Arthur Berman: Why Today's Shale Era Is The Retirement Party For Oil Production

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As we've written about often here at PeakProsperity.com, much of what's been 'sold' to us about the US shale oil revolution is massively over-hyped. The amount of commercially-recoverable shale oil is much less than touted, returns much less net energy than the petroleum our economy was built around, and is extremely unprofitable to extract for most drillers at today's lower oil price.

To separate the hype from reality, our podcast guest is Arthur Berman, a geological consultant with 34 years of experience in petroleum exploration and production. 

Berman sees the recent US oil production boost from shale drilling as and short-lived and somewhat desperate; a kind of last hurrah before the lights get turned out:

The EIA looks at the US tight oil plays and they see maybe five years before things start to fall off. I think it is less, but I am not going to split hairs. The point is that what we found is expensive and we have got a few years -- not decades -- of it.

So when we start hearing people pounding the table about how the United States should lift the ban on crude oil exports, well that is another topic if we are just talking about free trade and regulation, but what in the world is a country like ours doing still importing 5+ million barrels of crude oil a day and we have got maybe 2 years of supply from tight oil? What are we thinking about when we claim we're going to export oil? That is just a dumb idea. It is like borrowing money from a bankrupt person.

I'll tell you what they're thinking about: the companies are thinking it is easier for them just to sell the oil directly overseas than it is to go through all the hassle of having to blend it with heavier oil and refine it here in the US and then go sell it overseas, as they have to do today.

Anyways, I think you just have to be realistic. Let’s give ourselves credit for ingenuity. We have done something that a few years ago probably almost no one thought was possible. But let’s also be realistic: this is the most mature petroleum province on earth. We are squeezing blood from a stone and as long as prices are high, we will squeeze a little more. And that’s it.

I like to talk about these shale plays as not a revolution, but a retirement party. I mean, you know, this is the kind of bittersweet celebration you have when you are almost out the door and are going to sit around the house and watch Duck Dynasty whatever for your remaining days. It's not really cause for a celebration. It is cause for some sobering concerns and taking stock about what does the future have in store for us as a country, as a world? 

Click the play button below to listen to Chris' interview with Arthur Berman (55m:44s)

This is a companion discussion topic for the original entry at https://peakprosperity.com/arthur-berman-why-todays-shale-era-is-the-retirement-party-for-oil-production/

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Here's some supporting info on Berman's claim that he sees the drop in oil prices as relatively temporary.
This is the second week in a row with a loss of about 90 rigs.  That's a huge change - a 25% drop in rigs since end of 3Q 2014, with all of it happening in Dec-Feb 2015.  And as we know, shale production is front-loaded, so this should hit the (one-month lagged) production numbers in the next month or two, assuming the companies don't rush to complete all those already-drilled wells.

By summer, the effect should be remarkable.  Maybe a 10-15% drop in shale production?  Perhaps more, if the rig count keeps dropping at this same rate?

Here's a chart that shows the average number of rigs added or removed over a four-week period, with data going back to 2000.  Note how the current weekly average losses have exceeded losses seen during the 2008-2009 period, when oil dropped to $34/bbl. 

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Arthur Berman:       And that is because nobody wants to change the way they live.
Chris Martenson:    Right. That is why 99% of the hands go up and say "I drove here by myself."

Arthur Berman:       Give me a reason why I don’t have to change my lifestyle and I’ll take it.

Chris Martenson:    Right away without any question. I will not examine that fact too closely. Thank you.

People believe what they are told in the papers, in the main stream news and what some of the "experts" in the field are telling them.  The narrative tells them one story and they are then met with derision and mockery for accepting that story.  Perhaps "people would change the way they live" if someone were shouting from the roof-tops a different story.  Mr. and Mrs. Middle America deserve more than contempt they deserve the truth.

Cranky Granny

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you better get the mare settled.

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a dog, ox or a "mare"
https://www.youtube.com/watch?v=Z3UJXSb0z6c

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but I'm going to have to go with Arthur and Chris on this one.
I'm not listening to the narrative that you refer to and I have not made the changes that will be necessary in the not too distant future. Sure I've made some changes, and will continue to make more, but knowing I can afford the cost of energy at today's prices is enough to keep me from changing my lifestyle too much too soon.
I don't believe it is derision when these men point out obvious facts of human nature, that I too am guilty of, as occurred in the conversation.

Maybe we all need to take a deep breath before we jump on someone's case, especially someone with proven high moral character. Chris has certainly IMO earned the benefit of the doubt in regards to treating people with respect, and Arthur didn't seem out of line IMO.
There's plenty of real disrespect in the world. Let's not assume it when we can just as easily assume the opposite.
SS

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I doubt oil price will recover due to demand price. Just check BDI, it collapse - where is demand on shipping? This is not a short term issue.
 

 

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The World's Best Known Global Shipping Index has Crashed To Its Lowest Level Ever

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Your link reminded me of an article on ZH I read a couple days ago.  The shipping index information jogged my memory about the discussion of crude oil production and storage issues, particularly ship-based storage.  I thought the commodity strategist quoted had some interesting comments. 
http://www.zerohedge.com/news/2015-02-07/death-petrodollar-was-finally-noticed

 

Sabine Schels: Basically, supply keeps running above demand. The term structure of Brent, which preceded the collapse in prices, continues to weaken across the next 12 months as inventories are building at an alarming speed, setting the stage for lower, not higher prices.

Inventories typically build because supply exceeds demand in any given market. But in some markets, like oil or gas, storage capacity is a finite number and price declines can accelerate as inventories build. In previous oil price downturns, OPEC would reduce supply as stocks built up to prevent a collapse in the term structure of prices. After all, when the price of storage soars, storage operators benefit and oil producers suffer

However, this new OPEC policy will likely create a large inventory overhang, suggesting further downside risks to oil prices. In fact, we see floating storage coming into play over the coming months with roughly 55 million barrels building on ships by the end of 2Q15 as land-based inventories across North America, Europe and Asia fill up. But even floating storage is limited by its very nature. If crude vessels fill up, shipping rates will spike; and that is unlikely to help any oil producer in the world.

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I don't know, I think Granny does touch on a good point. We here have chosen to "believe" a certain narrative that most others reject. Why is that? Because of our predisposed nature, or maybe because we have particular insight that makes our "beliefs" more than just beliefs?

But what is the average person to believe? While it may be obvious to people like me who have really looked into the issue of environmental limits and over-consumption with considerable authority and detail, most people don't have that to go on. They simply choose which narrative to believe, and it's easy to believe the one the mainstream is telling them, especially since it reinforces greed.

Twice now I have had friends bring up Penn and Teller's Bullsh!t series, the first one was the episode debunking organic foods, and just the other day another person brought up the episode debunking recycling. To tell you the truth, I haven't seen those episodes but I probably should (better things to do with my time right now), but based on what my friends were saying it seems P&T have overly simplified complex subjects down to a few simple messages that may be too simplistic to be relevant. I saw the anti-environmental hysteria episode and that is clearly full of bullsh!t so if that's representative, why watch more.

The point is, why are Penn and Teller experts on understanding such wide ranging issues? I think that may be part of the problem today, everyone thinks he's an expert, on everything. I'm not saying I agree or disagree with everything P&T say, I actually agree with some of it (but not to the extent that I'd make movies about every one of my opinions and market them as gospel), but seriously, just because they are respected entertainers, that gives them the qualifications to get up and basically tell everyone that all's OK, just continue doing what you're doing, continue consuming to help the economy? That's basically their message. Well, they are members of the Cato institute which is funded by some nasties like the Koch Brothers. Is the average person going to look this up when they decide which voice to believe?

I think my friends are totally clueless when it comes to what's happening in the world. And they refuse to even look at arguments which may suggest otherwise. Is it because they are bad people? No, they are just predisposed to believe what the mainstream wants them to believe. That's the problem we are up against and ultimately will be the downfall of humanity.

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Anyone else find the term "Lethal Aid" dripping with cognitive dissonance?

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It rhymes with legal aid which evokes images of helping the poor and downtrodden fascist Ukraine gov't.
 

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Knowledge is power, as they say, but I'm beginning to feel the advantage to all this knowledge is not going to be all that helpful. I hope this isn't the wrong thread to post this, but I think it's relevant to the info provided.
I've been watching Chris and others now for years and taking notes on the big picture behind the scenes and scrutinizing 'what can I do'. You see, we had the rug pulled out from under us when that last 'housing crash/crisis' hit. We hadn't been paying attention and had NO CLUE what was about to happen, and when it did, we were vulnerable - and I swore, "never again"! 

The suggestions for self-sufficiency Chris advocates seem practical - and we have been making strides toward it (with chickens and a greenhouse,utilizing all kinds of different growing techniques like hydroponics). We've been employed the entire time with our own PC repair biz for over 10 years now (no overhead costs), and it saved us at the time were thrown into that first shock. We did fight the great fight (for 3 years) to save our home from the predatory lender and an illegal foreclosure… but in the end, we were defeated. Now after all the different stages of grief to acceptance, and another year focusing on homesteading efforts while renting… I see an awful lot of flaws and cracks in the logic of this self-sufficiency and preparedness. Not saying it's not worth it to try (after all, what else can you do???), but first, unless you have significant means at this moment - a minimum of good credit and income,  you're probably already so marginalized, that another drop in the economy will shift you completely off the cliff… and chances of successfully becoming self-sufficient are slim. 

I just finished watching the extended interview featuring Richard Heinberg - the Bonus Interview footage  for the documentary "What a way to go - life at the end of empire".

( https://www.youtube.com/watch?v=-81v5kPbwd4 )

No new info on the oil situation if you've been watching and listening (thanks Chris, et al!), except that the closer it comes, the better they are able to give detail to 'the conundrum'. Arthur also says things are getting "critical"- but EVERYONE with this info is still stumped as to when and how it will hit us, what to expect, and how to respond… except to 'prepare'. Somehow.

There are several suggestions that sound practical, if you CAN manage to get into a secure situation. We are all either renters now, or WILL be renters, IF we are and remain lucky… I'd say, we're all pretty much out of luck in getting such a secure situation.

Arthur Berman (and the U.S. Army, and a recent study from Germany…) all say we will see definite signs of oil limits and gas price shocks by NEXT YEAR.

I imagine at first, the 70's type lines at the pump (and you can only get gas every other day, depending on your license plate number), PLUS an unaffordable price continuously going up. But just look at the current situation happening at the west coast shipping lanes… one dock-worker's strike and we are all suddenly vulnerable to lack. It IS survival.

So let s say we have one year to get ourselves set up for a sudden lack of food (and more) on the store shelves… or exorbitant price gouging on gas and utilities, etc. One year to be prepared for the likely coming of collapse-inducing shocks and inner-city chaos and who knows what. 

The petrodollar as well is currently at risk; and that means the dollar itself. A currency collapse is just as likely as oil shocks - and most certainly sudden shocks like banks closing or stopping credit. One could cause the other… and either way the ships and trucks won't be running.

The potential of any of these risk scenarios is a total breakdown of society and supply chains. Not a slow burn like we've seen in Greece the past 4 years, although there is a slight chance of that (if Detroit's demise can be called a slow burn).

The city offers little for survival - an apartment balcony garden will not cut it, even if you can protect it? How long could that situation hold as things continuously break down (even if slowly)? I see Detroit-ification of every big city.  The banks foreclose and let the houses rot. So where will those people go, with no money and no job, (even if they could still receive EBT/SNAP handouts)?

The advantage of city/urban settings is the transition town scene (like experimental Seattle, WA?), but as Richard Heinberg points out, there is a vulnerability in being self-sufficient if others with more numbers or bigger weapons want what you have. Imagine a constant flow of migrating families (the newly homeless), the mentally fragile without access to medications, and the drug addicts with no skills or willingness to learn them, even if not armed… and the various kinds of roving gangs who will be. (You must ask such questions… like how easy would it be for drug cartels to create a constant flood of mercenaries of drug addicts as front-runners and scouts? And exactly how long could you remain incognito with a yard full of chickens and goats and a greenhouse…)

The advantage of rural locales is simply the space between you and those who are looking for resources to survive on. But on the other hand, you're alone to face whoever may overcome that space. Best case there is now, is that you even qualify for a bank loan (and don't get stuck in a predatory loan), then eek out enough of a living to keep up on the payments, while building it up constantly for self-sufficiency. (You could spend 10 years & all your money setting up the ideal homestead, but 3 years is a necessary minimum to get all the kinks worked out of your learning curve). You might muddle through given 2 years to do it, but you'd better know what all you will need and be able to GET it before things fall apart. Then you pray that the weather holds out and that your neighbors aren't eyeing your efforts while taking the easy way - by just stocking up on ammo. 

What I'm seeing is that this knowledge isn't really conducive to hope. I've heard over and over that HOPE IS NOT A STRATEGY. But what is a good strategy? You're not only fighting uphill to GET secured now, somehow… but then, you're really risking it all for the path you decide to take for your future long term survival. And good luck keeping it. You're risking all your current resources, mental energies, and all your personal motivation and reserve, and it's all for a possible catch-22 situation. 

What advantage does the knowledge give us? I see our situation unfolding much like the collapse of USSR (info from Dmitry Orlov). The Russians had more advantages than we currently do (other than we've had more reliable utilities) - for instance they had warehouses full of food along cross-country rail lines, and many towns were also near the rails. Those who were rural had animals and knew how to stock up for winters, and still, millions died of starvation. 

Maybe this is just another stage of grief and I don't recognize it… but the more I understand (or think I do), of the coming situation(s), the less hope I have that the knowledge helps in any efforts we are making. I saw this in Richard's interview as well, at one point advocating 'getting skilled', and then in being willing to teach those skills or make those things (like leather works)… you'd be valuable to others.

Anyone fell BETTER about their situation having learned more about what's coming? Does it help you to see a 'best plan of action' to come through any of these impending collapse scenarios? 

 

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I came to the same conclusion as well.  I just finished reading Matt Taibbi's latest, The Divide.  Blood-curdling stories accompanied by sleepness nights.  It appears to me that even if you do manage to align everything perfectly and the unprepared hordes don't breach the walls, the legal rules will change and the "justice" system will take all away anyway.  Corporations are the favored few now and humans are the unwanted/unneeded…how did Kissinger put it?.."useless eaters".

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I tried to avoid getting into the scary stuff like that. On the one hand we want to stay strong and live without fear of oppression, on the other hand it feels defeating already, as we see more and more laws passed that are not in our favor. But, some information is dis-information and it's hard to discern what's real, factual, and just fear-mongering - one reason I listen to Chris, because he doesn't do that! 
Still, it seems there is little REASON for hope. This life has already changed from where it was (or, where we all THOUGHT it was) even 5 years ago, and it leaves me breathless, like the first time I watch "Life at the End of Empire".

It provokes much un-ease, but I don't count it as fear-mongering, it's opening your eyes to things that you already know are below the surface (IMHO).

What A Way To Go: Life at the end of Empire (full movie) https://www.youtube.com/watch?v=h2em1x2j9-o

Sorry, didn't mean for the text to go so big....

We need hope, not just information, because there has been little to convince me we'll be ok, as a nation or a town, or families. I see in our future a Grapes of Wrath reality and many living in a van down by the river. I think it's possible that even 'End of Empire' is too optimistic! Going all permaculture only works if you have land, water, tools, seeds, and the rights to the produce and a place to store it…

I think it's possible that the Greeks have had it GOOD in comparison to what's coming to us… and looking at their situation, how could you really prepare for any of it, even if we think we know what's coming? 

I have read that in Greece they were paying rent to live in caves until the Gov't kicked them all out. They told the 60% unemployed youth (under 25) to migrate out of the country to find work. (Imagine the 55% unemployed youth in Spain - yeah, they probably liked all those Greeks flocking over, like we hear complaints of the illegal aliens 'taking our jobs'. Only there are no jobs 'to take', in Spain.) Families with kids lived with their elderly parents who had a pension coming in… and then they cut the pensions. Many people in the medical fields went 6 months without pay (then they gave up and quit). Just before the latest election and new President, the teachers were asked to 'volunteer' their time teaching, and told it would help them secure a paying position - above the other applicants- after things got better. You know, when they get all the loans paid back, right?

Meanwhile their countryside is filled with paid-off family farms, and they can get around on little motor-scooters, and fish their ocean for food, too!

And if oil is running out, what's the end game here in the US… what is that end goal to hang on for, that we'd point to and we'd say "that point after which, things get better"? I would give anything to see reason for hope (not just an optimistic "faith, in hope"; lets not go there again!) 

   

 

 

 

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Cheri,

I can definitely empathize with you.  Sometimes I think it would be much easier psychologically to have remained a sheep, staring into the newest smartphone and keeping up with the Kardashians. But, like most here on PP I imagine, I am intellectually curious, which led me out of my ignorance.  Now the toothpaste is out of the tube and can't go back.

Knowing what we do now, I can't bring myself to ignore it.  And Although knowing doesn't necessarily make me feel much better, I don't regret it, for multiple reasons.

First, although we know hard times re coming, we don't know how fast they'll come or how just how hard they will be.  Recent history (Argentina, Greece, etc.) has demonstrated that the tough times are quite survivable (even profitable?) for someone who was relatively prepared.  

Second, i really like Chris's advice to "Become the change you want to see."  If the majority of Americans would reduce their debt and consumption, produce some of their own food, etc. we could substantially minimize the impact of the upcoming change.  I realize it's unlikely that the majority will do so, but how can influence others to do it if I don't?

Last, I consider the lifestyle changes my wife and I have made to be positive regardless of future events.  We made changes much like Chris's and although our income has been dramatically reduced, we are both happier, healthier, and less stressed than we were when were living the so-called American Dream.   Plus, let's say the PTB can somehow stave off the big reset for another generation or even two.  My PV system will pay for itself in 12 years.  We love watching our chickens and enjoy eating fresh, organic eggs.  It's a great feeling of satisfaction to watch our garden grow.  We still have a long way to go, but for two lifelong suburbanites, we feel pretty good about our progress.

so, despite the fears we have about what could happen, we are very glad to be doing what we're doing.  I know that's not exactly the ideal answer to your question but I hope you can find some encouragement in it.

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Multiple thumbs up Trun. Fear be damned!

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I feel like I'm standing on a soapbox on a lonely corner, or beating the horse to death here (manner of speaking) because I hold firm to not feeling I have a reason for hope.
Today was infused with the voices of many who are on the same bandwagon or soapbox, and are much revered. For instance, I listened to Judge Napolitano, Chris Hedges, and Stephen Molineux …

I'm not sure which video of the Napolitano because my husband had it on, but it was at the Mises institute. All of these things are hard to listen to, because it reverberates the fact that things have already changed and we're all being pulled along in the middle of it, without direction of how to get out of it (except whatever it might be, it certainly won't be as easy as retiring to a remote homestead).

Feb 16, 2015 Stephen Molineux (5 minutes): 

A passionate plea against passivity and a motivational call to take a stand against evil.
https://www.youtube.com/watch?v=q_-18agQNwk
 
Trun, we have all the eggs we can eat (spending much more for them than at any store, because of the price of chicken feed - $16.50 a week, so I am selling some eggs to cover costs, but still)... and hopefully we'll get a rental house long enough to garden something again, but your situation seems to be vastly different than ours, not as secure. I wonder how you can feel successful in having that situation. Perhaps you're retired or semi-retired?
 
I would like to explain WHY I don't feel hope in just having a little hobby farm in our rural location. First, it's not just for us. We have 5 kids all between 25 and 32, and 4 grandkids (with one on the way and another planned) amongst them.
This is the main source of despair. I might be happy with a little homestead life, but I'm in my 50's, and done with everything in the outside world (so to speak).
 
A breakdown in public support systems will come as our financial system shocks everything. The promise of the American Dream is now all but gone, and now we're seeing stagnant wages & loss of bargaining power for the high-demand jobs that remain. 
The jobs available that still pay a living wage are mainly in the various engineering, healthcare and bio-sciences, and PC sciences. But after college you're saddled with thousands in debt, even if you were working full time (maybe made worse because you were working to support your family, and not given grants).
I do not think healthcare services here will continue running smoothly when everything else is falling apart.
How would medical supplies be shipped (or even manufactured with all those oil-dependent plastic things)? Who will loosen the credit lines for the hospitals and pharmacies, when the banks are not even lending to each other (if there's even just a credit crunch like in 2008).
 
Look what happened in Greece!
(healthcare: http://www.wsws.org/en/articles/2014/02/28/gree-f28-f28.html
 
teachers: Greek Education Ministry seeks to fill 1,100 job vacancies with teachers who would be gladly and proudly work on “voluntary basis”, that is without payment- http://www.keeptalkinggreece.com/2014/11/07/education-ministry-seeks-to-hire-1100-teachers-to-work-on-voluntary-basis-ie-without-payment/
 
The EU's proposal for those under 24 - work as slaves:
http://www.zerohedge.com/news/2014-01-24/europes-modest-proposal-end-unemployment-slavery )
 
If the dollar collapses, and we have hyperinflation (as John Williams at ShadowStats, and others see coming), who can afford their Obamacare premiums or deductibles? 
How secure then is that future job or pay, when the private industries are all beginning to pay individuals as contracted workers with 6-month contracts and no benefits? 
 
The media, science, machine, and tech industries all rely heavily on the grid (as well as other volatile commodities). I don't think the grid (or internet for that matter) will be reliable, nor affordable in the future, either. So far the pay is still decent and there are many specialty avenues, but many PhD's are not working already... I have heard that some are even on foodstamps.
 
So, should a person invest in themselves (aka a 'career' as we once thought of them), or give it all up and try homesteading (imagine that while renting- it's not easy!) 
How secure will that garden be when the stores aren't getting deliveries? (Very few can afford to move out into the country).
 
For me, and you, it's rewarding to simplify and get out of that rat race, but for the young, it's the last thing they want or can even begin to afford. Right now there is a 50/50 chance at reaching the old beacon of promise we all could expect to reach (The chance comes if and only if, the collapse comes slow or is staved off a few years).
So 2 options:
spend all energies on 6 years of school, which may end up to be a dead-end career when they finish, while going into vast debt, OR be 'voluntarily poor'- trying to make ends meet with various low-pay service jobs, with nothing to move up toward.
At any rate, then what? What have they worked for and planned for and expended energies on, when it all comes to naught in a collapse of oil, industry, or fiat currency...
And how can I TELL them "hold on to hope, because... uh, because that's what we do". 
 
And at the end of all these efforts, for the young most especially, there is the ever-increasing drumbeat of war, and an oppression in our own land, too. Things that Lunableu22 spoke of, and Chris Hedges and Judge Napolitano (and many others). It is no small thing because it's not going to leave any of us untouched. A precious homestead is not going to keep it at bay. You cannot build a strong enough wall (to battle property and other laws changed by the big corporations - always only in their favor). Or maybe they'll just pollute your fresh water source and walk away. 
And that's what drains my reasons for hope, though I love the homesteading/hobby farm life, such as it is. At this point, I feel it's only a hedge against financial hard times or supply-chain problems, and little more. 
 
 
 
 
 
 
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Cherihuka, I hear what you're saying but a new world is coming. Thriving will take a whole new mindset. Here's one example; How many people - particularly elderly - are on  vital medication? How long can they hope to last after a major infrastructure collapse? Do any of these people own / occupy desirable real estate? Do you think there could be some vacant properties in future? Possibly just waiting for someone local to move in??
You may only be able to rent for now. Fine, rent. But work on your skills - I do agree with Heinberg on this. And all the better if you are in a rural area where you can envisage a post collapse existence. There are so many unknowns, especially now. We really don't know what's coming and opportunities can open up from anywhere

We moved to a rural area 4 years ago. We have a significant mortgage that has no real liklihood of being paid back given the Predicament. We have a fairly small property with larger farms surrounding. I'd love to have a bit more land for animals but even now neighbors let us have grazing in return for helping on their property.

My one piece of advice is to put yourselves in a position where things can happen for you. And if you can see the possibility of a positive future this will help pull you through.

My other one piece of advice is to not focus on all the reasons why we're doomed - it's a spiral down the plughole. Make a list of skills you need to learn - feeding chickens without bought grain, hatching chickens with a broody hen,  saving seeds, how to manage a milking cow… and get on with learning them

Cherihuka, on reviewing this comment I can see it may come across as quite harsh - which is not my intention. You have a family and naturally deep concern arises for them.  In fact, I'm agreeing with you that what is coming down the line is likely to be very harsh indeed. And despite this I'm still suggesting preparation and mental positioning can potentially transform your future.