Oil Price Slide – No Good Way Out

The world is in a dangerous place now. A large share of oil sellers need the revenue from oil sales. They have to continue producing, regardless of how low oil prices go unless they are stopped by bankruptcy, revolution, or something else that gives them a very clear signal to stop. Producers of oil from US shale are in this category, as are most oil exporters, including many of the OPEC countries and Russia.

Some large oil companies, such as Shell and ExxonMobil, decided even before the recent drop in prices that they couldn’t make money by developing available producible resources at then-available prices, likely around $100 barrel. See my post, Beginning of the End? Oil Companies Cut Back on Spending. These large companies are in the process of trying to sell off acreage, if they can find someone to buy it. Their actions will eventually lead to a drop in oil production, but not very quickly–maybe in a couple of years.

So there is a definite time lag in slowing production–even with very low prices. In fact, if US shale production keeps rising, and Libya and Iraq keep work at getting oil production on line, we may even see an increase in world oil production, at a time when world oil production needs to decline.

A Decrease in Oil Prices May Not Fix Oil Demand

At the same time, demand doesn’t pick up quickly as prices drop. We are dealing with a world that has a huge amount of debt. China in particular has been on a debt binge that cannot continue at the same pace. A reduction in China’s debt, or even slower growth in its debt, reduces growth in the demand for oil, and thus its price. The same situation holds for other countries that are now saturated with debt, and trying to come closer to balancing their budgets.

Furthermore, the Federal Reserve’s discontinuation of quantitative easing has cut off a major flow of funds to emerging markets. Because of this change, emerging market demand for oil has dropped. This has happened partly because of the lower investment funds available, and partly because the value of emerging market currencies relative to the dollar has fallen. Again, a decrease in oil price is not likely to fix this problem to a significant extent.

Europe and Japan are having difficulty being competitive in today’s world. A drop in oil prices will help a bit, but their problems will mostly remain because to a significant extent they relate to high wages, taxes, and electricity prices compared to other producers. The reduction in oil prices will not fix these issues, unless it leads to lower wages (ouch). The reduction in oil prices is instead likely to lead to a different problem–deflation–that is hard to deal with. Deflation may indirectly lead to debt defaults and a further drop in oil demand and oil prices.

Thus, oil prices are likely to continue their slide for some time, until real damage is done, perhaps to several economies simultaneously.

The United States’ Role in the Oil Over-Production / Under-Demand Clash 

The United States is the country with the single largest increase in oil production in the past year. This growth in oil production seems not to have stopped, in recent weeks.

Figure 1. US Weekly Crude Oil Production through Oct 24. Chart by EIA.

Figure 1. US Weekly Crude Oil Production through Oct 24. Chart by EIA.

At the same time, the US’ own consumption of oil has not increased (Figure 2).

Figure 2. US oil consumption (called "Product Supplied"). Chart by EIA.

Figure 2. US oil consumption (called “Product Supplied”). Chart by EIA.

The result is a drop in needed imports. A number of oil exporters have been hit by the US drop in imports. Nigeria extracts a very light oil that competes for refinery space with oil from shale formations. Our imports of Nigerian oil have been reduced to zero (Figure 3). (The amounts I am showing on this and several other charts are “net imports.” These reflect transactions in both directions. Often the US imports crude oil and exports oil products, sometimes to the same country. In such a case, we are selling refinery services.)

Figure 3. US Net Petroleum Imports from Nigeria. Chart by EIA.

Figure 3. US Net Petroleum Imports from Nigeria. Chart by EIA.

Our imports of oil from Mexico are way down as well (Figure 4), in part because their oil production has been falling.

Figure 4. US Net Imports of Petroleum from Mexico. Chart by EIA.

Figure 4. US Net Imports of Petroleum from Mexico. Chart by EIA.

It is only in the past few months that US imports from Saudi Arabia have started to be significantly affected (Figure 5).

Figure 5. US net oil imports from Saudi Arabia. Chart by EIA.

Figure 5. US net oil imports from Saudi Arabia. Chart by EIA.

Saudi Arabia, like other oil exporters, depends on the sale of oil revenue to provide tax revenue for its budget. While it has a reserve fund for rainy days, over the long term it, too, depends on revenue from oil exports. If Saudi Arabia’s exports to the United States decrease, Saudi Arabia needs to find someone else to sell these would-be exports to, or revenues to fund its budget will drop.

Alternatively, it can reduce the price it charges to US refineries, to influence purchasing decisions–something it has just done. Lowering its price to US refineries tends to push the world price for oil down.

Of course, the US also talks about allowing an increasing amount of crude oil exports, as its oil from shale formations rises. This increase would make the surplus of oil on the market worse, and world prices lower, if oil demand does not pick up.

Depending on Saudi Arabia and OPEC

In the West, we have been led to believe that OPEC in general and Saudi Arabia in particular exert great control over oil prices. We have been told that several OPEC countries have spare capacity. Several of the Middle Eastern countries claim that they have very high reserves, and we have been led to believe that they can ramp up their production if they invest more money to do so. We have also been told that these countries will reduce oil production, if needed, to hold up oil prices.

A very significant part of what we have been led to believe is exaggerated. Saudi Arabia’s oil exports were much higher back in the late 1970s than they are now (Figure 6). When they cut oil production and exports in the 1980s, they likely did have spare capacity.

Figure 6. Saudi oil production, consumption and exports based on EIA data.

Figure 6. Saudi oil production, consumption and exports based on EIA data.

But where we are now, the situation has changed greatly. The population of the Middle Eastern oil producers has risen. So has their own use of the oil they extract. Their budgets have risen, and the countries need increasing revenue from oil taxes to meet their budgets. Some countries, including Venezuela, Nigeria, and Iran, require oil prices well over $100 per barrel to support their budgets (Figure 7).

Figure 7. Estimate of OPEC break-even oil prices, including tax requirements by parent countries, from APICORP.

Figure 7. Estimate of OPEC break-even oil prices, including tax requirements by parent countries, from APICORP.

If oil prices are too low, subsidies for food and oil will need to be cut, as will spending on programs to provide jobs and new infrastructure such as desalination plants. If the cuts are too great, there is the possibility of revolution and rapid decline of oil production. Virtually none of the OPEC countries can get along with oil prices in the $80 per barrel range (Figure 7).

Most of OPEC’s actions in recent years have looked like actions a person would expect if OPEC countries were not all that different from other oil producers–their oil supplies were subject to limits and they tended to act in their own self interest. When oil prices were rising rapidly in the 2007-2008 period, they ramped up production, but not by very much and not very quickly (Figure 8). When oil prices dropped, they dropped their production back to where it had been, before the big ramp up in prices.

Figure 7. OPEC and Non-OPEC Oil Production, Compared to Oil Price. (Production is Crude and Condensate from EIA.)

Figure 8. OPEC and Non-OPEC Oil Production, Compared to Oil Price. (Production is Crude and Condensate from EIA.)

Another situation occurred when Libya’s production declined in 2011. Saudi Arabia said it would increase its own supply to offset, but it could only produce extra very heavy crude when light oil was what was needed. In fact, even the increase in heavy oil is somewhat in doubt.

Furthermore, the dynamics of OPEC have been changed considerably in the last few years. Part of the problem relates to fact that both oil prices and the quantity of oil exports have been approximately flat in the period between 2011 and mid-2014.  In such a situation, revenue from oil exports tends to be flat. OPEC members have found this to be a problem because their populations continued to grow and their need for water and imported food has continued to rise. These countries need ever-more tax revenue, but oil revenue is not providing it. At a minimum, OPEC countries have a strong “need” to maintain their current level of oil exports.

The other part of changing OPEC dynamics relates to increased oil production volatility. The bombing of Libya and sanctions against Iran have both produced unstable situations. Oil exports from both of these countries are lower than in the past, but can suddenly rise as their problems are “fixed,” adding to downward price pressures.

Another issue is the significant attempt to raise Iraq’s oil production in recent years. If Iraq’s oil production (plus US shale production) is too much to satisfy world demand for oil, should the rest of OPEC be the ones to try to “fix” the problem?

Figure 9. US net imports from Iraq. Exhibit by EIA.

Figure 9. US net imports from Iraq. Exhibit by EIA.

Figure 9 seems to indicate that US imports from Iraq have increased in recent months. Of course, if we import more from Iraq, we will likely need to cut back on imports elsewhere. This doesn’t create good feelings among OPEC exporters.

Shouldn’t the United States Take Some Responsibility for Fixing the Problem?

One might ask whether the United States should be cutting back in its oil production, in response to low prices. Of course, as indicated above, US oil majors (like Shell, Chevron, and Exxon) are cutting back on investment in new fields, and this is eventually likely to lead to lower production. The question is whether this will be a sufficient change, quickly enough.

It is less likely that shale drillers will intentionally cut back quickly. The shale drillers have taken on leases on huge acreage and are reluctant to step back now. For one thing, part of their costs has already been paid, reducing their costs going forward on acreage already under development. They also have debt that needs to be repaid and many contractual arrangements with respect to drilling rigs, pipelines, and other services. Some may have futures contracts in place that will soften the impact of the oil price drop, at least for a while. Because of all of these factors, there is a tendency to continue business as usual, for as long as possible.

Whether or not shale drillers intentionally plan to cut back on oil production, some of them may be forced to, whether or not they believe that the production is likely to be profitable over the long run. The problem is likely to be falling cash flow because of lower oil prices, if the price drop is not mitigated by futures contracts. Because of this, some companies may be forced to cut back on drilling quite soon. Another alternative might be to ramp up borrowing, but lenders may not be very happy with such an arrangement.

We notice that some companies are already in very cash flow negative situations–in other words, in situations where they need to keep adding more debt. For example, Capital Resources, the largest operator in the Bakken, shows rapidly growing outstanding debt through 6/30/2014, without seeming to take on significant new acreage (Figure 10).

Figure 10. Selected figures from SEC filings by Continental Resources.

Figure 10. Selected figures from SEC filings by Continental Resources.

When companies are already in such cash flow negative situation, there may be more problems than otherwise.

If Lower Oil Prices “Hang Around” for Months to Years, What Could this Mean?

We are in uncharted territory, in such a situation.

One of the big issues is potential deflation. The issue seems to be not only lower oil prices, but lower prices for many other commodities, as well. The concern is that wages will drop, as will government receipts. Lower wages already seem to be happening in Spain. Unless governments figure out a way to “fix” the situation, this situation will make debt repayment very difficult. Lower debt will tend to reinforce the low prices of oil and other commodities.

If low prices become the norm for many kinds of commodities, we can expect major cutbacks in production of these commodities. This would be the situation of the 1930s all over again. Ben Bernanke has said he would send helicopters of money to prevent such a situation. The question is whether this can really be arranged, given that the United States  (and several other countries) have already been “printing money” since 2008. At some point, it would seem like the arsenals of central banks will get used up.

If there is a cut back in debt and cutback in production of commodities, many goods we have come to expect in the market place will disappear, as will many jobs. There are likely to be breaks in supply chains, leading to more cutbacks in production.

With all of the debt problems, there is a question of how well international trade will hold up. Will would-be explorers trust buyers who have recently defaulted on their debt, and don’t look likely to be able to earn enough to pay for the goods that they currently are ordering?

The discussion has been mostly with respect to oil, but liquefied natural gas (LNG) is likely to be affected by low prices as well. Reuters is reporting that likelihood of US exports of LNG to Asia is down, for a number of reasons, including the discovery that costs would be higher than originally expected and the regulatory process less smooth. Another reason LNG exports are likely to be low is the fact that Asian prices dropped from a high of $20.50/mmBtu in February to a low of $10.60/mmBtu in August. Without sustained high LNG prices, it is hard to support the huge infrastructure investment needed for LNG exports.

Can Oil Prices Bounce Back?

If we could somehow fix the world’s debt problems, a rise in the price of oil would seem to be much more likely than it looks right now. As long as the drop in demand is related to declining debt, and the potential feedbacks seem to be in the direction of deflation and the possibility of making defaults ever more likely, we have a problem. The only direction for oil prices to go would seem to be downward.

I know that we have very creative central banks. But the issue at hand is really diminishing returns. Prior to diminishing returns becoming a problem, it was possible to extract and refine oil cheaply. With cheap oil, it was possible to create an economy with low-priced oil, inexpensive infrastructure built with that low-priced oil, and factories built with low-priced oil. Workers seemed to be very productive in such a setting, in part because low-priced oil allowed increased mechanization of production and allowed cheap transport of goods.

Once diminishing returns set in, oil became increasingly expensive to extract, because we needed to use more resources to obtain oil that was very deep, or in shale formations, or that required desalination plants to support the population. Once we needed to allocate resources for these endeavors, fewer resources were available for more general uses. With fewer resources for general activities, economic growth has become inhibited. This has tended to lead to fewer jobs, especially good-paying jobs. It also makes debt harder to repay. History shows that many economies have collapsed because of diminishing returns.

Most people assume that of course, oil prices will rise. That is what they learned from supply and demand discussions in Economics 101. I think that what we learned in Econ 101 is wrong because the supply and demand model most economists use ignores important feedback loops. (See my post Why Standard Economic Models Don’t Work–Our Economy is a Network.)

We often hear that if there is not enough oil at a given price, the situation will lead to substitution or to demand destruction. Because of the networked nature of the economy, this demand destruction comes about in a different way than most economists expect–it comes from fewer people having jobs with good wages. With lower wages, it also comes from less debt being available. We end up with a disparity between what consumers can afford to pay for oil, and the amount that it costs to extract the oil. This is the problem we are facing today, and it is a very difficult issue.

We have been hearing for so long that the problem of “peak oil” will be inadequate supply and high prices that we cannot adjust our thinking to the real situation. In fact, the two major problems of oil limits are likely to be shrinking debt and shrinking wages. The reason that oil supply will drop is likely to be because customers cannot afford to pay for it; they don’t have jobs that pay well and they can’t get loans.

In some ways, the oil prices situation reminds me of driving down a road where we have been warned to look carefully toward the left for potential problems. In fact, the potential problem is in precisely in the opposite direction–to the right. The problem gets overlooked for a very long time, because most of us have been looking out the wrong window.

For more on this subject, read my last two posts:

WSJ Gets it Wrong on “Why Peak Oil Predictions Haven’t Come True”

Eight Pieces of Our Oil Price Predicament

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 financial problems for oil producers and for oil exporting countries. We are really dealing with a physics problem that affects many parts of the economy at once, including wages and the financial system. I try to look at the overall problem.
This entry was posted in Financial Implications, News Related Post and tagged , , , , , . Bookmark the permalink.

942 Responses to Oil Price Slide – No Good Way Out

  1. NB: Ben Bernanke’s no longer dispatching the helicoptors. That’s Janet Yellen’s job these days.

  2. Pingback: Eight Pitfalls in Evaluating Green Energy Solutions | VantageWire

  3. Paul says:

    Total Global QE Injections Will Be 40 Percent Larger In 2015 Than 2014

    http://www.bloomberg.com/news/2014-11-18/greenspan-conundrum-risk-rising-for-fed-as-boj-ecb-add-stimulus.html

  4. Paul says:

    DHANBAD, India — Decades of strip mining have left this town in the heart of India’s coal fields a fiery moonscape, with mountains of black slag, sulfurous air and sickened residents.

    But rather than reclaim these hills or rethink their exploitation, the government is digging deeper in a coal rush that could push the world into irreversible climate change and make India’s cities, already among the world’s most polluted, even more unlivable, scientists say.

    “If India goes deeper and deeper into coal, we’re all doomed,” said Veerabhadran Ramanathan, director of the Center for Atmospheric Sciences at the Scripps Institution of Oceanography and one of the world’s top climate scientists. “And no place will suffer more than India.”

    http://www.nytimes.com/2014/11/18/world/coal-rush-in-india-could-tip-balance-on-climate-change.html?_r=0

    http://www.forbes.com/sites/judeclemente/2014/11/09/india-will-be-using-and-importing-more-coal/

    Highway to Hell…. no off-ramps… speed limits…

  5. Paul says:

    It would appear China cannot build an infinite number of ghosts towns… how amusing that the CEOs of these massive companies believed they could 🙂

    Mining’s $120 Billion Ore Bet Sours as Peak Steel Looms in China

    http://www.bloomberg.com/news/2014-11-19/mining-s-120-billion-ore-bet-sours-as-peak-steel-looms-in-china.html

    • Thanks! I am supposed to visit China for a month starting in mid-March to teach at Petroleum University of Beijing. I am keeping my fingers crossed that the economic problems from around the world stay contained for a while longer.

  6. VPK says:

    Japan is in sorry shape indeed!
    http://www.aljazeera.com/indepth/features/2014/11/will-japan-reopen-nuclear-plants-fukushima-20141111112653560643.html
    After debating the issue, the Kagoshima prefectural assembly voted on November 7 to restart the plant, which is operated by Kyushu Electric Power Company. The yes vote echoed a similar decision a week earlier by the Satsuma Sendai assembly, which hosts the plant.

    In a press conference following his decision, Kagoshima Governor Yuichiro Ito said that after considering every possible factor, “restarting the plant had to happen” citing Japan’s limited natural resources and the need to keep industry moving.

    NHK, Japan’s public radio and TV broadcaster, conducted a phone survey on the subject from October 31 to November 3. In Satsuma Sendai 49 percent approved, while 44 percent disapproved. But in the surrounding areas only 34 percent approved, with 58 percent opposed. In the rest of the country, the figures stood at 32 percent for, versus 57 percent against.

    Yoshioka, the safety expert, said groups opposed to reactivating nuclear plants in their respective areas would be able to argue their cases more strongly if they banded together. He mentioned that in Hakodate, the city assembly filed suit in April to stop the construction of the new Oma nuclear plant, which is 23 km away in a different prefecture.

    With operators of Japan’s 48 other nuclear reactors also fighting for their plants to be reactivated, it’s clear this battle has only just begun.

    • How do you run an industrial country without reasonably inexpensive electricity?

    • BP says:

      I’m hard pressed to find a more risky place to build a nuclear reactor, and they built 49 of them. I guess they had faith in progress – a modern incarnation of determinism. Humanity will stay the course until it no longer can. Is it human stupidity, or just a tragic failure to envision long term consequences?

  7. Pingback: Eight Pitfalls in Evaluating Green Energy Solutions | Our Finite World

  8. SymbolikGirl says:

    Hi Gail, I’ve been a long time reader, first time commenter. I feel that I am beginning to see a lot of the knock-on effects that you have been describing in your posts in my day-to-day. I work in Industrial and Automation engineering and while 2014 has been a very good year for us (many of our biggest clients have been building large projects in the Alberta Oil sands) I’ve noticed in the last few months the number of new projects both locally and in the Oil Patch have fallen off sharply. This time last year I had personally locked up close to five times the business that I have locked up now and for most of the big operators there is a real feeling that we’ve hit a wall and there are very few new projects (industrial and resource) being planned for next year. In fact the only areas that seem to be ‘business as usual’ are the Shipping vertical and commercial construction. I am not sure if what I am seeing is a local phenomenon or if we here in Canada really are experiencing an across the board hard stop in investment in resource and industrial projects, food for thought I suppose.

    • VPK says:

      Heard on NPR (Public radio) Congress is set to vote for approval on the XL Keystone Pipeline…just in time for more juice to arrive.

      • InAlaska says:

        VPK,
        Congress can vote all they want on Keystone XL but without the President’s signature, its meaningless. Keystone XL requires a presidential permit due to its transnational nature.

      • Christian says:

        Of course it’s not clear they would have the time required to finish it

    • Thanks for your on-the-ground report. The cut off in business you are seeing may be one of the reasons underlying the drop in oil prices.

  9. Christian says:

    And what could had happened if de Margerie succeeded with his petroeuro? This would have meant more energy going to Europe and less to the US. And what else?

    • You are talking about de Margerie’s plan to sell oil in Euros rather than dollars. I think that that already happens. The issue is at least partly which currency the oil is priced in.

      • Christian says:

        “I think that that already happens”

        ???

        • A person keeps reading about countries phasing out the dollar. http://www.primevalues.org/gctb-countries-phasing-out-us-dollar.htm#.VGvISr7fagQ

          Even apart from that though, there are report of trades in other currencies, even though the amount is determined by the US price in dollars. It is possible I am mistaken on this. I didn’t find Internet articles about it. I think I heard about it through e-mail sources, which might be wrong.

          • InAlaska says:

            I don’t think that phasing out the dollar is ever going to happen. People like to talk a lot about doing that but as soon as there is the slightest geopolitical dust-up, everyone comes fleeing back to the safety of the dollar. Deserved or otherwise, the world trusts the dollar and the stability of the US, far more than they trust their own currencies or any number of potential successors such as the ruble (give me a break) the remnibi (not as long as China doesn’t have an open system). What else is out there? The Euro? The Swiss Franc? The USD is the best bad house in a bad neighborhood, and right now the whole world is a bad neighborhood.

            • Christian says:

              Perhaps the dollar is never to be really phased up and the world will terminate along with it. Gail, what you are calling phasing out USD is not what you’ve said before, about the selling of oil in euros. As far as I know oil is only traded in USD, and everything else is not important. Arg had recently made a currency swap with China, and the amount was announced as being “of 11 billions USD”, so you see…

              My question was What if de Margerie’s plan had ever succeded? What would be happening now?

            • Christian says:

              Gail, of course I wouldn’t suggest you to say something that could put you at risk, given the thugs that support petrodollar are heavy people (in the end, Alaska, that’s why USD is still hegemonic), it’s just a question

            • InAlaska says:

              Well, irregardless of why the USD is hegemonic, it is hegemonic. Thugs or not, the dollar won’t be replaced until its too late to replace it with anything.

  10. Paul says:

    The overall article is rubbish…. however this is interesting:

    Americans used 7 percent less gasoline in 2013 (the latest figures) than they did in 2007, yet the needle on gasoline and oil prices remained stuck in the “excessively high” position.

    http://nypost.com/2014/11/17/wall-street-has-been-cooking-with-gas-prices/

    The population of the US would be millions larger by 2013 — yet gasoline consumption is off 7%….

    If ever there was an indication of just how sick the US economy is…. that is it.

  11. Paul says:

    Having blown their wad on QQE (and been left with a triple-dip recession), it appears Japan has reached that limit. As Japan’s News47 reports, Prime Minister Shinzo Abe has instructed his cabinet to develop economic measures such as handing out ‘gift certificates’ to the poor to “support personal consumption directly.”

    http://www.zerohedge.com/news/2014-11-17/japan-goes-full-helicopter-ben-prints-free-gift-cards-spark-consumption

  12. Rodster says:

    http://www.zerohedge.com/news/2014-11-17/3-billion-gallons-fracking-wastewater-pumped-clean-california-aquifiers-errors-were-

    3 billion gallons of fracking waste water dumped in clean aquifers….Yikes !

    • VPK says:

      Did you watch 60 minutes last Sunday night? A whole segment on the vanishing aquifers that are being depleted very rapidly. Not only there in California, but worldwide in India, China ect. We have reached past peak!

    • InAlaska says:

      How does the old saying go?: “The solution to pollution is dilution.”

  13. Paul says:

    And another gone and another gone… another one bites the dust….

    So much for fuel cells delivering salvation:

    “There isn’t enough platinum for fuel cells to become a mainstream technology, that’s the reality,” he said. Fuel cells will “remain a niche technology until they can figure out how to use less platinum” in the cells powering cars, he said.

    http://www.bloomberg.com/news/2014-11-18/electricity-from-fuel-cells-sparking-demand-for-platinum-energy.html

    There was only ever one free lunch — and that was oil at a few dollars a barrel — we’ve eaten the free lunch… and will be left starving shortly…

  14. Don Stewart says:

    Dear Gail and All
    As the winter winds howl, what better occupation than to reform agriculture, allegedly the most destructive thing humans have ever done. Here is a link to Fred Kirschenmann’s lecture at North Carolina State a few weeks ago, and a link to his PDF listing reading resources:

    http://www.cefs.ncsu.edu/newsevents/20th-anniversary/lecture.html

    http://www.cefs.ncsu.edu/newsevents/20th-anniversary/kirschenmann-resources.pdf

    Don Stewart

  15. Pingback: Il fondo del barile | Risorse Economia Ambiente

  16. Rodster says:

    Nice piece by Kunstler, titled “The Instability Express”.

    “Plummeting oil prices are a symptom of terrible mounting instabilities in the world. After years of stagnation, complacency, and official pretense, the linked matrix of systems we depend on for running our techno-industrial society is shaking itself to pieces. American officials either don’t understand what they’re seeing, or don’t want you to know what they see. The tensions between energy, money, and economy have entered a new phase of destructive unwind.”

    http://kunstler.com/clusterfuck-nation/the-instability-express/

    • Kunstler has some good insights in this post. He is also one who saw the Japanese financial problems coming a long time ago–about the time of Fukushima, as I recall.

  17. Don Stewart says:

    Dear All

    A few notes on Cognitive Chaos drawn from my woefully chaotic life…perhaps entertaining.

    This morning I was sitting in the neighborhood coffee shop, re-reading the beautiful book Thomas Merton’s Gethsemani: Landscapes of Paradise. I mentioned the book recently in a comment, and it prompted me to get it out to reread it again for the pleasure. Sitting next to me was a table of people who were searching for a purpose. I think the person who called the meeting is trying to raise money for some cause, but the other participants were coming from disparate points of view. The background is the announcement of a huge real estate development which will take 30 years to complete.

    Book:
    Work for the Benedictine is never merely manual labor to support one’s existence but rather a part of the monk’s commitment to finding the holy in the ordinary There is power in the seed and rhythm in the seasons to be discovered and reverenced. Interacting with this power and rhythm through agriculture is, for the Benedictine, just as prayerful as chanting psalms. Merton said:

    ‘The monk’s life moves with the slow and peaceful rhythm of the seasons. The liturgical year is in harmony with the life cycle of growing things’.

    Group:
    The development offers this county the opportunity to secure relatively high paying jobs for the next 30 years.

    Opinion from Left Field:
    Jean LaHarrere: 30 years from now US oil production will be back where it was in 1915.

    http://peakoilbarrel.com/jeans-post/

    Gail’s many claims that US oil production falling to that level means the end of life as we know it…much less high paying jobs.

    Book:
    Extended times of silence allowed nature to speak with subtle and vibrant voices, thereby shaping his heart.

    Group:
    We need to raise money for the arts because they are vital to ‘economic development’.

    Opinion from Left Field:
    Intermittent renewables are completely unacceptable because under no circumstances can we ever tolerate ‘extended times of silence’…such as going to sleep when the sun goes down. The market valuation of Apple is proof. ‘shaping the heart’ is either nonsense or irrelevant.

    Book:
    Now my whole life is this…to keep unencumbered. The wind owns the fields where I walk and I own nothing and am owned by nothing.

    Group:
    We need to craft out message so that it is appealing to the developer.

    Opinion from Left Field
    The existential threat we face is Peak Debt. We simply must find a way to encumber ourselves with heavier debts. Deflation (reducing debts) will kill all of us.

    Book:
    I am aware of what happens to a man who has found his place in the scheme of things.

    Group:
    People checking their phones rather than attending to the meeting.

    Opinion from Left Field:
    Kelly McGonigal: An idle mind, unless channeled by meditation, is chaotic. We need to focus on something real. (the work of the Dominicans?)

    The movie Origins (for which I have posted links) asserting that humans evolved in a world which DEMANDED intense focus and vigorous, purposeful physical activity. Tracing our current epidemic of chronic disease to the manipulated environment…much facilitated by fossil energy, but productive of GDP.

    Don Stewart

    • Christian says:

      LOL, Don you’re great, chaotic morning you had

    • Don – You need to start writing longer essays and put them in a book format. Direct publishing on Amazon is your best and cheapest alternative. [And all you dimbulbs out there who have a special hate for Amazon? Put down that corporate coffee – or better yet, spill it on your corporate keyboard.] My first book cost me $37.50, $12.50 for 2 proof copies and $25 for worldwide distribution. By the time I put out my second book, they had waived the $25, so total cost to me was $12.50. In comparison, the local book store would have charged me $400 upfront and the royalties would be negligible. The key is to get the hard copies out there. You may be surprised. They may become dog-eared from constant passing around in the next 10 years.

    • alturium says:

      that was priceless Don…

  18. Artleads says:

    Dear Gail,

    It’s hard to ask the right question when I’m so new to the subject of oil economics. So this isn’t quite the question but merely trying to get close to it:

    How does Africa fit into the world oil economics equation? It’s a large continent that still uses relatively little oil. What would be the optimal scenario re oil exploration and consumption in Africa?

    I know this is too open a question, but can you help point to a better line of inquiry?

    • Here is the first two pages of the Introduction to my second book, Hints for Managing Collapse (2014).
      [Begin excerpt]
      In February 1994, Robert Kaplan’s article, “The Coming Anarchy,” created quite a stir when it was published in The Atlantic Monthly. This essay, along with several more on the same topic, were put together into a far-ranging book of the same title in 2000.(1) In this essay, Kaplan emphasizes that Africa is where we see the future. As Kaplan put it so presciently twenty years ago, “. . . Africa’s distress will exert a destabilizing influence on the United States,” and “. . . we ignore this dying region at our own risk.”(2)

      As an anthropologist, I am well aware of our ancient origins in Africa, as well as the historical significance of Africa in the history of the United States. We are all Africans under the skin and our civilization, as with all civilizations, was built upon slave labor. Now we have simply substituted energy slaves for human slaves and our civilization has become dependent on cheap oil for its very existence. Because the cheap oil is running out, we will soon have to husband our energy resources. Meanwhile, our past profligate use of fossil fuel energy has changed the climate around the globe and we are already embroiled in wars for shrinking resources.

      Gwynne Dyer articulated this problem in his 2008 book Climate Wars. Like Kaplan, Dyer is a journalist and geopolitical analyst whose stock in trade is the “grim details” of how our political mistakes are destroying the world. As Dyer notes, “. . . climate-change scenarios are already playing a large and increasing role in the military planning process.”(3)

      The timeline between Kaplan’s and Dyer’s books is just a few short years. Kaplan predicted what Dyer describes. In the early stages of the 21st century, we are already in an era of climate wars – in addition to our previous wars for fossil fuel resources. This is not likely to end anytime soon, as US involvement in Mali, South Sudan, Yemen, and now the Central African Republic clearly shows. When the United States can make its influence felt selling arms and flooding a country with dollars, it does so. When it becomes necessary to put “boots on the ground” to protect vital interests, the US government does not hesitate to escalate.
      [End excerpt]

      The footnotes are:
      (1) Kaplan, Robert. The Coming Anarchy: Shattering the Dreams of the Post Cold War. New York: Random House, 2000.
      (2) Ibid. pp. 56, 57.
      (3) Dyer, Gwynne. Climate Wars: The Fight for Survival as the World Overheats. Oxford: Oneworld Publications, 2010:xii. orig. 2008, Random House Canada.

    • The question about Africa is a good question. The big issue I see is that we cannot keep the fossil fuel party going without globalization. This means that Africa, even if it has undeveloped fossil fuel resources, can’t use them unless it can get computers, made with parts from all over the world. I am afraid that the globalization party is going away quickly, leaving Africa out in the cold. Its resources are likely to stay mostly in the ground, just like everyone else’s.

      I would think that the best way of helping Africa is with little devices that can last for a long time, hopefully without breaking, that don’t use much fossil fuels. I like the idea of gravity powered lights. Gravity isn’t intermittent, and is likely to be around for a long time. https://www.indiegogo.com/projects/gravitylight-lighting-for-developing-countries Solar thermal hot water (like hot water bottles left in the sun) is another reasonable idea.

      • Artleads says:

        Thanks, Gail/Walter!
        Minerals, oil, geopolitical conflict? What other stakes do the US have in a stable Africa? Clearly, military and economic domination are not working well for Africa. Walter, the anthropologist Diop is well written up in Wikipedia. He makes a case for more pre-Columbian unity than we would suppose. Gail, I love the lamp. If we “assemble the facts,” I think more systematic application of such technology could flourish.

        • Ann says:

          I have one of these lamps. They work, but they are very dim.

          • Artleads says:

            Ann,

            Have you tried positioning the lamp so that the light is better reflected (from, say, tin foil)?

        • InAlaska says:

          Africa doesn’t need to develop its own oil production skill, expertise or infrastructure. For example, China has its claws firmly embedded in Africa, and many other developed nations could and or will follow suit. When things get desperate enough the developed world will bring its skills, expertise and infrastructure to work to produce oil there. Including the force protection necessary to secure sites.

  19. Stu Kautsch says:

    With the talk about capex going down, I thought I’d point out a specific, very recent example. Just last week Denbury Resources (upstream specializing in advanced recovery) announced it was cutting 2015 capex in HALF. The market is punishing them for this today. (It’s what you get for being honest!) In their press releases they’re calling it “capital discipline”, but this is fooling fewer people all the time.

  20. Christian says:

    How do I post an image?

  21. Daniel Hood says:

    ***WARNING*** ALL EYES ON JAPAN, ALL EYES ON JAPAN.

    Hi all, right on cue with the projected 2015-2020 total systemic collapse, Japan’s the 1st to come crashing down in spectacular style. They’ve basically opted to obliterate their currency and are screaming out to the world it’s game over. No suprise to us wise ones they’ve entered a “SHOCK recession” the flying ninjas! and the UK PM is sounding the global warning alarms of an approaching epic economic collapse. Basically saying, it’s got nothing to do with us folks, but vote for us anyway.

    Check out the latest and keep all eyes on Japan, they’ve nowhere left to hide with their biblical QE blitz of epic proportions, Moses has parted the red sea and Godzilla’s standing in his way.

    The simple truth is this:

    The narrative presented to the world simply as “we are going to destroy our currency,”

    Japan’s only solution to its crippling debt burden and seemingly unbreakable deflationary spiral is to weaken its currency.

    Period.

    It’s been great knowing you folks as those nukes start to fly and fry

    • I agree that Japan looks like a serious problem. In fact, I mentioned it having its second quarter of economic contraction (besides its other problems) in two of my comments last night. Not having a good source of energy of its own, and then taking down electricity from nuclear after Fukushima, have proved to be big problems.

    • B9K9 says:

      Let me put it in simple terms: reflate or die.

      If the PTB cannot reflate, they’re done, finito, all pau (yeah, google it). So, since you’re done anyway, why not take it all down with you?

      Devaluation folks, it’s what’s on the menu. The ridiculous process of maintaining a bookkeeping entry of each dollar (or yen, as it may be) offset by a dollar of debt is an anachronism driven by the desire to appear to not destroy savers, pensions, health care funds, etc.

      But when it comes to cut fast the last ballast, all measures are on the table. 10:1, that’s my mantra.

      • Christian says:

        B9

        I could understand say 10:1 if USD was a common currency, but it’s not. How could this be achieved given there is so many green banknotes and USD nominated contracts and other stuff around the world? How could such a move not to disrupt all kind of balances and eventually bring down supply chains?

      • Daniel Hood says:

        @ B9K9 you mean die or die

        Their choice is either a deflationary depression followed by total collapse or an inflationary depression followed by total collapse.

        100% guaranteed they’re going to collapse and soon. When govts. start to monetize ALL of their debts it’s game over (yes you read that correct ALL OF THEIR DEBTS). There’s no escape.

        • Paul says:

          That summarizes things nicely — there are no havens for anyone when this unravels.

          Hence the draconian policies aimed at delaying the end game for as long as possible

          • InAlaska says:

            Paul, if this is true than why do you persist in bewailing the totalitarian nightmare for surely this is another way to keep some of the hamsters running after TSHTF. Perhaps we should all be happy that the police have been militarized.

            • Paul says:

              As I have stated the PTB in a best case scenario will be the lords of a junk yard surrounded by death and suffering … for a short period post collapse … whatever hamsters run will run for them and everyone else starves and suffers … and I don’t have an invite into the castle…

              Therefore I am making plans to be as far away as possible from this … hopefully be the end of January… off for the health check later this morning….

        • B9K9 says:

          Yes, that is implied: die or die. But there are a couple of important considerations that create separation, however tenuous, between these two alternatives:

          1. Timing – no one knows if it’s days, months or years. We won’t know until we find out the hard way. Personally, I think it’s decades before we enter a truly dystopian nightmare. So, party on.
          2. Psychology – one of the evolutionary advantages the bald great ape possesses is our imagination. Our ability to deny reality and focus on hope & prayer works for both religious and secular purposes.

          Take these two elements, and what do you have? Free license to pursue whatever scheme promises to at least attempt to solve the problem. Those, like us, who point out there isn’t a solution will be silenced. All existing legal jurisprudence will be swept away in the name of national security. Debt can be destroyed as long a 3 hots & a cot are provided for the masses.

          So, I’ll ask again, how do you front run this? 10:1, 10:1, you know it’s coming.

          • “Debt can be destroyed as long a 3 hots & a cot are provided for the masses.”

            Don’t forget that “the masses” are the ones who produce the “3 hots and a cot.” This means a return to slavery. The prison-industrial complex is doing their best, but they are failing. Here is an example from my first book.

            “If slavery were forced on poor humans through the judicial system or instituted on a large scale against entire populations, there would likely be a dramatic loss of efficiency over current labor practices, which some already regard as near-slavery because of sociological pressures (think wage slaves, foreclosures and student loans). Recent forays into institutionalized slavery by the prison-industrial complex sheds some light on how inefficient slave labor can be. For example, in the fall of 2011, 105 prisoners from a Washington state correctional facility helped pick apples at an orchard in Quincy, Washington. They picked 1,217 bins of apples in 6 days, or an average of 1.93 bins per person per day. Since I was a migrant worker myself and picked apples for 8 years in Washington, I can state with some credibility that this is inefficient and far below minimum work levels. Over my career picking apples, I never picked less than 3 bins a day, even on my first day. In my last two seasons, I averaged 8 bins per day. My experience is typical of migrant workers, whether Mexicans or Americans.” (The Laws of Physics Are On My Side, 2013:77)

            In short, even with a return to slavery, production will go down.

            • Christian says:

              Your comments are very interesting, but B9 is not talking about forced labor (and these prisioners were not really slaves, so they didn’t got stimulating lashings). The devaluation he/she? proposes doesn’t erase wages while it send them to the floor

            • InAlaska says:

              Walter,
              You’re right that Production will invariably go down but so will the population, by a lot. The important thing to remember is that it will no longer be a market economy per se and market forces such as efficiency may be less important than other factors.

          • Paul says:

            If by front run you mean financially, then I would suggest dumping cash into an index fund:

            “As for managed money: A recent Bloomberg article points out that in 2013, hedge funds returned 7.1 percent. That doesn’t sound so bad, until you consider that if you had just stuck your money in the Standard & Poor’s 500 Index you would have seen returns of 29.1 percent. Big difference!”

            The central banks are buying the markets and they cannot stop otherwise the market — and the global economy collapse.

            Of course many will say this cannot go on, something has to break at some point — and how do I time my exit?

            I would say it does not matter if you exit before the collapse — because when it comes it will be final. If you got out a day or a month before it will not matter — when the collapse comes it is final. BAU ends. The global economy will vaporize. Starvation, disease and suffering will begin.

            And you will almost certainly be dead (or wish you were) not long after.

  22. Paul says:

    Despite a substantial currency devaluation — which would normally impact exports positively — we have this from Japan:

    Exports in October fell for a fifth month, down 6.5 percent from a year earlier and leaving a trade deficit of 549 billion yen, the Finance Ministry said. That compared with the median forecast of 25 economists for a 4.9 percent decline.

    http://www.bloomberg.com/news/2012-11-20/japan-s-fifth-straight-export-decline-adds-to-risk-of-recession.html

    Which means that the global economy is cratering badly — looking at those numbers and I cannot see how the global economy can possibly be growing.

    Of course the plunging oil price would also be an indication that growth has ended.

    • Good point!

      • Daniel Hood says:

        My funny money’s on Japan as the 1st of the Godzillas to collapse. They’ve just announced to the markets they want to obliterate their currency. I’ve never ever seen numbers so frightening in my life.

        Nowhere left to hide anymore.

      • Daniel Hood says:

        You know when you go to the doctors and you say you have a migraine, he says, here take this pill, it works for a while, but you’re forced to go back a few days later and he says here take 2 pills etc. On your final run you say “doc this aint working, it’s getting worse!” he says here take 5000 pills.

        Good night!

  23. Again today, someone told me the story (I guess it’s put out by the MSM, because they can sell it), that the oil price slide since June (http://oil-price.net/) has been caused by some abundance of crude having been dumped on the world market — but, would they please look at the graphs at http://crudeoilpeak.info/latest-graphs?

    • Paul says:

      Yup:

      12-1st half 89.68128717
      12-2nd half 89.83083083
      13-1st half 89.61196729
      13-2nd half 90.69364283
      14-1st half 91.10622417

    • The issue is more on the demand side than the supply side, with demand influenced both by wages and debt levels. With Japan and Europe doing poorly, and China and other emerging economies doing less well than in the past, the demand isn’t there. The diverging currency levels are making the issue worse.

  24. James says:

    All of this talk about resurrecting the economy is deception. Financial managers don’t want a thriving economy in which demand pull inflation rears its head against resource depletion thereby boosting the cost of finance. They’ll never give the “spenders” any stimulus as this would generate velocity in money and overall supply of money and they would be unable to refinance their staggering debts as lenders would require more interest to cover inflation. They must sit upon the economy and blow bubbles in assets that don’t make it into circulation. It’s like trying to maintain balance on a tight rope with deflation on one side and inflation on the other while the rope walker gets fatter and fatter with trillions in debt. Which way is the economy going to fall? Whichever way it falls it’s going to be lethal as there is no safety net.

    • I am afraid you are likely right. Rising interest rates won’t work, because of all of the debt now in existence. If there were a much inflation, interest rates would likely need to be higher.

  25. edpell says:

    If I recall correctly even black Africans are not able to reproduce in the U.S., 1.8 well under the 2.1
    Only Hispanics are able to reproduce in the US. A mix of genes from indigenous Americans with a strong northeast Asia factor, with white European, black African, and Arab from Spain. The ultimate in hybrid vigor. My hats off to you, viva la Reconquista.

    • Christian says:

      From melting pot to plurinacional?

      • Christian says:

        We could reframe the continental plot. What do we’ll do when USD pass under the bus?

        If not a global currency an hemisferic one. Some civilization should be maintained, if possible. Neither hamster nor coyote. Lama, sloth. some monke. What could be you totem for that, Gail? Say we print a trillion and go on a per capita basis. Each country converts to the previous currency at will.

  26. edpell says:

    We have a consensus on the direction down. The debate is on the slope of the curve. Without computer models and lots of detailed information I do not believe we will be able to pin down the rate.

    • edpell says:

      It will be more commentary on the events that flash by, there goes another one…

    • InAlaska says:

      edpell,
      I bet there are some pretty sophisticated supercomputers that have been put to work on this issue, with all of the related variables of depletion rates, climate change, refugee movements, etc.etc., but the results are not for public consumption.

      • tmsr says:

        There was a compnay Chase Econometrics it disappeared two years after it was formed. Two possibilities they failed to predict and closed down. They predicted well and continue with access limited to extremely high paying customers.

        • Chase Econometrics was a Disinformation Service. It was bought by Wharton Econometrics (WEFA) in 1987. WEFA was bought by Global Insights in 2001. It is still around as IHS Global Insight, or simply IHS. You can go to IHS.com.

          Notice how the very basis of econometrics allowed Chase Econometrics to buttress the arguments against the health risks of tobacco by the Tobacco Industry. http://www.sciencecorruption.com/ATN167/01439.html

          Lawrence Klein started the Wharton Econometric Model in the 1960’s at the Wharton School of Business (still a high-profile school). He received the Nobel Prize in Economics in 1980. Even though the Chase modeling was based on disinformation, the econometric model is valid.

          Back when I was in grad school, my calculus teacher used to say I was from “the dark side” because my approach in biological anthropology was statistics-based. What she was doing was making a split between pure mathematics and the probabilistic paradigm. Some anthropologists have attempted to do this in evolutionary theory, like Sewall Wright in his modeling of genetic drift.

          The inherent fuzziness of climate science (which is based on the probabilistic paradigm) has its counterpart in economics via mathematical economics vs. econometrics. However this DOES NOT mean that econometrics is invalid. It just means that bogus firms like Chase Econometrics can cast doubt on the science.

          By the way, this is why we use the precautionary principle.

          Interesting Resource and a quote: http://www.universityofcalicut.info/SDE/BA_economics_mathematical_economics_and_econometry.pdf

          “The term Mathematical Economics is sometimes confused with a related term, Econometrics. As the ‘metric’ part of the latter term implies, Econometrics is concerned mainly with the measurement of economic data. Hence, it deals with the study of empirical observations using statistical methods of estimation and hypothesis testing.”

          “Mathematical Economics, on the other hand, refers to the application of mathematical to the purely theoretical aspects of economic analysis, with a little or no concern about such statistical problems as the errors of measurement of the variable under study. Econometrics is an amalgam of economic theory, mathematical economics, economic statistics and mathematical statistics.”

      • Jarle B says:

        InAlaska,
        I’m educated and trained in IT system development, and as far as I see the computing power is there, but the variables are far to many for anyone to make the models needed…

        • InAlaska says:

          Jarle B,
          Earnest question here: Would you say this problem is any more complex than modeling climate change? I have heard that weather models are pretty darn complex and if its not any more complex than that, we sure have some pretty good models on how climate change will unfold.

          • Jarle B says:

            I have seen how physicists struggle to model simple proesses. The ultimate questions of climate change, how much people the earth can take etc is far to complicated to model. Regarding weather models, how accurate are they if you try to predict more than a few days into the future?

  27. edpell says:

    Hello InAlaska, always enjoy your posts. My view is not a sudden cliff it is stair steps down which I would say is already happening in many ways in many places. The fact that white Europeans are not able to reproduce at breakeven levels is proof enough for me. They are at 1.5 and less in EU and US but need 2.1 for breakeven.

    Do you ever leave Alaska? I would love to hear your travel commentary on a visit to the lower 48.

    • InAlaska says:

      Hi edpell,
      Thanks for your comments. I agree with you that it will likely be a stair-step decline rather than a Seneca Cliff, but I wouldn’t make a bet on it because there are so many unforseeable Black Swans out there. I read a lot of JMG and I tend to believe that he has the most realistic vision of the future (as far as anyone can), even though prognostication tends to make fools out of those who try. I do leave Alaska occasionally, about once every 2 years, as I have a big family on the East Coast. In fact, I am currently writing this post from Washington, DC where I am visiting my son who is going to school here. Whenever I come down to the Lower 48, I am at first amazed with the opulence and the opportunities for entertainment. We are so wealthy a society and so free to pursue our whims. Even the least among us have so much. The lure of the consumer lifestyle is quite powerful, particularly after the relatively simple life we live. After about a week here, my perception changes: the endless congested traffic, the waste of food and resources, the constant seeking of diversions from reality with entertainment. It appears that everyone is driving new cars, eating out at restaurants and shopping, shopping,shopping. The traffic is sickening. In this city I don’t see a recession. It is autumn here and I’m amazed at how everyone has a pretty orange pumpkin on their front porch, but nobody eats their pumpkin. Think about how much food is wasted when 300 million Americans throw away their pumpkins that anywhere else in the world would be considered food! I made pumpkin soup out of the one at the home I’m staying at. I’m afraid I stick out here a little bit for doing things like that. Anyway, after about a week I’m ready to go home and excited to do so. I long for the wide open spaces and the wilderness. I crave the low population density. When I finally get back in Alaska, it’s like entering a land of peace and quiet. Three feet of snow on the ground, moose in the field behind the house, and a winter’s worth of firewood to keep us warm.

      • Paul says:

        Gail has explained why the end of oil is likely to be abrupt — I have seen comments by people suggested a gradual or step-down of oil production.

        Can someone explain how that would be possible.

        • You can have oil production continuing where wells are already in place. The steep drop-off is in new production. This is why oil production likely won’t completely decline all at once. We hardly have to do anything at all to keep wells that are currently operating, continuing to operate, for at least a while. The investment has already been made. For a while, the issue is simply keeping everything operating–refineries, pipelines, replacement parts for well equipment, trucks that drive around to service the wells, etc. There is also the issue of production dropping below minimum operating level. Businesses can’t keep refineries or pipelines open, operating at a 25% level, for example. I don’t know where the cut off comes exactly–part of it is from the need to pay fixed expenses, like debt. Part of it is from indirect effects, like inability to fly experts in, if airlines are no longer operating.

          • Christian says:

            Gail this graph fits pretty well with you forecast as with Bardi’s. I take this as The Trend

            http://3.bp.blogspot.com/-4fAQds87Ym0/Uq_KQjrg04I/AAAAAAAAALE/xenr4IRHwAU/s640/Oil+Decline+WEO13.png

            • Christian says:

              Of course, it must be delayed to start falling in say 2016. Would be nice IEA updating this graph. Btw, I have read somewhere IEA was releasing something these days

            • Thanks! Yes, that is what you get if you assume no more investment, but everything that currently works continues to work. Actually, you need a staff doing a lot of maintenance using fossil fuels just to keep BAU going. You probably need replacement parts from around the world to maintain BAU. If war breaks out, or if refined fuel becomes unavailable to operate maintenance equipment, or if electricity is interrupted, production could drop faster than in the model.

          • Paul says:

            I could see oil extraction continuing for a short while… as in weeks, maybe a few months — the problem would primarily be that the minute a key part breaks or wears out anywhere down the line — from the well heads to the incredibly complicated refineries — then production stops.

            There are literally tens of thousands of components along the way — a simple valve breaking means the oil stops — because the supply chain will be broken and replacements will not be available.

            There are too many things that can go wrong for me to think that the oil will keep flowing for very long once the SHTF.

            • InAlaska says:

              Not entirely accurate. Many refineries, wells, pipelines, have redundancies. And globally many refineries are redundant in and of themselves for pricing, political, strategic and geographic reasons. Many refineries, wells, pipelines are not running at capacity all of the time. There would be many delays and discontinuities in a complete, global shutdown.

            • Paul says:

              What do you mean by redundant?

              Do they have warehouses full of spare parts to ensure that when any one of thousands of components breaks – they can replace them?

              Do they have extra computer systems to run the show when one breaks?

              There are many thousands of systems involved in the extraction and refining of oil — how do you build in redundancy for all of them?

              BAU is required to get oil out of the ground.

          • Paul says:

            Second thoughts on this …

            If I were the PTB I would understand that I need diesel to maintain my war machine in order to keep the serfs from storming the castle.

            So I would – like a good prepper – focus on maintaining a short list of productive conventional oil wells — in fact because I knew this moment was coming a long time ago — I would have identified a number of rich oil deposits and not pumped any of the oil — saving it for the post collapse world.

            I would have made certain there was also a refinery nearby this field. And I would have a massive warehouse chock full of spare parts that would allow me to extract and refine the remaining oil indefinitely.

            Of course this does not mean that gasoline will be available to the masses post collapse… but it very well could be available to allow the PTB to enforce a totalitarian nightmare.

            • B9K9 says:

              You’re getting there. It’s (not) funny, but years ago, people used to believe the fantasy that the US military would somehow rise up & enforce the Constitution. Yeah, I know, ‘government of the people, by the people’ is a sick joke. Now, anyone who thinks knows full well that soldiers will shoot who the chain of command declare the enemy – foreign or domestic.

              I keep telling you people, think it through: reflate or die. The PTB are not going to walk away with the king tipped over in concession. They are going to eviscerate all constitutional processes, whether written down as in the US, or implied via hundreds of years of common/case law in the UK. All they have to do is two things:
              1. keep people entertained (circus)
              2. keep people fed (bread)

              That’s it – it really is that simple. Once again, I keep telling everyone that no one is working. The beach is always crowded; that’s because there are a zillion people using student loans, disability, etc to hang out all day. Of course, these funds will never be repaid.

              So, if you were the PTB, the only thing you have to do is make sure credit is always available. Simple, yeah? Just enforce the dollar standard with the military. That’s it. So, bet on the status quo. Imagine a society with no rights, but everyone is happy because they don’t have to work. This is latter day Rome in a nutshell – slaves to do everyone’s bidding.

              This is the PTB strategy. If you knew that, how would you front-run it?

            • Paul says:

              “This is the PTB strategy. If you knew that, how would you front-run it?”

              I don’t see anything to front run.

              If this plays out as expected, then using the US as an example this is what I see as the aftermath:

              – there will not be an economy — because there will be no surpluses – without energy there is nothing — wood will be the only available energy for the dying masses

              – there will be incredible disease and starvation and death and suffering

              – food will be the only thing that matters

              – the PTB will try to keep control by keeping a limited supply of diesel produced but to what end? When BAU collapses what is there to control or own?

              – The PTB will be at best like Somali war lords — stealing what little food is available and lording over a junk pile and maybe some forests – and trying to keep the hordes away from the castle

              That is a BEST case scenario for them – worst case is the chaos is so massive that they have no way to control it — the diseases so wide-spread that they cannot be controlled and the PTB get infected (imagine what would happen if SARS or Ebola or AIDS or syphilis or polio or cholera or any number of other diseases were left to spread unchecked… which is most definitely what is going to happen)

              Like I said – what is there to front run? Where is the upside in a world like that?

              Your best bet is to re-invent yourself as a rambo type character — because unless you are one of the few who gets into the castle — you better be ready to defend your turf.

              Think not?

              Remember this — in our society already there are plenty of very cruel, brutal, ammoral beasts — these types of people are ONLY kept from excesses by the police and the prison system.

              These sorts of people will be off the leash and there will be no government to defend anyone from them. And of course desperate times are breeding grounds for desperate, violent people… such conditions bring out the worst in people.

              The only good the Koombaya drum will do when such people arrive at your doorstep will be to drown out the screams of agony as they rape and murder at will.

              One of the reasons I am set to leave Bali is the population issue — another one is that I am legally not allowed to own weapons here.

            • InAlaska says:

              Paul, I think B9K9 is suggesting that by front running the issue, you do what you’re going to do before the worst happens. If I were to front run this scenario, I’d take out a bunch of loans that I know I won’t ever have to pay back and carpe diem.

            • Paul says:

              Unless one was going to take loans out to spend on wine, women, and travel — then waste the rest per collapse…. then I see no real point in doing this…

              Post collapse it is highly likely you are dead — or whatever you used the money for e.g. a house… will be worthless… there will loads of mega mansions around for your taking…

              I suppose one could purchase a remote piece of land and stock it with farming gear…

            • InAlaska says:

              Paul, I think all of your ideas are a reasonable way to “front run” it. I’m interested to hear what B9K9 believes is the best way to front run what is coming.

            • InAlaska says:

              First thoughts on this: If the alternative to a “totalitarian nightmare” is chaos, murder, starvation and death, then perhaps this totalitarian outcome isn’t as bad.

            • Paul says:

              I would think that the PTB will use the war machine to keep the murder and starvation outside of the castle – nothing more

              I doubt they will successful for very long.

          • Jarle B says:

            Gail wrote:
            “We hardly have to do anything at all to keep wells that are currently operating, continuing to operate, for at least a while.”

            Offshore wells in not so calm seas like here in Norway will go offline faster than the Saudi onshore ones. Good thing, they are a major producer and we’re not.

    • Our oil economy is like the road runner—-runs off the edge of the cliff with legs still whirling—then straight down

      • InAlaska says:

        EOM, that is certainly the gloomiest and doomiest scenario, but if Gail’s site and recent history have taught us anything, it is that systems are more robust than we think they are, events take longer to happen than we predict, and cliffs usually turn out to be hills. Remember the “fiscal cliff? that was predicted for December 2012?” It didn’t happen but everyone was terrified that we were going to go over it.

        • fact remains that we have an energy economy, not a money economy.
          Our hydrocarbon energy sources are finite, therefore our economy is finite.
          Conversely. political promises are infinite–they have to be.
          Therefore we believe politicians promises, not oil reality, so the delusion goes on that we can run forever (The road runner) . We demand more, to fulfil those promises.
          The one thing we can’t do is date the drop, so people say –aha–you were wrong. We are going to ‘A run forever, or B slide down gradually to a bucolic peasant existence where we are all nice to each other and spend our days chewing straw and tilling our veggie plots and driving Flintstone cars.
          People are reasonably nice to each other only so long as their lifestyles are not seriously threatened and the government is strong enough to keep order. Both those factors are entirely dependent on availability of cheap energy and the means to burn it at an ever increasing rate.

      • This is probably a better analogy than the Hubbert Curve.

    • In Europe, immigration policies keep population up, with or without the 1.5 births per woman. So the effect is nullified, in some sense. People from areas with lesser resources can come and use more. The population effect on resource usage is not really fixed.

      • Don Stewart says:

        Gail
        I have no independent opinion about this subject. But as you watch the doctor’s movie, pay attention to the reproductive problems that the world is now encountering. The most prevalent opinion among those interviewed is the dramatic increase in things like endocrine disrupters, made possible by fossil fuels. And aided and abetted by globalization.

        Perhaps other things also such as the effects of GMOs and the steady decline in the nutritional value even of industrially grown vegetables and grains.

        One of the commenters says ‘if reproductive dysfunction now affects one in four, next generation will be one in two, and so forth.’ This through the effects of epigenetics, I suppose.

        Someone says ‘maybe it’s Nature’s way of balancing things or maybe it’s just the result of our stupidity’.

        IF the commenters are on the right track, it is a good textbook example of Limits to Growth kind of thinking: more sugar produced and consumed equals more body growth and more reproduction, but more endocrine disruptors means more reproductive dysfunction, which leads to a boom and bust scenario.

        Don Stewart

  28. Dan says:

    I remember reading Gail Tverberg’s articles over the years, and she obviously was in the limited oil camp – ie. we are going to run out. Scarcity was/is her motto. Well, the world is a wash in OIL. We live on a Petroleum planet. She believes in the Biotic THEORY of oil, but lots of other scientists etc. don’t believe that THEORY, they believe in the Abiotic Theory. I know she isn’t stupid, but she has already been proven to NOT know what she’s talking about when it comes how oil is made and the ‘finite” amount of oil. I’m not sure if she’s was/is on the Wall Street Banker payroll, but it would sure seem like it, especially during the extreme run up in oil prices from 2006-2008. The prices went up because of the “Be Scared because oil is going to run out any day now” camp which she was/is in.

    • Christian says:

      Dan, I suggest you to read this:

      http://en.wikipedia.org/wiki/Second_law_of_thermodynamics

      Paricularly the paraghraphs on “perpetual motion”

    • alturium says:

      Dan,
      whether it is abiotic or biotic, it seems that diminishing returns has already started. if you look at the world production of crude oil and exclude the US you will see that the world production of oil essentially peaked in 2005. From resilience.org:

      https://gailtheactuary.files.wordpress.com/2014/07/world-oil-supply-excluding-united-states.png

    • Effectively, we have been on an oil production plateau since 05—that’s to say the easy to get at stuff that flows easily out of the ground. That’s why we crashed in 08, when everybody realised that the oilparty was over
      Shale oil can’t kickstart the old oil economy, just allow our delusion to roll on a little longer

      • InAlaska says:

        There is no scientific consensus or backing for the theory of abiotic oil. In fact, it isn’t even a theory. Abiotic Oil is in the same credibility camp as climate change deniers.

    • Paul says:

      Dan – oil is a renewable resource — slight problem is that it takes millions of years to renew…

      As for a planet awash in oil — let me give you a tip – don’t trust what you read in the MSM.

      The world is not awash in oil – production is flat — what the world is awash in is a Depression — and as you may know, when growth slows or stops — demand for oil reduces:

      12-1st half 89.68128717
      12-2nd half 89.83083083
      13-1st half 89.61196729
      13-2nd half 90.69364283
      14-1st half 91.10622417

    • What in the world are you talking about? We do in fact have limited oil supply. The issue that has changed is that demand is down, because jobs are down, which is indirectly because oil supply is down. Most people have been assuming that prices would skyrocket, because of inadequate supply. I don’t think I have been in the “prices will skyrocket” camp, certainly not very much. I look back at some of my earliest posts, and I am not saying things all that different from today. Look back at my post from April 2007, Our World is Finite? Is this a Problem? I say a lot of things I said later.

      Regarding abiotic theory, I don’t believe it. Even if a little oil were made in this manner, it wouldn’t matter. The point is that we are using the oil, far faster than it is being made. That is the same problem with depleting aquifers. We are using the water far faster than they refill. No one says that no more rain is falling from the sky–just that we are using the water far too quickly, in dry areas like California and Nebraska.

    • Jonzo says:

      I will formally nominate Dan’s post as the “Dumbest Post so far in 2014”.

      • There are people who believe these things. It can be helpful to explain why they are not correct. So I am willing to live with a few of this kind of post.

  29. Christian says:

    Retrospectively, the mastering of atoms energy was very paradoxical, to the extent military applications provided peace and life while civil applications are likely to bring death.

    From one side atomic bombs eliminated major wars since WW2, and this changed very much our societies, even making room for the arising of credit driven consumerism. This couldn’t exist in a war cycles context, which impossibilitated such a credit expansion just as uninterrupted commerce and infrastructure growth. Atomic arsenals provided a stability never seen before.

    On the other side, Tchernobyl and Fukushima are just a preview of what is likely to happen, situations whose limits are not entirely clear at this point.

    • Christian says:

      Perhaps this was the deep meaning of Orwell’s peace is war and war is peace

    • I think a big part of what brought peace and prosperity to the world was sufficient fossil fuels that the standard of living of quite a few people could rise. There was no need for major wars, with or without atomic bombs.

      The problems at Tchernobyl and Fukushima are bad, but still, need to be viewed alongside the pollution problems we get from coal. All things are relative. We have had a lot of electricity from nuclear energy, relative to the problems we have had. We unfortunately don’t have energy sources without problems of one sort or another.

      • Christian says:

        Gail, without atomic bombs the cold war would have been WW3, quite sure. Imagine, say, the sovietic bloc got KSA in the 60s or the 70s, or something on that scale

        And sure there is no clean energy, but I don’t see anything relative if a fuel pond ever blasts

        Of course for you in the US it’s hard to imagine a wolrd without nukes, but it’s easier than a world without oil

  30. Rodster says:

    Earth sends another wake up call to it’s inhabitants that we live in a Finite World. Fracking certainly doesn’t help.

    “NASA warns: Global groundwater crisis could lead to food supply collapse”

    Shocking findings reported by NASA show that the problem of diminishing groundwater is poised to lead to the collapse of the food supply, where there could be devastating consequences.

    http://www.naturalnews.com/047654_groundwater_crisis_food_supply_NASA.html#

  31. Christian says:

    Excuse me guys (btw, good to see lights didn’t went off), but I have a cultural difficulty getting what is going on with all this quarrel… Chez moi, rastamen would never place themselves at the right nor will they be advocating tortures and such. What do I’m missing? And how is it oil related?

    Btw, Reds was a great movie

    • Artleads says:

      Yes, Christian. Torture isn’t cool. The way to address the torture perpetuated by TPTB everywhere, isn’t to dish out more torture. I think Marley and Garvey would agree. But it isn’t sitting absently and twiddling thumbs either.

    • VPK says:

      No, quarrel on my part; I was only asking questions.

  32. edpell says:

    Paul, give it a beak yeah shit is coming.

    There is no golden age to come the same homicidal/psychopathic thugs will be in charge. Just disease, starvation and death by thugs to come.

  33. VPK says:

    Some words from the odd ball Uncle locked in the attic:
    http://blogs.wsj.com/economics/2014/11/13/former-fed-chief-at-odds-with-how-central-bank-now-makes-policy/
    “A 2% inflation target? Long-term, detailed forecasts of activity? Pledges to keep rates very low well into the future? For Mr. Volcker, who led the Fed from 1979 to 1987, these are all overly precise policy choices that promise more than any central bank can deliver. What’s worse, the policies that have come to define modern Fed policy can even be counterproductive, making central bank goals harder to achieve.
    …Mr. Volcker, who believes the Fed’s main goal is to defend the dollar’s stability, said he doesn’t even understand why the Fed adopted a 2% target for inflation. He asked, “Do we want prices to double every generation?”
    Mr. Volcker also said the Fed’s decision to provide long-term forecasts for key economic variables is simply folly.
    “The fate of the Federal Reserve can’t depend on the accuracy of the forecasts it makes two years ahead,
    Fed guidance that has at points pointed to calendar-date expectations of rate increases, as well as official guidance that rates will stay very low for a long time to come, are ultimately unproductive, he said. “If you make it precise in terms of interest rates, then the market begins working against you,….
    Mr. Volcker also said that officials, other than the Fed leader, are talking too much these days and making it harder for the central bank leader to deliver a coherent message about the policy outlook….
    It seems like “it’s kind of reaching a peak” for officials speaking out”
    We’ll just ignore him as we did after the 2008 financial crisis.

  34. Don Stewart says:

    Dear Gail and All

    Here is a link which may or may not work
    http://origins.well.org/movie/

    This is about an hour and a half of a movie produced by an MD on the topic of the cost to humanity of abandoning our Origins in terms of physical activity, food, and exposure to toxins. I agree in general with most everything. One quibble: I think that the emphasis on the ‘wisdom of our ancestors’ angle is overplayed. If our ancestors had been offered supermarkets filled with junk food they would have walked right into the same traps that modern people walk into. Our ancestors were not offered the choice…and we can learn something from the comparison.

    A second quibble is the conclusion that ‘we can have it all’. We can get rid of the toxins, but keep our smartphones to help us identify plants with helpful apps. We can reduce plastic, but keep it for the mulch in one of the fields of greens pictured.

    My own conclusions on those two issues is that it takes wisdom and meditation skills to avoid the harmful temptations…these are touched on, but I see them as more individual and family and small group abilities rather than as some mass awakening. David Holmgren argues that if a determined minority changes, they will force the corporations to change….I don’t know.

    In terms of the use of things such as plastics and motorized transport, I subscribe to the Pareto Principle. We get 80 percent of the benefit from the first 20 percent of the consumption. Therefore, some plastic to mulch rows of veggies and plastic to extend a gardening season are highly productive. The plastic wrapping on a Twinkie is deadly. The jet fuel used to fly tropical crops to the US is deadly, because of the global warming implications. It is also part of the tail of the Pareto curve…it’s using a whole lot of fossil fuels for a vanishingly small benefit.

    In short, this is a view of there world from a doctor’s perspective. It is all about reality. Nobody has ever accused Washington or Madison Avenue or Wall Street or Houston with dealing in the currency of reality. So a complete overview of our predicament is beyond the scope of the movie. But it is pretty good at what it does.

    Don Stewart
    PS If the link doesn’t work, go to
    http://www.well.org
    and explore

    • Don Stewart says:

      Dear All
      The link apparatus is tricky because they want your email. But here is another link from a different source which will probably work once you give them your email…Don Stewart

      When I watched an early screening a few weeks ago I was blown away… and now you can watch the free world premier screening TONIGHT. Get immediate access to the movie here (no charge).

      Over the years, I always tried to tell the people I loved how important gut heath was to all the health problems they suffered with… but they never listened.

      We’re getting sicker, weaker and more infertile. We’re spending billions on health care to stay healthy, and it’s not working.

      But now, there’s a full-length feature film telling the story of how important the gut is to being healthy! I can hardly believe it!

      It’s by my friend, Dr. Pedram Shojai, OMD, who spent the last 4 years and nearly $1M to shine a much-needed spotlight on the often unseen, underlying forces that are putting your health and wellbeing at risk.

    • The link worked. I notice the author says the same thing I do at the beginning of the movie–it is man’s control of fire that allowed man to “move out ahead” of other creatures. I haven’t had a chance to look at much of it yet, though.

  35. Creedon says:

    By the way Paul, these big scary bankers that you are talking about, they are in the process of beginning the their death spiral. How much of their world is going to be left after the age of oil. They will have no world to inhabit.

  36. Creedon says:

    I don’t want to sound like a ‘crazy’ among the ‘crazies’, but Johnathan Cahn wrote a book called the Mystery of the Shemitah. In it he does a statistical analysis of stock market crashes over the last 145 years and comes to the conclusion that they run in seven year cycles. The current cycle is obviously running from the fall of 2008 to 2015. Combine that with this http://www.thehillsgroup.org/depletion2_022.htm and predictions of coming social unrest and it is not a pretty picture. I also agree with Gail that what we suburbanites are doing in creating sustainability is probably just kidding our selves, however we are alive so must try something.

  37. Don Stewart says:

    Dear Gail
    You have stated that you expect supply chains to fail first. I wonder what you think of Charles Hugh Smith’s theory that the foreign exchange markets are highly vulnerable? Here are two articles Charles has written recently. He has also been in discussions with Gordon T. Long and Chris Martenson on the subject.

    http://www.oftwominds.com/blognov14/risk11-14.html

    http://www.oftwominds.com/blognov14/rising-USD11-14.html

    Could fluctuations in the value of currencies disrupt the supply chains…even if oil remains 70 or 80 dollars a barrel?

    Don Stewart

    • Paul says:

      Thanks for the links Don.

      “In other words, precisely what happened in 2008-2009, when all the “low-risk” trades blew up and nearly took the global financial system down.”

      As we have seen the crisis has evolved from 2008 where the PTB allowed Lehman to fail… I am still not sure why they did that — perhaps there was division at the top and it was agreed Lehman would be a flick of water to check how hot the oil was?

      But now the central banks are bare-knuckle fighting … they are beating up everyone from little old ladies to the big tough brutes. Absolutely nothing escapes their vicious swings…

      Everything gets bailed out no matter how big or how small…

      So the smart money understands that the central banks are unbeatable — they pack a wallop — so instead of taking them on and being pummeled — they join them and anyone foolish enough to oppose that combined force is soon left bleeding and in a heap in the corner…

      Don’t fight the Fed – you got that right — they have the printing press — they will destroy anyone shorting the markets…

      Very clearly there is risk in this but for 6+ years now it has been hidden — if you bought the S&P index last year you made 29.1%!!!

      If everyone is on the side of the central banks that’s what happens — win win…

      This MUST end catastrophically — but I struggle to understand what the trigger is.

    • Those are very good articles. Thanks! I think currency fluctuations might result in big losses in the derivatives markets, apart from anything else going on. These big losses in the derivatives markets could cause financial problems for banks, especially if there are problems with counter parties responding. Also, the emerging market debt that is dollar denominated is more likely to default, as the dollar rises. All of this could affect supply chains, especially if the result is banks cutting back on their letters of credit or other lending.

      This evening, the news was that Japan’w economy shrank at an annualized rate of 1.6% in the third quarter. Since this is the second quarter in the row of shrinkage, that officially puts them into recession. I know that the yen dropped a lot in response to the new QE package. Adding this as well would seem to lead to even more problems–Yen perhaps falling more. This is yet another market disruptions.

      It seems like the sinking value of these emerging market currencies would contribute to the fall in the price of oil, because these countries would find oil prices increasingly unaffordable, unless the price of oil sinks.

  38. Paul says:

    China – Russia Eurasian Trade Bloc Undermines Obama’s “Neocon Agenda”: Prof. Michael Hudson

    400 billion dollar 40 year oil and gas deal between China and Russia is a response to the new cold war pressure and sanctions on Russia says Professor Michael Hudson

    During this year a number of governments applied sanctions against Russia for its involvement in the alleged pro-Russian unrest in the Ukraine. Sanctions against Russia were applied by many countries, with the United States and the European Union taking a lead. In retaliation, Russia has responded with sanctions against a number of countries, including a total ban on food imports from the European Union, United States, Norway, Canada, and Australia.

    What does all of this mean to Europe, the United States, and the geopolitical reconfigurations on trade pacts?

    Here to discuss all of this is Michael Hudson. Michael is coming to us from New York City. He is the distinguished research professor of economics at the University of Missouri-Kansas City:

    http://www.globalresearch.ca/china-russia-eurasian-trade-bloc-sidesteps-obamas-neocon-agenda-prof-michael-hudson/5414080

  39. Paul says:

    Australia’s biggest coal exporter Glencore will suspend its Australian coal business for three weeks in a move never before seen in the Australian market, to avoid pumping tonnes into a heavily oversupplied market at depressed prices.

    Glencore surprised the market on Friday by saying it would shut its Australian coal business for three weeks, starting mid-December, shaving about 5 million tonnes of output.

    Read more: http://www.smh.com.au/business/mining-and-resources/glencore-shuts-down-coal-mines-for-three-weeks-20141114-11mhp2.html#ixzz3J4rWi1Is

    Swiss National Bank Admits Directly Buying Small-Cap Stocks

    While we have noted previously that “a cluster of central banking investors has become major players on world equity markets,” and the BoJ has recently tripled its direct manipulative buying of stocks (after buying a record amount in August)… the conspiracy-theorist-dismissers will have to close their eyes and ears as the Swiss National Bank admits in its 2013 annual report that it greatly expanded its share of foreign stocks purchased… most notably small-cap companies.

    http://www.zerohedge.com/news/2014-11-14/swiss-national-bank-admits-directly-buying-small-cap-stocks

    And … in another sign of utter desperation to fight deflation… a friend of mine just received this from Citi in Hong Kong:

    With Citibank Credit Card “Dial-a Check” Program, you can easily get extra cash by just a phone call and spend on whatever you wish. What’s more, you can also enjoy a host of privileges as below:

    Citibank Credit Card “Dial-a-Check” Program: ****$400 cash rebate***

    – HKD1,500,000 (that’s almost USD200k)
    – No documents required. Application takes just one phone call.
    – The monthly average rate only 0.15%
    – Flexible cash amount and repayment period
    (includes 12, 18, 24, 30, 36 & 48 months at your choice)
    – A check will be mailed to you within 7 working days

    Call ____________ for your check now

    This truly is madness!

    • Glencore’s cutback on coal production can’t be helping the Australian economy. Back in 2008, they were one of the economies that did fairly well.

      I know that Chinese imports of coal are down for the first 9 months of 2014–part of the oversupply problem.

    • Christian says:

      Santa Fed is here. Money worths nothing. It looks as things will not last long, perhaps this Echaton was right. In case tomorrow lights go off, I had a great pleasure having met all of you

    • alturium says:

      Spock: I believe that money has become freely and cheaply available to everyone.

      Bones: My God man! Your talking about hyperinflation!

  40. Creedon says:

    The case for price collapse seems to be picking up speed. Shortonoil over at peak oil news is making the case that central banks cannot keep producing oil with ones and zeros on computer screens forever. They are running out of bullets and middle eastern nations to invade. We need to begin seeing that the cliff seems to be getting closer. We have too much faith in our central banks. They are coming upon their limits. The petro dollar is beginning to disappear.

    • edpell says:

      Worry not, China and Russia are investing in real things like the new silk road, nuclear power, trains, education, etc..

    • I see Japan is officially in recession. It posted its second consecutive quarter of contracting GDP this evening -1.6% for the third quarter, on an annualized basis. Japan is close to the edge. Its lack of demand in the third quarter no doubt contributed to the sliding oil prices.

  41. Christian says:

    It’s a pity you don’t read spanish, you could have some fun. Three villages on Vaca Muerta field got a creative way to get extra earnings: they register many cars (mainly luxury vehicles) that are parked elsewhere and never went there and collect the corresponding taxes, wich are lower than in big cities.

    There are at least 7500 vehicles in this situation, including 5 Ferraris, many Mercedes, BMW, Porsche, Audi, a fleet of heavy trucks and another of 58 buses! People involved are from the sports, TV, politics and business. A single plot of 500 sq meters belonging to a town council of 500 inhabitants is supposed to be home for thousands of vehicles!

    This trick of registering vehicles where they can pay far lesser taxes is an old one, but doing it in Vaca Muerta is a compelling sign of wish for wealth, as if they was registered in Eldorado…

    http://www.ieco.clarin.com/economia/vaca_muerta-autos_de_lujo-ricos-famosos-arba-oneto-schocklender-cali-cirigliano_0_1247275447.html

  42. Pingback: Oljepriset under $78/bbl | Förändringens tid

  43. Don Stewart says:

    Dear Gail and All
    Here is an interesting video from Geoff Lawton:
    http://www.geofflawton.com/fe/74946-permaculture-in-paradise

    This husband and wife met Bill Mollison 30 years ago and Bill helped them see what their homestead could become. At that time, it was one acre. Now it is two acres. They feed themselves, and also provide a box of vegetables to 20 families to make money. They haven’t watched television ‘since Dick Van Dyke’.

    They do have a car…it is covered with a tarp at the end of a very bad road.

    While they are selling produce off the land, and thus losing some fertility, it is apparent that the fertility is being replaced by natural cycles, including their ducks.

    They have a mixture of food forest and annual vegetables.

    Their concluding statements are worthwhile thinking about. ‘The young people have a chance to turn the world around’ and ‘observe something stupid, and do the opposite’.

    Don Stewart

  44. Pingback: Friday Morning Links | timiacono.com

  45. Creedon says:

    I would like Gail’s comments on the following link
    http://www.thehillsgroup.org/depletion2_022.htm
    The engineering study says that the price of oil is going to continue to go down over the next five
    years reaching 11 dollars a barrel by 2020 and that at that point the oil age will be pretty much over.
    This projection is based on the petroleum price curve. I would like to know if you are familiar with the study and what you think of it.

    • edpell says:

      This page gives not justification for the supposed low utility of oil. So, I give it not credence.

      • Creedon says:

        The reason given for the low utility of oil is that oil now has less value. It produces less economic activity. Oil can only be valued at the economic activity that it produces. If economic activity world wide is slowing down then oil has to be worth less. Gail, I think has been trying to explain this but it is hard to wrap one’s mind around. Oil can no longer produce the economic activity that it once did because it’s value is less. Our world is in a way playing tricks on us. Time will tell if the price of oil continues to go down or not. What is scary is that we seem to be following the petroleum price curve almost exactly since 2012.

        • MG says:

          The oil is more and more distant to us, that is why its price is going down. The imploding economy simply will not be able to get the less and less accessible oil. It is like trying to dig deeper and deeper and at the sime time loosing energy that is needed for it.

          The people are weaker and weaker consumers, the high-priced oil and the higher and higher debt kill the consumer`s society.

          Welcome to the japanized world: you have new infrastructure, new homes, new, machines, but the rising burden of the debt takes the life out of the people…

        • edpell says:

          But why that curve? I can draw an infinite number of downward trending curves that are mcuh slower downward that that curve. Let’s say it trends down 10 times less fast. That is as good a guess as any until we base it on some facts.

          • Creedon says:

            The facts would have to be a rapidly contracting world economy. There is so much noise in our world that it is hard to get past ‘the noise.’ If we do continue to follow the petroleum price curve it will mean a rapidly contracting world economy. The point is that we on this web site still believe that the PTB still have control. Their control is dropping all the time. It has taken a certain amount of effort on my part to see this. What Paul is talking about is part of this. Japan is going to extremes to keep the game going and it is having less and less effect over time.

    • I am not familiar with the study. I notice to get the full study, a person needs to pay $39. It definitely has some plausibility to it. I think a person starts getting other effects, like debt defaults and major governments impacts, if oil goes down that much that quickly. These other effects would likely change what actually happens.

      The EROEI calculations that a person sees charge too little energy to the extraction of oil, because of boundary issues. So I can believe that the authors of this study might come up with higher indications of oil used to get the oil.

      If there is a steep cut off, after oil starts using half of its energy for production, it would seem like most renewables would permanently be “no goes” for the same reason.

  46. Paul says:

    Grant Williams:

    Things That Make You Go Hmmm… Like Japan’s Inevitable Apocalypse

    Kuroda has fired the shot that looks likely to trigger the next phase of the crazy monetary experiment we’ve all been living in for the last five years.

    Unfortunately, the next phase is where things start to get nasty. Just because equity markets cheered the latest sugar rush he guaranteed them should not make smart investors lower their guard — quite the opposite, in fact. Colonel Kuroda has gone up-country into the Heart of Darkness, and all we can do is await the Apocalypse now.

    http://www.zerohedge.com/news/2014-11-13/things-make-you-go-hmmm-japans-inevitable-apocalypse

    • Paul says:

      Some excellent charts in that article…. QE is juicing the markets… but for things that really matter as in industrial production, household income, GDP…. well it is having no effect…

      They are starting to push on the string now…

      • Paul says:

        (Bloomberg): In announcing that it will boost purchases of government bonds to a record annual pace of $709 billion, the central bank has just added further fuel to the most obvious bond bubble in modern history — and helped create a fresh one on stocks. Once the laws of finance, and gravity, reassert themselves, Japan’s debt market could crash in ways that make the 2008 collapse of Lehman Brothers look like a warm-up. Worse, because Japan’s interest-rate environment is so warped, investors won’t have the usual warning signs of market distress.

        Even before Friday’s bond-buying move, Japan had lost its last honest tool of price discovery. When a nation that needs 16 digits in yen terms to express its national debt (it reached 1,000,000,000,000,000 yen in August 2013) sees benchmark yields falling, you’ve entered the financial Twilight Zone. Good luck fairly pricing corporate, asset-backed or mortgage-backed securities….

        Kuroda’s latest move means Japan’s QE scheme could last forever. The BOJ has willingly become the Ministry of Finance’s ATM; reversing the arrangement will be no small task.

        All this liquidity has made for surreal events in Tokyo. Take the news that Japan’s $1.2 trillion Government Pension Investment Fund will dramatically rebalance its portfolio away from bonds. Japan has enormous public debt and a fast-aging population, and now the world’s biggest pension pool is shifting to stocks. Yet somehow, 10-year yields are just 0.43 percent. The explanation, of course, is that the parts of the market the BOJ doesn’t already own are sedated by its overwhelming liquidity. The BOJ is now on a financial treadmill that’s bound to accelerate, demanding ever more multi-trillion-dollar infusions to keep the market in line.

        • Paul says:

          “Is Dylan a psychic? No. He’s just a very smart, incredibly astute observer of both market psychology and, perhaps more importantly, history.”

          WTF???? A deaf and dumb monkey could have figured out that when nobody will buy your debt — and you resort to printing money to buy your debt — well that is never going to end well…

          And then we have:

          “Perhaps history will vindicate Kuroda’s genius. That depends on whether Abe musters the courage to attack structural impediments to growth in employment, industry, trade and energy.”

          Which implies there is a way out for Japan (and be extension, the world… because the only difference between Japan and the world is that they are further along the path to hell)

          How do these highly paid finance people get their positions? Masters of the universe… smartest guys in the room…

          Really????

          A handful of them out of tens of thousands see what is blinding obvious…. and they get tagged with ‘genius’

          If you have no seen the movie ‘Idiocracy’ yet…. skip it….. we are already there.

          • B9K9 says:

            Paul, may I suggest you dispense with the constant litany of straw man propositions? You seem to be operating as a
            Greek chorus on this board searching for, and posting up, the most egregious examples of ridiculous ‘official-speak’ in which to easily mock, knockdown & refute.

            Perhaps it would behoove you to review these statements to determine the real thinking behind leading policy makers:
            http://dailysignal.com/2014/11/14/27-must-see-tweets-infamous-obamacare-architect-jonathan-gruber/

            Does anyone think Obamacare is going to be modified or repealed with the publication of these revelations? Likewise, when it comes time to introducing measures that will protect the state from the worst effects of resource induced deflation, do you think the true motivation & intent will be revealed? Or, will there be a barrage of silly explanations so obviously false that, as you say, any dunce can easily see through them?

            So what is the point, other than smug self satisfaction, to continue to post up a constant stream of MSM approved sound bites in which to critique? Boring, mundane, and perhaps a little beneath your capabilities. How about moving up your game to deal with the real machinations that are being carefully thought out?

            Inflate or die. So, how does (re)flation occur? That is the question; maybe the only question.

            • Paul says:

              The thing is …

              Grant Williams is actually one of the best analysts out there (I am sure you must notice his research being posted onto Zero Hedge regularly) …

              He is the one who exposed in great detail how the price of gold is being completely manipulated … at which point the MSM including the FT had no choice but to confirm the situation because Williams has a massive following….

              That is why I post links to his stuff on here — he is worth reading — he (like Gail) is an antidote to the MSM poison.

              The Japan piece was excellent — and insightful — but I did take issue with the ‘genius’ tag that was thrown around a little too readily…

            • B9K9 says:

              Grant Williams, like David Stockman and their ilk, are reactionary thinkers who reflect the personal experiences of their formative years. That is, when critical institutional processes were still operationally functional, thus rendering basic economic principles as valid and worthy of study.

              What they all seem to miss recognizing, amazingly, is that the principles embodied in such documents as the US constitution that represent the foundation for both commercial & governmental behavior either: (a) were insufficient to protect against extra-legal encroachment; or (b) contained critical flaws that sanctioned ensuing corruption.

              As such, they have no relevance, none, nada, zilch, as a voice to accurately describe the world as it now exists. Anyone with an IQ above 125 and the proper training can easily analyze, digest and report on basic, elementary metrics such as risk & return aka fundamental analysis. As you well know, we are now completely untethered from any rational basis for economic analysis.

              Rather, we have entered a super-political age, where national security concerns and the resulting policies driven from sheer desperation, will trump all voices of reason. That’s what I’m talking about; fvck the Fed – the PTB haven’t even begin to even show their teeth.

            • Paul says:

              Who knows what Grant Williams really knows — and what he really thinks….

              He is clearly a deep thinker based on the analysis I have seen from him since I started following a couple of years ago…

              At the end of the day he has to dance while the music plays …

              If he does understand what we understand — and he pumped out a newsletter laying out the true nature of this problem we are facing ….

              He’d be labelled a doomer and he’d be shuffled off to some obscure corner of the finance industry where he’d be flogging post-apocalypse strategies to the whack jobs on the comments section of Zero Hedge…

              Or perhaps he’d join Chris Martenson behind the paywall…

              Grant Williams is not stupid — and I am sure he pulls down a nice chunk of change as a hedge fund manager… he will never lay his full hand on the table … I am sure he has no desire to be dancing a slow polka with a big fat granny in Oklahoma….

              That said – he does provide useful insights that are nowhere to be found in the MSM — he had 3 outstanding newsletters re gold

              http://www.mauldineconomics.com/ttmygh/pdf/let-it-be-fiat-monkees-golden-beatles
              http://www.mauldineconomics.com/ttmygh/the-candyman
              http://www.mauldineconomics.com/ttmygh/never-the-twain

              The dire situation in Japan might be obvious to some but to the vast majority swallows the soothing MSM headlines stating Japan is on the path to recovery …. so while I see his latest article as ‘tell me something I didn’t already know’ — many will see that as a ‘holy shit batman’ moment.

              FYI: I have send a number of prods to his team and they generally will respond — but when I prod with Finite World and other articles that point out the disease — and ask them to consider this topic for a newsletter…. deafening silence….

              As for Stockman — he is like a rabid dog running about looking for someone to bite…. he is part way out of the matrix in that he has realized that the DEM and GOP are one and the same… what he fails to realize is that his interests and theirs are intertwined (for now) … no sense in biting the guys on your team…. he also fails to realize that the disease is the end of cheap oil.

              I have had correspondence with Paul Craig Roberts — he refuses to go there…. as to be expected — most people do not want to go there — because they know that if they accept that hypothesis — then all else is meaningless… there are no solutions — therefore no point in ranting on and on…

          • edpell says:

            Paul, it pushes the pain into the future. It is the story of the ant and the grasshopper. Nothing new.

        • Creedon says:

          Maybe there computers will still be spitting out ones and zeros when half the population is totally destitute.

    • A person wonders how long this can go on. Or if it can, will other follow suit?

      • edpell says:

        QE is about transferring unpayable debt from rich owners to publicly funded governments. It does nothing to solve the root cause. It does transfer non-payment harmful effects to social security, medicare, the little guy and moves it away from the rich.

        Simple theft. But a negative theft. I give you all this debt trust we it is a fair trade I just take an “equal” amount of cash from you. Fair is fair.

  47. Don Stewart says:

    Dear InAlaska
    I found the video with Colin Seis, a co-inventor of pasture cropping. He plants a perennial cover crop and then harvests a grain crop which was drilled into the dormant cover crop. There is no tillage.

    https://www.youtube.com/watch?v=h_4SrFlzclM

    During the Q and A at the end, he says there are now 2000 farmers in Australia doing pasture cropping.

    Notice that his soil carbon is much higher and that his mineral content has increased…without adding any purchased minerals. The soil food web is making the minerals available to the plants.

    Also note that during the Q and A he says ‘it’s easy to save the world, but we have to get rid of the multinationals’.

    Don Stewart

    • InAlaska says:

      Thanks for the posts, Don. Regarding your comment about doomers and preppers getting some farmer friends, I couldn’t agree more. City preppers won’t stand a chance if the collapse drags on into years. Be a farmer, know a farmer or you’ll end up fertilizing the farm.

      • Artleads says:

        I don’t have the link at the ready, but I know studies done in England prove that urban soil is generally more fertile than surrounding traditional farmland. The links below show how productive urban spaces can be. Following Lawton’s lead, you’d even think that all food needs could be met in cities.

        Chttp://permaculturenews.org/2014/03/21/lessons-rust-belt-geoff-lawton/
        http://www.geofflawton.com/fe/73750-a-canadian-urban-garden

          • Paul says:

            Where would the water come from for urban farms…. when the massive pumps that power the city water systems grind to a halt?

            • Artleads says:

              I think by “urban farms” you mean a “scaled-up” program to grow food for many people? While I’ve been at the margins of the urban ag movement for a very long time, I don’t know enough to suggest in a businesslike way how growing would be organized. But I’m not thinking of a centralized water system that requires fossil fuels.

              Lawton in the rustbelt link might have been envisioning existing river water moving water wheels. Lawton somewhere also talks about the intricate urban nooks and crannies that now go unused, but that could be used for growing (presumably, on a micro and not an industrial scale).

              The public mindset within IC does not bring micro-scale urban farming or water harvesting into mind, so possibilities go untested.

              I live in a small-lot suburban setting that is similar to a vast number of urban lots, and I collect rainwater off my roof (recently installed system) to water my garden. The water flows by gravity to the garden, which is lower in elevation than the tank.

              In line with Gail’s thinking (I believe!), I buy most of my food from the supermarket, thereby supporting industrial civilization to continue as long as possible, but with a degree of backup by home-growing some food. My way of growing is just about effortless, meaning that anyone who wants to can do something similar. So this is meant to go on while there is IC energy and initially just to be marginally more resilient and practiced pending much harder times to come. As Gail says, one is trying to drag out things as long as possible.

              So gravity-fed urban watering can grow some food, and the principle could be followed by millions. What to do when there is no IC no one knows AFAICS. But having a slight degree of resiliency meanwhile is all I can recommend.

            • Paul says:

              I was thinking more along the lines of Hong Kong … one of our staff leases a small space on the roof top of an industrial building and grows vegetables… the water for the garden is pumped up about 20 floors from the city water supply (when of course there is no rain to water the crop)

            • I haven’t set out to do a whole lot, but I have grown a fairly large crop of sweet potatoes, plus greens, okra, tomatoes, peppers, and a few other things–even a little corn this year. One year I had some success with turnips in the fall, but I think I started too late this year. Last year my turnips froze–making it clear that fall crops in Atlanta can’t be counted on. I have some trees as well, but my success has been only so-so. The cold winter killed back my fig tree (no crop this year) and completely killed my “cold hardy olive”. (Won’t try that again!) I have hazelnut trees, but no crop yet. My attempts to plant pecan trees haven’t worked. So at most what I can do is supplement food from other sources a little.

            • Artleads says:

              “Where would the water come from for urban farms…. when the massive pumps that power the city water systems grind to a halt?”

              BTW, you could ask the same question (even more appropriately) about non-urban industrial faming of the present.

            • InAlaska says:

              Last I looked, water for most subsistence agriculture globally, comes from the sky. We call it rain and you can do a lot with it that doesn’t involve having to pump water with FF. Dryland farming has been done for thousands of years.

  48. Paul says:

    Totally off topic… but when I watch this …. is it not better to put the human species out of its misery asap?

    http://www.independent.co.uk/video/?videoid=3868351293001

Comments are closed.