil), then the peak may not be until 2024 and Fernando’s estimate of 20 years at about todays level of C+C output would be correct. After that decline would be relatively modest at around 2% or less until 2100.

      This scenario assumes very little LTO output outside the US and that oil demand is adequate to keep oil prices at levels that allow the oil to be produced. I do not know what those prices will be, but I think by 2020 they will be above $100/b and will mostly remain there except during severe recessions. Only very high prices (above $120/b on a sustained basis) will allow a lot of Arctic development, but that is very much a WAG on my part, Doug and Fernando and perhaps AlexS may know better.

      Note all the oil prices given above are in 2015$.

  23. oldfarmermac says:

    Now here is another question, that somebody who really knows something about batteries can probably answer.

    Suppose you have a pure electric car, such as a LEAF, or any of the others that will soon be marketed, and the battery is getting towards the end of its life. The consensus seems to be that a battery is good so long as it still has eighty percent of its original capacity.

    A new model Leaf is supposed to be good for a hundred miles. Now suppose the battery is down to eighty percent, and the car has a hundred and fifty thousand miles on it , and it is getting a little dinged up and the seats have cigarette burns, and the carpet stinks because milk was spilt on it etc?

    If a person in need of a cheap ride to get to work can get by with that LEAF, because he has to go only FIFTY miles round trip to get to work, HOW LONG would he be able to drive that LEAF to work without replacing that supposedly worn out battery? A year? Two years ?Five more years?

    Suppose his round trip commute is only twenty five miles, and he can limit his driving to getting to work? Any guesses or estimates in that case as to how many more miles the battery might last ?

    We spend a lot of time discussing long tails in oil.

    So far I have not run across any serious discussion of the tail end of battery life in pure electric cars.

    This could be extremely important within the next couple of decades, as pure electric and hybrid cars get to be more numerous. There are millions of people who could commute purely on electricity with an elderly VOLT that will go only twenty or twenty five miles on the battery. Millions of driving retirees go only to the doctor or supermarket or visiting within a few miles of home and could rent a car once in a long while if needed for a longer trip.

    • Jeju-islander says:

      The likely trajectory of the EV market is that it will become another aspect of the high-end consumer electronics market. People will buy an expensive new model every 3 tears because it has all the latest bells and whistles. The older second hand vehicles will be shipped to 3rd world markets. The electronics will last a long, long time but as soon as any one part fails the whole thing will be scrapped because it is too expensive to repair.

      I prefer to keep a car (phone, computer) for a much longer period than the standard 3 years. These things rarely break down for many, many years. But standards are changed and new technology gets enforced. I would be relieved if this scenario was reversed. EV’s have the potential to last a very long time without significant maintenance and repairs. The need for consumers to keep buying new cars could be reduced, the number of quality old cars on the road could increase. Dream on!

      • oldfarmermac says:

        Warning long comment of interest to gearheads mostly.

        ”The likely trajectory of the EV market is that it will become another aspect of the high-end consumer electronics market. ”

        This might be the case in the near term, over the next decade or so, but after that I expect pure electrics and plug in hybrids to sell like ice water in hell.

        This is after all a peak oil site, and personally I think anybody who thinks oil is going to STAY cheap, barring the world economy being on life support, is deluded. We can potentially eventually get away from depending on oil, but not any time soon, and depletion and rust never sleep.

        The buyers of new cars customarily pay a lot of attention to the trade in value of older ones when deciding which particular model they want. So the manufacturers are going to have to make sure their older cars are repairable at a reasonable cost.

        The biggest reason Toyotas are so popular is that they keep on running when they are ten or fifteen years old, and every body knows it. So they know that if they buy a new Toyota, it will not cost them so much as other makes to trade up to a new car again in a few years.

        For what it is worth, I don’t know of any large number of old automobiles being shipped out of the USA to other countries, with the exception of old Ford Crown Vics, which are very popular in some places overseas. The importers buy them here because they are large, dirt cheap, and about as bullet proof as any car, and easy to work on.

        Just about every part of these cars interchange for ten model year at a stretch.

        They have found it very much to their advantage to specialize in as few makes and models as possible, since they are refurbishing these cars for sale. The business works because old cars can be imported into a lot of countries without paying an exorbitant import tax which can equal or exceed the price of a new similar car. So you can rob one Crown Vic and fix up maybe half a dozen more that need particular parts, and still have a lot of useful parts left. Labor is cheap in Sand Country and specializing in one make and model means the workers get to be fast and competent and the supply of old Ford cop cars is just about unlimited for practical purposes.

        Up until about a couple of years ago, Egyptian buyers were cruising the south east , buying any and every reasonably complete Japanese made two wheel drive standard cab pickup truck that could be had dirt cheap, hauling them to sea ports, cutting them in half, packing them tightly into containers, packing used clothing and anything else salable in and around the gaps, and reassembling the trucks in workshops dedicated to reconditioning them once in Sand Country.

        These trucks roll out with all new paint, new brakes clutches, batteries tires, engines rebuilt etc etc to become the first truck ever owned by a proud local citizen, for a minor fraction of the price of a new one.

        I know about this because I arranged for a dozen local guys to sell a ratted out old truck to these buyers. They showed up about once a month and they paid cash, and they didn’t give a damn about anything except getting a good receipt, and that the truck not have much rust, other than the fixer upper/junker price. I met them because I advertised an old work truck on CL and they came to get it.

        For some reason after three or four years they disappeared as suddenly as they arrived. I presume this had to do with politics back home where they were shipping the trucks.One local guy at least is still exporting old Crown Vic cop cars by the dozens.

        He buys them at government auctions and when he has enough, his buyers come and get them two or three tractor trailer loads at a time. It doesn’t matter if they run, or have been in accidents, so long as they are cheap enough.

        Rednecks with a little money often make fun of poor people and especially poor black people who drive old domestic cars such as full size Buicks and Oldsmobiles and the occasional Caddy, running their mouths about people living in shacks eating beans driving such cars.

        But in actuality, the actual cost of ownership and operation of such cars, once they get old, is very low, and substantially lower than the cost of owning a relatively new smaller car. This is because they sell so cheap, and are generally quite reliable, and still repairable in the back yard or side street garage lacking tens of thousands of dollars worth of computerized equipment and highly trained mechanics. The owners don’t need full coverage insurance, they pay cash, no finance charges, etc, the property tax is peanuts, and they don’t usually put a whole lot of miles on them, annually, so gasoline is not a major consideration.

        My parents old fullsized Buick is such a car. My Dad will not allow it to be sold, but eventually it will be, when he dies or gets to be so senile he will not notice it is gone. It’s a bullet proof car and will likely run fifty thousand more miles with next to zero repairs excepting routine maintenance. I will be lucky to get a thousand bucks for it, even though it is a nice clean safe comfortable six passenger car with air bags antilock disc brakes, etc that actually gets well over twenty mpg combined.

        • Jeju-islander says:

          OFM: Starting with trivia,it is Apple and Google who are investing money in Electric Vehicles not Toyota.

          Your main point however: “This might be the case in the near term, over the next decade or so, but after that I expect pure electrics and plug in hybrids to sell like ice water in hell. This is after all a peak oil site, and personally I think anybody who thinks oil is going to STAY cheap, barring the world economy being on life support, is deluded. ”
          Gail Tverberg for instance does make a strong case that oil is going to STAY cheap,and that the current life support the world economy is on, is going to fail soon. I think she is wrong but not deluded. Personally I think that oil is NOT going to STAY cheap, AND that the current life support the world economy is on, is going to fail soon.
          I am not a fan of Mad Max, nor am I an apocalyptic libertarian retrosexual that Matthew Schneider-Mayerson states is the prevailing ideology of ‘Peak Oilers’. I do believe the current credit boom will crash once peak oil is reached. And after that we will be in a long term depressionary economy. I do not think millions of people will be buying cars in the future – electric or otherwise. However I do think the state will survive and the grid will stay on. For those elite workers who still have well paid jobs, EV’s would be a great choice in a future where gasoline is either expensive, rationed or unobtainable.

          • Fred Magyar says:

            EV’s would be a great choice in a future where gasoline is either expensive, rationed or unobtainable.

            You forgot to mention ‘Illegal’ 🙂

            BTW, the main reason that it is companies like Apple and Google that are investing in EVs, is that EVs are basically computers on wheels. When you add, deep learning algorithms and AI, you get driverless EVs, and that is where things are headed. Google ‘Tony Seba, Disruption’.
            Google already has driverless vehicles on the road that have traveled over one million miles on regular roads without any accidents.

            • Glenn Stehle says:

              Yep, when all else fails trot out the long arm of the law and its monopoly on violence.

              • Dennis Coyne says:

                Hi Glenn,

                Do you know what 🙂 means?

                Hint: That what precedes it is a joke, not to be taken seriously.

                Some people do not get sarcasm.

                Oh and the state has a monopoly on “legal” violence, unless one includes boxing, MMA, and many team sports, where there is a fair amount of violence amongst willing participants (so perhaps should not be considered violent).

          • Glenn Stehle says:


    • Danny says:

      70% capacity after 1000 cycles was the advertised number for cells i worked with back in the mid 90s. That was for full depth of discharge (2.5v/ cell) cycles. Partial discharges, temp management, and not taking the cells to 100% of charge (something tesla has built into their charge system as a user selectable feature) will all help cycle life.
      Actually, even teslas (100%) charge level is less than what the cell is actually capable of, for reasons of increasing life. Its a worthwhile compromise in that application.

      Anyways, cycle life doesnt degrade in a linear fashion. It will fall off a cliff at some point, so no you cant really run a pack down to nothing easily. The last 30-40% of capacity may dissapear in a few cycles.

      • Jeju-islander says:

        Most new EVs seem to aim for 70% capacity after 3000 cycles. They do this by overbuilding the battery. The actual capacity is much greater than the usable. Also cells are paired in parallel and then these pairs connected in series. For example what you see as a 96 cell battery is really 192 cells.

  24. Doug Leighton says:


    “Russia will provide further discounts on its Urals crude blend in order to defend its market share on its traditional market, Europe, as other grades have been increasingly flowing into the region…”–finance.html

    • Watcher says:

      “We will fight for our market (in Europe). We will increase the discount on Urals. But don’t think that the Saudis will easily occupy refineries which have traditionally used our oil, it’s not technologically easy,” the source told reporters.

      Sort of another broadside fired at the “glut” meme. A refinery buys what it’s already tooled to buy — as opposed to this bizarre notion that people rush out to buy oil for the purpose of storing it in non existant storage tanks that somehow were not already full.

    • AlexS says:

      Russia Plays Down Threat of Low-Priced Saudi Oil Sales to Europe

      • Russia’s Transneft says Saudis ‘dumping’ oil in EU temporary
      • East Europe refiners face costs when processing Saudi oil

      Russian officials said Saudi Arabia won’t be able to maintain the discounted crude prices offered to refiners in Eastern Europe as the nation toned down its criticism of oil shipments from the biggest OPEC producer.
      Saudi Arabia has priced its oil at a six-year low for Europe after starting to ship crude to traditional Russian markets such as Poland.
      The discounted crude “is a temporary situation and it won’t work for a long period,” Nikolay Tokarev, chief executive officer of Russia’s state-run oil pipeline operator, Transneft OJSC, said in an interview on Friday.
      Oil executives in Russia, which ships almost 70 percent of its crude to Europe, last month criticized Saudi Arabia’s strategy even before it dropped its December price for the northwest of the continent to lowest since February 2009. Still, while the Russian central bank warned last week that increased competition from the Middle East may create economic risks, Energy Minister Alexander Novak was more sanguine on Friday.
      “If more or less one oil cargo is added or drops off, there’s no need to turn it into a sensation,” Novak told reporters in Moscow.

      Technology Challenge

      Russia is increasing crude exports to the European Union, including through Transneft’s Druzhba pipeline that feeds Eastern Europe, Germany and the Baltic states, Tokarev said. Eastern European refineries, mainly designed with Soviet technology, would need investment to process Saudi crude, he said.
      “There is no reason, from an economic point of view, to change technology for the benefit of some sort of political ambition,” Tokarev said.
      Saudi crude is heavier and more sour than the Russian Urals oil traditionally processed in Eastern Europe, said Michael Nayebi-Oskoui, senior energy analyst for Middle East and South Asia at Texas-based Stratfor. The discounts being offered by the Saudis aren’t big enough to offset the extracosts of a large-scale and long-term switch from Russian crude, he said.
      “It does not mean that the regional refineries cannot use Saudi volumes,” Nayebi-Oskoui said. “They’ll just be less profitable and over time require longer periods of maintenance.”

  25. Longtimber says:

    When you Gotta get to the well . Need a rig like an 1920 Oilfield Dodge

  26. Doug Leighton says:


    The worst-case scenario most major producers have discussed in the past six weeks with investors involved a price of $50 a barrel. That is beginning to look optimistic as Saudi Arabia continues to produce near-record volumes and major exporters such as Iraq have increased output. Many oil executives, including BP PLC CEO Bob Dudley, expect prices to be “lower for longer.” The U.S. Energy Department is forecasting the price of oil will average around $50 a barrel next year.

    • Watcher says:

      It really doesn’t make much sense that for the most important substance in existence there is no global storage monitoring that is 100% confident. We have seen articles stating the Chinese filled their SPR 100% early this year. We know the US SPR is about 99% full. Hell, by law the EU SPRs are required to be full.

      This alleged glut is stored where? No, not interested in some random analyst offering up a number for storage. Where is the official number for global storage? Anyone really think that hasn’t been full for years? Why have storage and then not fill it? The idea is to buffer periodic emergency scarcity. How do you do that if you’re not full?

      If there is oversupply and storage is full, where does it go?

      And if you aren’t thinking emergency, who buys oil just to store it for going on 18 months now? Why would anyone do that? Inventory costs are not zero.

      • Arceus says:

        – “who buys oil just to store it for going on 18 months now?”

        Players in the commodities markets can make huge money on price swings.

      • Doug Leighton says:

        “If there is oversupply and storage is full, where does it go?” Good question. Maybe into virtual storage tanks? OTOH if the universe is actually a hologram perhaps the extra oil is contained in an extra dimension. The math on this is rather intimidating.

        • Fred Magyar says:

          The math on this is rather intimidating.

          Nah, It’s really quite simple. Since we can derive realistic physics from string theory all you have to do is start with the heterotic theory in ten dimensions and assume that the six extra dimensions of spacetime are shaped like a six-dimensional Calabi–Yau manifold. Then the extra oil can be found condensed within the expanding p-branes… 🙂

        • Synapsid says:


          First go to yesterday’s (20 November) Rigzone and read the top article, titled “Why should we…” It’s by John Kemp, and it’s about storage of oil.

          Do that, for the good of your soul.

          And for those of you like (and including) DougL who have the proper respect for Thorr: I watched, again, the excellent film “Beowulf and Grendel” yesterday. The leads are Gerald Butler, Stellan Skorsgaard (umlauts to be supplied by the reader) and Sarah Polley. You will profit from viewing it, and enjoy it.

          • Doug Leighton says:

            WOW, your Rigzone article certainly puts things in context. Thanks for the heads up Synapsid. Watcher, please note and read: Kemp: SHOULD WE WORRY AS OIL STOCKS HIT 3 BILLION BARRELS?

          • Fred Magyar says:

            From the article:

            OECD crude and products stocks are 340 million barrels, 13 percent, higher than in July 2008, when many commentators were worried about oil shortages and crude prices were peaking at more than $140 per barrel. Current OECD stocks cover 98 days of consumption, up from 93 days at the same point in 2014,and 86 days in June 2008.

            Yikes! Perhaps it is just me but those numbers don’t seem to bode so well for a long term continuation of an oil based global economy!

      • oldfarmermac says:

        Every once in a while, Watcher says something comprehensible to me.

        I have been skeptical about storage existing for so much supposedly excess production since shortly after the price crash I went googling new storage construction etc, without finding any thing much.

        I even went so far as to propose that it might be possible to store crude bought dirt cheap in an existing depleted well someplace else, gambling that the price would be high enough in a year or two to cover the transportation expenses and the inevitable losses and still leave a handsome profit.Everybody had a little fun out of me on that one.

        It could be that some significant oil storage is being built, but it seems damned likely it would make the business news if it were enough to stash away millions upon millions of barrels.

        I am forced to conclude that whatever is produced is almost all getting used up on a day to day basis.

        ONE bit of farm wisdom than applies to oil is that a commodity is useful to those who use it, short term, in a certain quantity, and that the user, individually or collectively, will pay thru the nose if supplies are tight, and sellers will sell for peanuts if supply is in excess.

        JOE SIXPACK may typically use ten gallons of gasoline a week, and if the price of it shoots up to five bucks, he will still use damned close to ten gallons, because he is not apt to have any real short term choice in the matter. If the price declines from four bucks to two bucks, he will use only a little more, short term, because he just doesn’t have any real OPPORTUNITY to use more.He might squeeze in a extra weekend trip or two, or take his ski boat out a couple more times, that would be about all, short term.

        If you are a seller, of peaches or apples or beef cows or hogs, or oil, you WILL sell for whatever you can get, and like it, because as a general rule, you have no more choice in this matter than Joe Sixpack has in buying his weekly ten gallons.

        Economists say the price of oil is extremely inelastic, getting this all into just one sentence.

        Now if milk is cheap enough, you can afford to feed some to the family cat. Milk was cheap enough at times on the farm when I was a kid we fed some to the pigs and chickens and even the dogs. Local people who bought from my grandparents, a gallon or two at a time, would use a lot more when it was really cheap, but it is easy to substitute dirt cheap milk for some other foods. There are no short term substitutes for gasoline or diesel fuel, in general terms.

        The collective thinking when it comes to the oil glut seems to be that there is a million to two million barrels a day more coming to market than the market will absorb at eighty to a hundred bucks.

        One or two million barrels barrels out of roughly ninety million is not very much, in relative terms, and it seems reasonable to assume that the collective users of oil are using that much more than usual given the low price.

        Otherwise, maybe we can get Doug to ask his mathematician wife to explain the math of higher dimensional storage to the rest of us mere mortals.

        Given that mathematicians are reputedly reluctant to lower themselves by talking to mere mortals, she probably won’t, but given that he is her husband, she probably won’t turn him into a toad for asking . 😉

        • Doug Leighton says:

          Hi Mac,

          My wife was, in fact, a mathematical physicist (mostly retired) and she died from a brain aneurysm several months back. The past several years she was far more into Grandchildren than higher dimensional mathematics and most of her explaining involved (patiently) teaching me some aspect of high energy physics related to astrophysical jets (esp. pulsar jets). The god responsible for aneurysms would have been a hell of a lot smarter if he’d killed me rather than her. But, gods tend to be overrated.

          • Fred Magyar says:

            Hey Doug, very sorry for your loss!

          • Dennis Coyne says:

            Hi Doug,

            Deeply sorry for your loss.

          • Caelan MacIntyre says:

            My condolences, Doug. That seems sudden.

          • shallow sand says:

            Doug, we also send our condolences.

          • Ves says:

            Sorry for the loss, Doug. I always had that mental image whenever you posted something that your wife was right there behind your chair since you have always fondly talked about her.

            • coffeeguyzz says:

              Mr. Leighton

              I am sorry for your loss and extend my condolences to you and your family.
              The vast majority of participants and lurkers on this site both benefit from and, I’m certain, appreciate your ongoing contributions. Gerard

          • oldfarmermac says:


            I am truly sorry to hear about your wife and would take back my light hearted comment if I could.

            Funerals have become the most commonplace and only really important events in my own life in recent times.

          • Doug, I had no idea your wife had died. You talked a lot about her and I could tell you loved her a lot. My condolences.

            • Doug Leighton says:

              Thanks guys, I suppose I should have said something earlier. Fact is, I’ve been (and sometimes still revert to) in denial.

              • AlexS says:


                My deepest condolences.

              • Javier says:


                I am saddened by your loss that I can feel through your words. You have my sympathy and desire that you do well through this difficult time.

              • Patrick R says:

                Doug my condolences too, very sad to hear; she sounded intimidatingly learned and, being Nordic, effortlessly glamourous. Very sorry to hear of this.

  27. I have inserted into the post another chart of Canadian oil production. This time I used the data from the Canadian Energy Board. The last few months are projections by the NEB.

  28. Doug Leighton says:


    “Nationally, the number of employment insurance recipients across the country was up by 1.1 per cent in September compared to August, and 8.3 per cent compared to one year ago to 543,800 people. Alberta represented most of the national increase from last month, with its numbers up 9.1 per cent from just last month.

    In addition to being affected by job losses in Alberta’s resource sector, the Atlantic provinces are struggling because of reduced revenues from their own oil industries. Earlier this week, for example, the Conference Board of Canada released information indicating that Newfoundland and Labrador faces several years of budget deficits, due largely to lower oil prices.”

    • Watcher says:

      I heard a Canadian the other day say . . . those economic problems are out in the prairies and aren’t important to the culturally significant places of Canada like Ontario and Quebec.

      • Lloyd says:

        Except when my nephew comes home from Fort McMurray and he and his wife end up on my sister’s couch.


      • Paulo says:

        Over on there is an excellent article by Ugo Bardi called The Syrian Sickness.

        When I forwarded this article on to some friends, (who I occasionally share PO and decline concepts with….they think I am nuts, I’m pretty sure), I remarked that the decline in Oil Sands production would ultimately prove to be a good thing for Canada, mainly by forcing us to build lives towards a more realistic set of goals and aspirations. As an ex high school teacher and tradesman I have been dismayed at many of my past students believing hard work and training for future employment was not necessary. I was often met with, “I don’t need to do this, I’m going to Alberta in June”. Now that those plentiful high paying jobs have dried up I am assuming a dose of reality is beginning to seep in.

        Don’t get me wrong, I accept that FF use has provided us a wonderful existence and many benefits. I am pleased that no matter what happens it is quite likely that Canada will be able to run and (within reason) meet ICE requirements where other countries might not be able to do so. I am also sure that seeing a 20 year old ex student driving a new F-350 diesel 4X4 with a couple of ‘sleds’ or quads in the back was never a good situation.

        This decline in oil prices will help Canada in the long run as far as I’m concerned. As for Alberta, Oil was a sickness much like it is for Alaska. Yes, you do need a sales tax. No, a teacher working across the border from BC is not worth $20,000 dollars more at their staring salary. And Govt cannot spend money like drunken sailors as Allison Redford discovered in her election loss.

  29. Reluctant Realist says:

    Lowest gasoline prices today in my fair city, at a handful of stations: $1.69 (US)/gallon.

    I whole bunch more stations are selling in the buck-seventies.

    The great majority of stations in the metro selling sub-two-bucks.

    Who knows…gasoline could be $4.50/gallon two years from now…

    • oldfarmermac says:

      I haven’t heard any of the hard core liberal dimmerat pundits who made constant fun of ignorant red neck republicans saying drill baby drill would solve the problem of high gas prices admit publicly they were wrong yet. 😉

      Don’t expect to either.

      Of course I did not expect to see two dollar gasoline myself, ever again, except in the event of a freeway type crash that might have brought prices down dramatically for a short time.

      I was just a tiny tiny tad W R O N G about it myself. LOL

      • Dennis Coyne says:

        Hi Old Farmer Mac,

        Definitely surprised that drill baby drill worked. It is not working that great for the US oil industry though. It is likely that the cheap gasoline prices will not last beyond 2017.

        I admit I was wrong on oil prices. I also did not expect OPEC would choose to let prices drop the way they have, they must be sold on the hype that LTO output will be significant, I may be wrong on this as well, but I doubt US LTO output will be more than 35 Gb cumulative output. This is not much of a threat to OPEC.

      • islandboy says:

        You know what’s funny? What was the “Drill, Baby, Drill” crowd complaining about? Regulations. Has anything significant happened to change regulations? Not as far as I know. My reading of what happened was that low oil prices got out of the way, allowing high oil prices to encourage more drilling and the use of fracking to get at known reserves. Now those damn low prices are back and up to their usual tricks, preventing the industry from going after the oil. Oh, wait…….

  30. Doug Leighton says:

    Think I retired at a good time.


    “I was surprised it’s gotten this far,” John Graves, whose Houston firm assists in oil and gas deals with audits and due diligence, said Friday.

    “It’s going to get worse before it gets better,” he said.

    • Heinrich Leopold says:


      Middle East rig count is actually up from the latest months. There seems to be a lot of confidence there.

      • Doug Leighton says:

        Heh man, I’m just passing along some news. I know there’s quite a bit of (new) activity on the North Slope right now too which defies (conventional) logic. Most of this may be related to the fact that Alaska subsidizes exploration spending but as I say I’m just an old retired geophysicist passing along some potentially interesting stuff.

  31. Peter says:

    Peak Oil 2015?

    If 2015 is the peak Oil year, then it is the $45 per barrel peak.
    This should give people pause for thought. How on earth can we really be at peak oil, with prices this low. We cannot.
    At the moment the Middle East is dumping as much cheep oil onto the market as possible, hence the fall in price. This, as we know has impacted on more expensive production areas.
    As this oil glut gets used up, which will require increased global consumption. I.E. NO PEAK OIL 2015.
    Oil prices will come back in response and so will the $50 shale oil and then $60 Canadian, $70 offshore, $80 and $90 deep water.
    By then Saudi Arabia, which is causing this glut will be at peak and will not be able to flood the market again.
    Russia will be in gradual decline and this will help prices.
    So peak will be 2018 -2022, as long as global demand increases annually by around 1.5mmbd.
    Peak production being 4-8 million barrels per day more than now and at a far more realistic peak price of over $120 per barrel.

    • AlexS says:

      “Oil prices will come back in response and so will the $50 shale oil”

      You really think that shale companies can survive another 3-5 years of $50 oil?

      • Peter says:

        I did not say existing shale companies. Although some will survive. I am talking about cost of production. Once oil prices start to rise companies will start to drill again, first in the lowest cost areas and then in more costly places. Just like they did in 2008 to 2014.
        I also did not say it will take 3 years for prices to start to rise. If global demand increases annually by 1 to 1.5 million barrels per day then prices will start to rise next year.

    • Arceus says:

      More or less concur with this. However, I see peak oil pricing eventually exceeding $200, and maybe even $300 per barrel. Peak production, if I had to guess, would be from 2020 – 2030 (I see peak oil production in a range with no significant drop off for 10 years or so). Don’t see Russia as the first major oil producer to hit their peak, more likely Saudi Arabia or the U.S. Russia, Venezuela, Brazil, Libya, Iran, Iraq will likely not run out of oil before demand for oil quickly drops. Just my thoughts currently.

      • Peter says:

        Russian production has slowed considerably in the last year or so. I do not see Russia increasing production with so much of their production coming from very old fields.
        We will have to see.

        • Arceus says:

          — ” I do not see Russia increasing production with so much of their production coming from very old fields.
          We will have to see.”

          Has this not been said of Saudi Arabia for the last 30 years or so (at least)? Russia has vast more territory to explore and likely has not even reached peak in their current “old fields.”

          • Stilgar Wilcox says:

            “Has this not been said of Saudi Arabia for the last 30 years or so (at least)? Russia has vast more territory to explore and likely has not even reached peak in their current “old fields.”

            No kidding, Arceus. I remember on The Oil Drum in 07 a poster by the name of ACE was predicting the imminent decline of Russian oil from near 10mbd to 7mbd within just a few years. It didn’t happen and neither did Simmons’ suggested Twilight in the Desert occur.

            I still follow peak oil and post occasionally on peak oil blogs, but with so many missed predictions I just watch and wait, but I’m no longer holding my breath. Apparently there is a lot more legacy oil than most realized.

          • No, this has not at all been the case for Saudi Arabia. Saudi has had three mothballed fields brought on line as of late:

            Shaybah: Discovered in 1968 but due to its remote location was not brought online until 1998 at 500,000 bpd. It was upgraded in 2009 and increased production to 750,000 bpd.

            Khurais: Discovered in 1957 and brought online in 1959 and shut down in 1961 due to low production and remote location. It was brought back on line in the early 1970s. Khurais produced 144,000 bpd in 1981 but dropped off dramatically in 1982. Gas re-injection attempts to increase production failed and the field was shut down a short time later due to almost no natural pressure. In 2009 a new massive water injection program began with the injection of over 4 million barrels of water per day brought the field up to 1.2 million barrels of crude oil per day.

            Manifa: Discovered in 1957 but shut down almost immediately because the oil was extra heavy and contaminated with vanadium. But Aramco built their own refineries to handle the oil. The field was put on line in April 2013 and was producing 500,000 bpd and was producing 900,000 bpd in 2014.

            Russia has brought new fields on line also but their size is miniscule compared to these three giants. You cannot possibly compare Saudi to Russia. They are two entirely different countries with different fields and reserves. To compare the two or to bring up what Ace said on the oil drum is just stupid.

    • Strummer says:

      “How on earth can we really be at peak oil, with prices this low”

      Peak oil, by definition, is the moment of maximum production, therefore maximum supply. What would you expect the price to be at the moment of maximum supply?

      • Donn Hewes says:

        Is the price really low? That is the question.

        • Peter says:

          Considering it was $148 a few years ago, yes.

        • Javier says:

          Low and high are relative.

          Current oil price is about the same in constant dollars that it was during the late 80’s and 90’s and early 00’s. According to that criteria oil is not low priced.

          However due to the cognitive bias known as anchoring effect, most people got anchored at 100$ during 2010-2014 and consider anything below 75$ as low price.

          Another problem is that for producers of unconventional oil, cost of production is elevated and for oil exporting countries they elevated their fiscal expenses during the high price years and so they run into serious deficit at current prices. This is part of the general condition that adapting to a larger income is a lot easier than adapting to a smaller income.

          So for producers oil price is too low, but for consumers is about right. When producers and consumers no longer can agree on a price that will not destroy neither demand nor supply, then you have encountered another functional definition of Peak Oil, as production can only go down, either from demand destruction (economic crisis) or production destruction (price crisis) or both.

          • Peter says:

            Hi Javier

            You are right, oil price it relative. I do not consider oil price just in historical perspective I look at other things.
            Between 1993 and 1998 of the 50 top oil producing countries all but 4 were in decline. Of the 39 exporters 31 were increasing exports. Year by year the number of exporters has declined and more countries are reliant on an every decreasing number of exporters.
            The number of oil exporters increasing oil exports is down to 18 and that includes very small contributors.
            Taking the collapsing number of exporters into account and the need for more expensive home sourced oil. I do not think $40 is right for anybody.
            In the UK we pay $7.50 for a gallon, but the actual cost of the untaxed petrol is $2.80. Most British people would consider £1.86 per gallon as Christmas come all year.

      • Peter says:

        Hi Strummer

        I see what you are getting at. I see peak production as a demand driven, high price driven concerted effort from every single company and country to produce the maximum possible.
        That is simply not happening at the moment because the price is not worth it.

      • Caelan MacIntyre says:

        Well if that’s the case and that’s where we’re at– no rear view mirror necessary, so to speak– then prices may be about to get astronomical very fast (as fast as they’ve plummeted?) and crash the economy something awful. Because it’s the true cutoff-level for as high-production as oil can go. What do you think, and also about this? The thermodynamic reality-check?

        I seem to recall a recent article somewhere online– maybe Zero Hedge– entitled something like ‘The Calm Before The Storm’.

      • Nick G says:

        You would expect prices to rise. If demand is growing, but supply is not, prices should rise. As supply flat lines, prices should rise dramatically.

        That was the standard explanation for the price rise from 2004 to 2008. See Prof. James Hamilton’s writing on the topic at

        • Strummer says:

          I think (and as many have already mentioned in these discussions) that the core factor in all this is elasticity (or non-elasticity) of both demand and supply. Due to the high capital costs and the long time of exploration and development needed, today’s production is not a function of today’price. It’s a function of price 5 or even 10 years ago. Similarly, the supply available in 10 years’ time will be determined by today’s price, as it is today’s price that determines the capital investments and the E&D. It’s this inelasticity of both demand and supply that creates a highly non-linear system with lots of delayed feedbacks which makes forecasting and modeling very difficult, and the overall picture and trends only get clear in retrospect and only at larger time scales.

          • Javier says:

            Complex systems are best studied from the top down, rather than trying to dissect them. The first thing to check is if they present a cyclical behavior because that hugely affects any prediction. But most people only know how to extrapolate, one of the least reliable tools in the predictive arsenal. This can be clearly seen in the current climate scare, where the cyclical nature of climate has not been recognized.

            Focusing on oil we can observe a cyclical behavior in oil investments that is mirrored by an opposite behavior in oil prices. Of course any proper cyclical projection has to also take into account an accelerated increase in the cost of E&P due to peak conventional oil in 2005 and unconventional oil being more expensive to produce. I don’t think we have the economical muscle for another investment cycle that would be a lot more expensive that the previous than run in the trillions of dollars, and production decline is expected to be a lot faster this time around due to the nature of tight oil. But the cyclical nature is illustrative to those that think that prices can recover soon or that think that capex investments will return as soon as prices increase. I would be extremely cautions before predicting any of those two things.

            • Dennis Coyne says:

              Hi Javier,

              Nobody has to argue that oil output will recover quickly, just that it will recover. The decline in output World wide will not be that great, maybe 1 to 1.5 Mb/d and there is a big surplus of oil in storage (about 300 Mb above normal levels in the OECD), so almost a years supply if demand does not grow (as some believe) and supply falls by about 1 Mb/d (10 months supply roughly), then oil prices will gradually rise as storage levels fall. There will be 12 to 24 month delay in capex, but this will vary depending on costs in various areas (low cost areas may see CAPEX expand earlier than high cost areas).

              Most of us here are well aware of the cycles in the oil business ( and in the climate), this is not really new information.

              What would be new is for the cycle in either the oil industry or the climate to end. I would think this very unlikely.

              Of course one would have to argue that atmospheric CO2 has no effect to argue that natural variability explains all of the temperature rise, prior to the industrial revolution that was true.

              • Javier says:

                Hi Dennis,

                Let’s take that analogy and run with it to see where we get.

                We accept that there are cycles in oil (boom and bust cycles) reflected by oil investment and oil prices as in the figure above, and that there are natural cycles of cooling and warming in global temperatures that constitute part of past climate change. Anybody not accepting these premises can stop reading.

                We can consider that these cycles have been taking place for a long time until a new factor has been introduced, and without that factor those cycles would have continued unchanged for many decades.

                In the case of oil, the new factor is the peak in conventional oil that took place in 2005 that caused a need to substitute it by increasing amounts of unconventional oil.

                In the case of climate, the new factor is the release starting about 1955 of increasing amounts of CO2 to the atmosphere.

                The effect of unconventional oil is to greatly increase the expense for E&P (x7 between 2002-2014).

                The effect of CO2 is to increase warming, calculated at 0.6°C since 1955.

                Authorities (political and academical) have taken the position that we should not worry about the impact of peak conventional oil and its progressive substitution by unconventional oil on the economy or the environment.

                Authorities (political and academical) have taken the position that we should deeply worry about the impact of CO2 on climate.

                So far most people have not noticed any negative impact neither from unconventional oil nor from CO2 in their lives. It thus becomes a question of trust.

                Most people trust authorities that we should worry about climate but not about oil. I believe this is your position, correct me if I am wrong.

                Some people are not worried about neither. They are quite numerous although less than in the first group and many are of conservative political stance.

                A few people, well represented in this blog, are worried about both. It has been said that intelligent people tend to worry more even if they are not correct more often.

                A really small group, the contrarians, are worried about oil but not climate. I am here with very little company.

                We accept that in a reasonable amount of time, let’s say 50 years, only one group can be correct and that the number of people in a group or agreeing with the authorities do not determine the outcome.

                We recognise that some people (academics included) have predicted peak oil in the 50’s 70’s and 90’s and time has proven them wrong.

                We recognise that some people (academics included) have predicted dangerous global warming in the 40’s and 50’s, and dangerous global cooling in the 70’s and time has proven them wrong.

                To be worried about climate one has to accept that almost all warming since 1955 has come from the increase in CO2. If a significant part of the warming has been natural, then CO2 is having less effect than we think and we are not in danger.

                To be worried about oil one has to accept that our economy will not be able to extract enough unconventional oil at affordable prices to cover our future needs.

                Climate alarmism feeds on the continuation of a continuously increasing trend of CO2 release.

                Peak Oil alarmism feeds on the failure to meet continuously increasing E&P costs.

                Exponential trends are very hard to sustain. If CO2 release trends fail to continue climate alarmism diminishes. If E&P expenses trends fail to continue, oil alarmism increases.

                Only time will tell if any of these fears is justified. Right now it is not possible to demonstrate beyond reasonable doubt that dangerous scenarios are going to take place given present situation.

                Personally I am not of the alarmist type because I see it as unproductive and 9 out of 10 times unjustified, as time constantly demonstrates. I have only become alarmed about Peak Oil in the past years because I was studying economy and run into the evidence that convinced me that our economy cannot accept unconventional oil as a suitable substitute and thus we are going head on towards peak oil. That is my view. I have studied the evidence for climate alarmism and it does not convince me at all. It is just run of the mill alarmism that has been politically promoted to prominence. In a couple of decades we will all be laughing about it and most will say that they were never convinced and just played along.

                • ChiefEngineer says:

                  Hi Javier,

                  I have a good Republican friend who build a multimillion dollar beachfront home in south orange county 25 years ago. A month and a half ago she calls me up to tell me the waves are breaking on her glass doors and she has never seen this happen like this before. Her neighbors a few houses from her are moving out of their home for higher ground. We haven’t even been hit by an El Nino storm yet. She missed the alarmist stage and choose to go straight to the victim stage due to _______. (fill in the blank)

                  • Javier says:

                    Hi ChiefEngineer,

                    Despite the Bible saying that you should not build your house on sand, people have continued doing it for thousands of years. California is famous for people building their houses in dangerous places, like near cliffs where erosion causes them to fall to the bottom, or out in the bunnies where bush fires consume them every time the wind blows from the desert. Should we make the climate responsible when clearly it is our fault?

                  • ChiefEngineer says:

                    As an insurance broker for 25 years. I sold coverage for the tiny possibility of a catastrophic loss. You know, that one in ten thousand chance your house burned down.

                    Can you tell me that you are 100% certain that human induced climate change is not real ? That humanity has nothing to fear in the future ? That humans should do nothing regarding human co2 production. Can you stand on that pedestal ? Or, are you just gambling others opportunity for life ?

                  • Javier says:


                    You set a standard that nothing we do can rise up to. Can you 100% guarantee that hot dogs are safe for human consumption and will do no harm? because WHO just said they are not. Should we protect humankind from hot dogs? The precautionary principle mandates that hot dogs are immediately outlawed.

                    What I can guarantee you with 100% certainty is that no matter what we do we cannot make climate change safe for humans. We will have to take our chances and live in such a dangerous place as this planet constitutes.

                  • ChiefEngineer says:


                    I find your risk management views disturbing

                • Glenn Stehle says:


                  You might want to try to get your hands on a copy of this book and read the sections on energy policy and the environment.

                  Here, for example, is one citation:

                  Given the mixed messages from energy experts, the public must try to sort out the facts and consider the confusing information and price signals it receives about energy. In gerneral, there appear to be few, if any, dispassionate sources of energy information, leaving the public to draw its own conclusions.

                  So when it comes to energy policy the public is inundated with sales pitches from all directions. Truth-seeking is not even on the agenda.

                  If you take a look at some of the polling information the authors cite, I doubt that you belong to “a really small group, the contrarians.” Although that may be a true statement regarding those who frequent this blog, your opinions are not that out of tune with large swaths of the general American public.

                  The public has taken a look at the Tower of Babel the scientists and experts have built, along with all their special-interest pleading, and seems to have concluded, “A curse on all their houses.”

                  The authors show that a majority of the public “does not trust the energy information it has received.”

                  • Fred Magyar says:

                    The public has taken a look at the Tower of Babel the scientists and experts have built, along with all their special-interest pleading, and seems to have concluded, “A curse on all their houses.”

                    First, the ‘Public’ is not sufficiently educated or mathematically and scientifically literate enough to be able to independently assess what the scientists are saying.

                    Second, if you really believe that scientists are the one’s who mostly engaged in promoting their special interests I have to wonder what you think, Wall Street and the Fossil Fuel companies, have been doing for the last quarter of a century?

                    As for the ‘Tower of Babel’, and the pure propaganda techniques that have been developed to manipulate the ignorant populace. you might want to look up Edward Bernays.

                    The conscious and intelligent manipulation of the organized habits and opinions of the masses is an important element in democratic society. Those who manipulate this unseen mechanism of society constitute an invisible government which is the true ruling power of our country. We are governed, our minds are molded, our tastes formed, our ideas suggested, largely by men we have never heard of. This is a logical result of the way in which our democratic society is organized. Vast numbers of human beings must cooperate in this manner if they are to live together as a smoothly functioning society.

                    Now if you think that scientists are the ones behind this kind of manipulation, let’s just say, I beg to differ!

                • Dennis Coyne says:

                  Hi Javier,

                  If you read my comments more carefully you would realize that I am not an alarmist either. I think both peak oil and climate change are big problems, I think the solution to both problems is relatively straightforward, transition from fossil fuels to alternative energy. The decline in fossil fuel output will not be very fast (1 % to 2% annual rates if demand for fossil fuels is adequate) so such a transition seems possible, but will be very difficult. The amount that climate change will be a problem depends on many unknowns, the equilibrium climate sensitivity, the amount of CO2 emitted (from 1750 rather 1950) from all anthropogenic sources.

                  The climate change experts are probably correct that the ECS is 2.5 to 3.5C, and we definitely have enough fossil fuel to get to 500 ppm which is likely to be a problem according to most ecologists as we would be close to the 2C limit.

                  Peak fossil fuels is likely to be the solution to the climate change problem. If one imagines that climate change is not a problem, then of course peak fossil fuels would seem a more serious problem. In my view you are wrong.

                  • Javier says:

                    Hi Dennis,

                    If your main source of information is the IPCC and the media and you generally trust what they say then you obviously see climate change as a serious problem.

                    My main source of information is scientific literature where you look not at what scientists are saying and concluding, but at what the evidence says. There are lots and lots of scientists whose research is relevant and whose results do not support climate alarmism that never make it to the media. They do not write anything that can be used by skeptics because promoting skepticism is poisonous for a scientific career in current environment. Every time we discuss something I bring up research that supports a non-alarmist view or promotes an alternative interpretation, that is being discounted and that you immediately discount as if it does not exist.

                    The only way to get to the truth is to set out a proper null hypothesis and then go out and try to disprove it.

                    For example, we know from thousands of pieces of evidence that current global warming has not exceeded Holocene variability. This is hard evidence. Tree line in boreal areas has not advanced to previous Holocene Climatic Optimum (HCO) distances, palynology studies show that we are not undergoing a transition like those seen across the Holocene, glaciers are not at their minimum extent within Holocene, ice cores do not show delta-16O or deuterium values that indicate current temperatures exceed HCO values, and so on. Scientific committees have concluded that we can only be sure that current temperatures are the warmest in past one thousand years.

                    The correct null hypothesis then is “Current global warming is within natural variability and CO2 increase has no discernible effect.” That is what I tried to disprove and after a long time I believe I was able to. CO2 theory predicts that warming effect should be higher the less water content the atmosphere has, since their absorption spectra overlaps significantly. The driest air is the coldest air, so I looked for evidence in the polar regions, but was not able to find it. I finally found it when I looked at glaciers. Glaciers appear to be specially sensitive to CO2 due to the effect of dry air above them and even small changes can be easily measured. Glacier dynamics is very complex as they depend on both temperature and precipitations, seasonality and other factors. However many glaciers have retreated to a point last seen at the Mid-Holocene Transition (MHT) about 5200 years ago. This is inconsistent because although with significant advances and retreats, glaciers have sustained a growing trend since MHT, so within present global warming they have retreated too much to be consistent with Holocene climate variability.

                    It is a small effect and since glaciers are specially sensitive it cannot be extrapolated to global temperatures, but to me the evidence is enough to reject the null hypothesis and conclude that anthropogenic warming is real and is having an effect beyond natural variability.

                    The next null hypothesis is that “natural warming is responsible for a substantial part of current warming.” I have not been able to reject it based on current evidence. If the null hypothesis is true then we have nothing to fear from global warming. And this is not a question of a coin toss. There are infinite possibilities to explain a phenomenon and any one of them has to beat the null hypothesis to be considered a proper explanation. The null hypothesis says that that particular explanation is not the correct one, and given that there are infinite explanations, the null hypothesis has a priori overwhelming odds and has to be considered true by default. That we cannot think of a better explanation is irrelevant and only talks about the limitation of our knowledge.

                    There is a very interesting paper that confronts the global reconstruction in Holocene temperatures from Marcott et al., 2013 that we discussed here:
                    with three representative coupled climate models. The result is that climate models based on current theory predict that the Holocene should have seen a progressive warming, while the reconstructions and tons of evidence indicate that the Holocene has undergo a progressive cooling.
                    Please take a look at it, abstract, introduction, figures, conclusions. It is an important paper. The authors are very careful in the wording of their discovery to avoid being quoted by skeptics. It is clear from this contradiction that CO2 forcing is overstated in climate models, and solar forcing understated. There is no other way to explain this result because we do know how models work and we do know what is producing that computer warming.

                    We measure Total Solar Irradiation and we know that the variability is very small. However we know that solar irradiation can be hugely modified by the climate system. Planetary solar irradiation was essentially the same at Last Glacial Maximum and at Holocene Climatic Optimum, what changed was what the planet did with that solar irradiation. Earth’s climate system is perfectly capable of amplifying solar variability, so it is possible that we have overstated CO2 forcing and understated solar forcing as the results from Liu et al., 2014 suggest.

                  • Dennis Coyne says:

                    Hi Javier,

                    And what physical mechanism do they propose for this solar amplification?

                    The rate of change in temperature over the past 70 years has been far more rapid than at any other period of the Holocene.

                    It will take time for the boreal extent to change, it is a gradual process.

                    Again, you see something in the research that you want to see. Most scientists do not agree with your view. Also the ocean has a significant cooling influence on overall global temperatures. As many of the proxies that are used are land based, a better comparison is to changes in Global land temperatures which have been higher than temperatures over the ocean.

                  • Javier says:

                    Hi Dennis,

                    I see you are not impressed with current Anthropogenic Global Warming hypothesis being unable to explain Holocene Climate Change. You should not accuse others of seeing what they want to see. AGW was formulated to explain a particular warming period, 1975-2000. Outside of that period it either gets fudge adjustment factors (1945-1975), or fails (Holocene and last decade and half).

                    And what physical mechanism do they propose for this solar amplification?
                    There is no known physical mechanism at present, but that we cannot explain something doesn’t mean it is not real. We are still working on the physical mechanism of cloud formation and we have always known that clouds form.

                    It will take time for the boreal extent to change, it is a gradual process.
                    We can detect changes in vegetation patterns caused by Dansgaard-Oeschger oscillations in less than 80 years. Present global warming has been going on for 350 years.

                    Again, you see something in the research that you want to see.
                    Just the opposite. I don’t see something that I should see, clear evidence. When I started to research climate change literature I was assuming like almost everybody else that AGW hypothesis was well established, and I did out of worry. Lack of solid evidence convinced me that the hypothesis is not on solid ground.

                    Most scientists do not agree with your view.
                    Like I could care less. Most of scientists are wrong most of the time on many issues and only occasionally right. Science has never been a democracy. If you try to make it one, you kill it.

                    The rate of change in temperature over the past 70 years has been far more rapid than at any other period of the Holocene.
                    This sounds like an IPCC meme. Even if it was true (we don’t know), we just came out of the coldest period in the entire Holocene so the cause would be uncertain.

                    AGW predicts that the more CO2 in the atmosphere the faster the warming should be, as you have noticed. However the evidence shows that peak rate of warming has not changed significantly over the last 120 years when CO2 levels have undergone a 43% of a doubling. It was 0.4°C/decade in 1890’s, 0.4°C/decade in 1910’s, 0.4°C/decade in 1930’s, 0.4°C/decade in 1950’s, 0.4°C/decade in 1980’s, and 0.4°C/decade in 1990’s. This is just one of the many failed predictions by AGW.

                    The figure is from UK MET Office.

                  • Dennis Coyne says:

                    Hi Javier,

                    If you look at long term averages AGW works just fine. I have said before and will repeat,
                    nobody thinks that there is no natural variability due to changes in solar output, volcanoes, and ENSO and other oceanic effects. The atmospheric CO2 was relatively stable at 275 to 285 ppm throughout most of the Holocene up to 1750 and changes in temperature were mostly due to a combination of natural variability and land use change as human population grew and land was converted to agricultural use.

                  • Javier says:

                    Duh Dennis,

                    You just lost the opportunity to show that you can learn about climate:

                    “The atmospheric CO2 was relatively stable at 275 to 285 ppm throughout most of the Holocene up to 1750.”

                    You clearly did not read the Liu et al., 2014 paper that I linked just above. Otherwise you would know that you are wrong on that.

                    From around 7000 years before present to pre-industrial times, CO2 levels increased steadily from 260 ppm to 285 ppm. A very significant 25 ppm that constitutes about a fourth of the CO2 level change that took place at the end of last glacial period.

                    So for most of the Holocene CO2 levels were raising while temperatures were dropping. That is called the Holocene Temperature Conundrum and AGW has no explanation for it. We think we know where the CO2 came from and why, but AGW is incapable of explaining why it did not cause temperatures to raise, but instead the world was cooling significantly.

                    You have it in that PNAS paper linked above that you clearly did not bother to check, because you think you know that “AGW works just fine.”

                  • Dennis Coyne says:

                    Hi Javier,

                    The cooling was pretty moderate as was the change in CO2 levels, easily explained by natural variability. No I have not read the paper, yet.

                  • Javier says:

                    Hi Dennis,

                    What does moderate mean to you? The raise in CO2 levels for the past 7000 years up to pre-industrial levels of 25 ppm represents about 10% of a doubling. Considering that from the Last Glacial Maximum (20 kyr BP) to the HCO the increase of 70 ppm in atmospheric CO2 represented a 36% of a doubling, we come to the fact that Holocene CO2 increase constitutes 27% of the CO2 increase from the coldest to the warmest point of the last glacial period and present interglacial. Almost a third of the glacial-interglacial span cannot be considered insignificant for the increase in CO2 that took place between 6,800 and 600 yr BP. If CO2 is as potent warming agent as purported in some theories and models, one should expect some warming coming out of this CO2 increase, specially because since 5,000 yr BP it was accompanied by an increase in atmospheric CH4 concentrations (Kobashi et al., 2007). But instead of an increase in temperatures, what we find is a progressive decrease from the HCO to the LIA driven by changes in insolation.

                  • Dennis Coyne says:

                    Hi Javier,

                    From Glacial to interglacial CO2 roughly doubled (140 ppm to 280 ppm). As you know the relationship is logarithmic. The temperature change was moderate relative to glacial -interglacial temperature changes.

                    If we assume nothing changed except CO2 levels we would expect a rise in temperature of 0.24 due to CO2 alone. Instead temperatures fell by 0.4 C due to other factors so a difference of 0.6 C in total. One way to interpret this may be that as the CO2 levels were relatively stable over this period, that natural variability can push temperatures high (during the “optimum”) or low during the so-called LIA and that this variability can be +/- 0.3 C.

                    As I have mentioned before the natural variability can counteract the forcing due to increased CO2, there is also solar variability to consider, ocean currents, volcanoes.

                  • Javier says:

                    Hi Dennis,

                    Where do you get those CO2 values? They are most likely wrong.

                    From Petit et al. 1999. Nature 399 429-436 data for Vostok ice core values later confirmed by Lüthi et al., 2008. Nature, 453 379-382. for Epica Dome C values, Glacial Termination I (From last glacial to present interglacial) involved a change from 180 to 260 ppm. See figure 5 from Petit article:

                    Why are you bringing wrong data all the time? Where are you getting it? Don’t you realize your arguments rest on faulty data?

                  • Javier says:

                    Hi Dennis,

                    Where do you get those CO2 values? They are most likely wrong.

                    From Petit et al. 1999. Nature 399 429-436 data for Vostok ice core values later confirmed by Lüthi et al., 2008. Nature, 453 379-382. for Epica Dome C values, Glacial Termination I (From last glacial to present interglacial) involved a change from 180 to 260 ppm. See figure 5 from Petit article:

                    Why are you bringing wrong data all the time? Where are you getting it? Don’t you realize your arguments rest on faulty data?

                  • Dennis Coyne says:

                    Hi Javier,

                    Having read the paper, it points to two potential problems. Seasonal bias in the Proxy data, and bias in the models as possible explanations, the reality is likely to be a bit of both in my view. There is also the possibility of changes in TSI (total solar irradiance), which is not known for the period in question, but remains a possible explanation for some of the discrepancy.

                    There are also possible aerosol and cloud effects which may not be well modelled (an area of uncertainty in climate science).

                    You get the changes wrong in CO2 by failing to use the proper logarithmic scale.
                    During the last glacial maximum(LGM) CO2 was around 188.6 ppm and from 11500 to 6000 BP the average atmospheric CO2 was about 262.5 ppm. These need to be converted to natural logarithms so we have 5.24 and 5.57 and for 280 ppm ln(280) is 5.635.

                    So an increase from 189 ppm to 262.5 ppm in log terms is 0.33, and from 262.5 to 280 ppm is 0.065 so the proper comparison is
                    0.065/.33 or 19.7%, if 280 ppm was the correct number. It is not. The Holocene average from 11,600 to 350 BP for atmospheric CO2 is about 268 ppm and not the typically cited 280 ppm.

                    If we use the proper Holocene average atmospheric CO2 level, the change from 262.5 ppm during the climate optimum and the Holocene average compared to the change from the LGM to the Holocene average we get:

                    So your “almost a third of a doubling” is pretty far from the mark.

                    I agree that more work needs to be done on both the Proxy data which shows more cooling than was probably the case due to seasonal biases, and the models which don’t accurately model the orbital effects (if we assume that the TSI was unchanged over the Holocene.)

                    So my interpretation of the paper is that more work on the models and proxy data is needed. Not really a revelation.

                  • Dennis Coyne says:

                    Hi Javier,

                    I did not see your comment about the CO2 values.

                    You are correct about the 140 ppm, I just took 280 ppm and divided by 2 without checking. The CO2 values in my more recent comment roughly agree with your 180 to 260. I used link below for CO2 data


                  • Javier says:


                    I’m afraid you are wrong again. You only need to convert using a logarithmic scale if you want to convert CO2 levels to temperature. For as long as we talk only CO2 levels we should not use any logarithmic scale.

                    Glacial CO2 termination values according to Shakun et al. 2012:
                    190-265 ppm. Increase +75 ppm

                    Holocene CO2 changes between 6800 and 600 yr BP according to Monnin et al. 2004:
                    258-283 ppm. Increase +25 ppm

                    Two conclusions are evident to anybody except you:

                    1. 6800-600 yr BP Holocene increase in CO2 levels is not moderate by pre-industrial standards. It is very significant.

                    2. The increase in CO2 levels during the Holocene between 6800-600 yr BP constitutes a third of the increase in CO2 levels that took place at glacial termination.

                    If you want to convert to logarithms and doublings:

                    Regarding climate, the Holocene increase constitutes 27% of the interglacial increase, which is a value that is between one third and one fourth as I have been saying all along.

                    Do you understand now how serious is the Holocene Temperature Conundrum for the dangerous AGW hypothesis? It means current model is incompatible with past climate changes in CO2 levels and temperatures.

                    The only viable conclusion is what I came to accept some time ago. CO2 has significantly less effect on climate than current model assigns to it.

    • Dennis Coyne says:

      Hi Peter,

      I have made some adjustments to Webhubbletelescope’s Oil Shock model, reducing the time to develop reserves over the 2010 to 2026 period from 28 years to 5 years, with the time remaining at 5 years after 2026. In addition the discoveries of C+C less extra heavy (oil sands) oil are reduced to 2200 Gb, but reserve growth of 600 Gb are added starting in 2010, the reserve growth rate is 2.9% per year (same as US reserve growth rate from 1980 to 2005). Peak of world C+C is in 2028 at 85 Mb/d.

      • Dennis Coyne says:

        An alternative scenario with the same URR (3400 Gb), but lower reserve growth rate (2.6% instead of 2.9%) and lower extraction rates. The C+C peak is in 2024 at 77.8 Mb/d

        • Peter says:

          Hi Dennis

          Why does the annual decline rate ocellate so much?

          • Dennis Coyne says:

            Hi Peter,

            I assume you mean before 2014. Mostly due to the business cycle is my guess, demand for energy is mostly a function of GDP, GDP is pretty difficult to model. The annual decline rate will also oscillate in the future, but is not preditable, my model of the future is one possible general trendline, I could add random ups and downs to make it look realistic, but I won’t, it would just be random noise.

            • Dennis Coyne says:

              I was assuming Peter means oscillate. I also realized that the big changes in 1970s and 1980s were oil shocks from the Embargo in 1973/74 and from the Iranian revolution in 1979 and Iran-Iraq war from 1980-1985.

              The other changes in decline rate may also have been related to the 2 Iraq wars along with business cycle effects (especially in 2008/9).

              The model cannot predict future oil shocks, but if anyone has predictions for future oil shocks, they can be added to the model.

              I have assumed no recessions or wars in the future as they are difficult to predict.

              • Cracker says:


                I very much value your model scenarios and marvel at your persistent optimism. I admire your patience when so many fail to understand models and want to take issue with your “predictions”.

                One thing that seems to bug a lot of folks is the lack of inclusion of oil shocks. May I respectfully suggest adding some oil shock scenarios, with varying timing and economic severity? As with other parameters, educated guesses would have to be made, but you seem to be good at that.

                I don’t expect this to be easy, but perhaps simulating effects of oil shocks on oil price might get part way there. With this additional complexity, the pundits will surely find more to quibble about. But the additional insight into oil shock impacts to your otherwise mostly stable scenarios might be useful to some of us.

                Thanks again for your inputs to the discussion.


                • Dennis Coyne says:

                  Hi Jim,

                  Thanks for the suggestion, I have done that in the past and nobody seemed interested.

                  I suppose one possibility would be to imagine another great depression in 2030. I will think about that some more, but consider the following post where I did what you suggest:


                  See especially the text after figure 10 where I talk about the three scenarios (optimistic, pessimistic, and realistic) in figures 11, 12, and 13. The three scenarios are shown together in figure 14.

                  Most people didn’t think the pessimistic scenario was pessimistic enough, but the realistic and pessimistic scenarios in Figure 11 and 13 show a big oil shock and a smaller oil shock.

                  I usually don’t include such scenarios because the timing of any such shock such as a War in the middle east (including Iran, Iraq, Saudi Arabia, and Kuwait) taking 15 Mb/d off the market in 5 years or a financial crisis is impossible to predict.

              • Peter says:

                Hi Dennis

                Spelling has never been my strong point.
                According to CERA annual average decline rate is around 4.5%, from the 811 fields they studied.
                IEA puts the decline rate at 6.7%.

                Do you mean something different from their definition of decline rate.

                • Dennis Coyne says:

                  Hi Peter,

                  They are talking about average field decline rate for oil fields that are in decline. I am talking about the decline in World C+C output as an annual decline rate. lately World C+C output has usually been increasing most years. Why is this different from the average field decline rate for the World?

                  There are some fields that are on a plateau (new wells are drilled which make up for the decline in older wells) and other fields are increasing their output.

                  Clearly I do not know what future oil output will be. The decline rate of my model is just the change in annual C+C output based on the scenario I have created for years 2015 to 2070.

                  The thing that I adjust in my model is the extraction rate. This is the oil output for the current year divided by the producing reserves from the previous year. For details see:


                  Oh for annual decline rate I use 1 minus this years output divided by last years output. For 2014 World C+C output was 77.8 Mb/d and in 2013 it was 76.2 Mb/d, annual decline rate was
                  1-77.8/76.2= -2.1%, a negative decline is an increase in output, I don’t show the increases on my chart. Likewise in 2009 World C+C output was 72.9 Mb/d and in 2008 it was 74.1 Mb/d, annual decline rate was 1-72.9/74.1=1.62%.

          • Fred Magyar says:

            Why does the annual decline rate ocellate so much?

            Because as you can see in the graph above, the data is very spotty … {BIG GRIN }

            Sorry, I couldn’t resist! 🙂

      • Dennis Coyne says:

        A more conservative alternative scenario with lower reserve growth rates of 1.5% per year which results in a lower C+C URR of 3000 Gb (vs 3400 Gb in scenarios above).
        Peak in 2016 at 78.5 Mb/d, annual decline rate below 2% until 2051 and less than 1.5% until 2037.

        • Peter says:

          Hi Dennis

          Your graphs give a good possible upper and lower limits, with the middle one being the most likely IMO.
          The first graph with a peak in 2028 of 85 million barrels a day would perhaps be possible in a world where countries like Libya, Sudan, Syria etc did not disintegrate into chaos.
          A 2016 peak would require not only Russia and China peaking but Saudi Arabia not producing the 1.1mmbd spare capacity they have.
          Further Iran and Iraq would have to fail to deliver the expected increases over the next few years. Possible of course.
          In this scenario, oil prices would increase, yet for some reason a price level that enabled Canada and particularly the U.S. to increase production will fail to do so.
          With oil prices above $80, the U.S. will move towards it’s geological shale potential as it was doing before the Saudi’s flooded the market.

          Considering oil production has been going on for a 150 years most people on this website are 5 years + or – 2020. Hardly a great difference in the great scheme of things.

          • Dennis Coyne says:


            I agree. My approach is to look at “reasonable” high and low scenarios to bracket the possible future, then I pick something in the middle as a best guess (doesn’t mean its correct of course.)

    • Paulo says:

      To paraphrase Mr. Patterson (and this is one of my favourites I pass on to my ‘scoff at PO’ friends), “of course at the time of peak oil production oil will seem plentiful…it is the peak”.

      It’s what unfolds after the peak that will prove interesting, imho.

      • TechGuy says:

        Paulo wrote:
        “It’s what unfolds after the peak that will prove interesting, imho.”

        Personally, I prefer boring times 🙂 less war, less social unrest. Usually heads roll during the “interesting” periods.

  32. sunnnv says:

    Statoil leaves Chukchi sea, and closes office in Anchorage

    “…The leases in the Chukchi Sea are no longer considered competitive within Statoil’s global portfolio, so the decision has been made to exit the leases and close the office in Anchorage, Alaska.

    “Since 2008 we have worked to progress our options in Alaska. Solid work has been carried out, but given the current outlook we could not support continued efforts to mature these opportunities,” says Tim Dodson, executive vice president for exploration in Statoil. …”

    • Synapsid says:


      As I recall their Anchorage office had two people in it.

      Still, they are pulling out of Alaska, no joke.

  33. shallow sand says:

    It is interesting to note that OPEC spare capacity is at its lowest level since the summer of 2008.

    Supposedly OPEC spare capacity is oil that can be brought to market almost immediately.

    Wonder why this is having no bearing on oil prices? Would think the sum of oil in storage plus OPEC spare capacity would be more relevant than strictly oil in storage.

    At some point, OPEC will unanimously decide the spare capacity should not be sold to financial types for $40 or less, and they will cut. Maybe not 12/4/15, but I think it will happen before this time next year.

    A very wise oil man made a very good point to me recently. US LTO has a lower finding cost than anywhere else in the world. This is because almost all of the money used to find LTO is borrowed and will not be paid back. If I borrow $500,000 to build a house but don’t pay the principal back, the house didn’t cost me $500,000, did it?

    Many of us didn’t understand this, but we do now. I assume OPEC has figured this out too.

    • Ves says:

      SS : ” A very wise oil man made a very good point to me recently. US LTO has a lower finding cost than anywhere else in the world. This is because almost all of the money used to find LTO is borrowed and will not be paid back. If I borrow $500,000 to build a house but don’t pay the principal back, the house didn’t cost me $500,000, did it?”

      Even if someone does not pay the house back someone still has liability on that house, whoever has a mortgage name on the contract. Someone has to pay taxes, insurance, cut grass, have a water and gas hook up fees. So liability is still there even though nobody lives there.

      LTO looks that has no liability since the companies will not pay back money only the surface. But there is always liability and price to pay: some people lost LTO jobs, some people lost dreams, economy and infrastructure built around LTO is destroyed, some new schools built in North Dakota are empty, some people got divorce because of financial stress due to loss of jobs, some truck manufactures will not be paid on their financed trucks, some people lost trust in the financial market system and etc etc.
      So there is always price to pay for doing wrong actions but sometimes that price is hidden and sometimes it catch us later in the life.

  34. RDG says:

    Peak Oil is irrelevant because the world’s methane potential is underestimated. Hydrogen production from methane will punt the losers (nukes, ev’s, and solar cells) off the field.

    Not giving up on Hydraulic fracturing and related is super important.

    Biggest problem around here are all the amateurs trotting out their pet economic theories.

  35. RDG says:

    If you follow the money, the challenge of natural gas to oil is quite large. Natural gas is cheap and it doesn’t require a costly and truly polluting refining industry to make useable product for transportation (hydrogen).

    Natural gas is highly pervasive, available in huge quantities and distributed all over the earth. It’s a challenge not only to the sold fuels (coal) and liquid fuels (petroleum) but also to so called “renewables”. The only thing the competitors have left is to lump it into the childish label “fossil fuels” even though modern geologists have long abandoned the notion that dinosaurs are creating the vast (and replenishing) hydrocarbon reserves in the Earth.

    As far as “batteries getting better”…there has been zero evidence of that in the last two decades which is why Toyota rejected pure batteries in favor of fuel cells.

    • Fred Magyar says:

      Natural gas is highly pervasive….

      ROFLMAO! what a most excellent choice of word!

      (especially of an unwelcome influence or physical effect) spreading widely throughout an area or a group of people.

      What’s seems to be really pervasive is an epidemic of profound ignorance amongst the general populace!

      Edit: RDG’s comment is quite a gas! It is so replete with little embedded gems of pure comedy gold, that I’m hereby nominating it for a special prize as best comment in this thread!

      Case in point:
      … even though modern geologists have long abandoned the notion that dinosaurs are creating the vast (and replenishing) hydrocarbon reserves in the Earth.

      Note: To be able to abandon a notion, one must first hold, said notion… Just sayin!

      Granted the ancient geologists should probablly be cut some slack since they didn’t have access to Google back then.

      RDG, Thanks so much for the chuckles on this otherwise gray Sunday morning.

  36. SRSrocco says:


    You bring up some excellent possibilities as it pertains to methane as an energy source.

    You might want to start by figuring out how to capture the now exponentially increasing methane releases from the North Siberian Arctic Shelf and Arctic Ocean.

    If you could design and manufacture a 500 mile long umbrella to capture that methane and sell it on the open market…. you could be a trillionaire.


  37. Stavros H says:

    I think that Ron Patterson is too eager to announce “Peak Oil”.

    While he may be correct on many of his claims, he emphasizes only the aspects of reality that tend to support the “Peak Oil” argument.

    Now, don’t get me wrong, at current oil prices, we are definitely going to see a global fall in production, and a significant one at that. Now, the degree of the fall or its exact timing matter little in the grand scheme of things, but I would tend to agree with him that during the course of 2016, we are bound to see the sharp falls in drilling and rig counts begin to translate into serious declines on oil production.

    But in my opinion, there is one point that Ron Patterson is totally missing, namely the geo-political aspect of oil.

    I have asserted on previous occasions that Russia, Iran and Iraq with possibly also Kazakhstan will be able in the coming years to significantly boost their oil production. To a large extent, this also explains the current military tensions and conflicts between the oil-rich countries of Russia/Iran/Iraq on the one hand, and the capital rich (but resource poor) countries of the West, on the other.

    We have to keep in mind here, that there is a lot of deliberate misinformation in the mainstream press and even in the reports of major western investment houses etc in relation to any one country that is on bad terms with the West. This tendency reaches its apex in the case of Russia. Russia is the one country that has the West worried more than any other. Hell, Russia worries the West even more than the economic and demographic colossus that is China. At this stage one has to ask himself, why is this so? Obviously, there are possibly multiple reasons behind this, but I would wager that a country that is destined to go into terminal oil production decline immediately, would not worry the combined forces of North America, Europe, Japan and Australia.

    Russia’s true oil reserves have been a dirty secret since the early Cold-War period at the very least. Interestingly, they remain a dirty secret as well as a taboo subject to this day. Obviously, Russia (to a lesser degree Kazakhstan as well) is one gigantic (and largely empty) landmass with resource deposits all over the place. Now, it is possible that not even the Kremlin is fully certain about the precise nature, extent and value of oil reserves over the entire landmass, and they sure ain’t telling. Another issue that we have to understand about Russia is this: Just as Western Intelligence agencies aim at spreading disinformation regarding that country, Russian officials themselves also engage in this game of smoke & mirrors. What is interesting here, is the way in which the Russians engage in this game of propaganda. For anyone following closely what Russia has been both doing and saying in recent years the following pattern emerges:

    Russia usually feigning weakness (so as to confirm the Western bias against her) lulling rival governments into a false sense that all is going well with their war on Russia, and then replying suddenly and in a surprising manner so as to limit NATO’s reaction time. This has been done to perfection in Georgia in 2008, Syria in 2013, Crimea in 2014 and Syria in 2015. It had less success in SE Ukraine though. Now why do I say this, and how does it relate to oil? My point is that by the same token as Russia is sometimes feigning weakness in the geo-political arena, the same is probably being done in the economic arena, and especially in the most important sector for the Russian economy, which is of course oil extraction. Now seriously, how many times and for how many years have we read on multiple sources that Russian oil production has peaked? “The Economist” alone has been making the same prediction for Russia constantly for more than a decade. As for the Russian oil executives themselves or Russian officials in equal measure, their intentions in spreading misinformation could be varied (they may wish to jawbone the oil price upwards, they may be acting on behalf of the government in “Maskarovka” misinforming the enemy etc etc)

    In any case, I am not claiming to know that in the next year Russian production of oil will fall or rise, there simply isn’t good enough information. The last time I saw anything relevant though, Rosneft was massively INCREASING its drilling rates.

    But the short run is not my main concern here. In the short-run it is quite possible that the combination of very low prices and sanctions will force Russian oil production down, but in the long-run there can be zero doubt that Russia still has massive oil potential and the same goes for both Iran and Iraq who have been under-producing for decades. This is surely one of the main reasons why these 3 countries are now not only in an alliance, but are literally brothers-in-arms against NATO proxies all over Syraq. They do not want to see their massive oil wealth being looted by the capital-rich (but resource poor) countries of NATO etc…

    As for the US & Canada, then yes, they are obviously at a peak for a very simple reason. They are countries that are extremely capital rich and for this reason they are able to finance the development of even the most marginal oil projects (which is precisely what they have done) even at massive losses. This is a luxury that neither of Russia/Iran/Iraq enjoy, they can only engage in the exploitation of very profitable deposits while saving the rest for much later on.

    Just consider the following as to Russia’s true oil reserves:

    a) Exxon Mobil massively increases its Russian acreage (at a time of financial sanctions and extreme tension between the US & Russia) Same thing with Halliburton:

    b) What is Russia really sitting on?

    c) Not only the biggest US oil corporation is very interested in Russia, but also the biggest Chinese and Indian ones:

    d) Russian oil companies are dealing better than anyone with the current slump:

    My point is that Russia is not only an energy colossus right now, but that it has the potential of being an even bigger one in the future. Same goes for Iran-Iraq, hence their alliance and hence why the NATO Empire seeks to destroy/weaken/undermine those three countries.

    • Enno Peters says:

      Great comment Stavros.

      I don’t know much about the oil-producing capabilities of countries around the world.

      The lack of much new supply since 2005, in the face of high oil prices, did give me the impression that growing oil production has become very difficult. Looking at the financial condition of many oil producers (esp in LTO), I still have that impression. But the fact remains that over the last year supply and inventories have increased, even while demand has also grown. At least that indicates to me that oil supply may be somewhat less of a constraint than I imagined before. I don’t think producing oil is easy, but there still seems a lot more oil left to produce for < $120/barrel.

      Most advocates of a near term peak have focused on the limitations of oil supply, and less on demand factors. I find it a weakness that this sudden excess supply is not causing them reconsider their views. It's hard to change one's mind, especially if one has been very vocal about it. (A very successful method of indoctrination is to make subjects (esp children) shout/sing the main ideas).

      Despite the excellent information Ron often presents, to me he does give the impression to suffer from confirmation bias: looking out for, and appreciating more, information that confirms his views, instead of trying to disproof them. If the vice-president of Lukoil would have been more optimistic on Russian oil output, would he have been quoted in the post?

      Science, and good forecasting, is greatly improved if one is focused on trying to disprove oneself. To get to the truth of something, it's best to be very dispassionate about the subject, and weigh all the information from all sides of the argument. Despite that I like Ron a lot, and much appreciate his efforts here, he does not give this impression to me 🙂 And, I must say, many other commenters here (and everywhere!) as well, also about other topics (climate change…). It's especially something of which smart people suffer, as their ability to fool someone (including themselves) is much higher. Some smart people have recognized this, and have actively incentivized themselves by proving themselves wrong.

      To me a good way to figure out if someone suffers from confirmation bias, is to see how often he/she comes with information that goes against his/her former stated views (and the quality of that information). Another good way is to see whether people perform publicly postmortems on their past views that have been proven wrong. These are very useful methods.

      If you want to prove your point, list the most reputable arguments against it, and do your best in refuting them.

      I personally think that it is possible to predict on the short term some aspects related to oil production/consumption, e.g. a trend of well improvements, or oil production in a specific area like ND where we have good data. Global Peak oil however depends on so many unknowable factors, that it is pure speculation. Whenever I see someone making a forecast about something inherently unknowable, I prefer to look away.

      Besides all this, I also think that global peak oil is irrelevant, and find oil production/consumption per capita much more useful. This metric has already peaked for quite some time. I honestly don't understand how people could disagree on this.

      "The first principle is that you must not fool yourself and you are the easiest person to fool."
      Richard P. Feynman

      • AlexS says:

        Enno said: “If the vice-president of Lukoil would have been more optimistic on Russian oil output, would he have been quoted in the post?”

        I have been following Mr.Fedun’s (Lukoil VP) statements for at least 15 years, and have attented his presentations to several investor meetings.
        He (and to a lesser extent, his boss, Mr. Alekperov) was always complaining about the poor situation of the Russian oil industry. This is his way of lobbying for tax concessions and better access to strategic oil fields.
        Interestingly, when asked about the prospects for his own company, Mr.Fedun always says that his negative forecast does not apply to Lukoil.
        This year we have heard similar comments from several shale companies’ CEO. They were saying that their companies will continue to increase production, but prices will soon increase as other producers (including U.S. peers) will have to reduce output.

        If I wanted to base my own expectations for the Russian oil industry on someone’s quotes, I could post this link :

        Rosneft chief: Oil production in Russia may reach 700 million tons annually

        MOSCOW, September 7, 2015. /TASS/. Oil production in the Russian Federation may be brought to 700 million tons annually in the near future, Rosneft state oil company chief Igor Sechin said while making a report during the FT Commodities Conference.

        It is clear that both Mr. Fedun’s and Mr. Sechin’s forecasts are far from reality.
        And that’s not what they are really thinking.

      • Glenn Stehle says:

        Enno Peters said:

        It’s especially something of which smart people suffer, as their ability to fool someone (including themselves) is much higher…..

        Global Peak oil…depends on so many unknowable factors, that it is pure speculation.

        Maybe it’s the curse of Modernist ontology and epistemology.

        Kant responded to Hume’s grievous blow to rationalist science by arguing that rationalism’s failure was due to its inability to limit itself to a sphere commensurate with its capacities. As Kant put it, what man could know is only

        an island, enclosed by nature itself within unalterable limits. It is the land of truth — enchanted name! — surrounded by a wide and stormy ocean, the native home of illusion, where many a fog bank and many a swiftly melting iceberg give the deceptive appearance of farther shores, deluding the adventurous seafarer ever anew with empty hopes, and engaging him in enterprises which he can never abandon and yet is unable to carry to completion.

        However, the philosophers who followed Kant were not satisfied with Kant’s orderly island of truth and set sail on Kant’s stormy seas. As Hannah Arendt explains:

        [W]ithout Kant’s unshackling of speculative thought the rise of German idealism and its metaphysical systems would hardly have been possible. But the new brand of philosophers — Fichte, Schelling, Hegel — would scarcely have pleased Kant. Liberated by Kant from the old school dogmatism and its sterile exercises, encouraged by him to indulge in speculative thinking, they actually took their cue from Descartes, went hunting for certainty, blurred once again the distinguishing line between thought and knowledge, and believed in all earnest that the results of their speculation possessed the same kind of validity as the results of cognitive processes.

        –HANNAH ARENDT, The Life of the Mind

      • AlexS says:

        Each year since 2006, additions to Russian proved reserves exceeded production volumes

        Changes in Russian proved oil and gas condensate reserves (A+B+C1), billion barrels
        Source: data and preliminary estimate for 2015 by the Russian Ministry of Natural Resources
        Note: Data on reserve revisions before 2009 unavailable

    • AlexS says:

      Stavros H said: “Russia’s true oil reserves have been a dirty secret since the early Cold-War period at the very least. Interestingly, they remain a dirty secret as well as a taboo subject to this day”

      Russian proved crude oil reserves statistics were disclosed in 2013.
      The numbers for other reserve/resource categories, and for all categories of condensate reserves/resources have been published earlier.

      Russia’s proved reserves under Russian classification are much higher than Western estimates.
      Thus, according to BP Statistical Review, Russian proved reserves of crude, condensate and NGLs were 103 billion barrels (end 2014).
      Under the Russian classification proved reserves of crude and condensate (not including NGLs) exceeded 148 billion barrels.

      Russian crude oil and condensate reserves and resources by category (as of January 1, 2014)
      Source: Ministry of Natural Resources

    • AlexS says:

      Russia’s reserves classification structure is out of step with international standards. There are government plans afoot to change it, although it will retain its alternative nature.
      Russia currently uses a system that relies heavily on Soviet-era practices. It does not give much weight to production costs and uses deterministic methods to calculate the total resources contained in each field, including both proven reserves (A, B, C1), estimated and potential reserves (C2 and C3) and forecasted undiscovered resources (D1 and D2).
      By contrast, Western classification systems rely on the widely accepted 3P parameters, which classify reserves as proven, probable or possible.

      Some industry experts have long argued that the gap between the two systems is not insurmountable. For example, a 2005 report from the SPE [] declared that:

      “The Russian reserves classes A, B, and C1 grossly correlate to SPE Proved Developed Producing (PDP), Proved Developed Non-Producing (PNP) and Proved Undeveloped (PUD) respectively. Recoverable estimates in their category B have all the certainty of Category A but are not on production for some reason. Category C1 correlates to SPE PUD in areas one drainage unit offset to Proved Developed but does not specifically address proved reserves in deeper reservoirs or the case where a relatively large expenditure is required to a) re-complete an existing well or b) install production or transportation facilities for primary or improved recovery projects.

      Category C2 encompasses SPE probable and possible (unproven) combined.

      The Russians split the undiscovered resources into 3 categories: prospective localized (D1), prospective (D2), and predicted (D3)

      • Doug Leighton says:


        About ten years ago I was tasked with converting reserves in three separate Siberian oil reservoirs from the old soviet style evaluations to numbers acceptable by Western regulatory bodies (for a Canadian company). There was help involved including a young petroleum engineer, a CA, and two computer Wiz Kids. We employed a lot of kriging to achieve these conversions. [For anyone unfamiliar, kriging is a method of interpolation where interpolated values are modeled by a Gaussian process governed by prior covariances, as opposed to a piecewise-polynomial spline and chosen to optimize smoothness of the fitted values].

        Based on this experience I have to concur with your comment(s): on a field-by-field basis, Russian engineers/geologists (the ones I dealt with) are indeed conservative in their evaluations. The reason I continue to harp on this it to counter people who argue Russian oil evaluations are somehow inferior to those practiced in the West.

        • AlexS says:

          Thanks Doug,

          Important comment from a person with practical knowledge of the issue

      • Dennis Coyne says:

        Hi AlexS,

        If one was trying to estimate Russian 2P (proved plus probable) reserves, would using ABC1 plus 50% of C2 reserves be fairly close? If not what would you suggest?

        • AlexS says:


          I think 2P =A+B+C1 and part of C2
          We can very roughly estimate that this is 1/2 of C2 (see the chart below from an SPE paper)
          A+B+C1+C2+C3 more or less correspond to 3P

          • AlexS says:

            From the SPE paper:

            Category (C2) (inferred) includes reserves of undrilled portions of the reservoir beyond one drainage zone offset to wells where A and B reserves are established. Geological and reservoir performance parameters are assumed by analogy with the explored part of the same reservoir or other accumulations within the same region. The information available is sufficient for generating preliminary geological simulation models and reserve calculation. C2 includes reserves:
            o in reservoir portions between its proved outlines and boundaries of blocks with higher category reserves if there is enough geological and geophysical evidence to confirm continuity of the objective formation.
            o in formations with unproved producing capability but explored with well logs in intervening wells that indicate productivity
            o in undrilled tectonic blocks of productive reservoirs provided geological information is indicative of similar potentially productive formations.


          • Dennis Coyne says:

            Hi AlexS,

            Thanks. Based in the 2014 data it looks like a rough estimate of Russian 2P C+C reserves would be 148+45=193 Gb. So the modified “shock model” I tried to do for Russia was very conservative (or wrong, to put it bluntly) because I only used 170 Gb for Russian 2P reserves in 2013 based on outdated Wikipedia information.

            • Dennis,
              In the book, probably the worst performing shock model was for FSU (Former Soviet Union). I shouldn’t have even tried that one. You are absolutely right, in that the quality of the model is only as good as the data that goes in to it.

              Overall, I think using the shock model has been constructive, in that it really does explain where and how the Hubbert approach is weak. It also provides a foundation for related models such as what you are using for LTO analysis. That part I consider so cool because you can try out various depletion profiles, such as hyperbolic. Hubbert linearization would have never worked for Bakken, as an example.
              Kudos for flying the flannel — citizen science at its best.

              • Dennis Coyne says:

                Hi Webhubbletelescope,

                The analysis of the LTO is a copy mostly of Rune Likvern’s work, though I did also copy your Diffusion model for a time . bit then switched to hyperbolic well profiles with an exponential tail as it was simpler to execute.

                In the case of my Russian model, I used no discovery model just initial 2P reserves and reserve growth (assumed at 2% per year vs the US rate of 3% per year). I assumed producing reserves were 42% of 2P reserves (US average value from 1996 to 2005) and just did a simple input output. The starting extraction rate was based reserves in 2013 and output in 2014 and th assumptions above.

                A plateau could be managed until 2035 with no new discoveries and 2% reserve growth with reasonable extraction rates (less than the World level in 2014).

                That was with an underestimate of 2P reserves (I used 170 Gb rather than 193 Gb). So not a lot of decline from Russia over the next 20 years.

                For anyone interested it started with the post below:


            • AlexS says:


              I do not have ample information, nor skills to make an exact estimate.
              It is also important to take into account economic factors, such as costs, prices, etc.

              • Dennis Coyne says:

                Hi AlexS,

                A rough estimate is fine, it is hard to find data on 2P reserves, it seems based on one of the charts you posted that ABC1+C2=3P reserves, and I have also read that ABC1 roughly corresponds to 1P reserves, so I was just taking C2 and assuming it roughly corresponds to probable plus possible reserves, the 50% was simply a WAG. I certainly don’t have enough information (nor the skill) to estimate precisely.

    • AlexS says:

      In the past few years, Western estimates of Russian proved reserves have been revised up.
      The chart below compares BP’s estimates made in 2004, 2011, 2014 and 2015.
      Note that BP’s latest report shows declining Russian reserves, as if production was not offset by reserve additions.
      This contradicts the data provided by the Russian Ministry of Natural Resources.

      Russian proved reserves of C+C+NGLs (billion barrels)
      Source: BP Statistical Review of World Energy, various issues

      • Glenn Stehle says:


        Does not that dramatic change between the BP2014 and BP2015 reserve estimates bother you?

        Christopher Simpson, in Science of Coercion: Communications Research & Psychological Warfare talks of the degree, and the ease, to which science becomes purpose driven (e.g., politics, economics, etc.).

        But is this not to be expected since, as Robert H. Nelson notes, “Since the eighteenth century…the authority of God as a source of absolute truths of the world — the essence of the historic claim to authority of Jewish and Christian religion — has been superceded in many areas of society by the rise of science”?

        When I see these sudden flipflops in scientific consensus, I’m always reminded of when, between 1968 and 1987, the American Psychiatric Association decided to change the DSM such that it went from classifying homosexuality as a mental disorder to dropping it as a diagnostic category altogether.

        As R.V. Bayer writes in Homosexuality and American Psychiatry: The Politics of Diagnosis, “This revised judgment about the pathological significance of homosexual behavior is one of the most dramatic reversals of opinion on a health illness issue in the history of medicine.”

        And psychiatrists and psychologists to this very day are still arguing as to whether the decision to drop the category was primarily political.

    • AlexS says:

      Russian proved crude oil and condensate reserves (A+B+C1), billion barrels
      Sources: Ministry of Natural Resources

      • Stavros H says:

        I have no way of proving it, but my best guess is this:

        a) Russian oil reserves are significantly understated by both the Russians themselves, and of course Western oil majors as well as energy agencies. The reasons behind this are not hard to imagine.

        b) OPEC oil reserves (especially GCC) are overstated (still colossal and will be producing for decades) again for very discernible reasons.

        c) North American oil reserves (especially Canadian tar sands) are still significant but extremely marginal. Everyone I think understands this.

        d) Within OPEC, my guess is that IRAN-IRAQ have more reserves than GCC. Would explain around 50% of the current conflict.

        The ongoing carnage across Syraq (and indeed the wider MENA region, as well as Ukraine) has a lot to do with this.

  38. R Walter says:

    Local Hero, a movie about oil, is a movie worth watching.

    3 billion in storage, 73 million barrels per day consumption, 3,000,000,000/73,000,000, 3,000/73=41 days of supply in the pipeline. You have a 20 gallon gas tank on an automobile, if it goes empty, everything stops. If you use a half a gallon each day, after forty days and forty nights, you won’t have any, none left. You have to have more. The tank is empty, you will need forty dollars for twenty more gallons for another forty days and nights of enough gas until it is gone again.

    Not much of a glut at 3 billion barrels of oil, just looks like one because somebody said there was.

    Japan uses 4.5 million per day, it will be a 700 day supply for Japan. No big deal there either. They’re buying oil all of the time, the 3 billion barrels in storage is all gone, never to return.

    Won’t take long to burn 3 billion barrels at 45 dollars per barrel. Oil futures priced all the way to 2023. Probably Japan doing all of the buying.

  39. oldfarmermac says:

    As Glenn points out, definitions and values in a modern society are ultimately determined by politics, the hard sciences excepted of course. Personally I believe that homosexuality is a naturally occurring trait that might or might not have fitness value. It probably does, meaning homosexuals contribute to the fitness of their families, and thus homosexuality should not be looked at as a disease or handicap, from a biologists or doctors pov, as compared to say a disease such as diabetes.

    But there is little doubt in my own mind that even if the preponderance of the evidence supported the position that homosexuality IS a disease or health handicap or whatever, we would not recognize it as such in modern democratic societies. I am ok with that.

    My point is that we believe whatever we WANT to believe. The evidence has hardly any bearing on what people actually believe.

    I want to cry when I consider the front running presidential candidates this time around.

    Just about every body with a brain seems to understand that Wall Street owns the republican party, but excepting hard core republicans, hardly anybody seems to understand that WALL STREET owns HRC as well.

    We need a miracle. Pray to the Sky Daddy or Sky Mommy of your choice for Bernie.

    • Glenn Stehle says:


      The point I was trying to make was the dramatic change in Russia’s reserves that ocurred between the BP2014 and the BP2015.

      Is the science of estimating oil and gas reserves not “hard”?

      Was there some flood of new information that came out of Russia between 2014 and 2015 to cause such a drastic change in the reserve estimates?

      If the dramtic change was not caused by new information, what did cause it?

      • Dennis Coyne says:

        Hi Glenn,

        I believe that the Russian Oil Ministry only recently started publishing reserve numbers (in July 2013, I think). See

        So perhaps the 2014 BP Statistical review would have been the first time this would have been available, it isn’t clear why it didn’t show up until 2015.

        • Glenn Stehle says:

          Well I don’t know about you, but it all seems fishy to me.

          Typically, since reserves are a function of oil price, when there is an increase in oil price the economically recoverable oil reserves get bumped up too. New and improved technology can also play a role.

          Did these same factors not come into play in Russia, as they did in the United States?

          According to BP2015, they had exactly the opposite effect, with Russian reserves decling over the past 15 years.

          • Dennis Coyne says:

            Hi Glenn,

            As AlexS explains below Russian reserves are not based on the price of oil.
            The speed that they are developed and then produced may be influenced by the oil price.

            The Russian system of reserve reporting is different from the SPE system.

        • Glenn Stehle says:

          There’a also the question of production.

          We are to believe that Russia’s proved oil reserves are moving in the opposite direction to its oil production?

          • AlexS says:

            Glenn, as I wrote here

            “BP’s latest report shows declining Russian reserves, as if production was not offset by reserve additions. This contradicts the data provided by the Russian Ministry of Natural Resources”

            In fact, as I noted in this post

            “Each year since 2006, additions to Russian proved reserves exceeded production volumes”

          • Dennis Coyne says:

            Hi Glenn,

            Countries can choose to leave reserves undeveloped so the amount of reserves does not necessarily correspond with production. In fact if yo look at what has happened to Russian reserves, they went from 139 Gb to 148 Gb from 2005 to 2014, about a 6.5% increase over the entire period.

            Over the same period production of C+C increased by 12%, based on EIA data, in some cases low prices will reduce the speed with which oil is produced from producing reserves (a lower extraction rate) and it can reduce the speed with which reserves are developed and put into production. In a period of rising or high oil prices the reverse may be true.

      • AlexS says:


        As I said above, the data on Russia’s proved oil reserves was state secret and was disclosed only in 2013. Until recently all Western estimates were based on company data (audited by western firm, such as De Gaulier, and disclosed in annual reports) and some guess-work. Also, there was open data on the fields developed by JVs with foreign participation.

        The Russian A+B+C1 proved reserve category differs from 1P reserves under western classification and needs to be adjusted according to BP’s methodology. BP probably did not have enough time to include the disclosed Russian statistics numbers in their 2014 report. Therefore, BPs 2014 estimate is very close to the numbers in its 2012 and 2013 reviews, and new information was first used in the 2015 report.

        The science of estimating oil and gas reserves is obviously not absolutely “hard”.

        Even SEC and SPE numbers on proved reserves for individual companies are different.
        Many countries have their own methodologies that more or less differ from the SPE.
        So preparing a table on global proven reserves, such as in BP’s report, is not an easy job.

        I found the table below in a TOD article published almost 10 years ago.
        It compares various Russian proved reserve estimates (in billion barrels) made in the first half of the 2000s

        Source: “Uncertainties About Russian Reserves and Future Production. Posted by Dave Cohen on February 16, 2006.

        • Glenn Stehle says:

          See my response to Dennis Coyne above.

          As Stavros H points out, the US certainly has no monopoly in the game-playing department, as Russia is quite good at it too.

          • AlexS says:

            Stavros H says that
            “Russian oil reserves are significantly understated by both the Russians themselves, and of course Western oil majors as well as energy agencies. The reasons behind this are not hard to imagine.”

            Do you also think that Russia is understating its oil reserves?

            • Glenn Stehle says:

              Well I don’t know if Russia is understating its reserves or not.

              Stavros H says it is.

              Do you know of a graph published by the Russian government similar to the one you posted above by BP, showing Russian proved oil reserves over the past 15 years as reported by the Russian government?

              It would be nice to know what we’re talking about.

              And with that, one could at least see if what Russia has reported passes the basic smell test.

            • Arceus says:

              What would be in Russia’s best interests – to overstate oil reserves, to accurately reflect oil reserves, or to understate oil reserves. The answer to that question more than likely solves the riddle.

              • Glenn Stehle says:

                This is where we need Stavros H to chime in.

                We obviously are struggling with his assertion that the reasons for Russia understating its reserves “are not hard to imagine.”

              • Ves says:

                Arceus: ” What would be in Russia’s best interests – to overstate oil reserves, to accurately reflect oil reserves, or to understate oil reserves.”

                All three at same time 🙂 It is like when Floyd Mayweather wants to keep opponents off-balance and keep them guessing all the time where the hit will come from 🙂
                Just kidding. There is no point of discussing any “real” reserve numbers when we really don’t know. It’s waste of time. All we know is how much they produce now.

                • Arceus says:

                  True – many things can change depending on circumstances, but the clear priority for them is higher oil prices.

      • oldfarmermac says:

        Hi Glenn,

        I would characterize the estimation of oil reserves as being between an art and a trade or professional science.

        It’s not physics or chemistry, which ARE hard sciences, but more engineering and economics to my mind.

        The figures that emerge at the end of the process can be WAY off.

        The most famous wildly inaccurate estimate of costs of production at the moment might be the one they call “CASH IS GONE” lol.

        Since it is going to cost so much to produce, the amount that WILL BE produced is probably a lot less than estimated.

        I don’t know anything specific about Russian reserves other than what I read here so I don’t have anything to say about such reserves.

    • Dennis Coyne says:

      Hi Old Farmer Mac,

      Most intelligent Democrats realize that both parties are owned by Wall St.

      The Democrats just don’t brag about it (as much) 🙂

      • oldfarmermac says:

        Well said, Dennis.

        The single most important reason I spend so much time in this forum is that the people HERE generally ARE intellectually awake.

        There are extremely few places you can find a wide ranging discussion of truly important matters carried on by people with BOTH ABLE and WILLING to think.

        I am a generalist and a systems thinker by nature, and want to talk about the BIG PICTURE with people who KNOW about the big picture.

        This forum is hands down the best big picture ongoing discussion I know of.

        Overshoot and the consequences thereof are so important that I don’t want to waste much time talking about anything else these days.

  40. I just don’t understand this.

    Haynesville Shale Needs $6.50 Gas To Break Even: The Business Model Is Broken

    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 that cost $8-10 million apiece to sell gas at a loss into a over-supplied market.

    How can these guys keep drilling while losing massive amounts of money? How is this possible? Someone please explain to me how this can go on and on month after month? Hey, I got’s to know?

    • shallow sand says:

      Ron, I cannot explain it, but Art Berman’s previous article concluded that only 1% of Bakken locations could break even currently.

      Interestingly, at current oil prices, the Iraqi government is having trouble paying the foreign firms developing their fields. I understand this has to do with other things besides well economics. However, just read an article from the Oil and Gas Journal earlier this year re four wells Gazprom Neft (sp?) drilled in Iraq this year, which are producing 28,000 barrels per day.

      It is the same reason farmland REIT’s are buying farmland for more than double the going rate, which in itself is too high, and when grains are in a bear market.

      There is just a heck of a lot of money floating around out there. Heck, every five minutes CNBC or Bloomberg is interviewing yet another hedge fund manager who has X BILLIONS under management. We harp about the billions shale has borrowed. I’d like to know where in the heck the hedge fund billions come from.

      My guess is state and municipal pension funds. Most of these pensions are underfunded to begin with. Add eight years of ZIRP. It is my understanding that these pension funds have invested heavily in hedge funds out of “yield desperation”

      Has anyone figured out how much government employee pension money went into US LTO? Might be a worthwhile investigation.

      • The Listener says:

        I guess it’s possible Berman’s assumptions could be wrong too. I don’t know, but these companies appear to be behaving like it is and have for some time.

    • Fred Magyar says:

      Someone please explain to me how this can go on and on month after month? Hey, I got’s to know?

      Ron, the main reason I’ve been coming here all this time is on the hope that you or someone here could enlighten me on precisely this sort of question 🙂

      • Ves says:

        It is all just very simple printing of the money. There are no “pension funds”, “interested investors”, “hedge funds” or any other bullshit mumbo-jumbo explanation that you will hear on Bloomberg or on TV box. But due to long term conditioning people buy these explanations. It is not personal, just condition. People will rather believe anything that can read from official line than with their own eyes.
        If you tell someone that that you have to pay $400 for an hour for horseback riding for the family 4 in Montana you would think that operator of that business is making ton of money. But the reality is it does not. That operator barely survives to service all loans that it has. What that does it tells you? That tells you that there is a flaw in the system called price inflation. And with oil industry that tells you even more that even with very scarce product like oil at least in NA they cannot operate profitable just when you have very small artificial (or as Oman oil minister said “man-made”) increase of oil product on the market from other parts of the world. As you can see the system is totally unstable and in short order crashes down.

        • Glenn Stehle says:


          It’s about time we rang the death knell for exogenous theories of money creation, or Paul Krugman’s available funds explanation of how banks work.

          In a fiat money system, these theories explain very little about how the system really works.

        • Dennis Coyne says:

          Hi Ves,

          Inflation at low levels is a good thing, unless you are debt free, in that case deflation would be better.

          When do we see deflation? Most recently during the 2008/2009 financial crisis and before that during the Great Depression.

          So be careful what you wish for! I would choose low inflation (in the US for the most recent 12 months this was less than 1%), over deflation any day of the week.

          Most of the “printed money” is just sitting in banks, and having almost no affect on aggregate demand. The low interest rates have no doubt boosted aggregate demand as car companies are financing cars at zero per cent interest for those with good credit ratings.

          The FED should raise interest rates sooner rather than later.

          • Ves says:

            Hi Dennis,

            Deflation is just the other side of the same coin that makes this economic system unstable. That is all to it. It is like saying that you have choice how you want to suffer: from high or low blood pressure 🙂

            Dennis said: “Inflation at low levels is a good thing, unless you are debt free, in that case deflation would be better”

            And how many companies or individuals are debt free in the debt – based monetary system? Not many, so inflation does not work in favor for the majority.

            Also let’s look what is really happening in the real world with debt free ones: Shallow Sand is debt free on his oil operations and he stated few times and how is that deflation working for him? Not at all, because the deflation of product that he sells is greater than price cost inputs from his suppliers, operational costs, maintenance etc etc.

              • Ves says:

                Hi Robert,
                There is no point of just dropping links without saying a single word of what are you trying to say with that link? I have no idea what are you trying to say.

                • robert wilson says:

                  Avoid hyperinflation!

                  • Ves says:

                    Ahh okey, I did not see it. Hyperinflation is misconception. Hyperinflation is political decision and not economic phenomena. If you look at that list from your link you will notice that hyperinflation happened in the countries that were on the brink of economic collapse. Hyperinflation is the stage when everyone already left the room and turned off the lights.

                    What we have here is that CB are dropping the paper from the helicopters but not at the 99% but to the very narrow sector of the economy (FIRE economy + Energy sector). So what we have is built in price inflation that creates steady erosion of purchasing power and inequality.

            • Dennis Coyne says:

              Hi Ves,

              You got that backwards, or I said it backwards.

              I meant to say deflation only helps those that have no debt.

              For those who are in debt inflation is good.

              Think about it for a minute, you owe $100k on your home and there is deflation so that a dollar falls to 50 cents in value, your pay also drops in half to reflect lower prices (more realistically say you and your spouse both work, make the same income, and one of you gets laid off in the depression that caused the deflation). The net result is that the amount of money you owe on your home has not decreased and it is as if you now owe double (as your dollars are now worth double what they were when you bought the house).

              For the very wealthy, and possibly retired people who have paid all their debts, deflation is great. For everyone else, not so much.

              • Dennis Coyne says:

                Hi Ves,

                It is fairly obvious that deflation is bad for producers, though when the price of a single product such as crude oil drops that is not deflation, which means that prices of goods in general have dropped.

                A producer with no debt is certainly better off than one with many debts to pay as their are more options to shut in unprofitable wells due to no interest payments.

                A real deflationary environment results from a lack of aggregate demand, which means that producers have more capacity than needed and start to cut their prices to sell their products, in this competition to reduce prices the producers bankrupt themselves, this leads to layoffs, less aggregate demand in a deflationary spiral. This is the story of the Great depression.

                It is nearly impossible to get the Money supply exactly right, so you aim for 2% inflation and sometimes you undershoot and inflation is 1% and sometimes you overshoot and inflation is 3%. In the US from 2005 to 2015 the average rate of inflation has been about 2%.

      • Dennis Coyne says:

        At some point there may be a “Minsky moment”, a little like Wile E. Coyote when he realizes he has followed Road Runner off a cliff, when the LTO companies will not be able to borrow more money and many start to fall like dominoes.

        In that scenario (not sure how likely this is, I think rather low) no new LTO wells are drilled leading to maybe a 2 Mb/d drop in US output, if a bunch of producing wells are shut in during bankruptcy proceedings (Shallow Sands might know how this works as he has probably dealt with busts before) then we might see another 200 to 300 Mb/d of decline (I assume only wells with low output are shut in and the better producing wells continue to flow.)

        I also have no clue how long it takes the industry to recover from a bust, probably a year or two. If this happens the oil storage levels will go down pretty quickly and oil prices will likely spike to over $100/b. Potentially this could all happen in 2016 with recovery in 2017 or 2018. I think Mike was saying last spring he expected something like this to start in late 2015.

    • Javier says:


      Keynes once said “The market can stay irrational longer than you can stay solvent.”

      I think that saying can be applied to current rigged economy. Investors nowadays trust that FED actions will prevent big loses to investors, so there is a distortion of risk perception. The old saying of “Don’t fight the FED.” has turned into follow the FED.

      Companies like that at Haynesville Shale are kept alive because junk bonds are one of the last places to offer some return on the money and investors ignore risks because they see it as an strategic sector likely to be bailed out if there is a problem. There are tons and tons of money in the world from all that stimulus that cannot find a decent return in the currently depressed interest environment.

      It is important to know that even though irrationality can go on for much longer than we can imagine, everything that is not sustainable will not be sustained indefinitely, and there will be a time when investors will stop worrying about return on the money and will start to worry big time about return of the money.

      The FED does not control the economy. The economy is uncontrollable. The FED wants to raise interest rates a little bit and it is finding that can’t do it.

    • TechGuy says:

      Piling on more debt can make any company continue to operate while selling products below production costs. As long as people are willing to continue to loan them more money that can continue BAU.

      Shale Borrowers Buy Time as Banks Go Easy on Credit Line Cuts Oct 19,2015

      [My guess is that if these Shale Drillers go bust, so will the banks, So they banks continue to go easy, provide liquidity to avoid going under too. Eventually drillers will go bust and so will the banks that loaned them the money. It really comes down to execs wanting to keep on collecting salaries until the game ends. If the banks took away the punchbowl, then the banking execs are also out of a job.]

      Shale drillers spending most of their cash paying off high debt Sept 2015

      ” companies have reduced capital expenditures and raised more cash from debt and equity,” the EIA said.”

      [The majority of cashed raise is coming from Debt, Either from banks, or via junk bonds. The door to raising cash by equity or low yield bonds closed more than a year ago.]

      [It took a long before the housing bubble when bust. The problems with housing began in 2005, but it didn’t pop until Aug 2008, when the banks starting falling. The Bust in Shale will probably flow a simular pattern. Get Ready for another round of Banker bailouts next year! Consider that there is about $300 Billion in Debt loaned to Shale Drillers, and likely almost all of it will be defaulted on]

  41. Clueless says:

    I think that this prolonged downturn in prices may fundamentally change how many large oil and gas companies operate. I think that I detect a willingness to abandon long-term projects, Exxon notwithstanding. I assume that typical execs are thinking: “what do I have to gain by spending scarce company money on a project, that if successful, results in oil profits 10-15 years from now?” I will be retired and long gone. No stock appreciation rights to pay off that far out. The result of any such thinking should be a focus on just in time oil/gas. If supply goes down and the price goes up, let’s have projects that we can quickly throw money at and start getting oil/gas out in a year or less. So, dump the Arctic, the ultra deep, the sub-salt the tar sands,etc. and instead buy shale acreage.
    If that actually happens, it should lead to a shortage in the not too distant future, after a few price ping-pongs. But, for executive compensation, that may be good.

    • shallow sand says:

      Clueless, that is exactly what all but XOM have been doing.

      I continue to contend that another reason they are doing this is the staff is sick of working in god forsaken places like Libya and Venezuela, or offshore, and they finally, after 30 years, get to come home.

      Many are in their 50s and 60s, and are ready to work in the USA for awhile before they retire.

  42. shallow sand says:

    I has posted some detail on Oasis Petroleum ND Bakken and TFS production recently.

    I noticed OAS is trying to sell the bulk of their non Bakken/TFS production in ND and MT.

    Per MT website, OAS has 31 non Bakken/TFS wells. 21 were shut in 9/15, 10 were producing.

    Per ND website, OAS has 84 non Bakken/TFS wells. 52 were shut in 9/15, 32 were producing.

    63.5% of the 115 non Bakken/TFS wells operated by OAS were shut in the month of 9/15.

    Perusing these two sites, looks like many other non Bakken/TFS wells operated by others are also shut in.

  43. shallow sand says:

    Our oil is priced off WTI.

    Currently, 11/15 is set to have the lowest monthly average this year, worse than 8/15. 10/15 was poor also, and actually Q4 is looking significantly worse than both Q3 and Q1, especially given gas and NGLs are practically being given away.

    SEC PV10 will take a massive hit, possibly will lose 2/3 of its 2014 value.

    To me, as Trump would say, this is HUGE!!

    But, I swear when I mention SEC PV10, I hear crickets chirping.

    Bank and bond issuer PV10 or PV9 cannot be much better. The futures prices aren’t so hot either.

    I will repeat, look for every US firm operating in the Bakken, except for ExxonMobil, EOG and Abraxas, to have long term debt to PV10 ratios to be greater than 65%, on a companywide basis. This includes COP, MRO, CLR, WLL, OAS, Newfield and QEP.

    Yet they still have massive operating lines with banks.

    Heck, CHK has a multibillion dollar operating line, with debt trading below 50 cents on the dollar.

    Why is the threat of unsecured bond defaults irrelevant to banks and their regulators?

    • Heinrich Leopold says:

      shallow sand,

      Natural gas is a monetary issue. Greenspan had to testify before congress as natural gas prices soared in 2003. Basically high natural gas prices popped the high tech bubble in 2003. The US economy had serious troubles in the following years and the US dollar fell. So the banks have the blessings from the FED to do whatever it takes to keep natural gas supplies plenty and cheap. However, it is an open question how long this can work as this is price fixing of the finest.

      • oldfarmermac says:

        I posted a SALON link up above about HRC’s relationship with WALL STREET. I don’t feel the need to post any about Republicans, in this forum, since everybody here, including yours truly, looks at Wall Street and the R party as conjoined twins.

        Now IF the domestic oil and gas industries really are on what for lack of better words I will call unofficial or defacto federal welfare, at the behest of the BIG BOYS of CORPORATE AMERICA, as the result of the BIG BOYS all getting together, in the proverbial smoke filled room, THEN I see no reason for this defacto welfare program to be curtailed, regardless of which party controls Washington after the next election.

        I have said many times that nobody in Washington , excepting a few oil state congress critters, gives a damn about the oil industry, except in terms of keeping the economy on its feet.

        In the BIG PICTURE, politically, oil is a small potato, in terms of votes and programs. All that matters is that the oil makes it to the gas tank of Joe Sixpack’s F250 and that consumers aren’t bitching about high gas prices, when the economy is concerned and election campaigns are engineered.

        The political calculus works out such that cheap oil is a hell of an economic stimulant, overall. Layoffs in the oil fields are trivial compared to the total number of people working in other industries due to low oil prices, at least in my estimation.

        I cannot see any way for this cockaninny situation to end well.

        But on the other hand, this farce might take a long time to play out.

        For what it is worth, I personally believe that there is a banking and finance crisis already baked into the overshoot cake, and that it hit us sooner than problems of the physical resource sort such as peak oil, peak farmland, etc.

        So far as I can see, I am on the same page as the rest of the people here scratching their heads and trying to understand why money keeps flowing to the domestic oil and gas industries, except I am saying without beating around the bush that the EXPLANATION is obviously big money politics, and nothing but big money politics.

        Of course there is a flip side, there is always a flip side. MAYBE the people at the top, the ones in board rooms and in executive offices, are CONVINCED oil and gas prices will be going up soon, and then they are in the situation of a local banker dealing with a single good customer who has always paid his loans, and can be expected to pay in the future, but is having short term trouble. The banker may conclude that the odds are good he will collect every dime if he waits, but that if he forecloses, he is going to suffer a substantial loss.

        We need to keep in mind that IF the banking industry were to foreclose on the domestic oil and gas industry,according to the ordinary rules of the banking game, then the public would likely panic, with the result of that panic being a stock market crash. That would cost the BIG BOYS even MORE than continuing to support dead beat oil and gas borrowers.

        It would be hard to say which political party would benefit most, or at least suffer less, from such a panic at this time, but my guess is that the R party would be the winner.

        SO- I don’t expect any meaningful action in this matter from the Obama administration, and which ever party wins is going to be stuck with this red hot potato.

        We live in interesting times.

        I hope other members will keep posting their thoughts and any relevant links they run across about oil and gas finances.

        • Clueless says:

          You are smarter than that. Over 90% of Wall Street contributions go to Democrats, not Republicans. Over 50% of Wall Street is, well, like Goldman Sachs, Jamie Dimon, Robert Rubin, etc. Remember Lehman Brothers, and Bear Stearns run by Ace Greenberg. How about AIG’s Chairman who built and controlled the company, Hank Greenberg. A never ending list. Look it up.

          • Clueless says:


          • oldfarmermac says:

            When I point out the short comings of Democrats in a forum such as this one, where most of the members are liberal democrats, I try to speak softly. I am well aware that just about the entire federal financial regulatory bueracracy is a revolving door outfit primarily occupied by Gold in Sacks executives etc.

            But if I actually SAY SO, I get accused of being a neanderthal redneck republican.

            I am most DEFINITELY NOT a big R REPUBLICAN.

            Pointing out the truth in so many hard words simply results in the listener shutting out the message.

      • Doug Leighton says:

        Heinrich, You may be right. Could something analogous be in place respecting US gas production? Hard to imagine but……….


        Once in force, the strategy would impose a binding obligation on industry, government and the regulator to “maximise economic recovery of petroleum in relevant UK waters” when carrying out their activities.

        • Heinrich Leopold says:


          There could be an analogy between UK and the US here. The oil industry has supported the UK current account (and thus the UK pound) for decades. As the UK production sharply declined over the last years, it is very much in the interest of the UK to try to save North Sea production.

      • Heinrich Leopold says:


        However, the bond market revolts already against oil&gas companies. And it drags down also the rest of the bond market. Merrill Lynch High Yield CCC index is already at over 15 %. This is the first time according to my knowledge that the bond market collapsed despite low inflation. So, the FED has to allow some rise of energy prices – even if they increase inflation. However it is a difficult task to do this in a balanced way.

      • The Listener says:

        The public equity and debt markets which have provided vastly more money to the global resources industry than private funds are essentially CLOSED for these companies right now. And that will not change any time soon. These recently raised private funds will be investing in distressed situations not providing resource companies with capital to find new resources. Finally, funds raising capital is far different than funds investing capital.

  44. gwalke says:

    Chris Helman in Forbes at the weekend, managing to use an analogy that proves precisely the opposite of what he wants it to.

    If you eat a turkey at Thanksgiving, and want turkey for Christmas, you’re going to need to buy a new turkey, Chris.

  45. dmg555 says:

    If Jim Richards is right, (see article that follows) and 5 Trillion has been loaned to the Tight Oil producers with an expectation of $80-$100 prices lasting for the life of the loans, that amount of debt, which he points out is larger than the sub-prime problems of 2007-8, could cause severe carnage to the banks that lent them the money. If he is right about the amount of money loaned, in that scenario, those leveraged companies would be desperate to pump anything they could into the market in order to just meet their interest payments. Arthur Berman has an article stating the only 1% of the tight oil companies are profitable at $80. I think Arthur is correct. The low figures we see for break-even prices in the $50-60 range are probably only possible due to the pricing pressures the service companies are also experiencing and who are also cutting their margins for free cash flow, just like the operators. If just 20% of those companies went bust, a 1 trillion dollar short fall is enough to make the 2007-8 financial crisis seem tame, compared to what is potentially in front of us now. That might explain why so many companies are selling into a deeply depressed market; they need whatever cash they can get into to stave off bankruptcy. Could the entire system handle a 1 trillion dollar margin call? Not without a great deal of pain and a tremendous amount of money printing from the Fed, in a desperate attempt to keep the banks solid.

    The $5 Trillion Oil Debt Bomb
    Jim Rickards October 22, 2015
    (my comments are in the parentheses)

    The drop in the price of oil from approximately $100 a barrel to the $40–60 range roughly constitutes a 40% decline or more.

    That’s extreme.

    That’s only happened three times in the past 70 years.

    Oil and other commodities are volatile, but don’t think for one minute that this is a normal fluctuation.

    It’s not. This would be like an 8,000 point drop on the Dow.

    When the oil price dropped it came as a shock. No one expected it, other than maybe a handful of people who were plotting it behind the scenes.

    When the price of oil goes from US$100 to US$60, which as I said is extreme, people say, ‘Now it’s going to go to US$50, then it’s going to go to US$40 and then, soon after, to US$30.’

    You can’t rule anything out, but it does look as if oil is going to oscillate around US$60. It will go above that and below, but it will gravitate towards US$60. That’s still a big deal and will cause a lot of damage.

    Why do I say $60? It’s not because I think I’m smarter than a lot of other analysts. I don’t have a crystal ball, either. But I did have the opportunity to speak to various people in the industry, and US$60 is the number they’re expecting.

    The oil price didn’t drop out of the blue.

    Obviously, Saudi Arabia is the marginal supplier. They can dial up the supply or dial it down. They’re well aware of what’s going on in the rest of the world.

    Thanks to the ‘fracking’ revolution in the US, they saw that the US is now the world’s largest energy producer and is close to becoming a net oil exporter. (In my opinion he is wrong concerning the US ever becoming a net oil exporter.)

    Yet, even if we give the US credit for being stronger than some other economies, there’s no question about the global slowdown.

    Therefore, Saudi Arabia sees demand slowing down. But the question is, how much lower, and what does Saudi Arabia want to do about it?

    If they can’t make fracking go away, they at least want to bankrupt a lot of the fracking companies and make them slam on the brakes.

    To do that, Saudi Arabia wants to get the price low enough to hurt the relatively higher cost fracking industry.

    The power of Saudi Arabia comes from the fact that they have the lowest marginal cost of producing oil.

    It only costs them a couple of bucks to lift the oil out of the ground. That oil was discovered, explored and drilled when their entire infrastructure was put in place decades ago.

    Because their marginal cost of production is just a few dollars, they can still make money — even at US$40 and US$30 per barrel. (But they can’t balance their budget with those prices.)

    Obviously, the lower the oil price, the more money that’s taken out of Saudi Arabia’s profit.

    In theory, there’s a number that’s low enough to hurt the frackers, but high enough so that Saudi Arabia still maximises their revenues.

    It’s called an optimisation or a linear programming problem.

    That number, which comes from a very good source, is about US$60 a barrel.

    It’s not a number I made up or pulled out of a hat. Think of US$60 per barrel as the sweet spot where we have all the bad things in terms of fracking — corporate bonds and junk bond defaults — but not so low that the Arabs hurt themselves more than necessary.

    Oil below US$60 is more than low enough to do an enormous amount of damage in financial markets.

    Losses are already all over the place. We’re only starting to learn about them right now.

    But I guarantee there are major losers out there and they’re going to start to merge and crop up in unexpected places.

    The first place losses will appear are in junk bonds. There are about US$5.4 trillion — that’s trillion — of costs incurred in the last five years for exploration drilling and infrastructure in the alternative energy sector.

    When I say alternative I mean in the fracking sector.

    A lot of it’s in the Bakken and North Dakota but also in Texas and Pennsylvania. That’s a lot of money. It’s been largely financed with corporate and bank debt.

    When many oil producers went for loans, the industry’s models showed oil prices between US$80 and US$150.

    US$80 is the low end for maybe the most efficient projects, and US$150 is of course the high end.

    But no oil company went out and borrowed money on the assumption that they could make money at US$50 a barrel.

    So suddenly, there’s a bunch of debt out there that producers will not be able to pay back with the money they make at US$50 a barrel. That means those debts will need to be written off. How much? That’s a little bit more speculative.

    I think maybe 50% of it has to be written off. But let’s be conservative and assume only 20% will be written-off.

    That’s a trillion dollars of losses that have not been absorbed or been priced into the market.

    Go back to 2007. The total amount of subprime and Alt-A loans was about US$1 trillion. The losses in that sector ticked well above 20%. There, you had a US$1 trillion market with $200 billion of losses.

    Here we’re talking about a US$5 trillion market with US$1 trillion of losses from unpaid debt — not counting derivatives.

    This fiasco is bigger than the subprime crisis that took down the economy in 2007.

    I’m not saying we’re going to have another panic of that magnitude tomorrow; I’m just trying to make the point that the losses are already out there.

    Even at US$60 per barrel the losses are significantly larger than the subprime meltdown of 2007. We’re looking at a disaster.

    On top of those bad loans, there are derivatives

    Some of these fracking companies are going to go bankrupt. That means you may have equity losses on some of the companies if they didn’t hedge. Then, many frackers issued debt which is going to default.

    That debt, whether it’s bank debt or junk bond debt, is going to default.

    Some other companies are going to be fine because they bought the derivatives. But then, the question is: Where did those derivatives go? Think back to the housing bust. We now know that a lot of the derivatives ended up at AIG.

    AIG was a 100-year-old traditional insurance company who knew that they were betting that house prices would not go down. Goldman Sachs and a lot of other institutions were taking that bet too. When house prices did go down, everyone turned to AIG and said: ‘Hey, pay me.’

    But AIG of course couldn’t pay and had to be bailed out by the US government to the tune of over US$100 billion. That’s the kind of thing we’re looking at now. These bets are all over the place, because nobody thought oil was going to go to US$60 or lower.

    The losses are going to start to roll in, but they’ll come in slowly.

    I’m not suggesting that tomorrow morning we’re going to wake up and find the financial system collapsed. This is just the beginning of a disaster.

    The first companies to be hardest hit will be second tier or mid-tier drilling and exploration companies.

    Don’t worry about the big companies. Exxon Mobil is not going go bankrupt.

    But the smaller, higher cost producers with lots of debt will.

    With oil in the US$45–55 per barrel range, those projects are no longer profitable and that debt will begin to default in late 2015 or early 2016.

    The oil price decline is due to a weakening global economy.

    Global demand is slowing down. China is crashing. Japan fell off a cliff in the past six months. Europe is slowing down.

    Weak global demand for oil means prices are unlikely to regain past heights.

    Investors shouldn’t assume a return to $100 oil anytime soon.


    Jim Rickards
    Strategist, Strategic Intelligence

  46. Longtimber says:

    “On Monday, US planes destroyed an estimated 280 ISIS oil trucks near the border between Syria and Iraq, ISIS controls the vast majority of oil fields and refineries in Syria, and a number in Iraq.”

  47. dmg555 says:

    From Ron:

    How can these guys keep drilling while losing massive amounts of money? How is this possible? Someone please explain to me how this can go on and on month after month? Hey, I got’s to know?

    Ron: One possible answer to your question above, I think, is found in the enclosed article (see below from Jim Richards). In the article Richards suggests that the amount of money loaned to the Tight Oil companies is 5 trillion dollars. He quotes the Financial Times for that figure. If he is correct, that amount of money is 5 times the sub-prime problems of the 2007-2008 financial crash, where 20% of the loans were deemed insolvent, requiring the Fed to immediately step up to the plate and cover the 200 billion dollar margin call. What the Fed did back then, was to transfer the bad loans the banks made to their own balance sheet, where they didn’t have to be marked to market. By doing this they kept the bad debt off the commerical banks balance sheets. If the Fed didn’t intervene, the banks could have been deemed insolvent. By buying back all those in the water sub-prime loans, they, the Fed, rescued the entire banking system.

    Further: if Richard’s is correct, and the loan amounts made to the Tight Oil companies are 5 trillion, then that might explain why the companies are still selling everything they can into a depressed market regardless of price; they need every dime they can get their hands on just to pay the interest on their loans. They are just trying to stave off bankruptcy. Add to that, in one of Arthur Berman’s recent articles, he claims only 1% of the Tight Oil companies are profitable at $80+ WTI. If both Berman and Richards are correct, then not only are the Tight Oil companies in deep trouble but so are the banks and insurance companies that made those loans, under the assumption that oil would stay above $80.

    If the subprime crisis involved only 1 Trillion dollars of doubtful loans, and only 20% required immediate attention, then the problems in front of us are 5 times the size of the sub-prime mess. If we calculate, as Richards does in the article, that similarly, 20% of the 5 trillion is at risk, then the margin call on that, would be 1 Trillion, and that again makes the entire financial system extremely fragile, for it’s not only the tight oil companies who are on the hook but also the banks and insurance companies that made those loans. I can’t quite see anyway to get out of a problem that size. 1 Trillion in bad loans, or more, is an awesome number. The only solution possible, I think, would be for the Fed to again step up to the plate, only this time, QE4 would have to be massive, more than one trillion this time. In the process the Fed might loose their credibility, which could have huge implications for the US dollar. Quite a sobering situation, but that is the only explanation that makes any sense to me for why tight oil companies are currently selling whatever they can into a depressed market. It is the sort of problem that might even require drastic measures.

    The $5 Trillion Oil Debt Bomb
    Jim Rickards October 22, 2015

    The drop in the price of oil from approximately $100 a barrel to the $40–60 range roughly constitutes a 40% decline or more.

    That’s extreme.

    That’s only happened three times in the past 70 years.

    Oil and other commodities are volatile, but don’t think for one minute that this is a normal fluctuation.

    It’s not. This would be like an 8,000 point drop on the Dow.

    When the oil price dropped it came as a shock. No one expected it, other than maybe a handful of people who were plotting it behind the scenes.

    When the price of oil goes from US$100 to US$60, which as I said is extreme, people say, ‘Now it’s going to go to US$50, then it’s going to go to US$40 and then, soon after, to US$30.’

    You can’t rule anything out, but it does look as if oil is going to oscillate around US$60. It will go above that and below, but it will gravitate towards US$60. That’s still a big deal and will cause a lot of damage.

    Why do I say $60? It’s not because I think I’m smarter than a lot of other analysts. I don’t have a crystal ball, either. But I did have the opportunity to speak to various people in the industry, and US$60 is the number they’re expecting.

    The oil price didn’t drop out of the blue.

    Obviously, Saudi Arabia is the marginal supplier. They can dial up the supply or dial it down. They’re well aware of what’s going on in the rest of the world.

    Thanks to the ‘fracking’ revolution in the US, they saw that the US is now the world’s largest energy producer and is close to becoming a net oil exporter.

    Yet, even if we give the US credit for being stronger than some other economies, there’s no question about the global slowdown.

    Therefore, Saudi Arabia sees demand slowing down. But the question is, how much lower, and what does Saudi Arabia want to do about it?

    If they can’t make fracking go away, they at least want to bankrupt a lot of the fracking companies and make them slam on the brakes.

    To do that, Saudi Arabia wants to get the price low enough to hurt the relatively higher cost fracking industry.

    The power of Saudi Arabia comes from the fact that they have the lowest marginal cost of producing oil.

    It only costs them a couple of bucks to lift the oil out of the ground. That oil was discovered, explored and drilled when their entire infrastructure was put in place decades ago.

    Because their marginal cost of production is just a few dollars, they can still make money — even at US$40 and US$30 per barrel.

    Obviously, the lower the oil price, the more money that’s taken out of Saudi Arabia’s profit.

    In theory, there’s a number that’s low enough to hurt the frackers, but high enough so that Saudi Arabia still maximises their revenues.

    It’s called an optimisation or a linear programming problem.

    That number, which comes from a very good source, is about US$60 a barrel.

    It’s not a number I made up or pulled out of a hat. Think of US$60 per barrel as the sweet spot where we have all the bad things in terms of fracking — corporate bonds and junk bond defaults — but not so low that the Arabs hurt themselves more than necessary.

    Oil below US$60 is more than low enough to do an enormous amount of damage in financial markets.

    Losses are already all over the place. We’re only starting to learn about them right now.

    But I guarantee there are major losers out there and they’re going to start to merge and crop up in unexpected places.

    The first place losses will appear are in junk bonds. There are about US$5.4 trillion — that’s trillion — of costs incurred in the last five years for exploration drilling and infrastructure in the alternative energy sector.

    When I say alternative I mean in the fracking sector.

    A lot of it’s in the Bakken and North Dakota but also in Texas and Pennsylvania. That’s a lot of money. It’s been largely financed with corporate and bank debt.

    When many oil producers went for loans, the industry’s models showed oil prices between US$80 and US$150.

    US$80 is the low end for maybe the most efficient projects, and US$150 is of course the high end.

    But no oil company went out and borrowed money on the assumption that they could make money at US$50 a barrel.

    So suddenly, there’s a bunch of debt out there that producers will not be able to pay back with the money they make at US$50 a barrel. That means those debts will need to be written off. How much? That’s a little bit more speculative.

    I think maybe 50% of it has to be written off. But let’s be conservative and assume only 20% will be written-off.

    That’s a trillion dollars of losses that have not been absorbed or been priced into the market.

    Go back to 2007. The total amount of subprime and Alt-A loans was about US$1 trillion. The losses in that sector ticked well above 20%. There, you had a US$1 trillion market with $200 billion of losses.

    Here we’re talking about a US$5 trillion market with US$1 trillion of losses from unpaid debt — not counting derivatives.

    This fiasco is bigger than the subprime crisis that took down the economy in 2007.

    I’m not saying we’re going to have another panic of that magnitude tomorrow; I’m just trying to make the point that the losses are already out there.

    Even at US$60 per barrel the losses are significantly larger than the subprime meltdown of 2007. We’re looking at a disaster.

    On top of those bad loans, there are derivatives

    Some of these fracking companies are going to go bankrupt. That means you may have equity losses on some of the companies if they didn’t hedge. Then, many frackers issued debt which is going to default.

    That debt, whether it’s bank debt or junk bond debt, is going to default.

    Some other companies are going to be fine because they bought the derivatives. But then, the question is: Where did those derivatives go? Think back to the housing bust. We now know that a lot of the derivatives ended up at AIG.

    AIG was a 100-year-old traditional insurance company who knew that they were betting that house prices would not go down. Goldman Sachs and a lot of other institutions were taking that bet too. When house prices did go down, everyone turned to AIG and said: ‘Hey, pay me.’

    But AIG of course couldn’t pay and had to be bailed out by the US government to the tune of over US$100 billion. That’s the kind of thing we’re looking at now. These bets are all over the place, because nobody thought oil was going to go to US$60 or lower.

    The losses are going to start to roll in, but they’ll come in slowly.

    I’m not suggesting that tomorrow morning we’re going to wake up and find the financial system collapsed. This is just the beginning of a disaster.

    The first companies to be hardest hit will be second tier or mid-tier drilling and exploration companies.

    Don’t worry about the big companies. Exxon Mobil is not going go bankrupt.

    But the smaller, higher cost producers with lots of debt will.

    With oil in the US$45–55 per barrel range, those projects are no longer profitable and that debt will begin to default in late 2015 or early 2016.

    The oil price decline is due to a weakening global economy.

    Global demand is slowing down. China is crashing. Japan fell off a cliff in the past six months. Europe is slowing down.

    Weak global demand for oil means prices are unlikely to regain past heights.

    Investors shouldn’t assume a return to $100 oil anytime soon.


    Jim Rickards
    Strategist, Strategic Intelligence

  48. AlexS says:

    New EIA estimate of U.S. proved reserves just released

  49. AlexS says:

    U.S. tight oil plays: production and proved reserves, 2013-14

    • AlexS says:

      U.S. tight oil production in kb/d, comparison with other EIA and NDIC data
      The numbers for the Permian and Niobrara look rather strange

    • AlexS says:

      Between 2004 and 2014 U.S. proved reserves of C+C increased by 77%, the share of condensate from 5.4% to 8.9%

    • AlexS says:

      US crude and condensate production (mb/d) and share of condensate

      • Dennis Coyne says:

        Hi AlexS

        Where did you get the crude and condensate output numbers?

        Interesting stuff thanks.

  50. Javier says:

    The truth about polar bears

    Polar bears were over-hunted for decades and in the 1960’s their number was estimated from a low of 5,000 to a high of 20,000.

    Since the passage of the Marine Mammal Protection Act (MMPA) in 1972 and the 1973 International Agreement on the Conservation of Polar Bears their hunting was limited by a quota system and their numbers have been growing steadily.

    Today about 1,000 polar bears are hunted every year with half of them at Nunavut in Canada, a country that holds two thirds of world polar bears. The cost of hunting a polar bear for a non-Innuit is $25,000. Despite that, polar bear population has doubled in the last 40 years.

    2015 estimate of world polar bear population is the highest ever, at 26,000 (95% CI = 22,000-31,000). This is the official number by IUCN Red List.
    Since clearly polar bear population is growing as has been doing for over three decades it would be a lie to say that their population is declining, so IUCN lists current population trend as “? Unknown”

    As with most things in climate change, we are being lied and manipulated. Polar bears are not facing extinction. Polar bears are not being negatively affected by global warming. Any future danger to polar bears remains theoretical and not supported by facts.

    • ChiefEngineer says:

      Why Some Conservatives Can’t Accept That Climate Change Is Real-

      They seek out information that confirms their beliefs — and ignore anything that challenges them.

      They don’t trust scientists, and listen instead to high-profile skeptics.

      They get stuck in “echo chambers

      “The conservative echo chamber — Fox News, talk radio, conservative columnists and bloggers — combine to create a ‘bubble’ in which many committed Republicans live, and when it comes to scientific issues we find that they literally create an ‘alternative reality’ in which human-caused climate change is a hoax,” Dunlap said. “The problem is that this conservative worldview is deeply at odds with empirical reality.”

      “Denial is socially produced,” said Renee Lertzman, a psychosocial researcher whose work focuses on promoting action on climate change in organizational settings. “In order for me to be in denial, I kind of need others to participate in that. So we need to recognize that so much of what we’re looking at is a social process, not an individual issue.”

      “Yet the facts are undeniable. Sea levels and global temperatures are rising (this year is on track to become the hottest on record), glaciers are melting, and ice sheets are shrinking at unprecedented rates. CO2 levels have also shot up dramatically since the Industrial Revolution — suggesting these events are very likely a product of human activities.”

      • Javier says:

        Not my case, ChiefEngineer, so this should not be a response to my post.

        I am no conservative.
        I know climate change is real.
        I seek all information one way and the other and weight it.
        I trust most scientists (just not all of them), even if I do not agree with them.
        I am well outside echo-chambers. I am here, am I not?

        • oldfarmermac says:

          Hi Javier,

          You and I may disagree occasionally, but I am with you all the way when it comes to remembering that scientists are humans too, and that science can and does get hijacked sometimes, for better or worse.

          One thing just about all so called conservatives and so called liberals have in common is that they virtually ALWAYS support the party line, and accuse anybody who disagrees with them of being a stinking conservative, or a stinking liberal, as the case may be.

          Both terms have been abused to such an extent they are nothing more than partisan clubs and impediments to any real communication between factions.

          Having said this much, the dim rats are right about the environment, and that is the ONLY issue that REALLY matters, given that our collective environmental problems are so serious that they DWARF all other types of problems combined, long term.

          • Javier says:

            Hi Oldfarmermac,

            Couldn’t agree more, specially about the importance of the environment and the damage we are doing to it. As a biologist I am very sensitive to how much the environment has suffered and been degraded over the last four decades that I have been conscious about it.

            As the case of the polar bear demonstrates, all that stands between the utter destruction of thousands of ecosystems and species world wide are the protectionist laws that our civilisation imposes on people. I am very proactive in protectionism of nature, but it seems that with global warming all that is old-fashioned and resources are diverted to global warming studies as if we reduce CO2 emissions everything is going to be fine.

            As the case of the polar bear demonstrates, dangers from global warming are at this point imaginary. Nobody knows how the climate is going to be 10 years from now, or 20 or 50, much less 100, regardless of our emissions.

            But we have allowed our numbers to grow so large, our industrial civilisation to extend so deeply, that if our civilisation were to fail or simply go into a very severe and prolonged crisis, I am afraid that what is left of the natural environment could suffer at our unrestricted hands such a damage that it might take from thousands to millions of years to recover the lost variability. We are the greatest danger to the planet, not the global warming, nor CO2 which is a natural molecule very much in demand by the biosphere.

        • ChiefEngineer says:


          My response was perfect to your post.

          First, hunting polar bears has nothing to do with a peak oil blog.(unless your going to try to confuses the issue of human climate change) You brought up and started the subject.

          Second, your last paragraph comes to the conclusion that polar bears are not in danger of climate change because of a change in hunting practices.( They seek out information that confirms their beliefs)

          Third, “I trust most scientists (just not all of them), even if I do not agree with them.” You like to mince words. So, you trust them, but just don’t believe them. This whole statement is BS. Your a skeptics. Exactly what the article describes.

          Fourth, “I know climate change is real” I notice you didn’t say human climate change is real. This is the same BS trick conservative Jeb Bush is playing. Than says we can’t do anything about. Which is what you do, example Javier says- “What I can guarantee you with 100% certainty is that no matter what we do we cannot make climate change safe for humans.”

          Fifth, “I am no conservative.” I don’t buy it. Here is one of your comments two days ago – Javier says: “Hi ChiefEngineer, Despite the Bible saying that you should not build your house on sand”. Your the only person in over 400 comment list on this subject that used the word “Bible”.

          Sixth, “I am well outside echo-chambers. I am here, am I not?” You live deep inside the echo-chambers being a regular poster at Tverberg’s right wing blog.

          When you walk like a duck, look like a duck and smell like a duck.

          YOUR A DENIER

          Best Wishes

          • Javier says:


            You couldn’t be more wrong, but you must be used to that by now. A sure way of being wrong is judging people that you don’t know.

            Yes I started the polar bear subject, but was not the first one to bring it to peak oil blog. There have been several comments about polar bears in the last days, and the previous to mine by… YOU here:
            So you started talking about polar bears in this page. Not me. And as almost always that you talk about anything climate related you were wrong.

            My conclusion is based on data. Polar bears numbers are increasing not decreasing.

            I trust scientist in obtaining and presenting data in an honest way. I do not believe their conclusions when available evidence indicates otherwise. Maybe you are too far removed from science to understand the difference between evidence and conclusions. That is why papers are divided into sections like results, and discussion or conclusions. You don’t have to put the same faith on them.

            Fourth, “I know climate change is real” I notice you didn’t say human climate change is real.

            Because what you posted didn’t say it either. I happen to also believe that human caused global warming is real.

            Fifth, “I am no conservative.” I don’t buy it.

            That is your problem. You are a prey to your prejudices and your narrow point of view. Religion, History, Economy, I have a lot of interests about which I know quite a lot, but as a scientist I’m a pretty much run of the mill agnostic. Politically I am a European style liberal which is a very residual political category situated between conservativism and socialism. It can be seen as a moderate left that believes that individual rights are above collective rights, state should be minimal, markets should be regulated to ensure fair play but not intervened, and environment should be protected.

            being a regular poster at Tverberg’s right wing blog.

            That’s not me. I already noticed another Javier there and it is annoying. I have only posted at Tverberg’s blog a couple of times, but I did not noticed it was right wing. Are you sure? Looks like a collapse blog to me.

            It is curious that you call me a denier. I am called an alarmist over at WUWT, so when extremists from both sides attack me it must mean that I am pretty well centered.

            You however seem to distillate some bigotry. You seem to have prejudice against people with religious beliefs, against people that do not share your political views and in general against anybody that does not agree with you. I pity you. Such a sad situation. I hope you find the cure.

            Best wishes.

            • ChiefEngineer says:

              You can add quacks like a duck to the list

            • Nick G says:

              did not noticed it was right wing. Are you sure? Looks like a collapse blog to me.

              Sadly, a “collapse blog” argues that only Fossil Fuels can support civilization. That, in turn, supports the right wing approach of “drill, baby, drill”.

              If civilization must have oil, then Exxon is our friend…

              • Javier says:

                The connection between collapse and right wing appears pretty weak to me. One might believe in collapse regardless of political ideas. Politically tagging people does not look as a smart way of going to me. Not very useful and a clear indication of a simple mind.

                And it is a fact that our civilization rests on fossil fuels today. It clearly won’t in 50 years whether we have collapsed or not or whether we have gotten renewables to provide for all our present needs or not.

      • Arceus says:


        Would you say that confirmation bias is more of a conservative thing?

        • Dennis Coyne says:

          In my opinion, no. Both tend to be biased, the best we can do is look at both conservative and liberal views on issues and decide which seems more correct.

          Generally if you look at the scientific papers, rather than MSM, they tend to be less biased.

    • Stilgar Wilcox says:

      Javier, below is some more information I found on polar bears:

      “…This means that before the intense sport hunting of polar bears (from about 1930 through late 1960s) had even begun, at least 6x as many bears per year had already been removed as are now taken from these regions. This subset of modern harvests come from a global population estimated at 20,000-25,000 bears (Obbard et al. 2010)]. That does not mean the pre-harvest population was 6 times as large as it is now, but it is an indication that many more bears must have existed in the 1800s than exist now.

      The second reason that this information on historical overharvesting is important is that an 80-year-long decimation of polar bears, virtually world-wide, may have markedly reduced the genetic diversity of polar bears living today.”

  51. oldfarmermac says:

    This one speaks for itself.

    I must admit that although I spend WAY too much time reading news and politics, I had not heard of this so called “Stein’s Law” until now.

    But I understood it fifty years before I learned the name of it. 😉

  52. Jeffrey J. Brown says:

    Goldman eyes $20 oil as glut overwhelms storage sites
    November 19, 2015

    Goldman Sachs told clients that the increasing glut of oil on the global market has combined with mild weather from a freak El Nino this winter. The twin-effect could send prices plummeting to $20 a barrel, the so-called ‘cash cost’ that forces drillers to abandon production. “Risks of a sharp leg lower remain elevated,” it said.

    Oil has fallen from $110 a barrel early last year and is hovering near $40 for US crude, and $44 for Brent in Europe.

    The US investment bank said the overall glut in the commodity markets may take another twelve months to clear. It cited ‘red flag’ signals on the Shanghai Future Exchange over recent days. Copper contracts point to “imminent weakening” in China’s ‘old economy’ of heavy industry and construction, it said.

    Goldman Sachs predicts $200 a barrel oil
    May 7, 2008

    NEW YORK, May 7 (UPI) — U.S. financial giant Goldman Sachs projects crude oil prices could reach $200 a barrel in the next 24 months, a company document says.

    The firm cites the slow growth of supplies of the benchmark commodity, 24/7 Wall Street reported Wednesday.

    The Goldman Sachs summary says, “the remaining duration of the upcycle remains a major uncertainty,” 24/7 Wall Street noted.

    • Arceus says:

      Time changes everything except something within us which is always surprised by change.

      Thomas Hardy

      • Jeffrey J. Brown says:

        In regard to what Goldman did with its own money, one can’t help but wonder if they were actually betting on falling oil prices in 2008 to 2009, and betting on rising oil prices in 2015 to 2016.

        • TechGuy says:

          FWIW: I doubt Goldman ever bets its own money. Its less risky and more profitable to bet OPM. (Other People’s Money) 🙂

          FWIW: It appears the global economy continues to weaken. With the exception of a full on collapse KSA/Iran/Israel war or Chinese QE, Oil prices are likely to continue to slide for a while. I think we “may” see oil prices in $30/bbl in either Jan or Feb 2016.

  53. For what it’s worth: I’m getting news that Pdvsa is unable to pay for oil imports it needs to blend with the extra heavy from the Orinoco. They are unable to pay for gasoline components they import to blend gasoline for national consumption (such as mtbe). Their payment record is so poor that traders demand cash up front before they unload.

    The water supply to margarita island has been cut off. The election campaign seems to be on, but the reds are starting to pull guns on opposition campaign acts.

    A former minister said the likely first step after the elections, if they do happen, will be to force Maduro out using the constitutional recall process. The two narco nephews are due to plead in NY court.

    The pdvsa General controller, the First Lady’s nephew and said to be the head consigliere for the Flores Mafia, disappeared. It may be he went to the USA to turn state witness.

    It’s getting really surreal. I haven’t seen a communist regime go to hell like this before.

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