With all the grandiosity of the media headlines touting our destiny as the new "Saudi America", many pundits have been quick to pronounce Peak Oil dead.
Here at PeakProsperity.com, one of the most frequent questions we've received over the past two years is: will the increased production from new "tight" oil sources indeed solve our liquid fuels emergency?
Not at all, say Chris and this week's podcast guest, Richard Heinberg. Both are fellows at the Post Carbon Institute, and you are about to hear one of the most important and most lucid deconstructions of the false promise of American energy independence:
I recently went back and reread the first edition of The Party’s Over because it was the tenth year anniversary. And I was actually a little surprised to see what it really says. My forecasts in The Party’s Over were really based on the work of two veteran petroleum geologists—Colin Campbell and Jean Laherrère. So they were saying back before 2003, because it published in 2003, so it was actually written in 2001 and 2002. So they were saying back in 2000 and 2001 that we would see a peak in conventional oil around 2005—check—that that would cause oil prices to bump higher—check—which would cause a slowdown in economic growth—check. But it would also incentivize production of unconventional oil in various forms—check—which would then peak around 2015, which is basically almost where we are right now and all the signs are suggesting that that is going to be a check-off, too. So amazing enough, these two guys got it perfectly correct fifteen years ago.
The big news right now is that the industry needs prices higher than the economy will allow, as you just outlined. So we are seeing the major oil companies cutting back on capital expenditure in upstream projects, which will undoubtedly have an impact a year or two down the line in terms of lower oil production. That is why I think that Campbell and Laherrère were right on in saying 2015, 2016 maybe, we will also start to see the rapid increase of production from the Bakken and the Eagle Ford here in the US start to flatten out. And probably within a year or two after that, we will see a commencement of a rapid decline.
So you know, on a net basis, taking all those things into account, I think we are probably pretty likely to see global oil production start to head south in the next year or two.
But this change in capital expenditure by the majors, that is a new story. You know, just a couple of years ago, they needed oil prices around $100 a barrel in order to justify upstream investments. That is no longer true. Now they need something like $120 a barrel but the economy cannot stand prices that high. So you know, if the price starts to go up a little bit, then demand just falls back. People start driving less. And so the economy is unable to deliver oil prices to the industry that the industry needs. I think Gail Tverberg is saying this is the beginning of the end. I think she's right.
If we [continue along with our current policies and dependence on petroleum] then everything will eventually change -- as a result of the economy coming apart, the debt bubble bursts, you know, agriculture declines because of the expense of oil and because of depletion of topsoil and because you cannot trust the weather anymore. And we have a very dystopian future if we do not do anything.
So it has never been more important for the average person to understand energy issues than it is right now. But I doubt if there has ever been a time when energy issues have been so deliberately confused by the people who should be explaining it to us.
Click the play button below to listen to Chris' interview with Richard Heinberg (49m:43s):
In New Zealand we have a great system in the Dairy industry (which is grass based farming) called sharemilking. Where the farm owner supplies the land and buildings and the sharemilker supplies the labour, and some of the machinery and maybe the cows as well. In exchange the sharemilker recieves a percentage of the income from the farm. This generally gives the sharemilker a far better income then a managers wages. It also gives the owner greater security because instead of a manager he has someone with 'skin in the game.' It's a model that is supported by the industry and also government legislation to ensure the sharemilker isn't ripped off.
Most successful sharemilkers are eventually able to buy their own farm because they can accumulate capital in the process of farming. Maybe that is a model worth looking at if you were wanting to adopt a farmer.
There's a reason the media is talking about US energy independence. Its because of this chart - petroleum net imports (in mbpd):
A simple extrapolation 5 years forward says - US is independent of foreign sources of petroleum.
Part of the reason is because petroleum use is falling in the US - its down 2 mbpd from the peak in 2008. Match that with rising shale oil production and its all very virtuous.
Anyway, that's the view from the mainstream. If Heinberg (and Stoneleigh) are right that a big chunk of this production boom is just a property ponzi scheme designed to market shale production properties to clueless buyers, at some point the ponzi will pop, and shale production will dry up. Given the decline rates, the new production will dry up really, really fast. 3 mbpd will vanish in a few years once drilling stops.
"Oil and gas behemoth ExxonMobil (NYSE: XOM ) upset the market on March 5 when it told analysts it would cut spending this year. The news was not well-received, and the company's shares fell hard on the day of the announcement. ExxonMobil is tightening its belt this year, and there are clear worries that there's a lack of suitable investment opportunities out there for the taking.Reduced capital expenditures is a recurring theme going on right now across the oil and gas industry. Other global super-majors including Chevron (NYSE: CVX ) and Royal Dutch Shell (NYSE: RDS-B ) are adopting similar strategies this year, so it's not as if this is an ExxonMobil-specific issue."..."Not surprisingly, ExxonMobil doesn't see production improving this year. In fact, production is expected to be flat in 2014 after falling 1.5% last year, and will increase only 2%-3% per year from 2015-2017. A major contributor is lackluster gas production. High-margin liquids production is expected to rise 2% in 2014, but gas production is projected to drop by 2% this year."http://www.fool.com/investing/general/2014/03/07/are-exxonmobils-reduced-capital-expenditures-cause.aspx
The amount of capital invested in oil and gas fields next year will again set a new record, with estimates of $723 billion being spent to secure hydrocarbons for worldwide consumption, according to Barclays . The four large integrated oil companies – ExxonMobil, Chevron, BP, and Shell – will make up about 20% of the spending. http://www.fool.com/investing/general/2013/12/17/oil-and-gas-spending.aspx Nearly two-thirds of oil and gas companies are planning to increase their capital spending in 2014, a quarter of them by 10% or more, according to a global industry survey by UHY LLP Certified Public Accountants and PennWell Publishing’s Oil & Gas Financial Journal. http://oilpatchasia.com/2013/12/impressed-yet-2014-oil-and-gas-capex-will-be-723-billion/ Note that these capex spends are well down on what a 2012 forecast predicted for 2014 of 1.2 Trillion capex.
Seems like a "debt jubilee" is not a particularly good idea, since it penalizes non-debtors and rewards debtors. Having said that, how about an "interest jubilee", where the borrowed money must still be paid back, but the interest is forgiven. Then the "losers" are the ones who sought the collect that interest. Without interest, there is no need for infinite growth, so there is no need to collect interest to "get ahead". And if projects need to be financed, crowd-sourcing is a "vote with your dollars" way to get things happening collectively. Do we really need banks, at all? Or politicians to "manage" our thoughts, choices, projects, money?
Dave, Thank you for the chart. I don't think that it is just coincidence that the chart peaks in 2007-2008… I seem to remember something happening back then. I am pretty sure that the effects of a Depression that has been covered up with borrowed (National debt) money and people's desperate attempts to use less gas in their daily lives, the actual take-out has been more than 2 mbpd. No doubt the US fracked oil mini-boom plays into this, however short lived… my point is just that the overall picture is pretty complicated.
Jim-Here's the oil consumption chart. We're back to 1998 levels of petroleum consumption. Kind of interesting, it looks like it peaked in 2005. When you divide by population (oil consumed per individual) it looks even more exciting - growing pop, declining overall consumption = double whammy.
The chart is labeled a bit oddly, but it is basically US petroleum consumption. And it includes all the liquids, I think not just crude - not sure how much is ethanol, natgas liquids, etc. Google for EIA PATCPUS and see what EIA puts in there.
It's a little bit hard to square up that graph that shows U.S. petroleum imports down to 6 mbopd with this one that says that we imported an average of 10.6 mbopd in 2012. ( 3.88 billion barrels in 2012 here) The problem is that we import a lot of finished products in addition to crude oil.
Excellent podcast guys. Farming fairness is a thorny but critical question. We have 15 acres of unworked land in hay that we thought we'd lend out to young folks ready to commit to organic farming. (no takers yet, largely because we don't have the tractor/implements to loan out) Our thinking was to ask for a nominal fee to help defray the land tax. After your discussion, it makes me wonder if that's asking to much.
ps would love to have either or both my kids take an interest to build it up and eventually take it over.
http://vimeo.com/86466357
When natural systems return to their center, healing and balance follow, when we return to our centers, healing and balance will also follow.
A common assumption is that a Debt Jubilee will only benefit debtors.Not so If everyone was given a sum of money on the proviso that they first had to pay off their debts with it and whatever was left over they could spend as they pleased.
If the recipient of this money had no debt he would be well off.
To vote against a Debt Jubilee is to vote against your own interests.
I should imagine that the Big Banks would not be happy with such an arrangement because your debt is their asset. And if you pay it off, their asset is destroyed. So very sad.
Here is a video that might help you with this concept. How does it feel to be the victim of a grand larceny? Is there any moral virtue in such a position? http://www.youtube.com/watch?v=2oHbwdNcHbc
That is exactly why some dont think collapse or the end of oil is such a bad thing.
Im starting to think they might be right. No matter how much you want it to have one, this particular brand of civilization has no future.
While it was incredibly gratifying to hear others struggling with the exact same forces and knowledge, it was also daunting and emotionally exhausting.
Dr. Chris said,
Well, with that, a gentleman I was talking to yesterday, I think, outlined it very well. He said—he has done all those things. He said, “I have got my solar panels, I have got my garden, I support local food.” Very necessary, completely insufficient steps. . . And he feels uncomfortable with it but a.) you have to be the change you want to see, so what else can you do besides be that change? And at the same time, in the sense that the things that we cannot control are still very large and potentially overwhelming, they might swamp our efforts.
Exactly. I dealt with the overwhelmed feelings by buying five Chinese chestnut saplings. If my efforts get swamped, hopefully these will live on after me. If not, a girl's gotta eat.
M. King Hubbert gave a talk to a Congressional subcommittee in 1974 concerning the US energy policy.
Here is a transcript of his presentation with graphs. It is only 16 pages long.
The graphs are low quality, but the gist comes across. Use the "View full screen" option and click on the viewing window's "elevator" buttons for scrolling.
He talked about energy, growth rates, and inflation caused by a financial interest rate that was too high for the growth in energy usage. Using his logic, it now makes sense why we have ZIRP and QE without inflation. Once we go down the backside of Hubbert's peak, we'll likely see negative real interest rates. I'm not sure if that will be from defaults, confiscatory taxes, or something else.
He gave this "dumbed down" paper (suitable for congressoids) in 1974. Other than missing the timing a bit, he was quite prescient.
Reply to #12
This would be inflationary in two ways. Firstly, money suppy would go up relative to goods and services on offer. Secondly, a proportion money that would ordinarily go back to the bank to be destroyed (which happens when debt is repaid) wouldn’t be. To counter act this, banks would simultaneously have to reduce their money creation by reducing their lending.
History shows that the FED has the banks' back. There is no need to worry about them. They are Too Big to Fail.Johnny Citizen used to be paid in money- now his wages are debt. Instead of allowing price discovery of the true worth of labour, the bankers have responded to the decrease of the velocity of money due to his poverty by offering him more debt.
The destruction of this debt would allow the laws of supply and demand to price labour accurately.
Industry is quite capable of oversupplying the market. (Given a reliable source of cheap portable energy.)
Sorry. I'm not clever enough to understand your causal links. Money and debt is the same thing in our Fiat system so I'm guessing you want to go back to the gold standard. The Fiat system was developed so that the money supply could expand as the economy expanded. It is just as capable of contracting as our energy production and hence our economic output contracts.
