Oil Makes the World Go Round (not Money)

Posted by Ed 21 mths ago
The Biggest Oil & Gas Discoveries Of 2019

Conventional oil and gas discoveries have fallen by the wayside since the shale boom and the subsequent oil price collapse. In fact, they’ve fallen to their lowest in 70 years

All in all, this year has seen new discoveries of nearly 8 billion barrels of oil equivalent, compared to 10 billion barrels of oil equivalent discovered last year.

But what’s most striking is that new discoveries aren’t even close to keeping pace with the loss of conventional resources.

According to Rystad, the current resource replacement ratio for conventional resources is only 16 percent. In other words, only one barrel out of every six consumed is being replaced with new resources.

So not only has our pace of discovery declined, but discoveries are also in much more challenging geological venues and typically offshore, which means it could take many years just to bring new resources online.


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Ed 21 mths ago
Let's do that math: 
The world consumes 35,442,913,090 barrels of oil as of the year 2016, equivalent to 97,103,871 barrels per day.
Call it an even 100M per day (pre Covid).
8B barrels = 80 days of oil.   Sounds like a big number ... but it isn't.
Even when oil was priced over $100 per barrel --- very little new oil was being found:

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Ed 21 mths ago
Fortunately shale (smashing up rock and sucking out the dregs) has helped to bolster the supply of oil however, all good things do end:

Jul 12, 2020 - Shale boss says US has passed peak oil. Parsley Energy CEO: 'I don't think I'll see 13m barrels a day again in my lifetime'.
It's amazing shale has lasted this long considering:  U.S. Shale Has Lost $300 Billion In 15 Years 
Fortunately, because of Covid, oil consumption has plummeted...  for example, with airlines barely flying we have reduced the global burn by close to 8%
The aviation industry represents 7.8% of final oil consumption worldwide, while maritime shipping accounts for 6.7%.Jun 20, 2019

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Ed 21 mths ago
There is much attention given to the frequent oil gluts creating the perception that we are swimming in oil.
While there are large pools of oil remaining, particularly in Russia and Saudi Arabia, the reality is that we are burning 6 barrels for every barrel we find.  So we are pumping the remaining pools of oil down rather quickly given we burn nearly 100M barrels of oil per DAY.
What causes a glut of oil?
These gluts tend to occur when the price of oil is falling.   The producers have bills to pay so they need to pump more volume out of the ground to make up for the lower price of oil. 
Of course this creates a race to the bottom as the major suppliers battle to sell ever increasing volumes of oil  but fortunately they generally find common ground and agree to control the amounts of oil they bring to market otherwise the price of oil would be in single digits.
Essentially this does not mean their reserves have increased rather it means that they are pumping their reserves faster thereby depleting them more rapidly.
If you had one large tank of petrol remaining and you knew there was no chance of refilling it, would you go on long, high-speed joy rides?   Of would you use the remaining petrol for essential trips only?
The vast majority of air travel involves joy rides to holiday destinations.   And that has mostly stopped.  Business travel has been slashed as well with most meetings now being held using video conferencing software.   
An added benefit is that the skies are clearer and bluer.   

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Ed 20 mths ago
A New Peak in Conventional Crude Oil Production

 June 8, 2015 

Since May 2005, global conventional crude oil + condensate production (C+C) has been constrained to a bumpy plateau of around 73.2 Mbpd. That limit was breached in December 2014 with a new high of 74.28 Mbpd (Figure 1, blue area is conventional C+C).
This comes on the back of a prolonged period of record high oil price. It seems likely that the reason for the new high is OPEC abandoning constraint rather than an actual expansion of global conventional C+C production capacity.
Figure 1 The EIA report various categories of hydrocarbon liquids production including a category for combined crude oil + condensate. This category includes Canadian syncrude (tar sands) and light tight oil (LTO previously known as shale oil).
Conventional C+C production is estimated by deducting the unconventional sources from the C+C total and shows a new peak of 74.28 Mbpd for December 2014. The chart is not zero scaled and is updated to December 2014, the date of the last report from the EIA. Data from [1, 2, 3, 4]. 

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Ed 20 mths ago
Suppose NASA scientists spotted a massive asteroid that is certain to strike Earth on October 10th 2025. 
Would we be told of this?
If yes then what are the consequences of informing 8 billion people that life ends in 5 years?
- epic levels of depression, hopelessness, drug and alcohol abuse, and suicide as people understand there is no future 
- difficulty motivating people to work, attend school or do much of anything 
- investment would plunge 
- the economy would quickly collapse
Would someone at NASA leak this info? 
Highly unlikely.
-  this information would be highly classified and a leaker would be imprisoned (Julian Assange is currently in a dungeon as a message to would-be leakers)
- why would someone want to leak such information knowing that if the masses became aware of it, it would collapse the economy.   There is zero upside to releasing this info.
- even if someone wanted to leak this information, the MSM would refuse to publish it (see collapse economy) --- in fact if the leaker approached the MSM the FBI would be called and the leaker would be put in chains.
-  if the leaker tried to post a presentation on Youtube or Facebook or any other social media, they would be censored for posting 'fake news'
- If the MSM and social media refuse to publish the leak, then how does the leaker expose the leak?  Does he stand on a busy street corner shouting 'the end is nigh - an asteroid will demolish the planet in 5 years!!! (repent...)'     Does he corner people at cocktail parties and explain to them the physics of the trajectory of the asteroid and how it is certain to hit Earth at a specific time?   He'd quickly be labelled a conspiracy theorist and crazy.
No, I do not think NASA would release this information nor would anyone leak it.   
That said, is there an 'asteroid' approaching Earth?   
If there was... and we could see it headed towards us.... would we be told?   Or would we be told not to worry, it will pass by harmlessly.   
And we'd go about our business without another thought of the asteroid (even though when we look at the sky that asteroid would appear to be on target for a direct hit). 

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Ed 19 mths ago
Resource Replacement Ratio From An Oil Supermajor's Perspective 
According to Rystad Energy, oil and gas companies have discovered 7.7 billion barrels of oil equivalent so far in 2019 year-to-date.
Which means that so far in 2019, the resource replacement ratio for conventional resources stands at 16% as we can see in Rystad's graph below:

However more importantly the resource replacement ratio has been below 40% since 2013 or about 28% for the past seven years on average. It is a massive amount of reserves that have been taken out.

It means that we have consumed oil and gas at a rate of 3.6 barrel of oil equivalent for only one barrel of oil equivalent discovered for the past seven years.

Worse, the trend is negative, which means without drastic measures to counter this negative trend, it will get more severe. As we all know, the demand for oil and gas is increasing and is estimated at 1.4 M Boep/d in 2020, going down a little to ~1 M Boep/d in 2024.

The world is consuming over 100 million Boep/d now or 36.5 billion barrels of oil equivalent per year. 

When you consume almost four times more than you can produce, there will come a time when there is no more to consume, and it is the end of the story.

We are not talking about dollars here and the ability for the US government to print more as needed. In the case of the oil and gas consumed, they cannot be replaced artificially by a "virtual spigot."

Oil and gas is a crucial part of our modern world, which is thirsty for energy, and without this essential energy source, we will be confronted with an existential dilemma.

It is difficult to draw any definitive conclusions concerning reserves and how long we can safely consume oil and gas before the specter of depletion starts to raise its arms and scream "danger." 

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Ed 18 mths ago
Perfect Storm: Energy, Finance, and the End of Growth
The economy is a surplus energy equation, not a monetary one, and growth in output (and in the global population) since the Industrial Revolution has resulted from the harnessing of ever-greater quantities of energy.
But the critical relationship between energy production and the energy cost of extraction is now deteriorating so rapidly that the economy as we have known it for more than two centuries is beginning to unravel.  

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Ed 17 mths ago


2020: The Year Things Started Going Badly Wrong
How today’s energy problem is different from peak oil
Many people believe that the economy will start going badly wrong when we “run out of oil.” The problem we have today is indeed an energy problem, but it is a different energy problem. Let me explain it with an escalator analogy.
The economy is like a down escalator that citizens of the world are trying to walk upward on. At first the downward motion of the escalator is almost imperceptible, but gradually it gets to be greater and greater. Eventually the downward motion becomes almost unbearable. Many citizens long to sit down and take a rest.

In fact, a break, like the pandemic, almost comes as a relief. There is suddenly a chance to take it easy; not drive to work; not visit relatives; not keep up appearances before friends. Government officials may not be unhappy either. There may have been demonstrations by groups asking for higher wages. Telling people to stay at home provides a convenient way to end these demonstrations and restore order.

But then, restarting doesn’t work. There are too many broken pieces of the economy. Too many bankrupt companies; too many unemployed people; too much debt that cannot be repaid. And, a virus that really doesn’t quite go away, leaving people worried and unwilling to attempt to resume normal activities.

Some might describe the energy story as a “diminishing returns” story, but it’s really broader than this. It’s a story of services that we expect to continue, but which cannot continue without much more energy investment. It is also a story of the loss of “economies of scale” that at one time helped propel the economy forward.

In this post, I will explain some of the issues I see affecting the economy today. They tend to push the economy down, like a down escalator. They also make economic growth more difficult.

[1] Many resources take an increasing amount of effort to obtain or extract, because we use the easiest to obtain first. Many people would call this a diminishing returns problem.

Let’s look at a few examples:

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Ed 13 mths ago
A 2010 Oxford University study predicted that production will peak before 2015. ... Phibro statistics show that major oil companies hit peak production in 2005. Fatih Birol, chief economist at the International Energy Agency, stated in 2011 that "crude oil production for the world has already peaked in 2006."

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Ed 13 mths ago
Shale binge has spoiled US reserves, top investor warns. Financial Times.

A fracking binge in the American shale industry has permanently damaged the country’s oil and gas reserves, threatening hopes for a production recovery and US energy independence, according to one of the sector’s top investors.

Wil VanLoh, chief executive of Quantum Energy Partners, a private equity firm that through its portfolio companies is the biggest US driller after ExxonMobil, said too much fracking had “sterilised a lot of the reservoir in North America”.

“That’s the dirty secret about shale,” Mr VanLoh told the Financial Times, noting wells had often been drilled too closely to one another. “What we’ve done for the last five years is we’ve drilled the heart out of the watermelon.”

Soaring shale production in recent years took US crude output to 13m barrels a day this year and brought a rise in oil exports, allowing President Donald Trump to proclaim an era of “American energy dominance”.

Total US oil reserves have more than doubled since the start of the century as hydraulic fracturing, or fracking, and horizontal drilling unleashed reserves previously considered out of reach.
But the pandemic-induced crash, which sent US crude prices to less than zero in April, has devastated a shale patch that was already out of favor with Wall Street for its failure to generate profits, even while it made the country the world’s biggest oil and gas producer.
The number of operating rigs has collapsed by more than 60% since the start of the year. US output is now about 11m barrels a day, according to the US Energy Information Administration, or 15% less than the peak.
“Even if we wanted to, I don’t think we could get much above 13m” barrels a day, Mr VanLoh said. “I don’t think it’s physically possible, because we’ve messed up so much reservoir. I would argue that what the US was touting three or four years ago, in theoretical deliverability, is nowhere close to what we think it is now.”
He said operators had carried out “massive fracks” that created “artificial, permanent porosity”, inadvertently reducing the pressure in reservoirs and therefore the available oil.
The comments will cause alarm in the shale patch, given the crucial role of investors such as QEP in financing the onshore American oil business.

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Ed 9 mths ago

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Ed 8 mths ago
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Ed 8 mths ago

“Oil explorers need to raise drilling budgets by 54% to more than half a trillion dollars to forestall a significant supply deficit in the next few years, according to Moody’s Investors Service Inc.

“Crude and natural gas drillers chastened by last year’s unprecedented collapse in demand and prices haven’t responded to the recent market rebound as the industry typically does by expanding the search for untapped fields.”


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Ed 7 mths ago


“‘We are maxed out’: Qatar powerless to end global energy crisis…

“”We are maxed out, as far as we have given all our customers their due quantities,” said Qatar energy minister Saad al-Kaabi. “I am unhappy about gas prices being high.” Across the globe, the prices are pressuring governments and industry.”

Read More

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Ed 7 mths ago

“Energy crisis: UK could run out of gas during especially cold winter ahead, industry boss warns.

“Sir Jim Ratcliffe, owner of chemicals firm Ineos, said a prolonged winter ahead could mean demand for gas outweighs supply, leading to widespread shutdowns.”


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Ed 7 mths ago

Aramco Warns That World’s Spare Oil Supplies Falling Rapidly

“It’s a “huge concern,” Chief Executive Officer Amin Nasser said in an interview in Riyadh, Saudi Arabia’s capital. “The spare capacity is shrinking.””

Read More

Blackstone Inc. co-founder Stephen Schwarzman said the world is facing energy shortages so severe they could cause social unrest.

““We’re going to end up with a real shortage of energy,” he said at a conference in Saudi Arabia.” …His comments were echoed by Larry Fink, who said there’s a high probability of oil soon reaching $100 a barrel…”

Read More


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Ed 7 mths ago
When they say money, think energy

The Indian government ruffled a few feathers at the COP this morning, by raising the thorny question of the £722bn they were supposed to receive to aid their transition away from fossil fuels. Because, when all is said and done, the proposed transition is all about money. Decommissioning the old fossil fuel infrastructure will not happen unless states and private investors stump up sufficient cash to pay for the materials, equipment and workforce required to do the job. And at the same time, an entirely different group of workers, materials and equipment will have to be funded to build out the new, bright green infrastructure.

To aid things along, states will also use legislation to force the hands of businesses and households. The current UK government’s decision to legislate a ban on new internal combustion engine cars from 2030, for example, has forced the car industry to switch investment toward EVs. The ban on coal power plants from 2025 may provide the more realistic example, however, because of its unforeseen consequences – such as companies closing power stations early to save on maintenance, and the threat to energy security which has now emerged. Nevertheless, it is some combination of legislation and money which will drive the process.

The same can be said, of course, for any campaigning/political issue. You can count on one hand the number of campaigns which have called for less state spending and the revoking of laws. Most often, new law and additional spending underpins demand for reform, while failing to spend and/or legislate is among the biggest sins a government can make.

So far so good. Except that both laws and money are merely ink on paper. They do not, in and of themselves change anything. Imagine, for a moment, you are the proverbial shipwreck survivor on your desert island. Lacking sufficient food and drinking water, your days are numbered. But then a passing aeroplane appears to offer salvation in the form of an emergency package parachuted down to you. You tear into the package, saliva dripping from the side of your mouth as you imagine the tinned food inside. But to your horror, you discover that the package contains a copy of a new law banning hunger on desert islands, together with a pile of banknotes that you might use to purchase some drinking water. Laws and money, then, are only useful insofar as they can redirect available resources – in this case, food and water – but are entirely useless when resources are not available.

This is obvious at a small scale – like a single person on a desert island – but is often obscured by the complexity of developed civilisations where resources are nominally available. Even in relatively primitive civilisations by modern standards, complexity served to obscure the resource implications of political decisions. As I explain in my book, The Consciousness of Sheep:

“Complexity, when it does occur, is always a response to the unforeseen consequences of prior solutions. Introducing coins as a means of paying soldiers and merchants, for example, makes theft and counterfeiting of money possible. This means part of societies’ surplus had to be invested in protecting the money supply. In a simple society, this might just mean allocating some soldiers to protect the coins when they are distributed, and to stand guard on market days. But even this apparently simple solution comes at a cost:

  • The soldiers have to be fed and clothed
  • Peasants – somewhere – have to produce this additional food
  • A weaver will have to produce the additional clothing
  • Blacksmiths have to do additional work to provide them with arms
  • Additional resources and energy have to be found to allow blacksmiths to create the arms
  • And, of course, someone else will have to be drafted into the army to take over the duties the soldiers had been performing.

The exact ramifications of this process would be neither known nor knowable to those making the decision. They will merely have been aware that people stealing money were eating into their surplus. And since the way to protect against robbery was to allocate guards, that is what they would choose to do. They would most likely not even think about the additional work for the farmer, weaver and blacksmith; still less the supply of resources and energy that would be required. They would, if you will, push their complex civilisation slightly out of balance, and leave it to individuals within it to try to find a new equilibrium.”

The only differences today are that there is far more complexity and the potential for negative unforeseen consequences is exponentially greater. Consider, for example, the current haulage crisis. It is not simply a shortage of lorry drivers – in fact, the UK has more than enough qualified HGV drivers. Rather, if is due to the confluence of unforeseen consequences from a raft of policies of both states and private companies, including:

  • Legislation making drivers personally responsible for everything from vehicle safety to transporting illegal migrants
  • Legislation changing the tax status of self-employed drivers
  • The centralisation of giant distribution hubs with long waiting times and poor facilities
  • Local council by-laws that ban parking near to toilets, shower facilities and food outlets
  • Pay and conditions that have been allowed to deteriorate to the point that almost any other job is better
  • Brexit and the pandemic restrictions causing Eastern European drivers to leave and not return.

These are merely the direct causes. Less obviously, Blair’s push to get 50 percent of school leavers into higher education is now being felt, as fewer school leavers have been trained in non-academic work skills including HGV driving. In this respect, applying policy of any kind to a complex globalised economy looks a lot like hanging poor wallpaper – you push a bubble down here only to cause more bubbles to appear over there.

One saving feature of our complex, globalised economy remained true for the best part of three centuries. This was that whatever changes we made, there were sufficient resources available to allow the system to accommodate them and to return to some kind of equilibrium. What began with small pits to carve out minerals gradually morphed into literally moving mountains to expose the resources beneath. Politicians could pass laws and borrow new currency into existence, and the economy would provide all of the necessary resources to bring the desired policies to fruition.

But something changed around the year 1970. Most notably, the US dollar – which had provided the financial foundation of the post-war economy – stopped working. Instead of facilitating economic growth, printing new dollars began to generate inflation. Why? Because – largely unseen by economists and politicians – exponential financial growth could no longer generate exponential resource growth. This was the result of a single process unfolding in both mineral resources and, crucially, in energy. In both cases, the industrial economy had operated on a “low-hanging-fruit” basis – using up all of the cheap and easy resources before moving onto more expensive and difficult ones. But so long as energy remained cheap and easy, so that energy consumption could grow exponentially, resource growth could also grow to meet whatever commercial or policy aims the combination of legislation and spending desired.

Most obviously, what changed in 1970 is that US land-based, conventional oil deposits passed their production peak. In the financial field, this brought an end to the Texas Railroad Commission’s monopoly over world oil prices. Less obviously, it marked the point at which global oil production ceased growing exponentially:


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Ed 7 mths ago

“Venice Artisans Pushed to the Brink by Gas Crisis…

In the unusually cold workshop where he normally creates glass vases and candelabras, Fabio Onesto stared in despair at the seven furnaces he turned off in mid-October to save money.

“He stopped production after his gas bill in September rose to 24,450 euros, or around $28,000, almost triple what he paid in the previous months of this year, and more than he possibly can sell his wares for.”


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Ed 7 mths ago
Our fossil fuel energy predicament, including why the correct story is rarely told
Posted on November 10, 2021 by Gail Tverberg
There is more to the fossil fuel energy predicament than we usually hear about.

Strangely enough, a big part of the confusion regarding the nature of our energy problem comes from the fact that virtually everyone wants to hear good news, even when the news isn’t very good. We end up seeing information in the Mainstream Media mostly from the perspective of what people want to hear, rather than from the perspective of what the story really is.
In this post, I explain why this situation tends to occur. I also explain why our current energy situation is starting to look more and more like an energy shortage situation that could lead to economic collapse.

This post is a write up of a presentation I gave recently. A PDF of my talk can be found at this link. An mp4 video of my talk can be found at this link: Gail Tverberg’s Nov. 9 presentation–Our Fossil Fuel Energy Predicament.

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Ed 6 mths ago

Is This Peak Gas?

The recent, spectacular increase in the price of gas has created a sense of crisis not seen outside the financial sector since the early 1980s. In Europe in general and the UK in particular, it has begun to expose the folly of having an economy entirely dependent upon imports; including imports of the energy that powers everything we do. The conceit, of course, was that because we have gone much further than anyone else in deploying non-renewable renewable energy-harvesting technologies (NRREHTs) we were somehow less dependent on fossil fuels when events this week show that we are, in fact, more dependent than ever.

The deeper crisis though, is economic because without growing energy we cannot have a growing economy. This is obscured to some extent by GDP figures which count the movement of bits in bank computers as real economic growth when in reality, they merely add a new mountain of unrepayable debt to an already massive mountain of unrepayable debt. In the real world where the rest of us live, nothing gets done unless there is sufficient surplus energy to power it.

Setting aside for a moment the environmental imperative to cease polluting the planet, if it were possible to stabilise our fossil fuel consumption at 2019 levels, then we have some 50 years’ worth of accessible (proven reserves) of oil; 53 years of gas; and 115 years of coal. But flatlining is something that only happens in recessions. In the economy that we have come to take for granted, year-on-year growth in energy consumption is the precondition for improvements in prosperity:


This suggests that we have far less than 50 years before we run out of oil and gas if we insist on continuing to grow the rate at which we consume it. We should also note here that while fossil fuels are technically interchangeable to some extent – coal can be used to make synthetic oil and gas can be used to power some light vehicles – the costs to the economy would be eye-wateringly high. And so our additional years of theoretical coal consumption are not going to save us.

There are though, two additional show-stoppers here. The first is seen most clearly in Europe’s current problems. The first to industrialise, the European states were also the first to burn through their fossil fuel (and mineral) reserves in order to create the high standard of living enjoyed today. But that standard of living now depends upon the oil and gas-rich states of the former Soviet Union and the Middle East and North Africa not aspiring to a similar standard of living; so that their fossil fuels are available for our consumption. The world, of course, does not work that way. And these states are consuming increasing volumes of the oil and gas they produce to raise their domestic standards of living:

More https://consciousnessofsheep.co.uk/2021/10/11/is-this-peak-gas/

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Ed 6 mths ago

It’s now



When and how can we know that a change of direction is fundamental and lasting, rather than a temporary departure from established trends?

That, in essence, is the call we need to make now. Far from being “transitory”, current conditions – including rising inflation, surging energy prices and the over-stressing of supply-chains – are indicators of a structural change.

Ultimately, what we’re witnessing is a forced restoration of equilibrium between a faltering real economy of goods and services and a drastically over-extended financial economy of money and credit.

This is where confidence in continuity crumbles, where the delusions of ‘growth in perpetuity’ succumb to the hard reality of resource constraint, and where ‘shocks that are no surprises’ shake the financial system.

If you want just two indicators to watch, one of these is the volumetric (rather than the financial) direction of the economy, and the other is the behaviour of the prices of essentials within the broader inflationary situation.

The economics of stress

In the science of materials, it’s observable that fractures happen quickly, even if the stresses that cause them have accumulated over a protracted period. We can spend hours, days, weeks or even years gradually increasing the tension applied to an iron bar, but the ensuing snap in that bar will happen almost instantaneously.

Economics isn’t a science, but there’s a direct analogy here. Anyone who understands the economy as an energy system will be well aware of a relentless, long-standing build-up of stresses.

They’ll be equally aware that this cannot continue indefinitely.

Two things matter now.

First, when will these cumulative pressures bring about the moment of fracture?

Second, what should we expect to see when this snapping-point is reached?

The answers to the second question are pretty clear.

Once the break-point has arrived, we should anticipate deterioration in the material economy of goods and services. Rather than being misled by financial proxies for economic activity, we need to focus on physical metrics, which range from energy and resource consumption, and the supply of goods and components, to the movement of products and people.

Looking behind distorted comparisons with coronavirus-depressed 2020, this is exactly what we’re seeing now.


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Ed 6 mths ago

Has The EIA Massively Overestimated The Potential Of U.S. Shale?

A new report from Earth Scientist David Hughes seriously undermines rosy long-term forecasts made by the U.S. Energy Information Administration (EIA) for U.S. oil and natural gas from shale deposits

Of the 13 major plays he evaluated, Hughes rates the EIA’s production forecast for five as “moderately optimistic,” five as “highly optimistic,” and three as “extremely optimistic.”Saturation of sweet spots in key shale plays may lead to an irreversible production decline

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Ed 5 mths ago
There’s Not Enough Oil

“Nobody goes there anymore. It’s too crowded.” – Yogi Berra

We have a small confession to make. Discovery Channel’s Gold Rush is one of our favorite television shows. For those that don’t know, a television is a thing that looks remarkably like a computer monitor, but instead of simply watching whatever you feel like whenever the urge hits you, you must wait for specific times to see the shows you like. Crazy, we know.

Currently in its 12th season, Gold Rush profiles various gold mining operations as they set about chasing the dream of extracting life-changing riches from the ground. While the crews being chronicled and the locations of their mines have changed over the years, the series is grounded in the Klondike region of the Canadian Yukon.

Mainstays like Parker Schnabel and Yukon mining legend Tony Beets have enjoyed significant business success, while Todd Hoffman and his father Jack – leaders of the first crew ever profiled by the show – ultimately had to give up their mining dreams after burning through too much money.

Gold mining, even on television, is a business – and a brutally tough one at that. Heavy equipment represents capital investments, spare parts are working capital, fuel and labor are variable costs, and gold is the only source of revenue. The miners on the show are constantly balancing the various cash pressures involved in operating a successful gold mine, while holding out hope of hitting the proverbial mother lode.

One operational decision that fascinates us is how mine owners balance the need to remove overburden to expose gold-rich paydirt with the actual processing of that paydirt through their sluice plants (i.e., the facilities that wash the paydirt and capture the gold). Removing overburden (otherwise known as stripping or “opening up a cut”) is a necessary precondition to obtaining paydirt, but it is cash intense and generates no revenue.

Poorly capitalized operators tend to tightly balance stripping with sluicing, and sometimes must shut down sluicing for lack of paydirt. Better capitalized operators can afford to open cuts well ahead of processing, optimizing the on-time performance of their revenue-generating sluice plants. If cash is plentiful, they might proactively strip cuts for processing in future campaigns, keeping a healthy inventory of low-cost sources of revenue for rainy days – or gold price spikes – in the future.

We were reminded of this strip/sluice tension when we came across a fantastic article written by one of our favorite Substack authors. Rory Johnson is the writer of Commodity Context and his most recent piece, US Shale Patch’s Lackluster Recovery is a Problem for the Post-COVID Oil Market, is a fascinating and sobering read (subscribe to Johnson’s Substack here and follow his Twitter account here).

As Johnson explains, US shale operators function in an analogous manner to the miners on Gold Rush, balancing the drilling of new oil wells with completing them for production. Just like overburden can be stripped for future processing, so too can oil wells be drilled but left uncompleted. Such wells are colloquially known as DUCs. Here’s a relevant quote from Johnson’s piece:

Drilled but uncompleted wells are a function of the fact that the US shale production process has two major steps: (1) a well is drilled with a drilling rig and then (2) it is “completed” by a different team (i.e., the actual fracking part) after which it begins to produce marketable crude. When drilling runs ahead of completions as it largely did through 2017-19, the industry accumulates a sizable mountain of this potential production. These DUCs were yet one more bearish factor weighing on pre-COVID market prospects: even when US drilling declined, producers could lean into their DUC inventory to keep production humming along despite weaker rig activity.

The shale boom enabled the US to reestablish itself as the top global producer of oil and gas. Prior to the Covid-19 lockdowns, the US was producing approximately 13 million barrels of oil per day (mbpd) – more than double what it had been generating just a decade earlier.

To put that number into context, the world consumed an average of just under 100 mbpd in 2019 (i.e., pre-Covid). For 2020, that number dropped to 91 mbpd, but some estimates peg current global demand to have fully recovered to the 100 mbpd mark in Q4 2021. Interestingly, US oil and gas production is still lagging its early 2020 peak:

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Ed 5 mths ago
This Economy is Going Down

UK gas prices have fallen back this week – although they are still some 400 percent higher than at the start of 2021. And the reasons for the fall in price should not breed complacency. First, the arrival of a south-westerly airflow off the Atlantic has finally begun to spin those offshore wind turbines after last week’s doldrums.

At the time of writing, wind is supplying 28.5 percent of our electricity, allowing gas to fall back to 27.4 percent, and for coal plants to be switched off – although nuclear is being run flat out at 20 percent, reflecting the still too high price of gas. With stronger winds forecast for next week, demand for gas may fall even further. But the winter is only just beginning, and it is doubtful that we will get through January, February and early March without at least one more week of cold, still, high pressure air. And if we are unlucky, we could face several weeks in a row.

The second reason for the lull in price is worrying for a more complicated reason. On Wednesday, Marwa Rashad at Reuters reported that:

“At least ten cargoes of liquefied natural gas (LNG) have recently been diverted from Asia to head west drawn by Europe’s record high prices amid supply concerns ahead of peak winter demand, industry sources said…

“In addition to the above cargoes, a U.S. cargo onboard Marvel Crane had headed toward Panama bound for Asia before being diverted northeast and now signalled it was bound for the UK’s South Hook terminal, according to ICIS LNG Edge.

“Data Intelligence firm Kpler said it has listed more tankers diverting towards Europe from Asia and Other destinations like Brazil including British Contributor, Tembek, LNGShips Manhattan, LNG Alliance and are eying two more for possible route change.

“Furthermore, West African cargo onboard Maran Gas Sparta, a vessel chartered by Shell, has been called back to Europe after it was on the cusp of passing the Cape of Good Hope, said Felix Booth, head of LNG at energy intelligence firm Vortexa.”

Liquified natural gas is expensive. And the reason these ships have done a U-turn to head toward Europe and the UK, is that – for the moment – the pound and the euro still carry enough nominal value for our gas supply companies to outbid their Asian competitors. This though, is about to change. And in future, countries like the UK are going to struggle to outbid anyone for fossil fuels that are now either depleting or being used by producing countries for domestic supply. In short, Western Europe, and especially the UK, are about to be hit with higher import prices just as the value of our currencies take a post-pandemic dip.

Inevitably, the UK establishment media only sat up and paid attention when the supply companies threatened a 50 percent increase in energy bills, hitting the salaried liberal class and prompting calls for the government to take action. But it is far from clear at this point that governments can do much more than the energy equivalent of rearranging deckchairs as the ship goes down.

Neither the government, the supply companies nor the establishment media understand the essential role of energy in the economy. In part this is because – until now – we have only had to pay the cost of extracting and supplying fossil fuels, not the true value they provide to the economy. And saddled with economic theories – both left and right-leaning – which simply assume that there will always be enough supply to meet demand, politicians and the economists who advise them will claim that we only need to issue some additional new currency to solve the problem.

Once we understand, however, that nothing gets done without energy – including securing future energy itself – then we can begin to understand that the rise in gas prices – coming on the back of big rises in the price of oil and oil-derived fuel – are about to rip through what remains of the post-covid economy like a hot knife through butter.

Rising energy costs translate into rising costs of everything else in the economy. And while this – sort of – aligns with rising prices, its real impact is on value itself. That is, rising energy costs are essentially a symptom of the deeper problem that there is not enough energy to go around. In the past, this has been temporary – for example the oil shocks or the “three-day week” of the 1970s. And there may be some degree of artificiality about the current gas supply shortage insofar as Germany and Russia are playing politics.
Nevertheless, the harsher reality is that, as the first place to begin using fossil fuels, Western Europe is also the first to deplete them – including the more recent oil and gas from the North Sea. And there is no law of the universe that says that the rest of the world has to give Europe first preference in supplying what is left – only the relative value of our respective currencies does that.

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Ed 5 mths ago

“Oil and gas discoveries are at the lowest level since 1946.

“Oil and gas firms are having their worst year for new fossil fuel discoveries in decades and reserves are dwindling. The oil and gas industry is on track to discover just 4.7 billion barrels of oil equivalent (boe) by the end of 2021, its worst performance in 75 years…”


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Ed 4 mths ago

Oil Frackers Brace for End of the U.S. Shale Boom…

Limited inventory leaves the industry with little choice but to hold back growth, even amid high oil prices…

“Frackers made a big dent in their inventory as many sought to harvest sweet spots to survive lower oil prices during the pandemic. In recent years, they’ve also discovered that their projections for how many wells they could cram into tight spaces were overly optimistic.


“Companies learned that newer wells drilled too closely to older ones often caused interference with the original wells’ oil production or caused new wells to perform worse than expected. They eventually spaced wells farther apart, cutting into estimates of how many they had left to drill.”



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Ed 33 days ago

The world has a major crude oil problem; expect conflict ahead

Media outlets tend to make it sound as if all our economic problems are temporary problems, related to Russia’s invasion of Ukraine. In fact, world crude oil production has been falling behind needed levels since 2019. This problem, by itself, encourages the world economy to contract in unexpected ways, including in the form of economic lockdowns and aggression between countries. This crude oil shortfall seems likely to become greater in the years ahead, pushing the world economy toward conflict and the elimination of inefficient players.


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Ed 33 days ago

This time really is different

This is why this time is different. In the absence of an alternative, cheap, high-density energy replacement for finite fossil fuels, there is no financial means of preventing a permanent depression – quarter after quarter, year after year of negative growth until the economy comes back into balance with the energy and resources available to us.

And while a process of managed de-growth might have been possible had we acted sooner, the reality is that we have been so conditioned to the myth of infinite growth on a finite planet that only a small minority would have ever voted for a politician who advocated de-growth.

This time is different because there is no way out…


Read More

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Ed 19 days ago
Media outlets tend to make it sound as if all our economic problems are temporary problems, related to Russia’s invasion of Ukraine. In fact, world crude oil production has been falling behind needed levels since 2019. https://finance.yahoo.com/news/global-oil-production-growing-fast-210000920.html

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Ed 7 days ago
Is the debt bubble supporting the world economy in danger of collapsing?
Since 2019, our problem has been that the total energy supply has not been keeping up with the rising population. The cost of extraction of all kinds of oil, coal and natural gas keeps rising due to depletion, but the ability of customers to afford the higher prices of finished goods and services made with those energy products does not rise to match these higher costs. Energy prices probably would have spiked in 2020 if it were not for COVID-related restrictions. Production of oil, coal and natural gas has not been able to rise sufficiently after the lockdowns for economies to fully re-open. This is the primary reason for the recent spiking of energy prices. 
The situation we are facing today is much more severe than in 2008. The debt bubble is much larger. The shortage of energy products has spread beyond oil to coal and natural gas, as well. The idea of raising interest rates today is very much like going into the Great Depression and deciding to raise interest rates because bankers don’t feel like they are getting an adequate share of the goods and services produced by the economy. If there really aren’t enough goods and services for everyone, giving lenders a larger share of the total supply cannot work out well. 

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Ed 7 days ago

Saudi Arabia’s energy minister, Prince Abdulaziz bin Salman, has said there are “physical impediments that no producer can solve” at work right now in the oil market, according to the Financial Post/Bloomberg.   Read More

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Ed 3 days ago

“The “first global energy shock” is currently underway as sharp rises in prices have resulted in a “consumer-driven crisis,” says Angela Wilkinson of the World Energy Council…

““If you look at the price of … refined products in many parts of the world, they’re now unaffordable for many of the bottom half of societies,” Wilkinson warned. “We’re going to have to see some form of massive reallocation of … money coming out of … this crisis. Consumers are really, really hurting.””


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Ed 1 day ago

“The dire diesel supply situation predates the Russian invasion of Ukraine. While global oil demand hasn’t yet reached its pre-pandemic level, global diesel consumption surged to a fresh all-time high in the fourth quarter of 2021. The boom reflects the lopsided Covid-19 economic recovery, with transportation demand spiking to ease supply-chain messes.

European refineries have struggled to match this revival in demand. One key reason is pricey natural gas. Refineries use gas to produce hydrogen, which they use to remove sulphur from diesel. The spike in gas prices in late 2021 made that process prohibitively expensive, cutting diesel output.”


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