Daze of Peak Oil…or at least Peak Oil Production

2014, Oct 15
By Chris Hamilton

Production of crude oil has nearly stalled despite a near quadrupling in the price since ’01 and it seems likely the world has entered the Peak Oil phase and the governments nor central banks (try as they may) can paper this over. Without the growing supply of adequate cheap energy, there isn’t adequate GDP growth, and without the GDP growth, there is no way to outgrow, pay off, or service the huge debts incurred but by interest rate suppression. The dual occurrence of peak oil with ZIRP (zero interest rate policy) is a truly unfortunate state of affairs. But whether or not they happened in tandem, both were inevitable. Still, governments and central banks are attempting to maintain the pre-peak oil system and avoid the pain of free market corrections to supply, production, and price. It is in this light that the centralization and “intervention” of stock, bond, and real estate markets and the manipulation of commodities growing in scale and frequency since ‘09 should not be shocking. Free markets are the enemy of fraud, the punisher of bad fiscal and economic behavior and thus free markets will not be allowed to facilitate true price discovery (i.e., REALITY).

The story of energy, particularly cheap and plentiful crude oil, has been the foundation of rapid economic global growth since WWII. The Global story of crude oil is integral to understanding the world of 2014. Crude oil matters so much because there is no readily available replacement for its energy and chemical uses and any likely eventual replacement will be at significantly higher costs. Ever higher costs of energy are negatively impacting GDP growth the world over and absent GDP growth there is no way to service or grow our way out from the great debts that have been incurred.

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In 2010, the hole left behind by fracking was only $18 billion. During each of the last three years (’11-’13), the gap was over $100 billion/yr. This is the chart of an industry with apparently steep and permanent negative free cash-flows: This is the huge problem with Fracking shale oil and gas.  Due to the extremely high annual decline rates of the typical shale oil or gas well, companies must continue to spend a great deal of capital expenditures to replace what was lost.  It’s known as the DRILLING TREADMILL…. once you start, you can’t get off.

In one year the top 127 oil and gas companies spent $110 billion more on capital expenditures than they received from operations.  So, they acquired $106 billion in additional debt (a large percentage through the Junk Bond Market) and sold assets to make up the difference.

This is not a sustainable business model, just like the same nonsense taking place in the broader stock markets as corporations buy back massive amounts of their stock to give the ILLUSION that everything is fine and BAU- Business As Usual will continue.

Not only are many of these oil and gas companies hiding the fact that their balance sheets are hemorrhaging debt, they also have a cozy situation with the Federal Government.  Basically, the Fed’s allowed them to defer more than half of their tax bill… and it’s a lot of money. In a nutshell, the top 20 oil and gas companies still owe $16.5 billion (more than 50%) to Uncle Sam in tax revenue.

See more at: Biderman's Money Blog

Mark Anthony debunks the oil/gas fracking rush

Financial State Of The Natural Gas Industry

It puzzles me how the US NG industry manage to fund development of shale gas for these years, if the adventure is deeply unprofitable?

The True Economy Of Bakken Shale Oil

I have written repeatedly on SA to warn people that the shale oil and gas developers tend to use unreliable production models to project unrealistically high EURs (Estimated Ultimate Recovery) of their shale wells. They then use the over-estimated EURs to under-calculate the amortization costs of the capital spending, in order to report "profits", despite of the fact that they have to keep borrowing more money to keep drilling new wells, and that capital spending routinely out pace revenue stream by several times.

When the capital costs are fairly amortized, most shale oil and gas development projects are deeply non-profitable. Even the Bakken shale oil, regarded as the most profitable shale play under current pricing environment, is not profitable. Let me use real data from Whiting Petroleum (WLL), the second largest Bakken shale oil developer, to demonstrate the real economy in Bakken shale.

Mark Anthony's instablog

Peeking at Peak Oil

Peeking at Peak Oil
Kjell Aleklett

Amazon: Peeking at Peak Oil, 2012 [hardcover]

The term “Peak Oil” was born in January 2001 when Colin Campbell formed the Association for the Study of Peak Oil & Gas (ASPO). Now, Peak Oil is used thousands of times a  day by journalists, politicians, industry leaders, economists, scientists and countless others around the globe. Peak Oil is not the end of oil but it tells us the end is in sight. Anyone interested in food production, economic growth, climate change or global security needs to understand this new reality. In Peeking at Peak Oil Professor Kjell Aleklett, President of ASPO International and head of the world’s leading research group on Peak Oil, describes the decade-long journey of Peak Oil from extremist fringe theory to today’s accepted fact: Global oil production is entering terminal decline. He explains everything you need to know about Peak Oil and its world-changing consequences from an insider’s perspective. In simple steps, Kjell tells us how oil is formed, discovered and produced. He uses science to reveal the errors and deceit of national and international oil authorities, companies and governments  too terrified to admit the truth. He describes his personal involvement in the intrigues of the past decade. What happens when a handful of giant oil fields containing two thirds of our planet’s oil become depleted? Will major oil consumers such as the EU and US face rationing within a decade? Will oil producing nations conserve their own oil when they realize that no one can export oil to them in the future? Does Peak Oil mean Peak Economic Growth? If you want to know the real story about energy today and what the future has in store, then you need to be “Peeking at Peak Oil”.

Very Important Work September 1, 2012
By keith renick
Format:Hardcover|Amazon Verified Purchase

This book, Peeking at Peak Oil is a very important work. This work is based on science. It's sound in it's findings. Again, it's science that's based on very sound research methods. It's not pie-in-the sky or doomsday is here. It's sound scientific research that can't be overlooked. Looking at the facts, readers can draw their own conclusions as to how peak oil will play out. Peak Oil is real and it has arrived. Peak Oil is most often misunderstood by economists and the general public. Modern economics is flawed because it never had a reason it include net energy in it's economic models of growth. Economist are obsessed with total labor productivity. The world is consuming more and more energy and getting less and less growth, less bang for their buck. Along with "Peak Oil" we will have water problems as many places that produce oil will require huge amounts of water for water injection to get the remaining oil out of the ground. What's never addressed is the growing car and light truck population of the earth. When my granddaddy Crump was born in 1889 there were maybe 3 cars in the USA. When I was born there was less than 70 million cars in the USA. Today, there are over 250,000,000 cars and light trucks in the USA and growing. Today the global car and light truck population more than 800 million and racing to a billion worldwide. At some point, it doesn't matter how much oil is in the ground or how many miles per gallon your car gets. What matters will be the total number of cars and light trucks in the world, all of them, more than a billion, wanting their gas tanks topped off. But the average person doesn't want to hear that there are limits. Tap water and gasoline will always be there in abundance and will always be affordable. Many believe everyone who can afford a car should have one and the earth can support one billion cars, one and a half billion cars, 2 billion cars or more. The total number of cars and light trucks in the world has never crossed their minds. How can it be expected that China and India will stop making cars? They won't and the demand for oil will overtake production forever. At some point, the question might not be how much oil is left in the world but rather how are we going to use the oil that is left? Only about 2 thirds of a barrel of oil is used to make gasoline, diesel and jet fuel. This is the term "peak oil" refers to most often is that it's a liquid fuel transportation problem. This statement is true. However, I am very concerned about the remaining one third that's used in manufacturing thousands of products that we use everyday. Now we call everything oil. Heavy sour, tar and NGL. I was very honored several years ago when Dr. Colin Campbell emailed me some of his field-by-field estimates for Saudi Arabia. I believe the author of this book and Dr. Colin Campbell are the 2 most informed experts on the subject of "peak oil." The quality of their research is unquestionable. While I do not share the authors belief that we can feed a future world of 9 billion people, the authors knowledge and effort that went into "Peeking at Peak OIl," is truly remarkable. Keith Renick, Saudi Aramco Oil Retired

The Decline and Fall of the Roman Empire

The History Of The Decline And Fall Of The Roman Empire
Edward Gibbon

Complete HTML edition

The History Guide

The Enlightenment found many of its virtues ready-made in the world of ancient Rome: economic abundance, and international political structure and a common language for many people. Of course, the greatness of Rome also led to its eventual collapse and fall, and this singular fact has exercised the mind of the historian ever since. Gibbon was perhaps the first to make such a sustained investigation of this kind of event. The following selection is from Chapter XXXVIII: General Observations on the Fall of the Roman Empire in the West. A brief list of resources follows the excerpt.

Wikipedia: The History of the Decline and Fall of the Roman Empire

Intellectus journal of the Hong Kong Institute of Economic Science: Edward Gibbon, Historian of the Roman Empire [Part I]; [Part II]
by Eugene Y. C. Ho, Hong Kong

What led first to Rome's decline and ultimately to her fall? Gibbon discovers many causes, which he discusses in various parts of his work. For instance, the long period of peace and the uniform government of the Romans gradually extinguished the industry and creativeness of the people, as well as the military discipline and valour of the soldiers (Chs. 2 and 7); the indulgence in luxury, which originally remained confined to the nobles and residents of the Imperial Court, was later extended to the troops, totally corrupting their morals (Ch. 17); the enrolment of mercenary barbarians in the armies, which served to excuse the Roman themselves from military responsibilities, at the same time encouraged the barbarians within the Empire to grow in power and influence (Ch. 17); the multiplication of oppressive taxes was countered and evaded by the rich, who shifted the burden to the poor, who in turn also dodged them and fled to the woods and mountains to become Rome's rebels and robbers (Ch. 35).

Notwithstanding the importance of these many contributing causes, Gibbon considers another two to be the most important and decisive: (1) the invasion of the barbarians, and (2) the growth of Christianity within the Empire. "I have described the triumph of barbarism and religion," he writes in the concluding chapter of his History. Every student of ancient Roman history would be familiar with the foreign enemies of the Roman Empire, most of whom were barbarians: the Goths, Lombards, Vandals, Alemannis, Huns, Persians, Turks, etc. As they had invaded Rome at one time or another, it is easy to appreciate their respective role in her fall. However, it is less easy to understand the role Christianity played as an accomplice. How was it possible that a religion whose humble founder preached love and peace and who later found himself gruesomely nailed to a cross contributed to Rome's collapse? Let us analyze this position of Gibbon in more detail.

In Gibbon's view, Christianity made for the decline and fall of Rome by sapping the faith of the people in the official (pagan) religion, thereby undermining the state which that religion supported and blessed. To be sure, Gibbon is not blind to the fact that other cults and sects within the Empire were also competing with one another in their attempt to attract believers. As he admits, "Rome, the capital of a great monarchy, was incessantly filled with subjects and strangers from every part of the world, who all introduced and enjoyed the favourite superstitions of their native country" (Ibid., Ch. 2). However, Christianity was to be distinguished from the other flourishing sects in its claim to exclusivity, or in other words, in its claim that it alone held the key to "Truth" and to Heaven, and that all its competitors were vicious and damned. Moreover, as the early Christians believed in the imminent end of this world, they all put their thoughts in the "next" world. This other-worldly attitude proved most disastrous to the Empire during the barbarian invasions, since the Christians, instead of bearing arms to serve the state and the public good, diverted men from useful employments and encouraged them to concentrate on heavenly and private salvation. Needless to say, Gibbon's anti-Christian position aroused the fury of his Christian contemporaries.

The City of God

The City og God [De Civitate Dei contra Paganos]

Agustine of Hippo

Wikipedia: De Civitate Dei, (full title: De Civitate Dei contra Paganos), translated in English as The City of God, is a book of Christian philosophy written in Latin by Augustine of Hippo in the early 5th century AD. It is one of Augustine's major works, standing alongside his The Confessions, On Christian Doctrine, and On the Trinity. Augustine is considered the most influential Father of the Church in Western Christianity, and The City of God profoundly shaped Western civilization.

Amazon: City of God (Perguin Classics)
Augustine of Hippo

St. Augustine, bishop of Hippo, is one of the central figures in the history of Christianity, and City of God is one of his greatest theological works. Written as an eloquent defence of the faith at a time when the Roman Empire was on the brink of collapse, it examines the ancient pagan religions of Rome, the arguments of the Greek philosophers and the revelations of the Bible. Pointing the way forward to a citizenship that transcends worldly politics and will last for eternity, City of God represents a dramatic turning point in the unfolding of Christian doctrine.

The new introduction by Gill Evans examines the text in the light of contemporary Greek and Roman thought and political change. It demonstrates the importance of religious and literary influences on St. Augustine and his significance as a Christian thinker.

Wikipédia: A Cidade de Deus, de Agostinho de Hipona

De Civitate Dei (A Cidade de Deus) é obra de Santo Agostinho, onde descreve o mundo, dividido entre o dos homens (o mundo terreno) e o dos céus (o mundo espiritual). Teria sido a obra preferida pelo imperador Carlos Magno.

Uma das criações mais representativas do gênero humano. A propósito da filosofia ou teologia da História, trata dos mais variados e complexos assuntos que sempre apaixonaram e torturaram o espírito humano: da origem e substancialidade do bem e do mal, do pecado, das culpa e da morte, do direito, da lei e das penas, do tempo e do espaço, da contingência e da necessidade, da Providência, da ação humana e do destino no desenvolvimento da História: do ser, do conhecer e do agir do homem, de Deus, da natureza e do espírito, da temporalidade, do eterno, da perenidade e dos ciclos cósmicos, da profecia e do mistério como argumento apologético, da pessoa, da cidade e da comunidade humana.

A Cidade de Deus (PDF em português)
Santo Agostinho

The End of Growth

The End of Growth: Adapting to Our New Economic Reality
Richard Heinberg

Richard Heinberg’s latest landmark work goes to the heart of the ongoing financial crisis, explaining how and why it occurred, and what we must do to avert the worst potential outcomes. Written in an engaging, highly readable style, The End of Growth describes what policymakers, communities, and families can do to build a new economy that operates within Earth’s budget of energy and resources. We can thrive during the transition if we set goals that promote human and environmental well-being, rather than continuing to pursue the now-unattainable prize of ever-expanding GDP.

Amazon: The End of Growth: Adapting to Our New Economic Reality [2011, Paperback]

Review
Why have mainstream economists ignored environmental limits for so long? If Heinberg is right, they will have much explaining to do." -- LESTER BROWN, Founder Earth Policy Institute  --Lester Brown - Earth Policy Institute

Heinberg shows how peak oil, peak water, peak food, etc. lead not only to the end of growth, but to the beginning of a new era of progress without growth. --Herman E. Daly, Professor Emeritus, School of Public Policy, University of Maryland

By the time you finish this, you will have 2 conclusions: This is the end of economic growth and it is our problem, not our childrens'. It's time to get ready. This book is the place to start. --Paul Gilding - Former head of Greenpeace International

Richard has rung the bell on the limits to growth. Our shift from quantity of consumption to quality of life is the great challenge of our generation. Frightening...but ultimately freeing. --John Fullerton - President and Founder, Capital Institute

Nobody should be elected to federal office who has not  read Richard Heinberg's The End of Growth. - William Catton, author of Overshoot.

Back Space, Richar Heinberg website

The Revenge of Gaia

The Revenge of Gaia: Earth's Climate Crisis & The Fate of Humanity
James Lovelock

From Booklist — British geophysicist Lovelock introduced the Gaia theory in the early 1970s, envisioning the biosphere as "an active, adaptive control system able to maintain the earth in homeostasis." Since then, Lovelock has expanded the Gaia concept to embrace "physical, chemical, biological, and human components," recognizing that organisms do change the environment, none more radically than humanity. Lovelock now describes Gaia as fighting for its very existence as a rapidly increasing human population threatens to upset the precise balance of forces the make the earth conducive to life. Lovelock looks beyond biodiversity (see E. O. Wilson's The Creation, p.19) to elucidate the functions of the polar ice caps, Amazon rain forests, and ocean currents, and then explains the causes and consequences of global warming. This is solid science, a practice Lovelock seems to abandon in his strangely irresponsible arguments for nuclear energy and against sustainable energy sources (see Helen Caldicott, p.15). In spite of its flaws, Lovelock's tough-minded presentation is a valuable contribution to the urgent debate over humankind's future. Donna Seaman
Copyright © American Library Association. All rights reserved --This text refers to an out of print or unavailable edition of this title.

Amazon: The Revenge of Gaia: Earth's Climate Crisis & The Fate of Humanity [Paperback, 2007]

The key insight of Gaia Theory is that the entire Earth functions as a single living super-organism. But according to James Lovelock, the theory’s originator, that organism is now sick. It is running a fever born of increased atmospheric greenhouse gases. Earth will adjust to these stresses, but the human race faces a severe test. It is already too late, Lovelock says, to prevent the global climate from “flipping” into an entirely new equilibrium that will threaten civilization as we know it. But we can do much to save humanity. In the tradition of Silent Spring, this is a call to address a major threat to our collective future.