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Shale Gas Will be the Next Bubble to Pop

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Yves here. In a May post, Shale Gas Hype: Subprime 2.0?, we wrote about the questionable economics of shale gas. This interview with geological consultant and energy expert Arthur Berman gives a skeptical view of its potential, as well as how ready advanced economies are to move away from existing energy sources. Naked Capitalism regulars will take exception to Berman’s take on Obama as a “green” president.

By James Stafford, publisher of OilPrice. Cross posted from OilPrice.

The “shale revolution” has been grabbing a great deal of headlines for some time now. A favourite topic of investors, sector commentators and analysts – many of whom claim we are about to enter a new energy era with cheap and abundant shale gas leading the charge. But on closer examination the incredible claims and figures behind many of the plays just don’t add up. To help us to look past the hype and take a critical look at whether shale really is the golden goose many believe it to be or just another over-hyped bubble that is about to pop, we were fortunate to speak with energy expert Arthur Berman.

Arthur is a geological consultant with thirty-four years of experience in petroleum exploration and production. He is currently consulting for several E&P companies and capital groups in the energy sector. He frequently gives keynote addresses for investment conferences and is interviewed about energy topics on television, radio, and national print and web publications including CNBC, CNN, Platt’s Energy Week, BNN, Bloomberg, Platt’s, Financial Times, and New York Times. You can find out more about Arthur by visiting his website: http://petroleumtruthreport.blogspot.com

In the interview Arthur talks about:

• Why shale gas will be the next bubble to pop
• Why Japan can’t afford to abandon nuclear power
• Why the United States shouldn’t turn its back on Canada’s tar sands
• Why renewables won’t make a meaningful impact for many years
• Why the shale boom will not have a big impact on foreign policy
• Why Romney and Obama know next to nothing about fossil fuel energy

Oilprice.com: How do you see the shale boom impacting U.S. foreign policy?

Arthur Berman: Well, not very much is my simple answer.

A lot of investors from other parts of the world, particularly the oil-rich parts have been making somewhat high-risk investments in the United States for many years and, for a long time, those investments were in real estate.

Now these people have shifted their focus and are putting cash into shale. There are two important things going on here, one is that the capital isn’t going to last forever, especially since shale gas is a commercial failure. Shale gas has lost hundreds of billions of dollars and investors will not keep on pumping money into something that doesn’t generate a return.

The second thing that nobody thinks very much about is the decline rates shale reservoirs experience. Well, I’ve looked at this. The decline rates are incredibly high. In the Eagleford shale, which is supposed to be the mother of all shale oil plays, the annual decline rate is higher than 42%.

They’re going to have to drill hundreds, almost 1000 wells in the Eagleford shale, every year, to keep production flat. Just for one play, we’re talking about $10 or $12 billion a year just to replace supply. I add all these things up and it starts to approach the amount of money needed to bail out the banking industry. Where is that money going to come from? Do you see what I’m saying?

Oilprice.com: You’ve been noted suggesting that shale gas will be the next bubble to collapse. How do you think this will occur and what will the effects be?

Arthur Berman: Well, it depends, as with all collapses, on how quickly the collapse occurs. I guess the worst-case scenario would be that several large companies find themselves in financial distress.

Chesapeake Energy recently had a very close call. They had to sell, I don’t know how many, billions of dollars worth of assets just to maintain paying their obligations, and that’s the kind of scenario I’m talking about. You may have a couple of big bankruptcies or takeovers and everybody pulls back, all the money evaporates, all the capital goes away. That’s the worst-case scenario.

Oilprice.com: Energy became a big part of the election race, but what did you make of the energy policies and promises that were being made by both candidates?

Arthur Berman: Mitt Romney, particularly, talked about how the United States would be able to achieve energy independence in five years. Well, that’s garbage.

Anybody who knows anything about oil, gas and coal, knows that that’s absurd. We were producing a little over 6 million barrels a day thanks to an all-out effort in the shale oil play. We consume 15 million barrels of oil a day and that leaves the gap of 9 million barrels per day. At the peak of U.S. production, in 1970, the U.S. produced 10.6 million barrels per day. Like I said, either the guy doesn’t know what he’s talking about, or is making a big joke of it.

Obama didn’t talk so much . . . He’s a hugely green agenda kind of president and I’m not opposed to that, but he’s certainly not for the oil and gas business. It wasn’t until he got serious about thinking about his re-election that he decided to take credit for what really happened.

Oilprice.com: Japan recently announced that they are going to be phasing out nuclear power. What are your views on nuclear? Are we in a position to abandon this energy source?

Arthur Berman: No. Japan is a special case. The disaster at Fukushima, the nuclear reactor, was right on top of a major fault. So, that was a dumb place to put it.

To wholesale abandon nuclear power because one reactor was incredibly stupidly planned, to me seems like a bit of a . . . well, I can’t tell people how they should react, but if I were a Japanese citizen, and the truth was that we have no oil, we have no coal, we have no natural gas, the next question is, “Well, if we get rid of nuclear, what are we going to do?”

It’s a really good question to ask. If you don’t have anything of your own, how are you going to get what you need? The answer is that they have to import LNG and that’s very expensive.

Right now, natural gas is selling in Japan for $17 per million BTUs. You can buy the same BTUs in Europe for $9 today, or in the US for $3.25

Oilprice.com: What about Germany’s decision to also phase out nuclear power?

Arthur Berman: For Germany to abandon nuclear… that decision is truly delusional because they haven’t had any problems over there. Nor is Germany particularly earthquake prone or tsunami prone. They have forced themselves into a love relationship with Russia.

Oilprice.com: What are your views on Canada’s tar sands? Are they a rich source of oil that the U.S. needs to exploit? Or do you think they’re a carbon bomb, which could do irreparable damage to the climate?

Arthur Berman: Well, that’s a very good question. I suppose they’re both, as are virtually all things that burn. Right? They’re a very rich source of oil. And they’re dirty. It requires a lot of natural gas heating to convert them into some usable form, a lot of processing, but here’s the thing, if the United States doesn’t buy that oil from Canada, do you think Canada’s just going to say, “Oh. Okay. Nevermind. We’ll forget about all this.”

No. They’re going to sell it somewhere else. They’ll probably sell it to Asia. So, the issue of the carbon bomb doesn’t get resolved by the United States not taking the oil.

So, to me, that’s off the table. Yes. I think it’s an incredibly sensible play to get your oil from a neighbour, and a neighbour who you trust, and it doesn’t require overseas transport and probably getting involved in periodic revolutions and civil uprisings.

Oilprice.com: Is there any technology, any development you see coming in the future that can help us get where we need to be? Is conservation really the only answer or do you have any hopes for some of the alternative energy technologies, such as solar or, even, some of these more advanced technologies such as Andrea Rossi’s E-cat machine?

Arthur Berman: Oh. I have all the enthusiasm for technology that you could ask for. I’m a scientist and I love technology but I heard a very good presentation several years ago on your exact question and the man who gave a talk said, “I’m going to give you a rule to live by. If it’s not on the shelf today, then a solution is no sooner than ten years in the future.” So, when you talk about E-cat and you talk about algae and all this kind of stuff, it’s not on the shelf today. So, that means it’s in some sort of pilot stage of testing.

Work harder guys. Work harder and faster because you’ve got a lot of work to do. So, yes, I’m enthusiastic. I think there are some great ideas out there but I don’t see any of them helping us in the coming five to ten-year period.

Oilprice.com: Environmentalists talk about the evil of fossil fuels, but have they really done their research to see how vital it is to pretty much everything that we base our modern lives upon?

Arthur Berman: Well, that’s exactly right. My oldest son and his family until recently lived in California, and in California people think electricity comes from the wall. They don’t have any idea that most of their electricity comes from horrible coal-fired power plants in New Mexico and Arizona. As long as they don’t have to see it, they don’t have a problem.

But, in this world, and in this life, we’re all connected and if you see something you don’t like, there’s a good possibility that whatever they’re doing there has something to do with something you’re using. So, this is an issue.

Oilprice.com: Arthur, thank you for taking the time to speak with us. For those readers who may be interested in contacting Arthur please take a moment to visit his website: http://petroleumtruthreport.blogspot.com/

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60 comments

  1. Gaylord

    My gosh, was that ever shallow and full of contradictions. Mr. Berman may be quite knowledgeable about fossil fuel exploration, but his outlook on alternatives lacks vision and totally discounts the necessity for a rapid conversion. This insistence on continued burning of oil and gas foolishly ignores the devastating consequences that must be avoided if we humans are to survive on this planet. The notion that the Alberta tar sands represents a logical “local” source that will be consumed regardless of whether the U.S. uses it directly, is nonsense. Without a pipeline to the Gulf of Mexico, that is very unlikely to happen.

    With regard to nuclear power, the Fukushima disaster is still ongoing and even has the potential to render a large part of Japan uninhabitable. Japan’s other big generating plant is on a fault line that some scientists believe is seismically active, and the entire region is earthquake prone. How could the Japanese people not have learned the lesson of nuclear power’s grave threat from this? The Germans are very smart, not delusional by any means, to get rid of this horrendously poisonous technology, transcending the minimal risk of catastrophic failure which Mr. Berman cited. They are doing what we should be doing, which is ramping up renewable energy production. The Germans and the Chinese will become the world leaders in this, while the United States remains captive to the oil cartels and squanders this opportunity! Mr. Berman’s thinking is mired in 20th Century solutions, and for anything other than investment advice, I think it would be wise to ignore it.

    1. bmeisen

      Hope he’s wrong but I respect his blunt refusal to see the world as it isn’t.

      I assume that by “decline rates” he means the escape of gas into the atmosphere as a result of extraction processes. If his figures are correct then there is a shale gas bubble and the US will not become energy independent as the IEA posits in its new report:

      http://www.guardian.co.uk/environment/2012/nov/12/us-biggest-oil-producer

      However there is NO reason to believe that the US will meaningfully reduce its greenhouse gas emissions within the next 10 years. Ergo the US will buy its oil from Canadian tar sands debauchers.

      The German decision to shelve nuclear is not naive – the risks associated with a GAU cannot be insured and safe alternatives exist and need to be scaled up. The scaling up is taking too long because key stakeholders, i.e. the energy sector, real estate interests, and their representatives are resisting it. IN the meantime Russian suppliers are partying.

      1. Mark P.

        B. Meisen: “The scaling up is taking too long because key stakeholders, i.e. the energy sector, real estate interests, and their representatives are resisting it.”

        You don’t have a physics background, do you? You also don’t travel to Asia, I think?

        In the real world, the inconvenient truth is that the only proven, currently-existing non-CO2 energy technology that scales to run a modern nation’s infrastructure — with features like 24-hour hospitals, etc. — is the one that France uses to generate 78 percent of its electricity. France has the lowest carbon dioxide production per unit of GDP in the world and is the biggest exporter of electricity in the world. Of course, France does it with nuclear.

        In the real world, the physics of the various renewable energy technologies doesn’t seem to support any of them scaling to anything like the levels that non-scientists credulously assume they can. And I’m someone who was involved with solar as far back as the 1970s and would welcome it if the Germans proved me wrong.

        In the real world, the majority of humanity — meaning, primarily, the societies of Asia — has already recognized the infeasibility of renewables as a sole energy source and has taken steps. It doesn’t get reported much in the West. — in fact, I laughed when I saw an ECONOMIST cover earlier in the year proclaiming “The Death of the Nuclear Dream” — but in the rest of the world a very large nuclear build-out has already commenced.

        In the next two years 46 new reactors will start construction; by 2018 the total is scheduled to reach over 100, IIRC. As 436 nuclear reactors currently exist in the world now, and 48 of them in Japan are shutdown, that means this build-out will represent an expansion of nuclear power by 25 percent over its current levels.

        Note, too, that the “key stakeholders, i.e. the energy sector, real estate interests, and their representatives” whom you identify as impeding the magical advance of green energy are mostly absent in these foreign societies. These states are undertaking this nuclear build-out because they reckon it’s their most feasible option.

        14 Reactors in 2012
        2012 India, NPCIL Kaiga 4 PHWR 202
        2012 Iran, AEOI Bushehr 1 PWR 950
        2012 Russia, Rosenergoatom Kalinin 4 PWR 950
        2012 Korea, KHNP Shin Kori 2 PWR 1000 (Jan)
        2012 Korea, KHNP Shin Wolsong 1 PWR 1000 (Jan)
        2012 Canada, Bruce Pwr Bruce A1 PHWR 769 (April)
        2012 Canada, Bruce Pwr Bruce A2 PHWR 769 (Sept)
        2012 Canada, NB Power Point Lepreau 1 PHWR 635
        2012 Argentina, Atucha 2 PHWR 692 (July)
        2012 India, NPCIL Kudankulam 1 PWR 950
        2012 India, NPCIL Kudankulam 2 PWR 950
        2012 China, CNNC Qinshan phase II-4 PWR 650
        2012 China, CGNPC Hongyanhe 1 PWR 1080
        2012 China, CGNPC Ningde 1 PWR 1080

        14 Reactors in 2013
        2013 Slovakia, SE Mochovce 3 PWR 440
        2013 Korea, KHNP Shin Wolsong 2 PWR 1000
        2013 Korea, KHNP Shin-Kori 3 PWR 1350
        2013 USA, TVA Watts Bar 2 PWR 1180
        2013 Russia Leningrad II-1 PWR 1070
        2013 China, CNNC Sanmen 1 PWR 1250
        2013 China, CGNPC Ningde 2 PWR 1080
        2013 China, CGNPC Yangjiang 1 PWR 1080
        2013 China, CGNPC Taishan 1 PWR 1700
        2013 China, CNNC Fangjiashan 1 PWR 1080
        2013 China, CNNC Fuqing 1 PWR 1080
        2013 China, CGNPC Hongyanhe 2 PWR 1080
        2013 Slovakia, SE Mochovce 4 PWR 440
        2013 India, Bhavini Kalpakkam FBR 470

        18 or 19 Reactors in 2014
        2014 Finland, TVO Olkilouto 3 PWR 1600
        2014 Russia Vilyuchinsk PWR x 2 70
        2014 Russia NovovoronezhII-1 PWR 1070
        2014 Taiwan Power Lungmen 1 ABWR 1300
        2014 Japan, Chugoku Shimane 3 ABWR 1375
        2014 China, CNNC Sanmen 2 PWR 1250
        2014 China, CPI Haiyang 1 PWR 1250
        2014 China, CGNPC Ningde 3 PWR 1080
        2014 China, CGNPC Hongyanhe 3 PWR 1080
        2014 China, CGNPC Hongyanhe 4 PWR 1080
        2014 China, CGNPC Yangjiang 2 PWR 1080
        2014 China, CGNPC Taishan 2 PWR 1700
        2014 China, CNNC Fangjiashan 2 PWR 1080
        2014 China, CNNC Fuqing 2 PWR 1080
        2014 China, CNNC Changjiang 1 PWR 650
        2014 Korea, KHNP Shin-Kori 4 PWR 1350
        2014? Japan, EPDC/J Power Ohma 1 ABWR 1350
        2014 Russia, Rosenergoatom Rostov 3 PWR 1070
        2014 Russia, Rosenergoatom Beloyarsk 4 FNR 750

          1. Fiver

            Mark P,

            As someone familiar with “physics” how would you describe an event of the scale of Chernobyl in one of those 78 reactors in France? Or India? Or in the US?

            I suggest the correct word would be “catastrophic”. And please, before you launch a “Those crummy Russian reactors..” or some such, be good enough to acknowledge you cannot possibly rule some similar event out entirely, any more than BP could claim underwater drilling was “safe”. Accidents happen. Terrorism happens. Wars happen. Economies fail – and the maintenance with it. Nature happens. Things we haven’t ever considered could happen.

            As for long-term, truly safe,and affordable alternatives, the truth is that neither the country, nor the mega-corporations that perhaps could make it happen have demonstrated anything resembling a real effort, opting rather to obstruct the way as much as possible, leaving it all to “markets” run by a collection of corporate gangsters.

            I sympathize with your view, if you put it as an either/or proposition (carbon vs nuclear). However,the real solution simply must be very serious efforts at conservation across the board even as we undertake this enormous task.

            It won’t matter a fig if we have unlimited cheap power, if, as now, we face planetary ecological failure should we insist on living as we do now. Just look at the earth, then consider what 9 billion carefree humans will do to it over the course of a century. Just about the ugliest picture imaginable.

        1. bmeisen

          China and Russia seem to be leading the rush to nuclear.

          Please refute the following claim:

          Electricity generated by nuclear power is attractive because pricing excludes costs associated with flat-tail risk and effective waste disposal.

          1. ScentOfViolets

            Sigh. Let me guess – not only do people have to prove you wrong, they have to make you say that you’re wrong.

            In any event, this objection is orthoganol to the claim that, other than fossil fuel, nuclear is the only known way to deliver baseline power for large areas of the world . . . though I might add that the cost of fossil fuels really are known not to be reflected in their price.

          2. bmeisen

            Mark P’s claim is that “…the only proven, currently existing, non-CO2 energy technology that scales to run a modern nation’s infrastructure …” is nuclear. Presenting evidence to confirm this assertion he documents a build-out, suggesting that in this context experts agree that the physics of power generation dictates nuclear.

            Baseline power for a modern nation’s infrastructure could be provided by using a hundred thousand slaves on stationary bikes. This energy technology can’t be taken seriously because, I think we can all agree, it is savagely exploitative. In contrast Mark P. presents nuclear power as a real world energy technology that is being taken very seriously by for example the Russians and the Chinese. I have the impression that he also takes it very seriously.

            I suggest that nuclear power is savagely exploitative. In the real world, nuclear accidents kill and harm large populations. In the real world nuclear waste threatens large populations over incomprehensibly long periods of time. The Germans struggled for decades to develop a responsible disposal program for nuclear waste and established several “permanent” storage facilities. The facilities are flawed, controversial, incomprehensibly expensive. The US has not yet established permanent storage facilities. Spent rods continue to be stored on roof tops, on flood plains, over faults.

          3. ScentOfViolets

            Baseline power for a modern nation’s infrastructure could be provided by using a hundred thousand slaves on stationary bikes.

            No, it couldn’t. Do the numbers. Nuclear energy – whatever it’s other putative faults – is clearly able to do so. The other bit about waste disposal? Well, at least you’ve come around to acknowledge that we don’t have the burden of proof on this one.

            And as I’ve already noted that the only other competing technology has even higher costs for waste disposal. Incidentally, you do know that “alternate energy” has killed far more people than has ever been attributed to nuclear power, right?

        2. Tony W.

          Mark P. -

          Very interesting, and….frightening. 20 new Chinese made nuclear reactors between now and ye 2014. I hear they have had all kinds of problems with their high speed trains. Anybody thats bought from Habour Frieght knows how well their consumer tools are made. Unfortunately, the historical Chinese fix to a major industrial problem (emmense masses of cheap manpower) don’t do much good if you’ve got a nuclear reactor problem.

          1. Mark P.

            “20 new Chinese made nuclear reactors between now and ye 2014.”

            It might be worrisome, mightn’t it?

            Still, these are Gen 3+ designs — prominently, the Chinese have licensed the Westinghouse AP-1000 (scaled-up version of a US Navy reactor type, I think) and are building the first real-world examples. If you do a search on the specs and designs, it’s hard to see in principle how you’d get these things to melt down or blow up. In reality, no technology is foolproof, of course.

      2. Yan

        Hi,

        Decline rates do not make allusion to escape of gas from fracturing -although that could be a part- but at productivity decline rates: when you drill, a necessary step to inject water and whateveritistheyexactlyputintothewater, there comes a moment when you have fractured all the rock around the drilling point and an increase in pressure is no longer viable, and extraction productivity declines to the point where it is not cost effective. The, in order to maintain production levels throughout the play you fooled some investors to believe in, you have to drill more and this is not precisely cheap. Most important, and this is why he says there is a bubble, most of the players in this business have not taken into account such decline rates. Also, there has been a massive influx of natural gas into the US market, driving down its price: drilling at today’s prices does not seem like such a viable option as it did in 2008 natural gas prices. They are even looking at exports (which the govt is not very keen on) at a way to stabilize the price upwards.

      3. redleg

        decline rate refers to the drop of production from each well over time. The decline rate from a gas well is parabolic if not hyperbolic. As gas is removed from its resevoir the pressure drops, meaning less gas can be extracted from the well. If you drill a new well, or frack an old well, the production rate will spike and then decline again. Each sucessive redevelopment of a well produces a lower spike, which basically matches the decline rate of each spike. It’s pretty much fractal.

        Because decline rates are not understood be most people, the whole Marcellus shale gas play looks to me like a real estate ponzi scheme. Getting maximum gas volume out of the ground when prices are incredibly low only makes sense if you want to sell the rights to the operation *immediately* to folks that don’t understand how wells work.

    2. Ben Johannson

      Berman lost all credibility the moment he mentioned how great the e-cat was, a cold-fusion con job which has been pretty much abandonded.

      Not cool.

    3. Mark Pawelek

      Electricity in nuclear powered France is about 1/3 the price of that from wind-powered Denmark; and will, hopefully, remain so. French electricity prices are far below those of fossil-fuelled Britain. So much for the nuclear is too expensive myth. The other myth is that nuclear is dangerous. Nuclear is the safest technology of all, provided it’s properly done. Siting uranium reactors by the sea, at sea level, in a Tsunami prone place was asking for trouble. The least they could’ve done was to put everything on 5 metre stilts. Oops – the least they did was nothing.

      By stopping nuclear energy all you’ve done is to promote fossils fuels. Good job greens, at limiting MMGW.

      1. Adam

        It’s funny… not only do they refuse the only technology that could reduce dependence on fossil fuels they refuse to recognize what would happen when the lights go out due to the intermittency of the solutions they demand. Want to see an environmental disaster? Turn out the lights around the world and watch people level forests as they try to keep warm and feed themselves.

      2. bmeisen

        It’s cheap because the government subsidizes development, the gov’t subsidizes the cost of insuring and limits industry liability, and because the gov’t has substantial responsibility for waste disposal. French energy is a sham market.

      3. Fiver

        Did I actually read “provided it’s done properly”? Do you have any idea how often that argument has been used by an industry to carry on with a practice that has been called into question? Why do I hear things like “Monsanto Roundup”, “Asbestos”, “deep sea drilling”, “media violence bears no relation to societal violence”, “Enron”, “anti-depressants”……………….

  2. Tony Westerberg

    I find this piece very weak overall. Thin and generalized overall. Why is this guy an expert worthy of credibility.

    Great topic, poorly executed.

  3. Elliot

    To paraphrase my younger friends, I find Mr. Berman’s insistence that we should accept the despoilation of Canada and the west in order to transport oil that he wants to make money on, adorbs. Same with his airbrushing of the disaster of Japan’s nuclear power. So cute with the inconsistencies and incoherence in service of what he wants to be true.

    1. Yves Smith Post author

      I think you are missing the point. It’s interesting to see you reject observations that conflict with what you want to believe. Shorter form, you seem to be shooting the messenger.

      The world is not moving toward green tech. A lot of it is inertia (as in why don’t most new homes have geothermal wells?). And a lot is that (as he correctly points out) a lot of the newer tech is not ready for prime time, or even close to ready. I’ve done work on tech deals, including thin film solar panels and advanced batteries, and I can tell you the lead time for large scale adoption of new tech is MUCH longer than you want to think.

      And his comment re Canada is sadly correct. If we don’t buy the output of Canadian tar sands, Asians will. Now you might not agree with his recommendation, that the US should therefore buy it, but he’s right that the environmental and climate damage is certain to occur irrespective of whether the US buys or not.

      And how is he talking his book? This guy is a consultant. He’s not an investor or promoter. There’s generally more money in talking up conventional wisdom than in being against it (I can tell you that from ample personal experience).

      1. Fiver

        Well, the majority of educated Canadians strongly oppose further expansion of that abominable ecological monstrosity – but for a temporary political anomoly in which the country is led by a right-wing lunatic of a Prime Minister who lives to serve oil and power, neither the proposed US pipeline nor the proposed pipeline for Asian export would see the light of day.

        Just today (Tuesday)a report was released indicating the levels of toxins of all kinds was 20 times more than had previously been admitted. It takes stupendous amounts of clean natural gas and fresh water to turn the crap into truly Fool’s gold. The fresh water supply is already in jeopardy due to glacial melt and hotter/drier climate affecting snowfall. The energy input/output equation is pathetic. And of course, it is an all-around crud bomb in terms of emissions.

        We simply must rid ourselves of the notion that we can continue to live like we have, or reality will do the ridding for us – not 100 years from now, but more like 20, if we’re lucky.

  4. Jesse

    Anybody who knows anything about oil, gas and coal, knows that that’s absurd. We were producing a little over 6 million barrels a day thanks to an all-out effort in the shale oil play. We consume 15 million barrels of oil a day and that leaves the gap of 9 million barrels per day. At the peak of U.S. production, in 1970, the U.S. produced 10.6 million barrels per day. Like I said, either the guy doesn’t know what he’s talking about, or is making a big joke of it.

    The timing of these comments is amusing considering a report just come out yesterday suggesting America would be pumping 11 million bpd and could achieve self-sufficiency by 2035.

    1. Yves Smith Post author

      Yes, and the FT apparently thought the report was BS, said so, and then edited it. Everyone who has looked at shale gas seriously has doubts, see the post we linked to at the top of this post. That’s one of the reasons I decided to run this interview. The IEA is apparently shilling for the fracking industry. By e-mail from Joe Costello:

      shit you wouldnt believe how much the ft edited their IEA oil piece, the original had a bunch of stuff about how they were extrapolating numbers that couldn’t be and the high depletion rates of shale wells — all gone now

      He sent a longer message to his listserv which refers to the scrubbed FT article, and does not mention the scrubbing. Key section:

      Our latest example of unaccountability is the International Energy Agency, who just released a report claiming a new era of oil nirvana for the United States, dutifully blared across our corporate media. Now remember, the IEA was founded by the barbarous Mr. Kissinger back in the mid-70s when most of America’s elite were rudely schooled on the importance of oil, that is cheap oil, to the American and burgeoning corporate global economy. Up until about half-dozen years ago, the IEA didn’t pay much attention to where new oil supplies were going to come from, when they did, they were startled into concern, but luckily again, there is no need for concern.

      The FT has about as good a piece as there is and it’s not good, dutifully repeating the ridiculous claims of the IEA and then buried further in the piece, a couple of caveats, or better a bit of reality. The one thing to keep in mind about anything anyone reads about oil today, global demand is off at least 10% since the 2008 financial panic, probably more, but oil numbers are difficult to come by. Anyway, this distorts everything, particularly price and supply, but most specifically price and supply of the new unconventional sources like the North Dakota and Texas shale plays.

      In short, what the IEA has done is used some oil industry analysis that’s been trumpeted over the past six months. It’s based on taking some oil industry numbers, completely unsubstantiated keep in mind, and extrapolating them into the future. Now remember what happens when our elite looting class extrapolates — NASDAQ 5,000 or the value of your home just a few years ago for examples — no one goes to jail.

      Accountability of power is a pillar of self-government. Five years from now, depending somewhat doubtfully on whether the corporate globalization game can get ramped up again, IEA’s analysis will prove of not much value, but they shall pay no price. That’s how it worked for the 70′s dacha-class accountants of the Soviet Union. The difference between that looting class and ours, America is much much wealthier, it will take a longer time to find the tomb’s empty.

      1. ambrit

        Maam;
        In regard to ‘green energy’, would those delaying forces be related to “economies of scale” for the economic effects, or real world physical difficulties in mass production techniques? One would be politically amenable, given sufficient will, the other would not.

          1. Geojos

            A couple of matters, first, thanks for making articles like this available. Although much of the materials are a tad over my head and backgound, I learn a hell of a lot from them, and although I am not in the greens(backs), I will be making a contribution. This is must go to site.

            I do not understand the selling to Asia part. What are the transporation logistics to this, and does it up the price?

          2. McMike

            Goejoos, the Keystone pipeline was intended to be the logistics for the tar sands oil, run the oil down to a port, so it could be shipped off to Asia where they’ll pay top dollar.

            As for Nat Gas, yes, it is harder to move, but then again, Japan has a huge thirst for it. Gas companies are already scrambling to get the facilities built.

            Both of these export plays make a huge lie of the energy-independence argument. As with the old-growth logging meme a couple decades ago, in the end, we are becomming an energy colony to global corporations, the resources are extracted and sent off to other places.

    2. Yan

      Jesse,

      As far as I know the US was not exactly energy independent in 1970. The report you mention talks about basically the same level of output with a 100 million population increase and a much more energy intensive society.

  5. Aaron

    If we learned anything from the financial crisis, it’s that reality (and gravity) have a way of biting those doing the extrapolating in the ass!

    Housing prices always go up, and energy is always cheap and plentiful. LOL!

    At some point, Americans will come to realize that this fantasy of perpetual growth and consumerism isn’t all it’s cracked up to be.

  6. Lafayette

    {“I’m going to give you a rule to live by. If it’s not on the shelf today, then a solution is no sooner than ten years in the future.”}

    There is a solution both off the shelf and just below our feet. It is called geothermal heating. Already, many houses and offices are heated by aerothermal heating – which is no more than a reverse air-conditioner. The drive seems to have gone out of geothermal heating in the US – and yet it is one of the least expensive alternatives to coal or fuel.

    These two methods of generating heat are key to any carbon-fuel-free future.

    Geothermal heating is free, gratis and for nothing – since the heat comes from the earth’s core. It’s only tangible cost is installation plus the monthly electricity to run the pump, which is about 300 watt-hours per month in peak season.

    The earth’s heat at three feet below the surface, in most climates, is at least 65°F. More northern climates require that one find that temperature at a lower in depth.

    It just has to be collected (by means of a serpentine gas- or water coil), sent to a heat-pump for compression and then into whatever structure needing heat.

    Aerothermal works in the same way.

    Some nations offer tax credits for those who will install aero- or geothermal heating. We should as well to get people off fuel or coal for heating, which should be more highly taxed. (BigOil, BigGas lobbies notwithstanding impediments.)

    For the heavy electricity hefting necessary in cities, nothing beats the price of nuclear energy. (Ecological costs not withstanding.)

    Finally, the other main energy necessity is transportation. Trains running on electricity can replace diesel trucks for large distance transportation. Electrically driven hi-speed trains in France have replaced commercial airline flights in France on small distances (700 miles or less). Kerosene (jet-fuel) taxes would alter that math.

    And 70% of all home-use electricity comes from nuclear plants, which have long since been amortized in France. What are we doing in the US to build them?

    Nada, zip, niente, rien, tipota.

    The next step in the exit-from-carbon-based-fuels evolution is electric cars. In France five models are presently on sale. The electricity will have to come from the home and workplace.

    It’s the way to go – Wake up, GM! Some needs to put a Volt up your backside? Nissan will likely be offering lithium-battery cars in the US before soon. (Btw, the batteries do not belong to the car-owner in France. When no longer functioning, they must be exchanged for a new set.)

  7. McMike

    We can count this piece as yet one more data point in the oil & gas bubble thesis.

    However, the rest of it (as previous posters noted) did not live up to expectations.

    He completely skipped the question of conservation: you know, just plain old simply using less… which is not only a technological question, but also an industrial process and lifestyle endeavor. There is plenty of low-hanging fruit here, but since there is no big money to be made by it, conservation lacks a powerful constituency.

    But what I find most interesting whenever the conversation ventures to renewables and conservation is that the speakers usually reveal that they exist in a tiny boxed-in intellectual paradigm and are in denial of their own cognitive dissonance.

    Again and again, speakers will extol the wonders of Yankee ingenuity, entrepreneurial zeal, scientific and technological wonders, and the American can-do attitude etc & etc & etc… but in the next breath insist that alternatives and conservation will never work, and that the American way of life (as it is currently and specifically formulated) can never change one iota from its current inefficient, wasteful, toxic, and wonton configuration.

    This is the nation that turned its entire economy and lifestyle on a dime to fight WWII, put a man on the moon just to win a dare, turned building a national railroad into a horse race, and created the internet as a defense exercise which became a Frankenstein’s monster that has upended nearly aspect of our economic, social, and cultural lives in under a decade.

    1. Gaylord

      Exactly, and the same narrow-minded thinking is propelling the enormous expansion of Asia’s energy consumption supplied by increasingly dangerous extraction methods. We already see plenty of evidence of the destructive effects of this voracious consumption, ranging from disasters like oil spills and Fukushima to extreme weather to unhealthy urban environs to massive deforestation to ocean acidification and more. This mindset combined with continued population growth will drive civilization headlong off the cliff. At some point, saner heads must prevail in applying the brakes and changing direction.

      The most obvious place to begin conserving energy is with the U.S. Military, which is the largest single consumer in the world. Judging from its self-assured, gargantuan, ever-expanding budget, this would also be a good place to begin the conversion to renewable sources, in addition to conservation measures, all of which could be adopted across the board in commercial and residential installations.

      An important aspect of energy production that is often neglected by the “experts” is decentralization. They typically only think in terms of large-scale centralized power generation, but solar systems in particular have proven cost-effective (even profitable) in smaller scale applications. This is one area where I foresee the greatest gains in the near future, if only the political will exists to implement it — i.e. grants and no-interest loans to businesses and homeowners to install rooftop collectors and systems. As with so many other viable solutions, the problem is extreme greed and the concentration of too much money and power in too few hands.

      1. Gaylord

        One more thing: McMike mentioned the railroads. Let’s modernize our rail systems to supplant much of the extremely inefficient and polluting automobile and truck transportation. The technology is there!

      2. McMike

        Re railroads: don’t hold your breath.

        That just makes too much damned sense, so the airlines, truckers, and oil drillers will never allow it.

    2. Lafayette

      THE GREATEST NATION ON EARTH?

      Again and again, speakers will extol the wonders of Yankee ingenuity, entrepreneurial zeal, scientific and technological wonders, and the American can-do attitude etc & etc & etc…

      Yes, it is tiresome to hear the same blah, blah, blah – America is the “Greatest Nation on Earth” because we are so ingenious, so competent, so dynamic … etc., etc., etc., ad nauseam.

      If we were all that how did we ever get ourselves into the present Economic Mess.

      Subtle but important changes, economically, financially and ecologically have been taking hold – unbeknownst apparently to most Americans who cannot see beyond the three-mile minute. It is either the numbing down of America or the dumbing down – take your pick. Either track leads to perdition.

      The Shale-Gas Freaks are just the latest in a long line who think some technology is always available to flank any problem. And, of course, there is are riches to be made. How can that be wrong?

      PROBLEM AVOIDANCE

      Which is why we have developed a half-assed manner of solving our problems. We never look at a solution for the basic, underlying matter. We adore palliative Quick Fixes that seem to address the problem, but usually, upon reflection some time later, it is still there and even more intractable.

      We’ve become a nation of “simplicists” – we try to keep our rational simple. When, in fact, our problems are highly complex.

      There is NO simple solution, no Quick Fix – regardless of how much that might please us.

      MY POINT?

      There is the alternative of making the right policy decisions and keeping watch over them towards achieving clear objectives. Instead of, like bumper cars at a state fair, careening off one another every two/four years in elections – which is perhaps good fun (for politicians) but getting the nation nowhere.

      In fact we are retrograding as a nation. And it is our children who will pay the steep price of our own misguidance?

      1. McMike

        Yes inded, the American exceptionalism narrative is getting threadbare, but I do think there is a generous kernal of truth in it, or was anyway. Now we seem mainly exceptional at delusion, violence, and self-destruction.

        My point, though, was it is often the purveyors of the myth themselves who do not seem to actualy believe it, at least prospectively.

        My vote in terms of diagnosis is of a guided national psychological regression into infantilized ignorant id’s, coupled with (or rather as cover for) a systematic program of looting and canibalization by the elites.

        The real bubble in America is itself. We have reached phase five simulacra, and the pirates are busy overloading thier ships while tying the rest of us to the anchor.

    3. McMike

      Don’t have the numbers Gaylord, but estimates say something like half of transport fuel is wasted through inefficiency and two-third of electrical generation though loss.

      The DoD, interestingly enough, is already exploring and may end up a leader in alternatives. Unlike in GOP fantasy BS Mountain, the DoD still has a few adults who can read the writing on the wall, and plan to get ahead of the curve (thanks to an unlimited budget), since they have not found a way to run warships by burning Michele Bachman’s hairspray or propel warplanes with Sarah Palin’s hot air.

      1. Fíréan

        Energy efficiency is a non starter in countries, or parts there of, where the residents are encouraged, if not forced by legislation, to use electrical power to dry their laundry when they could as easily hang out in the warm or windy fresh air to dry .

        1. McMike

          So, homeowners’ associations are to blame for global warming?

          Gee, that’s an implacable obtsacle alright. (If you’ve been to an HOA meeting; you’ll know that’s true).

          I guees it’s game over. we’ll just have to forget it and watch as the coasts subsume under the rising seas.

          1. McMike

            Seriously, the big hits in conservation are:

            - transportation choices (more public transport, less stupid auto trips)
            - transportation efficiency (better engines)
            - electrical generation and transmission (inefficient as hell)
            - commercial use of electricity

            People can keep drying the hell out of their undies if they want.

    4. ScentOfViolets

      Ah, no doubt Yankee ingenuity will soon give us antigravity at the push of a button and faster-than-light travel. Oh, and an anti-aging pill that increases the human life span to five centuries or so.

      By your reasoning, that is.

      Your other point is also objectionable: Just who is supposed to be “conserving” and what precisely do they have to give up to meet the standards? Contrary to common belief, people aren’t brainwashed into an energy-intensive lifestyle. And somebody who’s done without air-conditioning for fifty years in southeast Asia is going to jump at this so-called luxury item as soon as they can afford to do so. That’s the sort of “conservation” you seem to be lobbying for.

      1. McMike

        re, scent:

        - Straw man: check

        - Reducto ad absurdum: check.

        - secundum quid: check.

        - and a touch of ad hominem.

        1. ScentOfViolets

          And – just like your other post – nothing specific. Show these straw men, reducto ad absurdums, don’t simply tell us this is so and we have to rely on your received wisdom that these things are so.

          Again: you seem to take on faith that developing these alternate technologies is just a matter of sufficient will, the Green Lantern theory of technical development. What makes you think this, since evidently you have zero training in the requisite physics and chemistry?

          Also: you’re vaguely advocating some sort of conservation with no specifics. But as far as I’m aware, the sort of conservation measures people are willing to put up with won’t make much of a dent in our energy consumption patterns. And the sort of conservation measures that would be meaningful? Again, as far as I’m aware, people simply won’t stand for those.

          Now, if you think otherwise on these two points, you need to be specific, not utter vague and vaguely soothing bromides with absolutely no analytical content. So, care to try again?

          1. McMike

            “anti-gravity” devices and “anti-aging pills”… that is textbook reducto ad absurdum.

            As for conservation, your obstinance makes my point: you are stuck in the box of what you think people will “stand for” (which happens to be a major unsubstantiated generalization of your own by the way).

            And yet, my alleged shortfall in providing specifics to your liking is nevertheless apparently no obstacle to your preemptively declaring them unworkable in absentia.

            Swatting at the strawmen you do not even bother to propose.

          2. ScentOfViolets

            You’re still not showing, but never mind that; it’s quite clear that you haven’t the slightest idea of how hard developing alternate energy sources really is.

            It’s also quite clear that not only do you have no technical expertise, but that you haven’t the slightest idea how to construct an argument or burden of proof obligations, etc. Here’s a hint: I ain’t the one making the claims – however vague – about the efficacy of conservation (and no, writing about my state of mind on the subject “as far as I’m aware”, is not a claim about the subject).

            Finally, it’s cluestick time: you’ve been behaving very badly here, badly enough in fact that you are not deserving of any further attention from me. Next time, park that nasty attitude at the door.

  8. The Dork of Cork.

    You don’t want to be Ireland where your base load is mainly nat gas and your rail system is not used to its max passenger capacity because of a lack of sov power.

    See the Troika pressure in Greece to increase their public transport fees when they have neither a car or oil industry……

    The banking system uses these nations through multinational constructs as diverse as the EU & IEA to farm their systems – nothing more.

    PS Yves
    I use the IEA data a lot but I agree – their Policy Recommendations are obviously from the now defunct Manchester school of free trade.

    This goes back a long way…..
    To the corn laws
    (Corn was a energy crop back then)
    It increased “growth” but at the expense of domestic redundancy and perhaps domestic Monopolistic forces but at least those forces must deal with domestic political and economic systems.
    http://en.wikipedia.org/wiki/Richard_Cobden

  9. Xenophundibulum

    1. There is no reason to assume there is only one solution, so no need to frame this as pick one of {A, B, C, D, E}. Try them all, but compare them fairly, including risks, externalities, installation/operating costs, fuel cost, future fuel cost, and government guarantees/subsidies.

    2. Rising oil prices make more expensive solutions like tar sands and photovoltaics competitive.

    3. Intermittent power sources like photovoltaic are ideal for peak load on sunny, hot days, and there is no fuel cost. As a result, worldwide photovoltaic production has been doubling every 2 years since 1998.

    4. Energy sources have changed in the past. England only started burning coal after it ran out of wood to burn around 1450; it coincidentally started building houses of stone instead of wood.

    5. The Fukushima disaster demonstrated that nuclear energy has externality tail risk; what is the cost of the lost 800,000 hectares of farmland? (Land price + production lost year after year.) This must be factored into the price of nuclear electricity. In any case, the loss of farm land use will be reflected in Japan’s GDP.

    1. ScentOfViolets

      No one I know of who advocates for nuclear power says it’s nuclear power only. There are terrible costs to using it and the only reason for doing so is that the costs for the alternatives are even higher. Add to this the fact that nuclear can’t be used everywhere since it requires, for example, a fairly hefty amount of water to dump waste heat into; obviously not available in arid regions.

      No, the problem are those damn fool lefty types left over from the 20th century who go on about no way no how can nuclear ever be considered an option, and hey, how about good old-fashioned conservation like severely rationing air-conditioning instead? They give modern progressives a bad name with this sort of out-of-touch and technically uninformed ideology.

      1. McMike

        You’re confused scent, lefties want anti-gravity devices. It’s Commies that want to ration air conditioning.

        It’s not clear why you’re intent on being a troll over the concept of conservation, perhaps you were scarred by liberal parents who turned down the thermostat and wore sweaters during the Carter administration.

        Despite your straw persons, there is little controversy over the idea that electrical generation and transmission is highly inefficient, or that modest increases in fuel efficiency along with public transit improvements would save tremendous amounts of fuel.

  10. Number_27

    Mr. Berman may be a wonderfully gifted scientist but he is unintelligible on economics. Of course folks won’t drill if the price of nat gas is below the cost of production. But when the price is above production costs they will drill. The whole concept of a bubble is inapplicable to this natural resource extraction. Prices are low, what bubble? Prices are going lower? Then that means either there is a vast oversupply or demand has dropped. So what?

    Who cares if investors or companies like Chesapeake go under? Others will step in and pay current market value for the reamining assets, perhaps fire sale prices. Again, so what? How are consumers harmed? Do I care who produces the gas? How many people even know the production companies or investor identities?

    There’s no inflated pricing here which is what a bubble is. Natural gas prices are historically low and forecasted by most knowledgeable analysts to remain low for the foreseeable future. What bubble is he talking about?

    The statement “[s]hale gas has lost hundreds of billions of dollars and investors will not keep on pumping money into something that doesn’t generate a return” is absurd. Investors wil not pump the same amounts as in the past given the returns realized but there is some level of investment given current gas prices that would return a profit. And that level of investment is what those assets are currently worth and that is what bankrupt investors can expect to be paid for their operations if they go under.

    1. McMike

      Indeed. It is an investment bubble that has led to a price collapse due to oversupply (oversimplifed of course).

      But I don’t share your casual dismissal of the ramifications though. When housing prices eventually collapsed after its investment bubble, it led to a global bloodbath for investors.

      We know how that story ended.

      1. McMike

        In the case of natl gas, think of producing gas as the fundementals. Sooner or later, that part of the business must revert to making sense fundementaly. In the meantime….

        However, as we learend with the housing bubble, even after Wile E Coyote runs off a cliff, he can keep aloft simply by peddling in mid-air for a remarkably long time.

        It is pretty clear that Wall Street firms have a heavy hand in this business, including securitization investment schemes – and in a wild west fast and loose industry where there’s plenty of room to inflate estimates and no way to verify, along with huge volatility in risk and returns and lots of private players who can keep everything secret. That should be cause for skepticism in and of itself.

        But you can’t view this industry as a homogenous single thing. There are hot spots and places that have already died. The question is not: is there a bubble, the question is, can the industy keep enough deal flow and profitable new driling coming in before it collapses under its investment schemes?

        Chesapeake is as much a real estate play as it is a drilling company. There are private equity firms running drilling companies now – a sure sign to head for the exits soon.

        When I saw the seeking alpha analyis of Chesapeake’s rig count mystery (link above), my first thought was: they’re cooking their books. If gas is following the Wall Street bubble script, then that will be next. Accounting shenanigans to cover up for mounting losses.

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