IEA Oil Forecast Unrealistically High; Misses Diminishing Returns

The International Energy Agency (IEA) provides unrealistically high oil forecasts in its new 2012 World Energy Outlook (WEO). It claims, among other things, that the United States will become the world’s largest oil producer by around 2020, and North America will become a net oil exporter by 2030.

Figure 1. Author’s interpretation of IEA Forecast of Future US Oil Production under “New Policies” Scenario, based on information provided in IEA’s 2012 World Energy Outlook.

Figure 1 shows that this increase comes solely from the expected rise in tight oil production and natural gas liquids. The idea that we will become an exporter in later years occurs despite falling production, because “demand” will drop so much.

The oil price forecasts underlying these and other forecasts in the report are approximately as follows:

Figure 2. Author’s interpretation of future average world oil prices, as provided by IEA in their 2012 WEO report. (Forecast provided by IEA is more “concave downward”.) Historical amounts are based on BP 2012 Statistical Review of World Energy amounts.

One reason the WEO 2012 estimates are unreasonable is because the oil prices shown are unrealistically low relative to the production amounts forecast in the report. This seems to occur because the IEA misses the problem of diminishing returns. As the easy-to-produce oil becomes more depleted, and we need to move to more difficult reservoirs, the cost of extraction increases.

In fact, there is evidence that the “tight” oil referenced in Exhibit 1 is already starting to reach production limits, at current prices. The only way these production limits might be reasonably overcome is with higher oil prices–much higher than the IEA is assuming in any of its forecasts.

Higher oil prices cause a huge problem because of their impact on the world economy. The IEA in fact mentions that current high oil prices are already acting as a brake on the global economy in its first slide for the press. Higher oil prices also mean that investment costs required to reach target production levels will be even higher than forecast by the IEA, adding another impediment to reaching its forecast production levels.

If higher prices put the economies of oil importing nations into recession, then oil prices will drop lower, reducing the incentive to invest in new oil production infrastructure. In fact, we could find ourselves reaching “peak oil” because of an economic dilemma: while there seems to be plenty of oil available, the cost of extracting it may be reaching a point where it is more expensive than consumers can afford. As a result, some oil that we know about, and have been counting as reserves, will have to be left in the ground.

The IMF has recently done modeling that is relevant to this issue in a working paper called “Oil and the World Economy: Some Possible Futures.” This analysis may provide some insight as to what the real situation will be. 

The Problem of Diminishing Returns

One issue that the IEA has not properly modeled is the issue of declining resource quality, leading to diminishing returns and a rising “real” (inflation adjusted) cost of production.  This situation is often described as reflecting declining Energy Return on Energy Invested (EROEI).

The reason diminishing returns are a problem is because when a producer decides to extract oil, or gas or coal, the producer looks for the cheapest, easiest to extract, resource first. It is only when this resource is mostly depleted that the producer will seek locations where more expensive, harder to extract resource is available. Thus, over time, the inflation adjusted cost of extracting a resource tends to increase.

Figure 3. Author’s illustration of impacts of declining resource quality.

In terms of the triangle shown, producers tend to start at the top, with the “best” of the resource, and work their way toward the bottom. One result of this approach is that the cost per unit of production tends to rise, even as there are technology advances and efficiency gains, because the quality of the resource is declining.

Reserves tend to increase over time with this approach, because as producers work their way down the triangle in the diagram, they always see an increasing quantity of lower quality resources. The new reserves are increasingly expensive to extract, in inflation adjusted terms. There is no flashing light that says, “Above this price, customers won’t be able to afford to purchase this resource any more,” though. As a result, the increasingly low quality reserves get added to reported amounts, even though in some cases, the cost of products made with these reserves (say gasoline or diesel) will send economies into recession.

It should be noted that the issue of diminishing returns exists for almost any kind of resource. It exists for uranium extraction, since there is always more available, just harder to reach, or in lower concentration. Diminishing returns exists for gold, copper, and for nearly any other kind of metal. This means we often need more oil for metal extraction and processing, as we dig deeper or find ore that is mixed with a higher proportion of waste product.

The problem of diminishing returns also seems to hold for renewables. The first biofuel developed was ethanol from corn, since the process of making alcohol from corn has been known for ages. Newer approaches, such as ethanol from biomass and biofuel from algae, tend to be much more expensive. As a result, when we add new biofuel production, it is likely to be more expensive, and thus harder for the customer to afford. If we want it, we will need increasingly high subsidies.

Wind energy is also subject to diminishing returns. Onshore wind was developed first, and it is far less expensive than offshore wind, which was developed later. Early units of wind added to an electric grid do not disturb the electric grid to too great an extent. Later units of wind energy add increasingly large costs: long distance transmission lines, electrical storage, and other balancing–something that is generally overlooked in making early cost analyses.

Diminishing returns seem even to happen for energy efficiency. We have been working on energy efficiency a very long time. We have a tendency to pick the low-hanging fruit first. Later expenditure for efficiency may be less cost-effective.

Why Light Tight Oil Won’t Increase as in Figure 1 

Tight oil, also referred to as “shale oil,” is supposed to be the United States’ oil savior, if we believe the IEA. The Bakken and Eagle Ford plays are the best known examples.

Rune Likvern of The Oil Drum has shown that drilling wells in the Bakken already seems to be reaching diminishing returns. The choicest locations appear to have been drilled first, and the locations being drilled now give poorer yields. He has also shown that the average well in the Bakken now requires a price of $80 to $90 barrel, which is close to the recent selling price. If increased production is desired, the price of oil will need to start increasing (and keep increasing) to provide the incentive needed to drill wells in less-choice location.

There are other issues as well. If there is a need to drill an increasing number of wells just to stay even, or an even larger number, to increase the amount of oil produced,  we start to reach limits on many kinds: number of rigs available, number of workers available, miles driven for water to be used for fracking. Perhaps the issue that will limit production first, though, is limits on debt available to producers. Rune Likvern has also shown that cash flows from tight oil extraction tend to run “in the red,” so an increasing amount of  debt financing is needed as operations ramp up. At some point, companies hit their credit limit and have to stop adding new wells until cash flow catches up.

Evidence Regarding Rate of Growth of Oil Extraction Costs

Bernstein Research recently published information showing that the marginal cost of oil production was $92 barrel in 2011 for non-OPEC, non Former Soviet Union oil producers at the 90th percentile of production. This cost is increasing at 14% per year (or about 12% a year in inflation adjusted terms). Even at the median marginal cost level, costs appear to be increasing at a compound annual growth rate of 9% (or about 7% in inflation adjusted terms). See also this FTAlphaville post.

If we take the $92 barrel cost in 2011 at the 90th percentile of production and increase it by 7% a year (arguably we should be using 12% per year), the real cost will be $169 barrel in 2020, and $467 a barrel in 2035. These are far in excess of the IEA oil price estimates  shown on Figure 2. There is no reason to believe that Bakken and other tight oil production costs would be substantially cheaper.

Other Issues That Appear Not to be Handled Well by IEA WEO 2012

There are three other issues that the IEA has not handled well, in my opinion.

1. Rising Real Need for Fuels of Some Sort

WEO 2012 shows falling “demand” for fuel. Demand, as economists define demand, has to do with how much customers can afford. It is quite possible that demand will fall because people can’t afford the fuel.

It seems to me would be better to start by analyzing how the real need for fuels is changing. Once this is determined, adjustments can be made to reflect other ways the same benefits can be provided, assuming this is possible.

Regarding the real need for fuel, if we look at species that are in some ways similar to humans, such as chimpanzees and gorillas, we find that these animals have no need for fuels, because they live in the way that they are  biologically adapted: There are only a relatively small number of them (less than 1,000,000 per species) living in territory which is restricted to their biological adaptation. They do not need their food cooked, or spears or other tools to keep away predators, or shelter from the elements.

Humans don’t live in the way that we are biologically adapted. Because there are so many of us, we need to grow our own food, and gather water from natural sources. Because we do not have big heavy jaws because there is little easy-to-chew food available, we need to cook much of our food.  Because we live in diverse areas of the world, we need shelter and adaptive clothing. As humans move to cities, we have even greater needs. We need antibiotics and immunizations to prevent epidemics. We need fuel for commuting, unless we sleep on the floor of the factory where we work. We need fossil fuel for cooking, because traditional fuels such as dung or twigs are not available in sufficient quantities in urban areas.

Another need for fuel, besides directly responding to human needs, is to offset the continued degradation (entropy) of built infrastructure. As the number of humans expands, so do the miles of roads, the number of bridges, the miles of pipelines, the number of homes and schools, and many other kinds infrastructure. All of this infrastructure wears out. Roads need to be repaired almost every year, especially in cold climates. Electrical transmission lines need to be put back in place after every major storm.

Population is also, of course, rising. When we put these issues together (rising fuel need with urbanization, rising population, and increasing entropy), it is clear that the services humans need from fuels will continue to rise, whether or not “demand” as economists measure it appears to rise.

Most of these fuel services will need to come from fossil fuels, rather than renewables, for two reasons: (1) This is the way our infrastructure now is built, and it is expensive and time-consuming to change it. (2) Biological sources are quite limited compared to the needs of 7 billion humans. According to Chew in The Recurring Dark Ages, deforestation started to occur in multiple locations 6,000 years ago, when the world population was about 20 million people.

2. Substitution for Oil

The IEA seems to err in the direction of assuming that substitution can be made more quickly than it really can be. In general, whenever substitution is done, new devices need to be created that use the new fuel, or new plants need to be developed that transform one type of fuel to another type of fuel. Doing either of these things will temporarily add to demand for fossil fuels. There is also a cost involved.

Only the heavier portion of natural gas liquids can be added directly to gasoline supply. Most natural gas liquids are used for other purposes, such as making plastics, or propane for home heating, or making liquid petroleum gas (LPG). LPG is used for cooking in some parts of the world and for operating vehicles that have been designed to use it.

3. Efficiency Gains

The IEA seems to assume that efficiency gain can have a big impact on the need for oil. The issue it seems to lose sight of is that efficiency gains are a two-edged sword. When a device is made more efficient, the usual effect is that it can be operated more cheaply. This means that more people can afford it, and demand may increase. In the early days, electricity was very expensive. As its cost came down with efficiency gains, its use went up dramatically.

Putting All of These Issues Together

It is very clear to me that the IEA oil estimates way too high, unless prices are much higher. Of course, prices can’t really be much higher, or the economy will go into recession. As a result, production both for the US and the rest of the world is likely to be much lower than forecast by the IEA.

It would be useful to have a better estimate of exactly where the world is headed. One way this might be done is by adapting the indications of a new IMF working paper called Oil and the World Economy: Some Possible Futures. The working paper considers some unknown time, between now and 2020, when the rate of increase in oil supply is assumed to decrease by 1%. While it is not stated in the report, it appears to me that this is similar to what actually happened about 2005, when the rate of oil production increase dropped from 1.3%” annual increase to 0.1%, a 1.2% decrease. (Figure 4, below).

Figure 4. World crude oil production (including condensate) based primarily on US Energy Information Administration data, with trend lines fitted by the author.

I have a few observations regarding such an adaption:

(a) The model could be adjusted to consider the fact that a drop in the trend rate of about 1.2% actually took place in 2005, rather than simply assuming that a 1% decrease will happen at some unspecified point in the future. It appears to me that shift in the oil extraction trend line underlies many of the world’s problems in the last several years.

(b) The treatment in the model of diminishing returns should be adjusted. It is my understanding that this is currently handled assuming a 2% annual increase in real costs of production. The model could be adjusted to reflect a more realistic (higher) annual cost in oil production, and indirectly, required selling price.

(c)  The authors of the IMF report suggest building a more resource-based model, and I would agree that this would be helpful. There are many interlinkages that the current model cannot adequately capture. A more resource-driven model, especially one that considers balance sheets of world governments, would appear to be better.

My View of What is Happening Now 

As noted above, world crude oil production seems to have hit a plateau, starting about 2005. This is working its way through the economy with varying effects over time. The major effect at this point of time seems to be on the finances of governments that import oil, although it started earlier, with different aspects more apparent.

In general, what happens as we reach a situation of diminishing returns, and thus rising real oil prices, seems to be as follows:

As the price of oil rises, the price of food and commuting tend to rise. Both of these are considered essential by most consumers, so consumers cut back in discretionary spending, to have sufficient funds for the essentials. This leads to layoffs in discretionary industries, such as vacation travel and restaurant eating. The rise in laid off workers leads to an increase in debt defaults, and problems for banks. Housing and commercial real estate prices tend to fall, because of reduced demand, further adding to debt default problems.

Governments of oil importers get drawn into this in many ways: (1) Their revenues are reduced, because they receive less tax revenue from people who are laid off from work and from businesses with fewer sales. (2) They are asked to prop up failing banks, and to stimulate the economy. (3) They are also asked to pay workers who have been laid off from work. The net of all of this is that the governments of many oil importers find themselves with huge budget deficits, and declining ability to fix these deficits. This pattern is precisely what we are seeing today in many of Eurozone countries, the United States, Japan.

The statements about rising oil production in the US are just a distraction. Diminishing returns mean that US oil production will never increase very much. Oil costs will remain high, and this will be the real issue disturbing economies around the world.

About Gail Tverberg

My name is Gail Tverberg. I am an actuary interested in finite world issues - oil depletion, natural gas depletion, water shortages, and climate change. Oil limits look very different from what most expect, with high prices leading to recession, and low prices leading to inadequate supply.
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174 Responses to IEA Oil Forecast Unrealistically High; Misses Diminishing Returns

  1. palloy says:

    Unfortunately the scale of Fig. 1 doesn’t allow anyone to see just how much historical tight oil data the projected data is based on. It looks like zero tight oil in 2009, if so, that means at most 3 years’ worth of data.

    BP(2012) shows 2011 US consumption of All Liquids at 18.8 Mbpd, so IEA forecast production of 10 Mbpd in 2030, and being a net exporter, means you have to cut consumption by 3.5% per year for the next 18 years. Good luck with that.

    • There is not much tight oil extraction to date, and their report gave very little in the way of historical numbers. Theoretically, there should be a tiny thin line, going back a few years. Perhaps if I have a chance, I can redraw that part.

      There are some other sources of “liquids” besides what is shown on the chart. “Refinery expansion” is missing, as are biofuels. (Biofuels added about 972,000 barrels a day in 2012; refinery expansion added 1,076,000 barrels a day in 2011.) Refinery expansion occurs when long hydrocarbons are cracked into short ones. I would expect that light shale oil wouldn’t add much refinery expansion; cracking of very heavy crude would. Biofuels are an unknown. One place the IEA talked about them increasing US biofuel production by 1.0 million barrels per day, over the long run. The renewables section shows consumption of biofuels increasing to 1.7 million barrels a day in 2035. It would appear that the IEA is expecting that some of our biofuel production will be exported.

      I am unclear on exactly what happens to gas to liquids and coal to liquids. The world-wide amount of these is expected to be relatively small, even in 2035. It is possible that there is some increase in these that applies to the US data, but it is not broken out in the charts well.

  2. ChiefEngineer says:

    You make a great argument for regulations that keeps our economy out of the unemployment ditch

    • Andrew of the Bay Area says:

      Control, control. control. You put way to much stock in politicians and their number crunchers (I am a number cruncher) to solve extremely complicated problems. From what I have seen, they almost ALWAYS make it WORSE.

      It seems that ultimately, most modern citizens prefer autocracy over every aspect of their lives, with the mistaken belief that it leads to better outcomes for them and society, than true liberty. Sad, very sad.

      • ChiefEngineer says:

        Dear Red Cruncher in Blue Bay,

        In 2008 the Divided States of America lost 8 million jobs from the financial crisis that was blessed by deregulation. Banks making zero down mortages to people without means. Insurance Companies covering risk bigger than themself. Four years later, the country with trillions of additional debt because of it, still has not fully recovered.

        Above I was mostly refering to the part of the post under “My View of What is Happening Now”. Please review the part how everything is connected:

        “As the price of oil rises, the price of food and commuting tend to rise. Both of these are considered essential by most consumers, so consumers cut back in discretionary spending, to have sufficient funds for the essentials. This leads to layoffs in discretionary industries, such as vacation travel and restaurant eating. The rise in laid off workers leads to an increase in debt defaults, and problems for banks. Housing and commercial real estate prices tend to fall, because of reduced demand, further adding to debt default problems.”

        Without laws and regulations in a world of 7 billion humans we would not have the high level of civilization we have today. Actually when you think about it, without laws and regulations you don’t even have a country. That’s what makes a country what it is. It’s sad to see you have such a negative view of your fellow citizen (politicians), but you do get what you vote for.

        Nothing in my above post was aimed at controlling the Number Cruncher. It was only intended to help the 7 billion of us on the plant to live together with a higher quality of life.

        Do you really believe you would be better off today without regulations of clean air & water, medical care, transportation safety, building codes and human rights ? If you do, try moving to Haiti or some desert island and let me know how that works out for you.

        • Leo Smith says:

          I think the inconvenient truth is you can have 7 billion, or a higher quality of life.

          Not both any more.

          That salient fact, if it turns out to be a fact, is going to dominate the politics and economics of the globe for the next millennium.

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  4. QuadRant says:

    An excellent and timely post. The mainstream consumer media in the UK reported the IEA’s most optimistic scenario as pretty much a done deal, knowing that most readers will ‘hear’ that everything will be OK for the next 30 years. Only the Financial Times included opinions from analysts such as Barclays Capital, who are highly doubtful that anything like the IEA’s best-case scenario is possible.

    Whether it was intentional or not on the part of the IEA, this story will be highly supportive of the centralised fossil fuel power generation interests that are currently successfully rolling back the small amount of progress the UK has made in building onshore wind capacity while it can still afford to invest in large(ish)-scale renewable infrastructure.

    By the time shale oil is properly recognised as a false dawn, we’ll be several years closer to a hard landing.

  5. Theoltd says:

    Great Post. Thank you.

  6. Lloyd Goss says:

    Hello Gail

    Thank you for the most interesting post on your blog today.

    I note that the IMF Working Paper uses the DSGE method for the modelling exercise.

    Professor Steve Keen, from the University of Western Sydney, is a trenchant critic of the assumptions made by neo-classical economists upon which the DSGE model is based.

    I suggest that you might like to look at Steve’s blog: http://www.debtdeflation.com/blogs/

    I am not an economist, but I find Steve’s view that the capitalist economies are not in a state of equilibrium, which if disturbed, then readily resettles back into an equilibrium again. The empirical observations of anyone show that capitalist economies tend to boom, with the occasional recession, but are punctuated by economic depressions once a lifetime or so. The cycle then tends to begin again. The models used by the neo-classical economists cannot predict those excursions from that “equilibrium”, but instead seem to rely on some ill defined “exogenous shock”, or “Black Swan” event. Professor Keen bases his ideas on the work of Hyman Minsky about the generation of private debt through profligate exponential lending by banks which finally collapses when the growth in debt and inflated asset prices can no longer be sustained. The precipitating shock is therefore endogenous in nature.

    Steve’s email address is s.keen@uws.edu.au I have found him to be very approachable.

    Kind regards

    Lloyd Goss

    Member, Whitehorse Transition Town

    16 Malvern Road Mont Albert North Victoria Australia 3129

  7. the biggest danger in this ‘everything is OK after all” scenario is that there will be collective thinking that nothing or very little needs to be done to do anything to mitigate the difficulties we will meet in the future. If there’s enough oil to get through the next five years before decline starts in earnest, then much less will be spent on developing alternative energy systems because they will be uneconomic in current financial terms.

    • Andrew of the Bay Area says:

      Most alternatives are already uneconomic based on our current cost structures and usages in our economy.

      The primary things they needs to change is to allow local communities the ability to modify laws and regulations to help local economics thrive. Don’t expect this from either of the political parties, especially not the one that HATES local rights…the Democrats…as we are about to witness as Obama goes after the marijuana laws passed in WA and CO.

      • When I visited India, I could not help be impressed with how different it was. If you start from a background of being poor, you do not make a huge number of regulations about how things must be done. If you need light, you simply cut a hole in the ceiling. If you want to be fancy about it, you fill it in with something that will let light in, but not let rain in–ideally a glass panel, but a piece of plastic or other material might work.

        In many ways, we need to start from a base of 0 when thinking about needed regulations. Until things completely fall apart, this won’t happen, though.

        • Many countries including India have climates that allow for less energy spending. A lot of western countries live in areas with cold and dark winters (like here in Norway). My town has more than 230 rainy days a year so I cant imagine what a hole in my roof would lead to.:) – Although the vikings 1000 years ago still were able to live successful lives here, I doubt the majority of people here now are really ready for lower energy use now.

          It is clear though that more work needs to be done into making housing more energy and service independent as the way it is now a lot of utilities need servicing every 5 years (for example I just had to change 5 thermostats and motors for the waterbased heating). I believe movements need to be initiated for shaking off the old “high service box house” thinking and making the place you live more efficient, including less driving to the gym and making pantries a bigger part of each house to lower the need to even leave the house in larger portions of your time. A family today could easily cut down their energy spending by half in no time. Most people now seem content with switching their light bulbs and pat their own backs for it. Also ditching the idea of having to visit every corner of the planet (or once a year which is common here) would seriously reduce our consumption of fossil fuels. But naturally with it goes the economy – or the way civilization works today.

          No doubt the down scaling will happen sooner or later, but the “energy independent” and “everything is fine” – is just yet another signal to the economy to keep wasting energy for the sake of “growth”.

          • Hydrocarbon energy use enabled man to gradually expand out of the warm temperate zones and survive further and further north. We had fire and used the furs and flesh of other animals for survival. Essentially we were diverting their energy stores for our own use. The cities in the cold north continued with ‘energy diversion’ and cut down their seemingly unlimited forests to keep warm in winter. As our sophisticated civilisations expanded, we found better ways to create heat for our homes but now the energy ‘downsizers’ ignore the basic fact that we now heat millions of homes with hot water. You cannot downsize a water based central heating system. In cold countries it will eventually freeze. when it thaws your house becomes uninhabitable.
            We no longer have the necessary resilience to survive extreme cold

          • Indeed, we have a water based central heating system where every thermostat end motors to control the valves (both from a company called LK) to the floors broke down in 6 years from it was new. I posted about this another place here (about missing plan B), but its rather terrible when I realised that when the motors controlling the valves failed the “default” proved to be max flow, so maximum heat – talk about fantastic construction. I dont know, but I feel the later technology boom has really just given us a lot of unsustainable technology with bad designs and what I refer to as “plastic fantastic” or a common term here now: “made in China” (sorry I dont mean to be rude to the Chinese people, but I really cant stand bad quality for a quick profit kind of thinking).

            The free market economy has really evolved into a terrible beast with no thought about efficiency in the long run, but efficiency in getting money into the pockets of business owners. We really need to oppose this trend and start demanding that stuff is supposed to last longer than now. We have rather strict guarantee laws here in Norway so its not that bad here really – unfortunately the max is 5 years on stuff like the parts for my central heating – and it broke down 1 year after it ran out – it almost feels designed to fail after the guarantee period (I mean how can a passive thermostat sending some wireless signals fail after 6 years?).

          • I agree that cold northern climates will make it much harder to shrink of energy consumption.

            I don’t know how populations got along years ago. I would expect that their homes were much smaller, and they were only able to heat one room.

            In India, they talked about changing the time school started, with the season. I suppose the logical extension of that would be to only have school in the summer, or some such thing.

  8. phil harris says:

    Gail
    As noted in QR’s comment, IEA’s optimistic scenario will be seen as a done deal. Smart money though at Barclays Capital and Goldman Sachs know something is wrong of course. For an analysis by Goldman, I see that FTAlphaville has another good piece, including a splendid GSachs’ graph of costs of oil projects. http://ftalphaville.ft.com/2012/10/19/1220571/oil-production-costs-in-goldmans-flatter-world/
    Quote:
    Oil production costs in Goldman’s “flatter” world
    Masa Serdarevic | Oct 19 17:24

    [FTAlphaville says] Goldman’s analysts, long-time oil bulls, are now expecting a “flatter oil price environment” in the next few years. In other words, they think prices in 2013 and 2014 will be “marginally” lower than current spot levels, and drift down to $85 by 2016.

    Clearly not good news for the oil majors who have watched their own costs spike higher over recent years (our emphasis):

    [Quote from Goldman Sachs] “We estimate that the global oil & gas industry needs c.US$115/bl to be free cash flow neutral after capex and dividends. Exhibit 3 shows that our estimate of the average breakeven oil price for the industry (for the purpose of this chart we include the seven US and European majors) is currently US$115/bl on aggregate, while it was US$84/bl only four years ago.

    “The industry is effectively spending today for a high oil price environment, in our view. As the industry is already spending at a level consistent with US$115/bl, further capex growth from current levels will likely be more constrained unless oil prices move higher.
    [cont….. ] “Our [GS]Top 360 analysis suggests that the industry has been extremely successful at discovering new barrels which break even below US$90/bl in two main areas: deepwater frontier areas, and unconventional liquids or ‘shales.’ …”

    FTAlphaville adds “Which is just as well!”

    So there is a limited time for US $80 – $90 per barrel, and then, … as you say.
    best
    Phil

    • Les D. says:

      There is another factor in exploration and development costs which is generally ignored: people. The median age of experienced people in the petroleum industry (at all levels, from drillers to geoscientists and engineers to university professors) is well over fifty. In the next few years we will be retiring or dying at a rapidly increasing rate.

      The 1980s demonstrated that when new people are brought into exploration and production in large numbers, costs increase dramatically. Things go wrong (dry holes, blowouts, etc.) and projects run over budget because of poor planning. So when the current generation is replaced by much younger and less experienced people, we can expect to see dramatically increased finding and development costs.

      • Andrew of the Bay Area says:

        This is a very astute point. I have a few friends in the industry who always point this issue out.

      • I know back when I visited some oil companies, aging staff was mentioned as a problem. Shell, I think it was, showed us how they had supervisory staff who could be contacted when workers had a tricky problem. The problem comes with recognizing a tricky problem–this is the benefit that experience gives.

        In the BP Deepwater Horizon blowout, I believe lack of experience of a few employees contributed to the problems.

        Out in North Dakota, I expect we are dealing with smaller companies and independent contractors, many with inexperienced employees. If they don’t have the answers, they may not have as much experienced back-up as the majors.

    • I agree that there is a limited time for US $80-$90 oil that agrees too.

      There is a new Deutsche Bank Markets Research Report that says:

      The International Energy Agency’s World Energy Outlook (WEO) is a must-read thought piece on global energy trends, that has garnered considerable attention on release this week, for one forecast within its 600 pages: ”The US overtakes Russia and Saudi Arabia before 2020 to become the world’s largest oil producer.“ That statement catapults oil forecasting into the mass media, and quickly gets us to the terminal (low?) point of US oil supply growth media analysis, namely “Should the US join OPEC?” That is a misguided and irrelevant question, in our view, and furthermore is strictly in the realms of “garbage in, garbage out”. Namely, we don’t think the US can become the largest oil producer in the world.

      Why not? Price, cost, and returns. None are really dealt with by the IEA.

      • PeteTheBee says:

        “Namely, we don’t think the US can become the largest oil producer in the world.”

        But just a few years ago, you didn’t think the US could become the largest natural gas producer in the world, right?

  9. Humans don’t live in the way that we are biologically adapted. Because there are so many of us, we need to grow our own food, and gather water from natural sources. Because we do not have big heavy jaws because there is little easy-to-chew food available, we need to cook much of our food. Because we live in diverse areas of the world, we need shelter and adaptive clothing. As humans move to cities, we have even greater needs. We need antibiotics and immunizations to prevent epidemics. We need fuel for commuting, unless we sleep on the floor of the factory where we work. We need fossil fuel for cooking, because traditional fuels such as dung or twigs are not available in sufficient quantities in urban areas.-Gail

    You keep repeating this canard, despite the fact we have been over this at least twice.Theory being if repeated often enough, people will believe it? One more time.

    First off, there are plenty of soft foods around which can be eaten raw. Insects, worms, grubs etc are ubiquitous in nature and all can be eaten raw. Fish remain fairly plentiful and can be eaten raw. Fruits and most veggies can be eaten raw.

    Even foods that benefit from cooking like grains can be cooked in solar ovens quite easily in most parts of the world (not where I live except for a few months in summer, but most places). Besides that, if we JUST used Nat Gas.Coal for cooking, it would last indefinitely, and so would wood. These fuels get consumed rapidly in the smelting of metal, transportation and heating, not in their use for cooking.

    On the “Powerful Jaws” issue, we don’t need them, we have hands and rocks. A Lion needs a powerful jaw to crush bone and get marrow out, a human performs the same task with a couple of rocks. Tough meat can be pounded to tender. Nuts which animals crack with their jaws a human cracks with a rock. Etc etc etc.

    On the livable environment issue, clothing is what extends our range of living environments, and does not require fossil fuels at all. Skins of animals are the first obvious ones, and we still do know how to spin fibers of flax, hemp and cotton also.

    Now, I do not make the case that 7B people can live on a planet this way, but to continue to make the case that Humans are biologically adapted so we MUST use fossil fuels just is not true, and is obviously untrue. You really gotta drop this stuff out of your articles, it absolutely destroys your credibility.

    RE

    Doomstead Diner

    • There is not enough soft food for 7 billion people. We have to process grain to eat it. It is a major factor in our food supply today–directly, and through what we feed to animals.

      There are some things we will simply disagree on.

      • ianbrettcooper says:

        But doesn’t the coming fuel crisis mean that there will not be 7 billion people on the planet in 50 years?

        • I think there are likely to be fewer than 7 billion people on the planet in 50 years, but I didn’t think this article was the place to tackle the issue.

          • Why not? Because the Editors at Biz Insider can’t HANDLE the Truth?

            When WILL you write an article which is the “right place” to tackle the issue? I’ve been reading your blog for a couple of years and I have yet to read an article where you don’t sugar coat what you write. One of the wags over on the Diner said I should have Retitled this article as “Delusional Lunatics at IEA Claim US Will Be Net Oil Exporter By 2030; Staffers Decline to Cut Back on Crack” when I cross posted it. LOL. Its a little closer to the TRUTH.

            RE

            • Different readers like different titles. That is why I told you that it was OK to title it the way your readers would like.

              I will be interviewed by Jim Puplava on the Financial Sense Newshour in the near future with respect to this article.

          • I have read a bit about human history and how we evolved from hunter gatherers to cultivating the soil. It is quite clear that the “green revoluition” is only possible with a large portion of fossil fuel input. There is simply no way classical agriculture can feed 7 billion people today unless everyone is also a farmer. The nature can provide a lot, but the plannet would be pretty scraped if 7 billion people started eating anything they came across without putting energy into re-cultivating the soil and breeding livestock.

            No doubt the future will have its fair share of new farmers on the fields, but along with it I think we will see a natural depopulation of the planet as resource conflicts start and less energy is available to health care and transportation of food. As John Michael Greer say, the changes will likely come slowly like any previous empire in change, so the changes might even seem natural for newer generations (just like the use of tablets and computers are a natural thing among kids growing up today). Their parents might miss the car, but the kids would think that taking public transit to get anywhere is the way things should be. Similarly the amount of people working in agriculture will also grow naturally to feed the population.

      • “But doesn’t the coming fuel crisis mean that there will not be 7 billion people on the planet in 50 years?”

        Precisely the point.

        No argument that we can’t feed 7B people without Fossil Fuels, what the Industrial Ag system does is take fossil fuel energy and turn it into food. Remove the fossil fuels, we’ll produce far less food, so far fewer people can be supported.

        That is NOT the argument Gail makes when she says Human beings are BIOLOGICALLY ADAPTED to REQUIRE Fire to cook “hard” foods we can’t chew with our “small jaws”. The subtext of this argument is that when the fossil fuels run out, we’ll burn up all the forest then go extinct except maybe for a few in specific environments like Chimpanzees. The concept is so epically WRONG its hard to know where to begin.

        First off about the only “hard” food I can think of here that we usually cook and don’t eat raw are grains like rice and wheat. Even if you accept these grains would be part of the diet of a smaller population, there are other ways to process besides cooking. You can ferment them. Rice Wine and Beer have a lot of easily digestible calories, just look at the belly of any J6P NFL FootbaLL Fan.:) You can feed the grain to chickens and eat the eggs. You can feed it to goats and drink the milk. Besides that, as mentioned you can use solar cookers you can make from Automotive Windshield Glass, plenty of those around.

        In trying to figure the carrying capacity for Homo Sapiens in the absence of fossil fuels, you first eliminate all the people living in Big Cities, who can’t survive for many other reasons besides the fact they won’t have fuel for cooking. The cities require FFs to pump water and sewage. They’ll quickly have epidemics from lack of potable water. So without this population to feed, you are probably closer to being able to grow enough food absent FFs for the population.

        This then is further limited by water availability for Ag, and many areas like the Midwest aren’t getting enough rainfall to support much ag, the water has to be pumped up from the Ogalala Aquifer. Similar situations exist in other grain growing areas of the world, so you can eliminate more people because there just won’t be as much grain around to cook to begin with.

        What you get left with is a population that mostly would live near rivers and in mountainous areas that get good rainfall and can be terraced for Ag. Add some coastal populations making a living from the sea.

        Substantial reduction from current population, but the idea this remaining population is “Biologically Adapted” so they cannot survive without fire or “soft foods” is just Epic Fail Anthropology. When she makes these preposterous arguments, Gail the Actuary morphs into Gail the Failed Anthropologist. It compromises the credibility of the rest of her work, and should be dropped.

        RE

        • ianbrettcooper says:

          “In trying to figure the carrying capacity for Homo Sapiens in the absence of fossil fuels, you first eliminate all the people living in Big Cities, who can’t survive for many other reasons besides the fact they won’t have fuel for cooking. The cities require FFs to pump water and sewage. They’ll quickly have epidemics from lack of potable water…”

          The only problem with that is that many big cities have been with us for thousands of years before the advent of mass fossil fuel usage. Water and sewage flow into and out of big cities using pressure and gravity and without fossil fuels. They have done so for centuries. sewage pumping stations are used in some places, but these can be powered by steam, as they were in London in the 1860s.

          But even without adequate (or any) sanitation, big cities have thrived. Sure, there are epidemics, but epidemics rarely kill more than a small minority of a city’s population. The idea that cities will be uninhabitable after the end of the age of fossil fuels is nonsense. For that to be the case, cities would have to be a late 19th Century invention, and they were not. By 1851, half the population of Great Britain lived in cities and the population of London grew from 1.1 million in 1801 to 2.7 million in 1851.

          • “By 1851, half the population of Great Britain lived in cities and the population of London grew from 1.1 million in 1801 to 2.7 million in 1851.”

            By the mid 1800s, the Steam Engine was already well established for pumping water in London and other cities, allowing their expansion.

            As many people in NYC found out after Sandy, Gravity and natural water pressure only brings water up to around the 4th-6th story of any building, after that the Toilets don’t flush until the Power goes back on. NY, London, Singapore et all have large portions of their populations living in upper story apartments. The numbers of people we are talking about are not the 1M that lived in London, they are an order of magnitude larger, 10M-20M in places like Mexico City.

            The way the infrastructure in cities has evolved since fossil fuels will make them virtually uninhabitable once the fossil fuels are gone.

            RE

          • I agree that cities have been around for a long time. In Guns, Germs and Steel, Jared Diamond in Guns, Germs, and Steele (page 205) says:

            If the rise of farming was thus a bonanza for our microbes, the rise of cities was a greater one. as still more densely packed humans festered under even worse sanitation conditions. Not until the beginning of the 20th century did Europe’s urban populations become self-sustaining: before then, constant immigration of healthy peasants from the countryside was necessary to make up for the constant deaths of city dwellers from crowd diseases.

            I presume that Diamond has studies to back up his thinking. If what he says is true, this may be the secret behind pretty much all of the cities in existence. With each mother giving birth to quite a number of children, a number of young in each family would survive until maturity. Only one could take over the family farm. The others needed to migrate to the city, or join the military, or otherwise occupy themselves. This may explain the apparent contradiction.

          • The festering, plague ridden stinking cesspools called Cities of the 17th & 18th century before the invention of the Steam Engine had nowhere near the population of today’s cities. The population of London was 550,000, today it is 8M. Paris, 515,000 in 1700, 10M today. Even if you project some kind of cities in the absence of Fossil Fuels, you are talking greater than 90% Die Off to approach this.

            RE

          • Leo Smith says:

            I recommend you visit – say te Brazilian favellas, or Soweto outside Johannesburg, or any slum in any third world country, before you claim that cities could survive without artificial energy input. And those areas are parasitical on the (fuel) richer cities they adjoin..on their own there would be no reason for them to exist, and no possibility either.

          • Actually, it is quite likely that when humans went from being hunter gatherers to settling down to cultivate the soil, the cities they built were exactly the conditions needed for diseases to spread. Archaeological finds of 6000 year old cities in Syria seems to indicate a higher number of younger people dying from diseases than previously. Settled civilization comes at a cost, and the way we fight it now is indeed with a lot of modern hygiene utilities and medicine. When helping teams travel to poor countries to help out, creating a system of good hygiene and a source for clear water is no doubt the highest on their task list after getting enough food. Its also the most common problem after floods, with quick spread of diseases in contaminated water.

            I think even a low energy future, human beings will do a lot to keep these utilities running, although I agree that tall buildings is a challenge, and most likely people would have to spread out more in smaller buildings over time, leaving the skyscrapers to nature… although who would want to live around a decaying tall building anyway?:) – The energy cost of servicing our infrastructure down to new plaster on the walls is immense, and is usually the first to go in a declining energy situation.

            • Leo Smith says:

              The scary scary thing John, is that a modern post industrial city has almost no reason to exist at all.

              If we look at the history – I will restrict myself to the UK, because its a location I live in and have studied – we see that the early towns were more or less Roman, designed as military and administrative centers: they were not large.

              Post the collapse of Rome, the native British were largely herders with a bit of agriculture: the population was spread more or less evenly wherever farmland was good, and in the absence of major conflict, not fortified. The family ‘village’ was about as good as it got.

              Then later incursions by Angles Saxons Jutes and Danes and population expansions forced two changes – more collective habitation for defense, and more pure agriculture to feed the population. Major towns were ports or market towns of some note, but urban populations were not large even then.

              With modification, that pattern persisted until the industrial revolution when two things happened to create huge urban settlements: the problem of transporting food from the hinterland was solved by the coal burning railway, and the overall efficiency gains of large scale manufacturing in ‘factories’ meant that urban centres attracted the rural poor into manual factory labour.

              And the products OF those factories meant less labour and more productivity was available to the rural farmer. Not only in this country, but overseas as well, this leading to pattern of massively fossil fuelled manufacturing, purchasing its food requirements from a less sophisticated and global rural hinterland. And the British Empire was the result.
              Now, in the 21st century it is hard to see what the function of those industrial towns is: Like Detroit in the USA they would be (without the massive social security support they get) ghost towns.

              They exist solely as historical dormitories where people live from cradle to grave without much prospect of a job, and massively disconnected from the infrastructure and the hinterland that allows them to exist at all.

              Today with robots and capital replacing much of the skilled labour, and low cost Asian labour filling in the gaps, its not only a question of what are the cities for anymore, but worse, what place have the Western countries in the world, at all?

              Take away fossil fuel, technological superiority and there aint much left.
              The only model I can see that actually allows anything like the preservation of a post industrial lifestyle is one where the infrastructure is massively automated and population is drastically cured to the level the agricultural hinterland can support at whatever level is deemed ‘civilised’

              And the whole shebang run on nuclear power which is the only source that replaces the majority of things we use fossil fuel for. And finally some form of social contract is hammered out that accepts that the majority – the MAJORITY – of people in the gene pool have nothing of any value whatsoever to offer the nation in terms of real economic activity at all. They are pure consumers and will never produce anything of social value at all. They will hacve to be funded from the cradle to the grave by the output of the very few farmers, technocrats and so on, that actually have the narrow skills that make them valuable.

              Or the other alternative is to ring fence the defunct cities and let them disintegrate in some sort of post apocalyptic scenario, and the people simply die. I.e ‘ the ‘Green/Renewable’ solution. A return to a mediaeval feudal system where life for most people is brutal nasty and short, and the few warlords who can keep the remainder in check become the new elite, the new ruling class.

              Its happening already in the middle east. As the oil runs out the nations are left with populations whose aspirations cannot be satisfied and whose ability to do anything beyond hate and shout self righteous slogans is limited. They are sinking back into medieval barbarism with the exact religion that was created in those conditions as their mantra.

              Hurricane Sandy showed what even a slight reduction in electrical power does to a city. The gasoline was there, but it couldn’t be pumped out. Families were left with no heating beyond a gas cooker. Food spoiled in refrigeration that no longer worked. A few days longer and water supply and sewage would have been an issue.

              IF we have the power infrastructure, urban living is slightly less energy intensive for the people who do nothing, than rural living. But if we don’t have the power, the city becomes a death trap.

            • This all sounds pretty depressing. Perhaps we can all weave baskets in the city, if there are enough reeds (or whatever) for us to work with. We clearly need some people to make clothing and shoes, and perhaps operate small stores. But the range of occupations available is going to drop back greatly, and the need for big cities to house people with those diverse occupations is likely to go with it.

          • I quite agree that the future cities will look nothing like what we are used to. And as you say Detroit is a good example of an urban lifestyle left to cope for itself but its population still kept alive by government. Without a solid government to support the people in a down scaling of available energy, nature simply takes over, and people have really no choice but moving out unless they are able to acquire skills of use. I think this is where the big challenge is for people now, learning to cope with less and learn new trades. I am quite sure that a lot of people can live successful and happy lives if they just ditch the idea of a growth and technology future that will allow them to watch the telly or play video games all day long. Its quite clear that the only way any such future can happen is for a very small minority and only if the remainder of a dwindling population are able to maintain a highly automated society with whats left of our resources. Chances are that way before that there most people will be scrambling for scraps – trying to fend for themselves in the realization that the only reason they had food in their fridge was because of this huge fossil fuel infrastructure that is falling apart.

            Like you say, the petrol was there, but the pumps didn’t work. So we really need to learn how to make manual solutions alongside the automated ones whenever the technology fails us. Its a general problem everywhere in the society today – we assume that if the technology fails someone will service it soon. In many cases the technology is left in a state where you really have no use for it until it serviced, which is really a stupid design decision by the initial creators. Lets imagine you have this fancy fridge that is connected to a food transport system (like tube-mail in the old times), and you ordered food from a touch screen on it – it deduct your credit card – and 15 minutes later the fridge has the food inside. Wow, would you say, amazing, I want a fridge like that – THAT is the future, that is real useful technology. But lets, say that we experience a power outage, and the door of the fridge wont even open because it has an electrical lock. I can imagine finding dusty skeletons lying in front of the fridge there… Haha.:) – But a lot of our current infrastructure is designed like this – there is no plan B when the original design fails. This is exactly the reason why we have built our society on being able to transport goods far away, and why we accept stuff being made in China instead of in our local neighborhood. I am not so sure anyone really thought about a plan B if the supply chain fails at any given time. We seriously need to make our future more resilient to these problems, lessening the need for costly infrastructure for humans to get access to the necessary goods during a time of crisis.

        • “That is NOT the argument Gail makes when she says Human beings are BIOLOGICALLY ADAPTED to REQUIRE Fire to cook “hard” foods we can’t chew with our “small jaws”.”

          I’ve not heard her make that argument. Her argument is that humans have not adapted biologically to all of the environments in which they currently find themselves.

          This is true. Humans have solved their problems with technology (like fire) instead of letting the slow march of biological evolution do it for them.

          The existence of technology has allowed some of the traits beneficial to life without technology atrophy. Take the appendix as an example.

          Fire is directly responsible for the decrease in jaw size and increase in brain size.

    • Andrew of the Bay Area says:

      I am going to defend Gail here. I think this is a bit of an obscure and immaterial point you make. I completely recognize that there are other food sources that we choose not utilize out of preferences alone (Ex. Native Americans in NorCal use to leech acorns and then use the crushed nut to make a form of unleavened bread). The problem with your suggestion is:

      1) Due to divisions of labor, what percentage of people can even cook, much less forage, hunt, or grow their own food? I think it is a very low percentage, especially the younger the generation. There is a knowledge issues here.
      2) Do you think that cultural taboo issues are not going to come into play here? Of course they are. How many snooty Americans are going to try bugs for dinner? I think, pathetically, many would much prefer just to die. Is that crazy, yes, but it is a reality.
      3) It is UNDENIABLE that are current food production methods are not intrinsically tied to fossil fuels. From the production to the delivery to the management (logistics), oil touches it all. As this breaks down, we will have food issues.
      4) Okay, great, we start eating all the things that we don’t today. Then what? Extinction is what. We kill off entire species at the point at which the food chains breakdown. We over farm in haphazard and environmentally destructive ways. We Easter Island ourselves.

      Ultimately, we live in a dynamic world that will adjust in real time both slowly when needed and quickly when needed to changing food situations, just like any population does. Eventually there will be an equilibrium. I don’t see how you can seriously say that the current food scheme is sustainable or can supply people. There is no freaking way!

      • ianbrettcooper says:

        I find myself alternately arguing against and for Reverseengineerre here, LOL.

        “How many snooty Americans are going to try bugs for dinner? I think, pathetically, many would much prefer just to die. Is that crazy, yes, but it is a reality.”

        Well, Americans (snooty or otherwise) seem to be fine with eating ground-up animal gristle and irradiated cow shit in their hamburgers. The fact is, if you package and market it properly, and as long as you take some pains to make sure it doesn’t kill too many of them, Americans will happily eat just about anything. All the meat industry has to do is call it Soylent Green and I reckon they’re onto a winner.

        • Thing is here, about anything Gail claims is impossible to eat without Cooking is possible to eat in many other ways. Grains which are hard to digest? Meal Worms eat them EASILY, and Meal Worms are VERY SOFT FOOD! LOL.

          Eating worms Grosses you out? Man, if you grind them up into burgers, you couldn;t tell the difference between a Meal Worm Burger and a Big Mac! LOL.

          I PERSONALLY have eaten MANY Bugs, starting when I was a kid, and I cannot say I really LIKE the texture as much as a nice Ribeye Steak on the BBQ but man there is no obstacle WHATSOEVER to eating them at all if you are hungry!

          Gail is thoroughly immersed in the Age of Oil Paradigm, and it colors what she thinks is possible. I seriously doubt she ever ate a worm in her whole life.

          Will lots of people just DIE because they can’t bring themselves to eat a Termite or a Worm? Probably. THAT is Darwinian Selection in ACTION!! LOL.

          RE

          • I’ve gone through all of her blogs and can’t find anywhere where she claims it is impossible to eat things without cooking them.

            You seem to be constructing a false version of what she is saying so that it is easier for you to disprove. You’re not as logical as you think you are.

          • You must have missed Gail’s “Humans Seem to Need External Energy” article as you went through all her blogs. In the article she wrote:

            “Strange as it may seem, humans seem to have evolved in a way that we have a need for external energy, such as energy from burning wood or fossil fuels. While the evidence is not 100% certain, it appears that we learned to use fire long enough ago that it is now necessary for our food to be cooked.”

            “With the evolution to smaller teeth, smaller gut, and bigger brains, humans have a real need to cook at least part of the food they eat. So outside energy for cooking food is one real need for the 7 billion people on our planet today.”

            In addition, in the commentary of that blog she wrote:

            “But even if some people can get along now without external energy in the far North, it is pretty clear that are jaws are not made for chewing raw food, unless perhaps that raw food is just fish (which has reasonable nutrition and can be eaten raw). ”

            Somehow Gail manages to forget a zillion things people can eat raw besides fish, from just about all fruits to tubers like potatoes and carrots to as mentioned previously most insects and worms.

            Next time yougo though all Gail’s blogs, try not to miss the salient information.

            RE

            • You seem to forget that there are 7 billion people on the earth now. You and your friends can eat bugs and worms, but you are going to have a hard time feeding the whole crew on what you find tasty.

    • you cant extract natural gas from its sources without a huge amount of capital investment, neither can you use coal for the same reason. The industrial revolution basically kicked off through the steam engines used to pump water out of coalmines. Once they could get rid of the water, shafts could go deeper and more and more coal could be extracted.
      As to wood lasting indefinitely, many of the deserts of the world have been created by too many people chopping down too many trees.

      • I totally agree here. In some way I think we can be somewhat happy that we found coal and oil as chances are the world would look like Easter Island if we had used wood to power our machines instead. The machine was indeed invented to help with coal extraction, but chances are that it would have been created even with wood as the primary power source – and chances are that some sort of “green revolution” would have happened too (although natural gas has a big play in that). Basically the invention of machines has enabled humans to work less and get more food for the exchange of energy. It would certainly have grown the population, although not by the insane amount that we have witnessed during our time of coal and oil as our primary energy source.

        But who is to say what people will do when the oil and coal becomes hard to get? A lot of people talk about our fantastic big amounts of coal but they fail to account for how much energy goes into getting it out now. I’d like to see some future steam punk technology being able to extract coal from the bottom of the seas. A lot more people will turn to chopping down trees sooner than we want to imagine. This wasn’t a big problem 1000 years ago with around 250 million people, but with 7 billion who can imagine how the planet would look like after some decades?

  10. yt75 says:

    Thanks for this rebutal Gail, I was truly amazed by this report, and the stream of articles that have followed in the MSM all over, with people truly buying it.
    You end up wondering what is the strategy around it.(even if the “US energy rennaissance or revolution” is only one message amongst several in it).
    I don’t know to which extend the “financial bubble” aspect (pumping investment capital to cover opex, and then exiting at the right time) of shale gas and oil is a reality, as described for instance by Deborah rogers in :
    http://www.energybulletin.net/stories/2012-10-25/financial-co-dependency-how-wall-street-has-kept-shale-gas-alive
    But if it really is the case, you could also see this report as some form of “investment advice communication”.
    Would be interested to have your views on this.
    Also creates some “funny” reactions, like :
    http://www.thenational.ae/thenationalconversation/industry-insights/energy/warning-from-opec-over-us-oil-production
    (although overall seems to me Exxon for instance is still betting and investing more on Kurdistan conventional oil than North Dakota tight one …)

    • palloy says:

      > “what is the strategy around it”
      Firstly our leaders are NOT stupid, as is often claimed. But they are caught in a bind – they cannot admit to Peak Oil because that implies Peak Energy (eventually), Peak Industry, and Peak Capitalism. So they hope to hide Peak Oil and postpone the peoples’ realisation that this Capitalist paradigm simply won’t work in the future.

      The work of Hubbert was disregarded, even after US oil production peaked in 1970. The Limits to Growth report was derided, and still is. Peak Oil is repeatedly mis-defined as “running out”, and attention is drawn to Reserves, when it is production rate that is the issue. The Hirsch Report (2005), which EIA commissioned, was removed from their web-site. Oil was redefined to include a lot of things that aren’t oil. The distinction between Crude Oil and Condensate was omitted from their statistics. Daniel Yergin is treated like a god, when he is just an industry shill. New oil finds are described as “giants” when they are mere minnows. And on and on it goes.

      This doesn’t happen by accident – it takes a lot of effort to hide something as critical as this. The ace up their sleeve is the ability to start World War 3, when they can bring in a “war economy”, which allows them to impose severe austerity, especially in fuels, crack down on dissent, find jobs for unemployed youth in the military, and grab land and resources without paying for it.

      • Andrew of the Bay Area says:

        While I have much more complicated opinions on the intelligence of our leaders…nefarious, clueless and self serving are the words I would use, I do think the way they will handle the fallout due to PO that you laid out is pretty much dead on. They will indeed take us to war.

        Society already has its cult leader…Obama….who can do NO wrong…to follow into some war…probably under false pretenses. I just wonder who the Democrats (possibly the Republicans but they don’t do charismatic BS as well as the Democrats) find next to replace Obama and if he’ll be as good at conning people.

        • Leo Smith says:

          Spot on. Look at Gaza. third world slum next door to a first world country with a mushrooming population..

          What it needs rationally is emotionally unthinkable. A neutron bomb.
          If you think that first world values should prevail.

          Or alternatively a Mugabe style ‘kill every Israeli’ and wipe Israel from the map, so everyone dies equally young and miserable.

          However the latter solution is no solution at all.

      • yt75 says:

        I’m not sure at all of the war strategy right now, I think for the US (and more or less OECD) it is more about maintaining the status quo, that is :
        – operating the oil security job
        – oil traded in $ and $ reserve currency
        – ability to sell bonds
        Iran could be considered a special case as the only major middle east current producer not under direct US influence, and Iran tension is very much linked to its “relationship” with Saudi Arabia. And Iraq being more or less in the process of being split right now (with the result of the war being a lot a much stronger Iran influence in Iraq).

        But this declaration about shale gaz and oil being really a game changer in the US is really something, a lot of it has to do with the need to restore confidence for sure, but I wouldn’t be surprised about direct financial motives behind it, the report also mentions the high growth of necessary investment in the oil & gas industry.

        But overall yes, there is the inability to pass the message (and in fact Fatigh Birol in some more “off line” interviews was much more direct, but maybe won’t be the case anymore).

    • I hadn’t thought about the issue from this view.

      The IEA has recently been very much worried about climate change. The IEA has a lot of political ties too, so it needs to show the growth will continue as well. This time they seem to have manufactured a report which would come up with a way to theoretically prevent climate change, but also all the economies sail on. The US actually has the largest number of votes in the organization (when I looked a while back), so it may be that US folks liked this kind of outcome.

      I don’t think these folks think through consequences very well. If they want people to conserve, why in the world would they put out a report that seems to be widely interpreted as “The world is awash in oil. We have no problems at all.”

      The Bakken and such seem to be handled by smaller companies, rather than the majors. This makes them more dependent on outside financing than otherwise.

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