Joe Costello: Why the Oil Industry is Running Into Major Trouble

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By Joe Costello, the author of Of, By, For: The New Politics of Money, Debt and Democracy. Cross posted from Alternet

Over the last year, some deep truths about oil and the oil industry have begun to bubble to the surface. Not necessarily that they were ever hard to see, but they were easy to obscure and maybe more importantly, without too much effort, ignore. No longer. Spread across the oil companies’ quarterly reports and the pronouncements of government agencies from the U.S. Energy Information Agency to the International Energy Agency are the hard facts that the era of cheap oil is over. It’s impacting the U.S. and global economies and forcing a fundamental rethinking and restructuring of our economic activities and thinking.

Four decades ago, it was abruptly brought to the world’s attention oil was a limited resource. This was of greatest concern for the United States, who at that point had built an economic infrastructure completely oil dependent. With only 5% of the global population, the U.S. consumed over 25% of the world’s oil, a model neither sustainable or exportable to the vast majority of earth’s population.

Nonetheless, little was done to change these circumstances and most amazingly U.S. oil based development was adopted by other parts of the world, most notably China, whose oil consumption in the last three decades has quintupled, becoming the second biggest oil consumer in the world. Simultaneously, the greatest action taken by the U.S. was spending trillions of dollars “securing” much of the remaining conventional oil sources around the Persian Gulf, doing little to nothing to cut demand.

However, during this time, there’s been significant change in the industry itself. For most of oil’s history, the global industry was run by a handful of private companies in the U.S. and Europe. Today, the five biggest – Total, BP, Exxon, Chevron, and Shell – account for only 13% of global oil, while national companies including Saudi Aramco, Russia’s Rosneft, and China National Petroleum Company control over 75%.

This led to a tightening of supply available to the private companies, while just as importantly, an increasing number of former big oil exporting countries, such as Indonesia, Mexico, Venezuela and Norway produce an ever decreasing amount of oil. In the first seven years of the century, the price of oil went up from $10 a barrel to over a $100 dollars a barrel. In 2008, the difference between global oil supply available and growing global demand shrunk to the smallest amount in oil’s brief history, helping spike price to $150 a barrel and pushing the world into the worst economic recession in seventy-five years.

With the global recession, supply constraints gained a short reprieve as demand slackened, going down over 12% in the U.S. and over 20% in parts of Europe. Yet, after a brief dip, oil prices remained stubbornly high. For the past two years, even though the global economy remains lackluster, oil remains at $100 barrel. In the past year, the tightening supply and growing cost of any new oil began showing-up in the quarterly reports of the oil companies, who despite having plus a $100 barrel prices, revealed increasingly small profit margins, growing expenditures for all new oil and declining production. In the second quarter of 2013, the oil companies balance sheets became increasingly alarming led by Exxon’s 57% profit decline and eight consecutive quarters of production declines.

This disruption continues with the oil companies 2014 first quarter reports. All five top oil companies announced declining production numbers despite increased expenditures. At an oil conference last month, the Houston Chronicle reported Chevron CEO John Watson stated, “That new reality for our industry is that costs have caught up to revenues for many classes of projects. Essentially, for a company like mine and many others, $100 a barrel is becoming the new $20 in our business.”

This is an extremely important development, especially for an industry which for over a century printed money. The oil industry is now becoming ever more capital intensive, not a printer of a money, but a growing capital black hole. Yet incredibly, as shareholders begin to grumble, the old majors begin to cut their expenditures and divest of future reserves to maintain non-sustainable dividend levels. The Los Angeles Times reports, “Exxon’s capital and exploration expenditures fell 28 percent in the first quarter(2014), which helped deliver higher profits even though oil and gas production fell 5.6 percent.”

Obviously, not a long term strategy, but what is the oil industry’s long term strategy? Well for the last few years, we’ve heard a lot about the great “shale revolution,” even President Obama hailed it in his 2012 State of the Union speech. Yet, as oil analyst Chris Nedler stated, “Shale’s not a revolution it’s a retirement party.”

Shale is both expensive and not nearly as plentiful as been propagated. The great shale revolution is greatly distorted by mountains of Wall Street generated debt, it might most accurately be described as “subprime” energy. Take for example the greatest shale company, Chesapeake, loaded with debt that’s created unprofitable and unsustainable prices. They’ve found it hard to make much profit in the last couple years – for an oil and gas company, that truly is a revolution.

In order to survive with over 13 billion dollars in debt, over the last couple years, Chesapeake shed billions of dollars in assets. Just last week, the prestigious oil industry publication, “The Oil and Gas Journal” announced Chesapeake’s latest divestiture, a rather unintentionally amusing and revealing report on the business and “accounting” of shale:

Chesapeake Energy Corp., Oklahoma City, has decided to proceed with spinning off its oil field services business, currently conducted through its wholly owned subsidiary Chesapeake Oilfield Operating LLC (COO), almost 3 months after reporting that a spinoff or outright sale of the business was under consideration. COO will also convert into a corporation and change its name to Seventy Seven Energy Inc.

Upon completion of the spinoff and an expected recapitalization, $1.1 billion of consolidated COO debt will be eliminated from Chesapeake’s balance sheet and Chesapeake will receive a $400 million dividend that will be applied to pay off intercompany debt from the oil field services business, the company said.

But, it’s not just the industry leader having trouble profiting from shale, so to the massive oil service company BHP Billiton, who in 2012 wrote down almost $3 billion in shale assets and the old oil companies such as Shell, which this year wrote down $3 billion of their own shale plays. Bloomberg announced recently that “shale debt has almost doubled over the last four years while revenue has gained just 5.6 percent.” The entire shale industry has $162 billion in debt and a massive “shakeout” is inevitable.

Importantly, it’s not only no one can make money on shale, but there’s not nearly as much of it as Wall Street proclaimed. Recently, the Energy Information Agency stated the Monterrey Shale in California, which was being promoted to account for two-thirds of developable shale oil in the US, only contained 4% of previous estimates, a 96% drop! Thus, there’s only one-third as much shale oil as been touted in the financial press, that too is a highly suspect number.

Globally, the production of conventional oil – “black gold, Texas Tea” – plateaued ten years ago at around 75 million barrels per day. Meanwhile “unconventional” oil and oil substitutes such as Natural Gas Liquids, have seen the biggest growth in oil accounting. However, they are neither cheap or simple substitutes for crude.

Four decades after learning oil was a limited resource, the world, and especially its most oil dependent member the United States, now face a hard accounting. The present hundred dollar a barrel oil has created a serious drag on a global economy that for a hundred years has grown on cheap oil, while oil has kept its price, despite five years of a largely stagnant or deflating global economy.

All new oil is going to be less plentiful and more expensive. It is going to take increasing amounts of money both to find and bring to the surface. The once mighty oil companies, that strode across the global landscape like giants, are going to increasingly shrink in stature and power.

We need to undertake an all encompassing energy transition which will impact every aspect of our economy and our lives. We can look at what the energy component, particularly that which comes from oil, is of everything, from transportation, to food, to money itself, figuring out how it will be replaced with other sources of energy, accomplished by using less energy, or abandoned.

Ready or not, the great energy transition has arrived. It can no longer be ignored, a new world is in the offing.

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  1. mmckinl

    “US military warns oil output may dip causing massive shortages by 2015”

    This piece was written in 2010. There have been many other great articles on “peak oil” and the massive fraud called “fracking our way to energy independence.”

    As oil supplies 95% of our transportation energy and in particular energy for agriculture there is no possible way for “real growth” to continue causing a financial crisis.

    Welcome to the era of diminishing returns. So far the powers that be have managed to suppress oil demand through war, austerity and destabilization.

    This suppression has worked so far but as “real oil” relentlessly depletes lies and demand suppression are doomed to failure which is why the powers that be have set up the police state.

    The powers that be have known, through DOD and CIA studies, since before 2000 that peak oil was imminent and thus we have had 9/11, Anthrax attacks, 2 illegal wars, fake terror threats and totalitarian state legislation shredding the constitution.

  2. Nonanonymous

    This article reiterates what is already known, Peak Oil is actually Peak Cheap Oil

    I disagree with the conclusion of the article, rather, market forces will dominate. Although, I agree Peak Everything may the catalyst which breaks the back of fiat money.

    Whether the G8 colludes to enforce SDR’s backed by a global police state, World War III breaks out, global banking is dismantled, or Christ returns first remains to be seen.

    1. mmckinl

      “This article reiterates what is already known, Peak Oil is actually Peak Cheap Oil”

      Actually they are one in the same … ‘Conventional oil’ has been on a production plateau since 2005 despite higher prices. And sure there is plenty of expensive oil and substitutes but the world economy can not afford to pay for them. If oil is not profitable to extract it won’t be extracted. The article pointed out the losses the majors have incurred trying to make a go of “shale oil”.

      Here is what is in store according to a German Military Report :
      “Review of Bundeswehr Report on peak oil: Section 2.2. Tipping Point (Nov. 2010)”

      A series of interrelated potential consequences is then outlined:
      – Collapse of the banking system, the stock & financial markets.
      – Loss of confidence in currencies.
      – Collapse of value-added chains.
      – Collapse of monetary systems and international supply chains.
      – Extreme increase in unemployment in all modern societies.
      – State bankruptcy.
      – Collapse of critical infrastructure.
      – Famine.

        1. pebird

          I believe Jesus is up there looking down at us and thinking, “They are doing nothing for Christ’s sake”.

          1. tongorad

            Channel Firing
            BY THOMAS HARDY

            That night your great guns, unawares,
            Shook all our coffins as we lay,
            And broke the chancel window-squares,
            We thought it was the Judgment-day

            And sat upright. While drearisome
            Arose the howl of wakened hounds:
            The mouse let fall the altar-crumb,
            The worms drew back into the mounds,

            The glebe cow drooled. Till God called, “No;
            It’s gunnery practice out at sea
            Just as before you went below;
            The world is as it used to be:

            “All nations striving strong to make
            Red war yet redder. Mad as hatters
            They do no more for Christés sake
            Than you who are helpless in such matters.

            “That this is not the judgment-hour
            For some of them’s a blessed thing,
            For if it were they’d have to scour
            Hell’s floor for so much threatening….

            “Ha, ha. It will be warmer when
            I blow the trumpet (if indeed
            I ever do; for you are men,
            And rest eternal sorely need).”

            So down we lay again. “I wonder,
            Will the world ever saner be,”
            Said one, “than when He sent us under
            In our indifferent century!”

            And many a skeleton shook his head.
            “Instead of preaching forty year,”
            My neighbour Parson Thirdly said,
            “I wish I had stuck to pipes and beer.”

            Again the guns disturbed the hour,
            Roaring their readiness to avenge,
            As far inland as Stourton Tower,
            And Camelot, and starlit Stonehenge.

    2. Wat Tyler

      “market forces” is not a science like thermodynamics but a set of policies designed to promote certain goals – in the West, the enrichment of the Oligarchs. A different set of “market forces” can be implemented to achieve different goals but this will be difficult in the new police state. Hopefully Europe can show the way as they seem more willing to raise hell. Not holding my breath however.


  3. ambrit

    Visionary types predicted this long ago. Frank Herbert based one of his earliest books on it; “Dragon in the Sea,” published in 1956. If we’re talking reasoned apocalypse here, how about “No Blade of Grass” by John Christopher, also 1956. Indeed, John Michael Greer, who is mentioned here from time to time has a book out about “our post industrial future.”
    What’s funny and sad at the same time is the never ending story about how all of this was predicted years ago, and nothing significant was done about it. Perhaps the secret weapon of Gaia is human nature; short sighted and not terribly bright.

    1. Eeyores enigma

      “What’s funny and sad at the same time is the never ending story about how all of this was predicted years ago, and nothing significant was done about it. ”

      Something was done its called Resource Wars. Its been going on for a long time and nobody does it better than the US…X 10. This has the added benefits of creating the largest and most profitable military industrial complex in the world. War is not the answer you say? Well if the question is how do we get to the point where we, 5% of the population get to consume over 25% of the worlds resources then War IS the answer. And we thought we were just special awww!

      As an industrial designer for over 20 years I have seen just about every industry you can think of shoot for securing a military contract for producing something or rather. It is our economy and everyone needs it to keep humming along or we all starve.

      It either ALL changes or nothing changes. Obamas presumed weakness (picture someone hunched over the wheel of the careening bus frantically trying to steer a straight course) is just a set up for the next Commander in chief to be a hard ass.

      1. Doug Terpstra

        Interesting insights on Great-Game intrigue. This post explains the desperation of the Neocon coup in Ukraine, ultimately targeting the dissolution of Russia, as well as why the war of terror must escalate elsewhere, especially Venezuela, which has the largest global reserves of our oil under their land. Thus spake the Great Deceiver in his West Point manifesto:

        “First, let me repeat a principle I put
        forward at the outset of my presidency:
        the United States will use military force,
        unilaterally if necessary, when our core
        interests demand it – when our people
        are threatened; when our livelihood is
        at stake; or when the security of our
        allies is in danger.”

        I must have missed that during the first campaign and inaugural. In the WP manifesto he also reiterated American exceptionalism and its indispensable status, which implicitly renders all others disposable. Jan Oberg of Sweden gives a good analysis of Obama’s new emphasis on aggressive militarism at Counterpunch in “The Audacity of Fear” (a perfect synopsis of his entire failed presidency)

        1. Minor Heretic

          “…when our livelihood is at stake…”

          I missed that the first time around.

          It translates as “We will kill for money.” But we already knew that.

    2. Mel

      “secret weapon of Gaia”

      It’s not that Gaia wants to harm us. Gaia is a wise mother and will let us learn from our mistakes. After we’re dead we’ll be saying to each other “Woah! We’re not doing that again!”

      1. Wat Tyler

        Mother Nature bats last.
        I am old enough to remember Reagan’s ridicule of Carter’s call for conservation. American is exceptional ,Reagan explained, and not subject to any constraints – we are entitled as the shining city on the hill. Now get those solar panels off the White House roof. Reagan created an entire adult generation that built the McMansions and drove the massive SUVs. We are just now replacing them with a more realistic generation. But they will face the police state. Good Luck.


  4. Nathanael

    Hmm. I tried to predict whether the oil majors would
    (1) waste money on exploration at unprofitable prices
    (2) put their businesses into runoff mode, end exploration entirely, and focus on “printing cash” from the existing fields and issuing at as dividends. This is the smarter move.

    I predicted #1, and bailed out on the stocks. In fact they seem to have done #2 to some extent. I thought they were stupider. Oh well, can’t make the right moves everytime.

  5. kimyo

    only conservation can have a meaningful effect given these circumstances. i suggest we start with abandoning lawns. the fossil fuels consumed in seeding, fertilizing, mowing, roundup-ing and watering are needed elsewhere.

    it seems especially crazy to water lawns with water processed at treatment plants, that’s as flagrant a waste of resources as i can think of.

  6. clipb

    ridiculusly absurd piece. many domestic e&p companies have had huge gains off their shale production. why pick sleazy weasel chk? why no mention of bakken? or the several large texas shale areas? why no mention of our large increase in domestic production? yes the big guys are having some e&p issues, but xom, for example, has ttm revenues of ~400bn$. hard to expand on that given the “easy oil” days are mostly history.
    why post a piece so superficial and skewed? come on yves!

    1. abynormal

      5-1-2014 “Two of the largest U.S. oil companies on Thursday reported higher domestic crude production but failed to win profit gains in the first quarter as disruptions overseas choked the flow of foreign oil.”

      2-2-2013 “Asian Tigers Stalk U.S Gas as Louisiana Shale Profits Taper”

      8-2-2013 “Big oil firms miss out on shale-boom profits…Shell, Exxon came late to the party”

      10-25-2012 “Landowners upset over unpaid royalties in the Barnett Shale”

      “Oil creates the illusion of a completely changed life, life without work, life for free. Oil is a resource that anaesthetises thought, blurs vision, corrupts.” (there’s your excuse)
      Ryszard Kapuściński, Shah of Shahs

      1. James Levy

        American production has increased, but it isn’t close to what it was in 1970 when there were 220 million Americans, not the 320 million there are today. And the point is that the shale oil runs out REALLY fast (wells in sweet spots are unprofitable within 5 years, and, as is pointed out, because the Bigs got there late, they are already finding it hard to drill any profitable wells). And the tar sands and shale oil are not, and never will be cheap to locate, extract, and refine. We are replacing easy to get at, easy to refine oil with tough to get at, tough to refine oil And, oil production now soaks up much more capital than it used to because production costs are much higher. If interest rates go up the small operators who have mostly been in on the “ruin and run” phase of fracking will instantly be priced out of the market. This means that the era of cheap oil, barring a massive fall-off of demand due to economic collapse, is over.

        1. OpenThePodBayDoorsHAL

          Not enough discussion of how shale is just the latest Wall St pump-and-dump scheme. Up front capital costs are high so Wall St shows up with their free money. Rosy projections of how the wells will produce to snooker Mom and Pop and the debt bagholders. After 18 months when production falls off a cliff, Wall St is long gone, Mom and Pop landowner get screwed, and the guy down the road gets flammable water with > 500 different chemicals coming out of his tap.
          Kinda brings a tear to my eye it’s so American…

    2. skippy

      skippy… whack on increasing water problems and projections start to look a bit presumptuous… oh… and what was the reason most resource and heavy industry left the US… oh yeah… legacy issues. Oops forgot in Texas how much out put has changed even with more than a doubling of wells.

      1. skippy

        Forgot one…

        This graph shows how the monthly royalty rate and daily natural gas production rate of a hypothetical gas well can decline during the first six years of production. It was constructed using an initial production rate of 2 million cubic feet per day, a natural gas price of $4/mcf and a royalty rate of 12.5%. The left axis shows the amount of the monthly royalty check and the horizontal axis shows the months of production. The right axis shows the production rate in millions of cubic feet per day. The well starts with a rapid production rate and high royalty checks. These decline rapidly during the first year, and by the end of the first year they have dropped by nearly 70%. The production rate declines in each successive year, and at the end of the six-year period, the production is down to a little over 0.1 million cubic feet per day and the royalty check is down to about $1750. This is a drop of nearly 94%! Eventually, the well will yield so little gas that it will be uneconomical to operate and will be abandoned. This curve is a hypothetical example, and your well could do better or worse. The rate of decline varies from well to well. Production of natural gas from shales is a relatively new technology. There is not enough long-term experience to accurately predict the long-term productive life of a well in the shale gas formations of the United States.

        Declining Royalty Payments are Normal

        Lots of property owners who signed a lease in one of the natural gas shale plays such as the Marcellus, Barnett, Haynesville, Fayetteville, Bakken, Utica and Eagle Ford are now receiving monthly or quarterly royalty payments. Many of these people were pleasantly surprised with the size of their first royalty check — but then shocked to see the size of subsequent checks fall rapidly.

        There was nothing wrong with their well. Sharp declines are normal.

    3. Cynthia

      Economic progress in America happens to correlate with an increase in the production of light sweet crude oil, which has a very high EROEI. Oil (and water) is the basis of the real economy. Without oil, the US would not be able to generate the type of GDP that is necessary to attract Treasury purchasers and allow the US to maintain the petrodollar.

      What we are potentially witnessing right now is GDP being capped by the availability of light sweet crude oil. Similarly, any increase in GDP is going to see an increase in demand for oil, which will cause prices to rise, which will then cap GDP. This is referred to as the bumpy plateau.

      When people say that America’s energy future is “bright,” they are likely only looking at quantity, not quality. The US could, for instance, have two trillion barrels of shale reserves and that would have little impact on GDP due the massive inefficiency of shale oil production compared to light sweet crude.

      Rome had the same problem. Its economy was partly built upon energy as well – slaves. As the Roman Empire expanded, it required more slaves. This usually involved invading and occupying more land. At a certain point, the cost of acquiring new slaves got so expensive because all the low-hanging fruit was taken. Coupled with the gradual devaluation of its currency, the Roman Empire went into a slow decline and that was that.

      There is a reason why every president since Carter has said, in the state of the union address, that the United States must break its dependence on oil.

      1. Eeyores enigma

        Cyn – Good comment!

        What the world has done in the face of declines in light sweet crude is attempt to “break its dependence on oil” by replacing it with a dependence on finance, with the belief that that would bring on endless resources and easy substitution as the market demands. WRONG!!!!!

        The telling element of all presidential state of the union speeches is the part where they say; “…United States will use military force, unilaterally if necessary, when our core interests demand it… WHEN OUR LIVELIHOOD IS AT STAKE…”.

    4. Jimmy Cracks Capricorn

      While the Eagle Ford and Bakken plays are large they are also shallow and the pressure ROI is rather low. Yes, tons of money is flowing into these plays but the end result is a false sense of security – they have to hype it in order to keep the investment pouring in, so all the reserve numbers are inflated, this makes the politicians shrug their shoulders at hight and high speed rail projects – we’ll all have cars forever! These false long term plays are only delaying the inevitable and the lack of planning vision and leadership by the GOP is astounding….

  7. sevenleagueboots

    “The organizing principle of any society is for war. The basic authority of the modern state over its people resides in its war powers. Today its oil, tomorrow water. It’s what we like to call the GOD business; Guns, Oil, and Drugs. But there is a problem. Our way of life, its over. It’s unsustainable and in rapid decline, that’s why we implement demand destruction. We continue to make money as the world burns. But for this to work the people have to remain ignorant of the problem until its too late. That’s why we have triggers in place, 9/11, 7/7, WMDs. A population in a permanent state of fear does not ask questions. Our desire for war becomes its desire for war. A willing sacrifice. You see, fear is justification, fear is control, fear is money.”
    { The Veteran – 2011 }

    What cannot be sustained, will not be sustained. All the useless plunder filling up storage facilities, homes
    and garages, together with the idle purposelessness which today defines Americans, await demand destruction.
    The latest wrinkle I see emerging nationally, is the wholesale cutting back on unessential dross: from toothpaste
    to toilet paper, from insurance to internet, the race to shrink overhead is in hyperdrive.

    Near is and hard to grasp – the god
    But what saves grows too.

  8. Crazy Horse

    Look on the bright side. Collapse of the fracked oil chimera, depletion of conventional oil fields slowing output, abandonment of cars locked in 40 mile long traffic jams in China, SUV’s converted to planter boxes in the USA, the collapse of petroleum-based aquifer mining agricultural on the Great Plains, withdrawal of the just-in-time life support systems of places like New York, London, Beijing, Mexico City—— all good for the health of Gaia.

    1. Cynthia

      Instead of clamoring for growth or lamenting a permanent downturn, why not slow everything down by paying labor fairly worldwide. Include the costs of associated negative externalities and potential liabilities in the cost of the product. Products would be more expensive, but built to last. Corporations could be responsible for ‘cradle to grave,’ recycling of the products they produce.

      Eliminate person status of corporations. Make serving the public the primary reason to maintain corporate charters, as opposed to shareholder profit.

      Eliminate the revolving door between regulators and lobbyists. Curtail lobbying and interlocking directorships.

      Give labor the same mobility as money. Support co-ops and local worker business and initiatives at home.

      1. Crazy Horse

        Good policy ideas, but totally out of scale to the nature of the problem. Homo Industrialis is the most destructive species to ever roam the planet. In a few short centuries it has multiplied like a Round-up resistant weed, started the sixth great extinction event as it destroys the habitat of millions of species, and set in motion climate changes that, if unchecked may set the planet on a path where it is no longer fit for carbon-based life forms. From the standpoint of Gaia, collapse of the species and its ability to convert fossil energy into population support systems cannot happen fast enough.

  9. Alex Tolley

    Higher oil prices should drive faster substitution to other forms of energy. Right now gas is the hot commodity. Renewables are gaining a lot of traction, especially solar in the sun belt (sufficiently so for ALEC initiatives to block distributed solar). The big transition that will hit the US is private transportation as gasoline becomes very expensive and harder to get as uneconomic gas stations close. This isn’t necessarily a bad thing.

    We could end up with a cleaner, more livable world.

    1. craazyboy

      Energy is only “fungible” to a certain extent.

      In electric, they can run peaking gas power plants full time, and maybe shut down a coal plant or nuke as a result. Beyond that, we are talking many year construction projects.

      In transport – one may think the logical thing to do when the shit hits the fan (sorry, this is not a renewable energy source) is ration gasoline to consumers so we have a supply of diesel for trucks supplying food and other necessities to stores. Problem here is that refineries have a somewhat fixed ratio of gasoline output relative to diesel output. So reducing gasoline demand won’t increase diesel availability much.

      Making the “transition” without a Plan A or Plan B with be painful. Not to mention the “economic shock” and we know how much economists worry about economic shocks. These can even impact a frail financial system – if we were unlucky enough to have one of those too.

      1. susan the other

        Would it be too much of an economic shock (since our famous capitalist economies are dependent of the automobile and all it has given us, gag me) to stop manufacturing cars altogether? Quickly phase out driving cars and recycle the damn things. I think cars are obscene.

    2. Sylvia

      The problem is that prices are already too high for the consumer and too low to cover the costs of oil extraction. And everything, including solar, wind, nuclear require fossil fuels to build and maintain. Someone mentioned Gail Tverberg’s blog above which sheds light on this whole predicament, using data and system analytics (she is an actuary)

      Higher oil prices lead to less consumption which will create lower oil prices and ultimately insufficient investments – and since we exist in a complex dynamic system this will ripple through our economics and end in tears.

  10. Jim Haygood

    “Shale debt has almost doubled over the last four years while revenue has gained just 5.6 percent.”

    If property-bubble CDOs were the death of Bubble II, will ‘shale debt’ take down our current Bubble III?

    Though the pinprick always comes from some unexpected direction, the one constant is that brain-dead banksters will be loaded up on whatever toxic debt collapses the system next time round, and thus will bleat piteously for public assistance.

    Plus ça change, plus c’est la même merde.

  11. Robert

    A one meter thick layer of ash, charred wood, and singed fibres and stalks lies six meters below the Great Plains! Is anyone else thinking about the money to be made in charcoal briquettes?

  12. susan the other

    It has been reported (sorry no cite) that Russia has 100 years of natural gas supplies – I’m not sure if this took into account their new pipeline to China; other energy companies have various supplies of both gas and oil. It will not come to a screeching halt tomorrow. But it will stop in only a few decades. The world has a bigger supply of coal but global warming just isn’t worth it. We all know these things. We have been grappling with these realities for such a long time it is hard for me to imagine that alternative life styles haven’t been designed. I feel like every report on energy is just psy-ops these days. Of course carbon-based energy is going to run out. But that isn’t a free pass to become hysterical. Overcoming denial (like the comments against Obama’s latest feeble attempt to control pollution from coal) would be easier if the US government hadn’t lied to us so many, many times about this and every other thing. Leaders are supposed to have courage, aren’t they?

  13. Luke The Debtor

    I couple questions.

    First, how are oil companies going to “shrink in stature and power” when it takes more money, more technology and more people to produce oil?

    Second, why say that the world had experienced 100 years of cheap oil but then imply that oil hasn’t been cheap for the past 40 years?

    From what I gather, until the Spindle Top discovery there was no cheap oil for the automobiles, like the eventual Ford Model T. And oil is resource limited by technology (human innovation).

  14. FluffytheObeseCat

    1) All new oil is going to be less plentiful and more expensive. It is going to take increasing amounts of money both to find and bring to the surface.

    In all likelihood, yes, since this is what is already happening. The result in much of the U.S. heartland has been…… increased employment for people who were really on the skids 5 years ago. Pittsburgh is the only old rust belt town that’s in good shape right now, on account of being the center of action for the northeastern shale gas industry.

    2) The once mighty oil companies, that strode across the global landscape like giants, are going to increasingly shrink in stature and power.

    In all likelihood, no. It is possible that the old, Western corporate majors will lose power, but their places will be taken by the state-owned companies. Exxon, Shell and BP may have done themselves serious damage by failing to pursue unconventional sources. They may merge or decline in power. However, the idea that fossil fuel giants will cease to rule us is not supported by fact. The ruling “giants” may change a bit, but the power will remain with them — as they continue to supply many forms of fossil fuel.

    We can and probably will transition onto natty gas for ground transportation, +/- some %age of electric vehicles. Fleets — like municipal buses or UPS — are moving in that direction. With luck, we may be able to continue increasing the use of renewables for direct power generation, but there is little to say it a given. Resource constraints have real, negative social impacts but, they don’t look to cause the kind of fast-moving apocalypse that would rock our world. Runaway global warming is more fearsome by far.

    1. craazyboy

      There’s “good” potential for a double wammy. We’ve been in a long multi-year drought in the western half of the country. Lake Mead is down to half it’s volume. If that is already the product of GW, then it may continue forever. One scientist came out recently and said droughts can last a hundred years – even if they aren’t somehow linked to global warming. Mix that together with the direct energy impact and you could see 50 million people looking to walk to the East.

      Hi Easterners!

      1. LifelongLib

        No source at hand, but I’ve heard that the last 150 years (i.e. the period of white settlement) may have been unusually wet in the American West, so possibly even without global warming the area is just returning to its historical norm.

    2. joe costello

      So ur saying that an energy source that took less people and less resor es a hundred years ago, now takes increasingly more is good for the economy? Under what economic theory?

    3. Moneta

      So maybe jobs will come back without a new economic model…. and in a couple of decades most of the population will somehow be working to produce energy.

  15. allcoppedout

    There will no doubt be noise complaints concerning the human hamster wheels. 25% of German electricity is now from renewables (Wiki). Energy conservation and renewable capacity could form the basis of a job guarantee scheme funded through positive money. The question is what the business plan would be. One assumes we don’t have one because of remaining faith in the economic control fraud.

    1. thrig

      Germany has done a fine job of replacing their nukes with intermittent renewables, but their carbon habit is largely unchanged, and the costs for renewables look high:

      And where do the solar panels come from? China gets 70% of their energy from coal; what happens to solar panel prices without that cheap burn? Otherwise, using less energy I believe is presently called a recession, and thus politically troubling. I’d expect folks to try to figure out how to get the economy growing again, which will only push up the fuel prices…a carbon coffin corner!

  16. Fiver

    While I advocate immediate adoption of a ‘global emergency’ mindset vis a vis massive, transformational investments aimed at radical reduction in the use of fossil fuels in all forms, to be completed no later than 2035 in order to avert several self-reinforcing, catastrophic “runaway” feedback loops otherwise locked in, I find I have trouble with the emerging narrative re oil this piece typifies.

    First, there is the question of high-quality, conventional reserves. I don’t think it is wise to assume certain past and current political situations are permanent, and the reserves of regions deemed ‘unstable’ or even ‘hostile’ simply removed from the discussion: major conventional reserves remain in Saudi Arabia (or they’d be insane to keep pumping at this rate); Iraq, Iran, Libya between them are bigger than Saudi Arabia; Russia and Venezuela have gigantic heavy oil reserves; tar sands in Canada are profitable far below $100 per barrel and there is no reason to believe the huge deposits in (again) Venezuela, Russia and elsewhere would not be comparable. Whether US policy vis a vis Iraq (flattened), Iran (throttled) and Libya (de-capitated) was intended to break open those countries for the ‘majors’ or are the sorry outcome of some other, equally insane policy that temporarily has ‘shut out’ the majors, Washington could if it chose fix its self-inflicted policy problems, and possibly will, putting all that conventional oil back into the mix. Again, we must get off fossil fuels in less than a generation if we hope to miss the nexus of systems collisions that mark our doom.

    A second concern is the argument that it was high oil prices that caused the Great Recession/Depression. Clearly oil was very heavily financialized going into the Lehman bust, and price, after a big initial bounce-back, went higher riding each bout of QE, the last round of which did not translate so readily due to what amounts to a short-term glut of US shale oil and China slowdown. How much of a company’s reserves might an irresponsible Chair and Board sell? Also evident is a sizable ‘security premium’ of elastic dimension loved by all who own oil. How much of the price comes from instability caused by the US itself? Considering the size of the asset price corrections across the board, and the amount of QE since, oil price fundamentally is already far too high vs what production would be if production was suddenly required by growth, i.e., oil should be back in the ’70’s-ish.

    Other very large US corporations have had a string of bad quarters (IBM) over the last couple of years, and many more have had declining profitability over the past year. But we’re still talking about the corporations that drive the economies of the developed world. Exxon is a behemoth. It is expanding heavily in Asia, for instance. Ditto the rest. These entities have been in control of developed world governments for a century and their current plight, insofar as it is real (would Exxon lie if it suited them?) could be readily addressed with smarter policy. Alternatively, other countries’ companies could conceivably develop and utilize those ‘shut in’ conventional sources and, given production patterns, consume the bulk of it keeping the game going, or convey strategic advantage somewhere down the road heading to eco-hell because we did not heed the more immediate transformation message.

    Unless it is US policy to keep that much conventional oil in the ground, it’s going to be used. It’s much, much cleaner and really ought to be the global reserve production focus for quick and easy clean oil to get us through the last half of the transition period off of fossil fuels and ensure ample supplies for those products and uses still allowed and requiring fossil fuels.

    So I see the the immediacy of our response to fossil fuels as imperative as part of a US-engaged global plan to map out and implement the transition. This of course assumes some sort of “moment” of collective awareness big enough to register with the current leadership elites.

    1. Fiver

      Monbiot’s work is, in my view, essential reading for anyone interested in understanding the true scope of the fossil fuel cycle impacts and, and therefore the enormity of the problems as well as what radical changes are required in order to successfully address these problems. He has no tolerance for those advocating decades-in-the-making meagre political ‘compromises’ like cap and trade, that are guaranteed not to work well enough to be a solution, but are deemed ‘better than nothing’ or ‘first steps’ by politicians eager to demonstrate their ‘green credibility’ on the cheap – like Obama, who I think is going to come to some sort of very ineffective agreement with Canada over the tar sands and tied to cap and trade. I do not view these as even half-assed solutions, yet they will continue to be what’s on offer until the first real panic is triggered by a major negative event traced directly back to fossil fuels. Monbiot is a very serious fellow who we ignore at our peril.

  17. mark

    This is a very informative article and some of the links in the comments are also very useful.


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