Gail Tverberg: This Is The Beginning Of The End For Oil Production

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With the recent collapse in the price of oil, Gail Tverberg, returns to discuss the likely impact on the US shale oil industry, as well as the global market for oil.

Gail is a professional actuary who applies classic risk assessment procedures to global resources: studying issues such as oil & natural gas depletion, water shortages, climate change, etc. These days, she writes at her website OurFiniteWorld.com.

While as an actuary, Gail is one to avoid hyperbole and the let the numbers speak, her analysis of the outlook for future oil production is nothing short of dire:

What we need is cheap energy. We need cheap, liquid oil. When it’s high-priced it really messes up the economy. We need oil to run our cars and to operate our trucks and such things, but it needs to be cheap. And it suddenly is today. 

But, you have to be able to keep pulling it out at that same price. And the critical thing is, we can’t keep pulling it out at that price. What is going to happen, I’m afraid, is that once production goes down, we won’t be able to get it back up again. 
 
There’s several reasons. One of them is that very low interest rates have been helping keep production up. Once you get your interest rates back up because there’s been a lot of failures, particularly in the shale industry, the costs will be higher. So, they can’t pump it out for the same price that they had it before. But, there’s also the issue that these old wells need to be produced continuously and they need continuous investment. If you cut that off, it’s going to be very hard to restart them. So, there will need to be an extra investment just to get it back online. Trying to do that becomes extremely difficult when the price is low. If it’s really an affordability issue, you've got a double hurdle then. Not only do you have to get the price up, but you have to get the price very high so you can get lots of investment dollars so you can kind of make up for lost time, besides everything else. As we know, it takes a long time to get new production online.
 
I think, too, that it gets to be even worse than that, because financial institutions have sold derivatives based on the assumption that things can kind of go along as normal. So, you start seeing very strange motions in terms of the rise of the dollar, the fall of the dollar, and a variety of other things besides just these oil price changes. Over time, what you're going to get is a bunch of business failures. That’s going to come through these derivatives and it’s going to come through the financial system in a different way than just the oil price itself would. We have multiple impacts of these things, some of which are not obvious when you just first look at the story. 

Suppose you have a derivatives problem. If you have a derivatives problem and you have to go back against depositors, your depositors are things like companies that are making payroll payments. So, the big danger is that these payroll funds will be taken in this process of taking the money away to try to get enough money to fund the derivatives problem. Or, they might not be derivatives problems. They might be other kinds of problems that are putting banks under.

If you start taking the money from the oil companies that they were going to use to pay their employees or if you take the money from electricity companies that they were going to use to buy coal or that they were going to use to pay their employees, you have a very bad effect on the economy, which has nothing to do with the shape of the oil depletion curve.

As I said, the big issue I see is an affordability issue. I don't see oil prices bouncing back up again, or certainly not bouncing up very long, for very far. So, for oil production, this is basically the beginning of the end…what we're seeing is the beginning of Peak Oil, basically. The oil production will actually permanently turn down at this point because we will not be able to get it back up, and because of all the financial situations coming along. 

Click the play button below to listen to Chris' interview with Gail Tverberg (44m:20s)

This is a companion discussion topic for the original entry at https://peakprosperity.com/gail-tverberg-this-is-the-beginning-of-the-end-for-oil-production/

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http://www.feasta.org/2012/06/17/trade-off-financial-system-supply-chain-cross-contagion-a-study-in-global-systemic-collapse/
Essential reading

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I completely agree with your recommendation John. It's hard to argue with Korowiczs logic. Like Chris he is a scientist, a clear thinker and he cuts to the heart of our global predicament. Hope to hear him on the podcast sometime…

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I haven't been able to listen to this yet, but Mrs. Tverberg is one of my favorite thinkers.  I look forward to hearing the interview!

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Subject says it all for me.
I know most people (non PP readers) will be unable to understand most of it.

Along with most world leaders.  Unfortunately.

The "Idiocracy" world has arrived ahead of schedule.
It's going to be a most interesting 2015 I think and I am grateful for all of the great information Chris and Adam give away for free.

KK

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Interesting that in the preamble to the meat of the conversation Gail Tverberg takes a side step in the competitive nature of natural systems.  She gives as a reason for collapse the need for an individual species to dominate their environment, implying that it is hard wired into the human psyche as well.  I would agree in a way, but it is our competitive view of reality that will lead to collapse, the primary problem is that this competitive view is out of sync with what is.  It is this distortion of reality that has caused us to become so destructive as a species.  Avoidance of collapse is as difficult and simple as changing our view of reality.
All the technology and wisdom that we need is already here now.  We know now that the DNA in the cell of nucleolus is not the "brain" of the cell, that a cell can live happily for months without it.  We even have architectural DNA who's job it is to rewrite our genetic code as needed.  We are not materially destined to become something that we don't want to be. What will kill the cell is the removal of it's skin, its connection to the outside world.  Our connection to each other.  In these simple words that we share, we are saving the world and ourselves.  

Your beliefs become your thoughts, 
Your thoughts become your words, 
Your words become your actions, 
Your actions become your habits, 
Your habits become your values, 
Your values become your destiny.” 
Do not believe in collapse!
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So here we are, at the actual tipping point.  Global energy production will never be higher then it is right now, the global economy will never be larger.  The snow cornice has begun to move, the water tight bulkheads have been overtopped, the trailing eye wall has made land fall, pick your metaphor.
Sorry people, I'm just struggling with the enormity of it all, with the real possibility that I, and most of the people I love, are on the wrong side of the viability line.

This is hard to write about,

John G.

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clarifies and unfortunately confirms what I (we) have sussed out here over the years.
You've given a very clear and sobering discussion with points like "companies will not be able to pay their employees" that ring truer than ever.
The funniest part is the inflection in Chris's voice when he hears the $20 per barrel prediction. If you listen very closely you can hear him falling out of his chair. wink

Thanks for another much needed kick in the pants.
SS

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Since the majority of the populous are Sheeple, and they believe nothing untoward will happen, the quantum directionality thus manifested should prevent any major issues.

The Right Brain whispers that I can influence my own destiny.  But we are all moving down a quantum tunnel in time. Can man change the course of a massive river? Yes, but not easily, and not without effort and time.

Where are we in time?

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Don't believe in collapse, believe in transformation.  We don't have to solve the worlds problems, only our own. The world was at a much higher energy state before it was habitable by humans and most other species currently on the planet. Energy is the story, but our future success and happiness are not dependent upon it.  It's diminishment is what drives evolution. The countervailing force to entropy is consciousness.  Don't become addicted to negative energy flows, there is a certain level of pleasure associated with emotional energy, regardless of the type or direction of movement.
The limitation of the rational mind are in full display at moments like this, there is to much information to be appropriately processed at that level. Take in what you can, but resist drawing conclusions, it is in the discomfort of knowing that we don't understand that the creative force within us can manifest.  You will know what to do when the time comes, we all will. 

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Awesome post Treebeard.

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Hey John.  Yes, we humans are so clever we think we can predict the future with complete certainty.  Yes, things can "look" grim from here.  My suggestion: get out in some beautiful place in the wild with someone you love and just suck it all in- here and now.  What a gift this moment is.  Why it is called the "present", I've heard.  Then be thankful on the walk or drive home, that that semi stayed on it's side of the road.  Gratitude. I've found it helps temper things…Take good care.  Aloha, Steve.

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I could almost visualize Gail at her harshly-lit desk with a green shaded visor on, pouring over piles of reports, being compelled to explain "things actuarial" to us less-inclined, but interested, parties.  Fine job interviewing her, Chris.  Aloha, Steve.

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Treebeard, from a thermo dynamic point of view your post sounds a lot like all we need to do to avoid the collapse is click our heels together three times and say "there's no place like home."  The math would seem to suggest that an increase in the availability of cheap oil equals an increase in cheap food and an increase in population, the opposite would then seem to be true.  The elephant in the room continues to be that with a decrease in oil production there must follow a decrease in food production and a decrease in population.  David Korowicz makes the plausible case that a very complex society could unravel very quickly with food distribution being severely curtailed, or stopping, very abruptly.  Not to be an asshole, but if my family's welfare depends on my basing my preparations on the hope that humanity will reach a higher state of consciousness or the laws of thermo dynamics, I'm going with thermo dynamics.
Again, I mean no disrespect, but we are staring into the fangs of one of the greatest disasters that the human race has ever faced, to say "Don't believe in collapse" is an appalling disservice to humanity.

Steve, living today with love and gratitude seems to me to be good advise as tomorrow may bring an almost unimaginable shit storm.

Having second thoughts about posting this, but here goes…

John G.

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Gail, I do appreciate you sharing this, as well as the material you have shared at other sites.
You seem to suggest we are going to a world in which oil drops to $20 a barrel because people are so poor that they cannot afford to buy gas produced with $25 a barrel oil to get to work. That means that many people won't be getting to work. That seems to be where this is getting at–that in the near future people will be too poor to use a car for their basic transportation needs, so the glut of oil in the marketplace gets worse, and the price gets down to what people in their new state of poverty can pay.

I am very interested in how you see the future state of the world 5 years from now and 20 years from now. At the oildrum you had posted a comment on your last post which said, "I expect it will just mean that those people who are alive now will live less long. This will be good for the plants and (other) animals on the earth, but not for humans." Likewise here you suggest that the loss of energy for humans may mean some other species step into the gap currently occupied by humans.

Are we talking about a mass die-off? Are we talking about a chaotic struggle for survival in the near future, with only a small fraction surviving? Are we going back to the bronze age?

Or are we talking about a "correction" in human prosperity, a drop to a new steady state world at a much lower material consumption?

One does hope that, not only do folks find means of aiding their own survival, but also find the means to work with governments to adopt polices that ease the transition, and lead to a new equilibrium state.

 

 

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We could all start carpooling to work.  Tomorrow.  We could all start a garden.  Tomorrow.  We could all write a few letters to our legislators (just for kicks?).  Tomorrow.  We could all start discussing population control.  Tomorrow.  We could all start limiting our mindless consumption.  Tomorrow.  Actions, Habits, Values, Destiny.  Hmmm, could work…I believe some of us are doing some.  The "all" (or most) will be the hard part.  Then there's that calendar on the wall, along with the clock, ticking…Aloha, Steve.
ps- don't forget the 100th monkey!

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It seems to me that whatever is coming down in the future can be perceived as collapse or as transformation.

And there will be a lot more weeping and gnashing of teeth by those who view it as collapse.
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Nothing in my world view precludes the potentiality of human beings not making it, or the prospect of a rather catastrophic future, they are all very real possibilities.  This is certainly not a dress rehearsal and if there were nothing at stake, then our lives would have very little meaning.  It is after all the reality of death that gives value and meaning to our lives. There is nothing easy about what we are up against, but there are many ways to use the anger and frustration that we are all feeling.
Cheap energy has allowed has to create the most inefficient and self destructive systems the world has yet seen.  To see what we have created as a pinnacle from which we must fall is a delusion, we still hold a very primitive conception and understanding of reality, to project that into the future is a mistake. The current paradigm is about energy, but the future need not be, we are just beginning to understand that.  There are possibilities that boggle the mind, but they are not the techno-fantasies that seem to be popular today (which are all still very energy centric).  We are creating our future now with each breath that we take. To give in to a dark and fatalistic future is to evade the responsibilities that we have to each other in this present moment.

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So we have a situation here:

Global human population from 10,000 BC to the present.

And we understand that populations tend to cycle in response to resources and other organisms that co-evolved and share a common living space, such as this theoretical model (the Lotka–Volterra equation) of a population of cheetahs (predators) and baboons (prey).

 

From Gail Tverberg's site:

If species evolve together, a natural balance tends to remain in place. If a species suddenly finds a new, better source of nourishment (really, energy supply, since food supplies energy), its population may increase greatly. For example, yeast may metabolize the sugar in grape juice, converting it to alcohol. The yeast population temporarily rises and then declines, as the food source disappears and alcohol pollution poisons the yeast. ...
 
An example is sometimes given of reindeer introduced to St. Matthews Island near Alaska, where there was considerable lichen on the rock. The reindeer ate the lichen at a speed faster than the lichen could reproduce. Soon the lichen was gone, and the reindeer population crashed.

 

Summary:  I would expect that during the down stroke phase, 42 of the Saint Matthews reindeer considered the changes "a transformation" while 5,958 experienced it much more as "a collapse."

I am guessing, that Treebeard was saying a number of things.  The main one is that we are shaping our future now by what we are doing and by what we value as "a good life."  For example:  if it involves small scale farming, friendships, working closely with neighbors, hand making clothing and shoes and bicycle and horse riding then we are valuing ways of living that may make it into a post-carbon world of tomorrow.

I really agree with John above, that the return to populations levels within the carrying capacity of a local environment will be brutal and traumatic.  Seeing this potential honestly and responding authentically (which includes with real fear!) is just honest, authentic and adaptive.  And it is how we humans get our butts moving.

Treebeard, if you see possibilities for a wonderful future "that boggles the mind" that you could share with us here, I would love to hear them.  A positive vision would be a great gift.  Please share yours. Paint us a picture.

 

 

 

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Greetings from Big Mango (BKK)- I'm 12 hrs in future from NY. I hav been reading Gail's blog for a few years, and i believe the tipping point occurred around 1975 when tame govt scientists and academics trashed / derailed the Club of Rome report- Limits to Growth. Dec 1 i predicted oil would be at $20 by end March 2015 and stay there in a vain attempt to revive the global economy. From 1920 to about 1970 it was $20, times were good. Its too late now. The global economy became a Zero Sum Game 7 yrs ago, so now if one country's input goes up 0.5%, another's must come down 0.5%. The collapse will not be sudden, but slow motion, like rollerskating down variable step/tread stairs, mabe 6 months one step, 14 months next step down, until we get to …vacuum tube era…steam punk…or pointy sticks and rocks, heh.
Regards, rabblebabble666